Use the nine strategic windows to analyse Ubers strategic decisions on Shanghai, China Market
Initial Launch and Motivation In 2013, Uber had raised a total of $50 million in capital and had operations in 10 countries - and China loomed as a large and growing untapped market. 121 That year, Kalanick returned from a visit to the country intent on establishing Uber in China's cities as soon as possible. 122 In 2014, Uber officially launched local operations in Shanghai, claiming at the time that taxi demand in the city was growing faster than in New York, San Francisco, and Singapore. 123 Ridesharing was mostly unregulated in Shanghai, where traditional taxi licenses cost more than $80,000 and new licenses had not been issued since the early 1990s. 124 Prior to Uber's arrival, two native firms, Didi Dache (Didi) and Kuaidi Dache (Kuaidi), had established themselves as the dominant operators in the fragmented taxi market by offering an app-based means of hailing and paying for taxis, as did a number of traditional taxi operators. As of 2012, Didi was reported to have 80% market share among ride-hailing apps in China. 125 Uber's entry into China differed from its expansion into other countries up to that point. In its efforts to avoid some of the stumbling blocks other companies had encountered when entering the Chinese market, Uber courted local partners and government entities. 126 For the first time, the company established a local subsidiary in a foreign market: Uber China. 127 Uber reportedly hoped that forming a local entity would ease its ability to raise local capital and avoid the bureaucratic hassles foreign companies operating in China often faced. 128 In addition, when Uber launched in Shanghai, it contracted with a local rental-and-driver service rather than contracting with individual vehicle owners, as it had done in other markets. 129 Reaction by Consumers, Competitors, and Regulators Nevertheless, Uber encountered obstacles. For example, the Uber app relied on Google Maps, which was not widely available in China. It took the better part of 2014 for Uber to forge a partnership with Baidu, China's leading search engine, to gain access to local mapping services. 130 Another challenge was Uber's requirement that customers validate their credit card information to use the app, since Chinese consumers primarily used WeChat and AliPay - not credit cards-for transactions. In 2014, Uber negotiated a deal with AliPay in time for its Shanghai launch. 131 Complicating matters was the fact that both WeChat and AliPay were affiliated with conglomerates that controlled Didi and Kuaidi. Following its entry into Shanghai, Uber came out with People's Uber, which allowed individuals who had cleared a background check and could provide their own vehicles to drive and offer rides to customers using the app. In 2015, media reported that "affluent and cosmopolitan Chinese have flocked to Uber's service," which on average cost 35% less than traditional taxi fares. 132 In addition, Uber drivers gained a reputation for more professional comportment and more luxurious vehicles than traditional taxi operators, along with offering amenities like free bottled water. 133 At the same time that Uber was trying to gain a foothold in Shanghai, Didi and Kuaidi were competing fiercely for market share, spending hundreds of millions of dollars on generous subsidies to drivers and riders. 134 Then, in February 2015, the two competitors merged to become Didi Chuxing (Didi), valued at $28 billion and boasting more than one million drivers in 360 Chinese cities. 135 The merged entity launched a rival product to People's Uber that summer. 136 In September 2015, Didi Chuxing invested $100 million in Lyft, Uber's main U.S. competitor, and both Lyft and Ola, the ridesharing market leader in India, joined Didi's global network. 137 Over the next few years, Didi continued to sink hundreds of millions of dollars per year into driver subsidies and rider discounts. 138 In response, Uber subsidized drivers as well, often taking a loss on trips in order to pay drivers rather than charging its standard 25% fee, while also losing revenue by offering free trips to new riders. 139 In January 2015, China's Ministry of Transport prohibited privately-owned vehicles from offering ridesharing services, instituting fines exceeding $16,000 and threatening detention. 140 Nevertheless, Uber continued operations, claiming that its platform was leading to the creation of more than 60,000 jobs per month in China. 141 As of 2016, Uber was operating in more than 50 cities and planned to expand to 120 by September (by comparison, Didi operated in more than 400 Chinese cities). 142 In January 2015, China's Ministry of Transport prohibited privately-owned vehicles from offering ridesharing services, instituting fines exceeding $16,000 and threatening detention. 140 Nevertheless, Uber continued operations, claiming that its platform was leading to the creation of more than 60,000 jobs per month in China. 141 As of 2016 , Uber was operating in more than 50 cities and planned to expand to 120 by September (by comparison, Didi operated in more than 400 Chinese cities). 142 In 2016, after years of intense competition, Didi acquired Uber's China arm. Didi invested \$1 billion in Uber, and Uber took an 18\% stake in Didi, while each company's CEO was granted a seat on the other's board. 143 Observers speculated that Uber's decision was motivated in part by regulations passed that year by the Chinese government that included several provisions threatening Uber's operations, including: (1) granting the government access to all Uber user data; (2) requiring Uber and competitors to phase out subsidies and charge "market prices," except when the government intervened on pricing; (3) granting the national and provincial governments the right to allow or ban individual rideshare companies; and (4) permitting local governments to issue/deny licenses to individual drivers. 144 According to final regulations released in November 2016, "Chinese Uber and Didi drivers [must] have 3 years of experience, be licensed by a local taxi regulator, and have no criminal record. Cars used must have no more than 370,000 miles (600,000km) driven to be eligible." 145 One observer wrote, "Where the Chinese state steps in is where entrepreneurship goes to die. In selling its Chinese business to Didi Chuxing, Uber is getting out of its China operations at the right time and at a reasonable price.. 146 Didi had signaled intentions to hold an IPO possibly within 2018, which would be a first among ride-sharing companies. 147 Over three years in China, Uber invested (lost) $2 billion in ride subsidies and infrastructure, but it never surpassed 30% market share and was unable to maintain share once subsidies were dialed back. 148 Should the company "stay at home" or "go abroad"? - The nine strategic windows Industry globalism Source: Solberg (1997, p. 11) Initial Launch and Motivation In 2013, Uber had raised a total of $50 million in capital and had operations in 10 countries - and China loomed as a large and growing untapped market. 121 That year, Kalanick returned from a visit to the country intent on establishing Uber in China's cities as soon as possible. 122 In 2014, Uber officially launched local operations in Shanghai, claiming at the time that taxi demand in the city was growing faster than in New York, San Francisco, and Singapore. 123 Ridesharing was mostly unregulated in Shanghai, where traditional taxi licenses cost more than $80,000 and new licenses had not been issued since the early 1990s. 124 Prior to Uber's arrival, two native firms, Didi Dache (Didi) and Kuaidi Dache (Kuaidi), had established themselves as the dominant operators in the fragmented taxi market by offering an app-based means of hailing and paying for taxis, as did a number of traditional taxi operators. As of 2012, Didi was reported to have 80% market share among ride-hailing apps in China. 125 Uber's entry into China differed from its expansion into other countries up to that point. In its efforts to avoid some of the stumbling blocks other companies had encountered when entering the Chinese market, Uber courted local partners and government entities. 126 For the first time, the company established a local subsidiary in a foreign market: Uber China. 127 Uber reportedly hoped that forming a local entity would ease its ability to raise local capital and avoid the bureaucratic hassles foreign companies operating in China often faced. 128 In addition, when Uber launched in Shanghai, it contracted with a local rental-and-driver service rather than contracting with individual vehicle owners, as it had done in other markets. 129 Reaction by Consumers, Competitors, and Regulators Nevertheless, Uber encountered obstacles. For example, the Uber app relied on Google Maps, which was not widely available in China. It took the better part of 2014 for Uber to forge a partnership with Baidu, China's leading search engine, to gain access to local mapping services. 130 Another challenge was Uber's requirement that customers validate their credit card information to use the app, since Chinese consumers primarily used WeChat and AliPay - not credit cards-for transactions. In 2014, Uber negotiated a deal with AliPay in time for its Shanghai launch. 131 Complicating matters was the fact that both WeChat and AliPay were affiliated with conglomerates that controlled Didi and Kuaidi. Following its entry into Shanghai, Uber came out with People's Uber, which allowed individuals who had cleared a background check and could provide their own vehicles to drive and offer rides to customers using the app. In 2015, media reported that "affluent and cosmopolitan Chinese have flocked to Uber's service," which on average cost 35% less than traditional taxi fares. 132 In addition, Uber drivers gained a reputation for more professional comportment and more luxurious vehicles than traditional taxi operators, along with offering amenities like free bottled water. 133 At the same time that Uber was trying to gain a foothold in Shanghai, Didi and Kuaidi were competing fiercely for market share, spending hundreds of millions of dollars on generous subsidies to drivers and riders. 134 Then, in February 2015, the two competitors merged to become Didi Chuxing (Didi), valued at $28 billion and boasting more than one million drivers in 360 Chinese cities. 135 The merged entity launched a rival product to People's Uber that summer. 136 In September 2015, Didi Chuxing invested $100 million in Lyft, Uber's main U.S. competitor, and both Lyft and Ola, the ridesharing market leader in India, joined Didi's global network. 137 Over the next few years, Didi continued to sink hundreds of millions of dollars per year into driver subsidies and rider discounts. 138 In response, Uber subsidized drivers as well, often taking a loss on trips in order to pay drivers rather than charging its standard 25% fee, while also losing revenue by offering free trips to new riders. 139 In January 2015, China's Ministry of Transport prohibited privately-owned vehicles from offering ridesharing services, instituting fines exceeding $16,000 and threatening detention. 140 Nevertheless, Uber continued operations, claiming that its platform was leading to the creation of more than 60,000 jobs per month in China. 141 As of 2016, Uber was operating in more than 50 cities and planned to expand to 120 by September (by comparison, Didi operated in more than 400 Chinese cities). 142 In January 2015, China's Ministry of Transport prohibited privately-owned vehicles from offering ridesharing services, instituting fines exceeding $16,000 and threatening detention. 140 Nevertheless, Uber continued operations, claiming that its platform was leading to the creation of more than 60,000 jobs per month in China. 141 As of 2016 , Uber was operating in more than 50 cities and planned to expand to 120 by September (by comparison, Didi operated in more than 400 Chinese cities). 142 In 2016, after years of intense competition, Didi acquired Uber's China arm. Didi invested \$1 billion in Uber, and Uber took an 18\% stake in Didi, while each company's CEO was granted a seat on the other's board. 143 Observers speculated that Uber's decision was motivated in part by regulations passed that year by the Chinese government that included several provisions threatening Uber's operations, including: (1) granting the government access to all Uber user data; (2) requiring Uber and competitors to phase out subsidies and charge "market prices," except when the government intervened on pricing; (3) granting the national and provincial governments the right to allow or ban individual rideshare companies; and (4) permitting local governments to issue/deny licenses to individual drivers. 144 According to final regulations released in November 2016, "Chinese Uber and Didi drivers [must] have 3 years of experience, be licensed by a local taxi regulator, and have no criminal record. Cars used must have no more than 370,000 miles (600,000km) driven to be eligible." 145 One observer wrote, "Where the Chinese state steps in is where entrepreneurship goes to die. In selling its Chinese business to Didi Chuxing, Uber is getting out of its China operations at the right time and at a reasonable price.. 146 Didi had signaled intentions to hold an IPO possibly within 2018, which would be a first among ride-sharing companies. 147 Over three years in China, Uber invested (lost) $2 billion in ride subsidies and infrastructure, but it never surpassed 30% market share and was unable to maintain share once subsidies were dialed back. 148 Should the company "stay at home" or "go abroad"? - The nine strategic windows Industry globalism Source: Solberg (1997, p. 11)
