Question

• What modes of entry did GM and Uber choose to pursue as they expanded into China? Why did they choose these? Also think about how the state owned SAIC (meaning that SAIC is partly owned by the Chinese government) reduced government challenges to GM’s entry into China.
• How did each mode of entry make it easier/harder?
• What type of corporate-level strategy did each pursue (Multi-domestic or global). Which was more successful?
• Uber in particular has really struggled. Why didn’t they pursue the same strategies and entry-mode that GM did? Proprietary knowledge (i.e., meaning that control is critical), and firm age/stability (i.e., ability to take on additional risk) should form the basis for your answer. Uber is a young company focused on growth and profits in a new industry. GM is a much more mature company in a slow cycle market.

Answer 1

Question

What modes of entry did GM and Uber choose to pursue as they expanded into China? Why did they choose these? Also think about how the state owned SAIC (meaning that SAIC is partly owned by the Chinese government) reduced government challenges to GM’s entry into China.

Answer

GM - China Entry through JV Model
General Motors (GM) entered the Chinese automotive market through joint ventures with Chinese companies. Shanghai GM was a JV partnership with the Shanghai Automotive Industry Corporation (SAIC) in 1995.

Uber – China Entry through Greenfield Model

Uber entered the Chinese market with a Greenfield model in 2004, through Uber China as a subsidiary company, which was established and launched operations in Beijing and Shanghai.

Reason for GM
In 1994, when the Chinese authorities began the task of making China's automotive sector one of the country's strongest industries, the automobile market was opened to the foreign companies. But the access to the market came with a rider – technology transfer to the local companies. SO practically if Chinese government made it clear that entering into automobile market in China is bound to be through joint ventures between foreign companies with local entities. General Motors (GM) entered the Chinese automotive market through joint ventures with SAIC in 1955. Eventually GM got the permission to set up a manufacturing unit investing between $1 billion and $2 billion to manufacture mid-sized cars in China. But the company's Chinese odyssey has not been very smooth. It not only had to deal with fluctuating car demand but also with its joint venture partners who proved to be tough negotiators. Despite the problems, GM continued to focus on China and the perseverance seemed to pay off with the company tripling its sales in 2003.

Reason for Uber
Since Uber is the first platform provider that launched the ‘ride-hailing service’ even before this term appeared in the news and media, its brand power is a very powerful and driving force for its business growth. In fact, as in ‘Google’ for Internet search, Uber is almost synonymous with ride-hailing service. The brand recognition reaches to over 40 million monthly users and the service operates in 633 cities worldwide with high brand equity and awareness. Thus, it was quite a natural decision for Uber to penetrate the Chinese ride-hailing market rapidly through a greenfield model.

However, Uber China failed in creating a winner-take-all situation in the Chinese ride-hailing market, where there are huge potential customers who are difficult to get a taxi, particularly in peak hours. According to iResearch (2016), the number of users enjoying the ride-hailing service reached 399 million in the Chinese market by the end of 2015. And in the first quarter of 2016, Didi’s market share (in terms of the order volume) reached 85.3%, ranking first in the industry; on the other hand, Uber’s market share reached only 14.9%, taking the second place (CNIT-Research, 2016). The big difference in the market share implies that despite Uber’s strong brand power in the global market, there were other factors in the Chinese market which affected users’ choices of the ride-hailing platforms. Now, we first propose the following factor about the effect of the brand power on the Chinese ride-hailing market.