What is this case about?
Established in Canada in 1942, Bombardier Inc. (BBD) first produced snowmobiles and all-track vehicles. By the mid-1970’s, the company achieved global leadership position in the snowmobile industry and has conquered the US market. Nonetheless, despite high revenues BBD faced cyclical risks, that’s why the firm expanded in both aerospace and the rail transportation industry. The firm pursued external growth by vertical integrations and increased its producing capacity. During the following years, BBD kept purchasing companies at low prices in order to further diversify its portfolio and gain market share. Acquisition allowed the firm not only to complement and diversify but also to strengthen its core activities thanks to excellent management approaches in integrating acquired companies. Till this day, Bombardier Inc. is comprised of 4 main business groups: recreational product group, transportation group, aerospace group and capital group. Among those groups, aerospace group represent the greatest proportion in company’s total profit. However, it is also a cyclical business with fluctuating revenues. Therefore, Bombardier Transportation (BT) plays an important role to make a balance of the corporate’s revenue since it is a business counter-cyclical to the aerospace business. In order to expand BT’s presence in global market and to increase revenue, in 2001, BT planned to acquire Adtranz, a Europe based company with the competencies of propulsion system that BT lacks. Before the deal could close, BT had to wait for the approval of the European Commission. Although reaching the European market is crucial for BT, there are still many questions left concerning the compatibility of two companies. Draw a schematic representation of bombardier’s business portfolio before and after the ADTRANZ acquisition
As we can see on the schema below, among 6 distinct segments in rail transportation industry, Bombardier Transportation (BT) operates in five out of six market segments: the “fixed installation” segment is considered as non-strategic. However, in “rolling stock”, “Rail control solutions” and “Propulsion & controls” segments, BT only has the know-how of assembling basic equipment and rail cars. ADTRANZ, in contrast, has advanced products or technology that BT lacks, such as locomotives, propulsion systems, high-speed and inter-city cars and signaling systems. Before the acquisition, BT major competencies were in assembling rail cars. The needs for acquiring new technologies and extend its expertise, BT targets ADTRANZ to complete its portfolio.
* Squares with dotted line are the businesses BT will acquire from ADTRANZ after the acquisition. Plain squares are BT’s businesses before acquisition.
Changes for the whole corporate portfolio
(for Bombardier Inc.):
European policies aiming at reducing congestion, pollution and traffic problems provide a promising future for the railway industry while an opposite attitude is held in the United States. In America, many factors drive the customer not to travel by trains: lower gasoline taxes, promotion of automobile travel, efficient and larger air travel system and aversion to government subsidies, all these policies and cultural differences make an unforeseeable change in direction of supporting an increase in rail transportation usage and investment. On the other hand, unlike the common perception, the EU subjects some rail transportation business, such as high-speed train, to competition through bidding processes. For instance, rolling stock companies are slowly becoming privatized. Therefore, as a North American based company, which holds the position of No.1 in North America but only No.4 in Europe, Bombardier Transportation needs to turn more toward a promising European market, where demand is a growing demand driven by to the green movement and the strong...
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