BSP: CASE STUDY- 5

Uber in China: Driving in

the Gray Zone
SUBMITTED TO
Dr. Neetu Yadav
Assistant Professor
SUBMITTED BY: GROUP 6

ARAVIND. R 2019H1490822P
MEGHA GANDHI 2019H1490834P
NANDIGAM SANDEEP KUMAR 2019H1490854P
RADHIKA GUPTA 2019H1490844P
TATHAGATA. B 2019H1490833P

Department of Management

BITS Pilani, Pilani Campus

 Executive Summary
Uber born out of the frustration of Travis Kalanick and his friend Garret Camp, to get a cab in
Paris in the year 2008. Uber mobile application (App) when launched in 2010, gained a lot of
popularity due to ease of use to book cabs, this lead to $1.25 million funding in 2010. From
there the company grew to reach a value of $1 billion. Uber by 2015 had a global presence
offering services like UberX, UberBlack and Taxi Cab in Boston, Auto Rickshaw in India,
UberMoto in Bangkok, UberPeople, UberXL, UberX and TaxiCab in Beijing and other related
services.

Unique to Uber, the concept of “Flexible Fares”, a computer controlled flexible pricing
strategy based on demand of users to availability of drivers, decides the price of the cab. The
drivers of Uber were called “driver-partners” and were considered as part-time or contractual
labour. Moreover Uber positioned itself legally as an Internet Company working to solve
people’s transportation problem. Even though this type of business model was unique at that
time, the government around the world started to catch up. As a result, Uber got involved in lot
of legal battle against government all around the world on the grounds of Labour regulation
and Public safety, ultimately leading to the formation of regulations for Internet Transportation
Network Companies (iTNC).

In 2015, Uber launched in China, starting as a niche service-provider and then through
several rounds of promotion and advertisement campaigns, Uber entered into full action under
the name of Uber Peoplev(non-profit) and UberCOMMUTE. Along the way Uber had to face
a lot of technical difficulties owing to difference in Internet regulation in China and preferences
of its customers.

In the Chinese Market, apart from Uber there were Didi and Kuaidi, the three
companies were caught in a price war, to highly incentivising the customer and riders to attract
them to the platform. Moreover the Didi and Kuaidi merged in the early 2015, and tried to
monopolise the market both using direct and indirect approaches. All this led to a growth in
illicit economy of drivers, thus, attracting a lot of scrutinise from the government, since Didi
and Kuaidi were well-connected so they were left off the hook. In the light of recent events the
Chinese government imposed new certification and regulations for iTNC companies, which
was not in favourable to Uber’s standard operating methods.
Introduction
The aim of this case report is to evaluate the following questions,

1) What challenges does Uber face globally?

2) What challenges does Uber face in China, specifically?
3) Do you agree with Travis Kalvanick’s strategy for Uber, both globally and in China?

Case Analysis
What challenges does Uber face globally?
Although, Uber expanded themselves globally, Yet national and local governments found it
difficult to adapt legal frameworks to regulate this new form of business iTNC. Ride sharing
services led to formulation of new consumer safety and worker protection law. Within few
years Uber faced legal challenges across the globe. Some of the key challenges include
 Public Safety-Integrating fleet of untrained workforce into urban transportation
system was one of the great concerns for the government. To mitigate this issue Uber
preformed stringent background checks on all driver partners and their vehicles.
However, there were still a number of high profile cases about the individuals with
serious crime offence passed these checks and some of them further committed the
crime. Some of the known cases include 2014-15 Boston assault case. During same
period Uber was banned in India due to an accuse driver raping a passenger.
 Labor Regulation- Uber considered its cab drivers as independent contractors rather
than its employees. While many drivers enjoyed the flexibility of on-demand work
model, their transitory status deprived them with many of the benefits and protection
provided to the workers. This created the differences between Uber and various labor
unions. In August 2013 a labor lawyer Shannon Liss-Riordan from Massachusetts,
filed a lawsuit claiming it unfair for Uber to consider its drivers as independent
contractors while controlling many aspects of their work, Real time monitoring and
maintaining managerial power to fire them.

What challenges does Uber face in China, specifically?

Uber identified China as one of major battleground of its future. China represented one of
the largest untapped opportunities for Uber. In summers 2013 Uber launched its first office
in Shanghai. However despite of its early entry it took more than 5 years to establish them
in the market. Some of the critical challenges that Uber faced in Chain are mentioned below.
 Slow Market Development –It took more than half a year for the local team to start
its operations in china post launch. Until Feb 2014 the team was running few small
scale pilot projects. When Uber rolled out its first marketing campaign in china it
restricted its business to black car rentals operated in partnership with 3 rd party care
rental companies. With fare significantly higher than traditional taxies, Uber became
a niche service provider to only Foreign business and Chinese elite.
 Product Localization – Although the demand for convenient transportation was high
in china, some of the features of the platform were not convenient for the local
users. For the first time in 4 yrs Uber had to make changes to its core product for its
new market. Once such obstacle was payment mode wherein Uber use to directly
debit the payout from credit/debit card. The people of china does not prefer to
make payments through cards. Also, feeding the critical card info while downloading
the app was one of the chief concerns. Thus Uber’s online billing system limited its
users to a minority of elite class. Use of Google maps to locate cab and customer was
another sited challenge. Google map has a very limited coverage in china and is
considered as 6th most popular mapping application in China.To counter this issue in
December 2014 Uber partnered with Baidu a chienese local player which has similar
product to Google maps for its china services. In order to keep its operations from
further delays,Uber china installed its Server on Chinese soil.
 Subsidies and Subversion -In order to encourage more number of cab drivers and
customers Uber incorporated subsidies and various promotional programs.
However, some user identified the loop holes in the app and started a new fraud,
Fake tripping. Though the method used by drivers to fake trips evolved in steps with
changes to the structure of subsidies or upgrades. It took time for Uber software
team to understand and tackle this issue. Uber tackled this by creating systems for
identifying the fraudulent orders and blocking drivers who were strongly suspected
of engaging in subsidy manipulation. According to one investor,30-40% of all billed
rides for Uber China were actually fake rides.
 Competition- Uber relied mostly on Subsidy for the business to grow primarily due
to competition from its competitors. When Uber entered china it was already
dominated by local ride hailing companies such as Didi, Kuaidi and Didi-Kuaidi. Uber
competitions were doing the business in a different ways First both the Chinese
company amassed their user base by providing their networking service for certified
taxi drivers. Second Didi and Kuaidi more diversified services than Uber. While Uber
continued to gain market share it also faced increasing savvy attempts by its
competitions to weaken it in China and globally. In china lines were not only drawn
between these competitors but with their respective investors too since their
investors were also the part of this competition.
 Regulation- The national regulation was an impending disaster for Uber. In retrospect,
perhaps the company could have remained in charge and made money had it kept to
its initial “niche” market for wealthy Chinese people and expats. But by going for the
 mass market to reach higher valuation and to fuel its larger platform strategy, Uber
brought on extra challenges. Central government regulations were almost inevitable.

Do you agree with Travis Kalvanick’s strategy for Uber, both globally
and in China?

Yes, I agree with Travis Kalvanick’s strategy for Uber, both global and China operations. His
strategy was to compete for market share in which ever country he ventured and as the business
expands, milk out the profits in the long-run.
At different stages in a company’s life, there are different priorities about market share and
profits. At the foundation of business, building some sort of market share is far more important
than gaining short term profits. If one sees for profits in the initial stages of business, he/she
will be cost cutting and won’t be able to expand the business. Anyone who is starting a new
venture will always look to capture the market first and then expect for profits in the long-term.
The conditions that Uber faced in China and other parts of the globe are totally different. In
other parts of the globe Uber didn’t find much competition and there were no regulation and
Uber always managed to work in the grey area because the governments struggled to adapt the
legal frameworks to regulate this new kind of economic activity.
Kalanick saw the opportunity in China to expand the business as the market was very huge
nearly tenfold larger than US counterparts. But in China there were already two competitors
battling for the market share, giving subsidies and offers to drivers and customers respectively.
Although Uber had the capacity to fight those competitors with their huge capital base and
unregulated market but protests from local taxi drivers, price regulations later have crippled
Uber.
In the end, it wasn’t competition that spelled Uber’s demise in China; it was impending national
regulation.

Conclusions:
1) Competing for market share by providing huge subsidies is not always a good strategy.
2) China's internet domain market is huge but as well as the risk.
3) The government regulations and policies should be a part of a strategy.
4) Localisation and people's culture are important factors for a firm’s success in China.