Investment Promotion Report on Railway Industry
Romania and Turkey
"Investment Promotion Report on Railway Industry - Romania and Turkey" was jointly published by Investment Promotion Agency of Ministry of Commerce (CIPA) and Deloitte China. While working on the report, we received great support from the Romania Embassy and Turkish Embassy in China, as well as the industry players like CRRC Corporation Limited, China Civil Engineering Construction Corporation, and China National Machinery Import & Export Corp. Building upon the previous year's report which was an overview of China enterprises' overseas investment, the team conducts an in-depth investigation and listens to the suggestions from enterprises, then focuses on two countries alongside the "One Belt and One Road" - Romania and Turkey this year.
Viewpoints / key findings
The report covers the political and economic environment, the railway industry development plan, the industrial policies, the niche market's supply and demand, the competitive landscape, and the technology system and market entry requirements in Romania and Turkey. Then, it analyses Chinese companies operation in the local markets, including the market opportunities and investment risks. The case study session examines the successful multinational enterprises' operation in both countries and the implications to Chinese companies. The following summarizes the market conditions and investment advices for the railway industry in the two countries:
- At the moment, Romania railway technology is rather backward. Its transportation scheduling system is not scientific and the railway infrastructure is lack of the regular maintenance and renovation. The rail system is facing imperious demands for maintenance and reconstruction. The urban rail transit (mainly the tram and subway) is one of the most attractive segments in Romania's railway industry.
- In the "Master Plan for Romania's Transportation System", it mentioned the investment priorities in the rail system are: the modernization of the existing railway lines, the electrification of the part of pan European transport corridor passing through Romania, and the procurement plan for new locomotive. According to the plan, the total investment of railway system in Romania will reach 14 billion euros by 2030.
- Currently, many European enterprises enter the Romania market by joint venture. For locomotive equipment manufacturers, setting up a joint venture or partnership with local manufacturing enterprises is the most popular and robust way to enter the market.
- European rail system is a self-contained system with strict standards, detailed classifications, and a broad coverage. China rail equipment manufacturers must understand the entry risks brought by the European technology standards, the risk in the bidding process, the legal risk, and the cultural differences that may influence the project's implementation.
- China enterprises should follow the example of Romania rail transit engineering contractors to bid in the form of a consortium. The key is to look for local partners, and cooperate with European equipment manufacturers and Romania infrastructure companies to bid in the form of a consortium of three or more parties. Romania infrastructure companies cover civil engineering and bridge construction projects, and Chinese companies take the responsibility for the building of the flyover and stations, integration and supporting projects for "four electrical engineering", which is a more realistic entry model at present.
- The construction of high-speed rail is one of the primary development projects in Turkey, and the most important objective in "The vision for 2023". 2023 is marked as a century for the founding of Turkey and the country is planned to extend the high-speed rail mileage from current 1,213 km to 10,000 km, and build new ordinary railway for 4,000 km, with total length reaching 25,940 km and a total investment of USD 45 billion.
- Turkey also plans to build an international railway corridor, connecting Europe, Central Asia, North Asia, East Asia, the Middle East and North Africa, to play a greater importance of the Silk Road.
- Based on the vision for 2023, Turkey is planning to expand its railway network, overhaul the signal control system, transform the catenary system and add new train carriages, which will bring great opportunities for its infrastructure, locomotives, signals and services markets.
- There are three major traditional market entry models, i.e. greenfield investment, joint venture, and merger and acquisition (M&A). In greenfield investment, Chinese enterprises in Turkey have quite a few practices already; the joint venture is a market entry model supported by the government of Turkey; and for cross-border M&A, we haven't heard any related cases in Turkey railway market at the moment.
- For those companies planning to enter the Turkey market, they can consider entry strategies like consortium, PPP model and technology output, and build competitive advantages by providing differentiated products and services, and establishing a good government-business relationship. Then, actively adapt to the European standard and the cultural differences in Turkey. In the process of going abroad, the companies should integrate good resources to form a consortium and strive for home country's financial support to enhance international competitiveness of the enterprises themselves.