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How Uber failed in China? I. Overview: -

Uber Technologies, Inc., commonly known as Uber, is an American technology company. Its services include ride-hailing, food delivery, package delivery, couriers & freight transportation. The company is based in San Francisco and has operations in over 900 metropolitan areas worldwide. It is one of the largest firms in the ride hailing industry.

Company: Uber CEO : Dara Khosrowshahi Year founded : 2009 Headquarter : San Francisco, California, USA Number of Employees (2020): 22,800+ Public or Private: Public Annual Revenue (Q4, 2020): $ 3.2 B Profit | Net income (Q4, 2020): $ -827M Slogan: “Move the way you want.” -

International business operations:  When uber was founded in 2009 the industry landscape was totally different literally none of his current competitors exist. Uber only had to compete against traditional taxis. So they were almost undefeated at this time and dominated over 7 countries in a span of 4 years.  Like most startups, Uber had to balance between fast-paced expansion and careful planning. That's why their international expansion tactic is called "country-by-country"  enter different countries/market one at a time, and not all at once  And after a series of successes in countries like Fracne, Canada and India, Uber set their next goal on China.

II. Uber in China: 1. Why Uber entered China? a. Uber’s goal for doing international business:

⁃ Uber’s longterm vision is to expand their global presence, increase worldwide market share, improve operations, and become the world's largest ride-hailing service.  Like most startups, Uber had to strike the right balance between meeting expectations for fast-paced expansion and carefully planning such a highrisk process. b. Global expansion plan Uber was launched in the San Francisco market in 2009, and 7 years later they are in 450+ markets all over the world. They planned to expand from North America to every populated continent – Europe, Asia, South America, Australia,… and among them China is one of the most profitable and promissing market. c. China’s ride sharing market potential: According to the China’s report, in October 2020, the total number of domestic online ride-hailing orders reached 624 million. The overall transaction volume of China's ride-hailing market in 2020 hit 249.91 billion and is estimated to grow up to 350 billion in 2025.  This is the ideal market growth that Uber aims to dominate d. Customer target of Uber in China - The target user demographic of Uber in China falls in the 16-34 age range, and 35% of riders are over the age of 35. - Uber intended to attract people in all income brackets, but mostly the Chinese middle class who live in busy and crowded urban areas. This consumer group is perfect for Uber since they respond positively to new technologies and are in need of services such as Uber to move around the cities of China. e. Why Uber entered China? ⁃ China is the place with the most favorable conditions for this industry to develop. Uber's willingness to burn through so much cash, in such a short time, is a testament to the size and potential of the market. China boasts the largest ride-hailing market in the world.

⁃ Uber has the possibility to received more bookings in China than in any other country, including its home market. This can potentially be a steady source of revenue for Uber in the long run. ⁃ Lastly, if Uber succeed in China, they can replicate this model and enter other Asian markets such as Korea and Japan, further expanding their global presence.

 Recognizing the potential for growth, Uber decided to enter the Chinese market in 2014. 2. PESTLE analysis 2.1. Politics  The Chinese government is a centralized government with absolute authorities on every industry, especially regarding the technology sector.  The government often favors protectionist policies, and is notorious for providing unfair subsidies to their domestic firms while enforcing strict regulations with foreign companies such as Uber.  In China, the ruling Communist Party represses freedom of speech and incriminate anyone or any companies who challenges their regime. 2.2. Economic  China is one of the leading countries with consistently high GDP rates. Uber can leverage this trend by introducing its product and services here.  This country houses a huge labor force as well as a healthy consumer market in which its citizens are mostly middle-class with considerable amount of disposable income.  The sharing economy has generated employment for people in large numbers. A large number of employment opportunities for drivers was created by this shared economy in the case of Taxi services  China’s technology sector is highly competitive with Kuaidi and Didi Chuxing being the 2 biggest competitors of Uber in China. Despite investing a huge amount of capital in China, Uber is still far behind Didi Kuaidi in terms of market share. 2.3. Social  Because of their developed railway systems, most people in China prefer to travel over long distances by train or bus. This means Uber may have to actively convince Chinese people to use their services instead of public transportations.  China’s population is rapidly aging so they may require less tech intensive products. Uber China will have to consider demographic trends before new product developments and integrate features that cater to this segment.

 Chinese consumers remain brand conscious but, unlike shoppers elsewhere, they focus on value so intensely that brand loyalty is often secondary. This is beneficial for Uber since they are relatively new in China. 2.4. Technology  The other prominent ride sharing app in China is Didi - Uber’s closest competitor, with a lot of financial and government support.  WeChat Pay and Alipay are two of the most popular mobile payment methods in China, but many foreign companies like Uber are still having difficulties integrating with.  China's Internet is heavily monitored and the government blocks international websites, only allowing approved websites to operate.  Hacking and cyber-crimes are prevalent in China and could pose a threat to Uber’s operation in this country. 2.5. Environment  China’s rapid economic development has impacted on its natural environment severely.  There is a growing trend towards the use of green/eco-friendly products in China. This can hinder Uber’s progress in this country since young people tend to use public transportation, ride bicycles or even walking to reduce pollution. 2.6. Legal  Intellectual property laws: Intellectual property rights in China is very poor and unregulated. The Inability to protect intellectual property rights can result in losing competitive advantage, which may weaken the positioning of Uber against other market players.  Laws about foreign companies: For a long time, companies like Uber who wants to do business in China have had to compromise on a lot of things if they want to pursue success:  Joint ventures with local companies.  "Win" the notoriously strict regulators who are holding great control over businesses that want to enter this lucrative market, and forces them to do what they want if they want to survive  Consumer protection laws The data protection has become an important issue due to consumers’ privacy and security concerns. Uber need to pay careful attention to data protection regulations to protect the customer data

3. Strategy that the firm followed? ⁃ Objectives:

 Achieve 10 million rides per day  Dominate the market  Avoid pitfalls, mistakes of western companies  Enter 100 cities annually ⁃ Value chain:  Primary activities:  Inbound logistics: But because Uber is a technology company that provides services to customers, they do not own the vehicles themselves. This means Uber inbound logistics is mainly hardwares like computer servers, data storage facilities and office equipments needed to sustain the business.  Operations: The Uber app is one of the main sources of value in Uber operations. The Uber app is highly sophisticated and customer-centric, equipped with advanced functions and capabilities that allows Uber to perform operations such as: connect customers with riders, request rides, perform payments, delivery, frieght, customer services...

 Outbound ligistics: Outbound logistics is associated with warehousing and distribution of products and therefore does not fully apply to service sector such as ride-hailing, although the Uber's role in facilitating the arrivcal of customer to their destinations can be considered outbound logistics.

 Marketing & sales: Uber mainly relies on social media marketing and word-of-mouth marketing to communicate its message to the target customer segment. Moreover, Uber uses print and media advertising, sales promotions, events and experiences and public relations as part of its marketing strategy.  Services: Riders rate their drivers on the scale of 1 to 5 after each trip. Drivers therefore have an incentive to maintain a clean car and provide good service. Each ride receipt includes a map and a GPS track to improve safety and maximize customer experience  Support activities: In addition, the 2 major supporting activities include Technology development and HR. Uber is solely based on technology so

they constantly have to develop software, update its interface and perform maintenance to avoid instances of hacking and data leaks,... Human resources is responsible for monitoring Uber trips and tracking Uber drivers to provide the best services and most secure rides possible to customers ⁃ Competitive advantage:  Network effects: Uber’s network effects helps the value of the platform for each user increases with the number of users on the platform  Brand: Its brand is synonymous with ride-hailing and being a pioneer in the industry, their reputation likely means that Uber would be first choice for riders and drivers.  Avoidance of regulation: Uber uses noncommercial cars, its drivers avoid costly commercial insurance, taxi medallions and other expenses that provide Uber service a cost advantage over traditional taxi services  Organizational culture: "We build globally, we live locally." -"We are customer obsessed." - "We celebrate differences."  Technological expertise: Uber thrive on finding ways to constantly improve and refine their technology to provide safe, reliable rides. And they continue to develop this technology to enable new services such as uberPOOL, self-driving cars,... ⁃ Pressure for Cost or Adaptation: China is an attractive investment opportunities for foreign investors but it is also a very demanding market with high pressure for cost reduction as well as pressure for local adaptation:  The locals typically support and prefer their own domestic products and brands  There are plenty of existing alternative services and competitors with low prices such as traditional taxis, ride-hailing companies such as Didi, Kuaidi,...  Uber's desire to conquer the Chinese ride-hailing market as quick as possible

 China's public transportation infrastructure is developing rapidly, incentivizing people to use this mode of transport instead of services like Uber  The Chinese government's strict requirements about its telecommunication networks, methods of payment and require foreign companies to share a 50-50 ownership with local investors ⁃ Strategy: Uber's most suitable strategy for the Chinese market is Transnational strategy due to the equally high pressures for both cost effectiveness and local adaptation.  Uber set up a separate Chinese entity, Uber China, to attract local investors as well as maintain financial support from its parent global Uber business, which held a large undisclosed stake in the subsidiary -> This was a calculated move by Uber to satisfy to the specific demands of Chinese consumers -> By creating a distinct Chinese company, Uber could also avoid some of the restrictions faced by foreign businesses  Uber China entered into a strategic partnership with Baidu(an economically powerful and politically connected company in China) in December 2014.  Uber China also installed servers in China itself, aside from its global networks, to bypass China’s notorious firewall  To provide cost benefits to customers, Uber had to compete on price by reducing ride fares, giving out free rides to new customers, handing bonuses to riders and drivers for using their services. Uber’s strategic mistakes: -

The Uber app initially utilised Google Maps to locate and match customers with drivers. However, Google Maps coverage in China was extremely limited and notoriously inaccurate, because China banned Google services

 This fustrates many customers and lead to slow growth

 This decision went against the Transnational strategy that Uber tried to implement. They should have used China's own mapping systems that is more accurate and responsive. -

In the begining, Uber launched with only US credit card support,so the vast majority of Chinese citizens, who use WeChat and AliPay, were unable to book rides.

 Once again, Uber didn't follow their own Transnational strategy, and was neglectful because they didnt realize what method of payment China prefered -

Uber regularly violated laws and regulations imposed by the government, causing not only government officials but also local citizens to turn their backs against the tech start up

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Another one of Uber's misstep was its reward policies. Because Uber wanted to attract drivers and customers, they rewarded too many and bonuses that caused them unsustainable financial losses

 Uber spent $40-50 million US dollars per week on free rides and bonuses in China, which is equivalent to $1 billion every year -

Lastly, Uber's "free-trip" for new customers programs also backfired. In China, hacking and fraud is widespread, so when Uber introduced this program, many 'scammers' took advantage of this and hacked the system to receive free rides

 Uber did not realized this issue soon enough and it caused them severe losses -

Organizational structure: Uber uses a transnational strategy, so the company chooses a global matrix structure. The senior management positions are given to two parallel managers:  Product manager  Head of China branch

In this structure, each lower manager must notify these two managers. This helps Uber to improve information internally, increasing coordination between departments.

The global matrix structure helps the company improve self-responsibility, reduce production costs and coordinate activities around the world. However, this structure has 2 main disadvantages: - Firstly, the matrix structure is cumbersome, the need for complex coordination makes decision-making time-consuming, and Uber cannot react quickly to market changes - Secondly, individual accountability can become ambiguous when responsibility is shared among members. 4. Entry mode: 4.1. Entry Strategy and Process - Prior to entering the China market in 2013, Uber formulated a unique strategy. They will set up a separate Chinese entity, “Uber China”, and entered into a joint venture with Baidu - an economically powerful and politically connected company as well as maintain financial support from its parent global Uber business. - At the time of its inception into China, China's ride-hailing industry was locked in intense competition between two local powerhouses, Didi Dache and Kuaidi Dache. - Both Didi and Kuaidi were also in joint-venture partnerships with their parent companies, Tencent and Alibaba respectively, both of which are conglomerate giants. This meant Didi and Kuaidi were busy fighting each other for market dominance.  This initially allowed Uber to sneak in under their competitive radar, and increase its market share from 1% to 35% over a period of 8 months. 4.2. Joint venture between Uber China and Baidu: 4.2.1. About Baidu in general:

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Baidu is the dominant internet search engine company in China. It is similar to Google, but its focus is on China, where it controls most of the search market.

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Baidu has a range of consumer features including maps, news, video, an encyclopedia, anti-virus software,…

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It has grown into a Chinese multinational technology company that specializes in internet-related services, products, and artificial intelligence (AI).

 These are areas of expertise that can benefit Uber China’s operation 4.2.2. Cooperation between Uber China and Baidu: -

Uber CEO Travis Kalanick signed agreements with Baidu Inc Chairman and CEO Robin Li on the Baidu and Uber strategic cooperation at Baidu's headquarters in Beijing Dec 17, 2014.

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The Beijing-based Baidu signed an agreement to buy a stake in Uber, which has a valuation of $40 billion. The two firms agreed that each will hold a 50 percent ownership stake and contributes a team of managers to share operating control

4.2.3. Advantages and disadvantages of Uber China and Baidu when establising as a joint venture: 4.2.3.1. Advantages:  It beneficial for Baidu’s ambitions of further expansion beyond China’s borders, and gives Uber an immediate entry point to the transportation app market in China.  Partnering with Baidu also means Uber can integrate the on-demand car service into the Mobile Baidu and Baidu Maps apps. That gives Uber an audience of about half a billion. Baidu Maps has 240 million monthly active users, while the Mobile Baidu app has over 500 million monthly active users.

 Joint venture between Uber China and Baidu gets a powerful and knowledgable local partner to help further its expansion into China, and access valuable data from Baidu’s other services (like user location data) that might give it a competitive advantage on local competitors.  In addition to helping it compete with local competitors, a partnership with one of China’s largest Internet companies may also help Uber deal with regulatory hurdles. For example, Beijing and Shanghai have both issued rulings that allow taxi drivers to use only one taxi-calling app on their smartphones at a time. Baidu has a good relationship with China’s government, as must any Chinese internet company that wants to remain in business. By aligning itself with a China-savvy giant like Baidu, Uber might find it easier to deal with government regulatory agencies. Disadvantages:  On the other hand, baidu's investment comes at a time where Uber is looking like a riskier play than ever, especially in Asia.  Uber already has a presence in mainland China, but it's still quite small, with operations in only nine major cities. In contrast, Kuaidi is already present in more than 350 cities, and competitor Didi has received an additional $ 700 million in funding for expansion before Baidu invests in Uber.  The global image of Uber is taking a down turn. In the wake of a scandal incident, numerous Indian cities have banned it, as well as the nation of Thailand. The app has also been banned in Spain, and it is being sued by two US cities for misleading customers about its safety practices.  When Didi Dache and Kuaidi Dache merged to become Didi Kuaidi, combined they boasted more than one million drivers in 360 cities in China, whereas Uber only had about 100,000 drivers in 20 cities.

 In partnership with Baidu, Uber still faces many difficulties in China. The Baidu investment could help smooth the process, but Kuaidi and Didi already have a long relationship with regulators, and Uber's outsider status is unlikely to change.

III. FAILURE AND LESSON 1. FAILURE: Once a dominant force in the Transportation industry, Uber has lost its competitiveness in Asia, especially after quitting China in 2016, Russia in 2017, and Southeast Asia in 2018.  This global phenomenon is predominantly due to its poor leadership and company culture. Contextually in China, Uber's dismal performance was the result of multiple agencies: over-confidence, poor understandi...