Railways are definatly the way forward here. I would build them rather than factories. I had a paper factory that was not making a profit, if I had expanded it I would still probably not make a profit. However I built some railways and all of a sudden I started to make cash from the factory. However a disclaimer here no point building railways if you do have the raw materials to build them, so it can be worth while to build the factories to supply the railway raw materials first.