Uber in China, A Great Opportunity or A Tough Challenge?


Uber is a technology company based in San Francisco that provides customers with private car services on demand with its smartphone app. Basically, with only one tap on its smartphone app, Uber will connect a customer with a Uber driver, and the customer can enjoy a reliable and safe ride experience. Everything is done through the app, so it’s totally cashless and convenient. Since its founding in 2009, Uber service has expanded to over 70 major cities around the world. While its revenues had grown more than 10 times in 2013, Uber continues to seek out for larger markets. And recently, in February 2014, Uber officially launched in China. As China has the largest population as well as the largest smartphone market in the world, Uber considers its expansion into China as a greatest opportunity for the company ever in terms of the size of the market and potential customers, but maybe it should be prepared to face its toughest challenge while performing in China.

FP_2Hiring local staffs will be a starting point for Uber’s localization. Uber needs to hire the right team in China in order to succeed in the country as a foreign company. For example, one of Groupon’s biggest mistakes which led to its failure for expansion in China is that it failed to hire local staffs for the right management positions. Right now, Uber is still actively hiring management roles in China, as well as drivers in major cities like Beijing, Shanghai and Guangzhou, to join its ride-sharing community. Besides this, Uber has made some important decisions in terms of localization, including creating its Chinese name “You Bu” to target local customers and build up its brand image, and supporting online payments via Alipay, which is one of the most popular e-payment services in China. And instead of owning all its cars in China, Uber forms partnership with local car rental companies to rent the cars.

FP_3One existing opportunity for Uber to grow in China is that many Chinese people in major cities have already accepted the idea of giving rides to strangers, so it won’t be difficult for Uber to fit in the culture with its ride-sharing app. As a consequence of the increasing number of middle class in China who can now afford taxis as their daily transportation options as well as the fact that the number of taxis in urban centers hasn’t kept pace with the increasing demand, it now has become extremely hard to get a taxi in major cities like Beijing and Shanghai, not to mention the time during holidays and rush hours. Thus, as a result of the high demand of taxi services and the lack of enough supplies of taxis especially in major cities, there have been a growing number of “black cabs” in the cities. Black cabs refer to those private cars that the drivers make money on their own by providing rides to people in need of cabs, without any proper taxi licenses. It’s an illegal service, but somehow becomes acceptable in China due to the high demand by customers and as it’s hard to regulate by the government as well.

It’s quite normal for people in major cities to hop into a black cab when they fail to catch a taxi but in need of a ride. I personally do the same thing. Sometimes I need to get to somewhere in hurry, and I can never make it if I take the bus or subway as it takes too much time. But I just cannot catch a taxi nearby. When I call the taxi company to ask for a cab, they usually tell me “There’s no available taxi around your place. Please wait for a few minutes and try again.” It’s really frustrating. However, the good thing is that there are always a couple of black cabs waiting near our neighborhood. When the black cab drivers assume that you are trying to get a cab, they will approach you and ask where you are heading to. If you accept the price based on the distance, deal! It’s usually cheaper than a taxi and much more convenient to get one especially during rush hours or holidays, so such illegal service is somehow quite popular in China. Of course, safety will be a concern, just like people’s concern for Uber’s safety control when it just launched in the U.S. as a ride-sharing app connecting drivers with customers. But many of the people in China actually accept such ride-sharing concept, which creates the potential for Uber to expand in China.

FP_4Besides the opportunity, there will also be competitions, accordingly. The biggest challenge for Uber will be the fierce competition in the Chinese market. Interestingly, even though Uber has benefited greatly from its innovative and successful ride-sharing model, its presence in China doesn’t seem to disrupt the taxi cabs industry in the country. Actually, according to Quartz, “the market for taxi services has never been bigger in China”, especially in major cities like Beijing and Shanghai. I interviewed a taxi driver, Hailin Wu, in Shanghai, and from his perspectives, he didn’t even take Uber as a competitor. “There had been competition over the past few years, when it was quite easy for people to catch a taxi and we as drivers needed to compete for customers.” Wu said, “But now, the demand for taxis is always higher than the actual number of taxis available in the city.” Wu shares his taxi with his friend and does one shift per day (for approximately 10 hours), and he usually has customers from the start to the end of his shift. He barely has the time to grab a meal during work. According to Wu, there are some apps doing the same thing as Uber, but they don’t seem to affect the business for taxi drivers. In cities like Shanghai, there is always more demand than supply in the market. So for taxi drivers like Wu, there will always be enough people looking for taxis, even when there are those black cabs all the time, as well as those emerging apps. It’s even usual for drivers to “select” their customers in these major cities. For example, if the distance to your destination is not far enough or the route to the destination is with heavy traffic, it’s very likely that a driver will refuse to provide the service to you.

FP_5Thus, from Wu’s point of view, Uber’s major competitors should be those similar apps in the market which already have their customer bases as well as large amount of drivers. Uber’s biggest competitor as a smartphone app should be Didi Dache. It has been the most popular ride-sharing app in China since its launch in 2012. Users can use voice messages to contact drivers nearby and can even pay a small fee to let the drivers wait for them for a while. At the end of February 2013, Didi announced to have 600,000 subscribers and 12,000 drivers in Beijing only, not to mention the number of drivers it has around the country. Other competitors include Dudu Jiaoche, Yaoyao Dache, Kuaidi Dache, and Dache Xiaomi. All these apps provide services in a similar manner. But compared to Uber, they already have a steady and even growing user base to maintain stable revenues. More importantly, many of these apps have seen growing investments from outside. For example, the E-commerce giant Alibaba has invested nearly $1 million in Kuaidi Dache in April 2013. As a result, when expanding into China, Uber really needs to find out its competitive advantage in order to attract customers and succeed in the market.

FP_6Moreover, how to maintain a competitive price is also a question. Initially, Uber positioned itself as a premium or even luxurious riding option in China, in order to differentiate itself from the so-called “crazy cheap” taxi market in the country. However, there isn’t such high demand for riding services that come with a premium price. Those who can afford such services on a daily basis usually already have their private drivers. And the competition still exists. For example, Yongche is a famous web-connected car rental company in China, offering limo rides with drivers at a competitive price. Yongche’s price is 300 RMB for driving you in an Audi A6 from central Shanghai to Shanghai Pudong International airport, while Uber charges approximately 350 RMB for mid-range to high-end cars for the same distance. In order to be more competitive, Uber has adjusted its position and strategy. Now the base fare to use Uber service in Shanghai has dropped to 30 RMB, compared to double the price (around 60-70 RMB) when it started its test run in the city in summer 2013. However, the price is still not quite competitive in the market, especially when you take into consideration all the similar apps, black cabs, and the already affordable taxis. After all, a price war won’t help Uber succeed in the Chinese market.

I consulted Uber’s issue with Carl Cai, a senior consultant at PwC Beijing. He told me that Uber approached a famous consulting company in the industry to take care of its localization in China. However, according to Carl, “Whether Uber can succeed or not in China fully depends on how soon it can figure out its competitive advantage in the market.” Now Uber has its Chinese name, convenient payment options tailored to Chinese customers, and it is actively building up a outstanding management team as well as a welcoming community for both its drivers and its customers. But this is not enough. They still haven’t figured out their “fit” strategy to perform in the competitive market in China, and to differentiate itself from competitions. Uber should take a close look at itself, take approaches to performing that are suitable to the given situation in China, and build on their strengths based on their success in the United States. For example, instead of lowing the price and starting a price war, maybe build on their innovative idea not just as a ride-sharing app, but as a ride-sharing community, which is a fairly new and unique concept in China.


It’s difficult to judge Uber’s performance right now as it has just launched officially in China for few months, and the company didn’t want to mention the actual numbers of its performance in China so far. Yet, Uber is still optimistic toward its expansion in China despite all the challenges. Actually, Wall Street Journal reported based on the interview with Allen Penn, Uber’s head of Asia, that the number of trips booked in Shanghai through the Uber app since the test run in August 2013 even exceeded the number of trips made in San Francisco or New York during each of their first half year. “The company prides itself on being a premium service and, perhaps crucially, a “safe” option that includes a high level of customer service.” said by Sam Gellman, head of Asia expansion at Uber, “Our focus is on delivering a great experience, and numbers so far have shown great initial results and we just want to keep building it up.” Maybe we just need to wait a few more months to see Uber’s results in the following periods, and to find out whether its future in China is as promising as it has expected.













Interview with Hailin Wu, taxi driver in Shanghai

Interview with Carl Cai, senior consultant at PwC, Beijing.


Should More Nonprofits Merge?


Nowadays, there are a large number of nonprofits around the world. No matter these nonprofits are large or small, they all share the same characteristics that are to provide services to people and to help people live better lives. However, during nonprofits’ growth and development, they may face many problems in funds, human resources, managements, policies, etc. To many nonprofits, they are facing two choices. One is to attempt to develop on their own, and the other is to merge with other nonprofits. However, whether or not more nonprofits should merge always remains a controversial question.

Merging is actually an effective and efficient way for nonprofits to better serve the community and realize their missions. Even though people may be concerned that the merger will bring conflicts between the two organizations, a merger can potentially bring more benefits than negative effects as long as the two nonprofits share similar missions and visions. According to Dr. B.J. Bischoff, if two organizations share a close mission, then they have the potential to merge. There have been approximately 1 million nonprofits in the United States so far. Many of those small nonprofits actually provide similar or almost the same services. The record from National Council of Nonprofits indicates that the majority of the nonprofits sector is small- and mid-size organizations; “82.3% of the filing nonprofits have expenditures of less than $1 million.” Therefore, due to these nonprofits’ small sizes, it’s difficult for them to carry out their goals and make a difference. Some of them may even struggle to survive during economic downtowns. As a result, it will be a wise decision for nonprofits with similar missions to merge. In this way, such combined forces after merging will allow nonprofit organizations to enable stronger entities. Thus the merged nonprofit will be able to better serve the people in need. 3b3fb3ef7f0b3b0447986ecc989de220For instance, Shelter Network and InnVision the Way Home are both nonprofits in California providing services and help to homeless people. They merged as one organization, InnVision Shelter Network in July 2012. Because of the merging, InnVision Shelter Network has become one of the largest nonprofits for homeless people in Northern California, and has the ability to help more than 20,000 homeless people every year.

In addition, when a merger takes place, the resources and expertise of the two organizations are shared. During economic downturns, combined funds and resources can help the merged nonprofit find solutions to financial problems. Although people who don’t support nonprofits’ merging may think that it is easier for smaller organizations to reduce cost, actually the resources and funds a small nonprofit has are quite limited in the first place. Without sufficient funds and resources, a nonprofit is unable to provide clients with good services and even finds it hard to survive or grow due to financial difficulty. Besides the financial advantages that come from the merging, the combined human talents and skills among the merged organization will be another beneficial power to help development. With shared operating concepts, administrative strategies as well as expertise, the merged nonprofit can compare and thus figure out a new operation model which will enable them to provide the best services to clients. HomelessMan640For example, Minnesota Coalition for the Homeless and the Affirmative Options Coalition merged during the last economic crisis. Due to the terrible economic situation and a rapidly increasing number of poor, the constantly decreased funds could not support the two nonprofit organizations to help the poor. For this reason, they chose to merge. With combined funds and employees, they were able to provide more and better services to support the poor.

Furthermore, merging can also serve as a tool for nonprofits to ease competition. Although some people may consider that competition only exists among for-profits and is not necessary for nonprofits, nonprofits actually face much pressure from competition in terms of acquiring funds and resources, performance, etc. Merging can help nonprofits become more competitive in its field, and thus ease their pressure from competition. Two nonprofits may choose to merge if they “identify critical strengths in differing areas.” As a result of the merger, they can expand their services and improve their skill sets, instead of being limited in only one area. Thus, they will be able to grow more strategically and competitively.

More importantly, as long as a nonprofit starts the process to explore whether it is suitable for merging, it’s quite beneficial for this nonprofit to get a better understanding of itself and thus to enable improvement, even without the decision to actually merge. However, nonprofits which seek to merge should carefully study their own situations, and thus figure out a way to realize best outcomes from the merger.mergersnonprofit


Inside Job, the Conflict of Interest

inside-jobInside Job is such an inspiring film with so many issues worth thinking hard and doing further research on. Here I just want to share with you some of my takeaways from the film, mainly focusing on the issue of conflict of interest.

First let’s look at some disturbing facts. First, during the late 1990s, many IB promoted risky stocks of Internet companies that appeared to be very uncertain in terms of financial strength, which resulted in law suits and $1.4 billion settlement. Another fact is that famous credit rating agencies such as Moody’s, S&P, and Fitch provided high-risk CDOs with triple-A credit ratings which attracted numerous investors that ended up losing their shirts. Fact number three: very few academic economists foresaw the financial crisis, and even afterward, some continued to argue against reforms. Fact number four: The SEC claimed that Goldman Sachs had misstated and ignored very important facts when selling CDOs to various investors; the case was settled for $550 million but Goldman Sachs did not admit to any wrongdoing.

The way I see it is that all those facts are caused by the issue—conflict of interest, which, by definition, means that a person has a private or personal interest which is sufficient to influence the objective exercise of his or her official duties as a professional. The film mentioned four types of people that have such issue – analysts of investment banks, credit rating agencies, academic professionals, and of course, executives in Wall Street.

Analysts in investment banks are greatly motivated to report virtual-high ratings for stocks to attract clients because their firms paid them based on the level of business that they brought to the firms but not on how accurately they rate. This wicked compensation system drives the analysts to focus on creating profitable deals instead of creating safe deals. Moreover, they would rather sacrifice safety in order to bring profitable deals. This phenomenon is hard to change as long as the organizational structure doesn’t change.

The rating agencies are expected to provide unbiased professional opinions about investment. Their words are very important references for investors, so being trustworthy should be their top ethical standard. However, according to some journal articles I read, the rating agencies emphasize heavily on immunity to accountability in their operational ideas. As the excerpts from congressional hearing in the film shows, agencies defend their ratings as simply opinions that should not be relied on. In that case, it is obvious that rating agencies may also prioritize profitability over accuracy. It would appear that they are only interested in trading opinions for money.

Academic conflict of interest comes in a similar way. Many leading economists were paid consulting fees by financial service firms to shape public debate and policy. It is unnecessary for them to be accurate, because “accuracy is not something to expect in this fluctuating market anyway”, so why not just take the money from financial service firms and say what they want to hear? An example from the film would be the report written by Mishkin titled Financial Stability in Iceland, which described the exact opposite side of the truth.

wall streetLast but not least, conflict of interest of the executives in Wall Street is a big one. They somehow manipulate the market to their interest so that they could continuously feed their fat wallets, and they could walk away with huge size of bonus when things didn’t go well. Here I will just simply mention their conflict of interest in terms of fiduciary duty. To fulfill such duty, one must put client’s interests first, act in good faith, disclose everything of all materials, remain neutral, and confess if there is a conflict of interest. However, this is only an ethical code but not a requirement, and what’s worse is that, it’s an ethical code that kills income.

In short, humans are greedy. This is an unfortunate but very well-accepted fact. The conservation of resources on the earth decides that when some people get richer, others get worse. With that in mind, my conclusion would be that as long as the conflict of interest exists, which is always true, and as long as it is not regulated by force, which means law that violating will cause huge penalty, investors should always keep in mind that the financial market is full of lies and dark transactions.



Lululemon, and Trends in the Market

lululemon storeAs a premier sportswear brand, Lululemon is known for its high-end, innovative athletic apparels that are designed specifically for yoga practice. During the recent years, its product types have expanded into a variety of technical athletic apparels for different sports.

In the United States, participation in sports has been constantly increasing slight during the past few years, and is expected to continue such slow growth, at a rate of 0.5 percent, until 2018. Even during the economic recession, sports participation increased as people used sports activities to kill their time. As a healthy alternative exercise method as well as a convenient individualized fitness activity, yoga practice has gained rising interest from sports participants over the years and is one of the major sports activities that were responsible for most of the increase in the overall sports participation within the United States. Additionally, participation in yoga practice will see strong growth in the near future as a result of people’s increasing perception that physical activities like yoga will lead to an overall healthier lifestyle. According to the latest study conducted by Yoga Journal in 2012, approximately 20.4 million Americans practice yoga, while the number was only 15.8 million based on the study in 2008. As a result, yoga practitioners in the United States now spend over $ 10.3 billion every year for yoga products and services. This is a major opportunity for Lululemon, as it is known for its innovative, high-quality yoga apparels, which is on greatly increasing demand due to the trends in the industry and marketplace.

QQ截图20140326212518However, despite the opportunities in the marketplace, Lululemon has faced many challenges, especially in terms of increasing competition, both domestically and overseas. For instance, Nike is the biggest and one of the most famous sportswear brands in the world, offering high-end, high-quality sports apparels to its customers, just like Lululemon does. However, with a dominant place as well as a much wider reach in the market, Nike had earned $6.3 billion in sales in 2012, while Lululemon earned $1 billion during the same year. Unlike Nike, Lululemon enjoys its reputation and popularity mainly in the United States and Canada, and even though it offers a variety of technical athletic apparels for different sports, it still mainly focuses on the niche market for yoga fashion.

Considering Lululemon’s situation and the trends in the sportswear industry, another opportunity for Lululemon is that it may want to expand its business focus more into the global market. With only a few physical stores in countries other than the United States and Canada, Lululemon should consider having more physical locations set up globally, as well as provide easier access to online shopping, like better shipping and payment policies, for customers around the world. Moreover, besides its popular yoga apparels, Lululemon can expand its products lines and provide customers with more innovative, high-quality yoga practice equipment, like yoga mats and balls. As indicated by the IBISWorld Industry Report, even though there is strong competition, including overseas competition, in the market, sales of athletic equipment will continue growing in the following periods, especially for popular sports activities like yoga.


China’s Increasing Concerns of a Property Bubble

Despite all the policies that the Chinese government has enforced to cool house prices in China, especially in major cities like Beijing and Shanghai, prices continue to rise, causing the property bubble in the country to expand.

Home Price Change

As shown in the graph, home prices have been increasing dramatically over the years, especially around 2005 and 2008. It slowed down a little bit after 2010, when the government started interventions and set strict real estate market policies to cool the market. For instance, in my home city, Suzhou, a fairly economically successful city in China, the newly-enforced real estate market policies in 2011 stopped many people from purchasing their new houses. If you are purchasing a new house as a resident in Suzhou and it’s the second house under the name of your family, you need to make a minimum of 60%-70% down payment instead of the original 30%-40%, with higher taxes issued and higher interest rates for loans. One family is limited to two properties in Suzhou. In major cities like Beijing and Shanghai, the market policies are even stricter. This explains the slowdown of the house price rise or even drop in China around 2011.

However, even though the real estate market seems to be under tight control of the Chinese government, the house prices in China started to rise again. According to China’s National Bureau of Statistics, China experienced a 0.8 percent rise in average new housing prices across China’s 70 major cities in August 2013 and a 0.7 percent rise in September 2013. That was the “ninth-straight monthly rise on an annual basis.” (On an annual basis, the house price rise was 9.1 percent as of September 2013) The national average new house prices continued to rise 0.5 percent in November 2013 and 0.4 percent in December 2013.

The situation is even worse when applied to individual cities in China. Beijing had a year-on-year increase of 16.3 percent in average new housing prices in November 2013, and 16 percent in December 2013. For major cities in southern China, Guangzhou had a year-on-year house price increase of 20.7 percent in November 2013 and 20.1 percent in December 2013. Even though there was a slowdown in the increase of house prices (and it was the first one in 2013), the situation is still horrible, differing from what the government expected; house prices in China are still kind of out of control, thus causing the property bubbles.

China has experienced great GDP growth over recent years. However, China’s dramatic economic growth has been a result of the government’s policy to spur exports, instead of consumer spending, which indeed indicates the purchasing power of people in the country. China’s economy is growing and expanding rapidly, and so is the wealth gap in China. Fewer residents, especially in major cities in China, can afford to purchase their own houses, while wealthy people are not quite influenced by such government policies and continue their huge investments in real estate as usual. Even though the Chinese government hopes to utilize market policies to cool the real estate market, it doesn’t seem to solve China’s problem of a property bubble. In spite of China’s ambitious economic development plan for the following years, the Chinese government really needs to take a step back to rethink about how to actually make the house prices under control, resolve the problem of property bubble and thus to realize healthier economic growth, and ultimately, to benefit its people.