GUEST POST: Why Uber’s Global Expansion Won’t Succeed, Especially In China

Bottom line: Uber will face a difficult time in its global expansion due to poor understanding of local markets and lack of control of its rental fleets.

By Lu Jin

In the last few days, while I was still pondering the big news about a $600 million investment by China’s leading search engine Baidu (Nasdaq: BIDU) in Uber (English article), the more powerful news broke that the car service provider had quadrupled its fares during the Sydney cafe hostage crisis this week in Australia. This kind of hasty and poorly conceived move convinced me once again that Uber’s global expansion will not succeed in many global markets, especially one like China.
In early 2013 I had a unique opportunity to meet with one senior Uber executive who came from California with the mission of entry to China. My biggest impression from that meeting was a feeling that I had met with someone who just founded an Internet company during the dot-com bubble. Those people act at lightning speed. In less than a year, Uber has launched in major Chinese cities, from the relatively mature southern part of the country to more regulated north. Moving fast naturally would meet headwinds.

If you look at what Uber executives typically tell everyone, they say their car app company builds a platform, and on its left are the car users, and on its right the qualified car vendors. That tells me Uber does not operate the cars and therefore doesn’t control or take responsibility for them. Does this sound like the numerous Internet companies 20 plus years ago, which built nothing but a website and claimed they were doing e-commerce?

What about the consumer? In China, do people really need Uber? The answer is clearly “no”, as they have many other choices. In entering China, Uber has to fight a battle in a “grey area” where taxis, rental cars and the illegal taxis known as “black cars” all tangle together. To protect the interest of taxi companies, many of which are backed by municipal governments and contribute to local economies, governments can and do ban car apps with administrative rules.

While Uber claims it does not compete with taxi companies, people tend to think they work with the “black cars”, which in China can be private cars or even company or government vehicles that are not in proper use. This situation certainly sounds risky.

The world likes to rave about the rise of wealthy Chinese, and indeed there are some of those. But we all know they drive their own Porsches. For those who don’t, I am not sure they would be willing to pay 3 times a taxi fare, like they do in Shanghai, to wait for an Uber sedan when locally developed apps can supply equally sufficient cars.

But moving back to the thoughts from that meeting in early 2013 and later follow-up conversations, I recall we discussed the challenges Uber would face, from local consumers with no prior knowledge of its business model, to lack of local regulations in these new Asian markets, and from rising protectionism and market consolidation.

In China, Uber recently tried an environmentally friendly program in Beijing called “People’s Uber” that encourages users to share the ride, and the fare. However, the effort was hard to popularize as Uber’s model requires an order to be placed by only one person. What happened in Sydney also suggests that even if Uber wants to be a socially responsible company, its drivers may not care.

And let’s not forget other negative publicity in India, France, and other markets rising from diverse problems related to regulatory compliance or cultural conflicts. Uber couldn’t manage many of those conflicts, even it had thought of the problems in advance.

To me, Uber is simply too confident to really understand, or care to understand, the true market conditions and regulatory environments where it operates. That’s summed up in its Chinese name youbu, literally meaning “excellent step”, which sounds to me like a sports apparel brand.

As a white collar Beijing resident who doesn’t drive and admires the VIP riding experience, I should be one of Uber’s target customers. But I wasn’t even aware of their existence in China for the first 8 months after their launch. I am not sure Uber has found its target consumers in China. Instead, with the new massive investment of Baidu, it has simply found a wealthy backer to help it play with rival apps backed by Tencent (HKEx: 700) and Alibaba (NYSE: BABA).

Lu Jin is a public affairs and strategic communications consultant at Fortune China Public Relations in Beijing. He can be reached at jin.lu@outlook.com or via LinkedIn at http://cn.linkedin.com/pub/lu-jin/18/a77/a84/.