Uber in China: Pestle Analysis

Introduction

Uber entered the Chinese market in 2014 and from the very beginning tried to make a mark in the most populous country in the world by investing around 1 billion dollars per year.

China, being the most populous country in the world was the perfect market for Uber which had been planning to expand its ride-hailing service throughout the world. When Uber entered China it was faced by its biggest competitor which was the local ride-hailing company DiDi, DiDi had the largest chunk of market share and was expanding rapidly and in order to compete with such a big competitor Uber had to do something different and had to invest big in the Chinese market. In 2015 it burned 1.5 billion dollars in China accounting for 60 per cent of Uber’s global spending

Uber was supposed to be the perfect example that western companies can go big in the Chinese market, but despite all the efforts, Uber was not able to give a tough competition to DiDi, which was on its verge of making the ride-sharing market a monopoly.

As Uber’s biggest competitor in the Chinese market, Didi also subsidized up to $4 billion a year to blunt Uber’s ability to gain market share and finally in 2016 controlled 80 per cent of Chinese ride-hailing market.

After intense competition for the Chinese market, Uber merged its Chinese business with Didi Chuxing on August 1, 2016, and Uber obtained seats on the board of both the businesses.

Knowing about Uber’s story in China, there are several questions which arise in our mind:

1. Why did Uber fail in China?
2. Why is it hard for western companies to establish their business in the world’s most populous country?
3. What are the factors that affected Uber’s presence in China?

By the means of this report, we will try to find the answers to these questions using PESTLE analysis.

Analysis

Political Factors

Uber must change its business model and run like existing taxi companies for a chance to be legalised, Hong Kong’s transport minister said on Wednesday as he effectively blotted out the car-hailing company’s future while unveiling a road map for the city’s public transport. It has always been hard for western companies to make it big in China, many people believe that it because of the policies of the government, overseas companies are complaining about the country’s increasingly hostile business environment as concerns rise over protectionism, forced technology transfers and tightening censorship.

Some experts sense a subtle change in the world’s second-largest economy-it is no longer passionate about pursuing foreign capital.

While the report made no specific mention of Uber, the government’s stance against such car-hailing services was clearly evident when police arrested 22 drivers last month on suspicion of picking up passengers without a hire car permit and third-party insurance. The political leaders have not really been supportive of Uber’s business as they wanted to protect their domestic ride-hailing services from the tough competition that Uber was giving, there were tougher regulations put on the ride-hailing companies and Uber was forced to change its business model even after a lot of talks between Uber’s board and the Chinese Government.

Economic Factors

When Uber entered China it had major competitors in the Chinese market, among which one was DiDi, which had almost 80% of the market share in the cab booking business.

Uber had to invest a lot of money to compete with DiDi, but it was of no major use as the CEO of Uber reported that Uber was losing 1 billion dollars every year in order to compete with DiDi. Despite all the investments that Uber made, it was not able to gain enough market share whereas DiDi was growing rapidly. Uber was investing more and more in the business but still Didi was having the king’s size of the market share.

Uber benefited from the huge labour supply available in China, the profit margin increased because the unemployment rate fell in China over the period. Because of policies like the One Child Policy, female employment also increased in China which benefited Uber as they could employ a more diverse workforce.

Social Factors

State and society are emphasized above the individual. There is a long history of submitting personal ambition to that of the community and state through Confucianism. The degree of control and authoritarian structures are more accepted in China than in most western cultures with their emphasis on individualism.

Next, the literacy rate in China is over 90%. China emphasizes on education and the majority of the nation are literate which provides the companies with literate and skilled employees.

Finally, there are 420 million Internet users in the country. As there is internet access, Chinese people often shop online and use online cab booking sites like Uber.

Technological Factors

Since the 1990s China has been developing its energy base, with new hydroelectric and nuclear power plants. China is also embarking upon a massive coal-fired power-station opening programme based on its own substantial coal reserves plus imports from Australia and Indonesia. However, serious urban air pollution together with a commitment to limiting carbon emissions after 2030 is leading to a less rigorous expansion of this electricity source.

There had been only 1 per cent credit card penetration in China suggesting that the most widely used payment method had low acceptance in China and the payment system to support online credit card transaction is also facing low usage. And the lack of safe online credit card payment system is one of the key reasons for this low usage and penetration.

China has set a vision to be a global leader in science and technology. To achieve this, the country launched ‘mass entrepreneurship and innovation’ programme in 2015. This programme aims to spread entrepreneurship throughout China.

It also aims to help the country to move from a labour-intensive economy to an innovation-driven one. All these factors worked in favour of Uber because of the existing technological knowledge that the Chinese mass has, majority of the Chinese population owns a smartphone and majority of them also know how to use apps like Uber and DiDi, which worked in favour of Uber.

Accepting the difference in the way Chinese people pay, Uber added features by which Uber riders could pay using apps like Alipay instead of using credit cards, also recognising the fact that majority of the Chinese people don’t use google maps, Uber collaborated with the local companies to find an alternative for google maps on its app.

Legal Factors

There are a number of laws that regulate business and employment practices in China. For example, labour standards, employee remuneration and benefits, labour disputes, and other relevant issues are regulated by The PRC Labour Law 1995, the PRC Labour Contract Law 2007, and various administrative regulations.

In order to encourage foreign companies to invest in China, the China Government has gradually set up a relative complete law system. In 1979, The Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures was published. 20 years later, the Chinese government has promulgated and issued a series of laws and statutes about the establishment, operation, termination and liquidation of foreign-invested enterprises.

China is known as one of the most attractive incentives packages in Asia. Tax incentives and other facilities for the manufacturing sector are provided for in the Promotion of Investment.

Despite all the previously introduced laws that favour the overseas companies,experts believe that China is no more looking for foreign investments which can be observed through the passing of new regulations in the country which limit the way in which ride-hailing companies operate.

Environmental Factors

Undoubtedly, along with China’s rapid industrial development there are serious negative impacts on the environment, these include increasing pollution and decreasing natural resources as well. In 2007, China became the world’s largest emitter of carbon dioxide and other gases leading to the greenhouse. WTO conducted a report on the quality of air in 272 cities worldwide, pointed out seven out of the ten cities that are the most polluted in the world was in China.

According to an environmental report, there is water polluted in almost all of the nation’s rivers to some degree and half of the population is lack of clean water for daily life. By some estimates, there are approximately 300 million people have to use contaminated water for drinking every day.

Currently, like any Government, China’s leaders are increasingly paying attention to environmental problems in the country. Realizing the importance of environmental protection, The State Environmental Protection Administration was officially upgraded to a ministry-level agency, the Ministry of Environmental Protection in 1998. Recently, China’s environmental legislation has been strengthened and some progress in stemming environmental deterioration has also been made.

Because of all these factors, Chinese people became more and more careful about not using goods and services which produce pollution in one or other way, Uber which is a ride-hailing company introduced lots of petrol cars in the country and had to look for a way to convince the Chinese youth that it is not in China to contribute more to pollution and to do that it had to take steps like introducing Electric cars and shifting its attention to public transport.

Conclusion

By the medium of this report on “Uber’s presence in China,” we came to know about how Uber which is one of the biggest ride-hailing companies in the world entered the Chinese market and how various factors ranging from competitors to politics affected the working of the company.

We analysed about how the rules and regulations introduced by the government can affect the working of some of the most valued companies, we came to know about how western companies need to adapt themselves in order to enter the Chinese market.

By the medium of this report, we also realised how analysing the presence of a company in a particular country by the means of PESTLE analysis can be really beneficial in understanding the working of a business and how factors ranging from tough competitors to new legal aspects can force a business as big as Uber to shut down its business.

Works Cited

1. Chinese-Foreign Equity Joint Ventures Law
2. (n.d.). Retrieved from http://www.gov.cn/banshi/2005-05/24/content_442430.htm
3. China Ministry of Environmental Protection
4. (n.d.). Retrieved from http://english.mep.gov.cn/
5. Confucianism and Chinese Culture
6. (n.d.). Retrieved from http://www.chinahighlights.com/travelguide/culture/confucianism.htm
7. Davis, E. P. (2018). The Internationalization of Small Firms: A Strategic Entrepreneurship Perspective. Palgrave Macmillan.
8. Ministry of Commerce of the People's Republic of China. (2015). Measures for the Administration of Outbound Investment by Enterprises. Retrieved from http://english.mofcom.gov.cn/article/policyrelease/domesticpolicy/201503/20150300815346.shtml
9. Sing, R. (2020). Economic Policies in China: A Review. Journal of Asian Economics, 71, 101200.
10. The Labour Law of the People's Republic of China
11. (1995). Retrieved from http://www.npc.gov.cn/npc/c238/202102/0780912c3b0b4f079dcf743e68c107b9.shtml
12. Uber. (n.d.). Retrieved from https://www.uber.com/
13. WTO. (2007). China Environment Report. Retrieved from https://www.wto.org/english/res_e/booksp_e/aid4tradestory5_e.pdf
14. Yu, M., & Wong, J. (2018). The Impact of Environmental Regulations on Manufacturing: Evidence from China's Pollution Levy Reform. Journal of Environmental Economics and Management, 88, 1-19.