Investing in high-speed passenger rail networks: insights from complex international supply chain, technologies and multiproduct firms
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The growth of population and business during the rapid urbanization process in the twentieth century has generated significant demand for transportation. As the demands have grown, road and air transportation are suffering from significant congestion and delays. Continuing expansion of highways and airports has become both expensive and difficult, along with not being able to provide adequate solutions to the growing congestion. One alternative, which is being pursued by many countries, is to invest in efficient high-speed rail networks to meet the pressing demand for mass passenger transportation. This alternative is also one that may have beneficial impacts by reducing energy consumption and alleviating some of the environmental concerns. But to make these infrastructure investments, governments need to make difficult decisions due to the complexity of the industry and technologies involved. This thesis examines decision making by government for such investments. In order to carefully study the industry, we use a two part approach. First, we examine the HSR industry supply-chain. We create a detailed taxonomy of the industry supply-chain and highlight various aspects of the advanced technologies being used, the sophisticated multiproduct nature of the firms, and the diverse international location of the companies. Second, we gather information on all the international HSR contracts between 2001-2011. These contracts enable us to examine business strategies pursued by the major HSR trainset suppliers and component manufacturers, insights into the size of the orders and type of trainsets being delivered, and the formation of partnerships and collaborations to meet the complex demands imposed by Governments when they invite bids for these expensive projects. A detailed examination of the supply-chain shows that the core technologies and competencies are highly concentrated in those countries which historically have had high demand for high-speed rail. Germany, Japan, France, for example, have the highest number of trainset and component suppliers. In more recent years, South Korea and China have emerged as the new frontiers of trainset and components suppliers. This implies that countries who are outside of this group are highly dependent on either importing these technologies and investments or make a concerted effort to develop them via partnerships and technology transfer agreements. Our examination of contracts shows that the size of HSR investment order is important for both business and government strategy. The order size determines the extent of domestic content and production. While many components will inevitably be imported, a larger order size may allow for various components to be manufactured domestically. Order size also appears to influence the nature of partnerships among the firms in the industry. We observe a growing number of HSR investment partnerships among trainset suppliers over time, possibly due to the need to pool risk in these highly complex and uncertain investments, as well as the changing competitive dynamic of HSR markets.