JIN-450 -- The Taxi Business

J@pan Inc Newsletter

The 'JIN' Japan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 450 Wednesday January 30, 2008, Tokyo

------Metropolis Magazine Valentine`s Glitterball-------

Glitterball is back!
Tokyo's favorite party makes its triumphant return on
February 14, 2008-Valentine's Day.
An institution for nearly a decade, the Metropolis-hosted
Glitterball was on hiatus this year due to the closing of
Velfarre nightclub, but 2008's version promises to be better
than ever.

Roppongi hotspot Alife will host over 1,000 V-Day revelers
for a night of eating, drinking, dancing, making friends-and
who knows what else.
Prize drawings, swag bags, and Tokyo's funnest crowd will make
the reborn Glitterball the highlight of the Tokyo social calendar.


The Taxi Business

In 2001, getting into a Tokyo taxi for the first time, I
remember being surprised by a number of things. The door opened
before I could get a hand to it, the driver was wearing white
gloves, puffing a cigarette, and when I got in, he didn't seem
to have a clue where the Japanese address that I handed to him
was. After a short interchange on the radio, with who I assume
to have been HQ, he said 'OK' and drove me off to my destination
leaving me generally rather impressed with the cleanliness and
politeness of the experience.

Since that time, taking taxis in Japan has become a part of life
that I spend little time dwelling on. However, there are some
interesting facets to the business and culture of taking cabs
here that have changed significantly in recent years. The most
recent change is of course the smoking ban that has been imposed
on most cabs in Tokyo this month. The two main taxi associations,
The Tokyo Taxi Association and the Tokyo Kojin Taxi Association
have implemented a ban covering 52,000 taxis out of the reported
total of 53,619 cabs. The ban has not been extended nationally
yet but will most probably be complete by the autumn. A
breakthrough for the anti-smoking lobbyists, like all such
regulation, the ban will rile smoking drivers and passengers
and be met with applause by their non-smoking counterparts.
One thing is for sure, the trademark cigarette for cab drivers
will rapidly become a thing of the past.

However, while this might be referred to as 'regulation' the
industry at large has been locked into a trend of deregulation
for over 10 years. Before then, since the 1970s, the industry
had faced major restrictions that in part resulted from the
sudden surge in demand for cabs during the period of economic
consolidation in the 1960s. The government was so concerned by
issues such as taxis refusing customers for short distance trips
that it brought in the Emergency Measures Law for Optimization
of Taxi Services, in 1970. Together with the existing 1951 Road
Transport Law, this gave the government almost absolute control
of fare prices, the number of taxis on the road, licenses
granted, operating hours and allocated patches.

[Continued below...]

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[...Article continues]

During the 1990s however, reformers came into power and started
to deregulate across a specturm of sectors. A paper from the
Kyoto Institute of Economic Research argues that the first
manifestation of deregulation in the taxi industry occurred in
July 1993 which allowed for a dual price structure in Osaka
allowing most cabs to start from 600 yen but some from 540.
By the turn of the century, excessive demand had turned to an
excess of supply; worried that the restrictions might fuel less
than savory modes of competition, and also as Diet reformers
initiated a more thorough general program of deregulation, the
Road Transport Law was reformed in 2002 making it much easier
for new firms to enter the market.

Taking advantage of the new legislation, many operators set up
fleets and the number of taxis on the roads increased
dramatically. Firms such as MK Taxi, kept their prices low and
managed to grow their business substantially. Liberalization
thus created more jobs and introduced more competition into the
industry. However, much to the confusion of economists, the
government's release of control over supply and demand has not
exactly gone as planned. Firstly, although the supply levels
have risen, demand has actually gone down. This has led to
deteriorating conditions and pay decreases for drivers and
apparently there has been a downturn in the level of service.
As a recent paper by Walter Skok and Sakoto Kobayashi (in
Knowledge and Process Management) observes, the reforms were
intended to 'improve service quality as a result of increased
competition. However, the resulting situation is the opposite
to that expected.' They continue: 'Although the number of cabs
has steadily increased, the demand has correspondingly
decreased. This paradoxical situation may be explained by the
damaging effects of the recession that had an adverse impact on
personal spending power.'

Others argue that it was also the result of 'excessive
competition' in the industry as a consequence of deregulation.
This explanation is possible but ignores the nature of the
problems that regulation caused in the first place; attempts
to control supply and demand can be futile in the face of
oscillating consumer spending power and discourages sorely
needed entrepreneurialism. But it is also arguable that the
liberalization has not really gone far enough. In particular,
prices are still controlled by the government and taxi companies
had to fight hard for the right to rise to 710 yen in Tokyo,
effective from last month. If the government allowed companies
to control pricing, this would give firms more freedom to carve
out budget or luxury niches. On the other hand, when it comes
to prices, passengers tend to go for the first cab to stop rather
than look out for the cheapest one. Companies such as Nihon
Kotsu, one of the big three companies has got around this by
introducing taxi ordering services that respond to one ring of
a mobile phone.

The recent fare hike has had a mixed reaction and arguably
favors the bigger companies. The Nikkei reported that the fare
rise was driving customers away. This can put the squeeze on
the smaller operators and it has been the case that the larger
companies have been acquiring increased numbers of their
smaller competitors in the last few years. Smaller operators are
the least likely to be able to keep fares low and even if
they do, their fleets are too small to derive major benefit from
this. Last July, Nihon Kotsu bought its smaller rival Toyo Kotsu,
and lower down the food chain, several midsized firms have
bought out smaller ones. In terms of labor too, big companies
find it easier to get staff and therefore keep expanding-another
industry paradox is that despite a falling wage, demand for
drivers has gone up with the increasing number of operations.
Perhaps further deregulation would allow for more independent
operators and smaller companies who could sustain their business
by providing a more tailored, targeted service-once the playing
field is more level.

Peter Harris

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Want to comment? It is now even easier to voice your opinion
than ever before! Simply post a comment below the article. Alternatively, you can email
it directly to the author at peter.harris@japaninc.com

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Date/Time: Tuesday, February 5, 7:00 pm
Location: Foreign Correspondents' Club of Japan
Language: English
Website: http://www.ea-tokyo.com

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