Uber and its global strategy Think local to expand global – will that work! Suhas Manangi – 12/10/2016 Abstract: Not to prejudice the thought process but “Think local to expand global” is not Uber’s global expansion strategy. Through this paper, I am investigating Uber’s global expansion strategy and comparing it with ‘Think local to expand global’. Would we consider Uber’s global expansion strategy a success, will it sustain, and how relevant is think local to expand global approach to problem solving in startup world.
Brief history… Silicon Valley entrepreneurs Garrett Camp and Travis Kalanick had a big year in 2007. Garrett Camp had completed the sale of StumbleUpon to eBay and Travis Kalanick had sold Red Swoosh to Akamai Technologies. In December 2008, the two met in Paris for the annual LeWeb conference for startups and web entrepreneurs. The initial vision to address the “taxi problem” involved connecting passengers with drivers using mobile technology. Over the next several months, Garrett worked with a small team on a prototype for a mobile application. Travis joined in 2009 to assist in guiding the initial product launch, which involved building up a network of drivers and refining the business model. In June 2010, 18 months after the founders began discussing the idea in Paris, Uber officially launched in the San Francisco
market as a disruptive, mobile technology enabled alternative to the traditional taxi and transportation options available.
Take off… Since it was founded in 2009, Uber has become one of the fastest growing start-ups in Silicon Valley, with a reported $1.5 billion annual revenue and an estimated worth of USD $62.5 billion, consistent exponential revenue growth. With its services now offered in more than 65 countries and over 450 cities worldwide, Uber has been undergoing one of the mobile app industry’s fastest global expansions. Only 3 years after launching their first non-US city in Paris in December 2011, Uber was reaching a growth rate of launching a new city per day by the end of 2014.
Global expansion plans… No doubt Uber was global to begin with. Uber took up a problem to solve that is truly global, came up with the idea in Paris, launched it in the San Francisco market, and 7 years later they are in 450+ markets all over the world. In fewer than seven years, Uber has managed to expand from North America to every populated continent – Europe, Asia, South America, Africa, and Australia. And if that weren’t enough, Uber recently expanded its offerings in markets like Thailand and India with a rickshaw and motorbike service. That kind of
growth in product and geographic scope is unprecedented. No technology company
has
experienced
these
challenges
and
turned
them
into
opportunities more acutely than Uber. Uber moved faster than any other company going international. And because of money that is earmarked for foreign clones of successful U.S. companies, if you don’t move quickly, the clones will pop up fast. This is a well-known and adopted business models around the globe by local startups and companies going after successful business ideas from elsewhere. Few of the well-known ones to call out that forced Uber to rapidly expand globally to be early movers in the market and not lose the market for local clones. 1. Lyft in US that launched around the same time as Uber could have beaten Uber and gone global sooner 2. Curb is now available in more than 60 U.S. cities, Curb is a taxi-hailing app that works directly with licensed taxi drivers, and allows payment within the app, with cash or in any other method available in the specific car (e.g., if the taxi takes credit cards). One benefit of Curb is that you can schedule rides up to 24 hours in advance. 3. 99taxis is popular in Rio (and throughout Brazil), and is expanding into Europe. The service connects riders with taxi drivers, and uses Paypal inside the app to process payments. 4. Careem is available in many cities across northern Africa and the Middle East, and offers multiple levels of service as well as the ability to book in advance. Careem is a pretty robust service, and has some
features of more traditional travel companies, including the ability to earn air miles 5. Didi Chuxing or Didi Dache is now covering hundreds of cities, with drivers numbering in the millions, Didi Chuxing is often called the "Uber of China." In addition to hailing cars, you can use the service to set up a carpool, hire a designated driver or find a car tailored to people with disabilities. After a long, fierce price war between the two companies, Uber China recently decided to sell itself to Didi Chuxing. 6. EasyTaxi appears to be the biggest service/app for hailing licensed taxis in the world, and works especially well in places that have banned Uber and similar services (Buenos Aires, Rio). Founded in Brazil, the company has expanded beyond South and Central America to include cities in Africa, the Middle East and Asia. 7. Gett offers service in Israel, Russia and London, as well as Manhattan, where it has an interesting twist: a flat $10 fare for anywhere you want to go, so long as your pick-up and drop-off are in Manhattan south of 110th Street. 8. In Indonesia, a market that's among the most social-media-savvy in the world, Uber's main rival is a motorcycle taxi service call Go-Jek 9. GrabTaxi is widely available in Southeast Asia, with more than 75,000 drivers and almost 4 million users in Indonesia, Malaysia (where it is known as MyTeksi), the Philippines, Singapore, Thailand and Vietnam. While Grab is mainly a licensed taxi app, the company also offers GrabCar, which uses a peer-to-peer approach, and GrabBike, a motorcycle version of the service. The latter is a good option to
counter the extreme congestion in many cities it serves, as motorbikes can thread through traffic much more quickly than cars. 10. Ola is India's biggest ridesharing company and offers almost every type of ride imaginable, from luxury cars and licensed cabs to Uber-type drivers and even rickshaw rides. Ola Cabs is one of the biggest ride-hailing app and closest competitor of Uber in India. Having bought TaxiForSure, one of the other bigger ride-haling services in India, Ola Cabs has easily one of the biggest fleet of vehicles and covers over 80 cities across all of India. Ola Cabs offer one of the lowest fare prices among the different ride-hailing services currently active in India. 11. Takkun is Tokyo's largest taxi-dispatching system, including a total of about 12,000 cars. Tokyo's taxis cost less than Uber. 12. Ingogo is another one of the popular taxi-hailing app in Australia. Ingogo allows users to pre-book a ride up to 48 hours in advance and users can live-track their ride using the mobile applications. A fixed rate system and cashless payment methods make Ingogo another one of the most popular taxi-hailing services in Australia.
Global expansion insights… What made the startup successful in the U.S. won’t work elsewhere. Startups must drastically adapt for Asia markets. When companies expand abroad, they face unfamiliar cultural, political, and economic environments that put additional, unforeseen pressures on their domestic business models. They
also face competitors who understand the local environment far better than they do. Asia is a different market compared to US, Canada or Europe. Challenges are different and culture is different, expectations are different, everything is different. Only thing common is the transportation problem to solve. Localization is a key ingredient of Uber’s Asia Pacific (APAC) marketing strategy as it battles to stay ahead of regional competition. However localization goes beyond services. It might include cash payments for some emerging markets where credit cards are not feasible, or in China, where Uber has partnered with Alibaba’s Alipay system – the preferred payment method of Chinese consumers. Uber calls its globalization strategy “launch playbook,” a list of business strategies and operating guidelines that have been compiled by an internal team of about 40 employees. At the same time, Uber is smart to have flexibility in different markets that local Uber leaders can adapt and not have the same features everywhere: For example: 1. Lion City Rentals, the Uber subsidiary, has about 300 cars. Within two to three years it will be by far the biggest car rental company in Singapore. This is quite far from Uber core business value of not owning cars. 2. Uber offers different products for different cities, such as UberAUTO, which was launched in New Delhi in April to accommodate autorickshaw users. 3. The business has launched UberBOATS in Istanbul 4. UberCHOPPER in Shanghai.
Uber has not been so lucky outside the US. Beyond its well-documented troubles in China, it is also struggling in Europe. The young tech company has committed a classic globalization mistake: it naively assumed that its business model and market approach, which ultimately solidified its marketleading position in the U.S., could translate just as seamlessly to other countries. It severely underestimated the challenges of operating in countries that embody totally different economic, political, and cultural environments. Political: When it comes to political differences, Uber’s devil-may-care approach of asking for forgiveness (instead of for permission) works better in countries with legal systems based in common law. In common law countries like the US, Canada and the UK, laws and regulations are more flexible and subject to judicial interpretation. Uber is therefore afforded greater latitude when arguing the legality of its case in the courts of law. In the U.S., Uber has maneuvered to generate consumer enthusiasm for its service and then bring pressure on local politicians to develop rules that allow it to operate. Such an entry approach is difficult, however, in civil law countries like China, France, Germany, Spain, and much of continental Europe. Civil law systems have their foundation in Roman Law and are based on doctrine, core principles, and codified rules. As a result, laws are more rigid and the role of the judicial system is to enforce, rather than interpret, the law. In that sense, an adversarial stance toward Uber’s less-than-by-the-book adherence to the law should have been expected.
Cultural: Critically, Uber also failed to properly acknowledge the subtle and nuanced cultural differences between the US and foreign countries, thereby failing to win in the court of public opinion. The US has a particularly strong emphasis on individualist principles: individuals are encouraged to take chances to assert their individuality and pursue their individual self-interests. But in Asia, and in European countries like France and Spain, group harmony and societal order are stressed over individual achievement. There is a greater concern for others, a greater emphasis placed on personal relationships, and a greater sense of kinship and solidarity built into each country’s social compact. It is therefore not surprising that local consumers are skeptical of Uber’s aggressive entry tactics, lack of consideration for local authorities, and inability to foster genuine and trusting local relationships Because of misreading political and cultural environments and adopting a flawed approach to global expansion, not only is Uber losing more than $1 billion in China, but it is at a distinct disadvantage to local companies like Didi Kuadi and Ola in many of the foreign markets it operates. It has been banned from operating in parts of France, Germany, Spain, the Netherlands, and Belgium. It has been accused of willfully ignoring and breaking the law, placing both drivers and riders in peril. And its presence in various countries has generated an incredible backlash – protests, riots, clashes with angry labor unions, and an endless litany of customer complaints. A brief international public-relations crisis ensued in October, when the Lyon (France) office ran a promotion offering customers a ride with an “incredibly
hot chick.” The trouble blew over after executives from San Francisco stepped in to stop the ad campaign. In India, Uber’s biggest market outside the U.S., the central bank threatened to shut it down for skirting cybersecurity regulations by routing payments through a foreign subsidiary. The company announced in a Nov. 12 blog post that it would comply with Indian laws by hiring Paytm, a local mobile payments business, to set up virtual wallets for Indian users. It’s been tougher for Uber to deal with local regulators and labor groups complaining that the company operates as an unlicensed taxi service and drains money from their transportation markets. Taxi drivers organized antiUber protests this summer that blocked streets in London and Western European cities. In the past six months, governments in Australia, Belgium, Germany, and the Philippines have instituted short-lived bans on the service or levied stiff fines on its drivers. Cabbies barricaded the door at the party celebrating Uber’s Milan debut.
How is Uber doing globally: Countries/Re gions
Details of market penetrations and challenges
US and
Bloomberg reports Uber lost $1.27 billion in the first half
Canada
of this year, which is unprecedented, even for a tech company. Uber is clearly playing by the same “grow first, make money later” edict of Silicon Valley, so it should be no surprise the company’s costs have increased as its operations expand into new cities. Uber’s market gain in US and Canada is paying for the operational losses for all the global expansion mishaps.
South America
Uber sees Latin America as the Promised Land: somewhere it can grow rapidly facing weak, under-funded competition. That’s not how the rest of the world looks. India remains expensive and competitive, as Uber dukes it out with Ola, backed by Softbank. Europe has a lot of regulations to contend with. Even in the U.S., Uber burned through $100 million in the second three months of this year, fending off rival Lyft. In Latin America, however, Uber’s primary ride-hailing competitors are less established and just don’t have enough money right now to make Uber’s life too difficult. The company is already doing about twice as many trips a month in Latin America as it is in India. Uber to win over Latin America, it will need to navigate
disparate regulations and cultures in dozens of countries. Buenos Aires, the most populous city in Argentina, has issued Uber multiple notices that it should stop operating since it is not registered as a taxi service. Uber has said that since it isn’t a taxi service, the company has the right to operate there. In Bogota, Colombia, the country’s taxi unions have campaigned vehemently against Uber. Europe
Uber which launched in Europe five years ago, has faced fierce opposition from regular taxi companies and some local authorities, who fear it creates unfair competition because it is not bound by strict local licensing and safety rules. Uber Pop is now banned in France, Germany, Italy and Spain, and the company is appealing pending bans in the Netherlands and Belgium
Middle East
Since launching in the UAE in 2013, Uber is now available in nine countries and 15 cities in the region, including Cairo, Amman, Beirut, Manama and Doha. Business is especially brisk in Saudi Arabia, where on June 1 the Public Investment Fund announced it was investing $3.5bn in the company.
Africa
Uber entered South Africa in 2013, Nigeria in 2014. Uber’s march across Africa might also be because of fewer regulations for taxis across the continent. While Uber has
inspired a series of new players in the market, none of them have made much of a dent in Uber’s expansion in Africa. It remains the most ubiquitous hailing app and has both Kenyan and South African government officials on its side in clashes with metered cabs. It also had incredibly deep pockets—this week it just received its largest ever single cash infusion of $3.5 billion from Saudi Arabia. Ultimately, Uber’s adaptation to regional markets, like the introduction of cash payments, gives it local flexibility with global clout. For both investors and drivers, Uber is the most reliable ride-hailing app in Africa. Uber recently revealed that it is losing more than $1 China billion per year in China. This is a colossal sum of money for any company, let alone one that has been in business for less than a decade. Despite the eye-popping headline number, Uber claims that its losses in China are nothing to be concerned about. Per its chief executive and founder Travis Kalanick, Uber is in a much better market position than its chief Chinese rival, Didi Kuadi, and he believes Uber can weather its early stumbles there by subsidizing losses with profits from other operations. As a private company, Uber discloses little about its spending but one indicator of the scale is its $1.2 billion funding for its
China unit in September. Leaked financial documents show Uber overall lost more than $100 million in the 2nd quarter of 2014. On Aug. 1, Uber agreed to leave China after losing more than $2 billion in two years doing war with its ride-hailing rival Didi
Chuxing.
Both
companies
were
heavily
subsidizing rides, burning through cash. Uber didn’t walk away empty-handed. The company took a 17.5 percent stake in Didi’s business in exchange for an exit. Before Uber arrived in India though, another company India could implement a similar model here, and today, Ola is one of the most well-funded tech startups in India. It raised over $900 million in 2015 alone, valued at over $5 billion. Uber's ‘launch playbook’ hasn't seen it take a position of dominance in India, where Ola is providing real competition. Uber is leading in marketing innovation in India but still lacks market share compared to Ola: 1. On the eve of Independence Day (15th August 2016 - India) - they turned all the Uber cabs to Indian flag (Tri color) 2. Olympic 2016 winner P.V. Sindhu won a silver medal and they turned all the cabs into shuttles. 3. UberPatang - One of Uber’s localized marketing campaigns in India featured on-demand kites for
Makar Sankranti, a Hindu festival that uses them South East
In Singapore, by contrast, the government strictly controls
Asia
the number of cars on the road--and thus Uber's problem is not too many cars, but too few. Uber faces increasing competition in Southeast Asia, such as from Gojek in Indonesia. Uber is only active in 15 Southeast Asian cities and the region hasn't previously been a huge priority for the company — although it says it's already profitable in the Philippines and Singapore. Post to China exit Uber may go more active in South East Asia regions.
Australia
Uber launched in Australia in October 2012. Since then Uber has become major player in Australia with little to no resistance. Market reception and adoption is in similar lines of US and Canada.
Strategy mistake from the start… CEO Travis Kalanick was scheduled to give a keynote presentation at LeWeb, the annual European tech conference, in December 2011. When he casually mentioned that it would be great to launch Uber Paris at the conference, Mina and the rest of their team got right on board and started planning. They were set to launch in 30 days. With no prior international launch experience.
Yikes. In the end, the Uber team hit their target date and launched Paris at the LeWeb Conference in December 2011. However, then they spent the next 6 months completely revamping the whole system: “rewriting, refactoring, rebuilding, redesigning” their original launch. You don’t turn on every corner of the world overnight. Rather, you work your way through different geographies in some priority order. Uber has exited from China market, not find success in Europe market, not able to penetrate South East Asia market, tough competition in India. Although Uber has seen significant success in US, Canada, Latin America, Africa and Middle East. Its global expansion strategy is not sustainable unless Uber makes serious changes to its ‘launch playbook’. So how could Uber have avoided this mess and what to change? 1. The
young,
talented,
and
well-endowed
company
should
have
recognized that China, India, and Europe, though rife with economic potential, differ in meaningful ways from the US. 2. It should have taken a careful look at its practices and policies to consider whether they were appropriate to each specific country. Uber would have fared better asking for permission to operate from the proper authorities and thus conveying its respect for established regulations and institutions, no matter how time consuming it may seem.
3. It also should have invested time in building relationships with the various unions that represent taxi drivers rather than foment hostile reactions with aggressive entry tactics. 4. Good planning and fast execution are a delicate balance. “A good plan today is better than a perfect plan tomorrow.” Uber seem to have no plan at all but learning and adapting on the go, which is fine but is costly. Three main things to take care in the globalization planning are: Firstly, Pre-planning - defining your geographic expansion strategy. Secondly, Content - marketing, communication and design. And Lastly, Operations - payments and legal. 5. Uber has never acquired or partnered with any of its local rivals, it is trying to do everything on its own which is a strategic mistake and a challenge. 6. Uber has significantly adapted over last 2 years to cater to local market demands and aspirations. This is summary of what Uber has done and should continue to bet harder on this:
Strategically plan your localization by country and timeline
Ready your code for internationalization
Build tools and frameworks that help automate and optimize the translation and update processes
Prioritize high-quality translated and visual content that speak to your local market while staying true to your brand
Local problems are often global, often same solutions that work locally can work globally. The key is in the localization and execution of solution that fits
the local market aspirations, economic, political and cultural values. Uber has realized this after very expensive experiments, not all companies let alone startups will have the capital strength for such expensive experiments but an learn from Uber’s evolution.
