ISSN 2189-9592

Journal of Japanese Management
Vol. 6, No.2, May 2022

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Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Contents

Improvement and Validation of a Model for Tourism Destination Brand Equity in Japan・・・・・・・・・・・・・p.1
Masaki Toyama

Recommended Paper by the Nippon Urban Management and Local Government Research

Association(NUMLGRA)The Effectiveness and Limitations of the PFI for a Water Utility: Case Study of the Kawai
Purification Plant Reconstruction Project in Japan・・・・・・・・・・・・・・・・・・p.17

Ooshima Makoto

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Improvement and Validation of a Model for Tourism Destination
Brand Equity in Japan
Masaki Toyama

Shukutoku University
Japan Foundation for International Tourism
E-mail: toyama.masaki.sy@alumni.tsukuba.ac.jp
Abstract
As tourism is expected to be a driving force for the revitalization of local economies, tourism
destinations are facing a severely competitive environment in attracting tourists. In this situation,
increasing the brand equity of a destination is an effective strategy. To achieve this, it is important
to compare the brand equity of a tourism destination with that of its own region. However, few
brand equity models can be applied to different types of tourism destinations. Therefore, this study
aimed to develop and validate an improved model for measuring tourism destination brand equity,which is intended to be applicable to different types of tourism destinations. We developed adestination brand equity model consisting of four factors: brand awareness, brand image, brandquality, and brand loyalty. The major improvement was in measuring the image of novelty so thatbrand image could be discriminated from brand quality. The results of the confirmatory factor
analysis of data from a web-based questionnaire survey confirmed that the model fit the data well.
We conducted a measurement invariance test using data on three types of destinations: beachdestinations (Ishigaki Island), city destinations (Osaka), and hot spring destinations (Hakone). The
results of the measurement invariance test for the three types of destinations confirmed that themodel developed in this study showed partial metric invariance. In other words, the model
developed in this study was found to have a factor structure applicable to multiple types ofdestinations.
Keywords: brand equity; destination marketing; novelty; measurement invariance; confirmatory
factor analysis
impact. In 2019, tourism consumption in(1) Introduction
Tourism is an activity related to a wide

Japan was estimated to be 29.2 trillion yen,range of industries such as agriculture andand the value-added effect generated by thisfishery, as well as service industries such as

was estimated to be 28.4 trillion yen, a figuretransportation, accommodation, and food andequivalent to 5.3% of Japan's gross domestic

beverage; therefore, consumption activities

product (GDP) of 561.3 trillion yen in 2019

through tourism have a large economic(Japan1

Tourism

Agency,2021a).

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Consumption activities through tourism also

Brands are also powerful differentiation tools

create new jobs. The estimates using the(Boo, Busser and Baloglu, 2009). Based on

input-output table show that the data for

Kotler2019 indicated that tourism consumption

differentiation is a strategy for maintaining

would induce 4.56 million jobs on acompetitive advantage, it can be expectednationwide scale (Japan Tourism Agency,that increasing brand equity will increase the2021a). Against this background, tourism has

probability of triumphing in the competition

been seen as a driving force for revitalizing

to attract tourists.

andKeller(2006),

wherebylocal economies. In fact, many tourism

It is important to measure the current

destinations in Japan have been promoting

performance of a tourism destination toinitiatives to attract tourists. This indicatesincreasethat the tourism business environment is

Measuring destination brand equity using

highly competitive.

consumers’

damagedbythesubjective

brandequity.

evaluations

has

become mainstream (Hyun and Kim, 2020).

However, the tourism business wasseriously

destination

Research up to now has viewed brand equity

COVID-19

pandemic that occurred in 2020. According toas

the Japan Tourism Agency (2021b), Japan’s

components, such as “awareness,” “image,” or

tourism consumption in 2020 decreased by“quality” (Boo et al., 2009; Hyun and Kim,

more than 60% compared to the previous

2020; Konecnik and Gartner, 2007; Tasci,

year. Nevertheless, after the end of the2021). In other words, the brand equity of apandemic, the tourism industry is expected tocertainrecover. Many experts at the United Nations

understood as an aggregate of consumers’

World Tourism Organization (UNWTO) see

evaluations of each component. Previous

international tourist numbers recovering tostudies have attempted to identify the2019 levels in 2024 or later (UNWTO, 2021).

components of destination brand equity and

The tourism business in Japan is expected toelucidate the structural relationships among

recover to 2019 levels after 2023 under thethe components (Tasci, 2021). However, as

most

discussed below, there are no establishedoptimistic

scenario(Phocuswrightaconcept

tourism

dividedinto

destination

multiplecanbecomponents of the destination brand equity.

Research, 2021). In light of this, it can beseen that Japan’s tourism destinations will

Considering the nature of tourism

continue to face a highly competitive

destinations, they can be divided into several

environment in terms of attracting tourists.

types based on their core tourism resources,

environment,such as nature and culture (Lin et al., 2007).

increasing tourism destination brand equity

A model for measuring destination brandis an effective strategy because strong brands

equity that is applicable across different

withtypes of tourism destinations would allow theInapositive

competitive

brandequityhave

theadvantage of forming consumer preferences

organizationand the purchase intentions of consumers

tourism destinations (hereinafter referred to(Buil, de Chernatony and Martinez, 2008).

as DMO, which stands for Destination2

responsibleformarketingJournal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Marketing Organization) to analyze thebrandthroughmarketingcurrent performance of their brand equity inSpecifically,

more detail through relative comparisons.

emphasizes that a consumer’s knowledge is

However, very few studies have examined thethe source of value. This study uses Aaker’s

measurement models of destination brand(1991) definition of brand equity as aequity that can be applied to various types ofreference for the definition of destination

tourism destinations. It is important from an

brandacademic perspective to examine this point,

definition is the most comprehensive andas it will confirm the scope of the application

acceptableof the destination brand equity model.

(Nyadzayo, Matanda and Ewing, 2016). In

Keller’s

equity(1993)

becausedefinitions

activities.
definition

Aaker'sofbrand(1991)
equityTherefore, this study aims to develop

this study, destination brand equity refers tovalidatefora set of brand assets and liabilities linked to ameasuring tourism destination brand equity

destination brand, its name, and symbol, thatapplicable to different types of tourism

add to or subtract from the value provided bydestinations. The remainder of this paper isa destination to a firm and/or to that firm’sorganized as follows. First, after reviewing

customers.

and

an

improved

model

previous studies, we present the tourism

Many concepts have been proposed as

destination brand equity model used in thiscomponents of destination brand equity

study. Next, we test the validity of the model(Dedeoğlu et al., 2019; Tasci, 2021). Konecnik

for three types of tourism destinations using

and Gartner (2007) proposed a model

data from a web-based questionnaire survey.

consisting

Finally, the discussion and conclusions of theawareness, brand image, brand quality, andstudy are presented.

brand loyalty. Boo et al. (2009) proposed

of

four

components:

brand

another model comprising four components:(2) Literature review and improved model

brand awareness, brand experience, branddevelopment

value, and brand loyalty. Dedeoğlu et al.

1. Destination brand equity model(2019) proposed a model comprising six

To date, various definitions of brandcomponents: brand awareness, brand quality,

equity have been proposed. The mostbrand value, brand trust, brand satisfaction,

representative definition is from Aaker (1991,

and brand loyalty.

p. 15): “a set of brand assets and liabilities

However,

there

is

no

consensus

linked to a brand, its name, and symbol, thatregarding which components are appropriate.

add to or subtract from the value provided byWithin this context, this study proceeded ina product or service to a firm and/or to thatits investigation using the evaluation model

firm’s customers.” Keller (1993, p. 8) definesof Konecnik and Gartner (2007), who werebrand equity as “the differential effect of

the first to use empirical research to measurebrand knowledge on consumer response todestination brand equity. This is because

the marketing of the brand.” Both definitions

Konecnik and Gartner’s (2007) model is thepresent brand equity as a value added to amost valid, as has been shown in subsequent3

Journal of Japanese Management Vol.6, No.2, May 2022

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studies (Ruzzier, Antoncic and Ruzier, 2014;

2. Brand awarenessVeríssimo et al., 2017; Yuwo, Ford andAaker(1991)

stated

that

brand

Purwanegara, 2013), to be applicable to otherawareness is the combination of storage ofdestinations. Nevertheless, it should be noted

the brand in the memory of a consumer andthat the applicability to multiple types of

their ability to recover the memory of that

destinations has not been examined.

particular brand. This study adopts thisAs indicated earlier, Konecnik anddefinition. In addition, brand awareness can

Gartner (2007) stated that destination brandbe seen as a concept reflecting that brandequity is composed of four dimensions: brandcharacteristics remain in the minds ofawareness, brand image, brand quality, andconsumers (Aaker, 1996).

brand loyalty. These dimensions were also

In the field of tourism research,

employed in this study. However, this study

awareness is considered one factor in a

attempts to make improvements to clarify

consumer’s choice of tourism destination

the difference in meaning between brand(Woodside and Lysonski, 1989). For example,

image and brand quality, which as describedto attract tourists to a tourism destination, it

below is unclear.

is first necessary to make consumers aware

Additionally, these four dimensions areof the destination (Milman and Pizam, 1995).

similar to the brand equity model proposed

When consumers select a tourism destination,

by Aaker (1991). Aaker’s (1991) model

it is said that they often compile candidate

consists of five dimensions: brand awareness,destinations from which to choose (Sirakayabrand association, perceived quality, brandand Woodside, 2005), and in order to become

loyalty, and other proprietary brand assets.

a

Of these, the concepts of perceived quality

characteristics of the destination must be

and brand quality are the same, except that

stored in the consumer’s memory.

candidate

the

name

and

basic

the names are slightly different. Brand
association refers to the meaning of a brand3. Brand image

to consumers, which is associated with theBrand image refers to the feelings andbrand in their memory (Aaker, 1991). In

perceptions linking consumers and brands

previous studies (e.g., Bose, Roy and Tiwari,(Keller, 2003). This study adopts this

2016; Jeon and Yoo, 2021), brand image anddefinition. Cai (2002) states that brand image

brand association are often regarded as

is a critical element in the construction of aalmost the same concept. In summary, thetourism destination brand. In research thatbaseline model of this study can be positioned

measures destination brand equity, image

as the model of Aaker (1991), excluding

evaluation has become indispensable. The“other proprietary brand assets.”

concept of image is a major research theme in

The following section reviews previous

tourismstudies.

Since

the

1970s,

anstudies relating to dimensions contained inenormous number of studies have been

the model.

conducted on destination images (Pike, 2002).
For destination brand equity measurement, a4

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

destination can be considered a type of brand,

consumer (Boo et al., 2009; Keller, 2003). Thisso destination image can be thought of as astudy adopts this definition. Keller (2003)

concept similar to brand image.

identified seven evaluation dimensions ofbrand

In previous research (such as Boo et al.,quality:

performance,features,2009; Konecnik and Gartner, 2007, etc.),

conformation quality, reliability, durability,

brand

by

serviceability, and style and design. However,consumers’ subjective evaluations of various

these classifications are put in place as brandaspects of a destination. When attempting toevaluation concepts for general products andmeasure evaluations of tourism resources

services. The concept of quality comes up

and services provided at destinations, theeven in the field of tourism research and isrisk exists that the distinction will be lost

specifically interpreted as an evaluation of

between brand image and brand quality,

tourism

which will be reviewed in the next section.

destination and services experienced byThis is because brand quality is mainly

tourists. For example, in a study by Chen andmeasured as an evaluation of the experiences

Tsai (2007) of resorts in Taiwan, the quality

provided at the destination (Konecnik andmeasurement items included restaurants,

Gartner, 2007). In fact, image and qualitytransportation, and beaches. To develop aitems are very similar in the model used bymodel that can be applied to different types ofKonecnik and Gartner (2007).

tourism destinations, this study does not

image

has

been

measuredresources

locatedinsidethe

To solve the above problem, this study

address the evaluation of natural anddoes not evaluate concrete aspects such as

cultural tourism resources. Instead, we will

tourism attractions and services; instead, itmeasureevaluates more abstract aspects. Specifically,

experiences, such as accommodation, food

it focuses on novelty, which indicates theandextent to which the consumer has not yet

elements common to all tourim destinations.

thebeverage,evaluation
andofservicetransportation,asexperienced the destination. Novelty is one of
the major motivations for travel, and it is also

5. Brand loyalty

considered to be deeply associated with

Brand loyalty refers to the frequency ofvisiting specific destinations (Gitelson andrepeat purchases of a brand or a consumer’s

Crompton, 1984; Goossens, 2000). Thus, theattachment to the brand (Aaker, 1991; Pike

improvement of novelty has a positive impact

and Bianchi, 2016). The former type ofon destination brands in terms of increased

loyalty is called behavioral loyalty, while theprobability of visitation, and therefore, it waslatter type of loyalty is called attitudinalselected as a measurement component forloyalty (Pike and Bianchi, 2016). In this study,

brand image.

brand loyalty is conceptualized as attitudinalloyalty.
Brand loyalty is considered a core

4. Brand quality
Brand quality refers to the quality ofelement of brand equity (Aaker, 1991; Keller,

various aspects of a brand as perceived by the2003). Although up to the 2000s in the field of5

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

tourism research, little attention was paid to

the Kansai area and is a popular destination

loyalty to tourism destinations (Konecnik andfor foreign tourists. In 2021, the annual

Gartner, 2007; Oppermann, 2000), it isnumber of overnight guests in Osaka wascurrently considered a major component of

7,782,125 (Japan Tourism Agency 2021c).

destination brand equity (Boo et al., 2009;

Hakone is blessed with natural resources,

Dedeoğlu et al., 2019; Hyun and Kim 2020;

such as hot springs and mountains, and is

Konecnik and Gartner, 2007, etc.). However,

one of the leading hot spring destinations inamong the types of loyalty indicated above,

Japan. In 2021, the annual number ofthe mainstream approach in previous studies

overnight guests in Hakone was 1,189,135

is to measure attitudinal loyalty. Specifically,(Japan Tourism Agency 2021c).

the main measurement item was theintention to revisit the destination under

2. Data collection and sample

evaluation.

The data for this study were collectedusing a consumer panel provided by an(3) Methodology

Internet survey company. The survey was

1. Study areas

conducted in December 2021. The survey

This study examines a destination

respondents were people aged 20 years orbrand equity model applicable to multiple

older who had visited Ishigaki, Osaka, or

types of tourism destinations. Therefore, in

Hakone at least once in the past, for purposes

this study, three typical destination typesother than returning home or on a businesswere considered: beach, city, and hot spring.

trip, and for a length of at least one night.

To make it easier to collect responses, specific

There were 550 respondents for each

destinations that see a certain number ofdestination, for a total of 1650. In other words,

tourists were selected. The numbers of

550 respondents answered about Ishigaki,

tourists were based on figures from the

550 about Osaka, and 550 about Hakone.

“Overnight Travel Statistics Survey” (Japan
Tourism Agency, 2021c).

3. Questionnaire development

As a result, Ishigaki Island (Ishigaki

In this study, all components of theCity, Okinawa Prefecture) was selected as thebrand equity measurement model were usedbeach destination, Osaka (Osaka City, Osakaas constructs. Each construct was a latent

Prefecture)city

variable and was assumed to be measurable

destination, and Hakone (Hakone Town,

using multiple indicators (observed variables)

Kanagawa Prefecture) was selected as thewith measurement errors.

wasselectedasthe

hot spring destination. Ishigaki Island is a

Questions regarding brand awarenessremote island located in Okinawa Prefecture

were created using Boo et al. (2009) andthat features beautiful beaches. In 2021, theKonecnik and Gartner (2007) as references. A

annual number of overnight guests on

total of three items were scored on a 7-point

Ishigaki Island was 362,973 (Japan Tourism

Likert scale (7 = Agree to 1 = Disagree).

Agency 2021c). Osaka is the largest city in

Questions regarding brand image were6

Journal of Japanese Management Vol.6, No.2, May 2022

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1. Profile of sample

created with reference to Albaity andMelhem (2017), for which a total of three

Table 1 shows the attributes of theitems were scored on a 7-point Likert scale (7respondents. Regarding gender, there were

= Agree to 1 = Disagree). Questions regarding

more males than females for all destinations,brand quality were created based on Chen

while regarding age, the largest percentage ofand Tsai (2007) and Konecnik and Gartner

respondents were in their 60s or older for all(2007), for which a total of four items weredestinations, and the smallest percentage

scored on a 7-point Likert scale (7 = Agree towas in their 20s. Regarding the number of

1 = Disagree). Questions regarding brandvisits, the largest percentage of respondents

loyalty were created with reference towere once for Ishigaki and Hakone. However,Konecnik and Gartner (2007) and Pike andthe largest percentage of respondents were

Bianchi (2016), for which a total of three“10 or more” for Osaka.

items were scored on a 7-point Likert scale (7= Agree to 1 = Disagree). See Table 6 for2. Test of reliability and validity

details of the above questions.

The reliability and validity of eachconstruct of the destination brand equity
model were examined. In this study, all(4) Results and discussion
Table 1 Respondent attributes
Ishigaki Island (N = 550)

GenderAge

Composition

Number ofComposition

Number ofComposition

Respondents

Ratio

Respondents

Ratio

Respondents

Ratio

Male

374

68.00%

364

66.20%

418

76.00%

Female17632.00%

186

33.80%

132

24.00%

20 to 29

41

7.50%

23

4.20%

9

1.60%

30 to 3978

14.20%

69

12.50%

25

4.50%

40 to 4982

14.90%

118

21.50%

78

14.20%

50 to 59129

23.50%

182

33.10%

142

25.80%

220

40.00%

158

28.70%

296

53.80%

1315

57.30%

127

23.10%

125

22.70%

2102

18.50%

92

16.70%

112

20.40%

364

11.60%

82

14.90%

80

14.50%

4

18

3.30%

24

4.40%

24

4.40%

5

14

2.50%

32

5.80%

58

10.50%

6~9

9

1.60%

41

7.50%

48

8.70%

28

5.10%

152

27.60%

103

18.70%

60s
of visits

Hakone (N = 550)

Number ofover
NumberOsaka (N = 550)

10 or
more

7

Journal of Japanese Management Vol.6, No.2, May 2022

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subsequent analyses were conducted using R

thresholds (absolute values of skewness > 3,

version 4.1.2 and the packages “lavaan” andabsolute values of kurtosis > 10) for criteria of“semTools”.

departure from normality (Weston and Gore,

Reliability was tested using Cronbach’s2006). As a result of confirmatory factor

alpha and composite reliability (CR) values.

analysis, the CR values for all constructs

Cronbach’s alpha was calculated for theexceeded the desirable value of 0.6 (Bagozzi

combined data of respondents from all

and Yi, 1988) (see Table 2). The above results

destinations; all constructs exceeded theconfirmed the reliability of the constructs.

threshold of 0.7 (Hair et al., 2014) (see Table

Next, two types of validity were tested:2). CR was calculated by confirmatory factor

convergent and discriminant validity. The

analysis on the combined data of respondents

convergent validity of the constructs wasfrom all destinations. The assumption for

tested by conducting a confirmatory factor

conducting confirmatory factor analysis wasanalysis of the combined data of respondents

the multivariate normality of the data.

from all destinations. Specifically, the factor

Multivariate normality can be conveniently

loadings from each latent variable to thetested by checking the skewness and kurtosis

observed variables and the average varianceof observed variables (Weston and Gore,

extracted

2006). The values of skewness and kurtosis ofstandardized factor loadings from each latent

the observed variables were below thevariable to the observed variables all

(AVE)

were

examined.

The

exceeded the criterial value of 0.5 (Hair et al.,2014). In addition, the AVE of all latent

Table 2 Values of Cronbach's Alpha andvariables exceeded the criterial value of 0.5

CR(Fornell and Larcker, 1981; Hair et al., 2014)

Cronbach's(see Table 3). The above results confirmed the

alpha

CR

Brand awareness

0.834

0.844

Furthermore, the criterion was satisfied that

Brand image

0.938

0.939

the value of AVE for each latent variable

Brand quality

0.851

0.853

Brand loyalty

0.855

0.867

convergent validity of the constructs was.

shouldbegreaterthanthesquaredcorrelation coefficient between the constructs(Fornell and Larcker, 1981; Hair et al., 2014)

Table 3 Values of AVE and correlation coefficients
Brand awareness

Brand image

Brand quality

Brand awareness

0.645

Brand image

0.582

0.838

Brand quality

0.581

0.733

0.594

Brand loyalty

0.474

0.713

0.724

Note: Bold text indicates values of AVE.

8

Brand loyalty

0.688

Journal of Japanese Management Vol.6, No.2, May 2022

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Brand
awareness

Brand
awareness

Brand
image

Brand
image

Brand
qualityBrand
qualityBrandloyaltyBrandloyalty

Destination
brandequityFigure 1 Higher-order factor model

Figure 2 Four-factor model

Table 4 Comparison of the results of the two models
χ2

df

CFI

RMSEA

TLI

AIC

Higher-order factor model

698.577

59

0.957

0.081

0.945

55030.634

Four-factor model

726.612

61

0.959

0.081

0.945

55006.582

thus confirming discriminant validity (seereferred to as the four-factor model). Figure 1

Table 3).

shows the higher-order factor model, andFigure 2 shows the four-factor model. In this

3. Comparison of the higher-order factor

study, confirmatory factor analysis of themodel and four-factor model

combined data of respondents from all

The destination brand equity model

destinations was conducted on these two

proposed in this study can be theoreticallymodels to determine which model fit the data

expressed in two ways: the first is a model inmore adequately. The fit indices used towhich destination brand equity is set as aevaluate

higher-order factor and brand awareness,comparative fit index (CFI), root mean

brand image, brand quality, and brandsquare error of approximation (RMSEA), andloyalty are sub-factors (hereinafter referred

Tucker-lewis index (TLI), based on theto as the higher-order factor model). The

recommendations of previous studies (Hair etsecond is a model in which the foural., 2014; Steenkamp and Baumgartner,

sub-factors

1998). We also used the Akaike informationareinterrelated(hereinafter
9

the

model

were

χ2

statistic,Journal of Japanese Management Vol.6, No.2, May 2022

criterion

(AIC)

for

multiple

ISSN 2189-9592

data better than the higher-order factor

model

model. Therefore, the four-factor model wascomparisons (Weston and Gore, 2006).
ofadopted for subsequent analyses. Since theconfirmatory factor analysis for the twohigher-order factor model can exist whenmodels. The results of the likelihood ratio test

correlations between sub-factors are highsuggest that the four-factor model fits the(Dombrowski and Watkins, 2013), the betterdata better than the higher-order factor

fit of the four-factor model to the data

model (Δχ2 (2) = 28.036,

suggests

Table

4

shows

the

resultsp < 0.001). In boththatmodels, the value of CFI was above 0.9,

destination

which is considered a good goodness-of-fit

correlated.

not

brand

all

components

equityareofhighlythreshold (Hair et al., 2014). Comparing thetwo models, the four-factor model had a

4. Test of measurement invariancehigher CFI value than the higher-order factor

We tested measurement invariance tomodel. A higher CFI value indicates a higher

examine whether the destination brandgoodness of fit, suggesting that the four-factor

equity model could be applied across different

model fits the data better.

types of tourism destinations. Specifically, we

In both models, the RMSEA value wasconducted a multigroup confirmatory factor

above 0.05, which is considered a highanalysis of the four-factor model.

goodness-of-fit threshold (Hair et al., 2014).

To compare the values of factor means

However, it was below 0.1, which may

across different populations, the following

indicate a serious problem (Kline, 2016).

three criteria need to be met (Steenkamp andComparing the two models, the values of

Baumgartner, 1998; Wang et al., 2018). The

RMSEA were the same. In addition, thefirst is configural variance, which refers tovalues of TLI were above 0.9, which isthe number of factors and their loading

considered a good goodness-of-fit thresholdpattern being equal across populations(Hair et al., 2014). The values of TLI were the(Wang et al., 2018). The second is metricsame in both the models.

invariance, which refers to the number ofFinally, the AIC values showed thatfactors and loading pattern, as well as thethe four-factor model was lower than thefactor loadings from latent variables tohigher-order factor model. A lower AIC value

observed variables across populations thatindicates a higher goodness of fit. Additionally,

are also equal (Wang et al., 2018). The thirda difference in AIC values of 10 or moreis scalar invariance, which refers to the factindicates that the difference is significant

that the intercept of the observed variable is(Taylor et al., 2014). In this study, thealso equal across populations, in addition todifference in the AIC between the two models

metric invariance (Wang et al., 2018). If full

was greater than 10. These results suggest

metric invariance or scalar invariance is notthat the four-factor model better fits the data.

possible, partial invariance is acceptable

From

the

above

results,itwas(Steenkamp and Baumgartner, 1998; Wang

confirmed that the four-factor model fit theet al., 2018). Specifically, it is necessary that10

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Table 5 Results of measurement invariance analysis
χ2

df

CFI

RMSEA

TLI

AIC

Configural invariance model

809.870

177

0.960

0.081

0.947

53856.382

Metric invariance model

856.755

195

0.958

0.079

0.950

53867.353

Partial metric invariance model

822.602

189

0.960

0.078

0.950

53845.137

Partial scalar invariance model

1096.051

201

0.943

0.090

0.934

54095.084

at least two items of each latent variable

the method adopted by Steenkamp andhave metric invariance or scalar invariance

Baumgartner (1998), we examined the(Steenkamp and Baumgartner, 1998).

observed variables to release the equality

Based on the above criteria, we first

constraint of factor loadings with reference toexamined whether configural invariance canthe modification indices. As a result, we set

be established among the three types ofup a partial metric invariance model that

tourism destinations. The confirmatory factor

released the equality constraints for one item

analysis found that the values of CFI andof brand awareness, one item of brand quality,

TLI were above 0.9 while that of RMSEA wasand one item of brand loyalty (see Table 6).

below 0.1, indicating that the goodness of fit

We then compared the configuralindex was acceptable (see Table 5). Next, weinvariance model with the partial metriccompared the configural invariance model

invariance model. In the partial metricwith the metric invariance model. In theinvariance model, the TLI value was higher

metric invariance model, the RMSEA value

than the configural invariance model, andwas lower than the configural invariance

the CFI value was the same as the configuralmodel, and the TLI value was higher thaninvariance model (see Table 5). Additionally,

the configural invariance model (see Table 5).

the partial metric variance model had lower

However, the CFI value was lower than thevalues of RMSEA and AIC than theconfigural invariance model, and the AIC

configural invariance model (see Table 5).

value was higher than the configural

The results of the likelihood ratio test also

invariance model (see Table 5). The results ofsuggested that the partial metric invariancethe likelihood ratio test also suggested thatmodel fit the data better (Δχ2 (12) = 12.732,

p = 0.389). To summarize these results, four

the configural invariance model was a betterfit (Δχ2 (18) = 46.885, p < 0.001). Toof the five indices suggested that the partial

summarize these results, three of the five

metric invariance model fits the data better.

indicesconfigural

Therefore, we concluded that the partial

invariance model fits the data better.

metric invariance model fits the data better

Therefore, we concluded that the configuralthan the configural variance model.

suggested

that

the

In addition, we compared the partial

invariance model fits the data better than themetric invariance model with the partial

metric variance model.

scalar invariance model, which releases the

In light of the above decision, based on
11

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Table 6 Factor loadings in the partial metric invariance model
Unstandardized factor loadings

Item

Ishigaki

Osaka

HakoneIsland(city(hot spring(beachdestination)

destination)

destination)

Brand awareness (3 items)(Name of destination) is well known as a travel destination

0.838

0.988

0.763

(Name of destination) has a good reputation as a travel destination

0.959

0.959

0.959

0.837

0.837

0.837

1.112

1.112

1.112

1.163

1.163

1.163

1.119

1.119

1.119

1.020

0.896

0.870

0.986

0.986

0.986

1.048

1.048

1.048

0.873

0.873

0.873

1.203

1.295

1.154

1.176

1.176

1.176

0.905

0.905

0.905

Characteristics of (name of destination) not found in any othercountries come to mind

Brand image (3 items)
I can experience new things in (name of destination) no matter how
many times I visit
I can make new discoveries in (name of destination) no matter how
many times I visit(Name of destination) still feels fresh no matter how many times I
visit

Brand quality (4 items)
The quality of accommodations in (name of destination) is generallyhigh.
The quality of restaurants in (name of destination) is generally high.
The quality of tourist facilities in (name of destination) is generallyhigh.
(Name of destination) is easy to transport within the region.

Brand loyalty (3 items)(Name of destination) will always be my first candidate whenplanning a leisure trip
I want to visit (name of destination), even if the travel costs are
somewhat highI want to visit (name of destination) in the near future
Note: Bold text indicates items whose equality constraints are released.

equality constraint on the intercept of

RMSEA and AIC than the partial metricobserved variables in the same way as theinvariance model (see Table 5). The results ofpartial metric invariance model. The partial

the likelihood ratio test also suggested thatscalar invariance model resulted in lower

partial metric invariance fits the data better(Δχ2 (12) = 273.449, p < 0.001).

values of CFI and TLI, and higher values of12

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Based on the results so far, it was

are as follows. First, the factor structure ofconfirmed that the model developed in thisthe tourism destination brand equity model

study was established up to partial metric

was shown to be common among different

invariance. Table 6 shows the factor loadings

types of destinations. Although there haveof the observed variables from each latent

been studies examining the invariance of thevariable in the partial metric invariancebrand equity model for multiple tourism

model. The factor structure of the model

destinations of the same type (Boo et al.,developed in this study can be applied to all2009), few studies have examined thethree types of destinations. In other words,

applicability of the model across multiple

regardlessdestination,

types. This study is a new step forward fordestination brand equity may consist of four

research on the application of the tourism

factors: brand awareness, brand image,destination brand equity model. Second,

brand quality, and brand loyalty. On theevaluation from a new perspective of novelty

other hand, it is suggested that the model

was employed to measure brand image, anddeveloped in this study is not suitable forthe suitability of the measurement scale wascomparing factor means among types ofconfirmed. In the case of tourism destinations,destinations.

measuring novelty as a measure of brand

of

the

type

of

image may be useful.
The(5) Conclusion

following

pointssuggesttheThis study improved the tourism

potential practical applicability of this study.

destination brand equity model in such a way

First, it is important for DMOs to focus onthat it can be applied across different tourism

improving the evaluation of the four elements

destination types and validated the model.

of awareness, image, quality, and loyalty inWith reference to previous studies, weorder to increase the brand equity of theirdeveloped a destination brand equity modelown region. Second, the model developed inconsisting of four factors: brand awareness,this study is not currently suitable forbrand image, brand quality, and brandcomparing the evaluation scores of different

loyalty. The major improvement was in

types of tourism destinations, so it should bemeasuring the image of novelty so that brandused to understand the changes in theimage could be discriminated from branddestination brand equity in one’s own region

quality. The results of the confirmatory factor

over time. Although it was not possible toanalysis confirmed that the developed model

examine this in this study, it may be possible

fits the data well. In addition, measurement

to make comparisons among several tourism

invariance was tested for three destination

destinations if they are of the same tourism

types (beach, hot spring, and city), and it was

destination type. Future research is needed

confirmed that the factor structure of theto confirm this hypothesis.
Finally, we discuss the limitations andmodel was common among the destination

challenges of this study. First, as mentioned

types.

earlier, the model developed in this study was

The academic implications of this study
13

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

30(2), pp.219-231.

not able to ensure scalar invariance. Further
improvement of the model is needed in order

Bose, S., Roy, S. K., and Tiwari, A. K. (2016).

to be able to compare brand equity ratings

Measuring customer-based place brandamong different destination types. One way

equity(CBPBE):An

investment

attractiveness perspective. Journal ofis to include new factors (e.g., brand trust andbrand value) that were not employed in theStrategic Marketing, 24(7), pp.617-634.

model of this study. In addition, because of

Buil, I., de Chernatony, L., and Martinez, E.

the research design, only three types of(2008). A cross-national validation of thedestinations were considered in this study. In

consumer-based brand equity scale.

validity of the model developed in this study

Journal of Product & Brand
Management, 17(6), pp.384-392.

for other types of destinations, such as

Cai, L. A. (2002). Cooperative branding forthe future, it will be necessary to examine themountain

destinations

andrural destinations. Annals of Tourism

historical

Research, 29(3), pp.720-742.

destinations.

Chen, C. F., and Tsai, D. (2007). How
destination

Acknowledgements

image

and

evaluative

factors affect behavioral intentions?

This work was supported by JSPS

Tourism

KAKENHI Grant Number JP21K17976.

Management,

28(4),

pp.1115-1122.
Dedeoğlu, B. B., Van Niekerk, M., Weinland,

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Journal of Japanese Management Vol.6, No.2, May 2022

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The Effectiveness and Limitations of the PFI for a Water Utility:
Case Study of the Kawai Purification Plant Reconstruction
Project in Japan
Ooshima Makoto

Association of International Arts and Science,Yokohama City University
E-mail:ooshima@yokohama-cu.ac.jp

Abstract
This study investigates the reconstruction of the Kawai purification plant that supplies water
treatment for the city of Yokohama in Japan. The purpose is to clarify the effectiveness andlimitations of the so-called Private Finance Initiative (PFI) method, as applied to a water utility.
The PFI method is said to demonstrate higher efficiency compared with traditional utility
maintenance methods. The primary conclusion is that the use of the PFI method at the Kawai
purification plant has not achieved a large cost reduction or value for money (VFM) as expectedcompared with other PFI water service projects in general or other PFI projects in Yokohama
specifically. In other words, future bidders should bear in mind that excessive cost reductions
are expected. The effectiveness of the PFI approach should, instead, be measured against theusefulness of the technical and management knowledge of the business partner, such as
membrane filtration technology or the continuous operation of older facilities during thetransition to new facilities and equipment.
Keywords: PFI method, Water Utility, Privatization methods
2017; Yoshimoto, 2018. The (PFI) method 2 —（1）Introduction
Water utility

here, the "waterworks PFI method"— is said toprojects across Japan face

many challenges, and several studies 1offer greater efficiency compared with thehaveclaimed that the introduction of the waterworks

conventional

private finance initiative (PFI) approach candevelopment projects, where local governments

help address these (Amano, 2017; Kume et al.,provide administrative services directly. This

2015; Takizawa, 2015; Hashimoto & Murata,

paper is an investigation and a clarification of

1 Amano (2017), Kume et al. (2015), Takizawa(2015), Hashimoto & Murata (2017), Yoshimoto(2018).
2 Defined by the Japanese Cabinet Office's
Public Private Partnership/Private FinanceInitiative (2017), the PFI method is "a methodof providing the same stand-ard of services at alesser price or a higher quality of services for thesame price through the application of private
funding, management capability, and technicalcompetence to public utility construction,
operation & maintenance, and manage-ment."

17

approachtopublicutility

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

the effectiveness and limitations of the PFI

and Amano (2017) have also showcased casemethod, using the Yokohama City Kawai Water

studies of the cities Yokohama and Yubari that

Treatment

Project

applied the PFI approach to their waterworks.

(hereinafter referred to as the Kawai Project),Thus, existing studies have summarized thethe first project in Japan to adopt the PFI

various issues facing water service projects,

method, as a case study.

examined multiple privatization methods, and

Plant

Renovation

In 2006, the city of Yokohama formulated its"Long-Term

Visionforthespotlighted case studies.

Yokohama

However, most of the existing studies focus on

Waterworks: A 10-Year Plan," with thepointing out problems, enlightenment by"Yokohama City Waterworks Project Medium-

government officials, or only provide an

Term Plan" dividing the longer term plan into

overview of the project. In contrast to previous

three stages. The goal of the medium-term plan

studies, this study is based on evidence andis sustainable waterworks management thatinvestigates the effectiveness of waterworks

utilizes the technical abilities and knowledge

PFI

available to the city of Yokohama, based on

associated with it. Specifically, it took up thesocietal trends and various needs of civic life

Kawai project as Japan's first case study of PFI(Kume et al., 2015)3. However, as its Kawai

for waterworks, and investigated the outline of

purification plant was faced with many issues4,

services

Yokohama chose not to use the traditional

realistically be expected through the PFI

utility maintenance approach but instead

method. The analysis covered data andintroduced the PFI method, which relies onmaterials published by the City of Yokohama

business partners.

and the Ministry of Health, Labor and Welfare,

implementation

and

cost

and

the

reductions

challenges

that

can

Existing research on the privatization andas well as internal data and materials that aremanagement of water services has looked at

not available on the internet. Specifically, thesemany of the issues facing the industry.

are internal documents and data, including

Takizawa (2015) summarizes the issues local

materials from the public hearing (Sep. 19, 2018,

Japanese governments are facing in terms of

13:30 to 15:30, Kawai Purification Plant). As

their waterworks as well as the initiatives

Japan's first application of the PFI method to aunderway to address these. There have been awaterworks project, the Kawai project has been

series of studies that examine the pros and cons,

positioned as cutting-edge by both Japan's

efficacy, and challenges of using privatization in

Cabinet Office and its Ministry of Health,resolving these issues, including the PFILabour and Welfare.

approach (e.g., Obayashi, 2018; Kishimoto et al.,The rest of the paper is organized as follows.

2018; Nakajima, 2018; Hashimoto & Murata,

Section 2 provides an overview of the Kawai

2017; Watanabe, 2018). Like Hashimoto andproject,

Murata (2017), Kume (2014), Kume et al. (2015),

Yokohama's water services, and the differences

3 Kume et al. (2015).

deterioration,
declining
efficiency fromprocessing untreated water from different
sources at a single filtration plant, and the needfor facility earthquake-proofing.

4 Kume et al. (2015) and Watanabe et al. (2010)

identified the issues as the degrada-tion ofwater treatment capability due to facility

18

the

background

of

the

city

of

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

between the traditional utility maintenancesystem's ability to form sufficient flocculation

approach and the PFI method. Section 3

for settling and removal is problematic.

examines the effectiveness and limitations of

Additionally, seismic analysis has identified

the waterworks PFI method. Section 4

issues with the earthquake resilience of thesummarizes the results of the case study.

primaryequipment—the

distribution

reservoirs, the sedimentation basins, and（2）Background: The Kawai project and thefiltration pools—pointing to the need for drastic

PFI methodrenovations to the entire plant.
Against this backdrop, a plan was drafted for

1.The Yokohama waterworks projects and thethe

Kawai purification plant5

completerenovation

of

the

Kawai

Yokohama's water purification operations

purification plant, introducing a membrane

purify water at four locations: the Kawai,

filtration system capable of processing the

Tsurugamine, and Nishiya purification plants,

entire Doshi

which all use gravity flow systems, with theuse of water pressure. The facility would be

Doshi River and Lake Sagami as water sources;

reconstructed to contribute to the stable andand the Kosuzume purification plant, which iscontinuous provision of good quality water. At

pump-based. These facilities prioritize the use of

the same time, a decision was made to eliminate

water from gravity flow systems to minimize

unnecessary equipment and simplify operation

environmental impact and the cost of waterand maintenance within the plant. The PFI

intake, transportation, and purification, withwater service method was chosen based on theminimal usage of pump-based systems.

need for greater capabilities to handle these

However, all water from the gravity flow

updates,systems cannot be used because the facilities

initiatives.

River system through effective

maintenance

operations,andand equipment are deteriorating, thereby

The target operations for the Kawai project

reducing their purification ability. Factors such

were the filtration facility reconstruction —as changes in water source quality also pose

installing new equipment and removing old

efficiency issues for processing untreated waterequipment—as well as facility operations andfrom different sources at the same plant.

maintenance6( Kume et al., 2015). The project

The Kawai purification plant is the oldest

chose the build, transfer, operate (BTO)

rapid filtration plant in Yokohama, with theapproach where business partners would

Doshi River as its water source. The system hasconstruct and install new equipment, thenbeen in operation for 50 years, and during thisoperate and maintain it after the transfer oftime it has deteriorated. Prior to the plant's

ownership to the city. The total project duration

renovation,

chemicalwould be from April 2009 to the end of Marchclarification and rapid sand filtration methods.

2033. Specifically, Stage 1 construction (removal

The water from the Doshi

River is too cleanof old equipment and installation of new

and the amount of suspended matter too small

equipment at each facility) lasted from April

to operate a flocculating clarifier; thus, the2009 to March 2014; Stage 2 construction

5 Kume et al. (2015).

6 Yokohama Waterworks Bureau (2007).

thefacilityused

19

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592(removal of old equipment and installation ofstability would continue to increase andnew equipment at each facility)

government spending would eventually levellasts fromout8.

April 2014 to March 2017; and an operation andmaintenance period from April 2014 to March

Table 1 details the major features of each2033. The contract was valued at about 27.6

method in terms of implementation and bidding.

billion yen, with facility and equipment

For specific business activities, according to theinstallation accounting for about 18.0 billion.

Cabinet office, when the total costs of the service

Payment would be handled via the service

transfer fees paid to the business partner by thetransfer method, with the contract pricegovernment are lower than the hypothesized

distributed proportionately according to thetotal costs and quantified risks accompanying

work conducted throughout the project period.

conventional

publicutilitydevelopment

The entire Kawai project, from planning andmethods, the PFI method offers value for money

construction to operation and maintenance, was(VFM)9. If VFM is anticipated, then using theconsigned to a given business partner in

PFI method promotes ingenuity on the part ofaccordance

withperformance-based

the business partner, blanket ordering, and thestipulations

dependentonsharing of risk between the government and thequantitativeevaluations. The expectation was that thisbusiness,approach would reduce Yokohama's financial

responsibilities.

reducingthepublic's

financialburden by 7% compared with commissioning
work for individual projects piecemeal (Kume et（3） Assessment results:

effectiveness andal., 2015)7.

limitations of the water service PFI method
In this chapter, the expected effectiveness and2.Differences between conventional public

limitations of the PFI approach compared toutility development methods and the PFI

traditional utility development methods are

methodexamined in three categories: cost reduction,
service

The city of Yokohama considered whether to
employaconventional

publicquality

improvement,

and

risk

allocation.

utilitydevelopment method or the PFI method for the
Kawai project. According to the Yokohama

1.Cost reduction

Waterworks Bureau (2008), the PFI method

The total Kawai project was consigned to a

was chosen after a qualitative assessment's

single business partner long-term in an

determined that project operations could be

integrated manner. The use of blanket orderingstabilized

and performance ordering was expected to yield

via

optimaloperations

andmaintenance service assessments and the

reductions in cost. In fact, a cost reduction ofidentification of risk allocation. Moreover,

7 Kume et al. (2015).

"the provision of services for the op-timal value:
payment ratio."

8 Yokohama Waterworks Bureau (2008).
9

Cabinet Office (2001) considers VFM to be20

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Table 1 Conventional public utility development methods vs. the PFI method
MethodPublic utility
PFI
Implementation

The

design,construction, The

design,construction,

operation&

operation & maintenance, and maintenance, and management of the facility
management of the facility are are handled in an integrated manner by theconsigned piecemeal to private PFI firm over the long term.
entities or undertaken directly The public sector monitors and approves theby the public.

masterplan,

imposesconditions,andmonitors operations.
Bidding

Bidding by stage or work item: Blanket ordering: An integrated order for
Bidding is divided by work operation & maintenance, management, etc.,stage or construction area; is placed; work items are not divided between
work is divided and ordered by vendors.
item(civilengineering, Performance ordering: The public sector

construction, installation, etc.) presents basic performance targets for theOrdered to spec: The public facility, etc., and the business creates a plan
sector drafts and presents a and constructs the facility to fulfill these.
specification
detailing

document

theconstruction

method, materials, etc.
Business selection Price-based

biddingasa Comprehensive assessment, taking price andgeneral rule.
Risk allocation

proposal content into account.

Determined upon consultation Defined at time of contract; shared between
whenever risk is incurred, but the public and private sectors.
fundamentally borne by the
public sector.

Funding

The public sector supplies The private sector supplies funding from thefunding via municipal bonds, market (the project financing method).
subsidies, etc.

Source: Kume et al. (2015, p. 18), partially amended for clarity.
about 7% was expected for the Kawai project,

project estimated at 26,531,579,000 yen;

Table 1: Public utility development methods vs.

representing a cost savings of about 1.1 billion

the PFI methodyen (City of Yokohama, 2008a; Yokohama

with the total price of the21

Journal of Japanese Management Vol.6, No.2, May 2022

Waterworks Bureau, 2008)10.

ISSN 2189-9592

adoption of the PFI method has other hidden

In the PFI method, project funding is suppliedFor

example,withnot through taxes or public funding, such as

development

methods,

funding

government securities, as with public utility

through municipal bonds, issued at an interest

development methods, but rather by therate lower than the market rate or other sourcesbusiness partner. Under this arrangement,of project funding, such as taxes. However, theYokohama merely makes regular service

PFI method incurs higher interest rates thantransfer fee payments to the business as

municipal bonds, taxation, or other publicpredetermined compensation for the project.

funding options, as funds are raised by the

Therefore, the city does not need to issue bonds

partner by borrowing from financial institutions

to install the new facility, leading to a leveling-or

off in government spending (Kume et al., 2015)11.

companies (SPC), such as banks or major

As Kume et al. (2015) point out, thecorporations, lend funding at certain profitable

reconstruction of the Kawai plant and theinterest rates. As the nature of the PFI method

consequent closure of the Tsurugamine plantis private, details on the Kawai project funding

have

fixed

are not available. However, if the businessadministrative costs as well12. This approach

conducts fundraising, it is highly probable thatallows for the issuing of government grants

it does so at an interest rate far higher than one

through the BTO method with no property

that taxes or public fundraising would incur.

taxes levied13.

Limiting

producedareductionincosts.

others.

theSpecifically,

scope

to

publicspecialutilityisraisedpurposeoperations

andAdditionally, the transition from traditional

maintenance in the Kawai project, a "publicly

rapid filtration to the membrane filtration

built, privately owned" model applies, whereas,

method reduces the amount of power used toin a design-build-operate (DBO) system or atreat each m³ of untreated water from 0.040

designated management system, Yokohama

kWh to 0.024 kWh, lowering annual power costs

would undertake the "hardware" part of thefrom about 34 million yen to about 21 million

project, such as facility and equipment

yen14.

The amount of condensing agent used

installation, while the "software" side, such as

per 1 m³ of untreated water fell from 0.0255 L to

operation and maintenance, would be entrusted

0.0164 L, with annual chemical costs dropping

to private enterprise. However, by consigningfrom about 42 million to 27 million yen (City ofthe project as a whole to private business,

Yokohama, 2016)15.

Yokohama expects fixed fundraising costs and a

However, achieving these cost reductions

high VFM. Second, by evading the need to issue

reveals two major issues. First, while thesepublic bonds, the belief is that the negative

utility and chemical cost reductions are

impact on various financial indices16 applied to

expected to achieve a 7% overall VFM, thelocal governments throughout Japan, including

City of Yokohama (2008a) and Yokohama
Waterworks Bureau (2008).
11 Kume et al. (2015).
12 Ibid.
13 Ibid.

14 City of Yokohama (2016).

10

15 Ibid.

When local governments issue municipal
bonds allocated to public enterprises, theirconsolidated real deficit ratios, real debt service
16

22

Journal of Japanese Management Vol.6, No.2, May 2022

Yokohama, would be avoided.

ISSN 2189-9592

PFI method of consignment of specific duties to

Although the PFI method has been shown tothe private sector and the aforementioned

reduce certain costs, based on the overall Kawai

higher interest rates incurred as the businesswater production costs post-project, it is difficult

needs to secure its own financing. While waterto say whether an overall reduction in costs wasproduction costs for the Doshi River system are

actually achieved. As a result of examining four

ultimately lower than they are in the district,water systems: the Sagami Lake system, thethey are higher than those for the Lake Sagami

Ba'nyu River system, the Doshi River system

or Ba'nyu River districts.

(which encompasses the Kawai and Nishiya

The second issue lies with VFM—the deciding

plants), and the district as a whole, the following

factor in why PFI was chosen over a public

was found. Specifically, according to Yokohama

utility for the Kawai project. VFM here includes(2019), in the 2018 fiscal year, the cost of

not only the costs associated with the Kawai

producing 1 m³ of treated water was 159.321

project's installation, development, operation,

yen for the Doshi River system, 147.59 yen for

andthe Lake Sagami system, 143.88 yen for the

improvements

Ba'nyu River system, and 193.17 for the district

represented in financial terms, as well as theoverall, with an average of 170.51 yen. Chemical

benefits for Yokohama of reducing its risk; ascosts per 1 m³ of treated water were 0.61 yen forwell as the environmental impacts.

maintenance,
gainedbut

also

qualityfromtheproject,the Doshi River system, 1.81 yen for the Lake

VFM is generally considered "the provision of

Sagami system, 1.78 yen for the Ba'nyu River

services for the optimal value-to-payment ratio"

system, and 0.04 yen for the district overall, forfor administrative services, such as the

an average of 0.79 yen. However, commission

development, operation and maintenance, andcosts were 20.8 yen per 1 m³ of treated water forcertain facilities 17 . When the life cycle cost

the Doshi River system, 15.53 yen for the Lake

(LCC) for providing these administrative

Sagami system, 13.06 yen for the Ba'nyu River

services is calculated and compared between

system, and 11.26 yen for the district as a whole,conventional methods and the PFI approach,for an average of 13.76 yen. Interest paid totaled

the method with the higher value-to-payment

11.54 yen per 1 m³ for the Doshi River system,

ratio is said to have VFM; and the other method

7.44 yen for the Lake Sagami system, 7.71 yen

is said to lack VFM. Comparing conventional

for the Ba'nyu River system, and 6.19 yen formethods with PFI and calculating VFM means

the district, for an average of 7.44 yen.

examining both approaches to assess whether

In other words, for the Doshi River system

the public service quality from the project(which encompasses the Kawai plant), chemicalremains the same in both. The specific formula

costs were less than for other systems, but

is as follows18:

commission payments and interest expenses
were more. This result is associated with theVFM （ ％ ） ＝ (PublicutilityprojectLCC －ratio, and future burden ra-tios as stipulated by
the Fiscal Reconstruction Act suffer.
17 Cabinet Office (2001) considers VFM to be"the provision of services for the op-timal value:

payment ratio."
18
From the Cabinet Office homepage(www8.cao.go.jp/pfi/pfi_jouhou/tebiki/kiso/kiso1
3_01.html; accessed Feb. 9, 2021).

23

Journal of Japanese Management Vol.6, No.2, May 2022

PFILCC)/PublicutilityprojectLCC

100

×ISSN 2189-9592

while VFM is supposed to be calculated from all
items related to project costs, factors such as(1)
In formula (1), LCC is defined as income andrisk allocation, cutting-edge technology, andexpenditure over a defined project period,

environmental impact were not included in its

composed of planning and construction costs,

calculation for the PFI method.

operation and maintenance costs, interest, andIn fact, according to part of the 2016

national and local taxes. If the PFI method

Environmental Accounting 19 initiative, which

equates to lower costs than the conventional one,quantifies environmental challenges as much as

the PFI method is said to have VFM.

possible, not just for the Kawai project but also

According to the PFI project Guidebook (2003)

for waterworks in all of Yokohama, the sumfrom the PFI Project Research committee,

total of waterworks projects in Yokohama inmethods of calculating VFM "should include thedelivering tap water to consumers equated toquantification

traditionally(consumed) an environmental burden in terms

acknowledged explicitly; the optimization ofof resources and energy of 132,188,000 kWh ofrisk allocation between the public and private

electricity; 195,809 ℓ of fuel oil, gas, andsectors; the hedging of risk via insurance; thekerosene; and 154,177 m³ of city gas andestablishment of an appropriate cost reductionliquefied petroleum gas. Emissions totaled

rate achievable by a private entity; a precise

72,538 t-CO₂ of carbon dioxide, 4,285 DS-t ofunderstanding of the conditions of loans

waste soil from wastewater treatment, andborrowed

85,653 m³ of waste soil from waterworks

of

from

risks

not

financial

institutions;anunderstanding of issues within the system; andoperations.

revisions of the system."

To add environmental considerations to the

The Yokohama Waterworks Bureau (2007)

calculation of VFM for the Kawai project, thestates that the quantitative assessment of VFM

following method could be used. For the Kawaifor the Kawai project was calculated based on

project, Yokohama (2008b) established the level

its expected groundbreaking costs, design costs,of performance it sought from its businessconstruction costs, construction administrative

partner and the level of service required forcosts,

costs,

target operation and maintenance activities.

insurance premiums, taxes, and monitoring

One of the stipulated duties, "environmental

costs to be borne by the public. The only

consciousness," included "the utilization offundraising approaches listed were bonds, self-

unusedfinancing, and bank loans. However, whileconservation plans, recycling, measures tooperation and maintenanceservices, risk

address the 'heat island' effect, and theallocation, safety, and environmental impact aslimitation and reduction of greenhouse gas

basic

emissions" 20 .

operation

project

andconcepts

maintenancewerelistedasenergy,theadoptionofenergyTheoretically, a monetary

quantitative assessment items, these were notamountincluded in the VFM calculations. Therefore,

greenhouse gas emissions achieved by the

Yokohama Waterworks Bureau (2019), "Yokohama no Suido 2018 ( Yokohama

20 City of Yokohama (2008b).

representing

Waterworks 2018)."

19

24

the

reductioninJournal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Kawai project, as well as the environment

would make it difficult to keep the existing

impact of each step of the project, should befacilities running during renovations.) The

added to the numerator of formula (1) used tosecond is the use of potential energy22. Generally,

calculate VFM.

membrane

filtration

systems

requirea

In practice, for an accurate assessment, it issignificant amount of electricity to power the

essential to determine the environmental

pump used for the high pressure difference at

impact of each step of the project via

the membrane; however, at the Kawai plant,

environmental performance indices and thenpotential energy can be used due to theadd their economic value to the VFM calculation.

difference in elevation at the water supply

Specifically, the differences in environmental

conduit. The difference in elevation from theperformance indices, such as total energy

junction well along the water supply route (fromexpenditure, greenhouse gas emissions, andthe intake to the filtration plant) to the plant is

output of environmentally harmful substances

35 m; the water runs through a pipeline, and by

before the start of the project and after its

the time it arrives at the filtration plant,

completion, must be calculated and converted topressure equivalent to 11.5 m remains. Thisa monetary value (e.g., calculating the cost ofpressure is used to conduct membrane filtration,

carbon emissions through carbon pricing).

whereon the water flows into the distribution
reservoir.
The third expectation concerns water quality

2.Service content
There are four primary elements expected in(Watanabe, 2010)23. At the Kawai plant, thethe Kawai project's service standards. The firstclean water standards required from theis the use of a membrane filtration system in thebusiness partner are more severe than thosepurification plant (Kume et al.,2015) 21

(21).

imposed on drinking water. Quality standards

This would be difficult for the Yokohama

for drinking water demand a standard plate

Waterworks Bureau to construct, but possible

count of no more than 100 per mL; no more thanfor a business partner with such technology. A

3 mg/L of organic matter; turbidity of no morebusiness introducing proprietary membranethan 2°; and chromaticity of no more than 5°.

filtration technology would make sedimentation

However, the Kawai plant clean water quality

basins and filtration ponds unnecessary;standards require a general plate count of no

additionally, space-saving construction could

more than 1 per mL; no more than 1 mg/L ofenable the existing water treatment facilities toorganic matter; turbidity of no more than 0.01°,

remain in operation while renovations wereand chromaticity of no more than 1°.

conducted on the current site. (Other rapid

The fourth expectation concerns the role offiltration systems besides membrane filtration

the business partner (City of Yokohama, 2008a)

21 Kume et al. (2015).

Purification Plant Renovation )" (Japan River
Association homepage, www.japanriver.or.jp/taisyo/oubo_jyusyou/)jyusyou_katudou/no17/no17_pdf/yokohama_city.pdf; accessed Feb. 13,
2021)
23 Watanabe (2010).

22

Yokohama Waterworks Bureau, " Kawai

Jyousuijou Sai Seibi Jigyou niyoru Kankyou ni
Hairyo sita Suido Sisutemu no Jistugen( Creating an Environmentally-Conscious
Water-works System through the Kawai

25

Journal of Japanese Management Vol.6, No.2, May 2022

24.

The city required a business partner for the

Kawaiproject

that

would

potential bidders have a past track record withthat

public works in Yokohama, significant expertise

construction would be efficient, with effective

in and experience with water filtration projects

new water purification equipment and facilities;

and the required materials, among othera smooth transition to a membrane filtration

aspects. The Kawai project was Japan's firstsystem; and stable, uninterrupted provision of

genuine waterworks PFI project and, as the citywater, maintaining the required clean waterof Yokohama was proactively pursuing aquality standards during the operation andnumber of privatization projects, PFI andmaintenance period. Thus, Yokohama imposed

otherwise, many businesses were interested.

bidding requirements regarding membrane

However, despite successful project briefings

filtration

andand 2,710 inquiries from participants andconstruction results (at least 1,000 m³ per day),

potential partners, ultimately, only one businessmembrane filtration equipment operation andsubmitted a bid. Despite the single applicant,maintenance (O&M) results (at least 1,000 m³

the Yokohama PFI Project Review Committee

per day), membrane chemical scrubbing results(2008) determined that the successful bidder's(on-sitereservoir

seven constituent enterprises had enoughconstruction results (at least 10,000 m³ ofexperience in the given tasks and gave the bid

reservoir space), and overall ratings forhigh marks. However, the experimental VFM

operation inspections.

factor analysis in Japan conducted by Ueno andequipment,

cleansing),

ensureISSN 2189-9592

manufacturing,

distribution

Furthermore, the Kawai project consigned

Maeno (2010) indicates that many applicants

facility management and operations, including

are necessary to activate the competition

responsibility for complying with Japan's

principle, leading to lower prices and reduced

Waterworks Act, to a third party, entrusting all

expenses through lower construction costs,

the purification activities at the core of thethereby achieving higher VFM.

water supply process to private enterprise. To
address potential

concerns 25 ,Although, as mentioned, it is difficult tothe project

obtain information on PFI projects because theyrequired that the SPC have an internal, first-

are private projects, there were confirmed theclass water purification manager or a consulting

number of applicants and VFM results in theengineer to oversee the water supply technology

case of PFI water projects comparable to the(City of Yokohama, 2008b; Kume et al., 2015;

Kawai project, as follows. For the Otokogawa

Watanabe et al., 2010).

purification plant renovation project, five
appropriately

groups applied, with VFM at the stage of

implemented, the following two issues wereselecting a business partner at 54.3%26; for theidentified with the service content. The first is

Samukawa

in regard to the business envisioned as the city's

Treatment Facility qualified project, threepartner. The Kawai project required thatgroups applied, with VFM at the stage of

24 City of Yokohama (2008a).

Otokogawa Jyousuijyo Koushin Jigyou
Rakusatusya Ketei (Selecting the Winning Bid

While

the

project

wasCity of Yokohama (2008b), Kume et al.
(2015); Watanabe et al. (2010).
26 See Okazaki Waterworks Bureau (2012), "25

26

Purification

for the Otokogawa
Renovation Project)."&

Wastewater

Purification

Plant

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

selecting a business partner at 25.0%27. For theof service standards. While the Kawai project

Asaka

used

purification

purification

plant

plant/power

and

plant

MisonothePFImethod,athird-party

renovationconsignment format was used to entrust further

projects, as the winning bidder withdrew andfacility operation and maintenance to private

the runner-up was awarded the contract, atenterprise,least two groups applied, with the VFM at thecompliance with the Waterworks Act 31 .

stage of selecting a business partner at 11.2%28;

Yokohama also established detailed standards

all of these projects with a higher VFM thanfor earthquake-proofing and water quality.

that for the Kawai project.

However, as project knowledge is key, the city ofincludingresponsibilityfor

In addition, although the targets were

Yokohama needs to implement a project schemadifferent from Kawai's project, VFMs were also

capable of extracting sufficient technology andconfirmed at the stage of selecting a business

management know-how from its business

partner for the following PFI projects inpartner's creative forces.

Yokohama City. The City of Yokohama HighThe increase in the service transfer fees paid

School of Science and Technology renovationby the city to the business is determined as

project had seven applicants, with VFM at thefollows.

stage of selecting a business partner at 40.1%29;
for

the

Totsukaredevelopment/

Stationwest

temporary

Formula: individual payment amount for O&M

entrance

costs x 0.001 x bonus points32

maintenanceproject, five groups applied, with VFM at thestage of selecting a business partner at 13.8%30.

In terms of the "bonus points," exactly what

Thus, based on these examples, the implication

constitutes "a significant contribution to theis that the participation of multiple applicants

Yokohama

could have produced VFM beyond the 7%

Yokohama" 33 is not specified. Furthermore,achieved in the Kawai project.

while "the utilization of unused energy, theThe second issue rests with the improvement

waterworks

or

the

city

of

adoption of energy conservation plans, recycling,
See City of Yokohama (2002), " Totuka Eki
Nishiguti Dai 1 Tiku Dai Nisyu Sigaiti
Saikaihatu Jigyou Kasetu Tenpo Seibi Tou
Jigyou Yusen Kousyoukensya Sentei Ketuka
Kouhyou (Totsuka Station West Entrance

Kanagawa
Prefectural
Government
homepage (https://www.pref.kanagawa.jp/docs/
n8g/management/samukawa.html;
accessedFeb. 9, 2021).
28 See Tokyo Metropolitan Government Bureauof Waterworks (2001), " Asaka Jyousuijyou・27

30

Misono Jyousuijyou PFI Jigyou ni kakaru(Contract
Keiyaku no Teiketu nituite

District No. 1 Category 2 Urban Development
Project Provisional Development Priority
Negoti-ator Selection Results Evaluation)."
31 See City of Yokohama (2009), " Kawai

Formation for the Asaka & Misono Purification
Plants PFI Projects)."
29 See City of Yokohama PFI Project Review
Committee (2005), " Yokohama Siritu Kagaku

Jyousuijou Sai Seibi Jigyou Nyusatu Setumei
Syo Tenpu Shiryou 5 Jigyou Keiyaku Syo (An)Gijyutu Koutou Gakou (Kasyou) Seibi Jigyou
Sinsa Kouhyou (City of Yokohama High Schoolof Science & Technology Renovation Project
Inspection & Review)."

27(Kawai Purification Plant Renovation Project
Bid-ding Manual Attachment 5: ProjectContract Proposals)."
32 ibid.
33 ibid.

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

measures to address the 'heat island' effect, andother waterworks projects demand continuity

the limitation & reduction of greenhouse gas

and stability. If a problem occurs, it is the local

emissions"potential

residents and businesses of Yokohama — theenvironmentally conscious measures for thecustomers—who bear the greatest burden, not

Kawai project, it is unclear how these are

the city or its business partner; thus, in this case,measures or assessed, and ultimately, howculpability is irrelevant. Yokohama makes suremuch the service transfer fee should increase if

to minimize risk by ensuring a safety net notthey are met. Therefore, while Yokohama

only through general PFI risk allocation, but

requires advanced technology, high water

also through a third-party outsourcing system

quality, and strong project continuity andfor performance and cleanup activity issues atstability, it needs to specify bonus points thatthe time of bidding, and through direct contracts

reflect the provision of these services and the

between Yokohama and financial institutions.

34

are

cited

as

method of increasing the service transfer fee
calculated thereby.

（4）Conclusion
This paper outlines the background of theintroduction of the PFI approach in Japanese

3.Risk allocation
In a PFI project, the risks of the project (actswaterworks projects, using the Kawai Project asof God, etc.) are distributed between the local

a case study, and discusses the expected benefits

government commissioning the work and theand limitations based on the practical evidence.

business submitting the successful bid. For the

The key conclusions of this paper are as

Kawai project, as with other PFI projects infollows. First, compared with other waterwork

general, risks for the "soft" and "hard" tasks,

PFI projects or other PFI projects undertaken

involving facility development, O&M, andby Yokohama, the Kawai water project has not

general management, among others, arerealized commensurate VFM or cost reduction

distributed

theresults. Of course, the content for PFI

business partner. Risk is allocated to eachwaterworks projects varies from project toconstituent based on the concept of "clarification

project, and it would be misguided to conductof the hypothesized risk to the greatest extent

simplistic comparisons; however, all future

possible, followed by allocation of the relevant

bidders should recognize that excessive costrisk to the parties most capable of assuming it"35.

savings are expected.

Second, the project"The parties most capable of assuming it" aredemands

utilization

the parties in charge of executing the task.

technological and management expertise that

Therefore, risk is allocated based on the tasks

the business partner possesses in endeavors

undertaken by each constituent.

such as installing a membrane filtration system

betweenYokohama

andsufficient

of

the

However, the allocation of risk for each task isand keeping the old facility operational during

not precise, as water purification projects andthe switch to new equipment. Finally, although

34 ibid.

kansuru Kihon Houshin (Basic Policy on
Constructing Public Facilities by Utilizing
Public Funds)."

35

See Cabinet Office (2000), " Minkan Sikin

Nado no Katuyou niyoru Kou Kyou Sisetu nado
no Seibi nado ni kansuru Jigyou no Jisi ni

28

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

consider environmental awareness as part ofBetupu Siryou 1 Gyoumu Youkyu Suijyun
Syo ( The Kawai Purification Plant

the service content, an assessment that takes

Reconstruction Project Bid Manual Appendix

this into account, as well as a payment scheme

1: Expected Operation Standards)."

Yokohama expects its business partner toCity of Yokohama, (2019) " Hisei 21 Nendo karathat provides an incentive to partners to achievethese goals, is still required.

Heisei 30 Nendo madeno Keitou Betsu Genka
Keisan ni kansuru Siryou ( Cost Accounting

Acknowledgement:

Documentation by System, FY 2009-2018)."

Hashimoto, Y. & Murata, M. (2017). Kadai henoThis paper’s original version (Ooshinma,

Kanmin Renkei (PPP/PFI)

2021) won the Best Paper Award at the Nippon

Taiou ②

Urban Management and Local Government(Problem-Solving

Research Association(NUMLGRA) and wasPartnerships (PPP/PFI) ). Chikashita, Seiji

published

in

this

journal

with

:

2

:

Public-Private(ed.). Suidou Jigyou no Keikei Kaikaku

thewould like to thank the president of NUMLGRA,

Kouikika to Kanmin Renkei (PPP/PFI) no
Shinkoukei ( Waterworks Management

andReorganization: The Shape of Progress inrecommendation of the president. The author
two anonymous reviewers of Journal ofJapanese Management.

Expansion of Coverage and Public-Private

I would like to express our sincere gratitudePartnerships (PPP/PFI)). Diamond, pp. 112-

for the research assistance provided by the

129.

Japan Water Works Association. (2006) Suido

Kurita Water and Environment Foundation's

References

Jigyou niokeru Minkanteki Keiei Shyuhou no
Dounyu ni Kansuru Tyousa Kenkyu
Houkokusyo. (Investigative Research Report

Amano,T.(2017). Yubarishi niokeru Suido PFI

on the Introduc-tion of Privatization Methods

Environmental Science Promotion Foundation.

in Water Utilities)."

Jigyou (Waterworks PFI Projects in the Cityof Yubari). Waterworks Forum, 53(3) , pp. 23-

Kume, Y. (2014). Nihon Saidai Kibo no Maku
Roka Sishetu wo Dounyu sita Kawai

26.

Cabinet Office. (2001). "VFM(Value For Money)

Jyousuijou Sai Seibi Jigyou (Installingni kansuru Gaidorin (VFM (Value for Money)

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I would like to thank Editage(www.editage.com) for English language editing.
(Received: December 12, 2021)(Accepted: May 8, 2022)

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ISSN 2189-9592

Publisher: Japan Federation ofManagement related Academies (JFMRA)
May 2022