Ioannis Vrantzoglou discusses the obstacles and opportunities for the German automotive and industrial component maker
Whether it’s passenger cars, vans or heavy trucks, the Middle East loves its vehicles and the region has long been lucrative for the automotive industry. The growing demand for vehicles in the region bodes well for the after-market segment too, as Germany’s Schaeffler – one of the biggest names in the industry – can attest.
Schaeffler, which specialises in engineering systems and components for automotive, aerospace and industrial applications, has been on a steady growth path in the region. On the automotive side, its products are used in both passenger and commercial vehicles produced by major manufacturers like Volkswagen, BMW, Audi, DAF, Peugeot, Mercedes-Benz, MAN and so on.
2015 was a good year for the German brand in the Middle East, with its automotive business growing 30% more than the previous year. Accordingly, the company is looking at expanding its presence in the region, says Schaeffler Middle East managing director Ioannis Vrantzoglou.
Under its expansion strategy, Schaeffler – which has its regional headquarters in Dubai – is looking at setting up subsidiaries around MENA. “We have one in Egypt, one in Pakistan, and we are thinking of setting up a subsidiary in Saudi Arabia, and one in Iran,” Vrantzoglou says.
However, the region’s geopolitical issues certainly pose a fair share of challenges to doing business, he says, admitting that the security situation in much of the territory has him concerned. “I am responsible for 17-18 countries from Egypt to Pakistan, and we cannot visit more than half of them. Unfortunately, with the political developments we have every day, I don’t see a big improvement in this. This worries us.”
While most residents of the GCC feel the pinch of the rising cost of living, inflation can make it harder for companies too. The rising cost of doing business, particularly in Dubai, is becoming a challenge, Vrantzoglou says.
Schaeffler does its best to take care of its employees, providing housing and transport allowances, health insurance and the like. This, however, is growing increasingly tough. “We see our costs are increasing every year. If it’s not [feasible] for us anymore, then we have to move somewhere else. This is something which I hope the wise government here in Dubai and the UAE will take into consideration.”
Despite the bumps in the road, the automotive after-market in the Middle East has been lucrative for Schaeffler, and the company has been recording 10-15% growth every year. The firm therefore has its sights set on expansion and is looking at stepping up its warehousing capacity from 2,500sqm to 4,500sqm.
In addition, Schaeffler is also looking at enhancing its involvement in the aerospace industry. The company will soon have a service station for airplane engines here for Emirates, Etihad and other airlines. The bearings inside most airplane engines are supplied by FAG Aerospace, owned by Schaeffler.
‘In the region, for the region’
Although the automotive side of the business was positive for Schaeffler last year, growth on the industrial side was a bit slower, Vrantzoglou says. The industrial part of Schaeffler’s business is entirely focused on bearings, ranging from very small bearings – used in dentistry tools, for instance – to bearings as large as 20m in diameter, for power plants and industrial facilities.
“The industrial business was almost break-even, because there are not that many industrial projects at the moment.” Nevertheless, the company is satisfied with its 2015 performance and optimistic about the year ahead.
A key driving factor behind the group’s success has been its principle of “in the region, for the region”, Vrantzoglou says. In addition, the Schaeffler team is culturally diverse, enabling the company to easily interact with everyone from workshop staff to top management, he is keen to point out. “We are always investing in increasing our facilities, and we have people travelling all around the area giving marketing, sales and technical support on-site.”
An important part of doing business overseas is finding reliable local partners. The process of finding distributors entailed a good deal of travel, analysis and market research before the brand could find partners in different countries.
As far as Schaeffler’s distribution network goes, the company does not have any exclusivity arrangements with distributors, Vrantzoglou notes. “In every country we have at least two distributors, without exclusivity.”
With the Iranian market now opening up, the company is looking at resuming business activities there. As sanctions are lifted, Schaeffler is planning to open an office in Iran staffed by three to four people, for both automotive and industrial activities.
“Iran is the only country in the Middle East which has an automotive industry producing 1.3 million cars a year. We worked many years with Iran, but stopped because of the embargo. Now the embargo is lifted, so we are starting again.”
In the pipeline
When asked what new products Schaeffler will be introducing in the region, Vrantzoglou notes the brand will be launching a new generation of bearings from Korea – manufactured by Schaeffler-owned KBC.
“We are also bringing a new generation of LuK clutches for Mercedes-Benz trucks,” he says. In addition, the company has introduced new electronics systems for passenger cars, which will come soon to the UAE. “It’s a continuous process because all these new products which are entering markets anywhere in the world, we bring them here. We don’t wait long.”
For commercial vehicles too, Schaeffler is introducing new electronic and mechanical systems to help vehicle manufacturers increase fuel efficiency and reduce emissions. “These two aspects are maybe not as important in the Middle East at the moment, but in Europe they are the alpha and omega of all activities of the manufacturers.”