Secondly, many state governments are encouraging radio cab services by issuing permits for fleet operators and licenses to operators of radio cabs. With increased focus on attracting international investors, and promoting tourism, the need for organized taxi services is inevitably growing. For instance, the Delhi government has decided to three-fold the number of radio taxis to 12,000. In Maharashtra, government is even urging owner-drivers of the ~55,000 yellow-and-black taxis in Mumbai to switch over to the modern vehicles. Given the demographics of India and this encouragement from government, the radio cab industry is likely to observe healthy growth in the coming years.
Finally, the growth of the industry is also triggered by support from the automobile sector which has allowed the operators to reduce the operating costs. Automakers, such as Maruti Suzuki, offers discounts on some of its models for taxi operators. Some automakers, such as Toyota, has come up with a compressed natural gas (CNG) based variant of its multi-utility vehicle, Innova, whose running cost is one-third of that of the petrol version.
The conducive industry environment has allowed the market to expand across customer segments. With the entry of San Francisco-based aggregator Uber into India in September'13, a leg-up to luxury rentals has been started. Also, operators have started targeting newer segments like railway stations apart from the traditional tie-ups with airlines and travel portals. For instance, Tab Cab now has cars stationed at nine stations in Mumbai.
Despite all the opportunities, the industry has its set of challenges that are to be addressed by any player to succeed in the marketplace. The most important of these challenges is the customer experience of a cab service. Analysis of the customer experience posts on social media sites such as Facebook and Twitter has revealed that customers are not happy with older fleets being used for the service. With more players entering the market, customer loyalty is emerging as a key area of concern for the operators. To provide a better service experience, operators have started cab booking through iOS or Android app. Such initiatives further increase the outreach to customers. Uber also offers the option of splitting fares among people. However, all these initiatives are still to gain traction.
Though regulatory barriers are low, a new company entering the market has to make huge investments in vehicles, technology, telecom equipment, training programs for drivers, call centers and parking lots. In metro cities such as Delhi, Mumbai, and Bangalore, where the charges are high, parking a fleet of 15,000 cars in airports and malls is an expensive proposition.
Another challenge that operators face is the economies of business in India given the low per kilometer fares. International player such as Uber finds the margin to be lower in India when compared to cities like San Francisco or New York and hence, has to make big investments to sustain themselves in India. To cater to the cheaper taxi demand, operators have launched hatchback versions that are nearly 20% cheaper than the regular cabs. For instance, Meru launched Genie in Hyderabad in December'13 and subsequently in Bangalore.
The market does not look crowded at a first glance. However, only a few of the new entrants have achieved modest scale or sizable funding till date. Though it's difficult to capture 100% of the taxi market all across India by these players, the taxi market is maturing rapidly. The business as such is low margin and operationally intensive. Adding to this, the regulated and political environment of the business coupled with an uneducated labor force makes it a difficult venture. Hence, despite being an attractive space, this is one of those businesses that one should enter with caution.
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Shubham Kumar is a PGP-1 student at IIM Ahmedabad. A former Under Secretary Social & Cultural at IIT Kharagpur, first author of an international paper and recipient of VCU-IITKGP Exchange Scholarship, Shubham worked for 39 months with ZS Associates and ShopSocially on completion of his Bachelors in Manufacturing Science & Engineering. He enjoys playing poker.
Comments
Rajat Shaw
Interesting take on this wildly expanding business...
5 Mar 2015, 08.59 PM