Seminar 1 - Uber

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Uber: Going Global from Day One Uber’s strategy has been to break these regulations,

establishing its service first and then fighting attempts by


Uber, the controversial San Francisco–based ride-
regulators to shut the service down. In pursuing this
for-hire service, has made a virtue out of disrupting the
strategy, Uber has often used social networks to enlist the
established taxi business. From a standing start in 2009, the
support of its riders, getting them to pressure local
company has spread across the globe like wildfire. Uber’s
governments to change their regulations and allow Uber to
strategy has been to focus on major metropolitan areas
continue offering its service. In many cities, the strategy has
around the world. This strategy has so far taken Uber into
worked, even in the face of protests from established taxi
about 600 cities in more than 80 countries. The privately
companies and their drivers. In London, for example, when
held company is rumored to be generating annual revenues
taxi drivers went on strike to pressure the government to
of around $10 billion. At the core of Uber’s business is a
restrict Uber, Uber reported a surge in downloads for its app
smartphone app that allows customers to hail a ride from the
and thousands of new riders.
comfort of their own home, a restaurant, or a bar stool. The
app shows cars in the area, notifies the rider when a car is However, this confrontational strategy has not always
on the way, and tracks the progress of the car on screen using worked well. The government of Vancouver, Canada,
GPS mapping technology. The rider pays via the app using reacted to the unauthorized entry of Uber by banning it
a credit card, so no cash changes hands. The driver takes 80 outright. So did the local authorities in Brussels in Belgium,
percent of the fee and Uber 20 percent. The price for the ride Delhi in India, and a host of other cities around the globe. In
is determined by Uber using an algorithm that sets prices in Paris, the government has tried to limit Uber by imposing
order to match the demand for rides with the supply of cars several restrictions that make it harder for Uber to do
on the road. Thus, if demand exceeds supply, the price for a business there. To complicate matters, Uber drivers in Paris
ride will rise, inducing drivers to get on the road. Uber does have unionized—something that they cannot do in the
not own any cars. Its drivers are independent contractors United States due to their status as independent contractors.
with their own vehicles. The company is, in effect, a twenty- They went on strike when Uber tried to lower fares. Similar
first-century version of an old-style radio taxi dispatch protests by Uber drivers have occurred in other cities.
company. Interestingly, Uber’s founders got their idea for Overall, there is a sense that Uber’s abrasive strategy has not
the app-based service one snowy night in Paris when they always worked well, particularly outside of the United
were unable to find a taxi. States where locals see Uber as a brash American startup
that pays scant attention to local laws, customs, and culture.
Historically, taxi markets around the globe have been tightly
regulated by metropolitan authorities. The stated purpose of Uber is also witnessing the emergence of local rivals in
these regulations has often included (1) limiting the supply some countries, such as India and China, where startups
of taxis in order to boost demand for other forms of public using a smartphone app and a business model similar to
transportation, (2) limiting the supply of taxis in order to Uber are gaining traction. In China, local rival Didi Kuaidi
reduce traffic congestion, (3) ensuring the safety of riders by has raised $4 billion in venture capital and claims that soon
only allowing licensed taxis to offer rides, (4) ensuring that it will be operating in more than 400 cities in China. Didi
the prices charged are “fair,” and (5) guaranteeing a already has a 90 percent market share in Beijing, where the
reasonable rate of return to the owners of taxi licenses. company fields more than 1 million daily ride requests.
In practice, widespread restrictions on the supply of taxi Case Discussion Questions:
licenses have created shortages in many cities, making it
1. Companies like Uber, Lyft (one of Uber’s main
difficult to find a taxi, particularly at busy periods. In New
competitors), and Airbnb (an online marketplace that
York, the number of licenses barely increased from 11,787
enables people to lease or rent short-term lodging) are
in 1945 to 13,587 in 2017, even though the population
innovating in fields that traditionally have been very
expanded significantly. In Paris, the number of licenses was
complex and regulated. Can Uber’s business model be
14,000 in 1937 and had only increased to 17,137 by 2017,
applied in other industries globally?
even though both the population and the number of visitors
to the city had surged. The number of taxis in Milan was 2. Are cities around the world doing a disservice to their
frozen between 1974 and 2014, despite Milan having a ratio citizens or their visitors, or both, by banning Uber outright
of taxis to inhabitants that was one of the lowest for any from operating in their community?
major city. Whenever metropolitan authorities have tried to
increase the number of taxis in a city, they have often been 3. Uber’s strategy has been to break these regulations,
meet by strong resistance from established taxi companies. establishing its service first, and then fighting attempts by
When the French tried to increase the number of taxis in regulators to shut the service down. This goes along with the
Paris in 2007, a strike among transportation workers shut old saying that “do first, ask questions later.” Is this business
down the city and forced the government to back off. Source: Hill, Charles W. International Business: Competing in the Global
Marketplace (Page 36). McGraw-Hill Higher Education. Kindle Edition.

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