Uber's global expansion is facing increasing regulatory and competitive difficulties in various major markets. The company's service is facing bans in much of western Europe, while in China and other Asian countries and regions it is dealing with powerful competitors and distinctive local transportation markets. But Uber executives and investors are not shying away from these battles, instead seeing them as the necessary price of taking on entrenched taxi sectors and regulations that have not yet caught up with its disruptive approach.

A person uses the Uber app in Beijing on September 23. Photo: CFP

Uber Inc's aggressive global expansion is looking costlier and riskier than ever as the company struggles with regulatory and competitive obstacles in major markets.

The Uber Pop service, known as Uber X in the US, which enables people to offer rides in private cars, is now banned outright in most of western Europe. Meanwhile, in Asian markets, the company faces a whole different set of challenges.

Just over the weekend, China's Ministry of Transport released a draft regulation on car-booking services, which states that all private cars must be registered as taxis before they can be used for online car-hailing.

The new regulation, which is open for public comment for a month, will address the charge that the online car-hailing model had "disrupted normal market order, which has affected the taxi industry and social stability," authorities said.

That's on top of the challenge to its business model that Uber faces in its home state of California, where a class action lawsuit could force the company to treat its contract drivers as employees.

Rapid expansion strategy

Taken together, Uber's recent troubles raise the question of whether the firm's headlong drive for global market share, underwritten by more than $7 billion in venture capital investment, is a prudent strategy.

Uber has moved far more quickly in its global expansion than any company in memory - it's now in 60 countries and regions after being founded in 2009 - and the cost and complexity of so many legal wars and subsidizing millions of rides in markets like China could tax even a company as wealthy as Uber.

In the US alone, Uber has been involved in at least 173 US lawsuits since October 2012, a review of Westlaw dockets shows, while rival Lyft has been involved in 66 and lodging service provider Airbnb just 20.

As a private company, Uber discloses little about its spending, but one indicator of the scale is its $1.2 billion funding for its China unit in September. Leaked financial documents show Uber overall lost more than $100 million in the second quarter of 2014.

"Uber is adopting the shock and awe strategy," said Aswath Damodaran, a finance professor at New York University's Stern School of Business. "I think it's a very high risk strategy."

Uber executives and investors counter that its many battles are the price of taking on an entrenched taxi industry - and happily point out that controversy is great marketing and spurs downloads of the Uber app.

In the US, Uber has maneuvered to generate consumer enthusiasm for its service and then bring pressure on local politicians to develop rules that allow it to operate.

It's using a similar playbook overseas: Reports of the pending new regulations in London, for example, immediately brought an e-mail blast to Uber customers that the city was about to destroy "the Uber you know and love."

Long-term game

Company spokesmen stress that Uber is playing a long-term game and view individual regulatory setbacks as inevitable - and temporary - phenomena.

Bill Gurley of Benchmark, a key investor in Uber who sits on the company's board, said in an e-mail that he has no doubts about the strategy.

"Uber moved faster than any other company going international. And because of money that is earmarked for foreign clones of successful US companies, if you don't move quickly, the clones will pop up fast. So it's a fact of life. I would not have advised going slower."

Over the past two weeks, Uber faced a police raid on its European headquarters in the Netherlands, a criminal trial of two top executives in France, a ban on its services in Rio de Janeiro and proposed new regulations in London and Toronto that could cripple its services in those cities.

Uber's troubles in Europe, where heavy regulation is a way of life and workers are primed to fight for their rights, are not a big surprise. Uber Pop is now banned in France, Germany, Italy and Spain, and the company is appealing pending bans in the Netherlands and Belgium.

Uber's exposure in Europe is still limited. In France, the company disclosed in court on September 30, 2014 revenue was just 6 million euros ($6.7 million), with a profit of 500,000 euros.

The company is hoping that the European Court of Justice will establish more liberal continent-wide regulations when it rules next year on a lawsuit brought against Uber in Spain.

Asian challenges

The mega-cities of Asia present a whole different set of challenges for Uber. In Indonesia, a market that's among the most social media-savvy in the world, Uber's main rival is a motorcycle taxi service call Go-Jek.

"Ojeks" are a traditional feature of Indonesian life: motorbikes that ferry commuters from the main roads to their homes, and sometimes farther. By providing helmets, jackets and training, Go-Jek has added a professional layer to an informal sector, and the Go-Jek app removes much of the hassle of finding a driver and negotiating fares.

In Singapore, by contrast, the government strictly controls the number of cars on the road, and thus Uber's problem is not too many cars, but too few. It has set up a subsidiary in Singapore that buys used, permitted cars and rents them out to people who will use them to drive for Uber.

Still, car rental is not an obvious direction for a company that has studiously avoided owning cars and directly employing drivers.

"Uber is smart to have this flexibility in different markets and not have the same features everywhere," said Jan Dawson, an Uber analyst with Jackdaw Research. "The downside is that it is very costly."

The China prize

The big prize is China, where Uber has set up a separate unit. The company said in September it had raised $1.2 billion for the China business, and a Financial Times report recently said the total could be as much as $2.5 billion.

Uber is offering huge subsidies for Chinese riders and drivers as it competes head-on with Didi Chu-xing, which dominates the ride-hailing market and is backed by China's two biggest Internet firms.

The subsidies have created a cottage industry of drivers who game the system, giving one another rides and pocketing the hefty portion of the fare - said by drivers to be about 30 percent - that is subsidized by Uber.

Mark Natkin, managing director of the Beijing-based Marbridge Consulting, which researches China's tech industry, said Uber's subsidies and promotions come at a steep cost but have spread name recognition in a market where homegrown Didi boasts 80 percent market share.

"When we go out and survey people about why they use Uber the most common response we get is, I'll try Uber when they're offering a promotion," Natkin said. "It helps them gain mindshare."

Reuters - Global Times