What you will learn:
Not so long ago we took a look at developments in the local transportation industry, using Porters 5-Forces model to get a contextual understanding of what’s driving the changes. Let’s now take a snapshot of moves in Europe and Asia with a number of the major transportation players. There’s certainly lots going on…..
New SamWilko Advisory Blog by Peter Wilkinson
In an earlier article we took a look at recent developments in the local transportation industry, using Porters 5-Forces model to get a contextual understanding of what’s driving the changes.
Let’s now take a snapshot of developments in Europe and Asia with a number of major transportation players. There’s certainly lots going on:
- China North Railway (CNR) and China South Railway (CSR), not so long ago one Chinese rail supply company and having separated in 2000, have been recently re-merged to form China Railway Rolling Stock (CRRC) Corporation, now the world’s largest train builder;
- Alstom, the French multinational with interests in electricity generation as well as rail transport, has recently struck a deal with General Electric (GE) whereby GE acquires Alstom’s power business in exchange for GE strengthening Alstom’s rail division and enabling Alstom to focus purely on rail transport;
- Hitachi, the key participant in the development of the Shinkansen bullet train vehicles in Japan, has recently purchased Napoli-based train builder AnsaldoBreda and taken a 40% stake in Ansaldo STS, a Genova-based signalling, train control and turnkey transport system specialist;
- Bombardier, the world’s leading manufacturer of both trains and aircraft, is actively considering an Initial Public Offering (IPO) of a minority stake in its transportation business, aimed at shoring up a balance sheet which is understood to be struggling under the weight of multiple new aircraft programs;
- Vossloh, the Werdohl-based German transport technology manufacturer, initiated a restructure in 2014 and is consequently looking to sell its locomotive and LRV manufacturing divisions to concentrate on infrastructure where it is one of the major players; and
- Wabtec has announced plans to acquire French company Faiverley Transport, thereby creating one of the world’s largest rail equipment supply companies.
So from a “5-Forces” perspective what’s driving all of this?
The main driver of change in this instance is a significant shift in the nature of competition within the industry. Legislative changes have resulted in the freeing up of the European market with the advent of open-access passenger operators and the creation of opportunities for private operation of local and regional passenger services. This has reduced the dominance of national railways and led to an increase in smaller contracts. At the same time traditional railways are becoming more receptive to bids from a wider range of suppliers.
Industry suppliers have responded to these opportunities by showing up in jurisdictions where they have not traditionally participated. All other things being equal, one would expect increased supplier competition and therefore decreased supplier power. However, multi-national suppliers have responded to this “threat” by moving to increase market share via merger and acquisition. Over time, the industry may settle into a new “normal” of competition, or (as is more likely these days) a new influence – such as new transportation communications technology – will arise to again disrupt the industry balance.
International industries like transportation may be likened to a vast ecosystem comprising competing forces that constantly ebb and flow. Individual Governments seek to influence these forces via regulatory measures such as European anti-trust (competition) legislation. Suppliers respond in turn with efforts to gain a competitive advantage.
So what does this all mean for the local industry? To recap the earlier discussion, international organisations have been encouraged to enter the Australian market not only by the relative strength of the Australian economy and the promise of a significant program of investment, but – tellingly – Government relaxation of regulatory and legal restrictions such as bespoke local standards and stipulated minimum local content requirements. Over time, this will settle to the “new norm” for the local industry.
So with all this movement at the “big end” of town, what does this mean for the small and medium business in this industry? In short:
- With change comes opportunity;
- An ability to build strong supplier relationships is a valuable commodity; and
- To borrow from another Porter theory on competitive advantage, smaller suppliers will survive and thrive by exploiting their relative agility in seeking competitive niches, where lower overheads offer the opportunity to compete effectively with larger rivals.
Food, not just for thought but most importantly for Action……..