These Companies Built Germany's Economy. Now, They are Entering India

Over the past few years, India’s global capability centre (GCC) ecosystem has been attracting curious interest from Western Europe. A growing number of Germany’s Mittelstand companies are establishing their presence in the country for AI-based innovations. Just like how MSMEs in India play a critical role in industrial production, these family-owned or founder-led firms are often referred to as the “hidden champions” of Germany’s economy.

According to a report by Zinnov, German GCCs now represent the third-largest GCC cohort in India, with key hubs concentrated in cities like Bengaluru, Pune, Chennai, and Hyderabad. Core Mittelstand players such as Knorr-Bremse, Schaeffler, FEV Group, and ZEISS have established their primary India GCC operations in Pune and Bengaluru, focusing on engineering, R&D, and digital innovation.

Traditionally rooted in precision engineering and niche domain expertise, Mittelstand companies are now expanding their digital and AI capabilities. In doing so, they are leveraging India’s strengths in digital engineering, product development, and emerging technology talent—areas that complement Germany’s industrial excellence.

Talking to AIM, Mohammed Faraz Khan, Partner and EMEA Head at Zinnov, explains that the surge in Mittelstand firms establishing GCCs in India reflects a deliberate strategic choice by some of Germany's most globally ambitious companies.

“Many of these firms have already evolved into global leaders in their specialised industries. As they move to scale their digital and AI capabilities, India offers what complements their core strength: depth in digital engineering, product development, and emerging technology talent, at a speed and cost-to-skill ratio that accelerates rather than replicates what Germany does best,” he states.

India’s Talent Advantage

The rapid growth of GCCs in India underscores a shift away from cautious experimentation. Over the past five years, Mittelstand GCCs in India have grown by more than 100%, with over 7,000 engineers and specialists now contributing to these operations.

“Knorr-Bremse, Schaeffler, FEV, and ZEISS haven't set up support functions—they've built engineering hubs driving core innovation in embedded systems, industrial automation, and next-generation mobility. A majority are now co-innovating with Indian academia and the startup ecosystem, a clear signal that the relationship has moved well beyond execution,” Khan notes.

At the heart of this shift is India’s evolving talent landscape. The country is no longer seen merely as a scalable workforce destination, but as a hub of high-quality, innovation-driven talent.

Prakash Kumar, Head of Corporate IT at optoelectronics company Carl Zeiss India, notes that India’s main selling point is its diverse talent pool. 

“The country offers not just scale, but a deep and growing pool of engineering talent across areas like AI, data science, cloud, and advanced manufacturing. What’s changed in recent years is the role these teams play. They are no longer just supporting global mandates but shaping them, taking on end-to-end product development, R&D, and core innovation work,” he adds.

He further remarks that Indian engineers are solution-oriented and quick to adapt. They are comfortable working across time zones and cultures, and thrive in agile environments that encourage experimentation. 

A Distinctly German Approach

Unlike many American and British firms that initially entered India for cost advantages, German companies have adopted a fundamentally different approach. Their focus has been on long-term value creation, precision, and partnership from the outset.

“For India-based GCCs, growth can no longer be driven by market forces alone. The strategic intent behind German GCCs in India has, from day one, always been fundamentally distinct,” comments Harsha Arora, Hub Leader of Global Enterprise Services at Merck Group. 

He states that many American and British companies initially came to India driven by cost arbitrage, and only later evolved toward building deeper capabilities. German companies have, in many ways, taken a long-term approach, with an emphasis on purpose, precision, and partnership.

Using Merck as an example, he explains that India’s role extends beyond supporting local markets, 

“Today, we have three GCCs across India that span IT, healthcare R&D, and global enterprise services. Each of these centres has a clear mandate and real ownership, and together they support critical areas like product ownership, supply chain, digital platforms, and AI-driven decision-making. These are not back-office functions; they are closely tied to how Merck operates and innovates globally,” Arora notes.

Building a Distributed Innovation Model

The ties between Germany and India are deepening. German Chancellor Friedrich Merz visited India in January, where he and Prime Minister Narendra Modi declared an intent to develop a defence industrial cooperation roadmap, semiconductor ecosystem, and green hydrogen. PM Modi also welcomed the opening of a GCC by Infineon in GIFT City, Gujarat.

This close cooperation is giving rise to a distributed innovation model. In this framework, Germany continues to anchor industrial design and engineering excellence, while India drives digital scale, speed, and innovation depth.

“For the Mittelstand, that combination is fast becoming a source of genuine global competitive advantage—not a cost play, but a capability architecture for the next decade,” Khan shares.

 This is often described as a “hardware-meets-software” synergy, allowing traditional manufacturers to transform into digitally driven enterprises. It also allows them to digitise legacy products and develop smart industrial solutions more rapidly and cost-effectively than in Europe.

“The migration of the German Mittelstand (SMEs) into India represents a strategic evolution from seeking low-cost labour to building ‘partnerships of equals’,” comments Alouk Kumar, Founder and CEO of Inductus Group. 

Geopolitical shifts and supply chain disruptions have also played a role, with Western European companies increasingly looking to delink themselves from Chinese manufacturing.

“This shift is largely driven by a need for de-risking and supply chain resilience under the ‘China Plus One’ strategy. India offers a stable, democratic environment with strong intellectual property protections, which is essential for family-owned German firms,” he adds.

At the same time, sustainability is becoming a key focus area. German firms are using India as a testing ground for green technologies, including green hydrogen and waste-to-energy solutions. But the great attractor remains India’s vast talent pool, producing approximately 1.5 million engineering graduates annually.

“By tapping into India’s talent pool, the Mittelstand is securing the Industry 4.0 skills like AI and data analytics needed to remain globally competitive. In doing so, these traditional manufacturers are transforming into agile, digitally-driven global players. This is not just about scaling production; it is about scaling the ideas that will define the next century of manufacturing,” Kumar says.