Getting into the Rail Industry

Published in Railway Strategies.


Commercial management expert John Judge has spent the majority of his career working in rail. Here, he shares tips on getting into the industry.

When I first started working in the railway industry it was being privatised and was experiencing significant investment. Not much has changed since then. It is still an attractive industry for both those on the inside and those wanting in, and despite the post-election spending cuts that loom on the horizon for all industries, the forecast for the next decade remains comparatively good for rail. The rewards and challenges of rail will still be present.

So if your company is not already working in rail, how do you get in? Competition in the industry is stiff. You must be clear on the scale of the competition you face. Do not underestimate established businesses already embedded with your potential clients that have their supply chain working hard at keeping existing relationships sweet. The service you offer has to be demonstrably better and go beyond what is currently being offered by incumbents - and in spades. Even then, why would your company be chosen over others if you have little to no experience in rail? It’s a catch-22, but when you’re a newcomer to the industry, you can represent risk to decision makers. The question they will ask is this: better to go with the unproven who promise much or those who we know we can work with?

If you do decide to go for it, my advice is do your market research. It is incredibly dangerous to your business if you just assume prospective clients’ needs. Business plans for all the major players in rail are freely available on the Internet. Read those and research whom they currently work with and have worked with in the past. Look for opportunity and openings your company can exploit to its own advantage for a competitive edge. The best way of understanding a prospective client’s needs is to speak directly to that client. Be bold and ask its board members what it is they want, have similar conversations with management and lower-level management, and let this be your guide to developing your proposal.

A key element of any plan to enter a new market is: where does your company potentially fit into the supply chain? Are you a contractor, manufacturer or service provider? Will you always be a second or third tier supplier? Or will you work directly for a major client within the sector? Do you understand the requirements of entry?

One of the major obstacles facing contracting companies wanting to move into rail is you need a Contract Assurance Case (CAC) in place before you can do any work. A CAC shows you are rail compliant and approved to work in the industry. This takes time to achieve, and it also takes money.

If you do decide to enter rail, make appropriate budgetary allowance for achieving your CAC. Otherwise, if you run out of money further down the line your company might find itself with major issues, constrained and unable to complete what you set out to do.

Due to the existence of CACs, your move into rail should be treated as a long-term strategy. It is not going to happen overnight, and, as highlighted, it is also going to require financial investment.

However, there are potentially quicker ways to enter the industry. You could either acquire a company that already has the proper accreditation, or work as a subcontractor to an organisation that holds a CAC. You will need the finance in place if you decide to buy an existing company, and I recommend strictly following the rules of acquisition and due diligence when doing so. You need to satisfy yourself that the company has credibility and its reported performance to you hasn’t been coloured by recent events. Speak to the company’s customers and dig around, ask about works that have been carried out and are being carried out. Find out before you buy if there are any problems or anything you could be liable for. Before proceeding, make sure you are happy that what the senior management tell you reflects your own findings and research.

If you buy an existing company operating in rail you are buying people, their expertise and possibly technology. It is generally good business in any industry for a new owner of an existing company not to unsettle the workforce, although employees will probably be expecting you to evaluate them along with the rest of the business. The purpose of any evaluation needs to be communicated appropriately to employees, as it is vital they understand that any new procedures coming out of the evaluation mean the company will in the future offer clients better services which ultimately lead to security for the company and its employees.

Another thing to be mindful of when buying your way into rail, and rail is quite unusual when compared to other industries because of this, is the layering of employee rights. You might find many employees embedded in the company structure that have pensions and personal terms that pre-date the privatisation of British Rail. The advent of TUPE means that many companies have layering of employee terms that generally reflect the economic cycles we have been through in the past 15 years. Nothing wrong with this, but ensure that when undertaking due diligence you understand the true scale of your responsibilities and liabilities.

If buying is not an option, engineering an alliance or a joint venture or simply working as a subcontractor to larger more established organisation in the industry is a good alternative point of entry.

Delivering A-grade work will open more doors here for your company. It’s a useful way of building experience and trust within the industry.

Alliances and joint ventures generally have short life expectancy. They can be highly successful, but they can also end acrimoniously, which causes rail decision makers to be wary of any alliance or joint venture.

The rail industry is notoriously slow in accepting new technologies because too much is at stake if something goes wrong. So by nature, and rightly so, the industry has to be conservative in its approach to development and decision-making. Yet opportunities for technology do exist. Improving security inside stations and their surroundings and car parks is one area, for example, where new technology could make a big difference. If you have something special to offer I am sure any rail organisation would be happy to meet to discuss it.

Ultimately, if you are thinking of entering the rail industry, you have to decide if the end results are worth it. Regardless of whether you buy your way in, go through the CAC process or subcontract, it takes time and money. Can you afford that? Then there is the potential volatility in the market’s demand and how you might be needed today, but six months’ time? A year? Will you have planned for any inactivity? Do you risk being trapped in a sector with no room for manoeuvre? Any doubts and it is probably best not to try until you have the sufficient confidence to invest the time and money to enter the sector. That said, in these times of economic uncertainty few markets/sectors offer the stability of rail, so don’t walk away from what could be a golden opportunity for you to diversify.

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