Uber Failure In China Case Study Analysis - Assignment Solution

Organisational strategies/motivations 

Uber had high expectations from the Chinese market- Highest population in the world, high population density, and low level of car ownership. The company positioned itself in the same manner as it did in other markets (Lopez, 2016) - cost leadership and offered incentives to customers as well as drivers. Huang (2016) argued that in order to introduce rail-hailing services in new markets, any company has to burn cash so that the customers are attracted to the service. However, this strategy could not be successful in China as the Uber leadership did not understand the market properly.

Lack of Understanding/Empathy

The fundamental problem faced by any international company in China is the level of protectionism environment created by the Chinese government. While the Chinese government allows for international companies to enter the Chinese market, it takes certain protective measures which may be unconsidered illegal in many countries- When Uber entered the Chinese market, there were already local companies operating in the same industry with the market being dominated by two players- Didi Dache and Kuadi Dache. In 2015, these companies decided to merge which gave them 99% of the market share. In many of the countries, this deal would have been rejected by anti-competition authorities but in China, it was approved (Timmons, 2016). By mid-2016, the merged entity (Didi)’s market share reduced to 80%, as Uber was gaining market share. However, the business environment was unfavourable for Uber and cash burn was too high, therefore it sold its operations to Didi and left the country (Lopez, 2016).

Need for local manufacturing

There was another problem being faced by Uber in China- Prior to July 2016, the company was operating in a legally grey area as there were no regulations governing the cab-hailing business- At times, the Uber drivers were even arrested as the law enforcement agencies also lacked understanding of the law. However, in July 2016, the government drafted a policy which promoted local businesses and was unfavourable to international businesses like Uber. As per the policy, the ride-booking companies like Uber could not have any unfair pricing behaviour like giving heavy discounts or setting a price below the cost. Uber had traditionally relied on subsidies as it had private funding available which local players might not have.  Thus, this policy harmed its growth plans in China (Huang, 2016).