Market Entry and the Change in Rail Transport Market When Domestic Freight Transport Opens to Competition in Finland
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Julkaisu 702 Publication 702 Miika Mäkitalo Market Entry and the Change in Rail Transport Market when Domestic Freight Transport Opens to Competition in Finland Tampere 2007 Tampereen teknillinen yliopisto. Julkaisu 702 Tampere University of Technology. Publication 702 Miika Mäkitalo Market Entry and the Change in Rail Transport Market when Domestic Freight Transport Opens to Competition in Finland Thesis for the degree of Doctor of Technology to be presented with due permission for public examination and criticism in Festia Building, Auditorium Pieni Sali 1, at Tampere University of Technology, on the 7th of December 2007, at 12 noon. Tampereen teknillinen yliopisto - Tampere University of Technology Tampere 2007 ISBN 978-952-15-1887-4 (printed) ISBN 978-952-15-1907-9 (PDF) ISSN 1459-2045 iii Tampere University of Technology Department of Industrial Engineering and Management, Institute of Transporta- tion Engineering Mäkitalo, Miika: Market Entry and the Change in Rail Transport Market when Domestic Freight Transport Opens to Competition in Finland Keywords: rail transport, market entry, entry barriers, entry deterrence, opening competition ABSTRACT Domestic rail freight transport was opened to competition as of the beginning of 2007. This means that all operators who meet the regulations can enter the rail freight transport market and operate rail transport. The purpose of this research was to study the market entry of new entrants, and the barriers related to it. The research also set out to evaluate the change in the rail transport market and the equal realisation of competition prerequisites. The Finnish railway legislation, which is based on EC legislation, states that the conditions for operating rail traffic include a safety certificate, an operating licence, the allocated rail capacity, and a rail network access contract. The government has an important role in creating a non-discriminatory playing field, as the conditions of perfect competition cannot be achieved. The market entry barriers and the actions of a dominant company also have a big effect on the functionality of competition. The research material consisted of answers gathered from an expert panel, comprising over 50 persons, using the Delphi method and two question rounds. The analysis of the research material was conducted using qualitative content analysis and a narrative approach, and scenario-based working methods typical for futures studies. The material was analysed to form expert profiles and their character descriptions, and scenarios that describe the market entry of different types of railway undertakings. This type of triangulation is new in this sector and helps to highlight new aspects of the examined phenomenon. The research results were evaluated by mirroring them on the results of the special evaluation inter- views. Based on this research, railway stock acquisition and the difficulty of accessing the services create the greatest barriers to market entry. Other entry barriers include a long market entry phase, recruiting staff, inadequate rail capacity, and the possible actions of the market dominating company which complicate market entry and competition. The research results show that there will be more competi- tion in rail freight transport than expected. The most significant scientific contribution of the study is the clustering of administrative factors into one entity that creates a substantial entry barrier in addition to financial and technical issues. The authorities are expected to be active, more customer-friendly and quick, instead of the passiveness they have shown so far. iv Tampereen teknillinen yliopisto Tuotantotalouden osasto, Liikenne- ja kuljetustekniikan laitos Mäkitalo, Miika: Markkinoilletulo ja rautatiemarkkinoiden muutos kotimaisen tavaraliikenteen avautuessa kilpailulle Suomessa Hakusanat: rautatieliikenne, markkinoilletulo, markkinoilletulon esteet, markki- noilletulon estäminen, kilpailun avaaminen TIIVISTELMÄ Rautateiden kotimainen tavaraliikenne avattiin Suomessa kilpailulle vuoden 2007 alusta. Tämä tarkoittaa sitä, että säädökset täyttävät toimijat voivat tulla rautatie- kuljetusmarkkinoille ja harjoittaa liikennettä. Tämän tutkimuksen tarkoituksena oli selvittää uusien toimijoiden markkinoilletuloa ja siihen liittyviä esteitä Suomessa. Työssä tavoitteena oli myös arvioida rautatiemarkkinoiden muuttumis- ta ja tasapuolisten kilpailunedellytysten toteutumista. EY-lainsäädännön mukaisen Suomen rautatielainsäädännön mukaan rautatielii- kenteen harjoittamisen edellytyksiä ovat turvallisuustodistus, toimilupa, myönnet- ty ratakapasiteetti ja rataverkon käyttösopimus. Julkisen vallan rooli toimivan kilpailun edellytysten luomisessa on tärkeä, sillä täydellisen kilpailun olosuhteita ei voida saavuttaa. Kilpailun toimivuuden kannalta markkinoilletulon esteillä ja markkinoita hallitsevan yrityksen toiminnalla on suuri vaikutus. Tutkimuksen aineisto muodostui hieman yli 50 hengen asiantuntijapaneelilta delfoi-tekniikalla kerätystä kahden kyselykierroksen vastauksista. Aineiston analyysissä käytettiin laadullista sisällönanalyysiä ja narratiivista analyysiotetta sekä tulevaisuudentutkimukselle ominaista skenaariotyöskentelyä. Aineistosta muodostettiin asiantuntijaprofiilit ja niihin liittyvät tyyppikuvaukset sekä erilais- ten rautatieyritysten markkinoilletuloa kuvaavat skenaariot. Tämän tyyppinen menetelmien rinnakkainen soveltaminen on tällä alueella uutta ja auttaa näkemään tutkittavasta ilmiöstä uusia puolia. Tutkimusten tuloksia arvioitiin peilaamalla niitä erityisten arviointihaastattelujen tuloksiin. Tutkimuksen mukaan markkinoilletulon merkittävimmät esteet ovat kaluston hankinta ja palveluihin pääsyn vaikeus. Muita markkinoilletulon esteitä ovat pitkä markkinoilletuloaika, henkilöstön hankinta, rataverkon ratakapasiteetin riittämät- tömyys sekä mahdollinen markkinoita hallitsevan yrityksen markkinoilletuloa ja kilpailua vaikeuttava toiminta. Tulosten valossa rautateiden tavaraliikenteessä kilpailua tulee kuitenkin olemaan enemmän kuin aikaisemmin on odotettu. Tutkimuksen merkittävin tieteellinen kontribuutio on hallinnollisten tekijöiden yhdistäminen yhdeksi laajaksi kokonaisuudeksi, joka muodostaa huomattavan markkinoilletulon esteen taloudellisten ja teknisten seikkojen ohella. Viranomai- silta odotetaan nykyisen passiivisena nähdyn otteen sijaan aktiivisuutta, asiakasys- tävällisyyttä ja nopeutta. v FOREWORD After a nearly 150-year journey, the railways in Finland have reached an interest- ing turning point: railways are abandoning the era of a single, monopoly operator and moving on to a situation where the market has several operators1 and internal competition within the industry. The air is filled with anticipation and excitement, and the atmosphere could be described with a quote from Juhani Aho’s classic novel: “Railway… one could not really figure out what it was all about, no matter how hard one pondered and guessed about” (Aho 1884, 32). The traditional railway sector which – especially internationally – is organised with vast human resources and operates in a very bureaucratic manner is now switching to a competitive situation familiar from other areas. Quoting one of the answers in the research material – although with a different meaning – we could say that we are currently experiencing the metamorphosis of a dinosaur. This dissertation was born from my enthusiasm for research and opening rail transport to competition. Due to the work economic reasons of this research I have carried out on the side, I chose my research topic based on my own interests, official duties, and the research needs of the Finnish Rail Administration. Even though the selection of my research topic may seem trivial from the aforemen- tioned perspective, the selection follows the four topic selection guidelines2 set forth by Eco. At the same time, working on the dissertation has provided an interesting opportunity to view the entirety of everything connected to my duties from a researcher’s perspective. In my job I deal with my research themes, so I hope that my dissertation will not convey only civil servant’s vague ideas expressed using administrative jargon or hard-to-understand judicial-corporate thoughts3, but that it would, on the contrary, reflect Schopenhauer’s (1974, 522) guideline: “One should use common words to say uncommon things; but those authors do the very opposite.” 1 The completion time of the research, just before the competition realizes, is ideal. As a researcher, I naturally wanted to steer clear of Desiderius Erasmus Roterodamus’ (1974, 59) idea of bad timing: “There’s nothing more foolish than an untimely wisdom, nor is there anything more irrational than ill-used rationality.” 2 According to Eco (1990, 23–24) one should consider the following issues in selecting a research topic: topic fits the interests of the researcher, material is available, the research understands the material, and the methodological framework fits the researcher’s experience. My own topic and research meets this criteria. 3 Wuori warns that the current power structures will not create anything new. The goal of my research is naturally different, even though I have worked as a civil servant in the Government in the Ministry of Transport and Communications and in the administrative sector of the aforemen- tioned ministry. Wuori (2005, 22) writes: “Parliaments, castles of Government and temples of power and fools running around in them will soon be no more than empty cathedrals and monuments, for which we need to find