Description

China became the 4th Asian country where Uber started its operations. Uber entered the Chinese market in the summer of 2013, however did not launch the formal operations for almost half a year. Instead the company ran test pilots preparing the market for a limited launch in the spring of 2014 starting from Shanghai, Guangzhou, Beijing, and Shenzen. As the CEO of Uber noted in the letter to investors in June 2015: “China represents one of the largest untapped opportunities for Uber, potentially larger than the US”. Kalanick also noted that China was “number one priority” for the company (Wong and Shakil, 2015). The central part of the Uber’s 2016 growth strategy was to expand into more than 100 cities in China. As of 2016 the estimated share of Uber in China accounted for 30%, up from 1-2% in the beginning of 2015. However, Uber also loses $1B in China due to massive expansion, tough competition, and regulatory challenges (Clover and Hook, 2016).

Market opportunities. By 2015 China became the major competitive market for Uber. The market was attractive and prospective for Uber for a number of reasons. There were 2.62 million licensed taxi drivers operating in major Chinese cities. In comparison to the US taxi industry, that accounted for 240 thousand drivers, the figure was 10 times higher (Millward, 2014; Bureau of Labor Statistics, 2014). For example, in 2014 New York accounted for 13’437 licensed taxis (NYC Taxi and Limousine commission, 2014) while Shanghai, Uber’s first Chinese city, had more than 52 thousand licensed taxis and 93 thousand licensed taxi drivers (Lin, 2015). The number for unregulated drivers in each Chinese city, town and village was even more. Thus, the supply side for the Uber company was very promising.

As for the demand side, China had the largest smartphone market in the world with the estimated number of 3G and 4G unique smartphone users to be over 690 million – more than the population of US, Indonesia, and Brazil combined (Perez, 2015). As for the number of taxi application users it reached 18 million by 2013 and rose to around 45 million by the end of 2015 according to the Chinese marketing research company iResearch (Reuters, 2015).

Regulation environment advantages. As Uber seeks to exploit the opportunity of gaps in the government regulation in the sphere of Internet transportation services, the Chinese market also seemed to give that location advantage as taxi-hailing services was in their mature stage of development.

The grey zone in transportation regulation provided the company an advantage to enter China fastly and to develop the business before the government understood the need for the regulation. Initially, Uber entered China with its UberBlack product that allowed to avoid the issues of legality by partnering with car-and-driver rental companies that allow users to book licensed chauffeurs. But when it introduced its People’s Uber service the company stepped into the grey zone of legality. The incumbent taxi operators accused Uber, as in many other countries, of unfair competition by enabling its users to evade local taxation and regulations. In April 2015, after a year of Uber’s presence in China, the Chinese authorities, Office of Industry and Commerce and the Guangzhou Transportation Commission, announced that Uber was under investigation as it organized private drivers to provide unlicensed business. The Guangzhou government later issued a statement that the company was not properly registered, did not have the official approval for operations in the transportation industry, and was involved in using private cars for commercial purposes (Wei et al., 2015). In response to this issue municipal governments of several Chinese cities began to develop the clearer regulations regarding the status of iTNCs. To summarize, Uber sought to exploit the gap in the Chinese transportation regulation that gave it the time advantage to penetrate the market while the government struggled to develop the regulatory framework that could balance the demands of different interests, consumer safety, and the need for new modes of transportation in the country.

Innovative potential. According to the words of Uber’s CEO, Travis Kalanick, the Chinese market is also of significant interest to the company due to its innovation potential and the entrepreneurial culture. He states: “[China] has incredible educational institutions, they have great engineering here and so I think the surprise that maybe a lot of folks will be seeing in the next 5-10 years Is the amount of innovation that's gonna be happening in Beijing…” He predicts that in coming 10 years there will be 3 Bays (similar to Bay Area in Los Angeles): the Bay Area, Beijing and Bangalore. Beijing seems for Kalanick the most attractive place because “entrepreneurs want to be where all the action is, and there's a lot of exciting work being done.” (Cutmore, 2016).  Therefore, the country’s innovative and technological potential is also an important location advantage that the company will want to exploit in the future.