Urban rail systems are growing fast across Southeast Asia. This is fueling demand for rolling stock – the train cars that actually carry millions of riders around town every day. The most common option is to import trainsets from established industry leaders in China, Japan, South Korea, or Europe. But some countries in Southeast are turning to domestic firms to meet their orders. This raises an obvious question: is this wise?
The trade-offs are clear enough. Importing trains from an established global brand like China’s CRRC means you are buying a proven product, with after-sales service and support that makes it easier to maintain the trains. Sometimes foreign firms also provide electronic systems like signalling, which makes system integration easier. For many rail providers, this is a fine deal. Metro and commuter rail systems in Bangkok and Manila rely mainly on imported rolling stock.
But some countries want more. They want to manufacture the rolling stock domestically because they believe it will generate local jobs, create long-term value, and develop important skills and technical expertise. If done well, it will allow domestic firms to grow and export their products. Indonesia is a prominent example of this strategy, with state-owned INKA producing rolling stock for the local market and for export.
INKA’s main customer is the state-owned railway company, KAI, with which it is currently in the process of merging. If you have ever traveled on an intercity train in Java it most likely was made by INKA. More recently, INKA supplied the rolling stock for the Greater Jakarta LRT and has been delivering new trainsets for Jakarta’s large, aging and very busy commuter rail system, the KRL.
INKA is a classic case of industrial policy. Rather than relying on foreign firms, the government requires KAI to procure some of its rolling stock from INKA and places restrictions on imports. This guarantees INKA a minimum level of orders while also protecting it from foreign competition, providing the train-maker some breathing room to develop industrial capabilities it might not otherwise be able to.
But here’s the catch. For such industrial policy to be effective, INKA needs to deliver the goods. It must deliver rolling stock on time and that meets basic quality standards. It must show evidence that it is making progress toward mastery of more complex technologies, skills and production capabilities. The government can bend the market to give a state-owned firm a leg up, but the firm needs to prove this intervention is worth it. Industrial policy fails when firms don’t make good use of the strategic advantage they have been given.
At the moment, INKA is struggling to deliver the goods. The train cars built for the LRT in 2023 were plagued with problems, including electrical and mechanical issues. Almost as soon as they went into service, many had to be pulled out and modified. The LRT project was run mainly by Indonesian SOEs, so the fact that it experienced growing pains was not necessarily evidence of policy failure. The key was that domestic firms, including INKA, learned from these mistakes and used them to improve.
In recent weeks, rolling stock made by INKA for Jakarta’s commuter rail system has been malfunctioning, throwing commutes into chaos. Doors are getting stuck open, forcing trains out of service. Seven cars were recalled after KAI raised concerns about structural weakness in the undercarriage. KAI is seeking special permission from the government to import used rolling stock from Japan to meet immediate operational needs while these issues are worked out. Public anger and scrutiny are rising.
Similar attempts by other home-grown firms in the region also have spotty records. In 2011, Malaysia’s Scomi won a nearly 500 million ringgit contract to supply trainsets for the Kuala Lumpur monorail. The rolling stock was delivered late, and faced performance and safety issues. The procurement became embroiled in legal disputes, and Scomi was eventually dissolved. So INKA is not alone in facing hurdles as it tries to expand its footprint. But if the government is to continue aiding such efforts, INKA needs to start delivering the goods.
This is especially true now that intra-ASEAN competition is intensifying. Vietnamese conglomerate Vingroup just announced it was launching a joint venture with France’s Alstom to co-produce 200 trainsets for the Hanoi metro under a technology licensing agreement. This is a very large and ambitious project, which would represent a major step-up in capabilities for Vingroup and Vietnam’s domestic railway industry. Of course, Vingroup has a history of taking huge swings that don’t always pan out. So we will have to see.
Most urban rail systems in Southeast Asia simply import their trains, working with established manufacturers who can deliver a proven product and after-sales service and support. For some countries, domestic manufacturing is a more important goal and the state will intervene to give local firms a head-start. Ultimately, no amount of state support or industrial policy can cover up for production failings that leave commuters stranded with unreliable products. The trains must run, and local firms like INKA must deliver the goods. Otherwise, the whole logic of industrial policy comes flying off the rails.
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