In this recommendation report, we will present the results from our feasibility study of business expansion into Berlin Germany.
After extensive analyses, we recommend MTR enter the market. This is because that the large market size and considerable demand for mass rail transit render Berlin a particularly appealing market. More importantly, German regulators have lowered the entry barrier of the market.
We recommend MTR provide one of the railway operators, DB with consultancy services on rail-related services (operation & maintenance) and non-fare business (station retailing and advertising), which precisely caters to DB’s needs. Besides, the Octopus Card System should be executed through a partnership with a local organization VBB a local transport association. These recommendations will fully employ MTR’s unique strengths and effectively mitigate possible risks.
The whole expansion plan is estimated to yield a NPV of HK$ 700 million within a ten-year timeframe. It will enable MTR to generate sustainable revenue and enhance the global reputation successfully.
This report investigates into the rail transit market in Berlin Germany, followed by the feasibility assessment of MTR’s strategic expansion into Berlin. Recommendations will also be given on the grounds of the analyses. The objectives of the report are presented below:
* Pinpoint the opportunities and risks for business development in Berlin via thorough evaluation of the market. * Propose entry strategies to capitalize the opportunities and mitigate the risks through leveraging MTR’s competitive edge. * Generate sustainable profit streams and enhance the global reputation of MTR.
We considered three categories of businesses to tap into in Berlin, namely consultancy services, Octopus Card System and Railway Property Model. All of them have been carefully examined and the results will be exhibited in the Recommendation part.
This section will cover the external analysis, aimed at detecting the expansion potentials and isolating the risky factors lurking in Berlin. Internal analysis will follow sequentially, specifying the core competency of MTR.
1.1 External Analysis
1.2.1 Environmental analysis
There are several strong motives in line with the PESTLE analysis (Appendix I) for MTR to take the initiatives in Berlin:
i) The social and economic factors indicate large market size and huge demand for mass rail transit in Berlin. ii) Unlike most of the other European countries, the market in Germany features low entry barriers thanks to the railroad reform, ranking the 2nd in the Rail Liberalization Index in Europe (IBM & Kirchner, 2007). iii) The railway transport is environmentally promising in Germany since it is aligned with the government’s commitment in reducing CO2 emission (Anonymous, 2008).
Some hidden risks, nevertheless, are noteworthy. First, MTR is unfamiliar with the local culture, giving rise to potential problems in human resource management. Secondly, the industrial relations are more complex than that in Hong Kong. While MTR is an integrated operator in Hong Kong, the infrastructure owners in Germany are separated from operators (IBM & Kirchner, 2007).
1.2.2 Market analysis
Currently, there are two separate systems, S-Bahn and U-Bahn in Berlin, operated by different companies. While the infrastructure of railway network is well-established (Appendix II), it should be noted that there has been a record of train maintenance failure recently, which results in decline of timetable accuracy and service quality(Anonymous, 2009), illustrating the tough challenges faced by its operator, DB.
Furthermore, the significant passenger flows and the acceleration of commercialization after the unification of Berlin jointly contribute to the growing demand for commercial activities around railway stations, leaving...