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Japanese firms announce rail pact

(Dow Jones Newswires circulated the following story by Juro Osawa and Hiroyuki Kachi on June 23, 2010.)

TOKYO — Mitsubishi Heavy Industries Ltd. and Hitachi Ltd. said Tuesday they have reached a basic agreement to cooperate in the railway-systems business in overseas markets so they can more effectively compete against larger overseas rivals.

The world's big three railway systems players—Germany's Siemens AG, France's Alstom SA and Canada's Bombardier Inc.—are far ahead of Japanese counterparts like Hitachi and Mitsubishi. Japanese companies are looking to join forces to have a better shot at gaining global market share. Infrastructure demand is strong in newly emerging economies, and environmental concerns are also driving demand in developed countries for more efficient railways.

"Japanese players need to team up if they are to win orders for big railway projects overseas," said Gaku Suzuki, who heads Hitachi's industrial and social infrastructure businesses.

The two companies said they will cooperate in areas such as marketing, construction and maintenance for urban railway systems. Hitachi's strength lies in rolling stock and signaling systems. Mitsubishi Heavy's main contribution will be in railway tracks and overall project management knowledge.

"By complementing each other, we can more aggressively seek overseas orders," said Shunichi Miyanaga, head of Mitsubishi Heavy's machinery and steel-structures operations. He said they will concentrate on seeking orders in Southeast Asia, Brazil and India.

The companies will set up a dedicated office for their joint operations in Tokyo next month. They may also consider spinning off and merging their overseas railway-systems operations, Hitachi's Mr. Suzuki said.

Hitachi, a technology conglomerate with businesses ranging from consumer electronics to nuclear plants, has said it aims to double revenue from its railway system business to 350 billion yen ($3.85 billion) in the fiscal year ending March 2016 from 177.6 billion yen in the just-ended fiscal year. Of that 350 billion yen, it expects overseas revenue to make up 60%.

Mr. Suzuki said the tie-up with Mitsubishi Heavy won't change these revenue target figures. "Our target was already based on the assumption that we would need more partnerships to expand our overseas business," he said.

Mitsubishi Heavy is a major Japanese heavy machinery maker and plant engineer. It has a strong track record in the aerospace industry, supplying composite material wing boxes for the Boeing 787 Dreamliner from its assembly plant in Nagoya, Japan.

Hitachi was awarded preferred bidder status for a British high-speed railway project, but the U.K. government postponed it in the run-up to the country's general election in May. Mr. Suzuki said the company is still waiting for the government's response, but its preferred bidder status remains unchanged.

Thursday, June 24, 2010

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