A decade of change in the Rail European Market; Influence on R&D and Innovation. “Toward a new equilibrium in the Rail sector” Conference on Railroad Industry

A decade of change in the Rail European Market;A decade of change in the Rail European Market; Influence on R&D and Innovation.Influence on R&D and Innovation.

“Toward a new equilibrium in the Rail sector”“Toward a new equilibrium in the Rail sector”

Conference on Railroad Industry Structure, Competition & InvestmentsConference on Railroad Industry Structure, Competition & Investments

Toulouse, 8 Nov. 2003Toulouse, 8 Nov. 2003

Dr Guillaume de Tilière (ALSTOM Transport), Dr Staffan Hulten (ECPI)

ECPECP

Plan of the presentationPlan of the presentation

I. Introduction: objective & methodology I. Introduction: objective & methodology

II. Change of Institutional ModelsII. Change of Institutional Models

III. Impact on Innovation (patterns of rail innovations)III. Impact on Innovation (patterns of rail innovations)

IV. Impact on Rail Innovation Diffusion ModelsIV. Impact on Rail Innovation Diffusion Models

V. Impact on Rail Innovation ModelsV. Impact on Rail Innovation Models

VI. ConclusionVI. Conclusion

2EPRC 2003 / G. de Tilière & S. Hulten

I. IntroductionI. Introduction

Background:

Since a decade the EU transportation market has drastically changed:

- Harmonisation of the European transport market:- Harmonisation of the European transport market:

=> Increase interoperability in the EU rail transportation network

=> Increase the competitiveness of the rail sector (industries)

- Globalisation of the transportation industry (merges, standardisation)- Globalisation of the transportation industry (merges, standardisation)

=> Operators / Industry

=> more pressure for competitiveness, especially for rail (national barriers)

Focus:

EU rail market change and impact on innovation processes, looking at systemic innovations (technological trajectories) which aim at increasing interoperability, safety and capacity of the rail system.


Objective:

1. look at the main changes of the EU rail market and their impacts on innovation 1. look at the main changes of the EU rail market and their impacts on innovation

Case studies approach / empirical research:

1.1 Case of national innovation systems (before the 90’s)

- development of HSR technologies (TGV, ICE, X2 case, )

- development of Signaling technologies (ATP systems)

1.2 Case of the new European innovation system (after the 90’s)

- development of new HSR generations (AGV, ICE3, Regina case)

- development of Signaling technologies (ERTMS technology)

2. Working out Innovation Models for the Rail Sector:2. Working out Innovation Models for the Rail Sector:

2.1 The National Rail Innovation Model (before the 90’s)

2.1 The European Rail Innovation Model (after the 90’s)

3. Define challenges related to the transition phase between these two equilibrium. 3. Define challenges related to the transition phase between these two equilibrium.


A. Former National Institutional systems

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INDUSTRYINDUSTRY

Production Development

Support

OPERATORSOPERATORS

OperationsDevelopment

Support

ACADEMIC RESEARCHACADEMIC RESEARCH

Management

Technology

Fundamental

FINAL USERSFINAL USERS

FINANCING INSTITUTIONSFINANCING INSTITUTIONS

INSTITUTIONSINSTITUTIONS

Finance ministry

INSURANCE COMPANIESINSURANCE COMPANIES

Transportationministry

R&Dministry

II. Changes of Institutional modelsII. Changes of Institutional models

Technical specification

s

EPRC 2003 / G. de Tilière & S. Hulten

6

INDUSTRYINDUSTRY

Production Development

Support

OPERATORSOPERATORS

OperationsDevelopment

Support

ACADEMIC RESEARCHACADEMIC RESEARCH

Management

Technology

Fundamental

FINAL USERSFINAL USERS

FINANCING INSTITUTIONSFINANCING INSTITUTIONS


Finance ministry

INSURANCE COMPANIESINSURANCE COMPANIES

Transportationministry

R&Dministry


EU LevelEU Level

Technical specification

s

Functionalspecification

s

InfrastructureInfrastructure ownerowner

B. New Institutional systems since the European harmonisation


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Performance min required atthe entrance of the market

Performance min required atthe exit of the market

Rupture of a technologicalinnovation

Pro

du

ct p

erf

orm

an

ce (

syst

em

)

Time

Progress due to th

e

Improvement o

f the te

chnology

Progress due to th

e

Improvement o

f the te

chnology

- Systemic innovation requires close cohesion of partners but: - Operators are no more codevelopers and wants proven technologies:

=> Transfer of the risks to manufacturers

Effects of a continuing improvement of a technology & Market requirements

* Performances include many factors as reliability, speed, comfort, investments & operating costs…

III. Impact on InnovationIII. Impact on Innovation


S-curve and the notion of “critical mass”:S-curve and the notion of “critical mass”:

Higher opportunities / higher market risks for manufacturers

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Units of item producedOr lenght of the new network fitted

Timet0

LF: First adoptionOperator 1

t1

L1: Level of adoptionOperator 1

N2: Level of adoption Operator 1 sufficient, Other operator interested

Critical Mass of adoption (controlled by operators)

t2

N1

N2

N3N3: Mastered technology (in terms of technics and costs)

N4: Saturation of the market, competition with other new technologiesN4

LF: represents the level of prototype maturity required for first adoptionL1: represents the level of first adoption required to pursue any further extention of the network


9

R&D Programs, public & private partnershipR&D Programs, public & private partnership

Scale of Scale of Investment valuesInvestment values

EmergingEmergingtechnologies technologies

Key Key technologies technologies

basic basic technologies technologies

TimeTime

Value of thecompeting technology

Resource levelattributed to R&D

Logical level of resources

attributed to R&D

Risk taking,Systemic innovations

Risk aversionConservative strategy

Will vertical disintegration lead toward Less radical innovations (“technological wonder”), but more efficient use of R&D funding?


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S M E

IV. Impact on the InnovationIV. Impact on the Innovation Diffusion SystemDiffusion System

National Rail innovation system: centralized & ascendant

• The change agents for the system architecture are the duo operator-manufacturer (but leads to captive markets).

• Integration of “component innovations” leading to a systemic innovation.

• Concept of incremental innovations characterized by an ascendant diffusion system.

• Concerning innovations on components, change actors are usually small and medium enterprises (SME), who leads R&D more aggressively than big manufacturers (integrators).

OperatorSystemSpecificator

SystemInnovator

R&D System, Systemic innovations

Change Agent (System & Components)

Change Agents (Components)

R&D on Components, Component innovations

ComponentInnovators

Manufacturer

A. The former National Innovation Diffusion System


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S M E

B. The new Innovation Diffusion Systems (new European environment)

The new European Rail innovation system

A new paradigm: Interoperability => harmonisation

• The EU harmonization process put more pressure on standardization of both operation and manufacturing market.

• Open competition “in principle” of the rail manufacturing market (limitation: current specific national technologies).

The purpose is to put into competition for the long term the maximum of manufacturers to increase cost efficiency

Operator AfunctionalSpecificators

SystemInnovators

R&D System, Systemic & architectural innovations

Change Agent (System & Components)

Change Agents (Components)

R&D on Components, Component innovations

ComponentInnovators

Manufacturer A

Operator B Operator C

Manufacturer B Manufacturer B


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Knowledge Persuasion Decision Adoption Diffusion

National operator

A. National Innovation Model for Rail technologies (up to the 1990’s)

Need recognition

National Industrial

Consortium(preselected)

R&D contract“Study contract”

PrototypeValidation / Test track

Sale contract /Commercial operation

(national market)


(Export market)

0perators from other countries

interested in the new technology

Close relation Operator-Industry

(National level)

Limitation of financial risks linked to R&D investments.

Strongly supported by operator and state

Limitation of technical risks:complete validation process

before implementation

Limitation of commercial risks as

operator has a leading role and interest for implementation

Pricing of the technology doesn’t include full R&D

costs as strongly supported by national operator and by state

Definition of operator needs: Functional

& technical specificationsP

rese

lect

ion

Diffusion of the technologyNational market

(protected by standards & close relation Operator-

Industry

National Transportation & Industrial Policy

Leading countries in the Rail Innovative technologiesLeading countries in the Rail Innovative technologiesNational Market: a platform to reach the critical adoption thresholdNational Market: a platform to reach the critical adoption threshold

Following countriesFollowing countriesBuying proven Buying proven technologiestechnologies

Diffusion of the technology

International market

Proven technologyNational market = Show

case for international sales

V. Impact on the Rail InnovationV. Impact on the Rail Innovation ModelModel



Knowledge Persuasion Decision Adoption Diffusion

Operator

B. New European Innovation Model for Rail technologies (since the 1990’s)

Need recognition

Industrial Consortium

EuropeanEuropeanR&D ProgramsR&D Programs

(Def of standards)

PrototypeValidation / Test track


(European market)


(Export market)

0perators from other countries

interested in the new technology

Operators Group & Industrial Group(ERRI, UNISIG, etc)

R&D investments independently of the

national operators => higher financial risks for

Industry

Limitation of technical risks: by a first validation process.But uncomplete Validation

process

Higher commercial risks as no more duo operator/industry leading together the whole innovation process. But new market opportunities as less national

barriers

Pricing of the technology should now include full

Industrial R&D costs

First adoption of the technologyEU market

Additional development for final Validation needed

European Transportation & Industrial Policy

Leading countries in the Rail Innovative technologiesLeading countries in the Rail Innovative technologiesNo more “National platform” to guarantee a national industrial that the critical adoption threshold No more “National platform” to guarantee a national industrial that the critical adoption threshold will be reached; but the globally the “EU standard” will lead to a “will be reached; but the globally the “EU standard” will lead to a “more risks/more opportunities” ”

type of markettype of market

Following countriesFollowing countriesBuying proven Buying proven and more

standardised technologies, technologies,

Diffusion of the technology

International market

Proven technologyEuropean market =

Show case for international sales

InternalR&D Program

Definition of needs: Functional

specifications

InfrastructureOwner

VI. Conclusion: VI. Conclusion:

Future achievements:

- This new model will increase cost efficiency through standardisation and through the end of “captive markets”

- The standardisation will allow strong improvement of interoperability.

Current Challenges:

- Operators have to shift from technical to functional specificators.

- R&D tasks are fully transferred to manufacturers. They will have to define carefully their R&D strategy (before “directions” were given by operators).

- Increase of market opportunities but also of commercial risks.

- Manufacturers must now include all R&D costs in their price, which is not yet in their habits (as strongly funded before by operators).

- No more co-development, leading to no more complete validation phase with the operator: higher technical risks on first product generations.

- The role of operators & infra owners in system integration is getting more complex.

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For information and comments, thanks to contact:

Dr Guillaume de Tilière

ALSTOM TRANSPORT

33 rue des Batelliers, F-93400 St-Ouen

[email protected]

ECPDr Staffan Hulten

Ecole Centrale de Paris

[email protected]

Documents

A decade of change in the Rail European Market; Influence on R&D and Innovation. “Toward a new equilibrium in the Rail sector” Conference on Railroad Industry