Uber in China: Driving in the Gray Zone

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Table of Contents

Introduction
Internal Analysis: SWOT
External Analysis: PESTEL
Business and Corporate Level Strategies
Global perspective and position
Alternatives & Recommended Course of Action
Conclusion
References

Introduction

Since its introduction in 2009, Uber has become one of the most popular internet-based businesses around the world. It has improved the transport businesses around the globe combined with an increase in market share. However, this is not the case in China which has hundreds of millions of commuters. Uber has incurred substantial losses of up to one billion dollars every year (Kirby et al., 2016). It is struggling to replicate its success story in the U.S. As evidenced in the case study, the inception of the company revolved around unique value propositions. A smartphone application was introduced to help connect ride-seeking users to drivers with fares being determined using a pricing algorithm. Unlike in the U.S and UK where it registered immense success, the company failed in China due to the adoption of strategies that failed to take into consideration the Chinese Market characteristics. It therefore follows that Uber’s strategy did not work in China because it failed to address issues of product localization, competition, fraud, and legal implications.

Internal Analysis: SWOT

Strengths

Firstly, the company’s diverse product portfolio has enabled it to expand into different segments in the domestic market. This has guided Uber China in developing diverse revenue sources. Secondly, unlike its close competitors, Uber is widely known for charging a premium. As explicated by Kirby et al. (2016), this has ensured the company acquires the needed resources to eschew competitive pressure and invest in research. Lastly, Uber China’s track record can be seen through the successful launch of new products in the domestic market as well as aligning to the needs of local consumers.

Weaknesses

The two main weaknesses of Uber China relate to the type of business model and lack of diversity in its workforce. Regarding the former, the business model is easy to replicate despite the number of copyrights the company has. According to Kirby et al (2016), it is more difficult to try and implement Intellectual property rights in the market that Uber China operates (Liu and Kim, 2022). On the latter, it can be argued that Uber China has yet to achieve some level of workforce diversity because most of its growth is limited in its domestic market.

Opportunities

The two main opportunities for Uber China relate to globalization and advancements in Artificial intelligence (AI). For instance, Globalization has played an important role in creating more opportunities in the international market. In fact, Kirby et al. (2016) argued that the international market will help the company diversify risk by being less dependent on the domestic market. Similarly, Uber China can utilize these advancements in AI to come up with accurate predictions on consumer demand and, at the same time, develop better recommendation engines.

Threats

The greatest threat to Uber China lies in its fierce competitor, Didi-Kuaidi who is looking for ways to weaken not only in China but globally. Another threat is the company’s new environment does not allow quick adjustments in prices to reflect the ever-changing economic conditions (Liu and Kim, 2022). As evidenced in the case study, this makes it difficult for the company to increase prices based on its premium process.

External Analysis: PESTEL

Political Factors

The first factor relates to the involvement of non-governmental organizations and protest groups. China has one of the most vibrant civil society communities, and as such, Uber China must look for key areas to foster cooperation. For instance, civil society has much influence in policy making. Another critical factor for consideration is regulatory practices which are aligned with global norms to ensure the country adopts new ways of doing business. Lastly, democratic institutions, as evidenced in the case study, need to be strengthened to allow businesses such as Uber China to thrive in a stable and transparent environment.

Economic Factors

The first factor is inequality in ranking on the Gini Index which is a critical indicator for harmony and development in the society. This means that a huge gap in income inequality translates to a surge in crime and conflict. This, in the end, creates a high level of uncertainty and consumer suppression both in the short and long term. Another critical factor is the level of household income and savings (Liu and Kim, 2022). This was a major problem in the U.S. – stagnant income contributed largely to credit binge consumption. In fact, the majority of them had abandoned the culture of saving because of an increase in consumption.

Social Factors

The first factor that is critical to Uber China is societal norms and Hierarchy. It is imperative to note that the type of hierarchy and norms that exist in a given society have a major impact on the consumption of different services. For instance, the power of decision-making, specifically in a highly hierarchical society, is top-down. Secondly, the level of social concern also plays an important role in the decision-making process. More specifically societies that are dominant with high levels of social concerns often lead to increased consumer activism from pressure groups and non-governmental organizations.

Technological Factors

Uber China is better positioned when it comes to utilizing technological advancements such as digital drives. For instance, it can opt to digitalize most of its processes to prevent corruption in the local economy. Secondly, before the company makes a decision to tap into a new market, the focus should be on understanding the country’s intellectual property rights. Finally, the issue of mobile payments is one of the areas that require scrutiny in an effort to maintain simplicity in transactions (Liu and Kim, 2022). Therefore, Uber China should first determine the most preferred payments in the local market and then come up with a model that reflects these needs.

Environmental Factors

Firstly Uber China should strive to understand the specific recycling policies and then come up with a plan of complying with them. Secondly, the company must address some of the issues related to corporate social responsibility (CSR). For instance, Uber China must determine whether it can replicate its CSR efforts or adopt new initiatives as per the dynamics of the prospective market. Lastly, the company must consider how climate change will disrupt its business model as well as its supply chain. For instance, it needs to figure out what ought to be done in the event shipments are delayed due to climate change.

Legal Factors

The two most important legal factors to be considered are employment laws and intellectual property rights protection. The former requires Uber China to focus its attention on understanding the specific employment laws present in the country and whether they align with its business model. As noted by Liu and Kim, 2022), the company’s employment system is not consistent with French laws. On the former, the country should try and assess the available level of protection as per the country’s legal system.

Business and Corporate Level Strategies

The corporate-level strategies should strive to provide solutions to the issues the company is facing on a strategic level. For instance, the company should introduce a product that is tailored to the Chinese people’s way of operation such as the use of both credit cards and Alipay. This strategy aims at resolving the issue of product localization. On the other hand, the business-level strategy revolves around the need for differentiation in order to gain a competitive advantage. This strategy will help the company eschew competition from Didi, Kuaidi, and Didi-Kuaidi.

Global perspective and position

From a global perspective, Travis Kalanick’s strategy was mostly successful in other countries such as the UK and the U.S. Travis managed to propel the company to greater heights for five consecutive years after its inception in 2009. The company registered significant growth and its valuation surpassed that of Facebook (Liu and Kim, 2022).

Despite the challenges in China, the company continues to maintain its dominance in the market with an outreach stretching across 374 cities and 68 countries (Kirby et al., 2016). In essence, its position in the market remains intact regardless of the challenges witnessed with Uber China.

Alternatives & Recommended Course of Action

There are several alternative courses of action for Uber China. First, the company should focus on creating a new user base by providing networking services to taxi drivers. Second, it should consider cooperating with other taxi industries and local governments in order to avoid regulatory challenges. Lastly, the company should eliminate subsidies and come up with a different strategy to attract drivers and customers – this will reduce fraud. However, the recommended course of action is that the company should incorporate the needs of the supplier side (drivers) into its service processes such as matching functions and payment methods.

Conclusion

Uber has become one of the most popular internet-based businesses around the globe. It has contributed a lot to the overall improvement of transportation around the world. Despite its successful story, the company encountered a lot of challenges in its attempt to penetrate China market. Some of the issues contributing to this failure as highlighted in SWOT and PESTEL analysis revolve around competition from Didi, legal implications, product localization, and fraud.

References

Kirby, W. C., Eby, J. W., Frost, S. L., & Frost, A. K. (2016). Uber in China: Driving in the gray zone. Harvard Business Review.

Liu, Y., & Kim, D. (2022). Why Did Uber China Fail? Lessons from Business Model Analysis. Journal of Open Innovation: Technology, Market, and Complexity, 8(2), 90. Web.

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