Last week, a bloomberg article elaborated on the talks between Siemens and Bombardier Transportation for a merger, or as it turns out, a joint venture. Allegedly, the two companies want to form two joint ventures: a) Combining the rolling stock business under the leadership of Bombardier; b) Combining the signaling business under Siemens.

What it could mean for both companies

From a Siemens perspective, the company would abandon their Smart City strategy by disinvestment of their rolling stock manufacturing capabilities. On the other hand, these activities are low margin, have currently high numbers of employees and are prune to automation and head count reduction. Siemens could then focus on the more demanding, and also higher margin business in signaling and component business, while driving its digitalization strategy.

From a Bombardier perspective, it would lead the company back to its roots, where manufacturing was its key activity. Moreover, it would limit the financial investment that will be necessary to keep up in the signaling business over the next decades where the engineering and manufacturing has to rely more and more on strong in-house digitalization capabilities for which Bombardier is not known so far.

Possible rationale

What possibly triggered this collaboration, as well as Alstom’s split between transport and energy business, is most likely the merger between China South Railway (CSR) and China North Railway (CNR) into the world’s largest rolling stock and component manufacturer CRRC with a full portfolio of products and services.

However, both companies, Siemens and Bombardier, already have within themselves the whole portfolio of products and services, without having one significantly more superior than the other, this argument falls short.

Another argument could be Bombardier’s stiff need for cash. Some strenuous projects (Talent 2, AMT, Twindexx, Toronto) besides the need for cash for C-Series, might require additional cash inflow. With such a joint venture, Bombardier could receive what the need, and at the same time maintain its “full service” portfolio.

What it would mean for other market players

Due to the vast size of a joint rolling stock company, and joint signaling company, with multiple cultures across the globe, one could expect more and more management attention and inefficiency within the organization. This would allow other top players such as Alstom, Hyundai Rotem and Stadler to attack more and more market segments and gain market shares. At the same time, small and less integrated companies might emerge and cover specific niches, relying on the component supplies of the large integrated companies.