Home and Host Countries’ Variety of Capitalism and the Regional Strategy of State-Owned Multinational Enterprizes
State-Owned Enterprizes
Master Thesis
MSc. Business Administration – International Management Track Supervisor: Dr. Johan Lindeque Second reader: Erik Dirksen Student: Zino Kolja Frederik Wittmann Student ID: 10993177 Date: 25.03.2016 Word Count: 19.985
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Statement of Originality This document is written by Student Zino Wittmann who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Abstract In the course of the liberalization process of the European transport industries, multinational enterprises in the rail industry put increasing focus on an international and especially home regional strategy. The internationalization and ability to enter a foreign market is found to be dependent on the variety of capitalism in the respective home and host countries. Due to a differing and lower degree to which foreign entrants experience a liability of foreignness, liberal market economies offer the broadest span of entry modes for foreign and private enterprizes. A coordinated market economy offers a limited and a state market economy a rather inaccessible entrance to a domestic market for foreign entrants. This condition varies between business units as a result of the national importance and favors the business of the domestic state owned and established enterprizes.
Keywords: Variety of capitalism, Liability of foreignness, state ownership, rail industry, European liberalization process.
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Acknowledgements I would like to thank Dr. Johan Lindeque for his reliable, steady and considerate support to finalize this document. With his suggestions, he influenced and guided me through the process to organize, structure and complete this research. I wish him the best for his upcoming future and I hope that our work might conduct some additional input on his forthcoming academic research.
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Table of Content
1. INTRODUCTION 8
2. THE DEVELOPMENT OF THE RAILWAY INDUSTRY WITHIN EUROPE (1990 – 2015) 11
2.1. INTEGRATION MODEL 13 2.2. HOLDING MODEL 14 2.3. SEPARATION MODEL 16 2.4. OVERVIEW OF THE EUROPEAN RAILWAY MARKET 17 2.4.1. EUROPEAN RAILWAY MARKET LIBERALIZATION AND INTEGRATION PROGRESS 17 2.4.2. BUSINESS UNIT VARIATION IN LIBERALIZATION AND INTEGRATION PROGRESS 19
3. LITERATURE REVIEW 21
3.1. SEMI-GLOBALIZATION AND THE REGIONAL NATURE OF THE MNE 21 3.2. LIABILITY OF FOREIGNNESS AND THE REGIONALIZED MNE 24 3.3. ASSET SPECIFICITY AND THE REGIONALIZATION OF THE MNE 27 3.4. NATIONAL ORGANIZATIONAL FIELDS 29 3.4.1. VARIETY OF CAPITALISM 31 3.5. CONCLUSION 36
4. METHODOLOGY 37
4.1. RESEARCH PHILOSOPHY 37 4.2. QUALITATIVE MULTIPLE CASE STUDY 37 4.2.1. CASE STUDY DESIGN FOR THIS STUDY 38 4.2.2. QUALITY CRITERIA 39 4.3. CASE SELECTION IN THE EUROPEAN RAIL INDUSTRY 39 4.4. METHOD OF DATA COLLECTION AND ANALYTICAL APPROACH 40
5. RESULTS AND CASE ANALYSIS 43
5.1. GERMAN RAILWAY MARKET 43 5.1.1. DEUTSCHE BAHN AG 47 5.2. FRENCH RAILWAY MARKET 50 5.2.1. SNCF GROUP 55 5.3. BRITISH RAILWAY MARKET 57 5.3.1. FIRSTGROUP 60 5.4. MIXED MARKETS - EUROSTAR 61
6. DISCUSSION OF RAIL OPERATOR ORGANIZATIONS INTERNATIONALIZATION 64
7. CONCLUSION 72
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List of Tables TABLE 1: IMPORTANCE OF THE HOME COUNTRY MARKET FOR HOME REGION ORIENTED ENTERPRIZES 23 TABLE 2: CHARACTERISTICS OF THE VARIETY OF CAPITALISM (VOC) 33 TABLE 3: SAMPLE AND COLLECTION OF DATA 41 TABLE 5: KEY DATA: DEUTSCHE BAHN AG 47 TABLE 6: KEY DATA: SNCF GROUP 55 TABLE 7: KEY DATA: FIRSTGROUP – RAIL DIVISION 60 TABLE 8: KEY DATA: EUROSTAR INTERNATIONAL LTD. 61 TABLE 9: MARKET OVERVIEW 68 TABLE 10: WORKING PROPOSITIONS 71
List of Figures FIGURE 1: EU RAILWAY POLICY 11 FIGURE 2: INTEGRATION MODEL 13 FIGURE 3: HOLDING MODEL 15 FIGURE 4: SEPARATION MODEL 16 FIGURE 5: DISTRIBUTION OF OPERATED TRAIN-KM 44 FIGURE 6: REVENUE OF BUSINESS UNITS OF DB AG (2014) 49
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Index CME Coordinated Market Economy LME Liberal Market Economy LoF Liability of Foreignness SME State Market Economy VoC Variety of Capitalism TOC Train Operating Company Pkm Passenger Kilometer Tkm Ton Kilometer EU European Union
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1. Introduction
Will there ever be an InterCity-Express of the Deutsche Bahn AG arriving regularly at London St
Pancras after passing through the Channel-Tunnel from Calais to Dover and which enterprizes will dominate the European rail market in the future? These and other questions are elaborated in this study and striking answers are predicted.
A sustainable and working transport infrastructure is vital for a positive development of the
European economy. As part of the overall European liberalization process, the reform of the rail industry was initiated by the European Union (EU) in 1994 to stimulate growth and efficiency in the
European mobility market (EWG, 1991). By opening the market for international competition, enterprizes are offered the access to additional customers, resources and an extended knowledge interaction. However, the approach to open the national rail markets for private and foreign operators, which were traditionally controlled and operated by one national player, faces multiple difficulties.
Amongst others, these are based on technological, cultural, institutional and financial differences between the national states. Therefore the situation of the rail transport markets differs across
European countries.
The process represents the intensifying focus of multinational enterprizes (MNEs) on a regionalized market, positioning the firm away from one single home country market, towards an international and still manageable market environment. Based on globalization research (Porter, 1987,
1990; Bartlett & Ghoshal, 1999; Prahalad & Doz, 1989), it corresponds with the broad discussed topic of a regionalization movement within the strategy of MNE’s to internationalize away from the home country market (Rugman & Verbeke, 2004; Ghemawat, 2003, 2005; Li et al., 2010). To take advantage of the opportunities in foreign markets (Dunning, 1998), MNEs have the need to recognize and respond to the differing characteristics between economies or countries. To succeed, a lack of knowledge or unequal treatment in a foreign market, representing a liability of foreignness (LoF)
(Zaheer, 1995), has to be compensated by corresponding investments to overcome these disadvantages
(Eden & Miller, 2004).
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On the firm side, characteristics of a MNE and the industry have an impact on the internationalization strategy to be selected. Here, asset specificity can also affect the amount of available and needed investment to expand to a foreign location (Joskow, 1987).
An appropriate approach, to get to the bottom of the difference and distance between market economies, is the concept of national organizational fields and the Variety of Capitalism (VoC) theory
(Hall & Soskice, 2001). The structure and coordination of industries, organizations and enterprizes is influenced by the institutional and political background (DiMaggio & Powell, 1983). The VoC frames a political-economy terrain (Hall & Soskice, 2001), which influences the microeconomics of a firm and assigns countries and economies to specific classes (Schmidt, 2009; Shonfield, 1965). Associated with a MNE’s internationalization strategy and based on the accessibility-characteristics of the host country, it affects an expanding firm’s choice of a foreign market.
For International Business, the recent development of the European rail industry is of high interest as it monitors the implementation of political requirements and a subsequent development in different organized markets at the same time. It represents a geographical, economical and ownership orientation of a growing and liberalizing market. In detail, it is possible to monitor political salience or ignorance; to identify influences on the specific market economies and to classify the ability to adapt the characteristics of different environments. Therefore, this thesis will study and elaborate the following question:
How does the given national environment, exemplified in the Variety of Capitalism (VoC) and ownership structure, influence the liability of foreignness and regional expansion strategy of an internationalizing rail operator enterprise?
To explore a firm’s strategy and accessibility to foreign markets in line with the VoC, the study concentrates on the sample of the three most relevant market economies in Europe and its main operating enterprizes. The analysis of the enterprizes is subdivided into the business units, passenger and freight. The sample contains of the German rail market and the activities of Deutsche Bahn AG, 9 the French rail market and the activities of SNCF, and the UK rail market with the activities of
FirstGroup. Additionally, it includes the case of Eurostar, as an enterprise originating from multiple market economies.
The paper is organized in seven consecutive chapters and holds following structure. To enter the topic, the study starts with a presentation of the actual organizational structures of the rail markets of France, Germany and the United Kingdom and an overview of the recent developments in the
European rail industry. Thereupon, the literature review frames the theoretical background within the concept of regionalization (Rugman & Verbeke, 2004; Ghemawat, 2003, 2005; Li et al., 2010). It integrates the study into the discussion of the LoF (Zaheer, 1995) and asset specificity (Joskow, 1987).
It differentiates between the national organizational fields by presenting the VoC and assigning the respective market economies to the analyzed sample (Hall & Soskice, 2001). By combining the former theoretical approaches, research propositions are proposed. In the subsequent chapter, the research methodology will be presented in detail. Chapter 5 deals with the presentation, analysis and results of the particular cases. In chapter 6, the findings and their practical and academically significance are discussed. In the last chapter, a concluding proposition is expressed and directions for a continuative research presented.
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2. The Development of the Railway Industry within Europe (1990 – 2015)
The organizational structure of the present national European rail industries differs significantly from the structures in the past. Around 1900, the rail markets consisted primarily of private enterprizes operating service(s) on their own network (Rothengatter, 2007). During the First and Second World
War, all European countries nationalized the private rail enterprizes. Henceforward, the enterprizes were operated directly by the national governments. Until the early 1990’s the national rail sector was still funded and operated by national agencies. Due to monopolistic structures and fierce competition of other transport modes, the sector was unable to adapt a self financing strategy (Levy et al., 2005).
Consequently the national governments were burdened with high costs (CER, 2005; Nash, 2008).
This condition was the initialization for a fundamental reform in the early 1990’s by the EU to increase the efficiency of the involved rail organizations. From the implementation of the first railway package and European Directives to liberalize the rail market, the rail industry was continuously forced to reconstruct its organizational structure (Streichfuss, 2010). It indicated the obligation for EU member states to transpose the directives into national legislations. The following figure presents the main objectives of the European railway policy and the subject of the first three railway packages.
Main objectives of EU 1st Railway Package 2nd Railway Package 3rd Railway Package Railway Policy v Increase modal share of v All rail freight companies v Cabotage in freight v Common approach to rail, to reduce CO2 can access Trans-European transportation certification of train drivers rail freight network and rolling stock emissions and road v Harmonization of safety congestion v Separate financial accounts standards and clear v Codification of passengers v Stimulate competition and of services and procedures for obtaining rights infrastructure safety certificate so raise efficiency and v Open access for all quality in the industry v Establish policy for capacity v Market access improved international passenger v Reduce government allocation and through interoperability services infrastructure charging funding in the industry v Coordination and v Quality standards for rail v Independent regulator harmonization by European freight sector Rail Agency v EU wide licenses
91/440/EEC 2004/49/EC 2007/58/EC Eu-Directives 2001/12/EC 2004/50/EC 2007/59/EC 2001/13/EC 2004/51/EC 1370/2007 2001/14/EC EC 881/2004 1371/2007
EU-Railway Policy over the last 20 years (Adapted from Streichfuss, 2010).
Figure 1: EU Railway Policy Source: Adapted from Streichfuss (2010) 11
It marked a notable change in national rail policies and the ownership structures of railway companies. The directives deliberately left space for interpretation and to a certain degree, member states adopted an organizational structure that suited best to their national situation. A national
European rail sector consists of a complex composition of regulating bodies and institutions, an infrastructure and real estate management, operating companies and customers. The arrangement, regulation and importance of the single components differ across countries, shaped by the national influence of the regulating bodies and institutions (Wolff, 2011).
Subsequently, new organizational models were implemented all across Western Europe and although these are more or less unique per country, three specific models are visible: Integration,
Holding and Separation model. The models include different tasks, fields or responsibilities among transport, infrastructure and governmental authority. As a consequence, the traditional integrated and state-owned rail companies disappeared in most European countries (Streichfuss, 2010).
Across all models, in almost all European countries, the national government owns the rail infrastructure and systems, but the management is outsourced to independent infrastructure managers, which are all 100 percent state-owned companies or public entities and responsible for every train operating company using the network. The service contains of the infrastructure organization and the provision of rail traffic management. The infrastructure of most of the rail networks is subsidized by the particular state. In 2012, the financial support, a major reason for political interfering, differed from 18 euro per km of track (France), 0,2 euro per km (UK) and 9,2 euro per km (Germany).
Rail transport is provided by train operating companies (TOC) which buy the right to provide service on the tracks. These are responsible for train service, staff management and allocation of travel information and ticket sales. A TOC can provide both, passenger and freight services. The composition of rail transport differs significantly between the models. In most countries the original incumbent operator takes care of a large share of transport operations. In freight transport and to a limited degree in passenger transport, operators compete directly on similar open access connections.
By integrating the representative components into the national rail markets, the different models are presented and linked to an exemplified market economy (France, Germany and UK). These 12 describe the firm-level organizational field within the policy making developments of the national rail industry.
2.1. Integration Model
The Integration model typically contains one vertically integrated rail company, which dominates the national rail sector. Infrastructure management, transport operations and management of the rolling stock is all organized by internal business units of the integrated rail company.
Public bodies, next to the integrated rail company and national authorities, execute rail related functions, such as regulating, licensing and monitoring competition. The tasks and responsibilities of competition authorities in the integrated model remain limited. Generally, the integration model is likely to conflict with current European regulations since a separation between the accounting of the infrastructure and the transport operations is not guaranteed. European countries that have an organizational structure resembling the integrated organization model are: France, Lithuania, or
Switzerland. To exemplify the model, figure 2 illustrates the organizational model of France.
France
Authorité de Authority Régulation des Activités Ferroviaires (ARAF)
Conseils Régional Ministry of Ecology, (Regional) Energy, Sustainable Development and Planning (national) Etablissement Public de Securité Ferroviaire Regulatory Issues (EPSF)
Subsidies + specification service levels for regional rail transport Mission de contrôle des activités Determines network lay-out Cahier des Charges, (Social)-Fare obligations ferroviaires Approval major infrastructure work
Infrastructure Transport
Private TOC’s (Cargo) Réseau Ferré de France (RFF) Infrastructure Manager Joint task: Capacity allocation Établissement Public à charactère Industriel et Commercial (EPIC)
SNCF Groupe Établissement Public à charactère Industriel et Commercial (EPIC) SNCF Voyages (Long SNCF Infra Distance + High Speed SNCF Geodis Cargo Passenger Transport) Contracts management Direction de SNCF Gares & Transport + Rolling Stock & construction to SNCF Infra la Circulation Connexions SNCF Proximités (Urban, management for cargo Ferroviaire commuter + regional stock Passenger transport
Organizational setup of an Integration Model, illustrated by the structure in France, adapted from D.M. van de Velde & E.F. Röntgen, 2008.
Figure 2: Integration Model Source: Adapted from Van de Velde & Röntgen (2008)
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The organizational setup of the integration model in France identifies clear boundaries between politics and the operating state-owned enterprise SNCF. SNCF resembles a typical integrated rail company. The entire market is integrated into one enterprise, which is completely controlled by the French state. The government can take direct influence on the developments in the rail market and the business of the state owned operator. The top management is selected by the French Federal
Ministry of Transport. Although France separated the infrastructure management into an independent institution (Reseau Ferre de France, RFF), there are still very strong, integrated bonds between SNCF and RFF. RFF awards all infrastructure construction and maintenance tasks to the SNCF infrastructure department. For this reason, although RFF is institutionally separated from SNCF, France is still assessed as the country that resembles the integration model closest.
2.2. Holding Model
The Holding model is identified by the initiation of a Holding company that remains a 100 percent state-owned or public institution, but the management is officially detached from the government. It functions as an umbrella to cover multiple subsidiaries taking care of the tasks in the specific business areas (e.g. infrastructure management or transport operations).
Although the Holding model might at first glance resemble an integration model regarding the overall structure; the most important and fundamental difference is the transition of internal business units to subsidiaries inside the Holding company. These subsidiaries are usually independent limited companies, conducting independent financial accounting and experiencing a certain degree of entrepreneurial freedom. The Holding model is a “transition” model that is situated between a vertically integrated and separated rail sector. It separates financial accounts and organizational structure between infrastructure management and transport operations. Furthermore, it meets EU regulations and is frequently used throughout Europe. To exemplify the model, figure 3 illustrates the organizational structure of the German rail sector.
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Germany Authority Bundeskartellamt
Bundesministerium Regional Institutions für Verkehr, Bau und Bundes Eisenbahn Regional Contributions Länder (Provinces) Stadtentwicklung Vermögen Transport authorities (National)
Eisenbahnbundesamt
Regulatory Issues Contract TOC’s for regional rail transport
Bundesnetzagentur
Infrastructure Performance Contract Infrastructure Transport Private TOC’s (Passenger Private TOC’s Eisenbahninfrastrukturunternehmen + Freight) with own (Passengers + Freight) (EIU’s) Mostly private and separate infrastrucuture without own infrastructure companies infrastrucure
Deutsche Bahn AG (100% state owned) DB Mobility Logistics (DB ML) AG DB Fernverkehr DB Netze Fahrweg AG DB Netze Personenbahnhöfe AG DB Regio AG DB Arriva AG DB Schenker DB Netz AG AG DB Station & Service AG Regional Rail Transport AG Rail Traffic Management + Long Distance + Station management Passenger SNCF Voyages (Long in foreign Cargo Network development Int. Passenger Transport Distance + High Speed countries Transport DB RegioNetz Infrastruktur AG PassengerTransport Transport) Infrastructure management DB Netze Energie AG „RegioNetze“ Maintenance DB Fahrwegdienste GmbH DB Energie GmbH Logistics + Infra Maintenance Energy management DB Dienstleistungen
Organizational setup of an Holding Model, illustrated by the structure in Germany, adapted from D.M. van de Velde & E.F. Röntgen, 2008.
Figure 3: Holding Model Source: Adapted from Van de Velde & Röntgen (2008)
The German rail sector reflects an organizational structure with indirect dependencies between rail transport, infrastructure and authorities without a clear separation between the responsibilities of infrastructure and transport operations. Besides national government and regulating agencies, regional authorities have a large influence in ordering and contracting regional rail transport. The German rail market and its incumbent state-owned operator, Deutsche Bahn AG (DB), are currently organized as a holding structure with numerous subsidiaries. By dividing the company in multiple subsidiaries, DB
AG separates the transport and infrastructure operations in a substructure, but remains in an overall connected organization. It gives the government the opportunity to indirectly interact with its state owned enterprise. Besides DB AG, other operating companies are active on the market, some are in possession of its own infrastructure, but most use the infrastructure of DB Netze Fahrweg, a subsidiary of DB AG.
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2.3. Separation Model
The separation model is the most far reaching liberalization model in Europe present today. It places a clear distinction between regulatory tasks, infrastructure management and transport operations. In a
Separation model, ministerial departments and semi-independent public bodies are solely responsible for regulating the rail sector; determining transport policy, issuing and monitoring safety regulation and guaranteeing a fair level playing field. Thereby, the market access is not politically influenced and opened for free market competition. It is accepted throughout Europe and countries like Denmark,
Spain, the Netherlands and the United Kingdom currently have an organizational setup in place that resembles the separation model closest: The following figure resembles the organizational setup in the
UK.
United Kingdom Authority Rail Accident Office of fair trading Investigation Branch
Passenger Transport Department for Executives (Large Transport (National) agglomerations, e.g. London)
Rail safety and Regulatory Issues standards board
Transport Scotland Concessions (7-15 years) Agency Scottish government Office of Rail regulation
Infrastructure High Level Output Specification Transport + Statement of Funds available Passenger Transport TOC’s operating to Network Licence Open Access TOC’s 100% franchises 100% Privately owned Privately owned
Network Rail ltd Freight Transport Limited company, that is being run as plc company. Directly Freight TOC’s 100% Cooperation (Network Code) accountable to members of the Privately owned public and industrial partners. No shares.
Leasing of Rolling Stock Rolling Stock Companies 100% Privately owned
Organizational setup of an Separation Model, illustrated by the structure in the United Kingdom, adapted from D.M. van de Velde & E.F. Röntgen, 2008.
Figure 4: Separation Model Source: Adapted from Van de Velde & Röntgen (2008)
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The UK implemented the separation model in the most pure form. The government influences the developments in the market only through safety and security regulations, but not through an interfering on market competition. A separate, official entity ‘Network Rail’ manages the railway network. For the maintenance and construction of the infrastructure, it contracts private construction companies. At the beginning, the infrastructure management was also privatized, but Network Rail, a public entity, was established after the private enterprise went bankrupt. A number of regulatory institutions are active and responsible for putting operating franchises up for tender and for licensing rolling stock and operators.
A vast amount of operators offer passenger services throughout the country based on concessions, which are typically tendered every 10 to 15 years. Freight transport is offered by a diversified, but relatively small amount of operating companies. Only the UK has separate private rolling stock companies in place, which own and lease rolling stock equipment to various operating companies, for the duration of a franchise. As there is no former state-owned railway company present, the UK is the only country that has privatized the entire passenger operations. The freight rail transport is almost completely out of the hands of the British government.
2.4. Overview of the European Railway Market
Whereas the road and air transport sectors offer a market based competition, the improvements of market liberalization and degree of competition in the rail transport sector still lag behind. Compared to its intermodal competitors, rail transport still struggles with the problems resulting from the protracted refusal of a clear European rail transport policy.
2.4.1. European Railway Market Liberalization and Integration Progress
From a technological and administrative perspective, the European rail system is fragmented. The control technologies and the rolling stocks are often not compatible across borders. Some national regulatory authorities slow down the performance of rail transport intentionally by discriminating foreign and private service providers. Thus, the demarcation of states and managements, not only 17 reduces the speed of the operating performance; it also causes high additional costs and benefits intermodal competitors.
Based on the legal situation, the administrative practice of regulatory authorities and the willingness of the state to induce the European requirements, the national rail economies in Europe differ substantially in their degree to liberalize their national rail markets (IBM, 2011).
A group of countries has implemented the European directives at an earlier date in time or to an extended degree than required by the original injunction (UK, Sweden, Germany). Additionally, there is a large group of countries, which implements the essential liberalization directives to an adequate degree, but less complete or at a later point in time (e.g. France, Switzerland).
The poor performance of some countries is due to the political unwillingness or administrative failing to implicate agreed guidelines. In 2011, the majority of implementations of EU directives (68 percent) limp behind. Whereas the fulfillment of technical reforms is classified on an advanced level, the political and market competitive reforms are running behind.
To understand the comparativeness of the European rail market, it is informative to look at the degree of competition within the European national rail markets. Based on quantifiable data, such as market share and number of competitors, differences in the intensity of rail transport competition are identifiable. The UK ranks best, because it managed to split the former state railway in many competing companies without a dominant operator. Germany ranks relatively high with a considerable degree of competition. France exemplifies a market with a low intensity of competition.
In 2010, 40 percent of the European domestic passenger transport was open for new operators and it is planned to open the entire European passenger market by 2019. Despite an improved competition, the number of enterprise consolidations in Europe increase, and lead to a decreasing number of bidding participants. Especially smaller operators, because of complex and costly tendering processes, have to focus on fewer deals. Only the large former state railways seem to be able to bid for multiple deals parallel.
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2.4.2. Business Unit Variation in Liberalization and Integration Progress
The European rail market includes services for passenger and freight transport. Since the start of the liberalization in 1995, the European passenger rail transport increased steadily from 350 billion passenger km (pkm) to about 424 billion pkm in 2013. It dominates the European rail network, as it accounts for 78 percent of all transported operations. Over the past years, the intermodal share of passenger rail transport remained stable between 6 and 7 percent. One half of the pkm is operated in a local or regional radius and the other half in a long distance range (2014). The cross border passenger transport, officially liberalized in 2010, is covering for about 6 percent and the domestic passenger market accounts for 94 percent of all passenger rail transport. There is still no legal obligation to open the domestic passenger market (SWD, 2014), therefore some domestic markets remain protected from foreign or private operators.
The freight rail transport market is much more liberalized, competitive and international than the former discussed passenger transport. Whereas passenger transport is often classified as a public service, coming along with political protectionism, freight transport is assigned to free market competition. The entire market was mandatory opened by EU law in 2007, which led to an increase in cross border activity and a greater diversity of operators. Across all member states, new operators, often former state railways from other countries enter foreign markets and grew their market share up to 28 percent (2012) (IRG, 2013). The level of competition is higher in freight than in passenger transport across most EU member states.
The annual volume of the transported freight between 1995 and 2014 remained at a constant level between 350 and 450 billion ton km (tkm). In 2011, 47 percent of all transported goods were transported internationally and yet 9 percent crossed another country before entering the final market.
In the long run, the liberalization process leads to positive developments in efficiency and a pan-European freight rail network. Nonetheless, by only growing 5 percent between 1995 and 2015, the European freight rail transport underachieved the expectations. While the accumulated volume of all freight transport increased by 22 percent, the intermodal share of rail freight decreased from 12,6 percent in 1995 to 11,7 percent in 2013 (SWD, 2014). 19
The persistence of problems should not obscure the fact that liberalization and competition in the rail sector have made great progress. Today, the European rail market is better connected than ever before. Owed to reform efforts, barriers are overcome and have lead to a pan-European freight and improved passenger network. The recent and prospective rail directives will carry on establishing one common European rail market. These include technical improvements for the interoperability between member states and the institutional enforcement of a European Railway Agency to certificate future traffic flows.
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3. Literature Review
Consecutive to the diversifying developments of the particular national European rail industries, the third chapter builds a theoretical framework to elaborate, conceptualize and identify reasons and influencing factors in the MNE’s national environment, ownership structure and capacities on the internationalization strategies. The European rail market depends substantially on the economic model of the home and host country (Pflieger, 2014). A related evolution of industry or rather firm level factors and an institutional context can be identified. The nature and scope of European regulation, the sectorial requirements and the handling of environmental externalities influence the national organizational fields of the enterprizes.
The literature review is subdivided into four parts. The first part positions the study within an international oriented business context, with a focus on the actual state of semi-globalization
(Ghemawat, 2003). The second part shows the origin and consequences of institutional differences between national environments for expanding firms by introducing and explaining the LoF (Rugman and Verbeke, 2007; Zaheer & Venkatraman, 1995). The third part focuses on the asset specificity of firms, the interaction of country and firm specific advantages, and differing acceptance of business units (Joskow, 1987; Rugman, 1981; Rugman & Oh, 2008). The fourth and final part conceptualizes the different national organizational fields using the VoC literature (Amable, 2003), to explain market developments and internationalization strategies, including takeover potential for enterprizes with various degrees of state ownership (De Jong, 1991; Joskow, 2008). To finalize the literature review and span a bow to the following chapter, working propositions for the study are presented.
3.1. Semi-Globalization and the Regional Nature of the MNE
In times of a globalized economy, in which MNEs try to include multiple countries and markets into their value chain (Rugman & Verbeke, 2008b), two major facts can be identified. First, the majority of cross-border operating firms are focusing on the business environment within their home region
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(Rugman and Verbeke, 2004). Second, although MNEs internationalize towards foreign countries, the home country market remains relevant.
The following review is based on the globalization research of Porter (1987, 1990), Bartlett &
Ghoshal (1999) and Prahalad & Doz (1987) to define a geographical scope, interactive factors and a firm’s background along with the question on how to integrate into foreign markets, by responding in a balanced and optimal way.
The global economy is divided into an extended triad of regions (Asia & Pacific, North-
America and Europe) representing most of the worldwide business activities and significantly differing economic structures (Rugman & Verbeke, 2007). The subject is in line with Ghemawat
(2003, 2005), discussing the conflict of either a fragmentation or integration strategy of internationalizing MNEs in a semi-globalized business environment, and Li et al. (2010) focusing on the importance of a concentration towards the home region markets. The focus of MNEs towards home region markets is related to the present structures of institutions, culture and economic development. These are supposed to be more homogenous compared to markets in differing regions
(Rugman & Verbeke 2005; Ghemawat, 2005). Based on Ghemawat’s (2001) distances, Rugman
(2005) argues, that linking or melding investments are easier to arrange inside rather than outside of the home region and the transaction costs arise as the distance increases (Rugman & Verbeke, 2007).
A high distance usually correlates with a substantial investment and thereby high costs; hence a low distance might be of a higher importance than location specific advantages. Furthermore, a broad geographic scope also increases the uncertainty of bounded rationality and can thereby create additional costs (Rugman & Verbeke, 2008b). Oh (2009) identifies a general focus of European MNEs on their home region market rather than a global market. Supplementary, Rugman and Oh (2013) point out a decrease of domestic activities towards an increase in the home region activities, consistent across sales, assets and subsidiary measures. International expansion and early innovation is generally better sustained by locating close to headquarters and home country markets (Hedge & Hicks, 2005).
As the intra-regional distance decreases, due to reducing trade and investment barriers, an increasing industry competition on regional rather than on national levels emerges and subsequently leads to a 22 common classification to combine home country and home region methods (Qian et al., 2013). This process is exemplified in the integration process of the EU, with MNEs becoming less bounded by national borders and distances decrease on multiple levels through the regional integration project.
Geographic distance due to improved transport and logistics system. Institutional distance based on political and institutional integration and economic distance due to simultaneous product implementations.
Nevertheless, in a home region environment, the home country market remains highly relevant for MNEs. An elaboration of the 500 biggest global operating companies of the Global Fortune 500
List of 2012 by Lindeque (2013), reflecting the original work of Rugman and Verbeke (2004), and a focus on the geographic orientation shows the significance of the country of origin for home region oriented enterprizes. A large share of the home region oriented enterprizes, have their main sales market in their home country. Table 1 illustrates an applicable image of twelve top ranked home region oriented MNEs and the degree of their home country focus.
Home Country Home Country Sales Home Home Sales (percent (percent of home Rank Firm Sector Region Country of all) region) 12 Volkswagen Automotive Europe Germany 19,6 32,7 Asia 38 Hitachi Electronics Pacific Japan 57 73 39 Carrefour Food Europe France 46,02 62,87 Bank of North 46 America Banks America USA 85,73 99,56 52 Enel Utilities Europe Italy 39,53 45,97 59 Tesco Food Europe UK 65,74 80,64 Cardinal North 61 Health Health care America USA 97,81 97,81 62 BASF Chemicals Europe Germany 41,56 71,65 Asia 66 Panasonic Electronics Pacific Japan 53 67,95 Société 67 Générale Banks Europe France 42,56 52,38 179 DB AG Railroads Europe Germany 57,88 65,99 219 SNCF Railroads Europe France NA NA Table 1: Importance of the home country market for home region oriented enterprizes Source: Adapted from Lindeque (2013)
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The selected MNEs represent an extract of the biggest home region focused enterprizes, with accessible annual reports from 2012. At the bottom of the table, the Deutsche Bahn (No. 179) and
SNCF (No. 219) are present to show the importance of the rail industry within the top 500. All displayed examples, from differing industries and triad-regions, have a dominant home country market. Most of the time, it even outperforms all foreign sales all together. The significant degree of the MNE’s business in the home country market and the importance to the MNE is referred to as the home country effect. It identifies the dependency and the persuasibility of the enterprizes by the home country politics and interference (Krugman, 1980; Hejazi, 2007). The home country environment plays an important role in building and sustaining firm-specific advantages and geographic tendencies
(Erramilli et al., 1997). A firm depends on the organizational field and political protection of the home country environment in relation to competing MNEs from foreign host countries. Often, firms follow standard internationalization patterns of the industry or home country (Asmussen, 2009).
3.2. Liability of Foreignness and the Regionalized MNE
Expanding towards foreign countries offers a wide span of economical or social opportunities for firms, ranging from opening new resources to developing new business markets (Dunning, 1998).
However, it also includes costs originating from a differing comprehension, qualification and investment in a foreign business environment (Eden & Miller, 2004). A MNE’s lack of knowledge or home country origin in a foreign environment is defined as the liability of foreignness (LoF). The disadvantage compared to domestic firm operations in the foreign market can lead to additional costs for a succeeding business abroad (Zaheer, 1995; Zaheer and Mosakowski, 1997).
The LoF originates in the differing institutional environments between the home and host country (Eden & Miller, 2004). It expresses a lack of information networks and political influence in the host country as well as the inability to reach nationalistic consumers. Therefore, a spatial distance or differing restrictions of a home and host country can lead to operational complications and increase the costs in host country operations (Ghemawat, 2001).
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Initially, the LoF was seen as a phenomenon that occurs on a country level, but as a result of integration efforts and converging institutional characteristics within regions, it appears to become a circumstance which mainly differs across regions. As a matter of fact, it appears to have different effects within and across regions (Rugman & Verbeke, 2004). Rugman and Verbeke (2007) conclude that “the additional costs of doing business abroad are often much higher when venturing into other regions of the world than when expanding intra-regionally, in the home triad region”, and thereby define two levels of LoF, intra- and inter-regional LoF. The experienced disadvantages are suggested to be lower on intra- than on inter-regional activities.
The LoF in foreign countries for a MNE can be of a discriminatory and/or incidental nature
(Zaheer & Venkatraman, 1995).
The discriminatory LoF of MNEs is affected by the host country proceedings towards foreign firms and describes a status quo which, at least in the beginning, is given for the expanding firm. It is characterized by prejudiced disadvantages of host country firms compared to home country firms, induced by host country institutions or market actors. It comprises regulations of home country institution targeting foreign MNEs and their subsidiaries, in order to benefit indigenous, home country firms. A MNE may be directly affected by state sector opportunism, implicit prejudices and industrial patriotism (Henisz & Williamson, 1999; Sethi & Judge, 2009). An exemplified governmental action could be the prohibition or interference for foreign subsidiaries to enter into sensitive, political salient sectors for legitimate economic, social or security reasons. Political salient sectors primarily include infrastructure sectors such as transport, telecommunication or energy.
Discriminatory LoF can have a compelling impact on the relationship between a MNE, a host country partner and stakeholders (government, consumer and other firms) (Eden & Miller, 2004). For instance, it could encourage a host country partner to become more opportunistic in the dealings with a foreign MNE (Henisz & Williamson, 1999). Consequently, it also strengthens the effect of asset specificity on internationalization strategies as it increases the MNEs concerns about local partners’ opportunism, as a discriminatory LoF reduces the usefulness of accumulated knowledge and it hinders the transfer of managerial practices to the local subsidiaries (Brouthers et al., 2008; Xu & Shenkar, 25
2002). In host countries with a high discriminatory LoF and the accompanied high bargaining power, local partners are more likely to receive a share of equity ownership in the MNE’s subsidiary
(Aggarwal & Ramaswami, 1992; Brouther, 1995; Gatignon & Anderson, 1988; Goodnow & Hansz,
1972; Kogut & Singh, 1988). Nevertheless, in recent years, many states have eased regulations targeting foreign MNEs and hence discriminatory LoF is reducing progressively (Sethi & Judge,
2009).
Additional to the former described context affecting LoF, the incidental LoF belongs to the expanding MNE’s scope of duties. It reflects a lack of host country knowledge or experience by comparing foreign with domestic firms. The incidental LoF includes non-discriminatory costs to learn, adapt and cope with the unfamiliar or absent roots in the host country environment (Sethi & Judge,
2009).
The LoF strengthens the effect of asset specificity on internationalization strategies as it results from MNE managers bounded rationality problems. A MNE can neither imagine nor articulate all possible contingencies that should go into the contract. It is important to distinguish between different kinds of assets or business units, for example property rights of assets are more sensitive to regulatory distance because they are anchored in legal provisions (Xu & Shenkar, 2002), whereas a knowledge transfer is not bounded to a specific location. Nevertheless, a high degree of asset specificity is not always advantageous for MNEs. Broad geographic scope choices create additional costs, in the sense that it increases an MNE’s concern about appropriation of quasi rents through bounded rationality and opportunism. There will be more or less quasi rents available to the local partner as a result of institutional distance which is driven by either opportunism through the presence of discriminatory LoF or bounded rationality through the presence of incidental LoF.
Besides the contribution of particular firm-level attributes to the degree of the LoF, such as parent reputation or length of service in the host country, foreign enterprizes can induce mechanisms to overcome the LoF to implement successful internationalization strategies in host countries (Miller
& Richards, 2002). Defensive mechanisms generally avoid a high level of LoF through reducing a
MNE’s dependence on the host country resources and markets by minimizing its susceptibility to a 26 host country’s economical and institutional environment. This includes contract protection, parental control, parental service, and output standardization.
In contrast, offensive mechanisms mitigate the LoF by improving an MNE’s ability to adapt the dynamics of indigenous environments and by maximizing the localization of production and legitimacy factors. It includes the local commitment of the entire value chain (Luo et al., 2002).
An approach for MNEs to overcome a high degree of LoF is to team up with a local partner and to use its knowledge and identity. Dependent on the institutional environment, political manipulation can also be a possible solution (Peng & Heath, 1996; Zhou & Poppo, 2010). However a host country partner can also take advantage of knowledge spillovers and opportunistically approach the government with a request to take actions that have the effect of favoring them at the expense of the MNE. The former represents similar dynamics to the obsolescing bargain model of Vernon (1971) describing a MNE’s interaction with a host country government after establishing a reasonable amount of fixed assets. The possession of unique knowledge or techniques gives a MNE a strong bargaining position during negotiations with a host country. Unfortunately, this strategic edge can turn into a head wind when considerable investments are settled at the foreign location (Henisz & Williamson, 1999).
3.3. Asset Specificity and the Regionalization of the MNE
In the next section, the already mentioned asset specificity of MNEs is addressed. It is defined as the extent to which the investments made to support a particular transaction, have a higher value to the
MNE’s business, than they would have if they were redeployed for any other purpose (McGuinness,
1994). The subject is part of Williamson’s (1975) and Crook’s (2005) definitions of transaction costs, amplified by the presence of state borders and institutional differences (Rugman, 2005; Henisz &
Williamson, 1999).
In general, some assets are sticky and hard to move, some are tangible, and some are influenced by the rules of their location (Kogut & Zander, 1993; Szulanski, 1996). Hart (1988) categorizes asset specificity into four dimensions, which give a general idea of a firm’s or location’s favorable assets and characteristics. First, site specificity, dedicates assets to specific locations 27
(Joskow, 1987; Dyer, 1996; Clark & Fujimoto, 1991). For instance, a building ties a firm to an investment within a particular area and locks MNEs and local representatives in bilateral relationships
(Joskow, 1987). Second, human or knowledge asset specificity (Dibbern et al., 2005) exemplifies unique knowledge, rare technical skills,its interaction and difficult exchangeability (Lamminmaki,
2005; Joskow, 1987; John & Weitz, 1988; Walker & Poppo, 1991). Third, physical asset specificity
(Joskow, 1987) represents specialized equipment or the need of a unique physical facility to distribute certain products. Last, dedicated asset specificity represents a discrete investment in a plant that cannot be put to work yet (Joskow, 1987).
Asset specificity is reflected in the combination of Firm Specific advantages (FSA) and country specific advantages (CSA) and can differ across business units. Every MNE holds a specific set of FSA’s to achieve a competitive advantage relative to its competitors (Rugman, 1981). A FSA is a capability or knowhow, which is unavailable, or only possible to duplicate in a long run at high costs, for another firm (Rugman et al. 2011). It is subdivided into location and non-location bound
(Rugman & Verbeke, 1992) The former expresses a MNE’s strengths to exploit and deploy profitably only within particular locations (Rugman et al., 2011). The latter describes strengths transferable across locations at low costs, mostly in little need for local adaptation and expressed in benefits in scale, scope or exploitation of national differences. Many FSAs are developed in foreign locations and can be totally different from the one’s at home (Rugman & Verbeke, 2007).
CSAs on the other hand are unique characteristics offered by the circumstances within a specific country. They can be based on natural resource endowments, labor force, physical infrastructure, innovatory system, educational facilities or cultural factors (Rugman & Oh, 2008).
FSAs and CSAs can influence a firm’s upstream- or downstream-performance (Rugman & Verbeke,
2008a). The upstream performance includes business activities concerning raw material extraction or production and is associated with a lower risk level (Rugman & Verbeke, 2007). The downstream performance deals with supply chain sections close to the consumer (e.g. refineries, marketing). It is a one sided commitment with a higher risk of failure. The flexibility of a MNE to adapt upstream or
28 downstream FSAs, determines the level of internationalization (Rugman & Verbeke 2008a). For instance, firms, focusing on downstream FSAs are especially home-region oriented.
Reflecting the foreign direct investment motives of Dunning (1998), the economic success of internationalization depends on the ability to deploy a firm's FSAs in the circumstances of the foreign location. Therefore a firm’s FSAs and a location’s CSAs have to go hand in hand, the market size or other given characteristics cannot guarantee a successful expansion towards foreign markets (Rugman
& Oh, 2008), location specific investments may need to be done and the geographic scope is limited to a certain degree (Rugman & Verbeke; 2001, Verbeke, 2009).
The following working propositions are based on the literature presented in the two former sections.
WP1a: The opportunity for entering home region host countries is affected by the perceived asset
specific political salience of the subsector by the host country government.
WP1b: The effect will be greater for passenger than for freight rail operations, resulting in different
internationalization levels and patterns.
3.4. National Organizational Fields
By referring back to the description of the development of the European rail industry in chapter 2, it is identified, that the idea to liberalize the European rail market led to differing national organizational structures of the rail industries across Europe. The implementation was put into action by the EU, but interfered by the governments and institutions of the particular national organizational fields, due to the broad definition of the European directives. Consequently, the following section deals with the different national organizational fields and the relationship between market-economy-stakeholders and the political state. It further turns attention to the influence of the different VoC in shaping the institutional environment, and the influence on the development of state-owned enterprizes.
An organizational field reflects a construct of aggregated organizations that constitute a recognized area of institutional life; composed by key suppliers, resource and product consumers, 29 regulatory agencies, or other organizations that produce similar services or product. Due to a national leveling, the state and institutions construct different national organizational fields (DiMaggio &
Powell, 1983).
The institutional environment, as part of the organizational field, is characterized by the composition of requirements and rules that individual organizations need to conform in order to receive legitimacy and support (Martin & Scott, 1998). Basically, it consists of two levels, the formal and informal. The formal level consists of defined constitutions, laws or property rights. In contrast, the informal stands for everything in-between. The unwritten and intangible characteristics incarnated by sanctions, taboos, customs, traditions and norms (North, 1991). The status quo and the development of the institutional environment play an important role. A lack of established institutions and reliable business information systems for business activities can increase the LoF and destabilizes the ability of MNE’s to absorb, process and act upon complex situations (Khanna & Palepu, 1997;
Verbeke, 2009; Verbeke & Kenworthy, 2008). For instance, MNEs in less regulatory settings, lack sufficient support from market monitoring mechanisms (Boisot and Child, 1996; Keister, 2009).
Institutional change depends on the interaction of corporate governance, industrial relations and the effects of single institutions. The similarities or dissimilarities of the regulatory environments influence the institutional distance between a firm’s home and host country (Xu & Shenkar, 2002; Yiu
& Makino, 2002). A high level of institutional distance equals a high LoF (Eden & Miller, 2004) and consequently higher cost for foreign firms (Hymer, 1976). Generally, MNEs favor a low level of institutional distance, but in some cases, it is also negative correlated. It implies a low probability of host country partners to achieve a change of current regulations towards an increase in efficiency and is often accompanied by the redistribution of returns between the local partner and the MNE (Henisz
& Williamson, 1999).
The development of the institutional environment can be influenced by the actors in the market, either if they are private, governmental or public. A MNE itself must always renew its institutional mechanisms to determine the prospective context and ensure to build an environment which suits the firm’s requirements best (Dunning, 2009). Elkins et al. (2006) indicate the significant 30 role of the government. Besides the regulating influence, contracts between states or state influenced companies can implicate the interests of the home country in a different manner than a private owned company would. Additionally, Hall & Thelen (2008) identify politics as a major gateway for firms and other interest groups to change the school of thought of institutions.
Referring to the globalization process of the last decades, an emerging institutional and political integration on European levels is identified (Kriesi et al., 2008). It shows a growing cross- border interaction of politics, law making processes, industries and impact on national cultures.
Nevertheless, significant policymaking-differences still remain between the converging European markets (Schmitter & Grote, 1997). These will be captured through the lens of the VoC discussed in the next section.
3.4.1. Variety of Capitalism
In this section, the Variety of Capitalism (VoC) and its effects on the different national organizational fields in Europe is addressed. The theory is a highly relevant political-economic approach to understand and explain differences and interdependencies of market economies and institutions. It involves perspectives on a broad set of topics, spanning from legal system, social policy development, innovation issues and corporate strategy to a state’s stance in international negotiations (Hall &
Soskice, 2001). The approach deals with a political economy terrain, which is influenced by multiple actors who rationally seek their interests in strategic interaction with others (Scharpf, 1997). These actors can be individuals, firms, producer groups or governments, whereas the firm takes the main role in this political and capitalist economy (Hall & Soskice, 2001).
The VoC influences the degree of liberalization as it promotes or hinders the developments of a process within countries or industries (Kolk & Pinkse, 2008; Li & Li, 2007; Rugman & Verbeke,
2008a). In his book, Amable (2003) discusses the interdependency of VoC, institutions, politics and firms in a macro and micro economical linked context. The different VoC are defined as specific architectures of complementary institutions. Macro level institutions determine the structure of organizations on a microeconomic firm level. The internal management of investment decisions or 31 public interventions (e.g. tax policy) originates to a significant extent in the macro level institutional background. The existing VoC goes along the entire process of institutional development. The adjustment and finally implementation in the organizational model of a firm or industry and the economic outcomes are likely to depend on national institutional configurations and their characteristics. The VoC can be separated into a state and an economic division. Thereby, it is possible to assign countries to specific classes of capitalism (Schmidt, 2009; Shonfield, 1965).
The literature discusses a large number of VoC. However, we focus on those relevant for an analysis of economies in Western Europe, which are namely the approaches of a Liberal Market
Economy (LME), a Coordinated Market Economy (CME) and a State-influenced Market Economy
(SME) (Schmidt, 2009). The LME approach is defined as the most liberal approach with the fewest state or government interventions. A government is able to settle conflicts or create rules and laws for the market. Typical characteristics are a market–driven system, an arm’s length relationship among firms and to be highly innovative (Hall & Soskice, 2001). The CME approach is defined as a system within which the strategic coordination among firms is valued high. The state is able to act as a coequal to influence the economy. CMEs are typically associated with incremental innovations (Hall
& Soskice, 2001). Lastly, the SME approach, is defined as a system with a state or government able to mediate or intervene in important situations (Schmidt, 2009; Shonfield, 1965), and thus having the ability to actively make direction guiding decisions (Tiberghien, 2007).
Dependent on the home country industry, the particular organizational fields assess and facilitate different degrees of foreign direct investment leading to different governmental approaches on economic-political decisions. It is promoted in LMEs, accepted in CMEs and partially refused in
SMEs (Soskice, 1999).
WP2a: Based on different degrees of political interfering, the potential for foreign enterprizes to
expand towards a host country market economy differs between the VoC.
WP2b: The accessibility of an economical entry for foreign enterprizes to a host country market will
be greatest in a LME. 32
To better understand the differences between the named market economies, the following table gives an overview of characteristics of the different traditional VoC.
Liberal Market Coordinated market State market economy (LME) economy (CME) economy (SME)
Business relations Market driven Non-market managed State organized
Interfirm relations Individual, contractual, Mutually reinforcing State mediated, competitive, Network-based Competitive
Industry-finance Distant Close State mediated
Investment Short-term view Long-term view Medium-term view
State relations Arm’s length Negotiated State directed
State Intervention in Liberal arbiter Enabling facilitator Interventionist leader economic sphere
Wage-bargaining Market reliant Coordinated State controlled
State role in wage- Bystander Coequal or bystander State imposed bargaining
Level of innovation High Incremental Moderate
Takeover Shareholders decision Conversion difficult due High interference due possibilities to Stakeholder influence, to family and state- but legally possible owned enterprizes
Promoted ownership Private State or mixed owned State-owned related to other VoC
Table 2: Characteristics of the Variety of Capitalism (VoC) Source: Adapted and extended from Amable (2003) and Schmidt (2000)
The differing characteristics of the VoC draw a clear line between the particular market economies. In the last decades, the internationalization of financial markets and trade has affected the models of capitalism and the structure of business relations. It has pushed all countries’ economic management systems towards market capitalism. A loss of extreme characteristics and a sharing of attributes of the different models is identified (Schmidt, 2002).Notwithstanding a trend towards convergence, the short term future of corporate governance in Europe will remain multiple peaked as the differences between EU members will remain stable (Cernat, 2004). Despite the fact that no country fits entirely to one of the ideal types, some countries come closer than others. In Europe, the
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UK is most common with a LME, Germany is assigned to a CME and France is the typical example of a SME.
The major difference between the orientation of a country and a firm is the path dependency towards an economic system. Due to reasonable inter- and independence from other market actors, a firm is able to change practices within the sector or industry and therefore adapt a system which suits best their dominating economy. In recent years, large MNEs mainly adopt LME practices, which has shifted bargaining power towards the business side and reduced the dependence from government interference. It is due to an increase in autonomy, mobility, size and internationality of business in combination with a simultaneous government deregulation and privatization (Schmidt, 2000). A LME benefits enterprizes due to institutional advantages like a high degree of flexibility, a short-term financing and a hire and fire system of employment protection (Soskice, 1999; Hoepner, 2005).
WP3: The absence of political commitment of regional operating enterprizes from LMEs towards the
home country market enables those to choose profitable businesses and perform best in host
country markets.
To achieve a good performance and/or a high market share, the possibility of a takeover in the national organizational fields has to be considered. However, originating in the institutional and governmental backgrounds, different degrees of political or legal takeover prevention across countries and time exist. The motivation for home industry protection is based on major state interests: political power, aggregate national income, economic growth and social stability. The way in which each of these goals is affected by the degree of openness depends upon the potential economic power of the state as defined by its relative size and level of development (Krasner, 1976). The protection of the home industry can be divided into direct and indirect actions and the specific forms, mechanisms, and motives vary considerably across nations and industries (Brahm, 1995). Direct protection policies include tariffs, taxes, quotas, local content requirements and industry-specific licensing restrictions.
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Indirect protection policies include government procurement, competition policy, foreign ownership limits, technical standards as well as health and safety regulations.
In Europe, the possibility to acquire a foreign firm differs substantially between the UK and the continental countries (De Jong, 1991). In France, symbolizing a SME, exists a widespread of family of controlled or state-owned enterprizes. It allows the possibility for government interference or changing stock exchange rules, which increases the uncertainty of a takeover. In Germany, representing a CME, a completely free takeover market is legally present, but does not exist in practice. Due to the corporate, legal and/or institutional structure, a free takeover market is prevented.
The acquisition of a public corporation against the will of the leading stakeholders, management, employees or shareholders remains difficult and in certain cases, commanding institutions get special voting rights to influence the firm’s business. Vis-à-vis, in the UK, embodying a LME, the situation is completely different. A corporation represents a combination of managerial directors solely working for the benefit of the shareholders, which should have a fair and equal treatment and be able to value a bid without managerial interference.
To respectively furnish further clues about the developments within economic systems and identify advantages and disadvantages, the firm’s ownership structure is of high importance. As mentioned in the previous section, the particular VoC promote different degrees of state ownership and thereby indirectly influence a firm’s strategic intention. In general, private firms tend to be more averse to economic and political risk; choose investment locations abroad and prefer to expand to large markets and host countries with similar strategic assets. The success depends on its own management, the industry and other external factors. State-owned enterprizes seem to follow more the strategic needs of their home country, like natural resources or a public service (Amighini et al., 2013).
The primary question of success is whether governments are able to properly choose between competing solutions, to resist interest group pressures and pursue reforms that lead to better performances (Joskow, 2008). A switch from state towards private ownership can have a positive impact on the performance, combined with good regulation mechanisms, it often yields to cost reductions without reductions in service quality (Vaaler & Schrage, 2009). 35
WP4a: The greater the propensity of the state to intervene in the economic sphere, the more likely
European rail company’s regionalization will be affected by home government policy.
WP4b: The effect will be greater for state-owned enterprizes than for private-owned enterprizes.
3.5. Conclusion
The presented literature reflects a possibility to understand the following cases of national progress within a regional framework and to analyze strengths of enterprizes or political interference in a liberalizing industry.
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4. Methodology
The methodical and structural approach of the research follows the presentation and quality requirements of the multiple case study design of Eisenhardt (1989) and Yin (1981, 2009). To explore the topic and include different perspectives, this research applies an embedded multiple-case study with a cross-national perspective. To explore firm strategy and market accessibility for foreign market actors in line with the VoC, the study concentrates on a sample of the three most relevant rail markets in Europe and four corresponding operating rail enterprises.
The following sections in this chapter discuss the methodical and structural approach of the research. The starting section deals with the research philosophy, the foundation of the research design. It is followed by the presentation of the multiple case study design of Eisenhardt (1989) and
Yin (1981, 2009) and its quality requirements. Afterwards, relevant cases are selected. To complete the chapter, the last section presents the analytical approach and method of the data collection.
4.1. Research Philosophy
The research of the study is based on theories of a post-positivist epistemology presupposing objectivist ontology. Thereby, the researcher and the objective world remain external and independent from each other and prevent personal attitudes to influence the result of the study (Brannick &
Coghlan, 2007; Reed, 2012, Gephart, 2004). The post positivism suggests a limited influence and relevance on the outcome of one individual study (Gephart, 2004).
4.2. Qualitative Multiple Case Study
To amplify the topic of the study, a multiple case study design in line with Yin (2009) and Eisenhardt
(1989) is selected. A case study evaluates best a real life context, concerning the complexity and uniqueness of particular providers, institutions and systems they exist in (Simons, 2009). By obtaining unswayed behavior in a context without clear boundaries, a case study with embedded units of analysis qualifies to discover undefined questions and to investigate the cases into detail (Yin, 2009).
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It assures contextual richness, benefits of the replication across cases (Saunders et al., 2009) and thereby opens up further interpretation possibilities (Eisenhardt, 1989). A qualitative multiple case study frames its research area within formulated propositions. It is theoretical driven; nevertheless it can combine inductive and deductive approaches as it extends knowledge within a limited or framed environment (Yin, 2009, Eisenhardt, 1989; Weick, 1996). The propositions enable the research to identify unforeseen results and information that originally were not expected at the start of the research (Hyde, 2000).
Notwithstanding, qualitative case studies are not able to provide statistical generalization to a population, but seek analytical or theoretical generalization of its findings (Yin, 2009). To extend the outcome of the study, quantitative data of the respective markets and enterprizes is added in the analysis of the research question.
4.2.1. Case Study Design for this Study
The analysis of this study focuses on three cases with four embedded units. In line with Gibbert &
Ruigrok (2010), the research design is limited to a small, but well chosen number of cases, which are the three distinguished rail markets from the discussed different national organizational fields in chapter 3.4. (UK, France, Germany) Due to their different organizational characteristics, these ensure a monitoring and comparison of individual developments in a comprehensive European framework.
The embedded units of analysis are four high relevant enterprizes from the respective markets, including different degrees of state ownership, origin and asset specificity (Shan & Song, 1997; Sarkar et al., 1999). The variety of analyzed cases and embedded units along a defined time period originating from a similar environment guarantee the ability to understand single components (Within- case analysis) and to evaluate differing degrees of macroeconomic influence on individual microeconomic business (Cross-case analysis). The structure and strategy of operating enterprizes feature relevant aspects to compare different internationalization approaches (Joskow, 2008).
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4.2.2. Quality Criteria
To ensure and certify the quality of the study, four principles are considered. First, construct validity, ensures a correct evaluation of the studied phenomenon. Possible sources of error can be diminished by triangulation through the use of numerous sources and already tested approaches (Eisenhardt, 1989;
Yin, 2009). It is done by positioning the VoC in the regionalization debate and discussing the particular LoF of the enterprizes originating from the different institutional backgrounds. To generate triangulation and diminish the number of errors, quantitative and qualitative data is included into the analysis (Patton, 1990; Brannick & Roche, 1997). The quantitative data, consistent of revenue, market shares or statistical developments is gathered from annual or governmental reports. The qualitative data is a compilation of firm’s press announcements or newspaper articles and records for strategic effort, implementation and failure. Due to the differences between the UK and continental Europe and to better compare the results, all monetary values are given in Euro, and geographic distance is transferred into kilometers. To translate the Pound into Euro, the exchange rate from the respective date of publication is used. Secondly, internal validity reflects and evaluates the extent to which a causal conclusion matches to the overall topic. This principle is ensured by the detailed explanation of the overall European market situation in chapter 2, an introducing description of the market environment in the within case analysis and finalized by a cross case analysis in the discussion (Yin,
2009). Thirdly, external validity ensures the applicability of the findings of a study outside the discussed industry case. It is provided by deductive and inductive principles, as well as through the former described characteristics of a multiple case study (Eisenhardt, 1989) and the cross case analysis
(Gibbert et al., 2008). Last, reliability assures that the structure of the case analysis can be imitated by others outside the particular study (Yin, 2009). It is provided by a transparent step by step presentation of the cases and the gained information (Gibbert et al., 2008; Hyde, 2000, Yin, 2009).
4.3. Case Selection in the European Rail Industry
Since the beginning of the 1990’s, the European rail industry reformed and developed its essential structures. The intra regional industry includes multiple organizational fields, assets and degrees of 39
MNEs state ownership. It is subdivided into three different business units, namely infrastructure, passenger and freight operations. However, this study focuses on the developments of the differing passenger and freight transport operators, whereas the rail infrastructure is in all cases in the hands of a state-owned agency.
The national markets of the UK, France and Germany are chosen as the cases due to the organizational field representing one VoC and the relevance of the national passenger and freight rail market (European Commission, 2011). The enterprizes experience limited room for expanding operations and services, due to different implementation levels of the European directives by the national governments. In identifying different LoF between operators and business units of a regional internationalization towards countries with a particular VoC, future strategies can be predicted. The selection of enterprizes as the embedded units of analysis focuses on a small but relevant number. The enterprizes are the major operators in the previously selected countries and show different degrees of state influence and ownership. In two of the three market economies, the selection is relatively pragmatic, as France and Germany still have dominant market actors in place. In France, SNCF as a direct and complete state-owned enterprise features the dominant provider of operations and services from a SME. In Germany, DB AG, resembles a complete state-owned, but public listed enterprise from a CME. FirstGroup from the UK, as the main rail operator in the UK with international connections, pictures best the characteristics of its home country LME. Additionally, Eurostar has the extraordinariness to originate from two different addressed VoC (SME, LME).
4.4. Method of Data Collection and Analytical Approach
The subject and analysis of the European rail market and the industry related enterprizes is based on a mix of qualitative and quantitative data to increases the depth and breadth of the understanding of the strategies in the regionalization context of MNEs (Hussein, 2009). With the collection of the data, and the upcoming case analysis, it is possible to fill the theoretical framework of the literature review and respond to the working propositions with specific information and actual events to carry on the research of the VoC. 40
The collection of secondary and documentary data was subdivided into three rounds. The first round was concerned with the legal and regulatory developments of the rail markets to frame the scope of regionalization within the different VoC. This was done by analyzing yearly railway and transport reports concerning the rail industry in Europe by EU. The second round addressed the background and portfolio of the respective firms, to identify relevance, size, origin and different priorities between the business units. This was done by analyzing the firm’s annual reports. The third round focused on implemented regionalization strategies, possible failures, or off takes. The data collection was done through the use of databases and press releases about the firms. For instance LexisNexis was used to find newspaper articles and press releases. Therefore, the name of the enterprizes was combined with the markets from one VoC background. To narrow down the search results, special keywords in relation to international business and the firm’s regionalization were included. Then, the collection of articles and information was systematically reviewed to identify relevant information. The following table illustrates the collection and sample of the data.
Issued yearly Collected newspaper Issued newspaper governmental, annual articles articles and industrial reports
German market 17 732 56 and DB AG
French market 18 573 44 and SNCF
British market 16 278 15 and FirstGroup
Mixed market 10 465 32 and Eurostar Table 3: Sample and Collection of Data
To capture the entire development of the process, all data is analyzed longitudinal
(Osegowitsch & Sammartino, 2008). It started with data from the implementation of the European directive in the 1990’s and focused on the developments between 2005 and 2014. Nevertheless, the analyzed time span partly differs across the cases.
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The collected data, qualitative or quantitative, is analyzed to explain and understand the claimed working propositions. As indicated in the previous chapter the study includes a deductive and an inductive approach. The former is analyzed with the help of coding; to relate to the different sections of the literature review and is therefore prepared for later analysis and interpretation (Fereday
& Muir-Cochrane, 2006). The inductive intention focuses on developments during the analysis process. In the process, the collected data is mapped and structured in Nvivo to generate a transparent overview and identify general results (Welsh, 2002). The software allows to classify, sort, model and arrange information to identify relationships and links between the data. In line with the guidelines of
Pratt (2009), every qualitative data research is using a different language to elaborate a topic, but can follow a fair amount of similar guidelines to make the research well structured and understandable. As recommended by Miles et al. (2014), the qualitative data is organized and displayed in a network or matrix structure. The interdependencies between transport management, infrastructure management and authority of the specific national rail markets are displayed in a network figure (Chapter 2). The characteristics and results of the specific markets and enterprises are reflected in matrix structures.
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5. Results and Case Analysis
The upcoming chapter presents the findings that resulted from the individual analysis of the data as described in the previous chapter. The analytical approach in this chapter presents the national market and the performance of the respective single operator in home and host countries. Within the case analysis, the national organizational fields are the single cases and the MNEs are the embedded units of analysis. Thereby, it is possible to focus on each case as a standalone entity and to identify patterns of each market and enterprise. It presents the interdependencies and composition of the particular railway markets, the background of the service providers in passenger and freight transport and the developments since the start of the liberalization process in the 1990’s. Furthermore, the performance and involvement of chosen enterprizes in their home country market, and if so, attempts to enter host country markets in relation to the LoF are presented.
The individual cases start with a presentation of the key figures of the particular market and is followed by the presentation of the business development of one national operator.
5.1. German Railway Market
The German rail market, with the longest track network in Europe, an increasing number of passengers and its central location for national and regional transport, is the biggest European rail market. With its extraordinary location in the middle of Europe and its strong economical environment, the market is interesting for multiple stakeholder groups and rail companies. It represents the market with the most registered operating train companies within Europe.
Passenger: Since the start of the liberalization, the passenger rail transport increased its intermodal market share of passenger transport from 7,4 percent in 1995 to 8,5 percent in 2013. It is separated into a local/regional and a long distance market. Between 1995 and 2013, the amount of operated train km in Germany increased from 71 to 89 billion train km.
Long-distance traffic: Until today, the liberalization process had no, or a respectively small, effect on the long-distance rail market in Germany. Due to a legal national protection, it remains
43 difficult for foreign or private operators to enter the market. With a market share of about 99 percent,
DB Fernverkehr, a subsidiary of DB AG, dominates the market. Since the year 2000, there were 10 attempts to enter the German long-distance market, of which today, only three still operate with limited service (Berlin-Night Express, Harz-Berlin Express, Hamburg-Koln Express). The slow development for upcoming competitors in Germany is also due to difficulties in the sales and distribution of tickets in combination with the services of the DB AG.
Long-distance across border connections of foreign operators, like Thalys, are only competitive to a certain degree. These are not allowed to provide a domestic service inside Germany and have to include a long distance train station outside Germany.
Local and regional-distance traffic: In 2015, with an amount of 672 million train km, the market volume in Germany has reached an all-time high. The number of carried passengers increased from 1,96 billion in 2004 to 2,52 billion in 2014. The composition and competition on this local and regional distanced rail market differs crucially from the described long-distance market. An increasing number of services called for bid and therefore private and foreign operators enter the market. The market is subdivided into the subsidiary of DB AG, DB Regio, and a growing number of competing operators which recently reached a market share of 29,3 percent concerning the length of operated tracks in 2015. The distribution on the German regional market is illustrated in figure 5.
800 700 600 km - 500 400 300
in million train million in 200 100 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DB AG in Mio Train-km Competitor in Mio Train-km
Figure 5: Distribution of operated Train-km Source: Deutsche Bahn AG 44
While the market volume of operated train km grows slowly, a decreasing share of operated train-km of DB Regio and an increasing share of the competitors in the last 12 years is identified. The development of competitor’s market share is a matter of the growing amount of train-km which are operated after an open bid by DB Regio with at least one other competitor. With an increase from 10 percent in 2003 to 60 percent in 2015, it clarifies a definite development towards an open market on the local/regional distance market.
In 2015, the market competition in this market segment stabilized on a moderate level.
Besides an increased market share and operated tracks through competitors, DB Regio faces an increasing number of competing operators, bidding for services. Especially Transdev, Netinera and
Abellio are actively bidding for services. In recent years, several state-owned rail companies started
(FS Trenitalia), planned (ÖBB) or enlarged (SBB, DSB) a service in the German market. SNCF is present via its subsidiaries Keolis, Eurobahn and by a minority holding of Niederbarnimer Eisenbahn.
In 2015, it sets the operating performance to 12,8 million train-km and a further expansion is most likely, as it calls to bid for further tracks through its subsidiaries (e.g. TeutoNetz).
Whereas in the beginning, private mobility operators (Serco, First Group), primarily from the
UK, did not show significant interest for the German market, two private newcomers, National
Express and Go Ahead, are looking for opportunities to enlarge their services (e.g. Gäu-Murr Netz).
Whereas the former already invested in services with an operating performance of 13,5 million train km in 2015, the latter has only won a call for bid, but not yet operated.
The composition of the local/regional distance passenger rail market in Germany changed in the last years. Besides the state-owned DB Regio, remaining the biggest player in the market with about 70 percent in 2015, multiple operators from different backgrounds managed to establish an operating business. The biggest share is taken by regional and local-owned governmental train companies (10 percent) like HLB, AVG, Erfurter Bahn and AKN. Right behind, financial investments like Transdev and BeNEX (9,5 percent) and foreign state-owned railway companies like Abellio (NS) and Netinera (8,9 percent) manage to gain market share. Private international mobility companies like
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National Express or Go Ahead (0,1 percent) or private German operators like R.A.T.H., Städtebahn and EGP (0,8 percent) are present, but practically irrelevant for the market.
Freight: The German rail freight market is completely liberalized. In 2014, the industry has reached a market volume of 113 billion tkm, coming from 80 billion tkm in 2002. The modal market share amounts for 17 percent of all transported goods.
In 2015, according to the German federal railway authority, 216 different operators actually undertook freight operations. The market is divided into a small number of big players, which each operate more than one billion tkm per year and a high number of private operators serving regional or freight specific transports. About two thirds of the freight transport is operated by the subsidiary of DB
AG, DB Schenker Rail, and one third by a heterogeneous composed group of competing operators.
Due to the advantage to operate across border services, especially state-owned rail operators try and succeed to establish a growing business in the German market.
Whereas DB Schenker Rail operates less tkm in Germany in 2014 than it did in 2000, its competitors market volume multiplied from 3 billion tkm to almost 38 billion tkm. The five big players in the freight market are the following. DB Schenker Rail, the former monopolistic operator, remains the dominating player on the German freight rail market with a market share of about 66 percent and a transported volume of about 75 billion tkm. The second biggest competitor, TX
Logistiks, a subsidiary of the Italian state-owned enterprise Trenitalia, managed to increase its market share to 6,5 percent and to double its transport volume in the years from 2012 to 2014 and now reaches an amount of 7,2 billion tkm. In the same time period (2012-2014), Captrain, a freight subsidiary of SNCF, managed to increase its transported volume by 20 percent up to 6,6 billion tkm, and ranks at the third position with a market share of almost 6 percent. Ranked fourth, SBB Cargo
International, a Joint-Venture of SBB Cargo (75 percent) and Hupac (25 percent), increased their market volume in Germany to 6 billion tkm, representing a market share of approximately 5 percent.
Hupac is a combined mobility company from Switzerland with partially private shareholders. At last, with a market share of about 3 percent RheinCargo represents the biggest freight rail operator in the
German market, which is not an official subsidiary of a former European state railway. Nevertheless, it 46 is owned and managed by public authorities and between 2012 and 2014, its operating volume grew by 6 percent up to 3,6 billion tkm.
5.1.1. Deutsche Bahn AG
Deutsche Bahn AG
Headquarter Berlin, Germany
Revenue; Operational profit(2014) 39,720 million euro; 988 million euro
Ownership 100% German State
Employees (2014) 295.763
Locations Worldwide
Business Units Passenger, Freight, Infrastructure
Table 4: Key Data: Deutsche Bahn AG
DB AG takes a leading role in the European transport and logistics industry with it’s about 1000 subsidiaries. In European passenger rail transport, as the number one in the local/regional distance transport, the number two in the long distance transport and the number three in the road transport, it is one of the most relevant enterprizes in the field. Furthermore as the biggest player in the European freight market and a leading actor in the management of infrastructure and train stations, it operates successful in multiple markets.
The company is listed and structured as a public company and the German state is the only shareholder of all shares. With the start of the liberalization process in 1994, the idea to create DB AG out of the former two German state railways was established. In 1997, the structure of DB AG changed from a directly state-owned enterprise towards an integrated mobility, transport and service offering enterprise. From 1999 on, DB AG outsourced the long, local, regional- distance and freight operations, as well as the infrastructure and train station management and combined the overall management of the different subsidiaries into one holding company. DB Netze Fahrweg, DB Netze
Personenbahnhofe and DB Netze Energie are directly managed. These subsidiaries are responsible for the management of the infrastructure including 40.000 trains per day and 400 internal and external 47 infrastructure contractual partners. DB Netze Fahrwege, the biggest European infrastructure provider, is responsible to ensure a high quality infrastructure and a non-discriminating track-access. The business segments DB Fernverkehr, DB Vertrieb, DB Arriva, DB Bahn Regio, DB Schenker Rail and
DB Schenker Logistics are managed by DB Mobility Logistics AG, a complete subsidiary of DB AG.
In 2000, the first internationalization development in the freight transport was done by a joint venture (Railon) with the Dutch Nederlands Spoorwegen. A following step was the acquisition of the worldwide operating Stinnes AG and its subsidiary Schenker, making DB AG a global player on the transport and logistics market (airfreight, maritime freight, rail freight). From then on, the freight subsidiary was called DB Schenker. At the same time in passenger transport, DB AG focused on the installation and improvement of the connections within Germany. The year 2007 is marked by the focus to internationalize beyond the German border. DB AG took over the Danish bus company Pan
Bus, and entered the British passenger transport market by acquiring Laing Rail. Additional acquisitions, such as the British market leader English-Welsh-Scottish railways (EWS) and the
Spanish Transfesa were done in the freight market. Due to the financial crisis in 2008, the original plan to capitalize shares on the German market failed. The renunciation was also due to bad developments of the British rail industry in the first years after the privatization, which created the impression of a subsidy for private investors on the costs of taxpayers. In 2008, the freight network scaled up by additional activities in Italy, Denmark, Switzerland and Poland. Two years later, DB AG acquired Arriva, offering passenger services in Sweden, England, Spain, Portugal, Czech Republic,
Hungary, Slovakia and Italy. Thereby, it strengthened the presence on the passenger market. It also consolidated all regional passenger transport services outside Germany in the subsidiary DB Arriva.
With the acquisition of Veolia, operating in about 60 locations in Eastern Europe, the train and bus services now include 14 European countries. Especially between 1999 and 2009, the focus was put on a strategy to expand internationally. DB AG planned to become Europe’s dominating provider for passenger services and to compensate losses of the national market. In freight transport, the intention was even more far-reaching. By acquiring Schenker and further freight companies, the idea was to form a global operating freight operator. From 2014 on, DB AG puts increasing focus on the 48 modernization, environmental sustainability and international integration of its transport fleet. It plans to close connection gaps by integrating additional rail connections and long distance bus services in the network.
The passenger transport of DB AG developed steady in the last decade. The number of passenger increased from 1,785 billion in 2005 to 2,254 billion in 2014. DB AG remains the dominant player in its home country market. Outside Germany, with a focus on the other discussed market economies, DB AG is especially active in the British market. It provides passenger service on the
Chiltern Railways franchises (DB Regio) from 2002 to 2021. The bid was won before the acquisition of Arriva. Additionally, DB AG gained market share of the franchises of Arriva on the Cross Country,
Grand Central and Wales & Border connections. It was planned to compete with Eurostar between
Frankfurt and London, but a proposed fleet was not considered sufficiently fireproof for the Channel
Tunnel. A revised design with necessary fireproofing was ordered, but until today, there is still no prospect of the plans being put into place. In freight transport, DB AG achieved a dominant market share and offers every kind of freight transport. In France, due to the dilatory behavior of the politics to liberalize the rail market, DB AG is only active through its freight services of Euro Cargo Rail and long distance cross-border connections between German cities and Paris.
The revenue development of DB AG over the last decade is relatively stable. From 2005 to
2014, the revenue of all business units increased from 25 to almost 40 billion euro. The following figure 8 illustrates the revenue distribution and identifies an almost equal separation between the passenger and the freight/logistics divisions.
DB Fernverkehr 10% DB Regio 37% 22% DB Arriva 11% 12%8% DB Dienstleistung DB Schenker Rail
Figure 6: Revenue of Business Units of DB AG (2014) Source: Deutsche Bahn AG
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In 2012, as a consequence of the operations of DB Arriva and its freight/logistic divisions, DB
AG generated 42 percent of its sales outside the home country market.
Especially the development of the freight divisions is remarkable. Today, DB Schenker
Logistics is one of the worldwide leading freight and logistics enterprizes with an extensive network all over Europe. Ranked as the number one in the European overland transport, the number three in the worldwide air and maritime freight and number five in the worldwide contract logistics, it offers an integrated and broad service along the entire supply chain. Whereas the developments in the German freight market seem to stagnate, the divisions outside Germany experience a growing volume.
The relationship between the German government, as the sole shareholder and the institution financing numerous national rail projects, and the strategy of DB AG, which has to be in the interest of the incorporated company, remains unclear. The German stock corporation law states an absolute independence of the managing board and the definition of the company's interest from the interest of the shareholder. Officially, DB AG formulates its strategy and gets approval only from the board of directors. The function of the German state is to provide infrastructure investments, but no direct subsidization towards DB AG. It exist no official evidence, like a political discussion, for a regular influence of a German government to navigate the strategy of DB AG to a specific direction.
However, every now and then, German politics make indirect demands towards the strategy of DB AG
(e.g. long distance bus market).
5.2. French Railway Market
As indicated in chapter two, the French government ignores pressures to reform its public services
(Gressier, 2005). In politics, in line with the concept of the of VoC, France stands for an intervening position during liberalization processes. Until today, the protection of the national rail industry plays an important role in French politics and it hardly meets the minimum requirements to liberalize the domestic market. Regarding the compatibility of a European market, France always puts the national interests first (Aberle, 2009). For instance, to support French enterprizes like Alstom or SNCF, the operation of Siemens stock in the Channel-Tunnel has always been fought by French politics. It took 50 until 2007 that it was allowed for a German ICE-train to operate on French tracks. On the other hand, the French rail operator internationalizes towards foreign countries and operates in numerous
European markets, including Germany and the UK.
The historical concept of the central state, accompanied by a SME, supports a tendency to protect the domestic rail market and to influence the installations and developments of the national network. From the beginning on, in 1830, the construction and operation of the tracks were directly influenced by the government and private actors were not able to initiate their own routes. Supported through state help, private actors had to apply for the installation and operation of individual fixed routes from the government. In return, they gained a monopoly operation-concession (Meister, 2012).
In the end of the 1870’s, the French government started to nationalize parts of the rail industry and invested in the extension of the infrastructure. In the 1930’s, as a result of road traffic competition and a global crisis, the nationalization continued. From now on all concessions were transferred to the newly established state-dominated Societé nationale des chemins de fer Français (SNCF).
Consequentially, from 1937 on, the French rail industry was owned by the French state. Excluding any kind of future competition, it was committed to the principles of serving the public good and not an entrepreneurial mindset. The installation and prosperous operation of the national high speed network for trains started in 1981 and is seen as a major achievement of SNCF. Despite the success, SNCF also faced serious economic difficulties in the beginning of the 1990’s. The passenger numbers did not increase as expected, the freight volume decreased and the installation costs of the high speed network were a heavy burden. In that particular time, the European directives to liberalize the rail industry were implemented, however France waited until 1997 to implement the first reform package, which was asking for an independent infrastructure operator. It created the Reseau Ferre de France (RFF) fulfilling all directives, by being legally and organizationally independent from SNCF. Off the record, the separation is viewed critical as the RFF delegates, or rather buys management service back from
SNCF. It guarantees to exclusively provide the tracks back to SNCF. During the entire opening process, France uses every legally allowed restriction to slow down the reform implementation and to keep away foreign operators (IBM, 2011). Given the restrictive concept and the open skepticism of the 51 government towards a liberalized rail industry, it is hardly surprising that the freight industry was only opened in 2006 and the first entry of a domestic private operating passenger provider was in 2011
(IRG-Rail, 2013). This governmental attitude was again illustrated in 2010 after the introduction of a tax for everybody but SNCF to operate on French tracks. After massive protests from other European countries, parts of the cross-border traffic have been exempt from the tax.
With the establishment of the Founded Autorité de regulation of activités ferroviaires (ARAF) in 2010, Paris reacted to an infringement procedure of the EU for a non transposition of the first railway package. It is supposed to monitor the opening of the French cross border traffic. Compared to its European partners, France underperforms in terms of productivity development, which is also due to the role of the rail unions, as these always fight personnel adjustments.
Passenger: Although France fulfills the minimum requirements of the railway packages, the passenger rail transport market remains sealed off from foreign or private operators. The historical integration of passenger operations into the public service led to the forming of an exceptional high speed network, but also to drawbacks, like a low productivity. Therefore, the development of the
French passenger rail transport in the last 20 years can be seen as a success, but remains difficult to interpret. With a few exceptions, where operators cooperate with foreign operators, passenger rail transport is still firmly in the hands of SNCF.
The travelled distance increased from 56 billion pkm in 1995 to 88 pkm in 2012, making it about 11 percent (2012) of all operated pkm in France.
Long-distance traffic: The unique network of long distance high speed railway tracks connects the major cities and has displaced the domestic air passenger transport in a rather meaningless position. The nationwide network puts the passenger rail transport in a strong position, even though the entire network is mostly fixated on connections from and towards Paris. It took until 2011, that the first connection started to operate which was not directly connected with the French capital. The investments for the installation and maintenance of the high speed network ties up the vast majority of the available resources of SNCF, which is why the conventional network has been neglected and regional connections were shut down. The domestic long distance connections are entirely operated by 52
SNCF and its subsidiaries. Non-incumbent operators like DB AG, Eurostar, Thello, Trenitalia or
Thalys try to compete on several tracks by offering across border connections. In 2012, six enterprizes were holding the safety certificates to operate passenger transport on French rail tracks, but their market share remained insignificant low. Thello, a subsidiary of Veolia-Transdev, a partly private operator and Trenitalia, is operating night trains between Paris and Venice. Furthermore Trenitalia, a
100 percent owned subsidiary of the Italian state-owned FS Group, operates a few services in France.
Additionally, Euro Cargo Rail, set up as a subsidiary of DB Schenker Rail (UK) in 2005, holds the certificate. Until today, it only operated freight transport. At last, Eurostar operates connections between Paris, Brussels and London. The European mix ownership will be discussed more precise in
Chapter 5.1.4..
Local and regional distance: The local and regional distance connections, in the same way as the long distance passenger transport, are still regulated. Even though all responsibilities were delegated to the regional departments in 2002, indicating a similar system as the regionalization funds in Germany, a real competition never existed. It is due to the differing fact, that the departments are legally bound to buy the services from SNCF. The exclusion of all foreign and private operators to offer services in the French local and regional distance rail market lead to continuous complaints from
European competitors like DB AG.
Freight: The development of the French freight rail transport differs heavily from the situation in the passenger market. Since the start of the liberalization process, the French rail freight market performed worse than most other European markets. It shrank from 66 billion transported tkm in 1980 to 47 billion tkm in 2003 and to 32.5 billion tkm in 2012 and the intermodal share of the freight transport market decreased from 25 percent in 2000 to 17 percent in 2009.
The degree of liberalization of freight rail transport is significantly higher than for passenger transport. Since 2003, in line with the directives of the second railway package, it is legally allowed for international operators to provide international services in France. Practically, the market is completely opened for foreign and private operators since 2006. All along the way, the French government tried to influence the market for the benefits of SNCF. One example is the use of 53 obligated security statements for every operator, certified indirectly by SNCF. Therefore it took until
2005 that the first freight rail transport in France was operated by a provider but SNCF. Since that time, SNCF and its subsidiaries lost a relative big volume of transported freight, whereas the new competitors were able to develop positively. These managed to gain a market share of 29 percent in the freight transport (2013) (IRG-Rail, 2013). After many years of a downward movement, the freight market started to stabilize in 2005. By keeping the competitors market share development and the stabilization of the French freight rail transport in mind, a link between the liberalization of the market and an improvement of the service quality becomes apparently obvious.
The freight market consists of a larger number of operators than the passenger transport. In
2012, due to an increasing number of new operators, 23 enterprizes were holding the safety certificate and thereby the right to operate freight transport in France. Only three enterprizes were holding (2013) safety certificates for passenger and freight transport (ARAF, 2013).
The following extract of all operators, is representing the main market actors. SNCF and its subsidiaries, remains the main freight operator in France, however their market share decreased from
84 percent in 2009 to 68 percent in 2012. The non-incumbent freight operator with the largest market share was Euro Cargo Rail with 8,5 percent in 2009 and it claims to have raised its share to 20 percent today. Europorte, the number one private rail freight operator in France and the UK operates services passing through the Channel tunnel. In 2009, it operated 3,6 percent of all transported freight on
French tracks. Additionally, others like SNCB Logistics (state-owned by Belgium), CFL Cargo (state- owned by Luxembourg, France and Belgium) and Colas Rail (subsidiary of a public listed enterprise) make up for relatively insignificant market share of 1.6 percent (Senat, 2010).
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5.2.1. SNCF Group
SNCF Group
Headquarter Paris, France
Revenue; Operational profit (2014) 27.243 million euro; 678 million euro
Ownership 100% French state
Employees (2014) 245.763
Locations Worldwide
Business Units Passenger, Freight, Infrastructure
Table 5: Key Data: SNCF Group
The Société nationale des chemins de fer français (SNCF) is a public entity with an industrial and commercial character. It was founded in 1937, as an enterprise with a mix of state and private ownership and converted into a Établissement public à caractère industriel et commercial (EPIC), resembling a state-owned company, in 1983. Today, in 2016, SNCF Group is subdivided into five business units which are assigned to three different EPICs. SNCF Réseau is assigned to
Reseau/Network, it provides access to France’s rail network infrastructure and manages the network traffic and expansion. SNCF Voyageurs, Keolis, SNCF Logistics are assigned to Mobilités, operating the passenger and freight transport in Europe and worldwide. SNCF Immobilier is assigned to Strategy
& Support, managing SNCF’s property portfolio. The entire SNCF Group has about 700 subsidiaries in 120 countries on all continents, whereupon the European and especially the French market remain the most important. The management of SNCF Group is determined by the French state, as most of the important positions are appointed by the French Minister of Transport.
The recent performance of SNCF develops unbalanced, the revenue increased steadily from about 20 billion euro in 2005 to 33,8 billion in 2012, but decreased again to 27 billion in 2014. Within
SNCF Group, the regional/local passenger transport stands for the business unit with the main income, followed by logistics and long distance passenger transport. As a result of the passenger and freight transport outside France, it generates 24 percent of the sales outside its home country market (2012).
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In the following, we focus on the most relevant subsidiaries for the study. Whereas the French market is protected from foreign operators, SNCF offers a pan-European transport service. In regional and local passenger transport, due to the multimodal and international subsidiaries like Keolis, TER,
Transilien or Intercité; SNCF is offering a complete multimodal passenger transport chain from buses, subway systems and regional or local trains. The long distance or rather across border connections are provided by multiple operators of SNCF. TGV and Ouigo operate passenger rail transport within
France. The services provided beyond or across the French border are often in cooperation with other state-owned rail enterprizes. Thalys (ownership share: 70 percent) operates towards Belgium, the
Netherlands and Germany; Elipsos (50 percent) provides services towards Spain; Lyria (74 percent) to
Switzerland and Alleo (50 percent) is based on marketing purposes for Germany. Additionally, to enlarge the European network, SNCF owns shares of the partly private owned enterprizes like NTV
(20 percent, Italy), Westbahn (26 percent, Austria) and Eurostar (55 percent, UK and Belgium). In the
UK, Keolis operates multiple franchises with significant market share in cooperation with British mobility providers. The TransPennine Express, the Thameslink Southern and Great Northern, London
Midland, Dockland Light rail and the high speed South Eastern Railway is operated together with private operators from the UK. Inside Germany, as discussed in Chapter 5.1.1., SNCF, only operates regional and local domestic services through Keolis.
The freight service of SNCF spans a worldwide network including subsidiaries on all continents. The freight division is cumulated in SNCF Logistics. In 2014, it reached a revenue of 8,8 billion euro. We focus on the operations in the addressed market economies in Europe. Fret SNCF, the third largest freight operator in Europe with a turnover of 1,1 billion in 2014, dominates the home country market in France. Outside France, SNCF operates most of its freight services through its subsidiary Captrain, with Captrain UK in the UK (revenue of 8,7 million euro in 2012) and Captrain
Germany in Germany (revenue of 264 million euro in 2014). All revenues from foreign countries accumulated make Captrain the second largest freight operator in Europe.
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5.3. British Railway Market
The history of the British rail industry started in 1825. Supported by speculators and banks taking the financial risk, the railway network of private operators rose quickly. Until the First World War, the regulation in the UK was socio-politically motivated. Train operators were forced to offer different fares affordable for every British citizen (Meister, 2012). The government barely influenced the economical development of the railway network and acted as a regulator to ensure a certain degree of security (Murray, 2005). From 1914 on, due to the developments of the First World War, the state took control over the rail industry, and in 1921, all operators were combined in four major operators.
From now on, fares were regulated and particular services obligated. In 1948, the government decided to nationalize the entire industry and to form one state-owned company: British Rail (BR). Because of inevitable deficits in infrastructure and management, insufficient abilities to increase productivity and high operating costs, it was impossible for BR to become competitive in the British transport market.
Between 1955 and 1995, the modal market share of passenger transport decreased from 17 to 5 percent and of freight transport from 40 to 6 percent (Nash et al., 2005). While the quality of service and infrastructure deteriorated, the British government repeatedly tried to restructure BR by cutting off unprofitable services (1963) or reorganizing the management (1982). Nevertheless, BR remained unprofitable and consequently, in 1994, the government decided to privatize BR into about 100 different companies. From then on, national concessions were called for bidding by the government and passenger operators were able to franchise particular services. On a few number of tracks, it became possible to operate individual services, so called open access connections. The freight transport followed the rules of a free market access, monitored by one regulating agency. Coming from a low level, both business units were relatively successful. Passenger and freight transport increased their transport volume substantially, which was also due to improvements in efficiency and intermodal conditions (e.g. increase in fuel taxation). In the UK, the European directives were overachieved as the governmental regulation is solely concerned with economical and safety aspects.
In the years after the privatization, the number of trains increased, punctuality and service improved, but the infrastructure remained in miserable condition. The initial idea of a complete 57 separation and privatization of the rail infrastructure was to go public and thereby renew the entire
British rail infrastructure. Unfortunately the Initial Public Offering of BR redeemed less money than expected and due to a heavy train accident and political influence, the private company Railtrack was renationalized.
The UK is often cited as the negative example of a market failure in the rail sector.
Sometimes, the allegations suggest an inherent safety risk in private railways and therefore events from the wake of the rail reform of 1994 are taken as references. However, it is also important to consider the conditions before the liberalization. In fact, the rail system before was in a deplorable state as the government failed to regulate, maintain and manage the entire operations and infrastructure measures. Today the British railway is on similar safety levels as Germany and France and therefore in the European top flight. From a market-based perspective, the rail market is exemplary, as it is fully opened and accessible. The regulatory framework is assessed to be complex, but fair and effective and the success of the British railways speaks for itself. The main problem persists in the initial problem of restructuring as well as in the capacity and cost of the infrastructure.
Passenger: In the UK, there is neither a legal difference in the call for bidding, nor a quality difference between long distance and regional/local connections. Therefore the passenger transport is addressed in one common section.
The growth of passenger numbers across the industry remains at a historically high level.
Between 1995 and 2010, the amount of travelled pkm almost doubled to 60 billion pkm. The passenger market consists of private or foreign state-owned train operating enterprizes, providing their services through a franchise or open access. The operators are responsible for the daily management and operation of train services. It is subdivided into 19 different franchises, operated by 23 train operating companies (TOC). The franchises differ in terms of their characteristics; some are classified as commuter services around big cities others as regional or long distance connections. A TOC either operates the connections of the particular franchise exclusively or in an open access by competing with other TOCs. A TOC can be managed by one or multiple operators working as a Joint Venture.
Nine of the TOCs are managed completely by private owned British mobility enterprizes, six are 58 subsidiaries of foreign state-owned rail enterprizes and eight are operated by a joint venture of the former two. Especially SNCF provides services in cooperation with domestic British enterprizes, whereas DB AG operates most services solely through its subsidiary Arriva. In 2014, the market was subdivided into a moderate number of operators. FirstGroup, with an approximate market share of 23 percent is the biggest operator, followed by Stagecoach and Govia (joint venture of SNCF and the private British enterprise Go Ahead) each with 20 percent, Abellio 9 percent, DB Arriva (DB AG) 9 percent. The rest of the share is operated by Virgin (8 percent), National Express (6 percent), Serco and MTR (each 5 percent).
To travel across borders, towards or away from the UK, holds some difficulties. Besides the special geographic situation, the UK is not an absolute member of the Schengen Area and therefore, passengers have to go through security and passport checks before entering the train to cross the border. Until today, Eurostar, remains the only cross border operator in passenger transport.
Freight: The British freight rail transport is structured as an open access service; operators pay a specific fee to operate on the tracks. The amount of transported freight increased slow, but steady, from 18 billion tkm in 1999 to 22 billion tkm in 2014. The intermodal share reached approximately 12 percent in 2014. The market consists of a large number of operators, but the main share is subdivided between a few big players. DB Schenker Rail UK reaches revenue of 633 million euro in 2013. After the acquisition and integration of the former English, Welsh and Scottish Railway (EWS) into DB AG in 2007, it managed to establish a market share above 50 percent. The private operators GB Railfreight and Freightliner gained an almost similar market share with approximately 15 percent and revenues around 160 million euro in the years up to 2015. Direct Rail Services is the only incumbent state- owned rail freight operator in the UK. In the beginning, it solely handled nuclear flask, but expanded its business to other freight operations and in 2014, its revenue accounted for about 93 million euro.
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5.3.1. FirstGroup
FirstGroup - Rail Division
Headquarter Aberdeen, UK
Revenue; Operational profit (2014) 3,5 billion euro; 68 million euro
Ownership Public Limited Company
Employees (2014) 14,000
Locations UK, other business units are operating worldwide
Business Units Passenger
Table 6: Key Data: FirstGroup – Rail division
FirstGroup PLC (FG) is a British transport company, operating trains, busses and trams in the UK,
Ireland, Germany and North America. It is listed in the FTSE 100 and all business units combined gain an annual revenue of 8,2 billion euro (2015). It employs more than 110.000 people and transports more than 2.4 billion passengers per year (2015). The company was founded as a bus operator
(FirstBus) out of the privatization of the national British bus and coach services in 1995. In 1998, after the deregulation of the British rail industry, the company started to offer additional services as a train operator and changed its name into FirstGroup, including the rail division, UK Rail.
In the following, we focus on UK Rail, as it is the relevant business unit for this study. Today
(2015), UK Rail is the largest rail operator in the UK. It accounts for 43 percent of the revenue and 18 percent of the operational profit of FG. By providing a diversified franchise portfolio of intercity, commuter and regional transport services, it transports more than 330 million passengers per year
(2014). In the UK, FG operates multiple franchises and regularly participates in calls for bids. The business started with the acceptance of the bid for the franchise of the Great-Eastern connections in
1998 and the acquisition of Great Western Trains, a company operating the franchises of the Great-
Western and North-Western connections. In 2003, FG expanded further, Hull Trains and GB
Railfreight were bought and in the following year, the franchise for most of the Scottish connections was won. At the same time, in cooperation with the French Keolis group, FG started to operate the
60
TransPennine Express franchise, offering regional and long distance connections in the north of
England. Meanwhile other services, like the North Western and Great Eastern were lost to competitors. From 2015, FG will no longer operate the ScotRail franchise. Consequentially, FG owns shares of three passenger operators in the UK (2015). First Great Western, First TransPennine
Express, operated as a franchise, and First Hull Trains operated as an open access operator. Between
2009 and 2011, FG provided rail services beyond the British borders. In a joint venture, it cooperated with the Danish and Swedish railways and operated the first connections between Sweden and
Denmark. In the same year, FG’s takeover offer for National Express Group to expand in the home country market was rejected. In Germany or France, it only provided a few bus services. Additionally to the passenger transport, FG also operated GB Railfreight for a couple of years, but it was sold in
2012 and FG disappeared from the freight market.
5.4. Mixed Markets - Eurostar
Eurostar International Ltd
Headquarter London, UK
Revenue; Operational profit (2014) 1.075 million euro, 68 million euro
Ownership (2015) SNCF (55%), Caisse de dépôt et placement du
Québec (30%), Hermes Infrastructure (10%) and
NMBS/SNCB (5%)
Employees (2014) 1800
Locations UK, France, Belgium
Business Units Passenger
Table 7: Key Data: Eurostar International Ltd.
In 1994, Eurostar started as a collective project of three state railways, SNCF from France, SNCB from Belgium and BR from the UK, to establish a high speed train service between the capitals of the named countries by passing through the channel tunnel. In the course of the privatization of the British 61 rail sector, the management of the original shares of the British government changed multiple times. It started with the demerging of BR and the creation of the state-owned European Passenger Services
(EPS), responsible for the operations of Eurostar in the UK. In 1996, EPS was sold to state-owned
London & Continental Railways (LCR), which then changed the name of EPS into Euro Star UK Ltd
(EUKL). Alongside, as part of the contract, LCR was commissioned to construct the high-speed connection from London to Dover. Due to financial problems, LCR was forced to appoint an external management contract for EUKL. Consequential, from 1998 on, a consortium of National Express (40 percent), SNCF (35 percent), SNCB (15 percent) and British Airways (10 percent) took over the management of the operations. After the completion of the named high speed connection in 2009, the
UK government took control of LCR, renamed it into Eurostar International Limited (EIL), and announced its intention to put it up for sale. DB AG expressed an interest, but the deal did not happen because of an intervention of SNCF. In the following year, the three national operators of Eurostar merged into one company: Eurostar International Ltd (EIL), subdivided into a 40 percent share of
LCR, 55 percent of SNCF and 5 percent of SNCB. With the creation of one management and operational structure within the EIL, the management contract of the consortium ended. In 2015, the
British share was sold to Caisse de dépôt et placement du Québec and Hermes Infrastructure for about
1.030 million euro, and created EIL as an enterprise with a diversified ownership structure with SNCF
(55 percent), Caisse de dépôt et placement du Québec (30 percent), Hermes Infrastructure (10 percent) and SNCB (5 percent).
On operational levels, the trains travelling in the channel tunnel have to meet additional tunnel and country specific conditions compared to regular trains. They differ in terms of size, safety conditions and technical equipment. The original trains from 1994, manufactured by the French company Alstom, resemble a lot like the French TGV and operated in a pool, but remained in the possession of the respective part taking enterprizes. Along the time, Eurostar established its own pool of trains; but some of the common operated trains remained in the possession of the individual owners
(Perren, 2001). The announcement of Eurostar to buy trains of the type 320 of the German company
Siemens Rail System instead of Alstom in 2010, due to a higher number of passenger seats per train, 62 called for political attention. Nevertheless, further orders followed and Eurostar announced to offer additional connections to Amsterdam. With the start of connections to South of France in 2013,
Eurostar expands its service across France. On all other national levels, Eurostar’s operations stayed almost the same. In the UK, Eurostar was shortlisted to bid for the East Coast franchise in 2014, but did not succeed.
Since the start of operation in the mid 90’s, the number of passengers increased steadily from
4,8 million in 1996 to about 10,4 million in 2014. Originally, it was expected to transport 21,4 million passengers already in 2004. The misconduct of expectations is due to the difference in the actual offered service. Initially, it was planned to offer regular overnight trains and additional services, travelling from the entire UK towards the European continent. A further expansion of the network faced technical and political barriers. With a top speed of about 200 km per hour in the UK and missing investments in France, the needed infrastructure for a competitive operation compared to other modes of transport never existed. The initial trains are only equipped for operating in the UK, France and Belgium and a configuration for German speaking markets is complex and costly. With the implementation of new trains, manufactured by Siemens, it is hoped to eliminate all technical barriers and to expand the Eurostar network to destinations in Germany, the Netherlands and Switzerland.
Another difficulty for Eurostar’s operations is the obligated security and passport check to cross the
British border, which prolongs the time of the journey and requires specially equipped train stations.
Furthermore, the fact that Eurostar still remains the only long distance, cross border operator of the
UK creates an economic environment without competitive tensions.
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6. Discussion of Rail Operator Organizations Internationalization
On the basis of the former chapter, the following discusses and compares the findings of the individual within-case analysis. The objection is to identify differences and consistencies across the cases of the
European rail industries (Eisenhardt, 1989). It discusses the results of the case analysis in relation to the working propositions and the presented literature section and explores these aspects in relation to the asset specificity and LoF for major rail operators in three different national organizational fields by including a variety of ownership and industry structures. The cases resemble similarities and differences between the market economies and the enterprizes strategic orientation.
In general, the competition and market volume on the track increased across almost all business units and market economies. The authority power of the infrastructure remains in the hands of the national government. In some cases, semi or fully independent public institutions are in charge for safety monitoring and licensing duties and depending on the country, some responsibilities are shared with regional or local authorities. The passenger market exemplifies a limited access for new or foreign operators dependent on the market economy, whereas the freight market is almost completely liberalized and multiple international operators provide services across Europe.
In line with Rugman and Verbeke (2004), the internationalization of a firm depends on the home country and increasingly on the home region environment. The regionalization of enterprizes is promoted by the liberalization process. The legal opening of markets and services in the rail industry enables international operating enterprizes in Europe to focus and expand their business beyond their home country borders towards their home region. It reflects an orientation away from a national towards a regional oriented market economy. By expanding internationally in the rail industry, the home country support, financially and politically, for the MNEs internationalization strategy remains relevant, whereas the host country decides about the legal ability to enter the market (Hejazi, 2007).
Consistent with the work of Kolk & Pinske (2008), Li & Li (2007) and Rugman & Verbeke
(2008a) the promotion of the European liberalization process through the rail directives and the internationalization strategy of MNEs in the particular industries are affected by the national VoC.
64
By standardizing and harmonizing on a common European level, the intra regional LoF decreases. The degree varies between public and market oriented business units. Reflecting Schmidt
(2009) and Shonfield (1965), the single rail markets can be assigned to one VoC. Longitudinal to the entire opening process, in line with Eden & Miller (2004), the LoF in the national rail markets differs substantially by covering a range from incidental levels in a LME to an additional discriminatory LoF in a SME. In comparison with the alternatives, the CME positions the degree of LoF on a medium level. In the rail transport industry, the SME in France and the CME in Germany follow the strategy of a conversion over a long period of time and show a step by step implementation of the European liberalization directives. Through a dragging implementation of the directives and a partial political influence exertion, the market composition increases slowly. New entrants face differing levels of LoF dependent on the business unit or sector, ownership structure and origin. The discussed cases reflect most VoC characteristics of Amable (2003) and Schmidt (2000). France symbolizes a market with a high degree of LoF for private and foreign operators. Through political influence, the state protects the home country market as long as legally possible and discriminates foreign operators to operate on its domestic tracks. Thereby, it avoids an increasing market share of foreign or private operators.
Germany represents a moderate degree of LoF for foreign and private operators. Through a slow, but steady opening of the regional passenger transport, Germany lowers the barrier for non incumbent operators to enter the domestic market. Both countries opened the freight and across border passenger transport markets for competition. With a few exceptions and a low degree of competition, the long distance domestic passenger transport remains nationally protected in both countries. The differing
LoF between business units in a SME and CME limits the access for new competitors into the market.
By not implementing the directives immediately, the national governments and market economies execute an indirect discrimination towards new market entrants. They avoid promoting circumstances beneficial for foreign operators and thereby keeping a discriminatory LoF up. By opening the market with slow but consistent speed, the incumbent market actors are in advantageous position as they can prepare for future competition without having the liability of competition in the home country and consequently the passenger market is dominated by one state owned operator in 65 both markets. Whereas the number of passenger operators with different ownership structure increases steadily across Europe, the composition in France remains at a low level.
In the LME in the UK, all directives were implemented in one single step, which consequentially gives every operator the possibility to provide any service on British tracks in a market based environment. The rail transport market, passenger and freight, consists of the most diversified composition of operators including a variety of organizational backgrounds and ownership structures. A diversified arrangement of operators makes it difficult for a government to support one particular service provider .The LME in the UK, as the most liberalized market shows the lowest level of LoF for foreign and private operators to enter the market. Foreign enterprizes can focus their efforts on overcoming the incidental LoF through offensive approaches (joint venture or takeover of incumbent provider). One exception of the free market competition and a creation of indirect LoF for new operators is the national restriction for cross border transport. Due to the Schengen Area and the obligated security and passport checks, the cross border connections with the UK are restricted.
In a CME or a SME, due to the additional discriminatory LoF for particular business units, new market entrants are supposed to overcome the disadvantage by a mix of offensive and defensive mechanisms. It is remarkable, that in a CME and SME, a dominant incumbent player remains in the market and covers all business units across borders, whereas in a LME, the market composition is more diversified and operators focus on a fewer number of services. From the former indication and a market point of view, the CME and SME appear to be closer to each other than towards a LME.
However in line with Amable (2003), Germany can be positioned in the middle of the alternatives.
Like the UK, Germany enforces some directives by choice and France only under regulatory pressure.
In freight transport, due to differing national or political interests and an obligated liberalization for all EU member states, the LoF is lower across all market economies and is mainly consisting of incidental LoF. It experiences a higher level of competition and a smaller difference between France and other European markets. However the market share of the incumbent operator is shrinking in the respective home country, the former state operator remains dominant in the CME and
SME, whereas the UK as the LME is dominated by a foreign operator from a CME. 66
German Market French Market British Market Passenger Transport Long distance domestic Liberalization status Protected Protected Opened Relatively large variety of private Composition of the market DB AG and few private operators SNCF and one private operator domestic operators and foreign state owned railways Legal, technical,fiscal Legal, technical, (incidental and Market entry barriers (incidental and discriminatory Technical (incidental LoF) discriminatory LoF) LoF) Technical adaption, Joint Venture Possibility to overcome barriers or LoF Small scope of action Small scope of action or acquisition Regional/local distance domestic Liberalization status Semi opened, semi-protected Protected Opened
Variety of DB AG subsidiary, regional state Relatively large variety of private Subsidiaries of the state owned Composition of the market owned-, foreign state-owned, private foreign domestic operators and foreign SNCF and domestic operators state owned railways
Not all connections are called for bid and Legal, fiscal, almost no or silent directly given to DB subsidiary, complex and Technical, financial (Incidental Market entry barriers call for bids (Incidental and expensive bidding systems. (Incidental and LoF) discriminatory LoF) discriminatory LoF)
Joint Ventures with domestic operators, Technical adaption, Joint Venture Possibility to overcome barriers or LoF No exemplifiable case market share. or acquisition
67
German Market French Market British Market Cross border transport Liberalization status Opened Opened Opened
Mainly state-owned operators, Mainly state-owned operators, Mainly state-owned operators, partly with partly with private ownership, partly with private ownership, Composition of the market private ownership, Joint Ventures between Joint Ventures between main Joint Ventures between main main market actors serve the market market actors serve the market market actors serve the market
Technical, temporary taxes for Market entry barriers Technical Technical, Cross border check foreign operators Adapt domestic technical Adapt domestic technical Possibility to overcome barriers or LoF Adapt domestic technical characteristics characteristics, public oriented characteristics complaints Freight transport Liberalization status Opened Opened Opened Variety of state-owned and Variety of state-owned and Variety of state-owned and private operators, Composition of the market private operators, main actor is private operators, main actor is main actor is DB AG SNCF DB AG Incidental LoF, incumbent Incidental LoF, incumbent operator offers Market entry barriers operator offers wide range of Incidental LoF wide range of services services Development stage of a Acquisition, JV with main market Possibility to overcome barriers or LoF Development stage of a company company actors Table 8: Market Overview
68
The legal and institutional environment of the market economies influences the cases firm level development. Generally, in line with Rugman and Verbeke (2008b) all presented enterprizes try to perform as good as possible across all national market economies where an actual or future investment seems profitable. Nevertheless, in line with De Jong (1991), the span of business units, the market accessibility and power depends on the home and host country background, the political interference in the rail industry and the enterprizes ownership structure.
The internationalization strategies of the state-owned enterprizes, namely DB AG and SNCF follow similar structures and to cover every business unit to provide an overarching service (Amighini et al., 2013). In passenger and freight transport, both companies try to create a pan European network including almost every mobility service. In passenger transport, both enterprizes dominate their home country market and are in competition in European host country markets. Only DB AG has to face a certain degree of competition in its home country market. Due to a low discriminatory LoF, both enterprizes operate in the LME in the UK and only have to avoid an incidental LoF. In line with De
Jong (1991), they either corporate with domestic operators through a subsidiary (SNCF, Keolis) or acquire an important domestic player on the market (DB AG, Arriva). Although the German passenger transport market offers a limited space for expansion, SNCF operates or bids for passenger transport with its subsidiaries. Due to high level of discriminatory LoF, the German DB AG is not able to neither operate domestic passenger transport in France nor across border services towards the UK.
With the support of the historical market power and a lower level of discriminatory LoF across Europe, both operate freight divisions on international levels in an open market competition.
Nevertheless, only DB AG appears to succeed in the British LME.
The privately owned FirstGroup from the UK, which is not committed to a political salient service, operates the services and business units which seem to be profitable for the management. It does not face domestic political interference and builds its business on free competition in the market.
However, due to higher degrees of discriminatory LoF and protected rail markets outside its home country, it remains difficult to set foot in Germany and France. In the rail industry, FirstGroup focuses on operations in the UK and a few individual host country connections. The comparatively low market 69 power in the European rail market makes it difficult to outdo former state railways in market competitions outside the UK.
Eurostar, as the smallest presented enterprise and a primarily focus on one particular service, takes a special position in the covered subject. It originates from two of the three presented market economies and connects a third by acquiring trains from the German, coordinated market Due to the ownership mix, political hazards or LoF originating from one of the countries appear to be lower than for other enterprizes. The fact that different markets were served from the start, as well as the low competition on its service, differentiates the company from its competitors. It enables the enterprise to further increase passenger and sales numbers by expanding services in its existing home country markets.
In consequence of the market characteristics, an enterprise is in need of differing asset specificity. To expand successfully, consistent to Rugman and Oh (2008), the FSAs have to contribute to the characteristics of the CSAs in the foreign market. Whereas in a LME a MNE has to overcome the incidental LoF by understanding the market and the different technical standards, in a CME, and especially in a SME, additionally to high technical asset specificity, the specificity of human or knowledge assets is more important resulting in a balanced mix of location and non-location bound
FSAs.
State owned MNEs have the obligation to provide a working infrastructure for the national population and additionally compete in every business unit, whereas private MNEs focus on a smaller number of business units and services.
By doing the research and evaluating the results, in line with Krasner (1976), it is important to keep some externalities in mind. For instance, the geographical environment of the markets influences the market developments. Whereas, the fact that the British market is located on an island and has unfavorable connections to additional markets, Germany is positioned in the middle of Europe and bordered by nine countries. Furthermore, the existing market power and knowledge of the leading
European rail enterprizes has to be taken into account. Most state influenced operators interacted in the rail industry for decades, whereas private operators had and still have to start from scratch. 70
Additionally, the availability and need of other transport modes, the number of affected people, the national importance of the industry (Siemens, Alstom) and the infrastructure costs are relevant for the evaluation of a market.
Working proposition Status
WP1a: The opportunity for entering home region host countries is affected Approved
by the perceived asset specific political salience of the subsector by
the host country government.
WP1b: The effect will be greater for passenger than for freight rail Approved
operations, resulting in different internationalization levels and
patterns.
WP2a: Based on different degrees of political interfering, the potential for Approved
foreign enterprizes to expand towards a host country market
economy differs between the VoC.
WP2b: The accessibility of an economical entry for foreign enterprizes to a Approved
host country market will be greatest in a LME.
WP3: The absence of political commitment of regional operating enterprizes Disapproved
from LMEs towards the home country market enables those to
choose profitable businesses and perform best in host country
markets.
WP4a: The greater the propensity of the state to intervene in the economic Partly approved
sphere, the more likely European rail company’s regionalization will
be affected by home government policy.
WP4b: The effect will be greater for state-owned enterprizes than for Approved
private-owned enterprizes.
Table 9: Working Propositions
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7. Conclusion
The study evaluates the regionalization approaches of MNEs with different degrees of state ownership in the organizational fields during the obligated liberalization process of the European rail industry. It describes the micro level developments of enterprizes influenced by the LoF and the support of the respective home and host country VoC. Within a regional environment, the results expand and underline the theory presented earlier by Amable (2003) and Schmidt (2009). The VoC influences significantly the degree of liberalization (Kolk and Pinkse, 2008; Li and Li, 2007; Rugman and
Verbeke, 2008c). It identifies and classifies a LME as the organizational field which promotes the entrance for foreign or private operators the most, whereas the business of the domestic MNEs to operate international in host countries is not significantly stimulated. Based on the LoF, a LME offers the best circumstances for foreign MNEs to internationalize. It guarantees the broadest range of market entries and the lowest market barriers. The organizational field in a CME goes along with the legitimate developments and does not constrict the upcoming of foreign or private competitors. A
SME, due to the high level of LoF for non-incumbent operators, is the market which it is most difficult to enter and compete in. The CME, and especially the SME, avoid an increasing market control of external operators by an indirect discrimination through slow and partly unfair implementation of the
European directives. However, the international operating MNEs from these market economies seem to use every possibility to expand their business beyond their borders to maximize their market power.
Due to the dominant market actors, it remains difficult for private or foreign enterprizes to compete in the German CME and the French SME.
The degree of LoF or political discrimination depends on the classification of the industry within the national state as either a public service or a market based competition and can differ between business units of a firm. It is important for MNEs to have different specialized FSAs to flexible react on either legal or technical restrictions and to quickly adapt to host country requirements.
Due to its state influenced background, the study explored important facts on internationalization strategies for enterprizes with different ownership structures. Private enterprizes
72 are less bounded to specific locations, but also less politically supported and state influenced enterprizes experience political home country support and location restrictions.
The degrees of LoF influenced by the VoC has a significant effect on the needed composition of the firms asset specificity, In line with a high LoF, human or knowledge asset specificity, additionally to technical or physical asset specificity, is of high importance.
The study identifies a superior structure on a rather political and institutional than technical level to promote the railway industry. Although the study discusses and adds up relevant knowledge in an industry which is not extensively discussed in the VoC and regionalization literature, it is framed and limited within a particular environment. Geographically, the results account for one region of the triad (Europe) and the presented markets represented locations with different economical and socio- ecological compositions. It is also limited in time, as it mainly identifies happenings within a drastic industrial change and period of market reorganization. To identify further effect, overlapping or dissimilarity, to compare and contrast examples from additional states and to evaluate the political or institutional interaction with industries, the research of the topic needs additional samples. However, a further analysis of quantitative data and qualitative samples would have gone beyond the scope of this paper.
To expand and further comprehend the subject, it would be interesting to analyze the performance of state owned enterprizes in a complete liberalized home region market. Moreover, to research the development of the influencing value of the state or the VoC on an industry, due to an ongoing liberalization. Furthermore, to identify differences between private or state owned enterprizes degrees of commitment towards a home region, the development between intra and inter regionalization would be revealing.
This study presented and contributed an approach to a regional internationalization strategy on the grounds of the organizational field for a less observed industry and the results opened up the possibility for follow up research in related research areas.
73
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Appendixes:
Fundamental and financial numbers Dimensions 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Europe Passenger rail transport (in billion pkm) 350 372 380 391 398 413 405 407 415 420 424 N.A. Intermodal share of all passenger transport (in %) 6,5 6,2 6 6,1 6,1 6,4 6,2 6,3 6,4 6,5 6,6 N.A. % of High-Speed rail transport of total pkm N.A. 15,9 21,2 21,6 22,4 23,8 25,7 26 26,6 26,2 N.A. N.A. Volume of transported freight (in billion tkm) 388 405 416 438 452 443 364 394 422 407 407 N.A. European intermodal share of all freight transport (in %) 13,6 12,5 11,3 11,5 11,8 11,7 10,8 11,1 11,9 11,7 11,7 N.A. Germany Passenger rail transport (in billion pkm) 71 75,4 76,8 77,8 79,1 80,9 82,4 83,9 85,1 88,4 89 N.A. Modal market share of passenger rail transport of all transport on land (in %) 7,4 N.A 7,4 7,5 8,1 N.A. 7,9 7,9 8 8,4 8,4 N.A. Market opening of all passenger transport (% of all but the principal undertakings) N.A N.A N.A 3,8 N.A. 10,1 N.A. 8 N.A. 10 11,5 N.A. % of High-Speed rail transport of total pkm N.A 18,5 27,8 27,8 27,7 28,8 27,4 28,8 27,4 28 28,3 N.A. Volume of transported freight (in billion tkm) 70,5 82,7 95,4 107,01 114,62 115,65 95,83 107,3 113,3 110,1 112,6 112,6 Market opening of all freight transport (Share of all but the principal undertakings in %) N.A N.A N.A 16,4 N.A. 22 N.A. 25 N.A. 28,6 32,6 N.A. Deutsche Bahn Revenue (in Billion €) 29,82 15,47 25,06 30,05 31,31 33,45 29,34 34,41 37,98 39,3 39,12 39,72 Operational Profit (in Billion €) 0,55 0,2 0,49 1,56 2,02 1,81 1,39 0,9 1,36 1,55 0,88 0,99 Number of Employees 312.579 222.656 216.389 237.299 245.672 240.242 239.382 276.310 284.319 287.508 295.653 295.763 Number of passengers (in million) N.A. 1.712 1.785 1.854 1.835 1.919 1.908 1.950 1.981 2.035 2.235 2.254 France Passenger rail transport (in billion pkm) 55,6 69,9 76,2 78,79 81,6 86,6 86 85,9 89 89,1 87,4 N.A.
87
1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Modal market share of passenger rail transport of all land transport (in %) N.A. N.A. N.A. N.A. 9,8 N.A. 9,9 9,8 9,2 9,3 9,1 N.A. Market opening of all passenger transport (% of all but the principal undertakings) N.A. N.A. N.A. N.A. N.A. 0 1 N.A. N.A. N.A. N.A. N.A. % of High-Speed rail transport of total pkm N.A. 49,7 56,6 56,4 58,8 60,7 60,3 60,4 58,5 57,4 58,1 N.A. Volume of transported freight (in billion tkm) 48,3 57,7 40,7 41,18 42,62 40,55 32,13 30 34,2 32,6 32 N.A. Market opening of all freight transport (Share of all but the principal undertakings in %) N.A. N.A. N.A. 0,6 N.A. 10 N.A. 20 N.A. 32 36 N.A. SNCF Revenue (in Billion €) N.A. N.A. 20,86 21,96 23,56 25,19 24,88 30,47 32, 65 33,8 32,2 27,243 Operational Profit (in Billion €) N.A. N.A. 0,57 0,7 1,12 0,58 0,15 0,53 0,82 0,38 2,4 0,678 Employees N.A. N.A. 208.460 201.742 201.545 201.339 200.097 240.978 245.090 249.343 250.000 245.763 Number of passengers (in million) N.A. N.A. 974 N.A. 1.042 1.085 N.A. N.A. N.A. N.A. N.A. N.A. UK Passenger rail transport (in billion pkm) 30,3 38,4 44,4 47,04 50,2 53 52,8 55,8 58,6 61 62 N.A. Modal market share of passenger rail transport of all land transport (in %) 5 N.A. N.A. N.A. 6,6 N.A. 6,8 7,3 7,4 8 8,2 N.A. Market opening of all passenger transport (% of all but the principal undertakings) N.A. N.A. N.A. N.A. N.A. 89,5 N.A. 89,9 N.A. 90,2 89,7 N.A. % of High-Speed rail transport of total pkm N.A. N.A. 1 1,9 2,8 1,9 1,9 1,8 7,4 7,2 7,4 N.A. Volume of transported freight (in billion tkm) 13,3 18,1 21,4 27,37 26,38 24,83 21,17 18,6 21 21,4 22,4 22 Market opening of all freight transport (Share of all but the principal undertakings in %) N.A N.A. N.A. N.A. 44,2 N.A. 51,4 N.A. 53,6 N.A. 54,5 N.A FirstGroup Rail Revenue (in Billion €) N.A. N.A. N.A. N.A. 2,48 2,03 2,39 2,54 2,72 3 3,35 3,5 Rail operational profit (in Billion €) N.A. N.A. N.A. N.A. 0,146 0,125 0,11 0,11 0,129 0,132 0,023 0,07 Employees N.A. N.A. N.A. N.A. N.A. 13.000 13.500 13.000 13.000 13.000 13.500 14.000 Number of passengers (in million) N.A. N.A. N.A. 260 260 275 285 280 290 300 310 330 88
1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Eurostar Revenue (in Billion €) N.A. N.A. 0,67 0,77 0,81 0,69 0,76 0,88 0,96 0,98 1,03 1,08 Operational Profit (in Billion €) N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 0,03 0,06 0,07 0,07 Employees N.A. N.A. N.A. 1500 N.A. N.A. N.A. N.A. N.A. N.A. N.A. 1800 Number of passengers (in million) 3 7,1 7,5 7,9 8,2 9,1 9,2 9,5 9,7 9,9 10,1 10,4 Sources: Pocketbook European Union, Press reports, Bundesnetzagentur, Annual reports, Governmental reports
Background information on the railway enterprizes Dimensions DB AG SNCF FirstGroup Eurostar Home Country Germany France United Kingdom France, UK, Belgium Locations Freight - worldwide, Passenger - Focus Freight – worldwide, Passenger – UK and North America, few France, UK, Belgium on Europe worldwide with focus on Europe services across Europe Ownership State-owned State-owned Private Partly private, partly state-owned Political influence Moderate Strong Weak Moderate Modes of growth Acquisition, JV, Greenfield Acquisition, JV, Greenfield Service-expansion Service-expansion Key events 1994: Fusion of Deutsche Bundesbahn 1938: Foundation as a partly private 1995: Foundation of FirstBus as 1999: Foundation, 2010: Integration and Deutsche Reichsbahn, 1999: and party state owned enterprise, 1982: the predecessor FirstGroup, 1998: of all business units of all owners into Reorganization into recent Switch to complete state owned First entry into the passenger rail one enterprise, 2015: The sale of the management structure 2002: enterprise, 1994: Start of the market, 2003-2010: Participation British shares to an institutional Acquisition of Schenker AG and internationalization process in the freight market through GB shareholder international orientation, 2010: Railfreight Takeover of Arriva Business units Passenger transport, Freight transport, Passenger transport, Freight transport, Passenger transport Passenger transport Infrastructure, Logisitcs Infrastructure, Logisitcs Sources: Pocketbook European Union, Press reports, Bundesnetzagentur, Annual reports, Governmental reports
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Markets: Dimensions Length Number of Composition of the Composition of the Market share of Market Composition of the Share of Modal market Subsidy of Enterprizes long distance market local/regional market competitors in opening of freight market Revenue share of from the Tracks in the rail local/regional local /regional (Market share, Market outside freight rail state / per industry passenger Volume) home transport (in year transport country %) (2012) Europe 461.096 2011: 833 km Germany 41.981 2011: 193 2015: DB 2015: DB Region 70%, 2004: 11,9% 2005: 2014. 51,8; 2014: DB Schenke DB AG 2005: 17% 9,2€/km km Fernverkehr 99%, Regional or local owned 13,2% 2006: 15,2% 2015: 60,2 Rail (66%, 75 Billion 2012: 2006: 17% three additional governmental train 2007: 16,3% 2008: tkm); TX Logistiks 42% 2007:18% domestic long companies 10%, 18,3% 2009: 20,3% (6,4%, 7,2 Billion 2008: 17% distance operators Financial investments 2010: 21,8% 2011: tkm); Captrain (5,9%, 2009: 18% with a few 9,5%, Foreign state 24,1% 2012: 25,7% 6,6 Billlion tkm, SBB 2010: 18% connections, owned railway companies 2013: 26,7% 2014: Cargo International 2011:18% additionally across 8,9%, International 27,1%; 2015. (5%, 6 Billion tkm), 2012: 17% border connections private mobility 29,35% RheinCargo (3,2%; 2013 17% of foreign operators companies 0,1%, private 3,6 Billion tkm) German train operating companies 0,8% France 29.640 2011: 32 2015: SNCF 2015: SNCF operates Insignificant low Insignificant SNCF (2012: 68%, SNCF: 2000: 25% 18€/km km operates almost almost 100% of all low 2009: 84%, 26,4 2012: 2009: 17% 100% of all domestic connections, Billion tkm), Euro 24% domestic long single insignificant Cargo Rail (2009: distance exceptions of operations 8,5%, 2010: 14%, connections, Thello provided by additional 2015: 20%), provides a few operators Europorte (2009: services, 3,6%) additionally across border connections of foreign operators
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Dimensions Length Number of Composition of the long distance market Market share of Market Composition of the Share of Modal market Subsidy of Enterprizes competitors in opening of freight market Revenue share of from the Tracks in the rail local/regional local /regional (Market share, Market outside freight rail state / per industry passenger Volume) home transport (in year transport country %) (2012) UK 16.454 2011: 128 2014: FirstGroup 23%, Stagecoach 20%, Govia Absolute market Absolute DB Schenker Rail N.A. 1955: 40% 0,2€/km km (SNCF & Go Ahead) 20%, Abellio 9%, DB competition exists market (2013: 51%, 633 1995: 6% Arriva 9%, Virgin 8%, National Express 6%, competition million euro, 2015: 2014: 12% Serco 5%, MTR 5% exists GB Railfreight 15%, 160 million euro, Freightliner 15%, 160 million euro, 2014: Driect rail Services 8,7% 93 million euro) Sources: Pocketbook European Union, Press reports, Bundesnetzagentur, Annual reports, Governmental reports Note: Some fields are set N.A. as the information was not identifiable or conform with the data already found. However it does not lower the significance of the data setting an indication for a trend development. In some cases, due to changing ownership and management structures the numbers for the specific business unit were not identifiable.
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Mixed Market/ Working Propositions German Markt/ DB AG French Market/ SNCF British Market/ FirstGroup Eurostar WP1a: The opportunity for entering home region host The German rail transport market The French market is The British market is almost not affected Not necessary for countries is affected by the perceived asset is partly affected by state significantly affected by by government intervention, the analysis. specific political salience of the subsector by the influence. Different responsibilities political intervention. SNCF is composition of the industry is not salient to host country government. in between passenger transport. promoted by the government the British government Whereas long distance connections for almost all kind of services. are still protected, the The liberalization of the freight regional/local market already transport was significantly opened up for competition. The slower than in the other two freight market is already countries. completely liberalized. WP1b: The effect will be greater for passenger than for Freight market is diversified, Long Due to high investments and The British passenger and freight market Not comparable, freight rail operations, resulting in different distance passenger market the classification of passenger consists of multiple operators, DB AG and only operating internationalization levels and patterns. completely protected, transport as a public good, all SNCF are present with both business units. passenger Regional/Local passenger partly passenger transport is transport. opened, SNCF is operating and influenced by governmental private operators (Go Ahead) are control. Freight transport is entering the market. liberalized and operated by international competing MNEs. WP2a: Based on different degrees of political interfering, Foreign operators have the ability The French market, in The British market offers the highest the potential for foreign enterprizes to expand to enter the German passenger passenger transport offers a low diversity of entrance possibilities for towards a host country market economy differs transport market on a regional potential for foreign operators foreign passenger and freight providers. In between the VoC. level through direct subsidiaries to enter the market. However, passenger transport, every franchise is and joint ventures with other Thello, a private operator issued separately, and often operated by external operators. The long started to operate business in joint ventures of multiple providers. Often distance market is almost excluded France and represents an these are are formed out of a foreign state from competition. A small amount insignificant number of market owned railway and a private British of private operators provide several entries. Foreign, state owned provider. DB AG represents the ability to connections. Foreign operators firms are ye not able to enter expand its business towards the UK on have not entered this particular the market. The freight multiple levels. By the acquisition of market yet. transport is dominated by Arriva, a direct engagement of DB Regio domestic operators and direct and a cooperation of DB Arriva in a subsidiaries of foreign state franchise. On the freight level, foreign owned enterprizes. acquisitions and direct expansions through a subsidiary is typical.
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Mixed Market/ Working Propositions German Markt/ DB AG French Market/ SNCF British Market/ FirstGroup Eurostar WP2b: The accessibility of an economical entry for The German market, representing a Due to the dominating role of The large number of operators and thereby foreign enterprizes to a host country market will CME consist to the biggest share SNCF and the small amount of shrinking market value after the be greatest in a LME. out of the former DB AG, additional operators, limit the privatization, promoted the cooperation of subsidiaries of foreign state owned possibility to enter the market foreign operators with foreign MNEs. It railways, and to a small degree out besides establishing a new counts for passenger and freight transport. of private operators. A joint investment for foreign venture or acquisition to enter the operators. market is difficult as long as the market remains in the hand of a few operators. WP3: The absence of political commitment of regional The German passenger market The French passenger market The British passenger market consists of a The partly private operating enterprizes from LMEs towards the consists of a small irrelevant consists of one private operator number of different operators, the domestic consortium of home country market enables those to choose number of private operators, the (Thello), the composition of the operators are all private, whereas the Eurostar plans to profitable businesses and perform best in host market share in the freight market freight market mainly consists foreign operators are dominated by state expand its service country markets. is higher, but still relatively small. of incumbent and foreign state owned enterprizes. across Europe, It The bigger foreign players in owned enterprizes. is not identifiable passenger and freight transport are how much the mostly subsidiaries of foreign state expansion strategy owned rail enterprizes. In freight, is pushed by the the state owned DB AG operates in respective owners. almost all European markets, in passenger it takes a relevant approach in multiple countries. WP4a: The greater the propensity of the state to intervene The German government The French government The British government excludes itself Operates the in the economic sphere, the more likely intervenes indirectly into the intervenes through the from any interventions besides safety and original European rail company’s regionalization will be market, due to the holding possibility to directly approach security regulations. connections in affected by home government policy. structure, the government does not the management of the structure England, expands influence the daily business, but and strategy. its business on the leads a long focused strategy. continent, especially in France. WP4b: The effect will be greater for state-owned No effect measurable for private No effect measurable for No effect measurable in passenger Enlarged enterprizes than for private-owned enterprizes. owned operators private owned operators transport, as no state owned operators engagement in present, No influence in freight transport. France, possibly due to the French state ownership.
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