The Japanese Approach to privatisation

The Case of Japan National Railways (JNR) & JR East

Declan Hayes & Bert D'Hooghe  Case Summary

This study examines the key elements that contributed to the successful privatisation of Japanese Railways (JR). In particular, it focuses on JR East, which is now one of the world’s largest railway companies. As it shows that it is possible to turn an ailing Government owned company into a successful business, the JR privatisation process has wider relevance beyond Japan.

The analysis starts with a brief overview of the foundation of JNR and its evolution from a profitable company into one that continuously ran very large deficits. It goes on to examine the reorganisation of JNR in 1987 into six independent passenger services (the JRs), and a freight service. It discusses different 'tools' applied during the privatisation in order to prevent the JRs from running deficits; these include the Shinkansen Holding Corporation, JR Freight’s preferential rental fees, the Management Stabilisation Fund and the way in which JNR’s liabilities were divided.

Using the case of JR East, it shows how the newly formed JRs differ from their predecessor in key respects. Their improved service, improved management style, increased productivity, improved relations between management, their increased transport capacity and their new policies concerning the supply of materials are all noted and discussed. JR East's emphasis on having a strong financial underpinning to its business is particularly noted as are the opportunities JR East is now exploring to improve its revenue base even further. 

Finally, the case looks at the evolution of JR's privatisation. The first IPO of JR shares had to be postponed until 1993 because of both external factors and the purchase of the Shinkansen (the Japanese Bullet Train). Although the JRs have now launched the majority of their shares on the Tokyo Stock Exchange, the Government is still able to influence JR's management policies. As the process of privatisation can only be considered complete when all the stocks of the JR companies are offered on the stock market, the case concludes by indicating some remaining challenges.

 Recommended level:

·          Up to MBA

No. of Pages 19