BUSINESSSTRUCTURE&PROCESS

Case Study Report on

UBER IN CHINA: Driving in the Grey Zone

Submitted To: Submitted By: Group 9

Dr. Neetu Yadav Prachi 2019H1490825P
Sreelakshmi Mohan 2019H1490862P

Garvit Jain 2019H1490814P

Yashwanth Chinta 2019H1490849P
Shivam Mishra 2019H1490841P
 EXECUTIVE SUMMARY
This case deals with the challenges faced by the Internet network transportation giant UBER
globally and more specifically when they aggressively tried to expand their business in China.
UBER was conceived by Travis Kalanick and his friend Garret Camp as early as 2008 when they
were stranded in snow outside Paris looking for a cab. Kalanick and Camp were both experienced
entrepreneurs with successful startups and they used their payout money to start UBERCABS
which later became UBER. The UBER application was first launched in 2010 in San Francisco,
and quickly gained popularity due to its ease of use. The idea was very simple the app would
connect ride-seeking customers with drivers and the nearest driver would come and pick up the
customer, prior to which the drivers would receive the customer’s location and contact information.
When the drop is reached a fare would be generated automatically through a pricing algorithm and
the customer would be charged from their linked credit cards. In a rapidly changing and fast paced
market UBER quickly captured markets due to its ease of use. UBER received multiple
investments and within a few years became a giant and became the most valued start-up in the
world surpassing China’s XIAOMI. By 2015 UBER had a huge business empire across 374 cities
in 68 countries.

But to have future success the company needed to grow and expand. This is where their final
challenge lay-China. The Chinese market was expanding and growing at a vigorous pace and
China’s 800 million urban person populations was the highest transportation market in the world.
UBER could not afford to lose China and therefore Kalanick wanted to expand in China
aggressively. But in China they faced a multitude of challenges which included fierce competition
from domestic rivals, incompatibility with local market demands, rampant fraud and uphill
regulatory struggles. But despite Kalanick’s repeated efforts UBER only had a market share of 11-
30% in China. But still the fight was not over. The Chinese market was divided between two
market leaders DIDI (backed by TENCENT) and KUAIDI (backed by ALIBABA), and they were
in a bitter war to capture the market but when they merged together to become DIDI-KUAIDI it
bore bigger problems for UBER. UBER succeeded in other countries because of the global demand
for its product and the ease with which its service can be provided in different locations with
minimal changes. But the Chinese market was very different and the average Chinese consumer
was different from the average American consumer so they needed to twerp and tailor their service
accordingly to the needs of the Chinese consumer. So UBER changed its mapping system from
GOOGLE MAPS to the more detailed efficient BAIDU MAPS and got the backing from BAIDU,
one of China’s largest internet companies and a rival to both ALIBABA and TENCENT.UBER
started adapting to the Chinese market changed their product to meet the requirements of the
average Chinese consumer and expanded within China to different cities but there were further
challenges it faced now both globally and within China.

In order to succeed in China UBER was paying a huge amount of money to the drivers and taking a
large pay cut in order to attract more customers. UBER was also generating good publicity by
coming up with novel ideas of advertising. But unlike other countries, China was a much harder nut
to crack. UBER entered China much late when the market was already being dictated by two giants
namely DIDI and KUAIDI. UBER was losing around 1billlion dollars annually to get market share
in China. So the question which plagued Kalanick was whether he could succeed against a well-
financed, politically well-connected and agile Chinese competitor in the Chinese market. In this
report, we have tried to analyze the various challenges faced by UBER both globally and
specifically in China and whether all his strategies are in the right direction or not.
 INTRODUCTION

When Uber came to China’s market it soon understood after few failures that they will have to
make changes in their core service. At first customers had to validate their credit card information
this presented a major obstacle for many potential Chinese users. Uber China recognized this
demerit in its business approach and, after a formal launch Uber added the option of payment
through Alipay.
Later, Uber continued to use Google Maps to locate and match customers with drivers but coverage
of google maps in China was extremely limited and notably inaccurate. So, Uber China entered into
a strategic partnership with Baidu in December 2014. Baidu, an economically powerful and
politically connected company, was now in Uber’s inner circle of investors.
Although, even after making its core product and services more attractive to Chinese customers,
Uber had to spend hugely to attract drivers and riders. New users were attracted to the platform by
large discounts on their first trip, often equivalent to the full cost of the ride. Similarly, drivers were
encouraged to join the service. Despite intense competition from two Chinese taxi-hailing services
i.e., Didi and Kuaidi, Uber was succeeding because it could drive in a grey zone of Chinese
markets. After all, Uber’s aggressive push into China was made possible by the fact that the space
was largely unregulated. Many successful private companies in China have realized they can
succeed in areas where the government is not yet present or where it has not yet set regulations.
Basically, you can succeed in any form of business that is not yet illegal. Ride sharing was one such
business.
The losses Uber was taking to win market share were unsustainable. But the same goes for its
erstwhile chief rival. But neither company could afford the high level of subsidies (nor resulting
costs from driver corruption) needed to win new drivers and riders and new markets.
In the end, it wasn’t competition that spelled Uber’s demise in China; it was impending national
regulations.
 ANALYSIS

Here in this case we are using the SWOT analysis to analyses the position of UBER in China. Uber
China can use strengths to create niche positioning in the market, can strive to reduce & remove
weaknesses so that it can better compete with competitors, look out to leverage opportunities
provided by industry structure, regulations and other development in external environment, and
finally make provisions and develop strategies to mitigate threats that can undermine the business
model of Uber China.
 QUESTIONS

1. What challenges do UBER face globally?

ANS. Challenges faced by UBER, globally:
 UBER faces legal challenges around the world on issues like:
 UBER‟s drivers were untrained and cars were uninspected.
 Some individuals with serious criminal records, who committed further
criminal deeds and acted as UBER drivers lead to many legal problem and also
leads to ban of UBER in some places. For example, UBER driver in Boston
were implicated in several instances of assault and also UBER was banned
from operations in New Delhi because driver’s criminal activity.
 In Dec 2014, UBER faced legal challenges to licensing and pricing in Spain
and Thailand and UBERPOP (like UBERX) was banned in Spain, Germany,
Italy, and France.
 From Oct 2012 to Oct 2015, it faced over 170 lawsuits in United States alone.
 DIDI-KUAIDI attempted to weaken UBER globally and in China, it wasn’t only because
they were in competition but also because their main investors TENCENT (for DIDI),
ALIBABA (for KUAIDI) and BAIDU (for UBER China) were hard competitors.
 DIDI-KUAIDI invested in LYFT, which is UBER biggest competitor on its home ground.
 In Dec 2015, DIDI-KUAIDI and LYFT included OLA and GRABTAXI, which begins
“Anti-UBER Alliance”.

2. What challenges do UBER face in China, specially?

Ans. UBER faced many challenges in China, which were different from what it faced in other
countries:
 UBER faced fierce competition from domestic rivals, incompatibilities with local market
demands, widespread fraud, and uphill regulatory struggles.
 UBER strategy to use the company’s capital to capture market shares gave unintended
outcome like the huge illicit economy of drivers faking trips for personal gain.
 Professional fake customers( called “nurses” in online forums) were there in the
market to exploit incentives from the company, without actually making trip or
fake orders when they were either unable to get an order or when they wanted to
go to a specific place(like home) and still receive a fare.
 According to one investor, some 30% to 40% of all billed rides from UBER China
were actually fake.
 DIDI and KUAIDI provided more diversified services than UBER. Like ZHUANCHE
products, “chauffer services”. Both use BAIDU maps and accept payment through a variety
of options, such as ALIPAY, WECHAT payments and even cash.
 In 2015, TENCENT blocked UBER related WECHAT accounts, which lead to the cut off
the major customer support tool.
 iTNCs would not allow to artificially lowering their prices in order to undercut their rivals,
which leads to limit UBER ability to utilize its enormous capital base to capture market
shares.
 In Oct 2015, DIDI-KUAIDI obtained Shanghai’s first, certificate‟ for an internet-based
transportation company in China, which signaled the local government favoring domestic
technology firms.
3. Do you agree with Travis Kalvanick’s strategy for UBER, both globally
and in China?
Ans. I agree with Travis Kalvanick’s Global Strategies:
 He experimented both in market-specific and global product offerings. Like he came with
UBERAUTO in India, UBERMOTO in Bangkok, UBERRUSH in Manhattan, UBEREATS
pilot product in Los Angeles, Barcelona, Chicago and New York.
 He came with two innovative aspects to UBER‟s business strategy:
 Flexible fares: UBER rate fluctuated whole day according to observed changes in
local supply and demand for hired transportation.
 On-demand labor: UBER platform allowed individuals with privately-owned vehicles
to act as ad-hoc taxi services providers.
 Giving a relatively higher rate of return. Like UBER drivers earned 80% of the total fares they
fulfilled and the other 20% went to UBER.
 When faced with legal challenges for public safety, UBER performed background checks on
all driver- partners and vehicles.

I agree with Travis Kalvanick’s China strategies:

 Aggressive expansion in China dedicated to advancing UBER‟s position in China

 Till 2014, He focused first only on elite class and foreign business with
black car rentals with
third party car rental companies. Then in Aug 2014 came with People’s UBER (like UBERX )
but it was a non-profit ride-sharing project. This was done to brand recognition and attract a
critical mass.
 He realized what UBER platform’s features where convenient for Americans was less
convenient in China, So he changed core-product like adding ALIPAY and used BAIDU(
instead of Google Map), which also helped to get politically connected and economically
powerful in the inner circle of investors.
 He implemented targeted and localized marketing campaigns. Some are like UBERBOAT to
visit scenic destinations across the famous West Lake, 30-minutes helicopter rides, etc. these
didn’t offer significant revenue but helped build UBER‟s image in China.
 To cope up with professional fake customers, they created a system to identify fraudulent
orders and blocking drivers who were strongly suspected of engaging in subsidy manipulation.
 He began shell-game strategy of funding new company ( Shanghai Wubo Information
Technology Co., Ltd in the Shanghai Free Trade Zone) even as existing came under threat.
 RECOMMENDATIONS

Following are the recommendations that we as a group would give for the given case scenario after
its analysis:
 Uber can reach to common consensus with other competitors and merge themselves with other
flourishing competitors and earn profit instead of going in loss.
 Uber recognized lately the pitfalls of their core product and services in the Chinese market if
an initial research team would have been formed of local employees than an initial success
would have led to the good reputation of the company and Uber could have made better stage
for them.
 Developments in Artificial Intelligence – Uber China can use developments in artificial
intelligence to better predict consumer demand, cater to niche segments, and make better
recommendation engines.
 E-Commerce and Social Media Oriented Business Models – E-commerce business model can
help Uber China to tie up with local suppliers and logistics provider in international market.
Social media growth can help Uber China to reduce the cost of entering new market and
reaching to customers at a significantly lower marketing budget.
 Customers are moving toward mobile first environment which can hamper the growth as Uber
China still hasn’t got a comprehensive mobile strategy. It should work on that. Age and life-
cycle segmentation of Uber China shows that the company still hasn’t able to penetrate the
millennial market.
 CONCLUSION
Through this case we learned how Travis Kalanick dealt with the issue of Uber’s survival in China.
Despite of having massive funding’s, Uber faced heavy competition from its domestic Competitor,
Didi-Kuaidi as it was politically well connected. This shows that other than financial backing, a
company’s survival also depends upon local connections. Uber throughout its history had been
operating in the gray zone. In China, he started a ‘shell game strategy’ by opening new companies
in Shanghai Trade Zone to establish strong corporate presence. In addition to building the corporate
presence, Kalanick also focused on creating local presence of Uber in the Chinese market in order
to gain political support. This shows that both corporate presence and local presence are essential
elements for a business to thrive in a new market.