Japan's Hitachi aims to bulk up, take on world's train giants
TOKYO -- Japanese electronics-to-machinery giant Hitachi is pushing ahead with plans to expand its railway equipment business overseas, chasing contracts for locomotives and rail cars, and looking to buy smaller operators, to try and catch up with bigger rivals elsewhere.
After winning a big order for high-speed train cars from a British railway operator, Hitachi is now going after the signals and rail car business of Finmeccanica, an Italian aerospace and defense equipment manufacturer.
In the global market for rolling stock and railway equipent, Hitachi faces three big Western manufacturers -- Bombardier of Canada, Siemens of Germany and France's Alstom. These companies' sales in the railway sector are no less than four times Hitachi's; the Japanese industrial powerhouse is keenly aware that it needs to grow to compete.
This is not the first time Hitachi has shown an interest in Finmeccanica's railway subsidiaries. In 2012, the Italian company tried to sell off the business to focus on its core aerospace and defense operations. Despite serious talks with Hitachi and Siemens, Finmeccanica had to abandon the plan after failing to strike a deal with its labor union, which demanded the sale not lead to job cuts.
With its earnings hit by cuts in defense spending in industrial nations, Finmeccanica is again hawking its railway units. The company is trying to sell its cash-strapped train manufacturing unit, AnsaldoBreda, together with its profitable rail signals business, Ansaldo STS, for an estimated 50 billion ($475 million) yen to 100 billion yen.
Buying these companies would immediately give Hitachi a sizable chunk of the global market for train signals, and jack up the sales of its train division to around half the level of its Western competitors.
Meanwhile, Siemens has purchased U.K. automation company Invensys' rail unit to bolster its signals business. Hitachi's main rival in the bidding for Finmeccanica's rail units will probably be Bombardier. The Canadian aircraft and train manufacturer has been snapping up U.K. and German makers of railway equipment.
While Finmeccanica's train division is losing money overall, Ansaldo STS is believed to control more than half the market outside Japan for high-speed train signals. The Italian company's two rail subsidiaries are more than 150 years old, giving them a strong voice in setting international railway standards.
East is rising
Hitachi also faces to two huge and growing Chinese manufacturers, China CNR and China South Locomotive and Rolling Stock, or CSR. China CNR is expected to bid for the Italian companies. By sales, the Chinese companies are even larger than the dominant Western players.
Both China CNR and CSR are state-run and have been working hard to improve by incorporating advanced technologies from richer countries.
In Europe, which has well-developed railway networks, much of the rolling stock has been in service for two to three decades. Much of this will have to be replaced in the coming years. Europe accounts for more than 30% of the global market, which is estimated to be worth $190 billion, according to the Association of the European Rail Industry.
The current realignment in the European rolling stock industry has huge implications for all major players, including Hitachi and other Japanese manufacturers. If they want to be a global force, Hitachi and its domestic rivals need to hop aboard the consolidation train.