Uber in China: The Winding Road to Success

February 25, 2015 Posted by China Briefing Reading Time: 4 minutes

Uber in China By Andrew Salzman
Senior Associate
Dezan Shira & Associates
U.S. Liaison Office

Despite its sometimes controversial business tactics and pricing policies, Uber has proven itself as a game changer for those looking for alternative transportation arrangements in the United States. Its fast rise and popularity have led to rapid expansion throughout the world. The company recently raised US$1.6 billion in financing, raising its total funds to over US$4 billion, which would place the company valuation at over US$41 billion.

As one of the key areas for growth, the Asian market is incredibly important to Uber, whose valuation is likely partly based on the company’s ability to entrench itself in major Asian cities. Uber has already faced troubles in other Asian countries, including India. Since Uber’s China launch in February 2014, it has encountered more hurdles that must be overcome before it can gain a large market share.

Uber’s entry

Uber currently has operations in nine mainland Chinese cities. It entered a marketplace that was already dominated by two local giants: Kuaidi and Didi Dache. These operators originally functioned as services allowing users to hail taxis through the use of their apps. Their growth was due in part to allowing riders to offer drivers tips. The lure of tips fueled growth of drivers for the services, which in turn attracted more users to the services because of the large number of cars. Last year, each service opened a new service that mirrors Uber’s private car model.

For its part, Uber initially only offered black car service. However, it expanded to also offer Uber X, which is more inexpensive, as well as ride sharing, where private individuals pick up riders.

Current regulatory state

Uber and other car service operations were disrupted when China’s Ministry of Transportation released new guidelines that banned private cars and unlicensed vehicles from operations through these apps. These new rules mean that only licensed taxis can use these apps.

Uber has adapted to the new rules by working with car rental companies rather than individual car owners.

Hope for the future?

The good news for Uber is that it is still operating and ride sharing apps are still allowed, so long as they stay within the rules. They can bank on marketing themselves as a premium brand with a foreign cache, which may play well with potential customers looking to use it as a status symbol. Uber has also rolled out an English language service in Shanghai, which differentiates the app from its Chinese rivals. Lastly, internet giant Baidu has invested in the company, showing that they do have local backers for their service.

Lessons for Other Companies

The growing pains of Uber should serve as a caution to other companies looking to enter China. Even with a successful model outside the country, companies must be nimble and have the ability to adapt to local markets. Here, there is a dual threat, in that Uber is competing against two large, established local competitors, and also facing increased regulations from the authorities, which occurred after market entry. Rules can suddenly change, and if your business model is unable to adapt, then it will be unable to survive in the Chinese market.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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