Profits and Visions make cooperation : Cheongju DRT case

There is an old saying in Korea that being rich makes you more generous.

There is a various and active collaboration (or at least communication) between competitors in a fast-growing or big-profit industry. Even among competitors doing business in the same field, they often perceive each other as colleagues. In Korea, organizations such as Start-up Forum are also active in various high-tech industries. When there are issues such as strengthening government regulations, they respond together.

On the other hand, constructive cooperation is rarely achieved between companies in the declining industry. For example, the bus industry is like that in Korea. Most private bus operation companies are pessimistic about the future. With the aging population and the strengthening of preferences for car use, bus passengers are decreasing and the company's financial balance is becoming difficult every year.

What happens when bus companies get hints about a bright future? Can they cooperate with each other? Chung-Ju city’s DRT project shows the answer.

Cheongju city in Korea started DRT operations with Studio Galilei (Varo DRT)in all its outskirts from May 2023. The total number of vehicles operated was 40. There are six private bus operators in the city.

The biggest challenge for the DRT project in Cheongju was how these six companies divided up the operations of each region. The total number of operating regions was nine. Therefore, each region is assigned four to five DRT fleets. The six private transportation companies in Cheongju could not easily agree on how to divide up the regions.

The relations between the bus operation companies were not good due to the long decline in the bus industry. There were many difficulties in the agreement because the region and the number of vehicles could not be divided by exactly one-sixth. However, after a long discussion, the DRT project managed to launch as each company divided one or two regions.

But something surprising happened when it opened. On the outskirts of Cheongju City, where the number of public transportation passengers has been decreasing year by year, DRT has rapidly increased the number of passengers after the launch. Starting with around 100 passengers at the beginning of its operation, the daily number of passengers exceeded 300 after two months, and has since increased sharply.

As the number of passengers increased rapidly, the city government decided to operate additional DRT vehicles. The biggest concern in this decision was that the benefits of increased vehicles could not be evenly divided between companies, as each region had different passenger growth sizes. Considering the relationship between the companies, which had not been smooth, the agreement on the distribution of vehicles seemed very difficult. In Cheongju, the city government compensates for the deficit caused by bus operations. So, larger vehicle numbers guarantee more profits.

There was another problem. As a rural area, local markets are held twice a month on different dates, such as flea markets. On the day of market opening about six times a month, there is a lot more demand for travel than usual. Running a DRT vehicle based on this demand results in a big deficit on other days. So each company had to suffer from huge wait times or complaints from in-car congestion every day the market opened in their operation regions.

The best solution to this problem is for a local bus company to temporarily lend its vehicle to a local bus company where the market is held. However, this collaboration seemed to be possible only in imagination. Cooperation between bus operators was also inexperienced, and above all, the distribution of income or government subsidies was difficult to accurately settle.

But then something amazing happened. The six operating companies agreed to form a single company, SPC (Special Purpose company), to operate DRT together. They quickly decided to integrate DRT after three months, and in October of 23, they established one company.

How was it possible? The main reason is that bus companies saw a bright future through the large increase in passenger numbers after converting buses to DRT. This was because they confirmed that the public transportation industry was not a declining industry, but an explosive growth industry. The bigger the pie, the easier it is to reach an agreement. Citizens are also enjoying better services with less subsidies, while running DRTs by building their own SPC. The city government also improved the travel service for citizens to visit the market without much increase in subsidies. Everyone becomes the winner.

In Korea, this is a historical event. It is because companies that were struggling in a declining industry formed cooperative relationships through innovative technologies, which benefited all citizens and the government. Has this happened in other countries?

We often know that the innovation industry destroys existing legacy industries through disruptive innovation and occupies the market to provide significantly improved services to consumers. The innovation industry grows on the grave of the legacy industry. However, the Cheongju DRT example shows a completely different example of innovation. This is because it has proven that legacy companies that embrace innovative technologies can be leaders of innovation.?

Profits and Visions make cooperation.