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Uber in China :

Driving in the Gray Zone

Deni Dian Ismawan 29116465


Dini Mardiani 29116467
Hartika Pratiwi 29116452
M Arief Rahman 29116412
Viona Angelica 29116417
Introduction
“For the China entrepreneur, competing is not for the faint of heart. . . . We at Uber pride ourselves
on being fierce and principled competitors—we plan to succeed by continuing to win the hearts
and minds of riders and drivers with a superior product experience.”
-Travis Kalanick, Letter to Investors, June 20-

Travis Kalanick had steered his company through five years of remarkable growth.
 Its valuation greatly surpassing that of Facebook in Facebook’s early years.

 In December 2015, Uber sought its single largest round of venture capital:
$2.1 billion. This funding would bring Uber’s market valuation up to $62.5
billion, more than five times the total annual revenue of the US taxi and
limousine industry in 2014.

 However, the future success of the firm depended in part on its ability to
continue to expand in developing markets. And no market was larger or
growing more quickly than that of China.
China had been the site of Uber’s fiercest battles. There are numerous challenges in
china for Uber :
 Fierce competition from domestic rivals
 Incompatibilities with local market
demands
 Rampant fraud
 Uphill regulatory struggles

Despite the obstacles, Kalanick remained personally dedicated to advancing Uber’s


position in China. A central part of the firm’s 2016 growth strategy was to expand into
more than 100 new Chinese cities.
China was too important for Uber to lose for Kalanick.

China is so different from the rest of the world. Kalanick knew that the battle for
Chinese markets would do much to determine the future shape of the company.

How could Uber successfully negotiate its legal position with both the central and local
governments? Would Uber, a company used to operating with the advantages of early market
entry and superior technology, be able to overcome competition from strong domestic rivals?
The founding and growth of Uber
Travis Kalanick and Garret Camp unsuccessfully hail a taxi into the city in Paris. They
2008 swore to solve problem & made a pact to create an app that would revolutionize on
demand transportation. Their idea was simple: tap a button, get a cab.

2010 Uber app was first launched in San Francisco. Though initially its services cost 50% more
than traditional taxis, it quickly gained popularity because of its ease of use

2011 Uber launched its platform in New York City. In December of that year it moved into Paris

Uber launched in London and around that time Uber unveiled its most ground-breaking
2012
and controversial product: “UberX.”

Uber app allowed customers to choose from a range of transportation options, including
2013 the original black cars, as well as ordinary private vehicles (UberX), SUVs, and even
traditional taxis.

2014 The company started UberRUSH which delivered bikes to customers in Manhattan. Uber
had 162,037 active drivers operating in 311 cities across the globe

Kalanick boasted of Uber’s 26,000 drivers in New York City, 22,000 in San Francisco,
2015 15,000 in London, and 10,000 in Paris. Uber launched a fundraising round that placed its
valuation at $62.5 billion
Uber’s Uniqueness & A Regulatory System Struggling to Keep Up :

Value Proposition  Public Safety


To mitigate personal safety concerns, Uber
Two innovative aspects to Uber’s business performed what it claimed were stringent
model : background checks on all driver partners
and vehicles.
 Uber’s platform introduced “flexible
 Labor Regulation
fares” to the market for public
Labor unions and legal experts contested
transportation. In each of its 374 cities
the company’s refusal to classify drivers as
of operation, Uber’s rates fluctuated
employees rather than independent
throughout the day according to
contractors. While many drivers enjoyed
observed changes in the local supply
the flexibility of the on-demand work
and demand for hired transportation.
model.
 It depended on replacing organized  Legal gray areas
and regulated transportation providers
with private, on-demand labor. Uber’s Governments difficult are how to classify
platform allowed individuals with the company and its stakeholders. Another
privately-owned vehicles to act as ad- gray area in classification was whether Uber
hoc taxi service providers drivers provided “hailed” or “pre-arranged”
rides, which were often governed by
different regulations.
Uber in China

China become a target market of uber for the their future. For this year there
are have a 2,62 million licensed taxi drivers in major China cities. China have
more than ten time 240.000 of licensed drivers taxi in the all of United States.
2015 By the end 2015 users of taxi aplication increased to around 45 million.
Moreover, by 2015, the number of smartphone users in the Mainland was
estimated to be over 900 million more than all the users in the U.S., Brazil,
and Indonesia, combined.

New York City have 13.437 licensed taxi, but in Shanghai have more than
2014 50.000 taxi and more than 90.000 driver does't have licensed.

2013 Total of taxi aplication users in mainland reached 18 million.


Slow and Steady Market
Development

Uber begin establish their company in Shanghai in the summertime. Uber was a niche service
 2013
provider, provider to foreign business and chinese elites.

Company launched “People’s Uber, in their advertised s a non-profit ridesharing project. In


promoting the product, Uber China explained that it would only be acting as a network
 2014 facilitator, providing its platform to the public free of charge. Uber China also offered
substantial subsidies to encourage drivers to join. The financial incentives proved extremely
effective.

Company offer Uber COMMUTE, a new product that allowed drivers to choose to offer rides
to passengers headed in similar directions as the drivers themselves at Chengdu location. this
 2015 product have a rapid growth also from Hangzhou more than 15.000 private vehicles join with
Uber.

Uber planned to enter 100 new Chinese cities in 2016, roughly one-fourth of the total
 2016 number of cities in which they operated around the globe.
Product Localization
In China uber provided exclusively on credit card payments for service, but this presented a
major obstacle for many potential Chinese users, because Uber’s online billing system
therefore limited its users to a minority of the urban elite.

Google Maps’ coverage of China extremely limited (and notoriously inaccurate), Chinese
users preferred the mapping technology of Baidu, Uber China entered into a strategic
 2014 partnership with Baidu on December 17, 2014. Uber implemented targeted, localized
marketing campaigns, In Hangzhou, visitors can be used UberBOAT, In Shanghai, Uber users
could book 30-minute helicopter rides to experience the metropolis from a bird’s-eye view.

Subsidies and Subversion


By providing substantial financial incentives, Uber successfully brought large numbers of urban
residents over to its platform. but, some individuals realized they could profit by exploiting loopholes
in the company’s software with used by drivers to fake trips.

Uber creating systems for identifying fraudulent orders and blocking drivers who were strongly
suspected of engaging in subsidy manipulation. But Driver continued to develop more sophisticated
methods of trip-faking, and shared information with each other about how to avoid Uber’s detection
system.
Competitive Sector
Two domestic giant competitors : Didi and Kuaidi.

Didi and Kuaidi enganged in massive war for market share in 2014.
Didi and Kuaidi differed from Uber in :
 Both firms provide networking services for certified taxi drivers. Only after build up
government and customer relationship, they begin to add zhuanche (private car) like
UberX in U.S.
 Both firms developed diversified service such as “chauffeur service”. Customer could hire
chauffeur to drive customer home in the customer’s own car.
 Whereas Uber’s customers could pay through customer’s linked
credit card; Didi and Kuaidi offered variety of payment such as :

 On Valentine’s day in 2015, Didi and Kuaidi merged and raised the concern of
industry monopoly.
 Within China, lines were drawn between Didi-Kuaidi also because of their
main investors in fierce competition with one another.

In 2015, Didi-Kuaidi invest in


Lyft (home-turf) business, Ola
(ride-sharing company), and
Grab Taxi.

With these moves, “Anti-Uber


Alliace” was born.
Regulatory Challenges
When Uber first launched, it skirted
issues of legality by working with car- Uber and Didi-Kuaidi is a new baby
and-driver rental companies to allow because many people are dissatisfied
users to book licensed chauffeurs from ordinary transportation.
through its UberBLACK product.

Uber and Didi-Kuaidi being


When it introduced People’s Uber, complained because promoted unfair
Uber crossed into a gray legal zone competition.

In January 2015, Beijing’s traffic law-enforcing vigilantes seeking to


enforcement unit director announced expose drivers operating private cars
that it was illegal for internet apps to for profit. They posed as Uber and
facilitate the hailing of unlicensed taxis Didi-Kuaidi customers, using the
mobile app to book rides, only to
alert the police and have the private
Uber still continued to operate its
drivers arrested for offering taxi
srvie while government strugled to
services without a license.
develop regulation
Regulatory Challenges (Cont’d)

In response, groups of Uber drivers in several Chinese cities blockaded major
streets, protesting of the seizure of private vehicles. Such a protest of entrapment in
Guangzhou in June 2015 brought traffic on a major road to a standstill for hours.

On April 30, 2015, Chinese authorities raided Uber’s Guangzhou office, seizing
equipment and smartphones.

A week later another raid was carried out on the offices of Uber Chengdu. Days
later, Didi-Kuaidi offices in Luoyang faced a similar raid

In response to these mounting tensions, municipal governments began to issue


clearer regulations regarding the status of iTNCs and the practice of private taxi
services.

Shanghai’s transportation department developed a certification for “Internet-based


taxi platforms.

The certificate officially sanctioned private drivers to work for an iTNC if they
passed a series of inspections and safety requirements.
Regulatory Challenges (Cont’d)

Two days after Shanghai announced its certification process, the Ministry of
Transportation issued a draft set of guidelines for reforming China’s taxi
industry.

In conjunction with the guidelines, the central government also released a
draft of a new law entitled, “The Operation, Service, and Management of
Internet-based Taxi Companies

Under the proposed laws iTNCs would be required to conduct:

 background checks on their drivers


 turn their personal information over to local governments.
 would have to sign labor contracts with drivers
 provide them with commercial insurance.
 Private drivers, in turn, would only be allowed to work for a single iTNC.
 “fix and clarify” their prices.
Good Steps Into The Future ?
For company's progress and facing its main competitor in China, Kalanick began a shell-
game strategy of founding new companies even as existing ones came under threat.

 Uber announced the establishment of a new company, Shanghai Wubo Information


Technology Co., Ltd., in the Shanghai Free Trade Zone.
 Shanghai Wubo Information Technology was registered as an independent company in
Shanghai in January 2015 with Uber (Hong Kong), Limited.
 Uber subsequently registered two more independent companies in Shanghai, Wubu
Information Technology Co., Ltd., and Wubu Software Technology Co., Ltd., both with
Uber China Head of Strategy Liu Zhen as legal representative.
 In June, the registered capital of Wubo was increased to almost $320 million.
 Uber also continued to seek out local partners who, like its early investor Baidu,
would help it gain the political support critical for its expansion.
 Uber China received an undisclosed amount of investment from Guangzhou
Automobile Group in exchange for promoting Guangzhou Autos to its drivers.
 Tourism, aviation, and shipping conglomerate HNA Group had also launched a
strategic partnership with Uber.
Question :
1. How long could Uber’s global operations
continue to absorb that scale of losses?

2. Would Uber’s attempts at localization and


its heavy subsidies for drivers and riders
be enough to win permanently the “hearts
and minds of riders and drivers”?

3. What could Kalanick do to ensure that


municipal and national law at least
continued to allow Uber to operate in the

????
gray zone, if not give it outright legal
standing?

4. At the end of the day, could an American


technology company succeed against an
agile, well-financed, well connected
Chinese competitor in the Chinese
market?
Answer :