a strategic analysis of urban public transport industry: a case of

ISSN: 0971-1023 | NMIMS Management ReviewVolume XXIX April-May 2016

A Strategic Analysis of Urban Public Transport Industry:A Case of Ahmedabad, Gujarat in India

Abstract

Urban transport is the lifeblood for any urban area in

the modern era. As urban areas are expanding,

commuters spend increasing amounts of time to travel

within the city. They are also exposed to congestion of

traffic and inhale polluted air, besides spending a lot of

money individually. In doing so, an individual is

exposed to risk of accident as well. Ahmedabad in India

has been shortlisted by the government of India to be

transformed into a 'Smart City'; the city therefore

requires an efficient urban transport system. Already

multiple modes of transport are used in Ahmedabad.

The BRTS (Bus Rapid Transport System) is the latest

addition to this category, which promises to deliver an

efficient, economical and comfortable mode of

transport for commuters in the city and surrounding

expanse of Ahmedabad. Hence, this paper analyzes

industry competitiveness and profitability, two very

important dimensions to decide the fate of

participants and potential entrants in any industry. The

industry in consideration is the urban public transport

industry in the city of Ahmedabad, Gujarat, in India.

Porter's five forces namely threat of new entrants,

bargaining power of buyers, threat of substitute

products or services, bargaining power of suppliers,

and rivalry among existing competitors have been

analyzed keeping the urban public transport industry

of Ahmedabad at the centre stage. The analysis reveals

that these forces have varied strengths; most of them

have strengths ranging from medium to high. Hence,

the industry in consideration is highly competitive and

unprofitable. In the final stage, to improve

competitiveness and profitability of the urban public

transport industry in Ahmedabad, the authors

recommend various measures related to route

rationalization, creating differentiated services, taxing

the users of personal vehicles and inter para transit

players for not compensating for the costs they levy on

the society by using public infrastructure. The analysis

could be used by policy makers, urban local bodies,

companies, researchers, and academia interested in

urban public transport industry.

Key words: Public Transport; Urban Transport;

Porter's Five Forces; Profitability; Competitiveness;

Strategic Management.

A Strategic Analysis of Urban PublicTransport Industry: A Case of Ahmedabad,

Gujarat in India

Mahesh L. Chaudhary

Yogesh C. Joshi

Changes

cities of India, and therefore street

Contents

mall farmers. Majority of the

farmers (82%) borrow less than

Rs 5 lakhs, and 18% borrow

between Rs 5 – 10 lakhs on a

per annum basis. Most farmers

(65.79%) ar

** p < .01 + Reliability coefficie

References

Table 23: The Results of Mann-Whitney U Test for DOWJONES Index Daily Returns

1. Introduction

It is the industry structure that drives competition and

overall profitability, not whether an industry produces

a product or service, is emerging or mature, high tech

or low tech, regulated or unregulated. Understanding

the competitive forces and their inherent causes

unwrap the roots of an industry's current profitability

while providing a framework for foreknowing and

influencing competition and profitability over time

(Porter, 2008). Porter's Five Forces (hereafter referred

to as PFF) framework is derived from the industrial

economics approach. The base is that the

attractiveness and overall profitability of industry in a

particular market can be defined by understanding the

underlying market structure (Slater & Olson, 2002).

The market structure successively influences the

strategic behaviour of the organization and hence the

organizational success is therefore circuitously

dependent on the market structure (Fabian, 2014).

In addition to the points discussed above, the PFF

model is also a “useful starting point for strategic

analysis even where profit criteria may not apply”

(Johnson, Scholes, & Whittington, 2008). Hence, it

becomes pertinent for policy makers or industry

players or government bodies to understand industry

structure before they take a leap in penning down their

position in the industry. Urban public transport, as an

industry, cannot be an exception in this regard. It needs

to pass the litmus test of industry structure analysis as

explained by the PFF model. Urban transport is the life

blood for any urban area in the modern era. As urban

areas are expanding, commuters spend an increasing

amount of time to travel within the city. They are also

exposed to congestion of traffic and inhale polluted air,

besides spending a lot of money individually. In doing

so, an individual is exposed to the risk of accident as

well. Ahmedabad in India has been shortlisted by the

government of India to be transformed into a 'Smart

City'; the city therefore requires an efficient urban

transport system. Already multiple modes of transport

are used in Ahmedabad. The BRTS (Bus Rapid

Transport System) is a latest edition to this category,

which promises to deliver an efficient, economical and

comfortable mode of transport for commuters in the

city and surrounding expanse of Ahmedabad.

In this paper, an analysis of urban public transport in

the city of Ahmedabad, as an industry, has been

attempted. The paper shows how the five forces, as

described by Porter, shape competition and

profitability in this industry. Awareness of the five

forces can help Ahmedabad Municipal Corporation

(AMC) understand the structure of urban public

transport industry in the city of Ahmedabad and carve

out a position that is more profitable and less

vulnerable to attack.

1.1 Characteristics of urban public transport

scenario in Ahmedabad

Ahmedabad has one of the oldest urban transport

organizations in the country. Its traditional public bus

transport services, Ahmedabad Municipal Transport

Services (AMTS), runs under the aegis of Ahmedabad

Municipal Corporation (AMC). It commenced its

operations in the year 1947. AMTS then had a bus fleet

of 724, operating on 187 routes and serving 0.62

million passenger-trips daily with a daily revenue of Rs.

1.32 million (Central Institute of Road Transport,

1996).

Another new feature added to the AMC's urban

transport services is BRTS launched in 2009, in the

name of Ahmedabad Janmarg Limited (A JL).

Inferences from Table 1can be drawn that although the

passenger trips served per bus per day by AMTS

(705.88) is higher by twelve percent compared to

passenger trips served by its counterpart AJL (630.43)

for the year 2014-15, the revenue generated per bus

per day by AMTS (Rs. 3765) is lower by forty six

percent compared to its counterpart BRTS (Rs. 8217)

for the same period. This is due to the fact that fares of

AMTS bus services are highly subsidized compared to

fares of its counterpart AJL. It can further be

substantiated from Annexure 1 that the AMTS offers a

variety of concession schemes to its users.

Additionally, the fare of AMTS ranges from Rs 3 to Rs

25 and that of BRTS ranges from Rs. 4 to Rs. 29 per ride.

As far as IPT players are concerned, they churn around

56.25 million rupees per day. However, their

diseconomies of scale due to small size of auto

rickshaws and fragmented and plentiful number of

auto-rickshaws restrict their income per auto-

rickshaw to a meagre 450 rupees per day.

Table 1: Key performance indicators of BRTS and AMTS for the year 2014-15

Particulars AMTS AJL IPT- inter para transit

(Shared Auto)

A Fleet size 850 230 125000

Passenger trips served per day

6,00,000

1,45,000

5625000

Passenger trips served per vehicle

per day [B/A]

705.88

630.43

Revenue generated per day (INR

million)

E Revenue generated per vehicle per day (INR) [D/A] 3,765/- 8,217/- 450/-

Source: Authors' analysis from discussions with urban transport consultants and auto rickshaw drivers.

In order to gain greater insight into various aspects of functioning and operation of urban public transport industry

in Ahmedabad, a brief review of literature has been undertaken and the same has been presented below.

2. Review of Literature

The approach of the industrial organization (IO) theory

forms the base for Porter's Five Forces framework. The

IO theory assumes that market structure determines

the attractiveness of an industry because market

structure affects the behaviour of market participants

(Raible, 2013). It was Porter who synthesized the

disciplines of industrial organization and strategy

(Argyres & McGahan, 2002). Hence, the market

conduct or behaviour of market participants to

achieve their goals will depend on market structures,

and the overall attractiveness and profitability of the

market can be determined by market structure (Slater

& Olson, 2002; Mohamed, Shamsudin, & Latif, 2013).

The knowledge of interaction of five forces namely

rivalry among existing players, bargaining power of

suppliers, bargaining power of buyers, threat of

substitutes and threat of new entrants is of great

importance for strategy formulation by the companies

(Porter, 2008). The competitive forces facilitated

simplification of the micro-economic theory by using

only five forces. It provides an opportunity to examine

and evaluate complex interactions of competitors in an

industry in a more structured manner (Porter M. E.,

1979). The answer to number and nature of forces

identified by Porter is well explained in the interview of

Changes

Contents

(65.79%) ar

References

1. Introduction

It is the industry structure that drives competition and

overall profitability, not whether an industry produces

a product or service, is emerging or mature, high tech

or low tech, regulated or unregulated. Understanding

the competitive forces and their inherent causes

unwrap the roots of an industry's current profitability

while providing a framework for foreknowing and

influencing competition and profitability over time

(Porter, 2008). Porter's Five Forces (hereafter referred

to as PFF) framework is derived from the industrial

economics approach. The base is that the

attractiveness and overall profitability of industry in a

particular market can be defined by understanding the

underlying market structure (Slater & Olson, 2002).

The market structure successively influences the

strategic behaviour of the organization and hence the

organizational success is therefore circuitously

dependent on the market structure (Fabian, 2014).

In addition to the points discussed above, the PFF

model is also a “useful starting point for strategic

analysis even where profit criteria may not apply”

(Johnson, Scholes, & Whittington, 2008). Hence, it

becomes pertinent for policy makers or industry

players or government bodies to understand industry

structure before they take a leap in penning down their

position in the industry. Urban public transport, as an

industry, cannot be an exception in this regard. It needs

to pass the litmus test of industry structure analysis as

explained by the PFF model. Urban transport is the life

blood for any urban area in the modern era. As urban

areas are expanding, commuters spend an increasing

amount of time to travel within the city. They are also

exposed to congestion of traffic and inhale polluted air,

besides spending a lot of money individually. In doing

so, an individual is exposed to the risk of accident as

well. Ahmedabad in India has been shortlisted by the

government of India to be transformed into a 'Smart

City'; the city therefore requires an efficient urban

transport system. Already multiple modes of transport

are used in Ahmedabad. The BRTS (Bus Rapid

Transport System) is a latest edition to this category,

which promises to deliver an efficient, economical and

comfortable mode of transport for commuters in the

city and surrounding expanse of Ahmedabad.

In this paper, an analysis of urban public transport in

the city of Ahmedabad, as an industry, has been

attempted. The paper shows how the five forces, as

described by Porter, shape competition and

profitability in this industry. Awareness of the five

forces can help Ahmedabad Municipal Corporation

(AMC) understand the structure of urban public

transport industry in the city of Ahmedabad and carve

out a position that is more profitable and less

vulnerable to attack.

1.1 Characteristics of urban public transport

scenario in Ahmedabad

Ahmedabad has one of the oldest urban transport

organizations in the country. Its traditional public bus

transport services, Ahmedabad Municipal Transport

Services (AMTS), runs under the aegis of Ahmedabad

Municipal Corporation (AMC). It commenced its

operations in the year 1947. AMTS then had a bus fleet

of 724, operating on 187 routes and serving 0.62

million passenger-trips daily with a daily revenue of Rs.

1.32 million (Central Institute of Road Transport,

1996).

Another new feature added to the AMC's urban

transport services is BRTS launched in 2009, in the

name of Ahmedabad Janmarg Limited (A JL).

Inferences from Table 1can be drawn that although the

passenger trips served per bus per day by AMTS

(705.88) is higher by twelve percent compared to

passenger trips served by its counterpart AJL (630.43)

for the year 2014-15, the revenue generated per bus

per day by AMTS (Rs. 3765) is lower by forty six

percent compared to its counterpart BRTS (Rs. 8217)

for the same period. This is due to the fact that fares of

AMTS bus services are highly subsidized compared to

fares of its counterpart AJL. It can further be

substantiated from Annexure 1 that the AMTS offers a

variety of concession schemes to its users.

Additionally, the fare of AMTS ranges from Rs 3 to Rs

25 and that of BRTS ranges from Rs. 4 to Rs. 29 per ride.

As far as IPT players are concerned, they churn around

56.25 million rupees per day. However, their

diseconomies of scale due to small size of auto

rickshaws and fragmented and plentiful number of

auto-rickshaws restrict their income per auto-

rickshaw to a meagre 450 rupees per day.

Table 1: Key performance indicators of BRTS and AMTS for the year 2014-15

Particulars AMTS AJL IPT- inter para transit

(Shared Auto)

A Fleet size 850 230 125000

Passenger trips served per day

6,00,000

1,45,000

5625000

Passenger trips served per vehicle

per day [B/A]

705.88

630.43

Revenue generated per day (INR

million)

E Revenue generated per vehicle per day (INR) [D/A] 3,765/- 8,217/- 450/-

Source: Authors' analysis from discussions with urban transport consultants and auto rickshaw drivers.

In order to gain greater insight into various aspects of functioning and operation of urban public transport industry

in Ahmedabad, a brief review of literature has been undertaken and the same has been presented below.

2. Review of Literature

The approach of the industrial organization (IO) theory

forms the base for Porter's Five Forces framework. The

IO theory assumes that market structure determines

the attractiveness of an industry because market

structure affects the behaviour of market participants

(Raible, 2013). It was Porter who synthesized the

disciplines of industrial organization and strategy

(Argyres & McGahan, 2002). Hence, the market

conduct or behaviour of market participants to

achieve their goals will depend on market structures,

and the overall attractiveness and profitability of the

market can be determined by market structure (Slater

& Olson, 2002; Mohamed, Shamsudin, & Latif, 2013).

The knowledge of interaction of five forces namely

rivalry among existing players, bargaining power of

suppliers, bargaining power of buyers, threat of

substitutes and threat of new entrants is of great

importance for strategy formulation by the companies

(Porter, 2008). The competitive forces facilitated

simplification of the micro-economic theory by using

only five forces. It provides an opportunity to examine

and evaluate complex interactions of competitors in an

industry in a more structured manner (Porter M. E.,

1979). The answer to number and nature of forces

identified by Porter is well explained in the interview of

Changes

Contents

(65.79%) ar

References

Porter. On one hand, he argues that “these forces have

to be intuitively grounded and on the other hand, he

claims that the conclusion about five forces was only

after he looked at hundreds of industries (Argyres &

McGahan, 2002). Industry structure, through the

mentioned five competitive forces, determines the

industry's long-run profitability. It determines how the

economic value created by the industry is divided

among industry participants (Porter M. E., 2008).

There is substantial literature that supports, revises or

complements Porter's basic premises since the

inception of the PFF framework in 1980. Some

researchers claimed that there were deficiencies in the

PFF framework. For instance, Porter's non-recognition

of information technology (IT) as a distinctive

competitive force was critically noted by researchers

who emphasized that IT be treated as the sixth

competitive force (McFarlan, 1984; Thurlby, 1998;

Andriotis, 2004). The PFF framework did not recognize

information technology (digitalization), globalization

and deregulation as distinctive competitive forces, but

has conceived them as fleeting factors which are

considered as a means of supporting the five forces

(Fabian, 2014). These attributes could be either

enabling or inhibiting tools in any industry (Porter M.

E., 2001). One should avoid the common trap of

misinterpreting certain visible attributes of an industry

such as industry growth rates, technology and

innovation, government and complementary products

and services for its underlying structure (Porter M. E.,

2008). “While Porter's framework is the basis of a

systematic approach to strategy, it definitely does not

guarantee the scientific rigour, Porter claims for it and

also does not assure a competitive advantage that is

lasting, defensible and hard to imitate” (Aktouf, 2004).

Adding to it, “the resource based approach that

emerged in 1990 with Prahalad and Hamel's article on

“core competence” followed by an article on

“capabilities-based competition” by Stalk, Evans and

Schulman's in 1992 are of the view that the

competitive environment since 1990s has changed

significant enough that the structural approach

represented by Porter's competitive forces framework

is no longer effective” (Aktouf, 2004). However, the

robustness of the PFF framework can be appreciated

from the fact that the very purpose of the PFF

framework is “not to declare the industry is attractive

or unattractive but to understand the underpinnings of

competition and the root causes of profitability. The

five forces have diverse degrees of impact in certain

industries and individual forces and their collective

impact will change as the government policies and

macroeconomic and overall business environments

change” (Mohaptra, 2012). “The five forces reveal why

industry profitability is what it is” (Porter M. E., 2008).

Hence, the PFF framework is used for its robustness to

perform the urban public transport industry analysis to

understand the bearings of competition and the root

cause of (un)profitability which further helps in carving

strategies to thrive in the industry.

3 . Objectives, Methodology and Structure

of the Study

3.1 Objectives of the study

In the present paper, an attempt has been made to

perform strategic analysis of the urban public

transport industry in Ahmedabad city by applying the

P F F framework. I t i s used to measure the

attractiveness and profitability of this industry as

determined by the action of the five basic forces

namely threat of new entrants, bargaining power of

buyers, threat of substitute products or services,

bargaining power of suppliers, and rivalry among

existing competitors. This will facilitate better strategic

decision making by industry participants and policy

makers at the city level. Similar framework could be

applied for other cities too with necessary changes.

Because each city in itself is a different market (i.e. no

city competes with other cities for business in urban

transport services), it is appropriate to use the PFF

framework for the analysis of urban public transport

industry of Ahmedabad. Also, the robustness of the

PFF framework ensures that the analysis looks into all

aspects of the business environment throughout the

value chain of the urban public transport industry of

Ahmedabad.

3.2 Research Methodology adopted for the study:

The researcher has relied on exploratory research

design. The primary and secondary data collected for

conducting the entire research is subjected to

qualitative analysis. The findings may be considered as

tentative and the insights gained from exploratory

research might be verified or quantified to the extent

possible by conclusive research. Further, inferences

strictly refer to the period of study.

3.2.1 Data and Data Collection

Primary data

Since the research design adopted is exploratory in

nature, the research process is quite flexible and

unstructured as far as data collection is concerned.

Urban transport experts having understanding and

knowledge of Ahmedabad urban public transport

industry, bus operators of Ahmedabad Janmarg Ltd

and auto rickshaw drivers in the city were interviewed

for the purpose of this study.

Secondary data

Secondary data was collected from academic journals,

books, dissertations, theses, research papers, working

papers, monographs, magazines, circulars and tender

documents of urban t ransport pro jects of

Ahmedabad, newspapers and websites.

3.1 Structure of the study

Analysis of the urban public transport industry of

Ahmedabad using Porter's Five Forces framework was

conducted using an exploratory research design

approach. The intensity of forces determines the

profitability or competitiveness of an industry. An

industry with high intensity of forces leads to poor

profitability and high competitiveness within the

industry, and vice versa. The study encompasses how

the industry structure grows out of a set of economic

and technical characteristics that determine the

strength of each competitive force. These drivers have

been examined taking the perspective of an

incumbent AMC and its urban public transport

services provided by AMTS and AJL. Conclusions and

recommendations emerging from the study have been

made at the end.

4. Analysis of Urban Public Transport

Industry of Ahmedabad Applying Porter's

Five Forces Model:

4.1 Threat of new entrants:

The threat of entry in any industry depends on the

magnitude of entry barriers that are present and on

the retaliation entrants can expect from incumbents. If

entry barriers are low and new comers expect little

retaliation from the entrenched competitors, the

threat of entry is high and industry profitability is

moderated. It is the threat of entry, not whether entry

actually occurs, that holds down profitability (Porter,

A Strategic Analysis of Urban Public Transport Industry:A Case of Ahmedabad, Gujarat in India84 85

Changes

Contents

(65.79%) ar

References

Porter. On one hand, he argues that “these forces have

to be intuitively grounded and on the other hand, he

claims that the conclusion about five forces was only

after he looked at hundreds of industries (Argyres &

McGahan, 2002). Industry structure, through the

mentioned five competitive forces, determines the

industry's long-run profitability. It determines how the

economic value created by the industry is divided

among industry participants (Porter M. E., 2008).

There is substantial literature that supports, revises or

complements Porter's basic premises since the

inception of the PFF framework in 1980. Some

researchers claimed that there were deficiencies in the

PFF framework. For instance, Porter's non-recognition

of information technology (IT) as a distinctive

competitive force was critically noted by researchers

who emphasized that IT be treated as the sixth

competitive force (McFarlan, 1984; Thurlby, 1998;

Andriotis, 2004). The PFF framework did not recognize

information technology (digitalization), globalization

and deregulation as distinctive competitive forces, but

has conceived them as fleeting factors which are

considered as a means of supporting the five forces

(Fabian, 2014). These attributes could be either

enabling or inhibiting tools in any industry (Porter M.

E., 2001). One should avoid the common trap of

misinterpreting certain visible attributes of an industry

such as industry growth rates, technology and

innovation, government and complementary products

and services for its underlying structure (Porter M. E.,

2008). “While Porter's framework is the basis of a

systematic approach to strategy, it definitely does not

guarantee the scientific rigour, Porter claims for it and

also does not assure a competitive advantage that is

lasting, defensible and hard to imitate” (Aktouf, 2004).

Adding to it, “the resource based approach that

emerged in 1990 with Prahalad and Hamel's article on

“core competence” followed by an article on

“capabilities-based competition” by Stalk, Evans and

Schulman's in 1992 are of the view that the

competitive environment since 1990s has changed

significant enough that the structural approach

represented by Porter's competitive forces framework

is no longer effective” (Aktouf, 2004). However, the

robustness of the PFF framework can be appreciated

from the fact that the very purpose of the PFF

framework is “not to declare the industry is attractive

or unattractive but to understand the underpinnings of

competition and the root causes of profitability. The

five forces have diverse degrees of impact in certain

industries and individual forces and their collective

impact will change as the government policies and

macroeconomic and overall business environments

change” (Mohaptra, 2012). “The five forces reveal why

industry profitability is what it is” (Porter M. E., 2008).

Hence, the PFF framework is used for its robustness to

perform the urban public transport industry analysis to

understand the bearings of competition and the root

cause of (un)profitability which further helps in carving

strategies to thrive in the industry.

3 . Objectives, Methodology and Structure

of the Study

3.1 Objectives of the study

In the present paper, an attempt has been made to

perform strategic analysis of the urban public

transport industry in Ahmedabad city by applying the

P F F framework. I t i s used to measure the

attractiveness and profitability of this industry as

determined by the action of the five basic forces

namely threat of new entrants, bargaining power of

buyers, threat of substitute products or services,

bargaining power of suppliers, and rivalry among

existing competitors. This will facilitate better strategic

decision making by industry participants and policy

makers at the city level. Similar framework could be

applied for other cities too with necessary changes.

Because each city in itself is a different market (i.e. no

city competes with other cities for business in urban

transport services), it is appropriate to use the PFF

framework for the analysis of urban public transport

industry of Ahmedabad. Also, the robustness of the

PFF framework ensures that the analysis looks into all

aspects of the business environment throughout the

value chain of the urban public transport industry of

Ahmedabad.

3.2 Research Methodology adopted for the study:

The researcher has relied on exploratory research

design. The primary and secondary data collected for

conducting the entire research is subjected to

qualitative analysis. The findings may be considered as

tentative and the insights gained from exploratory

research might be verified or quantified to the extent

possible by conclusive research. Further, inferences

strictly refer to the period of study.

3.2.1 Data and Data Collection

Primary data

Since the research design adopted is exploratory in

nature, the research process is quite flexible and

unstructured as far as data collection is concerned.

Urban transport experts having understanding and

knowledge of Ahmedabad urban public transport

industry, bus operators of Ahmedabad Janmarg Ltd

and auto rickshaw drivers in the city were interviewed

for the purpose of this study.

Secondary data

Secondary data was collected from academic journals,

books, dissertations, theses, research papers, working

papers, monographs, magazines, circulars and tender

documents of urban t ransport pro jects of

Ahmedabad, newspapers and websites.

3.1 Structure of the study

Analysis of the urban public transport industry of

Ahmedabad using Porter's Five Forces framework was

conducted using an exploratory research design

approach. The intensity of forces determines the

profitability or competitiveness of an industry. An

industry with high intensity of forces leads to poor

profitability and high competitiveness within the

industry, and vice versa. The study encompasses how

the industry structure grows out of a set of economic

and technical characteristics that determine the

strength of each competitive force. These drivers have

been examined taking the perspective of an

incumbent AMC and its urban public transport

services provided by AMTS and AJL. Conclusions and

recommendations emerging from the study have been

made at the end.

4. Analysis of Urban Public Transport

Industry of Ahmedabad Applying Porter's

Five Forces Model:

4.1 Threat of new entrants:

The threat of entry in any industry depends on the

magnitude of entry barriers that are present and on

the retaliation entrants can expect from incumbents. If

entry barriers are low and new comers expect little

retaliation from the entrenched competitors, the

threat of entry is high and industry profitability is

moderated. It is the threat of entry, not whether entry

actually occurs, that holds down profitability (Porter,

Changes

Contents

(65.79%) ar

References

2008). The existence of entry barriers limit the number

of companies in the industry and therefore influence

competition among existing players (Johnson et al.,

2008). “The height of barriers to entry has been found

consistently to be the most significant predictor of

industry profitability” (Rothaermel, 2008).

There are six major sources of entry barriers here,

which decide whether the industry supports high or

low threat of new entrants.

4.1.1 Supply-side economies of scale:

The urban public transport industry in Ahmedabad has

two major categories of players. One, AMC which runs

traditional and BRTS bus services under the aegis of

AMTS and AJL respectively; second, the inter para

transit (IPT) (shared auto rickshaws). AMC is a large

player with a total bus fleet of around 1,080 buses (850

AMTS buses and 230 AJL buses as referred to in Table

1) whereas auto rickshaws are around 0.125 million in

numbers but are fragmented with individual

ownership (The Times of India, 2014).

Hence, the advantage of economies of scale, if any, is

enjoyed by AMC and not by IPT players. This is

apparent from how fares have been set for bus

services and IPT services. Generally, in long distance

travel of 5km and more within the city, the fares of

AMTS, BRTS and IPT can be observed as F < F < AMTS BRTS

F This is a strong case that supports the cost IPT.

disadvantage of IPT players which are large in numbers

but fragmented and hence, has no advantage of

economies of scale. Adding to it, the ever increasing

auto rickshaw fleet has drastically reduced the

earnings of drivers. Auto rickshaw drivers who used to

earn around Rs 600 a day in the year 2010 could

manage to earn around Rs 400 per day in the year

2014. Adoption of CNG fuel has also contributed to

this. Hence, the earning declined to an extent of 33

percent in nominal terms (The Times of India, 2014).

The real rate of decline in earnings would be even

higher than 33 percent.

As far as the metro rail service connecting the

emerging twin city of Ahmedabad and Gandhinagar is

concerned, route rationalization is being undertaken

presently. Duplication of physical infrastructure (i.e.

running BRTS and Metro parallel) will create a dent in

the balance sheets of both AJL running BRTS and

MEGA meant for running metro service between

Gandhinagar and Ahmedabad. In urban transport,

competition in the market is not always healthy. It may

lead to a penny-war situation where all the players in

the market fight for every single passenger which is

done by reducing fares (Arturo, 2005). The end result

in such an event is that everyone loses. It is fortunate

that the government recognizes this problem and is

prepared to tackle it. There are talks that Metro train

(MEGA) and BRTS will run parallel for 8 km. Two

parallel routes have been identified - one being the

third phase of BRTS' APMC – Vadajand another being

Metro's North- South Corridor (The Times of India,

2014).

4.1.2 Demand side benefits of scale:

Since commuters of the urban public transport

industry are from the lower and middle income

groups, their demand is very price elastic. Additionally,

urban public transport services being necessity-based

services, commuters don't aim to patronize large

players (i.e. commuters don't necessarily want to be

associated with large urban public transport service

providers). Their preference for a particular mode of

transport is largely weighed by the fares charged and

the reliability of services. Hence, the demand side

benefits of scale are not very attractive for public

transport service providers. This is also one of the

reasons why a lot of IPT players enter the market on a

continuous basis.

4.1.3 Customer switching cost:

Switching costs are fixed costs that buyers bear when

they change suppliers. The competitive fares between

AMC (AMTS and BRTS) and IPT players ensure lower

switching costs to passengers. Hence, whenever

passengers feel that fares of either of the public

transport services or IPT players are hiked, they shift

from one mode of commutation to another. This

behaviour of commuters is acknowledged by AMC and

IPT service providers and hence, they fix fares with

minimal difference between each other.

AMC tries to increase switching costs for passengers

especially since it offers concession on fares for

students, differently-abled, senior citizens and heavy

users. These fares at concessional rates bring in

disparity between fares charged by AMTS and IPT.

Additionally, AMC has also provided smart cards with

very attractive recharge offers (for instance, pay for

100 kilometres and travel 110 kilometres) to promote

its BRT services. These schemes, which are meant to

promote usage of public transport, indirectly facilitate

increase in customer switching costs from public

transport mode to IPT mode. However, one has to

remember that these schemes are used by regular and

heavy users and not by infrequent users.

4.1.4 Capital requirements:

Capital requirements for unorganized and fragmented

IPT players are relatively very low compared to their

counterpart AMC. IPT players don't pay for the full

cost they impose on the society (Nicolas, et.al., 2007).

For instance, IPT players don't pay (except for paying a

minuscule amount of tax) for using physical

infrastructure that is being set up by the urban local

body (ULB). Hence, many players enter this field. The

easy availability of credit facility both from banks and

non-banking financial companies also facilitate entry

of IPT players on the roads.

On the other hand, AMC cannot scale up its operations

in the short-run period as this business is capital

intensive – it requires a huge amount of money for

procurement of buses and other allied infrastructure

facilities. This scenario further facilitates entry of

potential entrants as there is a lot of latent demand

that is unmet by AMC.

4.1.5 Incumbency advantage:

Urban public transport, by its very nature, is a natural

m o n o p o l y. I n t h e p r e s e n t c o n t e x t , ro u t e

rationalization between AMTS and BRTS essentially

supports monopoly. AMTS and BRTS don't compete.

Rather they complement each other. Also, the

incumbency advantage arises from the fact that it has a

dedicated corridor for BRT buses (no other vehicles

can use this corridor). Additionally, the major trunk

and feeder routes are already being served by either

BRTS or AMTS bus services. Potential entrants will

definitely find it difficult to create a dent to the existing

incumbent. Importantly, technological intervention in

the form of Integrated Transit Management System

helps to track the bus position on real time basis and

also keep passengers updated regarding the arrival

time of buses. This facility helps in retaining the

commuters and also in proper bus scheduling thereby

giving a cutting edge over competitors. However, lack

of sufficient fleet on some routes affects quality and

reliability of services, and subsequently loses

commuters to the IPT players.

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2008). The existence of entry barriers limit the number

of companies in the industry and therefore influence

competition among existing players (Johnson et al.,

2008). “The height of barriers to entry has been found

consistently to be the most significant predictor of

industry profitability” (Rothaermel, 2008).

There are six major sources of entry barriers here,

which decide whether the industry supports high or

low threat of new entrants.

4.1.1 Supply-side economies of scale:

The urban public transport industry in Ahmedabad has

two major categories of players. One, AMC which runs

traditional and BRTS bus services under the aegis of

AMTS and AJL respectively; second, the inter para

transit (IPT) (shared auto rickshaws). AMC is a large

player with a total bus fleet of around 1,080 buses (850

AMTS buses and 230 AJL buses as referred to in Table

1) whereas auto rickshaws are around 0.125 million in

numbers but are fragmented with individual

ownership (The Times of India, 2014).

Hence, the advantage of economies of scale, if any, is

enjoyed by AMC and not by IPT players. This is

apparent from how fares have been set for bus

services and IPT services. Generally, in long distance

travel of 5km and more within the city, the fares of

AMTS, BRTS and IPT can be observed as F < F < AMTS BRTS

F This is a strong case that supports the cost IPT.

disadvantage of IPT players which are large in numbers

but fragmented and hence, has no advantage of

economies of scale. Adding to it, the ever increasing

auto rickshaw fleet has drastically reduced the

earnings of drivers. Auto rickshaw drivers who used to

earn around Rs 600 a day in the year 2010 could

manage to earn around Rs 400 per day in the year

2014. Adoption of CNG fuel has also contributed to

this. Hence, the earning declined to an extent of 33

percent in nominal terms (The Times of India, 2014).

The real rate of decline in earnings would be even

higher than 33 percent.

As far as the metro rail service connecting the

emerging twin city of Ahmedabad and Gandhinagar is

concerned, route rationalization is being undertaken

presently. Duplication of physical infrastructure (i.e.

running BRTS and Metro parallel) will create a dent in

the balance sheets of both AJL running BRTS and

MEGA meant for running metro service between

Gandhinagar and Ahmedabad. In urban transport,

competition in the market is not always healthy. It may

lead to a penny-war situation where all the players in

the market fight for every single passenger which is

done by reducing fares (Arturo, 2005). The end result

in such an event is that everyone loses. It is fortunate

that the government recognizes this problem and is

prepared to tackle it. There are talks that Metro train

(MEGA) and BRTS will run parallel for 8 km. Two

parallel routes have been identified - one being the

third phase of BRTS' APMC – Vadajand another being

Metro's North- South Corridor (The Times of India,

2014).

4.1.2 Demand side benefits of scale:

Since commuters of the urban public transport

industry are from the lower and middle income

groups, their demand is very price elastic. Additionally,

urban public transport services being necessity-based

services, commuters don't aim to patronize large

players (i.e. commuters don't necessarily want to be

associated with large urban public transport service

providers). Their preference for a particular mode of

transport is largely weighed by the fares charged and

the reliability of services. Hence, the demand side

benefits of scale are not very attractive for public

transport service providers. This is also one of the

reasons why a lot of IPT players enter the market on a

continuous basis.

4.1.3 Customer switching cost:

Switching costs are fixed costs that buyers bear when

they change suppliers. The competitive fares between

AMC (AMTS and BRTS) and IPT players ensure lower

switching costs to passengers. Hence, whenever

passengers feel that fares of either of the public

transport services or IPT players are hiked, they shift

from one mode of commutation to another. This

behaviour of commuters is acknowledged by AMC and

IPT service providers and hence, they fix fares with

minimal difference between each other.

AMC tries to increase switching costs for passengers

especially since it offers concession on fares for

students, differently-abled, senior citizens and heavy

users. These fares at concessional rates bring in

disparity between fares charged by AMTS and IPT.

Additionally, AMC has also provided smart cards with

very attractive recharge offers (for instance, pay for

100 kilometres and travel 110 kilometres) to promote

its BRT services. These schemes, which are meant to

promote usage of public transport, indirectly facilitate

increase in customer switching costs from public

transport mode to IPT mode. However, one has to

remember that these schemes are used by regular and

heavy users and not by infrequent users.

4.1.4 Capital requirements:

Capital requirements for unorganized and fragmented

IPT players are relatively very low compared to their

counterpart AMC. IPT players don't pay for the full

cost they impose on the society (Nicolas, et.al., 2007).

For instance, IPT players don't pay (except for paying a

minuscule amount of tax) for using physical

infrastructure that is being set up by the urban local

body (ULB). Hence, many players enter this field. The

easy availability of credit facility both from banks and

non-banking financial companies also facilitate entry

of IPT players on the roads.

On the other hand, AMC cannot scale up its operations

in the short-run period as this business is capital

intensive – it requires a huge amount of money for

procurement of buses and other allied infrastructure

facilities. This scenario further facilitates entry of

potential entrants as there is a lot of latent demand

that is unmet by AMC.

4.1.5 Incumbency advantage:

Urban public transport, by its very nature, is a natural

m o n o p o l y. I n t h e p r e s e n t c o n t e x t , ro u t e

rationalization between AMTS and BRTS essentially

supports monopoly. AMTS and BRTS don't compete.

Rather they complement each other. Also, the

incumbency advantage arises from the fact that it has a

dedicated corridor for BRT buses (no other vehicles

can use this corridor). Additionally, the major trunk

and feeder routes are already being served by either

BRTS or AMTS bus services. Potential entrants will

definitely find it difficult to create a dent to the existing

incumbent. Importantly, technological intervention in

the form of Integrated Transit Management System

helps to track the bus position on real time basis and

also keep passengers updated regarding the arrival

time of buses. This facility helps in retaining the

commuters and also in proper bus scheduling thereby

giving a cutting edge over competitors. However, lack

of sufficient fleet on some routes affects quality and

reliability of services, and subsequently loses

commuters to the IPT players.

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4.1.6 Restrictive government policy:

Currently, in the city of Ahmedabad, there is no major

restrictive government policy that is enforced to

inhibit entry of potential entrants in the market.

However, Section 67 of the Motor Vehicle Act, 1988

bestows powers on the state government to control

road transport with respect to –

(a) The advantages offered to the public, trade

and industry by the development of motor

transport,

(b) The desirability of coordinating road and

rail transport,

(c) The desirability of preventing uneconomic

competition among holders of permits (the

state government may, from time to time,

by notification in the Official Gazette, issue

direction to both the State Transport

Authority and Regional Transport Authority

regarding fixing of fares).

From sub-section 3 (a) of Section 73 of the Act (refer to

Annexure 3), one can infer that the State Government

shall, if so directed by the Central Government, having

regard to the number of vehicles, road conditions and

other relevant matters, by notification in the Official

Gazette, direct a State Transport Authority and a

Regional Transport Authority to limit the number of

contract carriages generally or of any specified type as

may be fixed and specified in the notification,

operating on city routes in towns with a population of

not less than five hundred thousand. Since the

government is not able to serve existing demand on its

own, it does not discourage private operators to

provide transport services in the city. On the contrary,

it encourages entry of new operators to run city taxi

services and radio taxi services (RTO Gujarat, 2015).

These circulars reflect the restrictions that

government can lay down on the number of

passengers allowed in a taxi, types of vehicles, age of

vehicles, fuel used to run vehicles, and the area or

routes of operation of taxi services. In future, if the

government feels that the pressure of competition

from IPT players becomes grave, Section 67 and 73 of

the Motor Vehicle Act, 1988 facilitate retaliation by

AMC for bringing in the required restrictions on IPT

players, taxi and radio taxi services. The scope of

retaliation by decreasing fares by incumbent public

transport players are very gloomy bearing the fact that

it is already at subsidized rates. Further fare cuts would

rather deteriorate the financial health of both AMTS

and AJL.

From the above six factors that have been analyzed,

one can say that the threat of a new entrant is medium-

to-high at present.

4.2 Bargaining power of suppliers:

Powerful suppliers capture more of the value for

themselves by charging higher prices, limiting quality

of services, or shifting costs to other industry

participants (Porter, 2008). The bargaining power of

suppliers can be influenced by the size of the supplier,

the number of suppliers, and the availability of

alternative customers (Slater & Olson, 2002).

The major categories of suppliers are fuel and raw

material suppliers, vehicle manufacturers (i.e.

investments in fleet), spares and repairs, workforce,

financiers, and road infrastructure builders. The

capacity of public transport operation companies to

influence their suppliers' price fixing mechanism is

very limited owing to lack of bargaining power that

they have when confronted with their main suppliers,

which is particularly potent in the case of fuel, vehicles

manufacturers and tyre producers (Diaz, Martinez, &

Barea, 2000).

4.2.1 Fuel and lubricant suppliers:

Fuel pricing, in India and Ahmedabad, be it diesel or

compressed natural gas (CNG) prices, is not fixed by

municipal corporations. They cannot bargain on fuel

prices and will have to accept whatever price is

decided by oil marketing companies and City Gas

Distribution (CGD) players for diesel and CNG

respectively. Additionally, the fuel and lubricant

market in India is an oligopoly market. Hence, the

bargaining power of fuel and lubricant suppliers is very

4.2.2 Bus manufacturers/ suppliers:

When it comes to procuring a fleet of buses, the buyer

(i.e. AMC in this case) predominantly has to bear

pressures from bus manufacturers. Since procurement

of buses is at the least price quoted by suppliers of

buses, international players like Volvo are not able to

withstand competition from domestic players like

TATA Motors Ltd and Ashok Leyland. Eventually buyers

have to depend a lot on these two companies for

supply of buses. This facilitates oligopoly markets and

consequently bargaining power of the suppliers

increases. Instances of bargaining power of suppliers

of buses are reflected through the addendum of

responses to pre-bid queries for procurement of high

quality buses for AJL, Ahmedabad. This addendum

raises many technical and commercial deviations and

the efforts made by bus suppliers to get advance

payments for the delivery of buses and their

unwillingness to change the bus specifications for the

purchaser (AJL, 2012). Another instance of higher

bargaining power of bus manufacturers is reflected

from the statement made by one of the senior officials of Ahmedabad Janmarg (AJL, 2009), “There's no way

bus manufacturers will agree to lower prices. We are

approaching states where the same manufacturers

have supplied basic buses and preparing a price list. It

seems as if bus manufacturers are taking advantage of

our urgency. We will not allow this. We have just asked

for an extra door in their basic model. This leads to

saving on metal for the manufacturer.”

4.2.3 Spare and repair suppliers:

When it comes to spares and repairs, the power of

suppliers of these services is moderate-to-high. The

major factor that determines the power of spare and

repair suppliers is the brand of vehicle and

manufacturer of the vehicle. For instance, the power

of spare and repair suppliers of Volvo bus will definitely

be higher than its counterparts i.e. spare and repair

suppliers of TATA Motors and Ashok Leyland buses.

This is because TATA Motors and Ashok Leyland enjoy

the advantage of economies of scale and have many

suppliers across the nation. Volvo has a very limited

market in India and hence, will have lesser number of

spare and repair suppliers.

4.2.4 Banks and non-banking financial companies

supplying finances:

Banks generally shy away from financing urban

transport projects. They are aware that the fares in

most of the public transport services are subsidized

and the municipal corporations running these services

are making losses. This problem raises concern

regarding servicing of debt by municipal corporations.

Banks extend financial help provided they are being

counter guaranteed by the state or federal

government. In general, urban public transport

depends upon grants issued from the state and the

central government. For instance, AMC's BRTS project

in general and AMTS bus services, to the extent of bus

purchases, are funded under the Jawaharlal Nehru

National Urban Renewal Mission (JnNURM). The

situation even worsens when responsibility of

procurement of buses lies on the shoulders of private

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References

4.1.6 Restrictive government policy:

Currently, in the city of Ahmedabad, there is no major

restrictive government policy that is enforced to

inhibit entry of potential entrants in the market.

However, Section 67 of the Motor Vehicle Act, 1988

bestows powers on the state government to control

road transport with respect to –

(a) The advantages offered to the public, trade

and industry by the development of motor

transport,

(b) The desirability of coordinating road and

rail transport,

(c) The desirability of preventing uneconomic

competition among holders of permits (the

state government may, from time to time,

by notification in the Official Gazette, issue

direction to both the State Transport

Authority and Regional Transport Authority

regarding fixing of fares).

From sub-section 3 (a) of Section 73 of the Act (refer to

Annexure 3), one can infer that the State Government

shall, if so directed by the Central Government, having

regard to the number of vehicles, road conditions and

other relevant matters, by notification in the Official

Gazette, direct a State Transport Authority and a

Regional Transport Authority to limit the number of

contract carriages generally or of any specified type as

may be fixed and specified in the notification,

operating on city routes in towns with a population of

not less than five hundred thousand. Since the

government is not able to serve existing demand on its

own, it does not discourage private operators to

provide transport services in the city. On the contrary,

it encourages entry of new operators to run city taxi

services and radio taxi services (RTO Gujarat, 2015).

These circulars reflect the restrictions that

government can lay down on the number of

passengers allowed in a taxi, types of vehicles, age of

vehicles, fuel used to run vehicles, and the area or

routes of operation of taxi services. In future, if the

government feels that the pressure of competition

from IPT players becomes grave, Section 67 and 73 of

the Motor Vehicle Act, 1988 facilitate retaliation by

AMC for bringing in the required restrictions on IPT

players, taxi and radio taxi services. The scope of

retaliation by decreasing fares by incumbent public

transport players are very gloomy bearing the fact that

it is already at subsidized rates. Further fare cuts would

rather deteriorate the financial health of both AMTS

and AJL.

From the above six factors that have been analyzed,

one can say that the threat of a new entrant is medium-

to-high at present.

4.2 Bargaining power of suppliers:

Powerful suppliers capture more of the value for

themselves by charging higher prices, limiting quality

of services, or shifting costs to other industry

participants (Porter, 2008). The bargaining power of

suppliers can be influenced by the size of the supplier,

the number of suppliers, and the availability of

alternative customers (Slater & Olson, 2002).

The major categories of suppliers are fuel and raw

material suppliers, vehicle manufacturers (i.e.

investments in fleet), spares and repairs, workforce,

financiers, and road infrastructure builders. The

capacity of public transport operation companies to

influence their suppliers' price fixing mechanism is

very limited owing to lack of bargaining power that

they have when confronted with their main suppliers,

which is particularly potent in the case of fuel, vehicles

manufacturers and tyre producers (Diaz, Martinez, &

Barea, 2000).

4.2.1 Fuel and lubricant suppliers:

Fuel pricing, in India and Ahmedabad, be it diesel or

compressed natural gas (CNG) prices, is not fixed by

municipal corporations. They cannot bargain on fuel

prices and will have to accept whatever price is

decided by oil marketing companies and City Gas

Distribution (CGD) players for diesel and CNG

respectively. Additionally, the fuel and lubricant

market in India is an oligopoly market. Hence, the

bargaining power of fuel and lubricant suppliers is very

4.2.2 Bus manufacturers/ suppliers:

When it comes to procuring a fleet of buses, the buyer

(i.e. AMC in this case) predominantly has to bear

pressures from bus manufacturers. Since procurement

of buses is at the least price quoted by suppliers of

buses, international players like Volvo are not able to

withstand competition from domestic players like

TATA Motors Ltd and Ashok Leyland. Eventually buyers

have to depend a lot on these two companies for

supply of buses. This facilitates oligopoly markets and

consequently bargaining power of the suppliers

increases. Instances of bargaining power of suppliers

of buses are reflected through the addendum of

responses to pre-bid queries for procurement of high

quality buses for AJL, Ahmedabad. This addendum

raises many technical and commercial deviations and

the efforts made by bus suppliers to get advance

payments for the delivery of buses and their

unwillingness to change the bus specifications for the

purchaser (AJL, 2012). Another instance of higher

bargaining power of bus manufacturers is reflected

from the statement made by one of the senior officials of Ahmedabad Janmarg (AJL, 2009), “There's no way

bus manufacturers will agree to lower prices. We are

approaching states where the same manufacturers

have supplied basic buses and preparing a price list. It

seems as if bus manufacturers are taking advantage of

our urgency. We will not allow this. We have just asked

for an extra door in their basic model. This leads to

saving on metal for the manufacturer.”

4.2.3 Spare and repair suppliers:

When it comes to spares and repairs, the power of

suppliers of these services is moderate-to-high. The

major factor that determines the power of spare and

repair suppliers is the brand of vehicle and

manufacturer of the vehicle. For instance, the power

of spare and repair suppliers of Volvo bus will definitely

be higher than its counterparts i.e. spare and repair

suppliers of TATA Motors and Ashok Leyland buses.

This is because TATA Motors and Ashok Leyland enjoy

the advantage of economies of scale and have many

suppliers across the nation. Volvo has a very limited

market in India and hence, will have lesser number of

spare and repair suppliers.

4.2.4 Banks and non-banking financial companies

supplying finances:

Banks generally shy away from financing urban

transport projects. They are aware that the fares in

most of the public transport services are subsidized

and the municipal corporations running these services

are making losses. This problem raises concern

regarding servicing of debt by municipal corporations.

Banks extend financial help provided they are being

counter guaranteed by the state or federal

government. In general, urban public transport

depends upon grants issued from the state and the

central government. For instance, AMC's BRTS project

in general and AMTS bus services, to the extent of bus

purchases, are funded under the Jawaharlal Nehru

National Urban Renewal Mission (JnNURM). The

situation even worsens when responsibility of

procurement of buses lies on the shoulders of private

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References

bus operators which operate on public-private

partnership basis. As far as IPT players are concerned,

they hardly have any bargaining power. This can be

understood from the fact that most of the IPT players

in Ahmedabad are from the lower middle class or poor

classes and they rely on financial help extended by

non-banking finance companies (NBFCs). Since these

NBFCs are aware of the underlying risk of financing

proposals from these IPT players, they charge

astronomical rates to the tunes of 18 per cent to 24

percent per annum. Banks generally charge anything

from 12 to 15 percent but IPT players find it difficult

and time consuming to avail loans from banks. Hence,

after analyzing various factors as described above, one

could say that the bargaining power of suppliers is

from moderate to high.

4.3 Bargaining power of buyers:

Powerful customers can capture more value by forcing

down prices, demanding better quality or more service

(thereby driving up costs), and generally playing

industry participants off against one another, all at the

expense of industry profitability (Porter, 2008). It is

also regarded as the “flip side of bargaining power of

suppliers” (Porter, 2008). The bargaining power of

buyers is high if buyers are large, they are able to

switch easily to another supplier and they are few in

numbers (Porter, 2008; Slater & Olson, 2002).

4.3.1 Price elasticity of demand for public transport

services:

The propensity to consume is high for the households

that fall in middle income and lower income groups.

They have to allocate their modest income among

heads like food expenses and non-food expenses such

as fuel and light, clothing and footwear, education,

medical, durables, conveyance and rent. From the

expenditure heads reflected in Annexure 2, one can

understand that the amount spent on conveyance by

the bottom 40 percent of urban population is lower

than one spent by the top 20 percent of the urban

population. Hence, one could conclude that the

bottom 40 percent of the urban population is either

using non-motorized mode of commutation (cycling or

walking) or shared auto or public bus services. They

contain their conveyance expenditure and the same is

reflected from the fact that conveyance expenditure

has gone up modestly from 2.9 percent of the total

expenditure to 3.0 percent from year 2004-05 to 2009-

10. This reflects the strength of bargaining power of

commuters. Consequently, they would not mind

retaliating to a price increase. More often than not the

retaliation is in the form of shift in mode of

commutation. The magnitude of price elasticity of

demand for BRT services can be reflected from the fact

that one rupee increase in base rate leads to a

decrease in demand of 15000 commuters on a daily

basis (The Times of India, 2014). Quoting Prof.

Shivanand Swamy's statement from this article, he

says --

“The people of Ahmedabad are very sensitive to the

fare. Surprisingly an increase of rupee one in the base

fare reduces the passenger traffic by around 15,000

passengers. Though Ahmedabad offers one of the

cheapest modes of transport, the fare factor has to be

kept in mind. Also the shuttle rickshaws (i.e. shared

auto rickshaws) are back on the road and run parallel

to BRTS; this rickshaw travel is not safe but despite

realizing the risk, people travel in such rickshaw.”

Hence, one could assess that most of the users are

from middle income or lower income groups and

safety is not ranked higher in priority compared to the

expenditure they bear in commuting.

4.3.2 Degree of convenience:

AMTS bus services are highly unreliable. Even the

quality of travel is below acceptable standards. The

headways are sometimes more than the travel time.

Also, the fleet being inadequate, commuters face the

music of overcrowding in the buses. AJL's BRT services

on the other hand provide a relatively comfortable

experience compared to AMTS bus services or IPT

services. However, it comes at a cost which not many

commuters are willing to bear. IPT too has its own

advantage. Despite commuting by IPT mode being

unsafe, it gives commuters flexibility to board and un-

board at any spot on the route and is very easily

available. This is something which is really valued a lot

among the commuters. As one commuter says, "I

travel by shared rickshaw to Shivranjani daily as I get it

within 5 minutes and it is available right at the door

step of the society and for catching BRTS, I have to walk

for nearly 10 minutes." Commuters using bus services

may shift to IPT mode and at times to non-motorized

travel mode.

4.3.3 Undifferentiated service and effect on other

costs of commuters:

Urban public transport is perceived by the commuters

as an undifferentiated service. They believe they can

always find an equivalent service (through usage of IPT

mode for commuting) and hence, end up playing one

player against another. This eventually magnifies the

degree of competition in the market.

Public bus transport service does not affect the quality

of commuters' products or services barring a few

exceptions such as workforce which requires extensive

intra-city travel as part of their work portfolio. This

workforce rarely uses public transport.

Hence, the high price elasticity of demand for public

transport services, degree of convenience in use of

public transport and the inherent quality of public

transport being an undifferentiated service results in

higher bargaining power of buyers.

4.4 Threat of substitutes:

A substitute performs the same or a similar function as

an industry's product by different means. Substitutes

are always present, but they are easy to overlook

because they may appear to be very different from the

industry's product (Porter, 2008). Had anyone ever

thought that cell-phone instruments might be

substitutes for wrist watches or smart-phones might

be substitutes for cameras or even computers? Some

of the key factors that influence threat of substitutes

are switching costs between substitute products/

services and industry products, or buyers' addiction to

buy substitutes (Klemperer, 1995; Hubbard &

Beamish, 2011; Porter, 2008).

4.4.1 Advent of information technology and

switching costs between substitute products/

services:

Urban public transport service is not an exception and

it too has substitutes in the form of personal vehicles

or car pooling in personal vehicles facilitated by online

platforms like blablacar (visit www.blablacar.in for

more details) or organized taxi services in the city like

Ola cabs, Meru cabs, etc. In the advent of information

technology, many markets have been revolutionized

and urban transport cannot be an exception.

Information technology has changed the way

businesses are done and Internet economies are

taking shape.

Since substitutes that have been discussed are at a

nascent stage of development as of now, they are not

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bus operators which operate on public-private

partnership basis. As far as IPT players are concerned,

they hardly have any bargaining power. This can be

understood from the fact that most of the IPT players

in Ahmedabad are from the lower middle class or poor

classes and they rely on financial help extended by

non-banking finance companies (NBFCs). Since these

NBFCs are aware of the underlying risk of financing

proposals from these IPT players, they charge

astronomical rates to the tunes of 18 per cent to 24

percent per annum. Banks generally charge anything

from 12 to 15 percent but IPT players find it difficult

and time consuming to avail loans from banks. Hence,

after analyzing various factors as described above, one

could say that the bargaining power of suppliers is

from moderate to high.

4.3 Bargaining power of buyers:

Powerful customers can capture more value by forcing

down prices, demanding better quality or more service

(thereby driving up costs), and generally playing

industry participants off against one another, all at the

expense of industry profitability (Porter, 2008). It is

also regarded as the “flip side of bargaining power of

suppliers” (Porter, 2008). The bargaining power of

buyers is high if buyers are large, they are able to

switch easily to another supplier and they are few in

numbers (Porter, 2008; Slater & Olson, 2002).

4.3.1 Price elasticity of demand for public transport

services:

The propensity to consume is high for the households

that fall in middle income and lower income groups.

They have to allocate their modest income among

heads like food expenses and non-food expenses such

as fuel and light, clothing and footwear, education,

medical, durables, conveyance and rent. From the

expenditure heads reflected in Annexure 2, one can

understand that the amount spent on conveyance by

the bottom 40 percent of urban population is lower

than one spent by the top 20 percent of the urban

population. Hence, one could conclude that the

bottom 40 percent of the urban population is either

using non-motorized mode of commutation (cycling or

walking) or shared auto or public bus services. They

contain their conveyance expenditure and the same is

reflected from the fact that conveyance expenditure

has gone up modestly from 2.9 percent of the total

expenditure to 3.0 percent from year 2004-05 to 2009-

10. This reflects the strength of bargaining power of

commuters. Consequently, they would not mind

retaliating to a price increase. More often than not the

retaliation is in the form of shift in mode of

commutation. The magnitude of price elasticity of

demand for BRT services can be reflected from the fact

that one rupee increase in base rate leads to a

decrease in demand of 15000 commuters on a daily

basis (The Times of India, 2014). Quoting Prof.

Shivanand Swamy's statement from this article, he

says --

“The people of Ahmedabad are very sensitive to the

fare. Surprisingly an increase of rupee one in the base

fare reduces the passenger traffic by around 15,000

passengers. Though Ahmedabad offers one of the

cheapest modes of transport, the fare factor has to be

kept in mind. Also the shuttle rickshaws (i.e. shared

auto rickshaws) are back on the road and run parallel

to BRTS; this rickshaw travel is not safe but despite

realizing the risk, people travel in such rickshaw.”

Hence, one could assess that most of the users are

from middle income or lower income groups and

safety is not ranked higher in priority compared to the

expenditure they bear in commuting.

4.3.2 Degree of convenience:

AMTS bus services are highly unreliable. Even the

quality of travel is below acceptable standards. The

headways are sometimes more than the travel time.

Also, the fleet being inadequate, commuters face the

music of overcrowding in the buses. AJL's BRT services

on the other hand provide a relatively comfortable

experience compared to AMTS bus services or IPT

services. However, it comes at a cost which not many

commuters are willing to bear. IPT too has its own

advantage. Despite commuting by IPT mode being

unsafe, it gives commuters flexibility to board and un-

board at any spot on the route and is very easily

available. This is something which is really valued a lot

among the commuters. As one commuter says, "I

travel by shared rickshaw to Shivranjani daily as I get it

within 5 minutes and it is available right at the door

step of the society and for catching BRTS, I have to walk

for nearly 10 minutes." Commuters using bus services

may shift to IPT mode and at times to non-motorized

travel mode.

4.3.3 Undifferentiated service and effect on other

costs of commuters:

Urban public transport is perceived by the commuters

as an undifferentiated service. They believe they can

always find an equivalent service (through usage of IPT

mode for commuting) and hence, end up playing one

player against another. This eventually magnifies the

degree of competition in the market.

Public bus transport service does not affect the quality

of commuters' products or services barring a few

exceptions such as workforce which requires extensive

intra-city travel as part of their work portfolio. This

workforce rarely uses public transport.

Hence, the high price elasticity of demand for public

transport services, degree of convenience in use of

public transport and the inherent quality of public

transport being an undifferentiated service results in

higher bargaining power of buyers.

4.4 Threat of substitutes:

A substitute performs the same or a similar function as

an industry's product by different means. Substitutes

are always present, but they are easy to overlook

because they may appear to be very different from the

industry's product (Porter, 2008). Had anyone ever

thought that cell-phone instruments might be

substitutes for wrist watches or smart-phones might

be substitutes for cameras or even computers? Some

of the key factors that influence threat of substitutes

are switching costs between substitute products/

services and industry products, or buyers' addiction to

buy substitutes (Klemperer, 1995; Hubbard &

Beamish, 2011; Porter, 2008).

4.4.1 Advent of information technology and

switching costs between substitute products/

services:

Urban public transport service is not an exception and

it too has substitutes in the form of personal vehicles

or car pooling in personal vehicles facilitated by online

platforms like blablacar (visit www.blablacar.in for

more details) or organized taxi services in the city like

Ola cabs, Meru cabs, etc. In the advent of information

technology, many markets have been revolutionized

and urban transport cannot be an exception.

Information technology has changed the way

businesses are done and Internet economies are

taking shape.

Since substitutes that have been discussed are at a

nascent stage of development as of now, they are not

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References

in a position to place a ceiling on prices. However, in

coming days, one cannot ignore these services which

are facilitated by information technology. The quality

and performance of the current public bus transport

services have to be raised in order to avoid losing

commuters to substitutes.

The commuters' switching costs are vital in deciding

upon the threat of substitutes. At present, the

switching costs to substitutes for commuters using

public transport services are low-to-medium for

shared services and medium-to-high for owning one's

own vehicle. If commuters are not satisfied by the

services provided by public bus transport services,

they may go ahead with purchasing their own two-

wheeler or may opt for car pooling with daily

commuters travelling the same route and timings.

4.5 Rivalry among existing competitors:

High rivalry among existing competitors limits

profitability of an industry. The degree to which rivalry

drives down an industry's profit potential depends,

first, on the intensity with which companies compete

and, second, on the basis on which they compete

(Porter, 2008). The important factors that influence

this force are industry growth rate, fixed costs/ storage

costs, number and size of competitors, switching costs

between competitors, degree of differentiation, or exit

barriers (Hubbard & Beamish, 2011; Johnson, Scholes,

& Whittington, 2008; Slater & Olson, 2002).

The intensity of rivalry is greatest if competitors are

numerous or are roughly equal in size and power,

industry growth is slow, exit barriers are high, rivals are

highly committed to the business and have aspirations

for leadership, or firms cannot read each other's

signals well because of lack of familiarity with one

another (Porter, 2008).

4.5.1 Number and size of competitors and existing

rivalry among them:

The urban public transport industry confronts

numerous competitors. On the one hand, there are

AMTS and BRTS bus services run by AMC and on the

other hand, we have thousands of auto rickshaws that

compete with each other for commuters on the same

routes. As a matter of fact, there is no clear industry

leader in the urban public transport industry. This, in

turn, increases the incidents of poaching of business

among rivals. AMC has solved poaching of business by

route rationalization between AMTS bus services and

BRTS bus services. However, the route rationalization

has not been extended to the IPT service providers.

This is one of the major reasons why commuters switch

among rivals if fare rates are increased by either of the

service providers.

4.5.2 Exit barriers for rivals and their commitment

levels:

Exit barriers for AMC are high. Being a municipal

corporation, it is obliged to provide the city's residents

with bus services (public good). A high investment in

bus services, especially for BRTS bus services, results

in a high exit barrier. The IPT players are from the

middle income and low income groups and most of

them don't have any other skills making them

ineligible to be absorbed by labour markets. Hence,

earning livelihood by driving an auto rickshaw seems

to be the most suitable option. Also, they are

financially indebted to banks for loans taken to

purchase their auto rickshaws. Hence, they cannot

leave the business very easily and therefore, exit

barriers for even IPT players are from medium-to-high.

High exit barriers retain competitors in the market

even though they may be earning low or negative

returns.

AMC has goals that go beyond economic performance

in urban public transport services. AMC's BRTS bus

service is a matter of prestige for AMC to provide

quality public services. The same can also be justified

from the fact that despite operational losses, the BRTS

bus service keeps expanding in leaps and bounds. It

serves with social benefits like environment

protection, decongestion of roads, less accidents,

tension free ride and economic benefit while travelling

for passengers, etc.

4.5.3 Basis of Competition:

The basis of competition in urban public transport

services is price, which is a major concern for rivals. If

rivals compete on the basis of prices, they destroy the

profitability of the industry as the competition

transfers profit directly to its customers. In this case,

profits are transferred from urban public transport

service providers to commuters. Pricing of bus services

and IPT service providers is very close to each other

and are responding to each other with frequent price

adjustments that are detrimental to profitability of all

the players.

Price competition in the urban public transport

industry occurs due to the fact that services of rivals

are nearly identical and there are few switching costs

for buyers. Fixed costs in the urban public transport

industry are high (highest for BRTS and lowest for auto

rickshaw service providers) and marginal costs are low.

This creates intense pressure for competitors to cut

fares below their average costs. In some cases, fares

are close to their marginal costs. AMTS and BRTS have

to serve fixed networks of routes regardless of

volumes and this further creates a dent in their

profitability. Also the perishable nature of transport

services, i.e. the unused capacity can never be

recovered by urban public transport service providers,

puts southward pressure on fares.

Ideally BRTS, AMTS and IPT service providers

compete to meet the same need of providing

commuting services to commuters. However, their

attributes are different. BRTS is a rapid transit service

which promises to provide comfort, reliable, safe and

speedy commuting services. AMTS provides very

subsidized bus services while IPT provides cheap and

speedy commuting services and lacks comfort and

safety.

5 . Conclusion

The PFF framework discussed above in the context of

the urban public transport service industry can be

summed up as follows:

The threat of new entrants is from medium to high.

This can be substantiated from the fact that supply side

economies of scale and the demand side benefits of

scale are low and hence, facilitates the entry of new

players in the market. Among other factors is the low

capital requirement by IPT players facilitated by easy

availability of credit facilities which paves the way for

easy entry into the market.

Bargaining power of suppliers is from high to moderate

bearing the fact that fuel and lubricant suppliers, bus

manufacturers, spare and repair suppliers are

operating in oligopoly market conditions. Either due to

regulatory framework (as seen in the case of fuel and

lubricant suppliers) or due to high price disparity

among the costs of buses by various manufactures, the

city bus services players have hardly any say or options

left with them to enhance their bargaining power

against the suppliers.

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References

in a position to place a ceiling on prices. However, in

coming days, one cannot ignore these services which

are facilitated by information technology. The quality

and performance of the current public bus transport

services have to be raised in order to avoid losing

commuters to substitutes.

The commuters' switching costs are vital in deciding

upon the threat of substitutes. At present, the

switching costs to substitutes for commuters using

public transport services are low-to-medium for

shared services and medium-to-high for owning one's

own vehicle. If commuters are not satisfied by the

services provided by public bus transport services,

they may go ahead with purchasing their own two-

wheeler or may opt for car pooling with daily

commuters travelling the same route and timings.

4.5 Rivalry among existing competitors:

High rivalry among existing competitors limits

profitability of an industry. The degree to which rivalry

drives down an industry's profit potential depends,

first, on the intensity with which companies compete

and, second, on the basis on which they compete

(Porter, 2008). The important factors that influence

this force are industry growth rate, fixed costs/ storage

costs, number and size of competitors, switching costs

between competitors, degree of differentiation, or exit

barriers (Hubbard & Beamish, 2011; Johnson, Scholes,

& Whittington, 2008; Slater & Olson, 2002).

The intensity of rivalry is greatest if competitors are

numerous or are roughly equal in size and power,

industry growth is slow, exit barriers are high, rivals are

highly committed to the business and have aspirations

for leadership, or firms cannot read each other's

signals well because of lack of familiarity with one

another (Porter, 2008).

4.5.1 Number and size of competitors and existing

rivalry among them:

The urban public transport industry confronts

numerous competitors. On the one hand, there are

AMTS and BRTS bus services run by AMC and on the

other hand, we have thousands of auto rickshaws that

compete with each other for commuters on the same

routes. As a matter of fact, there is no clear industry

leader in the urban public transport industry. This, in

turn, increases the incidents of poaching of business

among rivals. AMC has solved poaching of business by

route rationalization between AMTS bus services and

BRTS bus services. However, the route rationalization

has not been extended to the IPT service providers.

This is one of the major reasons why commuters switch

among rivals if fare rates are increased by either of the

service providers.

4.5.2 Exit barriers for rivals and their commitment

levels:

Exit barriers for AMC are high. Being a municipal

corporation, it is obliged to provide the city's residents

with bus services (public good). A high investment in

bus services, especially for BRTS bus services, results

in a high exit barrier. The IPT players are from the

middle income and low income groups and most of

them don't have any other skills making them

ineligible to be absorbed by labour markets. Hence,

earning livelihood by driving an auto rickshaw seems

to be the most suitable option. Also, they are

financially indebted to banks for loans taken to

purchase their auto rickshaws. Hence, they cannot

leave the business very easily and therefore, exit

barriers for even IPT players are from medium-to-high.

High exit barriers retain competitors in the market

even though they may be earning low or negative

returns.

AMC has goals that go beyond economic performance

in urban public transport services. AMC's BRTS bus

service is a matter of prestige for AMC to provide

quality public services. The same can also be justified

from the fact that despite operational losses, the BRTS

bus service keeps expanding in leaps and bounds. It

serves with social benefits like environment

protection, decongestion of roads, less accidents,

tension free ride and economic benefit while travelling

for passengers, etc.

4.5.3 Basis of Competition:

The basis of competition in urban public transport

services is price, which is a major concern for rivals. If

rivals compete on the basis of prices, they destroy the

profitability of the industry as the competition

transfers profit directly to its customers. In this case,

profits are transferred from urban public transport

service providers to commuters. Pricing of bus services

and IPT service providers is very close to each other

and are responding to each other with frequent price

adjustments that are detrimental to profitability of all

the players.

Price competition in the urban public transport

industry occurs due to the fact that services of rivals

are nearly identical and there are few switching costs

for buyers. Fixed costs in the urban public transport

industry are high (highest for BRTS and lowest for auto

rickshaw service providers) and marginal costs are low.

This creates intense pressure for competitors to cut

fares below their average costs. In some cases, fares

are close to their marginal costs. AMTS and BRTS have

to serve fixed networks of routes regardless of

volumes and this further creates a dent in their

profitability. Also the perishable nature of transport

services, i.e. the unused capacity can never be

recovered by urban public transport service providers,

puts southward pressure on fares.

Ideally BRTS, AMTS and IPT service providers

compete to meet the same need of providing

commuting services to commuters. However, their

attributes are different. BRTS is a rapid transit service

which promises to provide comfort, reliable, safe and

speedy commuting services. AMTS provides very

subsidized bus services while IPT provides cheap and

speedy commuting services and lacks comfort and

safety.

5 . Conclusion

The PFF framework discussed above in the context of

the urban public transport service industry can be

summed up as follows:

The threat of new entrants is from medium to high.

This can be substantiated from the fact that supply side

economies of scale and the demand side benefits of

scale are low and hence, facilitates the entry of new

players in the market. Among other factors is the low

capital requirement by IPT players facilitated by easy

availability of credit facilities which paves the way for

easy entry into the market.

Bargaining power of suppliers is from high to moderate

bearing the fact that fuel and lubricant suppliers, bus

manufacturers, spare and repair suppliers are

operating in oligopoly market conditions. Either due to

regulatory framework (as seen in the case of fuel and

lubricant suppliers) or due to high price disparity

among the costs of buses by various manufactures, the

city bus services players have hardly any say or options

left with them to enhance their bargaining power

against the suppliers.

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(65.79%) ar

References

Bargaining power of buyers (i.e. commuters) is high

bearing the fact that the demand for public transport

services is price elastic, the degree of convenience in

public transport is low and public transport services

are inherently undifferentiated. Due to this condition,

we often find commuters moving from one mode of

commutation to another resulting in players cutting

fares to capture/recapture commuters.

The threat of substitutes might not necessarily be very

apparent at this instance, but one cannot neglect this

threat. Due to the advent of information technology,

new industry structures are shaping up. At present,

switching costs to substitutes are from medium to high

for shared services (such as Ola cabs, Blabla cars, Meru

cabs, etc by car pooling) and owning one's own vehicle

respectively.

Finally, the rivalry among existing competitors is from

high to moderate owing to the fact that there are

numerous players in the market with no clear leader,

high exit barriers for the players due to large sunk

costs, and basis of competition being price. This brings

down the profitability of the industry.

Hence, the analysis of the urban public transport

industry using PFF framework concludes that the

urban public transport industry in Ahmedabad is very

competitive in nature accompanied by poor

profitability. AMTS, BRTS and IPT players are

financially bleeding due to lack of profitability. Even

the commuter is not a winner as his value triad is badly

affected. The quality and services of the urban public

transport services are not worth the prices the

commuters pay. Otherwise, why would more than one

million vehicles get registered in Ahmedabad in the

last five years? Such a whopping number of vehicles

would add to the social costs by leading to congestion,

air pollution, increased accidents, etc. Also, it indicates

a significant negative demand for urban public

transport services.

6 . Recommendation

Based on conclusions, it can be recommend that the

urban public transport industry's profitability and

attractiveness could be improved to a certain

extent, provided the following measures are taken

by the AMC:

• Route rationalization should not be restricted

between AMTS and AJL only. AMC should go ahead

with cooperative strategy whereby shared auto-

rickshaws are also taken into consideration while

deciding route rationalization. Doing so will ensure

that the competition of shared auto-rickshaws with

AJL or AMTS gets annihilated and undue price-war

among these competitors to grab commuters is

restricted. The integrated multi-modal transit

system should ensure a similar level of service

delivery throughout the commuters' journey.

• Let the AMC not fall in the trap of a chicken-egg

dilemma. The present bus fleet of AMTS is very low

and hence, the bus services are highly unreliable,

overcrowded, and unsafe. It needs to increase the

bus fleet so that it facilitates better headways which

in turn, will ensure better flow of commuters to bus

transport services resulting in better revenue.

• AMTS has a plethora of concession schemes for

commuters. It is high time to think about adding

more buses to its fleet with value added services for

upper middle income group of commuters which

have negative demand for public transport. AMC

cannot think of serving only the bottom of the

pyramid. Adding high end bus services with value

added services will facilitate better flow of

commuters since the service levels will be at par

with the service levels of AJL bus services and will

cross-subsidize for the commuters that travel on

concessions.

• Today's commuter is very techno-savvy. Bus

services provided by AJL and AMTS and IPT players

need to be integrated using information technology.

Real time reliable and consistent information

regarding the movement of these vehicles could be

made available to the commuters. This will

eventually lead to acceptance of urban public

transport services by commuters.

• A culture of using public transport needs to be

inculcated among people to increase demand in the

city of Ahmedabad and in other Indian cities in

order to derive full advantage of efficient public

transport systems. Awareness programmes and

better communication strategies should be

adopted by AMC to inculcate the required culture of

using public transport services. We need to educate

commuters on how they help in achieving the triple

bottom line goals of economic benefit, social

benefit and environmental benefit by commuting

through public transport. This will help in catering to

commuters who fall in the negative demand

category for public transport services.

• Owners of personal vehicles don't pay for the usage

of infrastructure (especially roads and parking

space) in its entirety. In order to discourage the rise

in the number of personal vehicles, the policy of

owning or purchasing a parking space from AMC

before owning a vehicle should be put into practice.

These funds, in turn, could make up for operational

losses of bus services. Singapore already has this

policy in place.

Implementation of the above stated measures may

help in making urban public transport services more

reliable, convenient, comfortable, safe, and rapid so

that the value triad of commuters is in place; this shall

help industry players AMTS, BRTS, and IPT players

achieve profitability. This can be achieved by not

competing with each other but complementing each

other.

Changes

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References

Bargaining power of buyers (i.e. commuters) is high

bearing the fact that the demand for public transport

services is price elastic, the degree of convenience in

public transport is low and public transport services

are inherently undifferentiated. Due to this condition,

we often find commuters moving from one mode of

commutation to another resulting in players cutting

fares to capture/recapture commuters.

The threat of substitutes might not necessarily be very

apparent at this instance, but one cannot neglect this

threat. Due to the advent of information technology,

new industry structures are shaping up. At present,

switching costs to substitutes are from medium to high

for shared services (such as Ola cabs, Blabla cars, Meru

cabs, etc by car pooling) and owning one's own vehicle

respectively.

Finally, the rivalry among existing competitors is from

high to moderate owing to the fact that there are

numerous players in the market with no clear leader,

high exit barriers for the players due to large sunk

costs, and basis of competition being price. This brings

down the profitability of the industry.

Hence, the analysis of the urban public transport

industry using PFF framework concludes that the

urban public transport industry in Ahmedabad is very

competitive in nature accompanied by poor

profitability. AMTS, BRTS and IPT players are

financially bleeding due to lack of profitability. Even

the commuter is not a winner as his value triad is badly

affected. The quality and services of the urban public

transport services are not worth the prices the

commuters pay. Otherwise, why would more than one

million vehicles get registered in Ahmedabad in the

last five years? Such a whopping number of vehicles

would add to the social costs by leading to congestion,

air pollution, increased accidents, etc. Also, it indicates

a significant negative demand for urban public

transport services.

6 . Recommendation

Based on conclusions, it can be recommend that the

urban public transport industry's profitability and

attractiveness could be improved to a certain

extent, provided the following measures are taken

by the AMC:

• Route rationalization should not be restricted

between AMTS and AJL only. AMC should go ahead

with cooperative strategy whereby shared auto-

rickshaws are also taken into consideration while

deciding route rationalization. Doing so will ensure

that the competition of shared auto-rickshaws with

AJL or AMTS gets annihilated and undue price-war

among these competitors to grab commuters is

restricted. The integrated multi-modal transit

system should ensure a similar level of service

delivery throughout the commuters' journey.

• Let the AMC not fall in the trap of a chicken-egg

dilemma. The present bus fleet of AMTS is very low

and hence, the bus services are highly unreliable,

overcrowded, and unsafe. It needs to increase the

bus fleet so that it facilitates better headways which

in turn, will ensure better flow of commuters to bus

transport services resulting in better revenue.

• AMTS has a plethora of concession schemes for

commuters. It is high time to think about adding

more buses to its fleet with value added services for

upper middle income group of commuters which

have negative demand for public transport. AMC

cannot think of serving only the bottom of the

pyramid. Adding high end bus services with value

added services will facilitate better flow of

commuters since the service levels will be at par

with the service levels of AJL bus services and will

cross-subsidize for the commuters that travel on

concessions.

• Today's commuter is very techno-savvy. Bus

services provided by AJL and AMTS and IPT players

need to be integrated using information technology.

Real time reliable and consistent information

regarding the movement of these vehicles could be

made available to the commuters. This will

eventually lead to acceptance of urban public

transport services by commuters.

• A culture of using public transport needs to be

inculcated among people to increase demand in the

city of Ahmedabad and in other Indian cities in

order to derive full advantage of efficient public

transport systems. Awareness programmes and

better communication strategies should be

adopted by AMC to inculcate the required culture of

using public transport services. We need to educate

commuters on how they help in achieving the triple

bottom line goals of economic benefit, social

benefit and environmental benefit by commuting

through public transport. This will help in catering to

commuters who fall in the negative demand

category for public transport services.

• Owners of personal vehicles don't pay for the usage

of infrastructure (especially roads and parking

space) in its entirety. In order to discourage the rise

in the number of personal vehicles, the policy of

owning or purchasing a parking space from AMC

before owning a vehicle should be put into practice.

These funds, in turn, could make up for operational

losses of bus services. Singapore already has this

policy in place.

Implementation of the above stated measures may

help in making urban public transport services more

reliable, convenient, comfortable, safe, and rapid so

that the value triad of commuters is in place; this shall

help industry players AMTS, BRTS, and IPT players

achieve profitability. This can be achieved by not

competing with each other but complementing each

other.

Changes

Contents

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References

• Ahmedabad Janmarg Limited. (2012, May 30). Response to Queries for RFP for Procurement of High Quality

Buses. . Ahmedabad, Guajrat, India.Addendum -1

• Schemes: Ahmedabad Municipal Transport ServicesAhmedabad Municipal Transport Services. (n.d.). .

Retr ieved August 23, 2015, f rom Ahmedabad Munic ipal Transport Serv ices Web S i te:

http://www.amts.co.in/SitePage.aspx?id=60 .

• AJL, S. O. (2009, May 1). AJL, Bus Makers Price War hits BRTS. (T. Paul John, Interviewer) Times of India.

• REvista Aktouf, O. (2004). The False Expectations of Michael Porter's Strategic Management Framework.

Universidad & Empresa, VI (6), 9-41.

• Andriotis, K. (2004). Revising Porter's Five Forces Model for Application in the Travel and Tourism Industry.

Tourism Today, 131-145.

• Academy of Management Executive, 16Argyres, N., & McGahan, N. (2002). An Interview with Michael Porter.

(2), 43-52.

• Arturo, A. (2005). UPI.Study of urban public transport conditions in BOGOTÁ (Colombia): Draft Report.

• Central Institute of Road Transport. (1996). Ahmedabad Municipal Transport Services: A Report on Structure

and Strategies. Pune: CIRT Publication.

• CITDiaz, A., Martinez, O., & Barea, P. (2000). El futuro del transporte de viajers por carretera. .

• Fabian, D. (2014). Are Porter's Five Competitive Forces Still Applicable? A Critical Examination concerning the

Relevance for Today's Business. Enschede, The Netherlands: University of 3rd IBA Bachelor Thesis Conference.

Twente.

• Strategic management: Thinking, Analysis, Action.Hubbard, G., & Beamish, P. (2011). Australia: Pearson

Education.

• Exploring Coporate Strategy: Text & Cases.Johnson, G., Scholes, K., & Whittington, R. (2008). Pearson

Education.

• Klemperer, P. (1995). Competition when consumers have switching costs: An Overview with Applications to

Industrial Organization, Macroeconomics, and International Trade. (4), The Review of Economic Studies, 62

515-539.

• Harvard Business Review, 62McFarlan, F. (1984). IT Changes the Way you Compete. (3), 98-103.

• Mohamed, Z., Shamsudin, M. N., & Latif, I. A. (2013). Measuring Competition Along the Supply Chain of the

Malaysian Poultry Industry. Penang, Malaysia.International Conference on Social Science Research.

• Information Systems TheoryMohaptra, S. (2012). IT and Porter's Competitive Forces Model and Strategies. ,

265-281.

• Nicolas, E., Andres, G.-L., Ramon, M.-R., & Tomas, S. (2007, December). Policy Research Working Paper 4440.

Affordability and Subsidies in Public Urban Transport: What Do We Mean, What Can Be Done? Latin America

and the Caribbean Region: The World Bank.

• Financial ManagementPandey, I. M. (2010). Financial Management. In I. M. Pandey, (pp. 110-130). New Delhi:

Vikas Publication.

• Harvard Business ReviewPorter, M. E. (1979). How Competitive Forces Shape Strategy. , 21-38.

• Harvard Business ReviewPorter, M. E. (2001). Strategy and the Internet. , 62-78.

• Harvard Business Review,Porter, M. E. (2008, January). The Five Competitive Forces that Shape Strategy. 1-17.

• Raible, M. (2013). Industrial Organization Theory and Its Contribution to Decision-making in Purchasing.

Enschede, The Netherlands: Faculty of Management and Governance, University of Twente.

• Advances in the Study of Rothaermel, F. (2008). Competitive Advantage in Technology Intensive Industries.

Entrepreneurship, Innovation & Economic Growth, 201-225.

• RTO Gujarat.RTO Gujarat. (2015, January 3). Retrieved May 14, 2015, from RTO Gujarat Website:

http://rtogujarat.gov.in/documents/notifications/radio_call_taxi.pdf

• RTO Gujarat.RTO Gujarat. (2015, February 5). Retrieved May 10, 2015, from RTO Gujarat Web site:

http://rtogujarat.gov.in/documents/notifications/AHMEDABAD_CITY_TAXI_SEVA.pdf

• Business Horizons, 45Slater, S., & Olson, E. (2002). A Fresh Look at Industry and Market Analysis. (1), 15-22.

• BRTS fails to make inroads in passenger trafficThe Times of India. (2014, November 10). . Retrieved May 4,

2015, from The Times of India Website: http://timesofindia.indiatimes.com/city/ahmedabad/BRTS-fails-to-

make-inroads-in-passenger-traffic/articleshow/45096884.cms

• Gujarat mulls 6-month ban on fresh auto registrationsThe Times of India. (2014, October 23). . Retrieved June

29, 2015, from The Times of India Web site: http://timesofindia.indiatimes.com/city/ahmedabad/Gujarat-

mulls-6-month-ban-on-fresh-auto-registrations/articleshow/44913321.cms

• Home, City: The Times of IndiaThe Times of India. (2014, January 17). . Retrieved May 4, 2015, from The Times

of India Web site: http://timesofindia.indiatimes.com/city/ahmedabad/Metro-route-will-run-parallel-to-

BRTS/articleshow/28913741.cms

• Management Decision, 36Thurlby, B. (1998). Competitive forces are also subject to change. (1), 19-24.

Changes

Contents

(65.79%) ar

References

• Ahmedabad Janmarg Limited. (2012, May 30). Response to Queries for RFP for Procurement of High Quality

Buses. . Ahmedabad, Guajrat, India.Addendum -1

• Schemes: Ahmedabad Municipal Transport ServicesAhmedabad Municipal Transport Services. (n.d.). .

Retr ieved August 23, 2015, f rom Ahmedabad Munic ipal Transport Serv ices Web S i te:

http://www.amts.co.in/SitePage.aspx?id=60 .

• AJL, S. O. (2009, May 1). AJL, Bus Makers Price War hits BRTS. (T. Paul John, Interviewer) Times of India.

• REvista Aktouf, O. (2004). The False Expectations of Michael Porter's Strategic Management Framework.

Universidad & Empresa, VI (6), 9-41.

• Andriotis, K. (2004). Revising Porter's Five Forces Model for Application in the Travel and Tourism Industry.

Tourism Today, 131-145.

• Academy of Management Executive, 16Argyres, N., & McGahan, N. (2002). An Interview with Michael Porter.

(2), 43-52.

• Arturo, A. (2005). UPI.Study of urban public transport conditions in BOGOTÁ (Colombia): Draft Report.

• Central Institute of Road Transport. (1996). Ahmedabad Municipal Transport Services: A Report on Structure

and Strategies. Pune: CIRT Publication.

• CITDiaz, A., Martinez, O., & Barea, P. (2000). El futuro del transporte de viajers por carretera. .

• Fabian, D. (2014). Are Porter's Five Competitive Forces Still Applicable? A Critical Examination concerning the

Relevance for Today's Business. Enschede, The Netherlands: University of 3rd IBA Bachelor Thesis Conference.

Twente.

• Strategic management: Thinking, Analysis, Action.Hubbard, G., & Beamish, P. (2011). Australia: Pearson

Education.

• Exploring Coporate Strategy: Text & Cases.Johnson, G., Scholes, K., & Whittington, R. (2008). Pearson

Education.

• Klemperer, P. (1995). Competition when consumers have switching costs: An Overview with Applications to

Industrial Organization, Macroeconomics, and International Trade. (4), The Review of Economic Studies, 62

515-539.

• Harvard Business Review, 62McFarlan, F. (1984). IT Changes the Way you Compete. (3), 98-103.

• Mohamed, Z., Shamsudin, M. N., & Latif, I. A. (2013). Measuring Competition Along the Supply Chain of the

Malaysian Poultry Industry. Penang, Malaysia.International Conference on Social Science Research.

• Information Systems TheoryMohaptra, S. (2012). IT and Porter's Competitive Forces Model and Strategies. ,

265-281.

• Nicolas, E., Andres, G.-L., Ramon, M.-R., & Tomas, S. (2007, December). Policy Research Working Paper 4440.

Affordability and Subsidies in Public Urban Transport: What Do We Mean, What Can Be Done? Latin America

and the Caribbean Region: The World Bank.

• Financial ManagementPandey, I. M. (2010). Financial Management. In I. M. Pandey, (pp. 110-130). New Delhi:

Vikas Publication.

• Harvard Business ReviewPorter, M. E. (1979). How Competitive Forces Shape Strategy. , 21-38.

• Harvard Business ReviewPorter, M. E. (2001). Strategy and the Internet. , 62-78.

• Harvard Business Review,Porter, M. E. (2008, January). The Five Competitive Forces that Shape Strategy. 1-17.

• Raible, M. (2013). Industrial Organization Theory and Its Contribution to Decision-making in Purchasing.

Enschede, The Netherlands: Faculty of Management and Governance, University of Twente.

• Advances in the Study of Rothaermel, F. (2008). Competitive Advantage in Technology Intensive Industries.

Entrepreneurship, Innovation & Economic Growth, 201-225.

• RTO Gujarat.RTO Gujarat. (2015, January 3). Retrieved May 14, 2015, from RTO Gujarat Website:

http://rtogujarat.gov.in/documents/notifications/radio_call_taxi.pdf

• RTO Gujarat.RTO Gujarat. (2015, February 5). Retrieved May 10, 2015, from RTO Gujarat Web site:

http://rtogujarat.gov.in/documents/notifications/AHMEDABAD_CITY_TAXI_SEVA.pdf

• Business Horizons, 45Slater, S., & Olson, E. (2002). A Fresh Look at Industry and Market Analysis. (1), 15-22.

• BRTS fails to make inroads in passenger trafficThe Times of India. (2014, November 10). . Retrieved May 4,

2015, from The Times of India Website: http://timesofindia.indiatimes.com/city/ahmedabad/BRTS-fails-to-

make-inroads-in-passenger-traffic/articleshow/45096884.cms

• Gujarat mulls 6-month ban on fresh auto registrationsThe Times of India. (2014, October 23). . Retrieved June

29, 2015, from The Times of India Web site: http://timesofindia.indiatimes.com/city/ahmedabad/Gujarat-

mulls-6-month-ban-on-fresh-auto-registrations/articleshow/44913321.cms

• Home, City: The Times of IndiaThe Times of India. (2014, January 17). . Retrieved May 4, 2015, from The Times

of India Web site: http://timesofindia.indiatimes.com/city/ahmedabad/Metro-route-will-run-parallel-to-

BRTS/articleshow/28913741.cms

• Management Decision, 36Thurlby, B. (1998). Competitive forces are also subject to change. (1), 19-24.

Changes

Contents

(65.79%) ar

References

Annexure 1: Various Concession Schemes by AMTS

S.N. Name of the Concession

Scheme

Particulars of the Scheme

1 Students’ Concession Scheme Term pass - Rate of Rs. 300/- per month for any distance travelled in

the city.

2 Concession for the blind Free journey

Concession for Deaf and Dumb

50 percent discount on the regular bus-fare

Concession for the

Handicapped

Defects up to 50

percent

and with monthly income less than Rs.

such applicants can travel any distance by paying minimum bus

ticket

Concession for mentally

challenged children and their

Such children are eligible to obtain

free pass

only for going to and

coming back from their school. Their parents or wards also get such

pass to accompany their child to school at the concessional rate.

Concession scheme for senior

citizens (aged

between 65 and

75years)

Holder of the pass can travel for any distance and as m any times as

he wants. He has to purchase the ticket at

percent

discount

the existing rates.

citizens

(above 75 years of age)

Holder of the pass can travel free of cost.

Concession for Sportsmen

They can travel in AMTS buses paying

minimum fare for any distance

Monthly Pass Scheme

The pass-holder

can travel for 30 days by paying the fare for 15 days

“Travel as you like” monthly

pass scheme

Under this scheme, a monthly pass is issued at the

cost of Rs.900 for

a month. The pass-holder can travel any time, in any AMTS bus, as

many times as he wishes.

Pass Travelling Scheme

Applicable to:

Press-reporters

Municipal Councillors

and members of the School-Board

Union post-holders

Freedom fighters and their widows

· Elderly people staying in old-age homes

Source: AMTS official website. http://www.amts.co.in/SitePage.aspx?id=60.

Annexure 2: Expenditure pattern of Bottom 40% and top 20% of urban population, 2004-05 and 2009-10

Item 2004-05 2009-10

Value of

bottom

40% (INR)

Value of

top 20%

Bottom

(%age)

Top 20%

(%age)

Value of

bottom

40% (INR)

Value of

top 20%

Bottom

(%age)

Top 20%

(%age)

1254 53.6

Non Food

2979 46.4

-Fuel & Light

-Clothing and

Footwear

7.3 5.7

-Education

-Medical

-Durables

-Conveyance

Taxes &Cess

-Other Items

Total 481 2389 100 100 833 4233 100 100

Source: NSSO (2006 and 2011).

Changes

Contents

(65.79%) ar

References

Annexure 1: Various Concession Schemes by AMTS

S.N. Name of the Concession

Scheme

Particulars of the Scheme

1 Students’ Concession Scheme Term pass - Rate of Rs. 300/- per month for any distance travelled in

the city.

2 Concession for the blind Free journey

Concession for Deaf and Dumb

50 percent discount on the regular bus-fare

Concession for the

Handicapped

Defects up to 50

percent

and with monthly income less than Rs.

such applicants can travel any distance by paying minimum bus

ticket

Concession for mentally

challenged children and their

Such children are eligible to obtain

free pass

only for going to and

coming back from their school. Their parents or wards also get such

pass to accompany their child to school at the concessional rate.

citizens (aged

between 65 and

75years)

Holder of the pass can travel for any distance and as m any times as

he wants. He has to purchase the ticket at

percent

discount

the existing rates.

citizens

(above 75 years of age)

Holder of the pass can travel free of cost.

Concession for Sportsmen

They can travel in AMTS buses paying

minimum fare for any distance

Monthly Pass Scheme

The pass-holder

can travel for 30 days by paying the fare for 15 days

“Travel as you like” monthly

pass scheme

Under this scheme, a monthly pass is issued at the

cost of Rs.900 for

a month. The pass-holder can travel any time, in any AMTS bus, as

many times as he wishes.

Pass Travelling Scheme

Applicable to:

Press-reporters

Municipal Councillors

and members of the School-Board

Union post-holders

Freedom fighters and their widows

· Elderly people staying in old-age homes

Source: AMTS official website. http://www.amts.co.in/SitePage.aspx?id=60.

Annexure 2: Expenditure pattern of Bottom 40% and top 20% of urban population, 2004-05 and 2009-10

Item 2004-05 2009-10

Value of

bottom

40% (INR)

Value of

top 20%

Bottom

(%age)

Top 20%

(%age)

Value of

bottom

40% (INR)

Value of

top 20%

Bottom

(%age)

Top 20%

(%age)

1254 53.6

Non Food

2979 46.4

-Fuel & Light

-Clothing and

Footwear

7.3 5.7

-Education

-Medical

-Durables

-Conveyance

Taxes &Cess

-Other Items

Total 481 2389 100 100 833 4233 100 100

Source: NSSO (2006 and 2011).

Changes

Contents

(65.79%) ar

References

Mahesh Chaudhary has research interest in management and efficiency of infrastructure projects. He

has published research papers in international conferences and peer reviewed international journals. He

serves Gujarat National Law University (GNLU), Gandhinagar since August 2013 as Assistant Professor

of Management. Before joining academics, he was associated with a management consultancy,

Coordinates Infrastructure Consulting, consulting to local/ State/ Central Governments and private

sector clients in India on projects in a variety of PPP formats. He has experience in planning, structuring,

bid process, financial modeling, and financial and economic analysis of PPP projects in the areas urban

transport and urban infrastructure. He can be reached at [email protected] or

[email protected]

Yogesh C. Joshi is Ph.D. in Economics, M.A. (Gold Medal) from University of Jodhpur. He has been

teaching Business Economics in the faculty of management, Sardar Patel University, Vallabh Vidyanagar

for more than 20 years. Before joining Sardar Patel University, he had worked on research projects with

ICAR, ICSSR, Ministry of Welfare, Government of India, other universities and at IIM, Ahmedabad. He

has published and presented more than 70 papers in various research journals and national and

international conferences (including conferences in Norway, Scotland, Bhutan, Maldives and the

Netherlands). He organized a panel of research papers on "Fulfilling Millennium Development Goals

(MDGs) Institutional Responses in South Asia" at the 19th European conference on Modern South Asian

Studies held at Leiden, Netherlands. His research interest involves issues on Development Economics,

Infrastructure, Sustainable Development, and public policy. Recently, he has completed a major research

project funded by UGC on "Institutional Changes and Poverty alleviation programmes in Western

India”. He has been a resource person for All India Management Association (AIMA) and preparation of

District Human Development Report for Government of Gujarat, UNDP for various districts in Gujarat.

He can be reached at [email protected]

Annexure 3: Subsection 3 (a) of Section 73 of the Indian Motor Vehicle Act, 1988

The Regional Transport Authority, if it decides to grant a contract carriage permit, may, subject to any rules

that may be made under this act, attach to the permit any one or more of the following conditions, namely:

i. that the vehicles shall be used only in a specified area or on a specified route or routes;

ii. that except in accordance with specified conditions, no contract of hiring, other than an extension

or modification of a subsisting contract, may be entered into outside the specified area;

iii. the maximum number of passengers and the maximum weight of luggage that may be carried on

the vehicle, either generally or on specified occasions or at specified times and seasons;

iv. the conditions subject to which goods may be carried in any contract carriage in addition to, or to

the exclusion of, passengers;

v. that, in the case of motorcabs, specified fares or rates of fares shall be charged and a copy of the

fare table shall be exhibited on the vehicle;

vi. that, in the case of vehicles other than motorcabs, specified rates of hiring not exceeding specified

maximum shall be charged;

vii. that, in the case of motorcabs, a specified weight of passengers luggage shall be carried free of

charge, and that the charge, if any, for any luggage in excess thereof shall be at a specified rate;

viii. that, in the case of motorcabs, a taximeter shall be fitted and maintained in proper working order,

if prescribed;

ix. that the Regional Transport Authority may, after giving notice of not less than one month,-

a) vary the conditions of the permit

b) attach to the permit further conditions;

x. that the conditions of permit shall not be departed from save with the approval of the Regional

Transport Authority;

xi. that specified standards of comfort and cleanliness shall be maintained in the vehicles;

xii. that, except in the circumstances of exceptional nature, the plying of the vehicle or carrying of the

passengers shall not be refused;

xiii. any other conditions which may be prescribed.