Running head: UBER CHINA

Travis Kalanick's Strategy for Uber

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Travis Kalanick's Strategy for Uber

Uber has been one of the most popular internet-based businesses across the globe. It has

disrupted the taxi and transport business around the world, with it boasting of a substantial

market share. However, in China, which is home to hundred millions of commuters, it is making

losses of up to one billion dollars a year, as it struggles to be a leader in the market. While China

accounts for one-third of Uber’s business in terms of weekly trips, it has yet to edge out some of

the established competitors in the region.

The inception of the company was based on unique value propositions. It developed a

smartphone application that linked ride-seeking users to drivers with the fare being determined

through a pricing algorithm and charged automatically to the customer’s credit card. While it

registered immense success in the U.S. market and other global markets such as the United

Kingdom, it underperformed in China owing to the company’s founder strategies that failed to

consider the Chinese Market characteristics (Hook, 2016). Travis Kalanick’s strategy failed in

china in its inability to deal with product localization, competition, fraud, and legal implications.

Product Localization

Uber registered a rapid rise on the global scale because of the widespread demand for its

product as well as the ease of new market entries with few alterations. However, its products

were suited for the Western market. Although China had a high demand for convenient

transportation, several of Uber’s features suited American users and were less palatable to the

Chinese market. Kalanick ought to have established this issue through comprehensive market

analysis. Instead, he took the same product to the Chinese people without tailoring its features to

their way of operation. In its initial start of business in China, it used a credit card as the only

payment to the transport service. Customers had to provide valid credit card information before
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securing a ride or even opening an Uber account. This feature was a significant obstacle to

Chinese customers who barely used credit cards. As a result, the company’s services were

limited to an elite minority group that recognized the use of credit cards (Kirby et al., 2016).

While Uber knew this problem and introduced Alipay as a payment option, it had already

demonstrated insensitivity to the ease of doing business with the Chinese people.

The use of Google maps demonstrated another failure in product localization by Uber.

While Google maps had been useful in locating user’s locations in its other global markets, this

was not the case in China, where Google Maps coverage was notoriously inaccurate and

extremely limited. Chinese users were barely familiar with Google maps and instead used Baidu,

an alternative to Google, which was popular in China. This weak position of Google maps in

Chinese became a stumbling block for market penetration, and Uber had to enter into a

partnership with Baidu to be allowed to use the Baidu maps (Kirby et al., 2016). These initial

failures in product localization would spell doom for Uber in a Chinese market with established

ride-hailing companies.

Competition

Kalanick was so focused on ensuring that Uber avoid pitfalls of tech companies that he

failed to acknowledge the presence of the competitors who used apps to offer conventional taxi

services. Didi and Kuaidi were the most significant taxi-hailing apps in China with business

models that were distinctively different from that of Uber. Uber launched its formal entry into

the Chinese market in February at a time when the competitors were engraved in a subsidy war.

It should have taken advantage of this weakness and amass a significant share of the market, but

its initial failures in product localization slowed its growth. In 2015, Didi and Kuaidi announced

a merger and this a blow to Uber’s growth. The merger became the largest ride-hailing group in
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Chinese and expanded its capital liquidity by lobbying funds from investors (Kirby et al., 2016).

Apart from operating in more than 400 cities in China, it began developing outside the country

and posed a threat to Uber’s global market.

The new merger started spending less on subsidies and allowed it to focus on private-

hailing business. Their services were favorable to Chinese users, contrary to the Uber’s business

model. They amassed their initial user-base by providing networking services to taxi drivers.

Customers could hail a ride through an app and avoid waiting in a queue or taxi stands. The

company cooperated with other taxi industries and local governments, thereby avoiding

regulatory controversies (Wirtz and Tang, 2016). It became popular, and its user-base scaled

more rapidly than Uber China. After building its base on consumer and government

relationships, the company began to diversify its product delivery to be on par with Uber.

Kalanick had focused too much on product diversification and forgot customer relationships

(Kirby et al., 2016). Local governments were on Uber’s neck with a myriad of regulatory

concerns. In its battle to deal with these crises, Uber China got edged out by its competitors.

Fraud

Kalanick’s strategy of using subsidies to attract drivers and customers to Uber was a

failure and instead brought fraud into the company. China developed into one of the most

intricate ride-hailing scams across the globe. Drivers and hackers siphoned Uber China a lot of

money in the name of subsidies by faking trips. Uber China had loopholes that individuals

exploited for financial gain. Drivers would locate a fake customer and have them request a ride

at their specific location. Based on spatial proximity, the Uber’s system would link them with the

fake customer. The driver would move for a distance that provides maximum subsidy and end

the trip. Financial gains would result from the difference between the fare that the driver paid for
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the fake customer and the subsidy given by Uber. This fraud became rampant with fraudulent

individuals developing their own lexicon to facilitate communication in online forums. They

would call a fake ride as an injection in reference to the red location pin in the Uber app, and the

fake customers would advertise themselves as professional nurses (Kirby et al., 2016). Software

developers refined this fraud by producing software that facilitated the process of faking trips,

for instance, by manipulating GPS trackers.

Uber China lost millions of dollars in this fraud, and this had emanated from the

company’s failure to identify and seal the loophole. This problem had not manifested in the

western market owing to the product fitness to the characteristics of the market. China was

different, and Uber had to develop systems that would identify fraudulent drivers. The loopholes

remained, and the company would block drivers with fraud patterns. Therefore, Uber china

continued to lose money and perhaps could explain the annual loss of one billion dollars (Kirby

et al., 2016). It would have been more realistic for Kalanick to eliminate subsidies and find

another strategy to attract drivers and customers into the company.

Legality

While competition and other factors would have been a feasible excuse for Uber China in

its failure to establish itself in the Chinese market, Kalanick ought to have complied with the

regulatory requirements of the country. In its initial entry into the market, it avoided legal issues

by liaising with car rental companies to allow users to hire drivers through its Uber Black

product. However, its introduction of People’s Uber brought legal controversies. In January

2015, the director of the traffic enforcement unit in Beijing indicated that it was illegal for

internet apps to hail ride services from unlicensed drivers. Instead of following the legal

guidelines, Uber China sought to play cat and mouse games as it had done in other countries.
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Drivers would be set up by customers and get arrested where they would pay hefty fines before

being released. In April 2015, Uber China was declared to be under investigation for operating

illegally by organizing unlicensed drivers to conduct ride-sharing business. The local

government announced that Uber China was not registered to conduct transport services in the

country (Kirby et al., 2016). Kalanick took advantage of the unclear laws to do business, which

licensed taxi operators considered to be unfair competition by enabling avoidance of regulation

and taxation.

The government of China enacted regulations that required internet-based ride-hailing

apps to conduct background checks on their drivers and present the information to local

governments. The new rules also needed Uber to fix and clarify its charges, and this seemed to

outlaw the price-surging algorithm used by the company. Didi-Kuaidi, the company’s chief

competitor, obtained its operating certificate based on these new regulations, but Kalanick failed

to comply. Instead, he adopted a shell game strategy of establishing new companies such as

Shanghai Wubo Information Technology and forming partnerships with local companies (Zhen,

2018). He continued to rely on China’s allowance of Uber to operate within the gray legal zone

without bending to the established regulations. 

I do not agree with Kalanick’s strategy of handling Uber China. There were flaws in

product localization, especially in the perspective of payment options and Google maps. He had

been used to starting a business with no established competitors, but the Chinese market required

a different approach in the fact that Didi and Kuaidi were offering similar services and would

need a viable strategy to edge them out. The inability to prevent fraud as well as the inflexibility

for legal requirements, indicated that the strategy was doomed to fail in China. He ought to have

modified the platform’s features to cover the loopholes as well as adhere to the local regulations.
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References

Hook, L. (2016, June). Uber’s battle for China. Financial times. Retrieved from

https://ig.ft.com/sites/uber-in-china/

Kirby, W. C., Eby, J. W., Frost, S. L., & Frost, A. K. (2016). Uber in China: Driving in the Gray

Zone.

Wirtz, J., & Tang, C. (2016). Uber: Competing as market leader in the U.S. versus being a

distant second in china. In Services Marketing: People Technology Strategy (pp. 626-

632).

Zhen, Y. (2018). Case Study of the Uber Failure in China: A Technoethical Analysis.