Transport group Arriva started selling motorcycles and scooters in Sunderland 70 years ago. Seven years ago, the company made its first foray into the European market, with the purchase of Scandinavian bus operations. Business Editor Julia Breen visited Denmark to see how Arriva's expansion is taking shape.

ARRIVA began as a motorcycle sales and repair workshop in the back streets of Sunderland in the 1930s. A post-war scooter boom helped trigger the first growth spurt for the family-run company, then known as Cowies.

The Cowie family, tinkering with motorcycle parts to earn their crust, created what became a Footsie-listed company employing 14,000 people in the UK, Scandinavia, the Netherlands, Spain, Portugal, Italy and, more recently, Germany.

Rapid European expansion has only come in the past seven years, but today you can see turquoise Arriva logo all over the continent.

In 1997, the company changed its name to Arriva, cast off its car sales operations, and went on a European shopping spree.

When the buses and trains group announced it was expanding into Europe, starting in Scandinavia, analysts in the City were sceptical.

Most companies were eyeing the markets in North America and elsewhere and Europe, with its state-owned monopolies and lack of competition, was not seen as an option.

But in 1997, Arriva dived head-first into the Scandinavian bus market.

It is now the largest bus operator in Denmark and its growth across the continent has been fuelled by EU legislation making privatisation easier.

With a population of 450 million people, Europe's transport market is worth nearly £100bn before state subsidies.

Across Europe, there are 700,000 public transport vehicles on which passengers travel 350 billion kilometres every year.

Two years ago, Arriva won a £150m contract to run two regional rail franchises in Jutland, Denmark, from the state-owned company, becoming the first private company to operate rail services in the country.

Industrial problems and driver shortages ensued.

Michael Jensen, Arriva's Scandinavian operations director, said: "We won the contract because the state-owned company dumped prices to a ridiculous level.

"Their bid was deemed unfeasible because it was half our contract price.

"We had made an agreement to get drivers from the state-owned company, but we didn't get them and obviously we couldn't force the drivers to change employment.

"We had a deficiency of 60 drivers and were unable to fulfil the contract. It was the circus of a lifetime."

Arriva's first three months were disastrous as driver shortages meant trains were cancelled and the Danish newspapers, already sceptical about a private company running the services, panned the company, which at the time was also struggling with industrial disputes in the UK.

But the rail division quickly recovered. With more to prove than ever, it trained more drivers, negotiated, and took punctuality above 97 per cent. New trains have been introduced ahead of schedule, and, despite some teething problems, punctuality can hit 100 per cent on a good day. Despite price increases introduced to sustain the business' viability, passenger numbers have increased by five per cent.

Next year, Arriva Scandinavia hopes to win more tenders in Denmark, Sweden and Norway.

Mr Jensen said Arriva had been waiting on the sidelines in Sweden to pursue tenders because there had been price wars, meaning services were nearly unsustainable.

The same was true in Denmark when the services were first privatised.

"We were losing money every hour we drove the bus," he said.

"Thankfully, prices stabilised. Everyone needs to keep calm and control their bidding prices. The companies need to mature to a healthy bidding regime - if they don't, then the quality of services will be poor and they will lose customers.

"In Sweden, companies have priced themselves into stupidity. We have three per cent of the market share there and prices are rising now, meaning it will be an attractive market to look at for us in the next couple of years."

Mr Jensen said European operations were a huge challenge, but one that was worth the risk.

"A lot is going on in Europe," he said. "Arriva has expanded from being a UK company as it recognised the huge market there in Europe when others didn't.

"At the moment, there are three large transport operators that have formulated a European strategy, but the other major companies have not looked beyond their mother countries.

"I think most of them will become more internationally-focused in the future, simply because the markets will dry out."

He said one of Arriva's biggest challenges would be getting market share in Eastern European countries, such as Poland and the Czech Republic.

"Germany also is really untapped still," he said. "That is what we will be looking there.

"Investors like our strategy. The share price has gone up substantially and there has been a positive market reaction to the expansion strategy we are taking."

Arriva hopes that by reaching into more countries and employing local staff experienced in transport in each area, it can share ideas and best practice, as well as significantly expanding the business.

As regulations and tenders are different in each area, the company has to rely on local knowledge to win contracts.

In Denmark, Mr Jensen said, Arriva is trying to fuel a political debate about buses in Copenhagen - a city increasingly struggling with congestion - to follow the London transport model and introduce congestion charges and more bus lanes.

But he said: "Politicians anywhere in Europe are afraid to take that brave decision, because they may not get re-elected. These measures are sensible but they are not popular.

"We are treading a fine line between creating a political debate about the future of transport and trying to continue to win tenders from the government."

Karsten Andersen, managing director of Arriva Trains, said the next move in Scandinavia was likely to be for rail lines in Sweden, one of which links with Denmark, and also in Norway.

Further expansion into Germany and Eastern Europe are also likely soon.

Mr Jensen said: "In mid and southern Europe there are problems with state competition and monopolies, and state-run companies have tax incentives, which gives them a competitive advantage over private operators.

"Arriva is pressing for deregulation and to change the tenders process so it is fair to all operators. That will mean we can compete for even more in the future."