European industrial conglomerates Siemens and Alstom have agreed this week to unite their rail manufacturing divisions.
In a memorandum of understanding, the two companies agreed to form a new joint venture, called Siemens Alstom which would head off competition from China.
Siemens based on Germany produces much of the country’s rolling stock, while French company Alstom manufactures the internationally-renowned high-speed trains known as the ‘TGV’.
Siemens would own just over 50 percent of the shares of the new venture, while the Chief Executive would be supplied by Alstom.
The joint venture was structured this way in part to dampen French concerns that it would lose control of key national infrastructure to a foreign conglomerate.
The new company will have its main headquarters in Paris as well as its HQ for ‘Rolling Stock’. A separate HQ for ‘Mobility Solutions’ will be based in Germany.
According to Siemens, the new venture will have a combined annual revenue of around €15.3bn as well as a huge order backlog worth €61.2 bn.
It also estimates that the merger of the two companies rail divisions will result in cost savings and increased efficiencies worth €470mn.
“This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term,” said Joe Kaeser, CEO of Siemens.
Rising Chinese competition
One of the major drivers for this merger was the rise of Chinese state-run rail company CRRC Corp. Ltd, now the largest rail company on the planet.
Previously, companies like Siemens and Alstom could claim most international rail markets, however, after a long period focusing on just domestic rail projects, CRRC is now claiming international contracts.
“The global market-place has changed significantly over the last few years. A dominant player in Asia has changed global market dynamics and digitalization will impact the future of mobility,” said Kaeser.
Through combining forces, the two companies would likely hope that they will be able to better face off with the Chinese giant for contracts, rather than competing with each other for the remainder of the market.
Siemens will be represented at The Manufacturer’s Smart Factory Expo being held between the 15th-16th of November 2017. Find them at stall number: SO12.