Uber + China = Fail

Why Uber’s market entry strategy was doomed before it began

If you’ve followed Uber’s rise from Silicon Valley to what is now essentially world-wide, you’ve certainly noticed a few bumps in the road (forgive the pun).

Uber has battled what seems to be the same complaints in France, DC, New York, Boston, Chicago, and even San Francisco.

These complaints are largely based around the unjustness of Uber’s business model. Uber requires a bare minimum of its drivers in the US (background check, insurance, etc.), but even less in China (driver’s license, proof of incorporation, proof of car rental license, proof of public liability insurance). Chinese taxi companies are required to undergo expensive licensing procedures and government limits on the amount of taxi drivers per city. Furthermore, Boston cabbies’ case against Uber exposed that Uber “partners”* park their car outside of the city, where it is significantly cheaper than what is available for the local taxis.

Other complaints stem from consumer rights’ advocates. It has already been seen that China is ready to defend its citizens against unjust business practices, as several Chinese cities have taken stands against the likes of Kuaidi Dache and Didi Dache for using a tipping system to create a competitive atmosphere that incentivizes taxi drivers to bypass those without the money to tip the almost double rates, do not have a smartphone, or who otherwise are simply just not using these taxi booking apps.

While Kuaidi Dache and Didi Dache have seen blowback from the incorporation of their tipping systems, Uber has yet to encounter much resistance.

In fact, Allen Penn, Uber’s head of Asia reported to the Wall Street Journal that Uber “has had ‘minimal contact’ with the Chinese government, and that the company had a ‘cordial conversation’ with Shanghai authorities when Uber entered the city.”

Mr. Penn and Uber may not want to get too comfortable.

Although Uber works hard on both its legal page and driver signup page to distinguish itself as a “request tool” and not a “transportation carrier,” according to China’s “Anti-Unfair Competition Law” 《中华人民共和国反不正当竞争法》, Uber may already be in violation of the law. If not, they are awfully close.

China’s “Anti-Unfair Competition Law” states in the eleventh item that it is illegal to make pushing out competition your primary goal. Furthermore, if the offender is found guilty, he will be forced to pay back all of the profits earned during the time period in question and may also face a fine of $10,000 to $30,000.

Certainly, Uber’s current position as a luxury cab does not necessarily interfere with the entire taxi market, although following the lowering of base prices from 60 RMB to 30 RMB, local cabbies may become more worried (base cab rate in Shanghai is currently around 10 RMB).

One aspect that should certainly add to their concern is the fact that Uber drivers are only required to have a bare minimum amount of documentation, while all other taxi drivers have been required to pay expensive licensing fees and be lucky enough to avoid the government cut on the number of local taxis.

Assuming that Uber follows the same path of development in China as it has in all other markets, where it first establishes itself as a luxury brand, then expands to incorporate the entire market by adding local cabs and UberX drivers, I would not place a bet on Uber lasting long in the Chinese market.

Whereas Uber has thus far been able to bully American politicians into accepting its new business model, China’s leaders do not have to listen to its citizens as closely as the elected officials in Washington. Also, China’s courts and officials have always tended to protect homegrown firms rather than foreign firms, and I don’t see local governments throwing Kuaidi Dache and Didi Dache under the bus to protect American Uber.

*Uber refers to their drivers in Shanghai as partners. From examining the application process, it appears that a taxi company owner (with an already established company, hence the proof of incorporation) can apply himself, then set his entire company up with Uber. This should be of slight concern for their Shanghai user base as Uber, and possibly the government, does not know the individual drivers’ backgrounds.

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