The extent governments are willing to go to crack down on Uber has reached a new high-water mark yesterday after Korean prosecutors charged Travis Kalanick, the co-founder and CEO of Uber, of violating local transportation laws. If he were convicted, the punishment could include fines, and perhaps a first for the company and its leadership, a possible jail sentence. Uber has said in a statement that it is cooperating with authorities and believes that its service in the country is legal.
That’s unfortunate, because when it comes to growth, Uber’s key markets are all in Asia. The Asian mega cities, from Seoul to Bangkok to Beijing, not only have some of the highest population densities in the world, but also some of the heaviest users of taxis as well. Uber certainly recognized that in its most recent funding round when it accepted a large tranche of capital from Baidu, one of China’s leading internet companies.
While Uber has faced a growing backlash in much of the United States, it is facing significantly deeper issues in Asia as it confronts more active governments and vastly different consumer environments.
Uber’s expansion strategy has two sides. First, it launches in a new city and quickly tries to build consumer support. Given that the app is superior to hailing a cab and paying for service in most U.S. cities, consumers flock to the service and fall in love. Since taxis are a regulated industry by the local government, these consumers are also ultimately voters. With enough consumer support, Uber hopes that it can persuade the local Taxi and Limousine Commission to regulate taxi services in its favor.
The flip side of the strategy is to hire more drivers onto Uber, creating new jobs with few skill requirements. Since most cities have barely increased the number of taxi medallions in circulation over the past few decades, there is huge unmet demand for taxi services in most U.S. cities. That means when Uber launches in a city, it acts as a job creator without harming existing taxi drivers — at least, initially. Politicians never want to be seen as job killers, and so Uber finds greater protection the more drivers it employs.
Uber has mostly followed its well-worn playbook in Asia, and we can see that strategy even in Uber’s response to the Korean charges. The company notes in its response that its app “is being welcomed and supported by consumers” and that it doesn’t think that “it is appropriate for authorities to seek to punish drivers who are trying to make a living through this service.”
That strategy is not proving effective, and it is well past time for a course correction in the region.
Uber’s first challenge is that taxi regulation is hardly the backwater in Asia as it is in the United States. Indeed, in Korea, taxi policy often makes front page news. Just in the last few years, there was a nationwide taxi driver work stoppage over issues of pay, debate on whether taxis should be considered public transit and authorized to use bus lanes in Seoul, help for female taxi drivers who are threatened while driving, and just this week, concerns over taxi drivers ignoring passengers in popular nightlife spots. Taxi management is a critical function of these major Asian cities, and mayors are keen to show that they can competently manage this key transportation resource.
Second, Asian governments are simply more involved in economic decision-making than the United States government. Uber’s bottom-up strategy of engaging riders and drivers to advocate for change falls flat in these countries, since the government is far more active in regulating the economy. Just take a look at startups in the region and their venture capital backers. In Korea, one of the largest sources of venture financing is none other than the Korean government itself. While startups may chafe a bit from government funds, that capital also provides an entrée to key government agencies which can smooth regulatory issues.
And it isn’t just taxi regulation that the service has run afoul of. Uber’s initial launch in Seoul wasn’t blocked by taxi regulators, but rather by financial regulators. Korean law doesn’t allow technology companies to store payment data as part of their purchase workflow, but instead requires consumers to retype their information with every purchase, ostensibly for security reasons. Uber’s app (unsurprisingly) didn’t comply with these dictates, which would detract from the ease-of-use of the product. Thus, a conflict existed right from its launch.
It’s tough for any organization to change its strategy, even more so when that strategy has proven wildly successful. But Uber’s engagement in Asia needs to take a different turn, lest it fall prey to regional competitors like GrabTaxi.
One important approach is to engage local partners who have the government contacts and relationships needed to avoid these sorts of outcomes. Uber has already begun to build these engagements with its capital infusion from Baidu. Governments like Korea are very concerned about companies that are wholly owned by foreign investors, but they are often more flexible when local capital has a stake. That may be obvious in a country like China where broad capital controls are in place, but it also applies to other countries in the region like Korea, Japan, and Malaysia.
The other approach is to learn the local issues that annoy consumers and redevelop its strategy to address them instead. The jobs argument doesn’t work in Seoul, since taxi drivers in the city barely eke out an existence as it is, and a few thousand more drivers does little for employment in a city of almost 10 million people. Instead, the company should address local issues that currently plague the system. Taxis in Korea are not popular with the public, but the reasons for that dislike are very different than in the United States.
Uber has been a godsend for many cities in the United States, where taxi options have historically been limited. The transit situation is much better in Asia, and an evolved approach is needed if the company is going to grow into its most important growth market.