JIN-450 -- The Taxi Business

[jin at mailman.japaninc.com]

J at pan Inc Newsletter


The 'JIN' Japan Inc Newsletter

A weekly opinion piece on social, economic and political trends

in Japan.

Issue No. 445 Wednesday January 30, 2008, Tokyo


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----------------------------------------------------------


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

Editor-in-Chief


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-----------------------------------------------------------


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Date/Time: Tuesday, February 5, 7:00 pm

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++END
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