At a time when the state of public finances augurs ill for the volume of rolling-stock orders expected over the next few years, and when the constraints imposed by the state of the infrastructure network on traffic development prospects leave much to be desired, railway equipment manufacturers find themselves in a quandary. Their ability to apprehend the future largely depends on the strategies and information which  their customers, whether builders or operators, are ready to share with them.

Today train builders and equipment manufacturers suffer from the lack of visibility, a handicap felt both by their company headquarters and by their regional industrial plants as natural interfaces for many small stakeholders.

This far-from-rosy picture is made even more complex by uncertainties over production programmes and over the plant-location decisions of industrial groups. As a result, equipment manufacturers and sub-contractors alike are deprived of the medium and long-term visibility so badly needed to drive innovations, investments and ensure job security.

In parallel, the intensification of international competition between train builders, between equipment manufacturers and between their suppliers could well modify the landscape. Lastly, where the export contracts of train builders are concerned, we now see the emergence of overseas customers demanding plant location in their countries, a requirement that only large equipment manufacturers can fulfil (tramways in Algeria, high-speed rolling stock in Morocco, locomotives in Kazakhstan, etc.).

The world of equipment manufacturers

This world englobes  equipment  manufacturing firms with extremely varied profiles : large specialist companies with one or several major product lines, small companies, sometimes family businesses whose production is targeted at a regional customer base or at a very specific market niche. Some stakeholders are also the specialist branches of large groups whose main outlets reside outside the railway industrial sector. Lastly, some train builders produce a number of components in-house which they then integrate, even though the materials used are supplied by overseas companies, a typical case in point being the transmission gear produced by Alstom Transport at its Creusot plant.

According to a survey  commissioned by the Special Conference on Industry (EGI), and excluding those companies whose sole or main activities are railway-specific, over one thousand firms  have the railway industrial sector as a major customer for part of their production. The Special Conference also highlighted the fact that French SMEs have traditionally tended to be on the small side particularly when compared with their German industrial counterparts. This undoubtedly constitutes a handicap for the French industrial fabric. Interestingly, many so-called “French” equipment manufacturers are already subsidiaries of foreign groups, typical examples being Freinrail, owned by German Group Knorr-Bremse, Valdunes by German Group GHH-Valdunes, SKF (Sweden) or SNR (Japan),…..

The geography of the railway industrial sector over the years has been conditioned by the sites on which manufacturers have chosen to locate their factories, the main regions concerned being :

• first and foremost the Nord-Pas-de-Calais Region with some  300 factories employing almost 10 000 people, structured  around three main plants : Alstom Transport at Petite Forêt, Bombardier Transport at Crespin and AFR at Douai. If the Picardie Region is thrown-in, then Northern France also plays hosts to the i-Trans competitiveness cluster, the European Railway Agency and the Public Agency for Railway Safety;

• on a more modest scale in terms of employment, the Ile-de-France Region (some  300 industrial sites catalogued, with some occupied only by company head offices), the Rhône-Alpes Region (roughly 250 sites), the PACA Region(roughly 70), the Midi-Pyrénées Region (roughly 70), the Pays-de-Loire Region(roughly 60), the Centre, Alsace and Franche-Comté Regions ( roughly 50 each).

A vital link in the industrial chain

The railway industrial sector is one of the 11th such sectors put in place by the Industry Minister at the end of 2010 in the wake of the EGI Special Conference.

The railway industry with its three main business activities, namely infrastructure, rolling stock and signalling, generates for the companies involved (excluding civil-engineering) an aggregate turnover of some € 4 billion, with less than one-third of this amount contributed by exports. In comparison, German railway industry produces a turnover of some € 10 billion, with half coming from exports. Where French railway equipment manufacturers are concerned, the trade turnover – here too for plants located in France – is put at about € 800 million, with direct exports contributing less than 20% of this figure.

A key issue that will need addressing within the sector is the creation of sizeable entities (larger  SMEs or groupings), each individually capable:

• of effectively managing innovation programmes all the way up to market delivery of the products or services ;

• of placating builders and integrators by providing them with a robust equipment-manufacturer and supplier base ;

• of  responding to the confirmed trend towards fewer sources available to builders ;

• of leading export projects , either directly or through forms of local cooperation or plant solutions when dictated by circumstances.

However, when a particular national market is relatively limited in size, the presence of two large equipment manufacturers providing the same service is rarely justified. In other words, many suppliers will therefore necessarily have to forge alliances or enter into consolidations at European, even world level. In all events, a grouped ad-hoc or structural response simply becomes unavoidable.

The sector must adapt

Old industrial organisations are challenged by insufficiently-predicted, poorly-explained transformations that are not engineered in a coherent manner over time. The sourcing strategies of builders would not yet seem to have stabilised, bearing in mind that the transforming policies decided at head-office level are not always easy to implement in homogeneous manner at local level. In parallel to this, the increasing burden of paperwork and legal constraints, not to mention the potential impact of their consequences in terms of penalties and liabilities, tends to rule-out structures that are too small or under-managed.

The approaches used by Builders to support  development of their supplier-base and its quality-monitoring are sometimes muddled-up by novel practices such as reverse orders via the internet or the « emergency » style of management of some industrialisations, quite apart from the resolve to deploy - depending on the enterprises or products involved  - procurement solutions in low-cost zones.  European equipment manufacturers, challenged by competitors from low-salary countries, need convincing as to the coherence of the constraints imposed on them in terms of quality certification, process and environment, or service requirements.

The difficulties  recently encountered by equipment manufacturers or sub-contractors like Sofanor, Sambre & Meuse, Delos, SAEP – which made headline news – clearly highlight the practical problems that supposedly well-established companies  can come-up against.

This situation in which equipment manufacturers find themselves is one of the issues addressed by the National Assembly commission of inquiry launched at the instigation of Member of Parliament Alain Bocquet (Northern Region).

A problem sector : rail freight

Because of the unfavourable environment induced by the economic crisis, the volume of freight available for carriage in France has stagnated massively. This situation has directly impacted on wagon builders already badly affected by events, percolating down to their suppliers and sub-contractors, and so causing demand to collapse. As a result, overcapacity has become a major problem in a sector where experts do not anticipate a recovery before 2013. This in turn raises the question of whether there is the will and capacity for the surviving  industrial stakeholders to stay in business or not. Given the ambitious sustainable-development agenda in favour of rail freight pursued by the State through the Grenelle Environment Summit 1&2, based on a significant modal shift from road to rail, it follows that the value and deadline targets must necessarily be met. Yet nothing  significant seems to have happened so far, but can anyone really imagine industrial wagon-building activities in France simply disappearing, particularly at a time when railborne freight is hailed as a driver of modern development?

Sector competitiveness : a must!

In all events, efforts already deployed  by equipment manufacturers towards improving the competitiveness of their products, whether in terms of quality (IRIS or other process depending on the case), industrial performance (lean  manufacturing or equivalent) or  introduction of a common data/document  interchange system (TICIO or equivalent), must absolutely be pursued and  supported.  To compete successfully with overseas companies on the home market and make more inroads in overseas markets, timelines and costs must be reduced, whilst becoming more innovative and improving the efficiency of industrialisation processes.

Obviously these actions will only bear fruit if underpinned by a collective and cross-functional approach designed to optimise the entire sector, most of whose stakeholders are ready and willing to participate in this joint approach.  This is best illustrated by the practical example of where a major improvement source does exist but can only be tapped through joint action by all the stakeholders involved: this example is the industrialisation of a new train model from the prototype stage through to the building of the first vehicles and the ensuing testing  phase. Clearly the sector must learn to cash-in on the experiences and successes of other industries which have encountered and overcome similar difficulties!

The Mediation Charter

Based on the November 2008 findings, and as part of efforts to mediate over business access to bank loans, the State has sought to remedy the difficulties encountered in business dealings between main contractors and SMEs. A protocol governing relations between these two parties, called the Mediation Charter governing business access to bank loans, has now been signed with the Association of French Buyers (CDAF).

However this initiative, designed to strengthen the bases underpinning the sector and develop greater cohesion inside it, will only produce results if, in particular, the undertakings enshrined in the Charter for improving relations between main contractors and suppliers within the railway industrial sector, are  fully implemented.

The French Railway Industries Association (FIF), as Chairman of the steering committee for the railway industrial sector, has decided to promote the principles embodied in the Charter among its members and, more broadly speaking, within the railway industrial community by encouraging sector companies to adhere to it. Its membership of the Charter’s Steering Committee is intended to serve this very purpose.

The main contractors within the railway industrial sector, as signatories of the Charter, are committed to integrating it as a benchmark document into their procurement contracts with sector suppliers.

An initial review of the circulation and implementation of this Charter within the railway industrial sector will be conducted mid-2011.

Where are the market opportunities?

In a market where the demand for rolling-stock replacement is certain to stagnate except for urban and outer-suburban transit systems (metros, RER and tramways), the rehabilitation of ageing train fleets will become a major issue. This particular niche could well open-up genuine opportunities for groupings of French equipment manufacturers and sub-contractors to propose a global and mutualised package, providing the legal and organisational context has first been clarified.

In a different field, diversification – whether it be geographical or reaches out into other industrial branches – may open-up fresh development avenues for some equipment manufacturers.  There will, however, be a cost to such developments in that they presuppose access to resources which only companies with a solid base can afford.

Conversely, given that the sector’s industrial fabric is today amply provided for in terms both of the number of companies and of overall capacity, there would not seem to be any real appetite for a complementary domestic offer, barring the odd individual case. Besides, the sector proposes hardly any reconversion prospects for industrial firms from other sectors.