CROVE i

TABLE OF CONTENTS

COVER ............................................................................................................................ i
TABLE OF CONTENTS ..................................................................................................ii
Journal Data ................................................................................................................... iii
1. Introduction ..............................................................................................................1
2. Description Of The Main Issue..................................................................................2
3. Critical Review ..........................................................................................................4
4. Conclusion of the discussion of the main issue............................................................6
5. Lesson Learned .........................................................................................................7
6. Bibliography .............................................................................................................8

ii
 Journal Data

Journal Title : Porter’s Five Force In The German Railway Industry

Author : S. Wellner , J. Lakotta

Journal Name : Journal of Rail Transport Planning & Management

Publication Year : 27 February 2020

iii
 1. Introduction

Porter's Five Forces Model is a model created by Professor Michael Porter at Harvard
Business School in 1979. Porter's model is often applied to any segment of the economy to
understand the level of competition in the industry and increase the company's long-term
profitability. This method is also commonly used to define industry structure in determining
company strategy. According to Michael E. Porter, five things determine the level of
competition and market attractiveness in an industry. The attraction in question is the overall
profitability. After analyzing the Porter Five Forces, it can be concluded whether the industry
is still attractive or is considered less attractive. Part of the Porter Five Forces consists of rivalry
among existing competitors, bargaining power of buyers /and customers, bargaining power of
suppliers, the threat of new entrants, threat of substitute products, or services.
In this assignment, I took a journal entitled "Porters Five Force In The German Railway
Industry" which is used as a critical review assignment for a regional planning course. In this
journal, the author's goal is to investigate the potential profitability of the German railway
industry. Using qualitative methods to evaluate the strength of each of the five force porters.
There are two factors identified to play an important role, namely industry-specific factors such
as industry integration, entry barriers, and the power of buyers and suppliers that determine the
market structure and level of competition. Second, the reasonable arrangement of company
resources (for example, the best use of capital, technology, and human resources) is considered
to have a significant effect on the company's profitability.
In this paper, the author shows how to combine the extended framework and the
operational framework to improve the usability of the framework to a new comprehensive
stage, which is in addition to the qualitative assessment of each advantage of porters so far.
Therefore, the German railway industry is an industry with low profitability, although the
overall profitability of each manufacturer is different. The analysis in this case study is based
on the personal opinions of four experienced long-term members of the railway industry.
Although the method of operation of the system can yield clear mathematical results, the next
step should be to use extended quantitative methods to check the usefulness of this assessment.

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 2. Description Of The Main Issue

Since the beginning of the year, the German government and Deutsche Bahn invested
86 billion euros in German railways over the next 10 years. To modernize and digitize the rail
network as well as Expanding optional support for eco-friendly travel (Federal Ministry of
Transport and Digital Infrastructure (2020)). In January 2020, the government lowered the
value-added tax rate for intercity tickets from 19% to 7%, which significantly lowered ticket
prices while increasing the competitiveness of trains. These two new government interventions
will draw their attention to companies and industries. In a research journal entitled "Porter's
Five Forces in the German Railway Industry", There is a change in the producer market which
reminds us of the profitability of the German railway industry, as these major players have
large manufacturing plants in Germany. In this study, the provision of rail services is not
considered the German rail industry.
The problem question in this journal is how to extend Porter's Five Forces model and
apply it to the German railway industry, and give an idea of the industrial environment is
difficult or easy to handle and profit margins are very high. The author focuses on basic issues,
namely the basis for determining company profitability and focuses on determining the external
profitability of the company by interviewing four railway experts using the porter framework.
To evaluate the overall profitability of the German railway industry four different experts with
long-term experience in the railroad industry were interviewed. These specialists are sales and
purchasing representatives of the major railway producers and the German Rail Industry
Association (Verband der Bahnindustrie).
This study shows the profitability of the German railway industry. Porter's Five Forces
Framework has been applied to many industries, even on the topic of railways, but has not yet
been applied to German rail manufacturing. According to the authors, verification or
implementation of the expansion of different frameworks and the expansion of applications in
the German railway industry has not been published in any research reports.
Porter's framework includes five main advantages, namely the threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threats of alternative products or
services, and competition among existing competitors (Porter, 1980). The strength of each
force and the level of threat depend on the sub-conditions of the force being determined, and
the collective strength of the force determines the potential end-to-industry profit.

2
 Figure 1 Adapted Framework based on Porter's Five Force.

Compared to the automotive industry, railway products have not yet reached the same
level of standardization, so that they can be completely differentiated according to customer
needs. The fact that many private operators are trying to enter the German market makes people
believe that sufficient profits can be realized. The contribution of end-consumer products also
shows an average effect, as passengers pay more attention to punctuality and cleanliness to
improve operator quality. Competition between existing companies competing in the same
industry can establish a limit to profitability. Launching new products, providing discounted
prices, increasing service levels was stated by Porter as common examples of competitive tools.
The level of competition can be high when companies are many and of the same size, thus
exercising a similar level of business power. Slow industrial growth, high exit barriers, and
fixed costs, and low product differentiation also cause a strong battle for market share.
The authors' analysis concludes that the profitability of a company is mainly driven by
the resources it has, whereas the profitability of the entire industry is characterized by its
structure. By developing five force-handling program models while reviewing the structure,
behavior, performance paradigm, and resource-based perspectives, it provides an overall
picture of the reasons for potential earnings. Challenging passenger expectations such as
punctuality, reliability, and availability compel operators to demand highly innovative and
improved rail technology. Innovation and improvement carry the risk of failure and
automatically affect the profitability of producers.

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 3. Critical Review

Application of Porter's Five Forces Framework requires a definition of the relevant

industry foundations. First, the top industries must be clearly defined, and then suppliers,
buyers, competitors, and producers of alternative products must be identified. In the second
step, the threat level of each sub-unit should be assessed and summarized into an enhanced
output. Finally, all strength values must be combined to create an overall picture of the
profitability of the industry.
It can be said that Potter’s five powers may be considered one of his most famous powers
strategic model because it considers an industrial economy-based approach to shape different
mentalities in attractive or unattractive industries. On the other hand, the Porter model is not
only challenged by current validity, scholars, and others in the field of strategic planning, but
there is other strategies model. Over the years, many other strategic models have been scholars
and practitioners create a win-win situation at the national and international levels of the market
and industrial environment.
Attributed to porter theory, the five forces framework might be seen as something that
can be used when completing the industrial analysis. Even upon closer inspection, it becomes
clear that the model supports an organization. To gain a deeper understanding of how profits
are shared between the five forces in a particular industry. Hence, this will enable the
organization to better understand understanding. The industrial organization (IO) approach
assumes that the attractiveness of an industry in which an organization is determined by market
structure for the reason that market structure influences the behavior of market contributors.
The implementation of the fice force porter direct organization concept is expected to
be entrepreneurial and creative in finding new ways to escape and reduce competition as much
as possible and to proceed to industries where the five forces are least vigorous.

The power of the journal

In this study, a good and clear discussion was carried out, as well as an orderly and
complete description of the completeness of the analysis method. The background to the
journal issue is very important to discuss because German railway manufacturers are
experiencing intense competition by newcomers from Asia and Eastern Europe.

4
 Porter's five forces framework is used as an analytical tool that can be used when
completing industrial analysis. Even upon closer examination, it becomes clear that the model
allows an organization to gain a deeper understanding of how profits are shared between the
five forces in a particular industry. Hence, this will enable the organization to gain a better
understanding.
Because this journal has never been discussed anywhere, therefore it can be useful for
other people and become a reference for other journals and has a selection of topics that are
rarely chosen, this makes an added value so that the community/other people can add insight.

The weakness of the journal

In a research journal entitled "The Relevance Of Porter's Five Strengths In Today's

Innovative And Changing Business Environment" written by Gerarg H. (2018), the writer
criticizes the notion that porter's framework assumes a rather static market structure and perfect
classical markets and the market lacks consideration of strategic alliances due to lack of
considering strategic alliance. Porter’s five forces framework was not specifically designed for
“innovation” or “change,” although there may be a preoccupation of an innovation and change
approach in the framework.
However, much of the critique may come from the notion that the framework assumes
a rather static market structure and a classic perfect market as well as the lack of considering
strategic alliances. According to Brandenburger (2002), He stated that "Porter's five-style
model is more realistic because it focuses on the reality of large organizations that control many
industries, that is, on monopoly or oligopoly situations."
Another criticism is that the author does not provide solutions to the consequences and
challenges of the railway industry in Germany. The German rail industry has not been analyzed
with an expanded Five Forces Framework. Much criticism may come of understanding this
framework assumes a rather static market structure and a perfectly classical market and market
lack of considering strategic alliances. Porter's five-strength framework appears less effective
in that a zero-sum game approach in which a partner's profit or loss equals the loss or profit of
other partakers is short-term, ignoring the long-term benefits of a situation of collective chance
that benefit through the relationship of supplier and buyer.
In addition, too much strong competitive pressure on competitors can backfire or even
damage the organization which can have a severe impact on the organization's cost structure,
and the factor of stakeholder engagement.

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 4. Conclusion of the discussion of the main issue

With a production history of more than 100 years, the German railway industry has
developed into a mature market and plays an important role in terms of mobility and the
environment. However, it appears that European rail manufacturers are experiencing increased
competition due to new entrants from Eastern Europe and Asia. In this study, the provision of
rail services is not considered in terms of the German rail industry.
The German railway industry is an industry with a rather low level of profitability. In
fact, the overall level of profitability differs among manufacturers. Since railway manufacturers
do not report their financial results separately for each country, but only at the worldwide
business unit level, it is not possible to clearly compare our results with real figures for the
German rail industry.
Although Porter lists and describes the considerations in his own publication in
sufficient detail in writing, they are not explicitly seen in the Five Forces Framework and
therefore often appear as an adjunct to managers (Grundy, 2006). Challenging passenger
expectations such as punctuality, reliability, availability compel operators to demand highly
innovative and improved rail technology. Innovations and improvements lead to risk of failure
with an automatic impact on producer profitability.
The purpose of this journal is to expand the scope of research. That is to build a
conceptual framework that combines the impact of government intervention on the profitability
of the company and the influence of complementary products on the profitability of the
company. Then, the authors conveyed the operation of a new conceptual model and proposed
the application of the above operating model based on case studies in mature markets.

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 5. Lesson Learned

After aconduxting a critical review of Porter's "Five Forces of the German Railway
Industry" , it can be understood that the application of the five force carrier concepts is
important for understanding the analysis and determining the methods that shape the
advantages of the business model. When determining a company’s strategy, this method is also
often used to identify the structure of the industry, because competition is very important for
all companies, because competition affects the success or failure of a company. Companies
must have a competitive advantage to achieve excellent performance. Therefore, combining
business strategies in marketing activities with human resource management (sales staff)
activities can generate competitive advantages and improve long-term optimal results.

The recommendation that I can give is by imitating best practices from the journal "The
Relevance Of Porter's Five Forces In Today's Innovative And Changing Business
Environment", written by Gerarg H. (2018), namely paying attention to future innovations
because in a competitive business and advanced technology today. In this environment, Porter's
perceived five forces framework still drive industry competition, but other forces need to be
included when thinking about the driving forces of the industry. Managers and entrepreneurs
need to rethink their assumptions on the forces driving industrial competition.

Figure 2 Porter's Five Force Industry Challenges

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 6. Bibliography

Brandenburger,A.(2002).Porter’saddedvalue:Highindeed! The Academy of Management

Executive
Gerard H. Th. Bruijl MBA, MoAM, BCom (2018).The Relevance Of Porter’s Five Forces
In Today’s Innovative And Changing Business Environment.
Grundy, T. (2006). Rethinking and reinventing michael porter’s five forces model.
Strategic Change 15, 213–229 DOI: 10.1002/jsc.764.
Porter, M. (1979). How competitive forces shape strategy. Harvard Business Review,
March Issues. Retrieved from https://hbr.org/1979/03/how-competitive- forces-
shape-strategy
Porter, M. (1980). Competitive strategy: Techniques for analyzing industries and
competitors. New York, NY: The Free Press.
Porter, M. (1985). On competition. Updated and Expanded Edition. Boston, MA: Harvard
Business School Publishing.
Porter, M. E. (1998), The Competitive Advantage of Nations. The Free Press. New York,
NY.
S. Wellner, J. Lakotta, (2020) Journal of Rail Transport Planning & Management ,
https://doi.org/10.1016/j.jrtpm.2020.100181

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 Journal of Rail Transport Planning & Management xxx (xxxx) xxx

Contents lists available at ScienceDirect

Journal of Rail Transport Planning & Management

journal homepage: http://www.elsevier.com/locate/jrtpm

Porter’s Five Forces in the German railway industry

S. Wellner *, J. Lakotta
FOM University of Applied Sciences, Leimkugelstraße 6, 45141, Essen, Germany

A B S T R A C T

The purpose of this conceptual paper is to investigate the profitability potential of the German railway industry. The investigation is based on a
further developed Five Forces Framework of Michael E. Porter, considering different former empirical expansion proposals. In this paper, the
German railway industry shall be represented by train manufacturers with production sites in Germany. The qualitative research method was chosen
to evaluate the power of each of the framework forces. The consolidation of all forces determines the level of industry profitability. The adapted Five
Forces Framework includes governmental interventions and the support by complementary goods as two additional forces. An operationalization
method presented in this paper can be used by framework users to assess an industry’s profitability. By operationalizing all framework forces, this
paper leads to an indication about the profitability level of the German railway industry. The application of the adapted framework revealed a low
profitability level. Porter’s Five Forces Framework has been applied to several industries and even to railway related topics, but not yet to German
railway manufacturing industry. To our knowledge, neither a validation nor implementation of different framework expansions combined with an
application to the German railway industry has yet been published in any research report.

1. Introduction

In 1979 Michael Porter raised the question why some industries are more profitable than others. The answer to this question re­
quires the analysis of an industry’s structure considering the power of buyers and suppliers, rivalry among existing competitors, the
threat of substitutes and new entrants (Porter, 1979). These defined Five Forces must be well known to all students and business
managers, taking into account that Porter’s framework has occupied in many leading strategic management textbooks (Grundy, 2006;
Dobbs, 2014). During the past 40 years managers have criticized the highly abstract, prescriptive level, leaving managers and business
school teachers with their own interpretation on how to apply the framework to practical cases (Grundy, 2006). Several researchers
have proposed framework expansions including ideas for operationalization, but only few examples of practical framework application
can be found. The model itself has been applied to several industries, e.g. emergency medicine (Pines, 2006) and hotel business (Cheng,
2013). It has also been applied to country specific railway industry, e.g. railway monopolies (Jensen, 1998) and on-track competition
in British passenger railway industry (Preston et al., 1999). The German railway industry has not yet been analyzed with an extended
Five Forces Framework. It is characterized by a handful of big manufacturers, e.g. Siemens, Bombardier, Stadler and Alstom, supplying
trainsets and additional railway network technology to Deutsche Bahn and a few small private operators in an open market. In 2018
the industry generated a turnover of twelve billion Euro employing 52.100 direct employees and about 150.000 indirect employed
people (Renniger and Frank, 2019). With a history of more than 100 years of production, the German railway industry has developed
to a mature market playing an important role regarding mobility and environmentalism. However, it appears that European train
manufacturers suffer from increasing competition caused by new players from eastern Europe and Asia, e.g. Skoda, Pesa and CRRC. A
joint venture between the incumbents Siemens and Alstom has been discussed between the two companies to create one big competitor
to the Asian manufacturer CRRC (Railway Gazette, 2017). Bombardier as the third big European player has lately reported a struggling

* Corresponding author.
E-mail address: sven.wellner@gmail.com (S. Wellner).

https://doi.org/10.1016/j.jrtpm.2020.100181
Received 21 October 2018; Received in revised form 24 January 2020; Accepted 27 February 2020
2210-9706/© 2020 Published by Elsevier Ltd.

Please cite this article as: S. Wellner, J. Lakotta, Journal of Rail Transport Planning & Management,
https://doi.org/10.1016/j.jrtpm.2020.100181
S. Wellner and J. Lakotta Journal of Rail Transport Planning & Management xxx (xxxx) xxx

railway division (Montreal Gazette, 2019). In February 2020, Alstom confirmed to buy Bombardier Transportation, signing a mem­
orandum of understanding to acquire 100% of the Canadian railway manufacturer (Railway Gazette, 2020). There is movement within
the manufacturer market, leading us to the question about profitability of railway industry in Germany, as the aforementioned key
players own big manufacturing facilities in this country. In this research the delivery of railway services is not considered under the
term German railway industry.
As a first step in this paper we focus on the basic questions as to what determines firm profitability. Afterwards, we focus even more
on Porter’s Five Forces model as a centerpiece of this study. Overall this paper aims to extend existing research on three levels. First, we
build a conceptual framework, that incorporates (a) the impact of governmental interventions on firm profitability and (b) the role of
complementary goods on firm profitability. Second, we deliver an operationalization for the new conceptual model and third we
present an application of the aforementioned operationalized model based on a case study in a mature market. We would like to point
out, that this paper, especially the practical application and case study, is based on expert knowledge and not to be considered as
quantitative research. When analyzing Porter’s Five Forces model later in this paper, it will become clear, that Porter uses his model to
define industry profitability by combining expert knowledge for each model force. Thus, we exclusively focus on railway expert
knowledge, but this shall not hinder other researchers to validate the results of this study using quantitative research. As only four
railway experts where interviewed for this study, our intention for this paper is not to strictly conclude and define, if German railway
industry is a high or low profit industry. This study shall first of all present, how Porter’s Five Forces model can be sensibly extended
and applied to German railway industry and secondly give an idea, if the industry environment is rather challenging or easy to handle
with high margins.

2. Literature review

Research has been following different avenues to address the question what determines firm and industry profitability. We focus in
our review on the structure-conduct-performance paradigm and the resource-based-view paradigm. The intention of this section is to
present the aforementioned general views on potential profitability root causes and to dive into details of the structure-conduct-
performance paradigm, in our case by analyzing and extending Porter’s Five Forces model, in the next sections.

2.1. The structure-conduct-performance paradigm

According to the structure-conduct-performance (SCP) paradigm, an industry’s structure shapes how firms are managed, which in
turn influences their profitability. Later studies hypothesized that the chain of causality is not necessarily linear, but that for instance
conduct and performance are influencing each other simultaneously. Likewise, it is conceivable that conduct is not only determined by
industry structure, but that it also may impact the latter (McGahan and Porter, 2002). In other words, SCP stipulates that firm
profitability is mainly a function of the degree of competition (“rivalry”) in a given market, which in turn depends on the respective
market structure (Schmalensee, 1985; McGahan and Porter, 1997). The market structure is determined by industry-specific factors
such as the degree of industry consolidation, entry barriers (e.g. capital expenditures), the power of buyers and suppliers and
governmental regulations. The potential for firms to achieve high profitability is negatively correlated to the degree of competition or
rivalry in that industry, since more competition leads to price competition (Porter, 1980). Therefore, following SCP logic, in order to
achieve high profitability, firms should occupy an industry with low competition (McGahan and Porter, 1997; Porter, 1991). In order
to achieve a viable competitive positioning, firms need to decide on which criteria they want to compete. These criteria are typically
negatively correlated, say quality and price. Porter saw this very decision as the essence of firm strategy (Porter, 1985, 1996). In
reality, firms oftentimes do need to consider more than two criteria (Adner et al., 2010). Before a firm may apply competitive posi­
tioning, it needs to scrutinize an industry’s attractiveness in terms of average industry profitability. Hence, from a SCP standpoint, the
focus of strategy should be on industry analysis and market selection (Teece et al., 1997; Morgan, 2012). Porter built a coherent and
managerial highly relevant framework to assess an industry’s profitability (Dobbs, 2014). First proponents of this thesis are found in
Mason (1939) and Bain (1968). Most notably, Porter (1980) made the case, that the industry structure and its dynamics influence firm
profitability (Doh et al., 2012).

2.2. The resource-based-view

SCP was challenged by the fact, that even in unattractive industries – in terms of intensity of competition – some firms achieved
outstanding profitability. Hence, SCP is complemented (initially has been contrasted) by the resource-based-view (RBV) according to
which the main explanation for inter-firm profitability variance resides in the set of available resources within each firm (Hawawini
et al., 2003; McGahan and Porter, 2002; Short et al., 2007). Resources might be capital, human resources, unique capabilities, skills
and related to railway industry proprietary technology or patents, e.g. for brake controls or special aerodynamic designs. Put
differently, according to the RBV perspective, imitation is difficult, when there are “impediments to factor accumulation, social
complexity, causal ambiguity, tacit knowledge, economies of scale and scope, adjustment costs, and first-mover advantages” (Barney,
1991; Dierickx and Cool, 1989; Lippman and Rumelt, 1982).

2.3. The variance decomposition literature

Unifying the SCP with the RBV view, researchers conducted large-scale quantitative variance analyses on the relative importance of

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various independent variables on firm profitability. Generally speaking, it is established that firm specific resources are more
important than macro-economic events, industry effects or corporate-parent (in their terminology “firm” or “company group”) effects
(McGahan and Porter, 2002). More specifically, these studies found that “the business unit explains roughly 32 to 44 percent of the
variance in performance, the corporation explains two to 18 percent, and the industry explains four to 19 percent (e.g. McGahan and
Porter, 1997; Misangyi et al., 2006; Roquebert et al., 1996; Rumelt, 1991). The term business unit shall in this case represent one
specific part of an industry. Subsequent research found evidence for further factors impacting firm profitability such as country-specific
factors (Makino et al., 2004; Tong et al., 2008), routines and capabilities (McGahan and Porter, 1997; Roquebert et al., 1996; Rumelt,
1991), interdependencies of firm activities (Lenox et al., 2010), host country (Makino et al., 2004) and home country effects (McGahan
and Victer, 2010; Hermelo and Vassolo, 2012), as well as corporate-parent-specific factors (Chang and Singh, 2000). Majumdar and
Bhattachariee (2013) found that “institutional phases” of a nation – that is “command and control”, “transition”, “liberalization”,
“financial reforms”, “legal reforms” – impact the magnitude of firm, industry and business group effect on firm profitability. In
addition, moderating effects have been stipulated. Bamiatzi et al. (2015) found that a nation’s economy’s recessionary and expansion
periods impact the magnitude of firm effects, industry effects, and country effects on firm profitability. On a theoretical note, McGahan
(2004) stipulated that a firm’s competencies should not only influence its ability to achieve profitability, but should also feedback into
an industry’s resource and competence bases, which in turn influence firm profitability. Overall, we conclude that firm profitability is
majorly driven by firm specific resources whereas the overall industry profitability is characterized by its structure.

3. Theory

The following sections will focus on the fact that an industry’s structure drives industry and as well influences firm profitability as
described in section 1.1. We deliver a short overview on how the two mentioned factors (governmental interventions and comple­
mentary goods), with a potential impact on industry and firm profitability, are discussed across literature. In section 2.3 these factors
will be implemented into the existing Five Forces model.

3.1. Relevance of governmental interventions for firm profitability

In January 2020 the government of Germany and Deutsche Bahn confirmed an investment of 86 billion Euros within the next
decade, the highest investment in German railway history, to modernize and digitize the railway network and to extend the support of
the most environmental friendly travel option (Federal ministry of transport and digital infrastructure, 2020). Secondly, in January
2020 the government reduced the value added tax for intercity train tickets from 19 percent to seven percent, thus drastically reducing
ticket prices and simultaneously increasing railway competitiveness. These two latest governmental interventions shall underline their
importance on firm and industry profitability. We define governmental interventions, when a state directly influences firms’ behavior
(Henisz and Zelner, 2005; Spencer et al., 2005). Porter’s initial model did not incorporate governmental interventions. Later, he
acknowledged government’s role in influencing an industry’s attractiveness, e.g. by establishing entry barriers through various sorts of
regulations (Porter, 1990). By doing so, governments can nurture an industry to become competitive. Hence, according to Porter,
governmental interventions per se is neither good nor bad. The moderating role, Porter hypothesized of governmental interventions on
independent variables and firm profitability, is supported by (Majumdar and Bhattachariee, 2013): “With price, quantity, and tech­
nology controls in place, the impact of efficiency in influencing firm performance disappears.” Majumdar made the case that in the
presence of control policies (such as for prices, entry barriers, thus competition, cf. Murtha and Lenway, 1994; Spencer et al., 2005)
firms fall back to rent-seeking (Bhagwati, 1993). More specifically, „managing the political economy is an important activity managers
have to undertake in a controlled regime. Top managers focus on dealing with the senior personnel of various government departments
and agencies rather than on managing a business“ (Haksar, 1993). This means that in times of high economics control, firms do lack
market or customer orientation and efficient operations (Patel, 2002).
Hypothesis 1. Governmental interventions have a significant effect on firm profitability, be it positive or negative.

3.2. Complementary goods

Reinterpreting Porter’s model with another mindset, one could argue that it is less important to create barriers preventing an
outsider to attack the own market. It is rather useful to concentrate on strong barriers around the key customers leading to high
switching costs and thus creating a customer lock-in. An integrated value chain which connects suppliers, firms, customers and
consumers aiming at a specific value proposition to the final customer can be the first approach for a customer lock-in. Complementors
enhance the power of such relationships adding a competitor lock-out to the existing customer lock-in. Complementary firms positively
influence another firms’ sales volume (Hax and Wilde., 2001) whereas substitution firms reduce competitor’s profitability. Consid­
ering the combination of two different products being more valuable to a customer than the sum of two isolated products, Porter
(2008) mentions computer software and hardware as typical examples of complementary related products. With regards to railway
manufacturing industry all goods and assets not necessarily needed in a trainset to ensure passenger transport can be considered as a
complementary good. WiFi and in-train catering for example highly increase the added value of a trainset as well as the passenger ride
comfort. Although not directly related to actual trainsets, off-train products and services improving the passenger ride, such as park &
ride, digitization of stations and catering in railway stations, can be considered as a complementary good. These goods are not
considered in Porter’s framework. Being confronted with this possible sixth force he claims that there is more an indirect influence of

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complementors on the existing Five Forces rather than a monotonic relationship to profitability (Stonehouse and Snowdown, 2007).
Following the same logic as for governmental interventions Porter (2008) claims that complements are neither good nor bad for an
industry’s profitability. He states a negative influence of substitution products on industry’s profitability. However economic theory
differentiates between both substitutional and complementary product relations (Barney, 2011). Hence, this theory shall be trans­
ferred to Porter’s framework.
Hypothesis 2. Complementary goods have a significant effect on firm profitability, be it positive or negative.

3.3. Adapted framework

Porter’s framework consists of the five major forces threat of new entrants, bargaining power of suppliers, bargaining power of
buyers, threat of substitute products or services and rivalry among existing competitors (Porter, 1980). The strength of each force and
thus its level of threat is determined by the condition of defined sub forces whereas “the collective strength of the forces determines the
ultimate profit potential in the industry” (Porter, 1980). We start our framework development with a short description of the existing
Five Forces. (see Fig. 1)
The threat of entry puts a cap on industry profit potential. High industry profits attract new firms with new capabilities and
additional capacities aiming at market shares which in turn leads to pressure on price and costs for incumbents (Porter, 2008). The
newcomers’ motivation is the economic success of established incumbent firms (Barney, 2011). The probability that new firms enter an
industry is highly related to entry barriers. High switching costs for customers, e.g. their need to train drivers on unknown and different
trainset technology and to purchase new trainset and supplier dependent repair tools require high financial investments. Hence,
customers take decisions based on total cost of ownership and not only on trainset pricing. Other entry barriers are missing access to
relevant distribution channels, governmental entry restrictions, general disadvantages with regards to costs and product quality and
even expected retaliation deter firms to compete with established competitors in their existing industry (Porter, 2008). Pronounced
entry barriers contribute to high industry profitability.
The bargaining power of buyers also determines its profit potential. In this paper, we focus on customers operating their vehicles in
Germany, e.g. local cities (light rail vehicles and metros), private operators (single and double deck commuter trains) as well as
Deutsche Bahn (single and double deck commuter as well as high speed trains). The majority of trainsets being operated in Germany
are built in Germany. The more persuasive and strong the buyers negotiation levers are, the lower the earnings of the considered
industry (Hungenberg, 2014). Buyers may be very powerful in negotiations when they for instance generate a great share of the
suppliers turnover, purchase from a standardized product portfolio, face low supplier switching costs, build up an extensive product
know-how, generate low margins and thus have to reduce own purchasing costs or when they share the buyer’s market with only a few
other strong players (Porter, 2008).
Looking at the other end of the value chain Porter enforces to analyze the bargaining power of the suppliers. Trainset manufacturers
are system integrators purchasing complex commodities such as doors, brakes, seats, electrical cabinets. Hence, they are highly

Fig. 1. Adapted Framework based on Porter’s Five Forces.

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dependent on their supply base. The structured analysis of this force follows the same pattern as for the buyer power. The supplier side
dominates a negotiation and thus reduces an industry’s profit potential when the market is dominated by only a few ascendant
suppliers, the sold products are highly differentiated and an important building block of the customers end product, substitute goods
are rather rare on the market, high double digit margins can be pulled out of small non-core business, buyers are faced with high
switching costs and suppliers threaten an industry with vertical forward integration and thus become an additional competitor (Porter,
2008).
The fourth force covers the threat of substitute products, e.g. cars including car sharing as well as e-scooter in urban areas or long-
distance busses and airplanes for intercity travels. A relation between two goods can be declared as substitutional, when pricing
decisions for one product strongly influence the pricing strategy of another industry’s product or service. Hence, substitutes place
virtual pricing caps on an industry’s product (Porter, 1979). The deregulation of the long-distance bus market in Germany in 2013
reopened the possibility for bus operators to provide services in parallel to railway connections at a very low price level. Substitutes
such as long-distance busses threaten an industry’s profit potential, when their price-performance-ratio is more competitive compared
to the considered product, the customers appear to show a certain inclination towards the substitutes and switching costs tend to be
low (Bea and Haas, 2012).
The fifth and last force in Porter’s Five Forces Framework is visualized by Porter as the centerpiece of his model. Rivalry among the
existing firms competing in the same industry may build limits of profitability. Launching new products, providing price discounts,
increasing the service level are stated by Porter as usual examples for rivalry tools (Porter, 2008). The level of rivalry can be high when
firms are numerous and of an equal size, thus executing a similar degree of business power. Slow industry growth, high exit barriers
and fixed costs as well as low product differentiation also lead to strong fights for market shares (Porter, 2008).
Referring to the three mentioned research questions, in this section we integrate (a) the impact of governmental interventions on
firm profitability and (b) the role of complementary goods into the existing Five Forces Framework. (see Fig. 1)
Following the existing model structure, we insert the two above mentioned elements into the established framework.
In order to assess the strength and influence of governmental interventions on firm and industry profitability the following sub
factors must be evaluated. Hungenberg (2014) lists regulations in terms of environmental protection, legal norms, industry standards,
business related political institutions, possible subsidies and rules for taxation as important sub-factors for governmental interventions.
To demonstrate the importance of this force Rugman and Verbeke (2000) refer to the creation of boundaries for firms. Geographically
controlled borders of sovereign countries determine if a market can be considered domestic or multinational and thus directly affect
the feasible options in firms strategies. Additional examples are subsidies on renewable energies, emissions trading derived from
increasing environmental regulations, the provision of incentives by the government (such as taxation rules) and even the historical
prohibition in the United States which had a great impact on the alcohol industry.
Complementary goods were declared as the second new framework force. We derive the relevant sub factors for complementary
goods from substitute products, its opposite force. The price-performance ratio and the inclination towards complementary products
are similar to the listed sub factors of the already existing substitutes. In contrast to substitute goods a competitive price-performance
ratio and a strong inclination towards complementary products can be considered as a positive impact on the considered industry. The
third factor which shall be added for evaluation is the degree of complementarity. Two different goods can either be perfect or
imperfect complements. Goods are perfectly complementary when they only create a benefit as a package (e.g. left and right shoe).
Goods are imperfectly complementary when one product creates a certain benefit even though the second good does not exist, e.g.
computer software and hardware (Gabler Wirtschaftslexikon, 2014)
The application of Porter’s Five Forces Framework requires the definition of the relevant industry’s basics. First of all industry
borders must be clearly defined followed by the identification of suppliers, buyers, competitors and manufacturers of substitute
products (Porter, 2008). As a second step each sub forces’ threat level must be assessed and summed up to a result per force. Eventually
all force scores have to be consolidated to create one overall picture about the profitability level of the industry.

3.4. Operationalization

In the introduction it was stated that Porter’s framework, although well known by students and managers due to high textbook
coverage, is barely applied on an operational level. According to Grundy (2006), only 15 to 20 percent of decision taking managers and
strategists were familiar with Porter’s concepts. Only five percent had actually used it on a detailed level analyzing a specific industry.
Academic researchers and practicing managers have highlighted difficulties in the practical application of the Five Forces Framework
over the past decades.
Magretta (2012), who has worked closely with Porter on many publications, and Porter (2008) himself describe common mis­
understandings which finally lead to incomplete or inaccurate analysis results and on which future strategy concepts could be acci­
dently based (Dobbs, 2014). Lee et al. (2012) identify the model’s innate weaknesses as well as the difficulty in operationalization as
the reason for the poor attention the framework has attracted among researchers and managers. Referring to the analytical power, the
strongest limitation of the Five Forces Framework is that neither the overall industry condition nor each of the forces and sub forces can
be quantified and measured (Lee et al., 2012). Many of the researchers who highlighted operationalization issues even developed ideas
to apply Porter’s model to a practical example with a structured and analytical procedure.
Porter himself assesses the strength of each force by describing their major sources verbally and assigning one, two or three ticks to
describe the level of threat.

√√√ favorable

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√√ neutral or
√ unfavorable.

Obviously, the model is a collection of negative strategic aspects, such as supplier and buyer power, making it difficult to apply the
evaluation method. Students who are forced to apply this scoring model to a real case might have issues to assign for instance a high
buyer power with only one tick. This could immediately lead to incorrect scorings (Grundy, 2006). Hungenberg (2014) suggests to
utilize the pattern of the value-benefit analysis in order to assess the weighting of the forces all factors must be evaluated on a scale
from one to five, five being very attractive. In contrast to Hungenberg, who prioritizes the importance of each force in a value-benefit
analysis, Dobbs (2014) und Grundy (2006) take an additional step to a more detailed analysis. Porter had already listed several micro
factors per force whose condition and strength must be defined particularly to identify the overall strength of a force. The bargaining
power of suppliers depends for example on their size and number (concentration), their dependency to the industry for own revenues
and the opportunity to threaten the industry with forward integration (Porter, 2008). Although Porter lists and explains these con­
siderations in his own publications quite elaborately in writing, it is not explicitly visible in the Five Forces Framework and thus often
appears as additive to managers (Grundy, 2006). While Grundy (2006) concentrates on the comprehensive visualization and more
detailed exploration of the sub-forces in additional new frameworks, Dobbs focuses on the structured measurement of the sub-forces,
presenting a standard evaluation template for all forces. To assure full compliance with Porter’s framework all sub-forces described in
his various publications shall consistently be listed in this template. An indication bar allows the analyst to evaluate the level of threat
per sub-force. Space below each sub-force is available for brief notes and additional explanations. Furthermore, very important threats
can be marked as a driving factor (Dobbs, 2014).
Considering the above mentioned weighting, scoring and evaluation methods, we combine the value-benefit analysis and Dobbs’
evaluation template to create a new standardized and structured analysis template (see Table 2 in section 4). To estimate the prof­
itability and to identify the key challenges in a certain industry a user of the framework must assess the strength of each sub force and
transfer the results to the template. Driving factors may also be highlighted with a tick mark. The level of threat of each sub force must
be multiplied with the allocated weighting which leads to the final result per sub force. The average of all single results per sub force
indicates the overall threat level of the analyzed major force. All forces characterized with a total level of threat above the value three
are to be considered as a negative influence for industry and firm profitability. In contrast forces determined by a lower threat level
than three indicate a positive impact. The number of positive or negative forces leads to an overall result on an industry’s profitability
level.

4. Case study/application of the adapted framework

The term railway industry involves all firms manufacturing railway infrastructure, trains, subcomponents (such as doors, brakes,
HVACs), communication, information and control systems for passenger and goods transportation. Our research focuses on train
manufacturers with production sites in Germany. To evaluate the overall profitability of the German railway industry four different
experts with long term experience in railway industry were interviewed. These experts work as sales and procurement representatives
from big train manufacturers as well as for the German Railroad Industry Association (Verband der Bahnindustrie). The interviewees
were chosen and interviewed based on their area of expertise. The procurement representative for example was consulted to evaluate
the power of buyers whereas two sales representatives answered to questions about the power of buyers and rivalry among existing
competitors. Their names will not be mentioned owing to confidentiality reasons. Each force was only discussed with one of the in­
terviewees. The interviews were held either orally or via phone. The questionnaires consisted of two main parts. Open-ended items
were used to assess the strength of the sub forces verbally. Secondly the interviewees were asked to evaluate the strength of framework
forces and sub forces within the below mentioned pattern. The intention of the given research is as a first step to present a qualitative
analysis result out of an extended framework using a new operationalization method. In a second step and additional research the
result of this study can be assessed in a more quantitative analysis with a higher number of interviewees.
In the beginning of the interviews the interviewees were asked to weigh all seven forces according to their influence on railway
industry profitability (Table 1).
Substitutes, complements and the power of suppliers are not seen as strong influences to industry profitability (average below 0,10)

Table 1
Weighting of forces acc. to importance for railway industry.
Weighting
Force
Interviewee A Interviewee B Interviewee C Interviewee D Average

Power of buyers 0,1 0,2 0,1 0,10 0,13

Power of suppliers 0,05 0,05 0,1 0,10 0,08
Threat of entry 0,2 0,2 0,1 0,10 0,15
Threat of substitutes 0,05 0,05 0,05 0,15 0,08
Support by complementary goods 0,05 0,1 0,05 0,05 0,06
Rivalry among existing competitors 0,1 0,25 0,2 0,05 0,15
Governmental interventions 0,3 0,05 0,05 0,05 0,11
Other forces 0,15 0,10 0,35 0,40 0,25
P P P P P
1 1 1 1 1

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whereas the power of buyers, threat of entry, rivalry among existing competitors and governmental interventions represent important
factors. We transfer the average weighting of the elements from Table 1 to Table 2.
In the next step all interviewees were asked to evaluate the strength of the defined sub forces (refer to Table 2) on a scale from one to
five, one being a weak and five representing a strong threat level to industry profitability. Each framework force was evaluated by one
expert, which implies the qualitative instead of a quantitative research methodology. In the following sections we narrate the result of
the assessment more as a story rather than describing the results line by line with the listed score. Furthermore this following narrative
shall reflect the messages of the interviewees.

4.1. The power of buyers

For the power of buyers the interviewee distinguished between the main German customer Deutsche Bahn AG (DB) and private
operators (PO, with italic numbers) who more and more decrease the DB market share. The big market share of the DB indicates a high
threat level for manufacturer’s profitability. In addition the operators demonstrate a deep technical understanding of the purchased

Table 2
Weighting of all sub forces.
Forces and sub-forces Assessment of threat level weigh-ting result

weak strong

1 2 3 4 5

Power of buyers PO(3,5) DB(4,2)

customer degree of concentration 1 5 1,13 1,13 5,65
manufacturer share on customer purchasing volume 1 4 4,52 1,13
product differentation 3 3,39 3,39
switching costs of the customer 4 5 4,52 5,65
margin of buyers 2,5 4 2,83 4,52
contribution to quality of customer product 2,5 4 2,83 4,52
buyers know-how about relevant product 5 5,65 5,65
threat of backward integration 1 1,13 1,13
customer expectations 5 5,65 5,65
Power of suppliers 2,81
supplier degree of concentration 2,8 1,08 3,02
differentiation of supplier input 3,2 3,46
substitute products 4,1 4,43
swichting costs of the customer 3 3,24
supplier margin (importance of contract) 3,5 3,78
contribution to quality of customer product 3 3,24
threat of forward integration 1,2 1,30
Threat of entry 3,84
economies of scale 4,8 1,15 5,52
cost advantages of incumbents 4,3 4,95
access to distribution channels 4 4,60
capital demands 4,1 4,72
switchting costs 4 4,60
governmental restrictions 1,5 1,73
retaliation 4 4,60
Threat of substitutes 2,52
price-performance-ratio of substitute 4 1,08 4,32
tendency towards substitutes 1 1,08
switchting costs 2 2,16
Support by complementary goods 3,18
degree of complementarity 4 1,06 4,24
price-performance-ratio of complements 3 3,18
inclination of customers towards complements 2 2,12
Rivalry among existing competitors 3,31
degree of concentration 3 1,15 3,45
heterogeneity of competing incumbents 5 5,75
product differentation 2 2,30
overcapacities 4 4,60
market exit barriers 1 1,15
cost structure (variable costs vs. Fix costs) 3 3,45
industry growth 5 5,75
Governmental interventions 3,55
environmental regulations 3 1,11 3,33
legal norms and industry standards 4 4,44
industry specific political institutions 5 5,55
subsidy policy 1 1,11
taxation rules 3 3,33

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products which allows them to take discussions on a very detailed level. Challenging expectations of the passengers such as punc­
tuality, reliability, availability force the operators to ask for highly innovative and improved train technology. Innovations and im­
provements lead to a failure risk with an automatic impact to the manufacturers profitability.
An average impact and thus neither a high nor small influence on manufacturers profitability can be derived from standardization,
achievable margins and the contribution to the final customer product. Compared to the automotive industry railway products have
not yet reached an equal standardization level and are thus quite differentiated according to customer demands. The fact that many
private operators try to enter the German market leads to the assumption that quite decent margins are achievable. The contribution to
the final customer product also shows an average impact because passengers evaluate the operator quality rather on punctuality and
cleanliness.
A small impact is associated with backward integration as it is quite unlikely that operators manufacture their trainsets themselves.
The share of the manufacturers on the purchasing volume of the customer leads to a small threat in terms of the DB. Almost the entire
DB fleet consists of trains from Alstom, Siemens, Bombardier and Stadler. Due to the high numbers of private operators the manu­
facturer share is much lower.

4.2. The power of suppliers

A small number of big and influential suppliers such as Knorr Bremse AG, Faiveley Transport SA and Schaltbau GmbH combined
with many small suppliers leads to a defragmented supplier concentration and thus quite small threat level. A few suppliers deliver
long lead items which require long term detailed technical integration leading to a lack of short term substitutes for such parts in case
of discontinuation of production. Referring to the number of suppliers their impact on the product quality of the manufacturer is not
significantly high. The majority of this defragmented supply base deals with the railway industry as a sideline business whereas afore
mentioned players mainly deliver to train manufacturers. Necessary supplier switching costs, e.g. supplier and product qualification
could be high but also do not influence the overall profitability significantly. No practical example for backward integration
(improving from component to train manufacturing) was found for German railway industry whereupon a very small probability can
be derived.

4.3. Threat of entry

The threat of each of the following sub forces is high, if the sub force appears to be an entry barrier for new competitors. Upcoming
and growing competition from eastern Europe and Asia, e.g. the fusion of CNR and CSR to a the new global player CRRC at the Chinese
market was identified as a high threat (Verband der Bahnindustrie, 2015). The manufacturers Pesa and Skoda were already awarded
with contracts by operators in Germany but yet have been struggling with project execution and vehicle homologation. Nationally
applied safety standards negotiated and agreed between incumbents and relevant authorized institutions on a railway network level in
Germany as well as a standardized traction and signaling system, enforced by the European Union, can be seen as clear entry barriers
for CRRC. However, recent success of both Asian and eastern European manufacturers in winning major contracts implies competitive
products and market know-how as well as the willingness of German train customers to increase competition between incumbents.
Mainly starting in 2008 the DB officially announced its intention to use a wider range of suppliers, thereby increasing the pressure on
incumbent suppliers. Even Economies of Scale do not seem to be entry barriers for emerging companies as Pesa and Skoda were already
able to win tenders for small contracts. Neither quite small switching costs for operators nor expected retaliations and missing
governmental restrictions protect incumbents from new competition. Capital demands can act as an entry barrier in key projects such
as very high speed contracts because manufacturers are faced with challenging capital demands (e.g. payment milestones being shifted
to late project phases). However, the regional rail market appears more relaxed with regards to suppliers’ financial status
requirements.

4.4. Threat of substitutes

The determination of potential substitutes for railway services can be identified by examining customer’s choices. Statistics with
regards to the choice of public transport show that accessibility of places, transport costs, reliability, punctuality, travel time and
transport flexibility are in this order the relevant factors for the means of transport (Statista, 2014). Cars (high accessibility of places)
and long-distance coaches (low transport costs) are considered as threatening travel alternatives. The use of substitute transport
possibilities automatically leads to a reduced carriage demand and thus decreasing needs of new trains. Train operators are being
charged with track and station fees whereas long-distance busses do not pay any road charges. This allows bus operators to charge
much lower prices compared to train operators. Even the electrification and automation of cars can be a future threat for railway
industry because trains will lose additional advantages such as the possibility to relax, read or sleep while traveling. Despite the
obvious benefits of substitutes in the future the Interviewee still determines a low tendency to alternative travel options for today.
Especially in urban areas, factors such as lower car ownership and higher traffic congestion give rail a significant competitive
advantage. The costs to switch from one to another travel option are low and thus can be neglected.

4.5. Support by complementary goods

The definition of complements requires the answer to the question which products increase the value of trains and train rides for

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passengers. Railway infrastructure, digitization and train maintenance are only a few examples. Infrastructure and trains are con­
nected by a one hundred percent dependency (no traffic without infrastructure). On the other hand trains do not fully depend on
digitization (incomplete dependency), in our case represented by the gadgets wireless LAN and mobile repeaters. Overall a high
support level regarding the degree of complementarity can be assessed. The tendency towards complementary products shall be
measured on digitization. The run on innovative digital products nowadays implies a strong drive towards complementary products
and thus a significant support of railway industry. Wireless Lan was not offered free of charge by the operators for a long time. In
addition the connection quality is not yet comparable to private networks at home which finally results in a rather low support of the
price-performance ratio of complementary products to railway industry.

4.6. Rivalry among existing competitors

As mentioned earlier the DB officially invites manufacturers from eastern Europe to bid on tenders for the German market,
simultaneously increasing the pressure on incumbents. Consequently these companies have to share the market with small upcoming
competitors. A high level of heterogeneity among competitors and overcapacities leading to extreme pricing competition strongly
contributes to profitability risks of the train manufacturers. Even the cost structure characterized by quite high fixed costs for the
incumbents (production facilities, tools, etc.) versus low fixed costs for new entrants from eastern Europe indicates a threat for existing
competitors. On top low industry growth underlines the possibility of profitability issues because the combination of overcapacities
and missing industry growth leads to persistent fights for projects and contracts. In our research exit barriers were not identified as
relevant profitability influences.

4.7. Governmental interventions

Four sub forces had to be assessed to determine the threat level for industry profitability. Environmental regulations can either be
defined as challenges or as a chance because increasing requirements automatically come along with new train demands, overall
leading to an average impact on manufacturers profitability. Legal norms and industry standards in general controlled and supervised
by the federal railway authority can have a strong impact on industry and firm profitability if these two factors hinder the manu­
facturers from homologating and delivering new trains. Despite the challenging governmental environment the interviewee confirms
that subsidies are being provided and paid by the government equaling a low threat level for this sub force. According to the inter­
viewee taxation rules neither play a good nor bad role for train manufacturers.
Following Porter’s idea of defining profitable industries the threat level of each force must now be assessed in detail. The overall
threat per force is the threat level of each sub force multiplied by the respective weighting. According to our research (and Table 2) the
power of the Deutsche Bahn seems to be the greatest threat to industry and firm profitability followed by the threat of new entrants
from China and eastern Europe. On top the government plays an important role in terms of influencing the incumbents financials. Both
the supplier side and substitute products are not yet a significant factor. Four out of seven forces negatively influence industry
profitability according to our research. Using Porter’s analysis method the German railway industry turns out to be a risky market
when it comes down to reaching stable levels of profitability and acceptable margins.

5. Conclusion

This paper conveys established research on what defines firm profitability. Two factors were identified to play an important role.
Industry specific factors such as industry consolidation, entry barriers, the power of buyers and suppliers determine a given market’s
structure and degree of competition. Secondly the right setup of a firms’ resource, meaning for instance the best usage of capital,
technology and human resources, was identified to have a significant impact on a firms’ profitability. This paper specifically focused on
external factors defining firm profitability using Porter’s Five Forces Framework. Extending the framework by implementing the role
of governmental interventions and complementary goods lead to an updated conceptual model, on which the case study about the
German railway industry was based. Finally, we presented an operationalization pattern to evaluate the strength of each of the
frameworks forces. First of all four interviewees from different railway organizations weighted the importance of each of the
frameworks strength, showing that the threat of entry, rivalry among existing competitors and the power of buyers obviously have a
strong impact on a firms profitability. As a second step the interviewees assessed the strength of defined sub forces. We declare a force
as a positive influence on industry profitability, if this force shows a final result of less than three on a scale from one to five (one being
a weak impact, five being rather strong). A score of more than three represents a high threat level for industry profitability. Following
this methodology the German railway industry would be expected to be an unprofitable industry as five out of seven forces rather
negatively influence firm profitability. According to our research results, the power of buyers highly influences profitability. High
customer expectations, low customer switching costs, a low number of influential buyers and their product know how were identified
as the most important threats in this category. The threat of entry is dominated by a strong impact of economies of scale and cost
advantages of incumbents. Governmental interventions are an important threat to industry profitability. Industry specific political
institutions as well as industry specific norms and standards, in many cases prepared and controlled by these institutions, make this
force a real threat which in general shows the importance of the framework extension (e.g. fire safety acc. to EN45545). Other factors
beyond the direct scope of this model potentially also affect the level of profitability, e.g. shared overheads with other businesses or
specific local factors enabling the use of low cost labor, but are not part of this study.
As a key take away from this paper, the reader shall understand that, based on the presented analysis and methodology, German

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railway industry is an industry with rather low profitability level. In reality, the overall profitability level differs between manufac­
turers. As railway manufacturers do not report their financial results separately per country, but only on business unit level worldwide,
it is not possible to clearly compare our research result with real figures for the German railway industry. Nevertheless, for fiscal year
2019 S reported a margin of eleven percent for its Mobility sector. Compared to the other sectors, e.g. Digital Industries (18 percent) or
Siemens Healthineers (17 percent), the Mobility margin cannot compete with the aforementioned sustainable sectors (Siemens, 2019).
While Siemens presented a decent margin, Bombardier has, as presented in the introduction, reported about a struggling rail division
(Railway Montreal Gazette, 2019) and has filled newspapers with late deliveries and quality issues in Germany. Beyond the practical
application of Porter’s Five Forces model, this paper has clearly indicated how to combine a framework extension and operational­
ization to lift the frameworks’ level of usability to a new comprehensive stage, exceeding the so far known qualitative assessment of
each force. Although the systematic operational approach leads to a clear mathematical result, the usability of this assessment shall be
checked in an extended quantitative approach as a next step. The analysis presented in this case study is based on the personal opinion
of four interviewees being experienced long-term members of this industry. It is possible that a higher number of interviewees first of
all leads to another overall force weighting and secondly bring up different threat levels of forces and sub forces.
The results of this evaluation might be either be confirmed or rewritten in an in-depth analysis. Independent from the outcome, be it
positive or negative in terms of the threat level on firm profitability, such results shall be taken as an important input of firm strategy.

Declaration of competing interest

None.

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