Odakyu Electric Railway Co., Ltd. History

Company Perspectives:

Odakyu aims to ensure autonomous growth in the future, even in an era of declining population, by quickly responding to changes in markets, customers and business conditions through strategic market-oriented management. While using selection and concentration in allocating management resources, Odakyu is making every effort to realize the Best Way Integrated Business Concept, the Group's business vision. Under the Best Way Integrated Business Concept, the Odakyu Group is leveraging its strengths and management resources in developing a variety of businesses that are tailored to local communities and center on transportation operations. The Odakyu Group aims to ensure future growth by expanding its market share and further developing its operational areas, while maintaining Group markets by attracting people to its areas even as the national population declines due to low birth rates and an aging society.

Key Dates:

1911:

Tsurumatsu Toshimitsu establishes the Kinugawa Hydro-Electric Co., Ltd.

1923:

The company changes its name to Odawara Express Railway Co., Ltd.

1941:

Odakyu Electric Railway Co. is formed after the Japanese government demands the merger of Kinugawa Hydro-Electric Co. and Odawara Express Railway.

1962:

Odakyu Electric enters the retail business with the establishment of a department store.

1980:

In a joint venture with Hyatt Hotels, Odakyu Electric opens the Hotel Century Hyatt.

1987:

The company enters the cable television business through the formation of Odakyu Cable Vision Company.

1998:

The Best Way Odakyu management plan is introduced.

2004:

Odakyu announces long-term plan to construct multiple double tracks in all its regions by 2014.

Company History:

Odakyu Electric Railway Co., Ltd. is one of the major private railroad companies in Japan, responsible for carrying 13 percent of the 34.5 million rail passengers who travel throughout the Tokyo metropolitan area each day. Odakyu's railway consists of three lines that travel a total of 120.5 kilometers. The core of the company's operations is the Odakyu Line, which connects Shinjuku Station--the largest terminal in Japan, with 3.4 million passengers per day--with Fuji-Hakone National Park, which lies at the foot of Mount Fuji, and also with Shonan, Japan's most famous seaside resort. Together, the company's railways serve an average of 1.82 million passengers each day. Nearly five million people live alongside the Odakyu Line, a population Odakyu serves by developing a variety of businesses, including leasing large-scale commercial buildings, developing residential housing areas, and operating leisure facilities, retail stores, and hotels. The Odakyu Group, of which Odakyu is the core, comprises 116 companies with 27,000 employees.

Origins

Japanese society is increasingly concentrated in large cities and centered on railroad stations. The rapid growth of the Japanese economy has accelerated the trend, and there is continuing demand for space in or within easy access of a city for both residential and business purposes.

As Tsutomu Shimizu, one of Odakyu's top executives, has stated, "Just as the ancient civilizations flourished in the basins of big rivers, modern civilization develops alongside railways." Private railroad companies in Japan usually build their railroads on undeveloped and unused sites with easy access to city centers and construct supermarkets and department stores in the station buildings, thus establishing their stations as centers for distribution and commercial activities. Railroad companies acquire massive amounts of land around their stations and diversify into businesses such as real estate, construction, leisure and tourism, and information services.

Tsurumatsu Toshimitsu, the founder of Odakyu, was a lawyer and then a member of the National Diet before he became involved in the management of the railroad business. In 1911, he founded the Kinugawa Hydro-Electric Co., Ltd., which was eventually to develop into Odakyu Railway Company Limited. In 1921, Toshimitsu applied on behalf of Tokyo High Speed Railway Co., Ltd. for a license to build a railroad linking the southwestern part of Tokyo with the central region of Kanagawa Prefecture. The license was granted in 1922, and the company was renamed Odawara Express Railway Co., Ltd. after Odawara City, which lies at the foot of Mount Fuji. The official inauguration of the company took place on May 1, 1923. Nearly four months after Toshimitsu had embarked on this difficult project, which required enormous initial investment, the Great Kanto Earthquake struck, reducing Tokyo and Yokohama to ashes. However, this disaster worked to the advantage of the newly established Odakyu, because many people whose homes had been destroyed began to want to move into the less-affected suburbs, boosting new land development and construction work. As the development of suburban Tokyo was an important social issue at that time and a great number of investors were willing to invest in this project, there was no difficulty in securing funding for the construction of the railroad. In 1925, government permission was given for the execution of the whole project and an 82-kilometer-long railroad between Shinjuku and Odawara was built in one and a half years, the fastest completion period recorded in the history of Japan's railroads. Business went well until Japan was hit by the Depression in the 1930s.

Odakyu's business started to recover again in the mid-1930s, but in 1937 the Sino-Japanese War broke out and there was every sign that it would be long and hard. As part of the war-time emergency measures, the Japanese government decided that the power industry should come under the control of the state. As a result, Kinugawa Hydro-Electricity Company, the parent company of Odawara, had to close down and merge with its subsidiary to form Odakyu Electric Railway Company (Odakyu) in 1941. As the war continued and its ferocity intensified, the government took further steps to establish the land transport infrastructure. In 1944, Odakyu was merged with three other railroad companies, now known as Keio Electric Co., Ltd., Keihin Express Electric Railway Co., Ltd., and Tokyu Corporation. The new company, Tokyo Express Electric Railway Co., Ltd., was headed by Keita Grotoh, previously the third president of Odawara Express Electric Railway Company, who had had experience in many other electric railroad companies and was to become Minister of Transport and Communications. The unification of private railways in the southwestern suburbs of Tokyo was thus completed by the newly named Tokyo Express Electric Railway Co., Ltd.

The end of World War II made it possible for those railroad companies that had been forced to amalgamate during the state of emergency to become independent again, and in June 1948 they started to go their separate ways. In October 1948, the newly born Odakyu introduced a non-stop special express between Shinjuku and Odawara, and in 1950 it fulfilled its long-cherished dream by opening a new direct line to Hakone-Yumoto, one of Japan's best-known hot spa resorts. In 1957, it launched the epoch-making Romance Car SE, which set the world speed record on the narrow-gauge track. In 1960, it completed the Golden Course, a round-trip route around the Hakone area. In order to strengthen the company's grip on tourist transport, it put new strategies into practice.

Diversification Begins in the 1960s

Until the mid-1960s, Odakyu's main strategic task was to expand its flagship line connecting the western gateway of Tokyo with Japan's most famous tourist resort, Hakone. However, since the mid-1960s the strategy of Odakyu has developed into a second phase, directed toward enhancing the quality of life of the residents along its lines. Odakyu's strategy in the second phase was, as is the case in other major private railway companies, to further promote affiliated divisions and subsidiaries through diversification, and thereby to reinforce the overall strength of the Odakyu Group. The Odakyu Group comprises many diversified divisions and subsidiaries, with Odakyu Electric Railway Company as its core. Their business activities are classified into six fields: public transport, leisure, distribution, real estate, construction, information services, and overseas business.

In 1967, Odakyu completed the rebuilding of Shinjuku Terminal Building, and in 1975 it opened a branch line, the Tama Line, to Tama New Town for the commuters among the town's 300,000 inhabitants. In 1978, a direct route into all areas of Tokyo was opened by way of the agreement with the Underground Chiyoda Line, enabling trains of both companies to use the same track, dramatically enhancing the function of Odakyu in providing urban transport networks.

However, as the population of the areas along its lines has been growing rapidly, Odakyu's transport capability is increasingly unable to cope with the growing number of passengers. During the rush hours, Odakyu runs one ten-carriage train every two minutes or so, yet the trains are filled to more than twice their capacity, so that the passengers often find it difficult even to read magazines on their journey.

With an increasing number of high-tech industries and universities either newly set up or moving out from the city center, and with population expected to increase further in the areas along the Odakyu Line, the consensus of management is that the only way to solve the problem is to build a four-track line as soon as possible. Odakyu attempted to raise finance for this project in various ways such as obtaining government grants and issuing warrant and convertible bonds as well as foreign bonds in 1978, the first such attempt made by a Japanese railroad company. Having successfully secured such financing, Odakyu began to build a four-track line in the early 1990s. In 1991, Odakyu achieved the extension of its operations to Nishi-Izu, a fashionable seaside resort particularly popular among young people, and developed its business activities into the new area.

In the leisure industry, Odakyu has always had the advantage of running a railroad between Shinjuku and Fuji-Hakone. In spite of this, Odakyu was rather late in establishing a comprehensive leisure business. However, since it started its operations in the field of international travel services as an authorized International Air Transport Association (IATA) agent in 1972, and especially since it set up Odakyu Service Co., Ltd. in 1976, it has begun to develop a complete range of travel services.

In the early stages of its entry into hotel-related business, Odakyu ran mainly resort hotels. However, since it opened the Hotel Century Hyatt, in conjunction with Hyatt International of the United States in 1980, it has been progressing into the urban hotel business and has built chain hotels in many local cities. It also runs approximately 220 restaurants and coffee shops in these hotels and around the Odakyu line. Moreover, it has recently entered the field of sport and leisure facilities and the health industry. In 1979, it opened Seijo Tennis Garden, and since then it has added a great number of swimming pools, skating rinks, bowling alleys, and athletic clubs in the Tokyo and Kanagawa areas. Furthermore, it has stepped up its operations by opening Nishi-Fuji Golf Club in 1989, and Naka-Izu Club in 1990.

Odakyu's involvement in the retail business dates back to 1962, when the Odakyu Department Store was opened at the west exit of Shinjuku Station. Since the reconstruction of Odakyu Station building in 1967, it has become the jewel in the company's crown. At present, the task of the Shinjuku Odakyu Department Store is to respond to changes in the type and increasing number of customers resulting from the move of the municipal government offices into this area. It is estimated that the daytime population has increased by 25,000. Odakyu Shoji Co., Ltd, which is another significant part of the group, has moved into variety stores, supermarkets, and convenience stores. The first store was opened in Sagami-Ohno in 1963, and in the early 1990s the company had more than 38 stores. In the face of intense competition, Odakyu has achieved good results, making full use of its prime locations by stocking high-quality goods and thoroughly training employees in customer service. In 1976, the Odakyu Department Store opened a branch in Machida, Tokyo's most rapidly developing satellite town. Subsequently, it has expanded its operations in Fujisawa and has recorded steady growth in the sector.

The real estate department of a railroad company tends to focus only on the land close to its lines. In order to overcome this tendency, Odakyu Real Estate Co., Ltd. was established in 1964 with the aim of providing general real estate services and developing related businesses. Its operations cover the sale and leasing of land and properties as well as other intermediary services throughout the Kanto area.

The redevelopment plan for the area along the Odakyu Line is already under discussion by the interested parties, including local authorities looking ahead to the 21st century. The real test of the company's ability will be how effectively it can play its part in the long-term plan. Odakyu has concentrated its energies on renting out office buildings. Its leasing business has shown steady growth since its reorganization in 1975. It has utilized the open spaces in unused railroad land, station buildings, and hotels by letting them to tenants. In this field, Odakyu has shown remarkable growth, and its future prospects are highly promising.

Since about 1982, the phrase the "Era of New Media" has been frequently used in Japanese mass media. Cable television has become very popular and its future is promising, but it requires major investment in plant and equipment as well as in software development. Odakyu's management was initially cautious but eventually decided to enter into this business.

First, Odakyu set up a subsidiary, Odakyu Cable Vision Co., Ltd, in 1987, and then in 1988 it joined in the management of International Cable Network Co., Ltd. The viewers' chief motives for subscribing were the desire for clearer TV pictures, satellite transmission, and special local programs. Technical research is under way to establish a service network through which the customers can make payments automatically to participating shops from their own homes. In its effort to enhance its services, Odakyu Computer System Co., Ltd. and Odakyu CAP Agency Co, Ltd.--CAP stands for Communication And Promotion--were set up in 1989 and in 1990 respectively.

Approaching the 21st century, the most important project in the company's third phase was the enhancement of cooperation within the Group in its search for new business both in Japan and abroad.

Beginning in the second half of the 1980s, Odakyu saw overseas markets as fertile ground for new business opportunities. In 1989, the Odakyu Group opened its representative office in London, and it also established Odakyu Hawaii Corp. through the acquisition of Outrigger Hobron, Condominium Hotel, in Hawaii, which has 600 rooms. In 1990, the Odakyu Department Paris Office was renamed Odakyu France S.A.R.L., and Odakyu Tours U.S.A. Inc. was established to provide better services for overseas tourists.

Group Management Structure Emerges in the 1990s

As Odakyu progressed through the 1990s, its found itself operating in a business environment whose dynamics were changing. Industry deregulation and the globalization of business, coupled with an aging population and declining birthrate, forced Odakyu's leadership to adapt to the times. As the company worked on practical matters--for instance, extending the Tama Line by 1.5 kilometers in 1990 and completing one section of multiple double tracks in 1997--it also worked on more philosophical issues. The result of management's discussion on how Odakyu could best respond to the changes surrounding it was formulated in a long-term management plan introduced in 1998. Known as the "Best Way Odakyu" plan, the approach adopted by management centered on increasing value along the company's railway lines. Perhaps the most readily obvious manifestation of Best Way Odakyu was a component of the broadly defined management plan called "Best Way Integrated Business Concept," introduced in 2001. The concept focused on taking a market-oriented approach to the various business sectors along the company's railway lines. Each sector, or enclave of constituents, had its own special market characteristics that the company tailored its services toward. Accordingly, the company divided its service area into the Shinjuku Region, a commercial business area; the Railway Line Region, an upscale residential area; and the Hakone Region, a leisure area. These three regions were subdivided, such as with the Railway Line Region, which was separated by the Setaga Region and the Tama Region. By organizing its railway lines in distinct markets, Odakyu could provide services targeted to the specific characteristics of each area.

As Odakyu moved forward under the guidance of its Best Way Odakyu plan, the company continued to expand, building on its already towering size. In 2002, the company established Odakyu Hotels and Resorts Co., Ltd. as the core entity of its hotel business. On the restaurant side of its business, a subsidiary company, Giraud Restaurant System Co. Ltd., acquired a pasta restaurant company and, together with Odakyu Restaurant System Co., opened 11 new restaurants in 2004. As the company prepared for the future, it had bold plans for its railway business, the essence of Odakyu. The company was working on the construction of a more than ten-kilometer section of multiple double tracks in the greater Tokyo area. The majority of the section was expected to open by the beginning of 2005. Looking further ahead, Odakyu planned to complete construction of multiple double tracks in all its regions by 2014.

Principal Subsidiaries: Hakone Tozan Railway Co., Ltd.; Hakone Kankosen Inc.; Kanagawa Chuo Kotsu Co., Ltd. (44.2%); Odakyu Bus Co., Ltd. (97%); Tachikawa Bus Co., Ltd. (38%); Tokai Jidosha Co., Ltd. (33.1%); Odakyu Kotsu Co., Ltd.; Odakyu Hotels Co., Ltd. (30%); The International Tourist Corporation (94.2%); Odakyu Restaurant System Co., Ltd.; Odakyu Department Store Co., Ltd. (58.5%); Fujisawa Odakyu Co., Ltd. (30%); Giraud Restaurant System Co. Ltd.; Odakyu Real Estate Co., Ltd. (47.8%); Odakyu Construction Co., Ltd. (45.9%); Odakyu Building Service Co., Ltd.; Odakyu Hotels and Resort Co., Ltd.

Principal Competitors: West Japan Railway Company; East Japan Railway Company; Central Japan Railway Company; Hokkaido Railway Company; Shikoku Railway Company; Tokyo Kyuko Electric Railway.

Further Reading:

• "American Companies in Japan: Construction and Real Estate," Japan-U.S. Business Report, May 31, 1998, p. 13.
• "American Malls Plans Store in Odakyu Station," Comline-Tokyo Financial Wire, March 30, 1998, p. 41.
• "Odakyu Railway to Aid Retail Unit Restructuring," Japan Transportation Scan, December 20, 1999, p. 16.

Source: International Directory of Company Histories, Vol.68. St. James Press, 2005.

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