Date
20 October 2017

Will China cramp Uber’s fast-luxe rides?

San Francisco-based limousine app Uber is on the move in China, busily recruiting managers in all corners of the country over the last few months. The firm links passengers with drivers of luxury cars in Shanghai, Guangzhou and Shenzhen, and many have compared it with fast-growing local taxi-booking apps like Didi Dache {嘀嘀打車} and Kuaidi Dache {快的打車}.

But those comparisons with mass-market offerings are misplaced – Uber has made it clear that its China operation is aimed only at the top end of town. 

Uber pitches itself as “everyone’s private driver”; anybody wanting to arrive in style can ordered a car through the app and wait a few minutes for a liveried chauffeur in a luxury car to pick them up. The company does not own or manage cars; it is mostly just a link between drivers and passengers.

In the United States, anyone who owns a car in a class of up-market models can sign up as a driver. The company even offers cheap car loans to help people join Uber’s ranks. But things are a bit different in China. Since it’s not strictly legal to use private cars for fee-paying passengers, drivers would not be covered by local insurance policies, so the four-year-old startup has retuned its business model by forging ties with luxury mainland rental firms.

The new idea is attracting lots of naysayers from industry insiders and the media. The critics say Uber will face opposition from incumbent players, given that it has the potential to overturn the taxi industry and has become a victim of its own success in other parts of the world.

Paris, for example, imposed a new rule on Jan. 1 forcing private-hire vehicles like Uber to wait at least 15 minutes between a request and a pick-up. But it did not stop violence erupting two weeks later when French taxi drivers attacked Uber cars, claiming the app created unfair competition. 

Similar barriers are being thrown up in front of local players on the mainland. The authorities in Shenzhen went to so far as to suspend Didi Dache last year because of the “chaos” the app created in the market. If local firms aren’t spared this protectionism, how can a foreign rival hope to thrive?

There’s also the issue of cloning. Once a business model proves successful in China, copycats are quick to emerge, as was the case when Groupon launched in China in 2011. There’s already one local version in the luxury car-hire market — Yongche.com {易到用車}, which just got US$60 million in funding from online travel company Ctrip.

Uber has sought to diversify its income elsewhere by expanding into other business areas such as logistics services. It has ventured into the courier sector, delivering anything from flowers to home appliances with the promise that its location technology can quickly find the best driver for the job. 

But it would no doubt come up against tremendous pressure from e-commerce giants if it tries to apply that strategy on the mainland. Both Alibaba and Tencent (00700.HK) have bought stakes in and are spending heavily to subsidize their taxi app affiliates to extend the reach of their mobile payment services. And both are eager to use that as a stepping stone to long-term online-to-offline e-commerce and logistics business opportunities. 

– Contact the writer at [email protected]

SK

EJ Insight writer

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