Chapter Opening Case: Uber's Foreign Market Entry Strategy You are about to read a short case exploring Uber’s internati

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Chapter Opening Case: Uber's Foreign Market EntryStrategy
You are about to read a short case exploring Uber’sinternational expansion strategy. From the start, Uber has focusedon building a presence in cities around the world where demand islikely to be high. While Uber has found success in some markets, inothers, the ride-share company has stumbled. You will be asked toanswer questions linking your knowledge from the chapter to thesituation detailed in the case.
This activity is important because as a manager, you must beable to make decisions regarding which foreign markets to enter,when to enter them, and on what scale. You will also need toconsider how to enter the markets. There are usually no right orwrong answers to these decisions, but managers need to be able toweigh the advantages and disadvantages of each choice. The goal ofthis activity is to demonstrate your understanding of the decisionsa manager must make regarding when to enter foreign markets, whichmarkets to enter, the level of commitment the firm should make, andhow the firm should enter the market.
Read the case and answer the questions that follow.
As legend has it, Travis Kalanick got his idea for Uber, thefast-growing ride-for-hire service he founded in San Francisco in2009, while trying unsuccessfully to hail a taxi in Paris in asnowstorm on New Year’s Eve. Kalanick discovered that in Paris, thenumber of taxi permits had been capped at 14,000 in 1937 and barelybudged since. By 2014 a much bigger and vastly richer Paris wasreceiving 27 million tourist visits a year, yet the number of cabshad edged up just 14 percent, to 15,900. The result: Parisians muststand in long lines for cabs that may never come. The situation wasno better in Kalanick’s native America, where a taxi driver neededa city-issued medallion in order to drive. In most major cities,the supply of medallions had not kept pace with the growingpopulation. In New York, for example, there were 11,787 medallionsissued after World War II, a number that remained constant until2004. By 2014, there were just 13,437 medallions in New York.Similar restrictions were founded in cities all over the world. InMilan, Italy, there were 4,571 taxis, a number that had been frozenfor 20 years. In city after city, the shortage of cabs translatedinto long wait times and generally poor service.
Kalanick’s idea was to take advantage of smartphone technologyto build an app that riders could use to electronically hail a rideand that drivers could use to find customers. The app allowed forGPS tracking, automatic electronic payment, preride display ofpricing, estimation of waiting times and drive times, and rating ofdrivers by riders (and riders by drivers). He believed thatnetworks of riders and drivers who used this app would deliver muchbetter customer service to riders and more demand to drivers. Tomake this powerful idea work, he needed to get the app into thehands of potential customers and build a network of drivers. Herealized that the bigger the network of drivers and riders in alocation, the more value that could be delivered to both sides of atransaction. For riders, rides would come much quicker, and fordrivers, they would get more business. He also realized that oncethe idea was out in the public domain, it would probably be quicklyimitated. Thus, his goal was to grow the network of drivers andriders in a location as fast as possible to try and capture anunassailable first-mover advantage.
From very early on, Uber’s strategy was to focus not oncountries, but on cities around the globe where demand was likelyto be high. The rationale was simple: Poor taxi service was aglobal problem; solving that problem was a global opportunity, andif Uber didn’t move fast, others would take advantage of itsbusiness model. To drive rapid growth Uber picked cities that havewhat it refers to as “accelerants.” These accelerants indicate aconcentrated need for Uber’s service and include: (1) lots ofrestaurants and nightlife, (2) holidays and events, (3) inclementweather, (4) sports, and (5) a limited supply of traditionaltaxicabs. Uber quickly identified cities like Chicago, SanFrancisco, and New York as growth opportunities in the UnitedStates, but it also realized that London, Paris, Berlin, Rio,Shanghai, Milan, and a host of other foreign cities alsorepresented major growth opportunities.
Uber quickly dove into major metropolitan markets around theworld, often ignoring local regulations that restricted the supplyof ride-for-hire services and required that drivers be licensed.The philosophy was enter first, ignore the regulators, delivervalue to riders and drivers, and then get the regulations changed.Uber began offering its service in June 2010 in San Francisco. NewYork was added in May 2011. By April 2012, the company was in 7U.S. cities, Paris, and Toronto. Two years later, Uber wasoperating in 130 cities in 36 countries around the world. In justabout every major national and international market, Uber ignoredestablished taxi companies and regulators; did not partner withother local enterprises; and chose to go it alone, establishing itsown networks, often breaking regulations in the process.
Sometimes the strategy worked, particularly in the United Statesand Latin America, but in many important international markets, itdid not. Due to regulatory pressure, in 2014 and 2015 Uber wasforced to suspend its service in Germany, France, Italy, Spain, andBelgium on the grounds that it relied on unlicensed,nonprofessional drivers using their own vehicles. In September2017, transportation authorities in London, one of Uber’s mostprofitable markets, pulled the company’s license. In doing so, theauthorities stated that the company was not fit and proper to run ataxi service. In China, which Kalanick had identified as amajor growth opportunity for Uber, the company exited the market inmid-2016 after heavy initial investments. Uber faced intensecompetition from Didi, a homegrown ride-for-hire operator in theUber mold. Didi and Uber were fighting an intense price war. Didihad some very powerful backers—Internet giants Alibaba and Tencent.China’s influential sovereign wealth fund had also invested inDidi, a move that signaled Uber was facing an uphill battle. In2018, Uber exited eight Southeast Asian nations when it sold itsbusiness there to Grab, a Singapore-based competitor. The deal wasanother admission by Uber that it was finding it hard to gaintraction in many nations against well-run and/or well-connectedlocal rivals.
What went wrong? Part of the problem is that Uber often cameacross as an aggressive and arrogant American company that misreadhow resistant local regulators would be to its service. In othernations, such as China, Uber’s failure to partner early on withimportant enterprises limited its political influence and set thestage for its subsequent demise as local authorities and riderswere always likely to favor the homegrown competitor over theAmerican interloper. Today, under a new CEO, Uber admits that itoften made missteps in its foreign market entry strategy. In a 2018letter to London regulators, for example, the new CEO, DaraKhosrowshahi, noted that “While Uber has revolutionized the waypeople move in cities around the world, it’s equally true thatwe’ve got things wrong along the way . . . On behalf of everyone atUber globally, I apologize for the mistakes we’ve made.” Similarly,in a technology conference in Germany in early 2018, Khosrowshahistated that Uber had shifted from “growth at all costs toresponsible growth . . . Germany as a market for Uber is a marketwith enormous promise that hasn’t been realized. Our strategy inGermany is a total reset.”
Sources: Charles W. L. Hill, “Uber in 2018,” in Charles W. L.Hill and Melissa Shilling, StrategicManagement: Theory and Cases, 13th ed. (Cengage,Boston, MA, 2020); Dara Kerr, “Uber’s U-turn: How the New CEO IsCleaning House after Scandals and Lawsuits,” CNet,April 27, 2018,www.cnet.com/news/ubers-u-turn-how-ceo- ... uits/;Eric Auchard and Douglas Busvine, “Uber CEO Focused on ‘ResponsibleGrowth,’ Seeks Fresh Start in Germany,” Reuters,January 22, 2018,www.reuters.com/article/us-tech-germany ... SKBN1FB1ZA.
Within just a few years of its inception, Uber wasoperating in more than 35 countries around the world. By movinginto new markets early, Uber hoped to capitalize on
Multiple Choice
first-mover disadvantages.
first-mover advantages.
pioneering costs.
its low tax rate.
its low corporate costs.
Which entry mode did Uber use for its foreignexpansion?
Multiple Choice
joint venture
wholly owned subsidiary
licensing
franchising
strategic alliance
Uber’s lack of knowledge of the local businessenvironment has caused it to suspend service in several importantcities. To avoid the challenges related to a lack of knowledge ofthe local market and local regulations, Uber shouldhave
Multiple Choice
formed a joint venture with a local company.
explored licensing as an entry method.
relied only on franchise arrangements.
used a greenfield investment in each local market.
considered exporting its service.
Which best reflects Uber’s timing of entry to marketslike London, Toronto, and Paris?
Multiple Choice
late
ordinary
average
delayed
early