Rail Industrys Main Segments And Players Marketing Essay

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This growth will continue in the future due to many favourable trends. There are numerous rail projects for which contracts in all market segments and continents are yet to be awarded.

The whole market will remain appealing, for the next years, both under a pure geographical point of view and under a technological innovation one.

About Substitutive Products: the threat of substitute products is medium - low.

About Potential Entrants: the threat of potential entrants is irrelevant.

Rail Industry Overview

Rail suppliers are companies that manufacture and service all the systems, sub systems and components used in modern urban, conventional and high speed systems.

Overall, the Rail Industry could be divided into 4 main segments:

Rail Control - includes information solutions to allow operators operate more efficiently and safely

Infrastructure - deals with construction of new railway lines, extension to existing lines, and modernization of existing railway lines

Rolling Stock - comprises all the vehicles that move on a railway. It usually includes both powered and non-powered vehicles such as locomotives, railroad cars, coaches and wagons

Services - includes the complete turnkey solutions addressing the design, build, operate and maintenance phases and providing some Vendor Financing activities (PPP, PFI)

The total annual world market for the rail supply industry in 2007 was estimated at more than € 120 billion, with an expected annual growth of between 2.0 % and 2.5 % over the next nine years (figure 1).

Figure 1: key data on Worldwide Rail Market (figures are expressed in € billion) - p.a. stands for "per annum"

Source: "Worldwide Rail Market Study - status quo and outlook 2016" - UNIFE, Roland Berger, Eurail Press.

The largest nominal growth was observed in the Rolling Stock segment (figure 2). This is due to several large orders for high-speed trains, multiple units and electric locomotives in Western Europe. In addition, the industry received large orders for metro cars in Asia (China, India, and Japan), North American Free Trade Association (NAFTA) and Africa/Middle East.

Figure 2: Accessible market volume Rail Market 2005-2007 (figures are expressed in € billion)

Source: "Worldwide Rail Market Study - status quo and outlook 2016" - UNIFE, Roland Berger, Eurail Press.

From a geographical standpoint, Western Europe make up the largest rail market volume (35%) compared to all other regions and the data shows that accessible Rail Market is expected to grow around 2.9 % (figure 3).

Figure 3: Accessible market volume Rail Market 2005-2007 (figures are expressed in € billion)

Source: "Worldwide Rail Market Study - status quo and outlook 2016" - UNIFE, Roland Berger, Eurail Press.

Under an overall market standpoint, the following factors are really characterizing:

new railway projects around the world and upgrading/expanding existing railway lines have lead to surge of orders in virtually all market segments;

public opinion is, more and more, realizing the importance of rail as a sustainable mean of transportation as well as an attractive solution for environmental issues;

the rapid increase of fuel prices around the world will further promote the inevitable shift towards rail transport;

rail suppliers have taken appropriate action in response to the changing market environment, making rail transport more attractive in all areas.

Given the highlighted trends above and the forecast about Rail Market (figure 3), is possible to conclude:

the rail industry grew over the past few years;

this growth will continue in the future due to many favourable trends. There are numerous rail projects for which contracts in all market segments and continents are yet to be awarded.

The whole market will remain appealing, for the next years, both under a pure geographical point of view and under a technological innovation one.

Rail Industry's main Segments and Players

It is necessary to breakdown the Rolling Stock Market by main vehicles and modes of transportation. This categories include high-speed multiple units, electric locomotives, diesel locomotive, electric multiple units, diesel multiple units, light rail vehicles, and metro vehicles (figure 5). In the following analysis, freight cars and Passenger railcars are excluded because AnsaldoBreda does not operate in these areas.

Figure 4: Rolling Stock Market - Vehicles and modes of transportation

Source: "Worldwide Rail Market" - © SCI Verkehr GmbH.

The main dominant markets of the high-speed trains are Western Europe and Asia, and they are basically preferred to airplanes for long distance travelling. As clearly seen from the table, the main leader of that segment is Alstom with its 44% of market share.

An electric locomotive is a rolling stock powered externally by an electricity source. Electric locomotives are ideal for commuter rail services with frequent stops.

A diesel locomotive is a locomotive which has a diesel engine as the power generator. The diesel locomotive market is still attractive segment for the essential train manufacturers.

Electric multiple units (EMUs) use the electricity as the main power and includes several cars, and all the cars in the train carry passengers. The usage of these types of trains is suitable for regional and intercity transportation, and the segment is growing because of increasing urbanization and usage of electricity in rail transport.

Diesel multiple units (DMUs) have diesel engine (one or more) as the power generator and consist of multiple cars. The market for that trains is growing due to its suitability for short distance transport.

Light rail is a way of urban transport with a lower capacity compared to heavy rail and metro. Light rail uses electric rail cars but it has higher capacity and speed then traditional tram systems. Bombardier is the most important manufacturer with its standardized products and services, and Siemens gained a strong presence around the world. AnsaldoBreda has a significant market share in the world and is counted within the major players of the industry.

A metro vehicle also known as subway or underground is a way of rapid transport mainly used in urban areas, and the market segment is going up like the other intercity segments due to strong urbanization. The biggest market for metro is Western Europe where the main actors of the industry are strongly present.

Table 1: Own elaboration based on the source: "Worldwide Rail Market" - © SCI Verkehr GmbH.

Potential Entrants and Substitutive Products

Potential Entrants to the rail market (specific to AnsaldoBreda) could be considered as all firms trying to access the Rolling Stock Market Segment. To assess this issue, the following should be considered:

This is a high-technology-intensive industry; therefore the amount of investments in capital expenditure is very high. Does the potential entrant have an industrial capacity already installed?

The level of know-how and expertise involved is high as well. Incumbents have been competing in this market arena for a long period. They have strong history and are well rooted in the respective countries.

Given these considerations, it is possible to claim that the threat of potential entrants is irrelevant.

The traditional main substitutive products for rail travel are:

Road / Automobile Transport

Air Transport

Water Transport

To assess their threat, the following should be considered:

Environmental concerns and energy management- Cleaner and more energy efficient trains, as well as the capacity to boost traffic on existing rail lines are feasible solutions to address these concerns.

Urban integration - Cars are increasingly becoming unwelcome in cities around the world, whereas the need for rail transport keeps growing. Thus, Railways Operators need to offer alternative solutions that bring full satisfaction to city planners and inhabitants.

Infrastructure saturation - Airports are increasingly saturated, car ownership, already high in developed economies and quickly growing in developing ones, leads to insufficient road capacity. Consequently, authorities seek to develop rail infrastructure.

Global comfort - The Rail Transport Sector is able to develop a number of R&D programs to

deliver innovative solutions towards global comfort.

Given these considerations it is possible to claim that the threat of substitute products is medium - low.

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