ZF Friedrichshafen SWOT & PESTLE Analysis

Strength

1. Global technology solutions provider focused on mobility: Apart from the financial indicators, there are some non-financial indicators too that help in accessing a company’s performance. The global Research and Development centers of ZF have been implementing ‘Next Generation Mobility’ which is their corporate strategy. They have also developed the ‘Next Generation Technology’ strategy. ZF wants to become a leader in technology in its industry and for achieving that they have defined four technology clusters: Vehicle System and Functions (this cluster is focused on developing the software requirements needed for running vehicles in the future which will be increasingly based on system functions); Data Handling and Analytics (it focusses on linking the infrastructure, IoT platform and artificial intelligence which is required for data analysis); Efficient Energy Conversion (ZF is on its way to develop efficient systems for storing and converting energy like hydrogen cells, electric motors, etc. for optimized control of the vehicle); and, Advanced Base Technology (this cluster deals with developing cutting edge technology for high resolution sensors and efficient power electronics). They have 18 key technologies that are being worked upon in these 4 clusters for research and development.

2. Acquisition of WABCO leading to expanded innovation capabilities: WABCO has 16000 employees in 40 countries and earned revenues of €3.3 billion in 2018. Merging of these two complementary business lines will add value to the customers, employees and the shareholders. This deal that took place on 29th May 2020 for $7 billion (i.e. $135 per share) is supposed to enhance the commercial vehicle system technology with an expected sale of €40 billion. Since WABCO is a leader in braking control systems it will give ZF the opportunity to dive in this segment for the first time. This is critical in terms of automated driving systems wherein technology for emergency brakes are needed. These types of functions can be implemented well for commercial vehicles and areas like agriculture, airports and factory sites which have low complexity and traffic. Apart from this it will also give a boost to the autonomous commercial vehicle functions and decrease the dependence of ZF on economic cycles of passenger car industry. The acquisition is in line with the motto of ZS to decrease the emission levels and to increase safety on roads by creating vehicles that can ‘see, think and act’. The ‘see and think’ components have already been worked out by ZF through its sensor and computing systems and this collaboration will assist it in the ‘act’ part of the motto.

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Weakness

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Opportunity

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Threat

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Political

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Economic

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Social

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Technological

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Legal

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Environmental

1. Exhaustive nature of fossil fuels and need to reduce CO2 emissions makes way electrification of transportation: According to the ‘International Energy Outlook 2017’ the energy consumption is expected to grow by 28% between 2015 and 2040 with transportation sector needing 30% more energy. The carbon emissions are expected to rise by 0.8% each year. According to Dieter Helm, a renowned professor of energy Policy, fossil fuels will become obsolete even before reserves of petroleum, gas and coal exhaust, because of the technological advancements including electrification of transportation as a major factor. A mix of different energy sources as opposed to complete electrification is expected to save around 300 billion euros in Germany by 2050. Green electricity can be used to produce hydrogen which can in turn be used to produce fuels but this has pros and cons. ZF, in order to be prepared for future has been working on system solutions that reduce emissions like the variable mSTARS axle concept, plug-in hybrids as trailblazers, increasing efficiency of commercial vehicles, producing lightweight components, achieving economies of scale through modular concepts and designing Openmatics telematics platform to make routes short and efficient.

2. Emission regulations by countries like China and Germany has led to changes in production processes: One of the main targets of the company is to reduce the emissions of greenhouse gases from its production processes as well as the use phases of their products. This is managed by their environment management system that is in lines with ISO 14001. The 25th Climate Change Conference in Madrid had left the implementation of national climate protection plans of many countries unclear. It is only China, Germany and Mexico that have been able to create such regulations. China’s restrictions have been taken into account seriously in their plants. In Germany ZF is planning to undertake emission trading from 2025 to meet the standards of their climate protection law. Parliament adopted the Green Deal in January 2020 and the commission will represent new European industrial strategy to deal with the challenges of environmental and digital transformation.