TOKYO - Hitachi's recent purchase of the railway and signaling business of Finmeccanica, an Italian defence and aviation company, was unexpectedly expensive. It had to raise its bid to around 260 billion yen (US$2.14 billion), due to the decline in the yen and the arrival of a last-minute rival bidder.
However, the deal was a crucial step for the Japanese industrial conglomerate as it readies for battle with bigger rivals. It had to buy a bigger footprint in the global railway market, rather than wait for slower organic growth.
The global railway market is dominated by the "big three": Canada's Bombardier, Siemens of Germany and France's Alstom, each of which has annual sales equal to around 1 trillion yen. In the fiscal year ended March 2014, Hitachi's railway business had sales of just 168.2 billion yen.
Its major markets are limited to Japan and the UK
No time to lose
Hiroaki Nakanishi, Hitachi's chairman and CEO, sees a formidable potential rival in China. At a news conference announcing the acquisition of the Finmeccanica unit on Feb. 24, Nakanishi mentioned the upcoming merger of China's state-owned CNR and CSR this year, saying the deal would shake the industry.
Nakanishi added the merger of the two Chinese railway companies was part of the industry's globalisation.
The two companies' combined sales of 3.7 trillion yen will dwarf those of its Western competitors. The Chinese rail champion and Hitachi, which is hoping to push into the big leagues of the railway business, face an inevitable clash.
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