Uber in China: One Final Push?

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Source: Forbes
Eager to take advantage of China’s new upwardly-mobile urban class, ride-sharing service Uber launched in Shanghai at the beginning of 2014, but they have been facing an uphill battle ever since. They have even formed a separate subsidiary called Uber China to streamline fundraising in the country. Still, the company has yet to find the same success as its US counterpart.
 
Uber originally started out in San Francisco and found its success marketing itself as premium product at a low price, thriving on America’s lack of public transportation. Need to get the airport from your hotel in Santa Fe? Uber there. Their rates are considerably cheaper than those of a smaller taxi company and you can do it all from your phone. Uber is even cheaper than an iconic yellow cab in New York City and cabs in dozens of major international cities, making it even popular in places with a variety public transportation options.

However, the transportation situation was very different in China in 2014. Cheap public transportation and relatively cheap taxi rides are plentiful, even in second- and third-tier cities. Customers could order their cabs from local apps such as Didi Dache and Kuaidi Dache. What more did Uber have to offer?
 
During its launch, Uber initially charged 60RMB as a base price per ride1 and found limited success. The service seemed to be more popular with foreigners in the city who were more familiar with the service. The company adapted their approach: they slashed their base price to 30RMB, began accepting Alipay and launched their nonprofit initiative, People’s Uber.

People’s Uber is a special branch of Uber’s offerings, only available in China where passengers ride in ordinary cars—Honda Civics and Toyota Camrys instead of the original Uber black cars—and only pay the driver to cover the cost of the ride. This makes rides even cheaper than the already-inexpensive normal cab fares. This move was meant to increase brand awareness and attract more mainland customers who would eventually move onto Uber’s regular profitable options. Launched on August 2014, the service still exists today and is still a popular option among regular customers. However, most users have yet to move onto UberX, which is necessary for the company to make profit.

To add to Uber’s woes, its major competition, Didi Dache and Kuaidi Dache, merged to become Didi Kuaidi in February 2015 and is backed by Chinese tech giants Tencent and Alibaba.  This new company is valued at $16.5 billion (versus Uber China’s $8 billion valuation) and is present in over 360 cities and towns.  In a report released by the company, Didi has 83.2% market share in the country, while Uber comes in at 16.2%.

Legally, Uber has faced a whole host of troubles. The Chinese government has also introduced new legislation that requires ridesharing apps to have servers in China and acquire a license to operate as a telecommunications corporation. As a foreign company, Uber China would have to undergo costly national security checks4. Additionally, local authorities in Chengdu and Guangzhou raided Uber offices in response to the questionable legality of People’s Uber.   Former interns are also suing the company claiming that its tight business model relies on 15-hour work days by students .

Despite these obstacles, the company optimistically announced a new initiative to expand at the beginning of the year. Its ridesharing service launched in fifteen new cities in Sichuan before Chinese New Year. By the end of the year, they hope to expand their services to over 100 Chinese cities, putting their business on a more equal footing with Didi Kuaidi.  

Expanding in dozens of new cities within 12 months is a massive endeavor, but necessary if Uber is to survive in the Middle Kingdom.  While the quality of its rides and the services they provide are substantially rated higher than Didi Kuaidi by its Chinese customers, Uber still cannot beat their competition due to their large market share. According to their CEO, Travis Kalanick, thirty percent of Uber’s rides happen in China.  Should Uber fail to stay competitive in China, this would impact the corporation as a whole and as a result, their business in the United States.  It is essential that they succeed in China for their business to thrive and maintain their forty billion dollar valuation in the United States.

Veronica Hernandez is a junior at NYU Shanghai.