Japan Railways Group

Is It Time To Expand?

Tyler, Dave, Sofia, and Paul present

INDEXJapan Railways

Problem

External Analysis

Internal Analysis

Financials

Recommendations

Introduction:

Timeline

1964: Japan National Railways -Government/publicly

owned1984: Japan Railways privatized

-7 Railways1987: JR Central created

-Tokaido Shinkansen -Main Route: Tokyo--

Nagoya--Shin-Osaka

Background Specifics● Train Statistics

○ 350 trains/day

○ Nozomi Time Table

○ 430,000 passengers/day

● Technological Advancements○ Conventional

○ Shinkansen

○ Maglev

● Affiliated Businesses○ Vertical Integration

Japan’s ProblemJapan’s population is in drastic decline.

○ Population Growth Rate of -0.13%

○ Expected (1/3) decline within 50 years

○ 40% of the population will be over 65 by the year 2060

● Efficiency cannot save them in the long term

● Japanese high speed railway market is saturated

External AnalysisBarriers to entry: HIGH

High Capital Requirements (Planning, Building, Maintaining)

High level of technology

Government policies

Supplier Power: MODERATEInternational suppliers are highly competitive

U.S. suppliers focus on locomotive freight

Buyer Power: LOWLots of customers, one company

Most companies have full control of their region

Germany

France

Spain

External AnalysisThreat of Substitutes: MODERATE

Plane (Moderate-to-high)

Car (Moderate-to-low)

Bus (Low)

Rivalry: HIGHModerate number of competitors (France, Spain, Germany, Italy,

China, Japan)

Highly Competitive (Expansion)

Increasing Demand→ Increasing level of competition (USA)

High barriers to exit → Long Projects (30 years)

Internal AnalysisTechnology/Research and

Development FocusMaglev Trains

ChuoCore Competency

Organizational CultureDisciplined, focus on

perfectionismCore Competency

Acquisition - MindsetValuable

Internal Analysis ContinuedReputation/Brand Image

VRIN/Core Competency

Safety and Efficiency Philosophy

Zero fatalities in over 50 years

.9 minute delays over that periodNozomi Time Table

Core Competency

Financials Operating revenue

$12.5 billion (2012) and $13.9 billion (2014)

Operating costs of revenue 76.8% of Revenue (2012) and

69.7%(2014)Focus to pay off of long term

debtPaid off $1.8 billion in long

term debt (2014)October 1, 1991 : $45.5 billion

in long term debtNow: $27.7 billion

Financial Ratios

Recommendations

Transnational StrategyPotential Markets

Europe, Asia, or United States

Factors Affecting Market Integration

Culture variations

Legal issues (different requirements to meet --environment, for example)

Infrastructure/Geographic limitations

Method of Integration

Acquisition vs. Joint Ventures vs. Wholly subsidiary

Joint Venture in Europe?

Incentives/Pros:● Established high speed rail lines● Train-oriented culture● Minimized infrastructure costs

Cons:● Railways are government owned● Cultural Discrepancies in standards

Conclusion: Due to barrier of government ownership, not a viable option

Joint Venture in United States?● Incentives/Pros

○ Unsaturated Market■ Amtrak, California Rail Projects, and Northeast Maglev■ Appeal to Green movement

● Cons○ “Freedom of Open Road”○ Extreme Competition for Rivals○ High Infrastructure Costs

■ Chuo (maglev) Shinkansen: $178 million per km ■ Shinkansen: $76 million per km

○ Cultural Clashes● Conclusion: There are many hurdles that will deter

this being an immediate viable option but there is potential due to current trends

Joint Venture in Asia?Incentives:

Asia is in drastic need of a more efficient means of transportation

May be less cultural barriers serving as deterrents

JR lines and technology more familiar in that region

Cons:China

Increased international growth in high speed railway service

Stronger bidding power

Offer total package: construction, supply of trains, operating and finance

Conclusion: China is a formidable rival in Asia. Unfortunately, China may have too big of an influence on the region.