Uber technologies Inc.: re-entering the South Korean Taxi hailing service after the eviction

Wiboon Kittilaksanawong (Graduate School of Humanities and Social Sciences, Faculty of Economics, Saitama University, Saitama, Japan)
Margaux Afanyan (Nagoya University of Commerce and Business, Nisshin, Japan)
Emerald Emerging Markets Case Studies
ISSN: 2045-0621
Publication date: 26 March 2018

Case summary

Subject Area

Competing in Emerging Markets; Internationalization of Service Firms; Global Marketing.

Study level/applicability

Senior undergraduate or graduate students in business schools.

Case overview

Uber first entered the South Korean taxi hailing service in Seoul in September 2013. In March 2015, the company shut down its operations after being charged for operating an illegal service. However, in January 2016, Uber decided to re-launch Uber’s premium service, UberBLACK after working with the city government. Given the country’s unique characteristics, was the decision to re-enter the market justifiable? Would Uber’s new strategies including partnering with a local company be sufficient? How could Uber gain more market share against its local powerful competitors?

Expected learning

Outcomes This case allows students to understand the challenges of internationalizing services of a global company in an emerging market that has strong national cultures and domestic preferences. The students will learn how to analyze the country and industry external environment as well as internal resources and capabilities to formulate the appropriate market entry strategies and to effectively implement them. The students will also learn the critical role of host country government and how to manage its relationship, the first- and second-mover advantages/disadvantages and the sustainability of innovative business models.

Supplementary materials

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Subject code

CSS 11: Strategy

Keywords

Citation

Kittilaksanawong, W. and Afanyan, M. (2018), "Uber technologies Inc.: re-entering the South Korean Taxi hailing service after the eviction", Emerald Emerging Markets Case Studies, Vol. 8 No. 1. https://doi.org/10.1108/EEMCS-04-2017-0070 Download as .RIS

Publisher: Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

Uber Technology Inc. (Uber) first entered the South Korean taxi hailing service in Seoul in September 2013 (The Korea Times, 2016). In March 2015, the company shut down its service after 30 employees were charged by the local police for operating an illegal service. The eviction allowed the local giant Kakao to immediately step in and launch its own taxi-hailing application without any intervention from the local authorities (Okhyun, 2018). Supported by 37 million users of the popular messaging application KakaoTalk, KakaoTaxi had received more than 50 million calls since the launch in March 2015 (Park, 2016). The South Korean market was known to be particularly tough for foreign companies, and Uber had already experienced the toughest way in its first entry. However, in January 2016, Uber decided to fight back by re-launching Uber’s premium service, UberBLACK after spending several months working with the city government to redesign the service in compliance with local regulations. With a population of 50 million, 10 million of whom were living in Seoul, South Korea was just a piece of Uber’s puzzle but perhaps a crucial one (Ramirez, 2015). There was no doubt that Uber had to bet on its international presence to build a sustainable competitive advantage against its chaebol[1] rival and to build its own customer base in the South Korean market. Given the country’s unique demographics, transportation habits, cultures and competition, was the decision to re-enter the South Korean market justifiable? Would Uber’s new marketing strategies, including partnering with a local company, be sufficient to secure profits in the next few years? How could Uber gain more market share against its local powerful competitors?

Company overview

Creation of Uber in San Francisco

Uber was established in March 2009 in San Francisco by Garrett Camp and Travis Kalanick. At the time, Camp was still the CEO of StumbleUpon Inc., a company he had co-founded, while Kalanick was a co-founder of Red Swoosh, a peer-to-peer file sharing company. Identifying the need for a fast and reliable transportation service in densely populated areas, the pair came up with UberCab, which was originally a luxury car timeshare company that was operated based on an iPhone application (Hitt, 2010).

In their hometown of San Francisco, the high density, steep hills and many local attractions made it very difficult to park a personal vehicle, making taxis a very convenient and efficient alternative to owning a car. Yet it was very difficult to find and hail an available taxi in a timely manner. The underlying idea behind the creation of Uber was to employ non-professional drivers to use their personal vehicles to transport customers by using an iPhone application that facilitated communication between the two concerned parties (e.g. the taxi driver and the passenger) (Ztreet, 2015).

Historically battling with regulations around the world

Shortly after the launch in San Francisco, in October 2010, UberCab encountered its first roadblocks, as the metro transit’s authority issued them a cease and desist order for operating like a taxi company without required licenses. After changing its name to just “Uber”, the company was able to get around the regulation because unlike a taxi company, Uber pre-arranged customer pickups and did not acquire curbside customers (Ztreet, 2015). By late 2011, Uber had raised US$49.5mn [2] through angel investments made by large entities across the country, including The Goldman Sachs Group, Inc. and Bezos Expeditions, LLC (founded by Jeffrey P. Bezos, the founder of Amazon.com, Inc.), while it was valued at $330mn. As of March 2016, Uber was valued at more than $50bn, making it the most valuable start-up in the world (Exhibit 1).

Uber expanded internationally into Paris, France in December 2011, Vancouver, Canada in March 2012 and London, UK in July 2012 (Ztreet, 2015). Like in the USA, there was also some pushback from taxi union groups, including a violent riot on the streets of Paris in June 2015. Uber had also been banned from operating in other international cities, like Brussels, Belgium and Berlin, Germany (Exhibit 2). Despite all of the difficulties Uber was facing, the company had always focused on the original idea of achieving fast growth with more rides in more places, most of the time by undercutting the competition based on price, even at higher costs and losing money. The reason behind this aggressive strategy was its ambitious strategy to become “too big to ban” (Wohlsen, 2014). As of June 2016, Uber operated in 465 cities worldwide, in 75 different countries (Exhibit 3). Several other companies across industries had tried to emulate Uber’s peer-to-peer business model (P2P), an emerging trend commonly referred to as “Uberisation”[3].

Business model

Uber’s business model was fairly simple. Uber employed non-professional drivers to drive around with their own personal vehicles, picking up pre-scheduled customers through an easy-to-use smartphone application. Having already pre-loaded their credit card information through the smartphone application, the customers digitally paid their fare once the ride was over. The total fare was calculated by combining a base fare (B) plus a rate cost (ct and cd) for both time (t) and distance (d) travelled, respectively, displayed as:

Fare=B+ci×t+cd×d

All of these variables were varied between the regions where they were operating. This calculating method was similar to how taxicab companies across the world operated (Wohlsen, 2014).

Aggressive mode of expansion

Uber’s financial position had been increasingly scrutinized by investors because of its continuing fundraising (Exhibit 4) (Efrati, 2018). Unofficial reports being revealed to the public indicated that Uber’ net losses grew faster than its net revenues between 2014 and the first three quarters of 2015. In particular, its revenues increased 134 per cent, to $1.16bn, while losses grew 151 per cent, to $1.68bn (Rosoff, 2016). The increased losses were primarily a result of higher sales and marketing expenses. For instance, net revenue rose 30.8 per cent between the first and second quarters of 2015, while sales and marketing costs doubled to nearly $200mn during the same period (Efrati, 2018).

The rising losses also reflected Uber’s aggressive expansion efforts in emerging markets like China and India, where the company struggled to gain market share against strong local competitors. In China, the world’s largest transport market (Shih, 2015), although Uber did not face major regulatory challenges (Butt, 2016), it had spent several millions to catch up with its local rival Didi through a price war. Yet Didi, which received $1bn funding from Apple Inc. in May 2015, claimed that its share of the Chinese market was still around 87 per cent (Love, 2016).

However, Uber expected that older markets in developed countries would be able to generate billions of dollars in profit in the coming years. It was projected that the company could generate $14bn in profit from developed-world markets during the next four years, as more cities turned cash flow positive (Efrati, 2018). Uber was certainly not in danger of running out of money. According to the statement of cash flows, the company held $4.15bn in cash and cash equivalents as of June 30, 2015, up from $1.96bn at the end of 2014 (Exhibit 5) (Efrati, 2018).

Considering the progressive saturation of the ride-hailing apps market, Uber began to diversify into other on-demand markets. It had a division called UberEverything, which was tasked with identifying opportunities outside of its rides business. In 2015, the company launched UberRush, an on-demand package delivery service for online sellers in San Francisco, Chicago, and New York. In March 2016, it launched the food delivery app UberEats (Lien, 2016).

Kalanick had also revealed his plans to eventually introduce a driverless-car transportation service by 2020. Industry sources said Uber considered partnering with South Korea’s biggest automaker Hyundai Motor Company to develop this service (Won-Myung, 2016). Hyundai Motor became the first company in South Korea to receive a license from the government to test its self-driving Genesis premium sedan on real roads in March 2016 (Won-Myung, 2016).

Korean demographics

Aging population

South Korea was one of the nations in the world with the most rapidly aging population. By 2050, the median age of the population was projected to be 57 years, making it the most elderly nation in the world. In comparison, at present, Japan had the oldest median age at 43 years, while South Korea’s median age stood at 37 years (United Nations, 2018).

Population in Seoul

There were about 10 million people living in Seoul in an area of 605 km2, which represented 20 per cent of the country’s total population (World’s Capital Cities, 2018). The Seoul metropolitan area was the fifth largest in the world, with a population of 25.5 million, which was half of the country’s total population, in an area of 11,818 km2.

Foreigners in South Korea

The number of foreign residents in South Korea had more than tripled over the past 10 years. As of January 2015, there were 1,741,919 foreign residents in South Korea, accounting for 3.4 per cent of the registered population. This number represented a three-fold increase from 537,000 foreign residents in 2006, when the government began keeping track. The figure of foreign residents had increased by 14.4 per cent each year, representing 25 times of 0.6 per cent, the rate of the increase in the country’s total population (Sung-won, 2015).

Foreigners who had not attained citizenship were the majority, representing 79 per cent (1.38 million) of the total foreign residents. Foreigners who had attained citizenship and their children accounted for 9.1 (160,000) and 11.9 per cent (210,000) of the total foreign residents respectively. Most of foreign residents who had not attained citizenship were foreign workers (610,000), representing 35 per cent of the total foreign residents living in the country (Sung-won, 2015).

There were 950,000 Chinese (including 690,000 Chinese ethnic Koreans from China), making them the biggest nationality at 54.7 per cent. Further, 63.3 per cent of total foreign residents were living in the Seoul metropolitan area (Sung-won, 2015).

Tourism

The number of tourists visiting Korea in 2015 was 13,231,651. The number had increased to more than double in 10 years. International tourists came primarily from nearby countries and regions in Asia, including Japan, China, Hong Kong and Taiwan, together accounted for approximately 75 per cent of the total number of international tourists (Korea Tourism Organization, 2018).

Transportation habits in Seoul

Mode of transportation

According to a survey carried out by the Seoul Metropolitan Government, the percentage of travelers using share modes in the form of car and taxi in Seoul had slightly decreased from 26.9 and 7.4 per cent in 2002 to 23.5 and 7.0 per cent in 2011, respectively (Exhibit 6). Conversely, the percentage of share modes in the form of subway and bus had slightly increased, following the public transportation reform in 2004 (Seoul Metropolitan Government, 2018). The effect of this reform was also an increase in the satisfaction level with the public transportation service. However, satisfaction with the taxi service had increased as well, from 4.7 in 2007 to 5.6 in 2011, on a scale of satisfaction from 0 to 10.

Travel time

The average travel time by taxi in South Korea had decreased slightly, from 29.8 minutes in 2000 to 25.9 minutes in 2010. For all transportation modes, taken together, business trips were the most time-consuming type of travel for South Korean people, with an average of 70 minutes per trip (Exhibit 7). The time required for travelling to work in Seoul and Incheon had been constant over the decade, 40 minutes on average (KTDB Research, 2018).

Car ownership

The number of registered cars per household in South Korea had increased from 0.81 in 2000 to 0.95 in 2010. Within the country, Seoul showed the lowest number, an average of 0.84 registered cars per household. There was also a decrease in the number of personal cars as a preferred mode of transportation among people in their 30s and 40s, unlike all other age groups (Exhibit 8) (KTDB Research, 2018, p. 4).

The Seoul taxi industry

In Seoul, the taxi industry was regulated by the Seoul Metropolitan Government. Taxi operators were licensed to run a taxi service in the city. There were over 72,000 taxis in Seoul, of which about 23,000 and 49,000 were operated by corporate taxi operators and by individual taxi operators who drove the taxis themselves, respectively (Moo-jong, 2018).

Categories

Taxis in Seoul were broadly categorized into regular taxis, deluxe taxis and jumbo taxis. In addition, there was a fleet of wheelchair-accessible taxis, which were operated directly by the Seoul Metropolitan Government. These four types of taxis had different features and fare structures (Exhibit 9).

Electronic payment system

All taxis in Seoul were equipped with an electronic payment system to allow passengers to make payment with debit or credit cards. According to the Seoul Metropolitan Government, when the service was introduced in 2007, only 3.5 per cent of taxi fares were settled with credit cards. However, the usage rate of credit cards had kept rising and reached a high rate of 60 per cent in 2014 (Research Office of the Legislative Council of Hong Kong, 2015).

Technology-based safety initiatives

The Seoul Metropolitan Government had made concerted efforts to improve passenger safety, especially for women who took taxis at night. As such, it had made use of a wireless-based technology for sharing taxi information. Every taxi in Seoul was fitted with a data chip in the passenger seats that contained the taxi information including the driver’s name, contact and plate number. When passengers touched on the NFC chip with their mobile phones that had mobile application installed, the data in the chip was transferred wirelessly to the mobile phones. The taxi information would then be sent from the passengers’ mobile phones to their designated family or friends via text messages. The real-time location of the taxi could also be tracked during the ride (Research Office of the Legislative Council of Hong Kong, 2015).

Downsizing the number of stands

The government planned to cut 30 taxi stands each year over the next five years from 2016, downsizing about one-third of the existing 419 taxi stands installed throughout Seoul (Da-Sol, 2016).

Uber in South Korea

A first failed attempt

After three months of providing a free service to test the market, Uber quietly launched its UberBLACK service in Seoul in September 2013, this was a luxury service that was mostly used in the business world. The launch was quiet because Uber knew that the scope of its service was in theory limited by regulations in South Korea, which allowed any paid chauffeur services to only certain groups of people, such as foreigners or people with special needs. Although being aware of this limitation from the beginning, Uber figured that it was not actually observed and thus it started the operation without worrying too much (Ramirez, 2015).

The operation seemed to work for a while. However, only in August 2014, when the company introduced UberX and UberTAXI, did things begin to go wrong. UberX was the most common and least expensive among Uber’s services. Unlike UberBLACK, UberX did not require drivers to own a commercial license and high-end vehicle. Anyone over 26 years old with a proper license and an insured car could be a driver. As for UberTAXI, it was much less controversial, as it was just a platform that connected users to licensed taxicabs (Ramirez, 2015).

Immediately after the launch, UberX faced anger from local taxi drivers, being upset that amateur drivers were undercutting their fares. Whereas Uber did not require that its UberX drivers have any special licenses, private taxi drivers in Seoul were reportedly expected to pay around ₩70 million[4] ($60,900) for the proper documentation (Rich McCormick, 2014). In response to such rising anger from local taxi companies, the Seoul authorities opposed Uber’s operations.

On December 24, 2014, South Korea became the first country to indict Uber on violating the Passenger Transport Service Act. As Kalanick refused to stand trial in the nation, the city passed an ordinance that would offer a reward of up to ₩1 million ($870) for those who reported Uber’s illegal activities (Yonhap News Agency, 2014). Uber commented that the ordinance was a “predatory move”. The company even offered UberX for free in February this year to grow users’ appetite for the service while negotiating with the government. But several weeks later, the company bent to mounting pressure and shut down UberX on March 6, 2016, two weeks before Seoul prosecutors charged Kalanick and nearly 30 other Uber’s employees for running an illegal taxi company. UberTAXI continued operating but was quickly overtaken by a homegrown rival KakaoTaxi, which had just entered the market.

Re-entry strategy

After suspending UberX, Uber began working with the city and federal governments to revise the service in compliance with the law. New national and city rules that enabled the launch of KakaoTaxi Black had also allowed UberBLACK to widen its service offerings (Salmon, 2015).

As a necessity at the peak of the crisis, Calvin Kang replaced the former General Manager. His new approach was softer and humbler, as if attempting to undo the damaging image of an aggressive foreign company that expected the local market to bend to its will. Some said that this new approach reflected a company-wide strategic change at Uber’s operations around the world.

In November, Kang announced the relaunch of UberBLACK, provided by veteran taxi drivers and open to everyone. He said agreements had been reached with the local government, who had “recognized the ability of services like Uber to benefit citizens and provide a reliable transportation option across the city, at any time of the day” (Ramirez, 2015). Also, trying to improve Uber’s image among taxi drivers, he said:

No one knows Seoul better than veteran taxi drivers, so we’re pleased to be working with them and providing Uber’s technology and service expertise in order to serve Seoul citizens and improve drivers’ livelihoods (Eun-Jee, 2018).

In relaunching the service, Uber partnered with a local carmaker Kia Motors, which offered would-be drivers a discount on its luxury K9 sedan and the Mappy navigation system developed by an affiliate company (Ramirez, 2015). The K9 price without discount was ₩48.99 million ($42,621.3) (Salmon, 2015). As of December 2015, Kia Motors was 33.87 per cent owned by the Hyundai Motor Group (Kia Motors Corporation, 2018). “Uber’s innovative technology is absolutely aligned with our philosophy of ingenious thinking and continuously challenging new frontiers”, said Cho Yong-won, head of sales at Kia Motors (Salmon, 2015).

New marketing strategy in Seoul

Uber targeted three main customer segments in Korea:

Foreigners.

Tourists and expatriates in Korea were the first segments that Uber was trying to reach. A recent example of Uber communicating towards this segment could be found on Uber Korea’s official Facebook page, where the service was advertised with the following comment:

Have you ever experienced ridiculous taxi fares in Seoul as a non-Korean speaker? The Uber app is localized to your phone’s language setting and can even get a fare estimate by entering your destination (Facebook post, 2016).

Rich South Korean travelers.

This segment enjoyed the luxury of the service delivered by Uber and could also find value in being able to use it wherever they were in the world. For example, a recent promotion video for a partnership between Uber and a Korean mobile application that allowed travelers to let their friends track their trip by sharing their location services – showed two young South Korean women traveling from Seoul to New York and conveniently using Uber in both cities (Travel Guardian, 2016).

Disabled people.

On May 24, 2016, Uber launched UberASSIST in South Korea. In addition to the use of cars accessible to people in wheelchair, all UberASSIST drivers all had received training, which was created in partnership with the Yangcheon Center of Awareness for Disability and Human Rights and Good Job Center for Independent Living. “We hope that the launch of UberASSIST in Korea today demonstrates our commitment to the Korean rider and driver community, and our continued investment in the country”, said Mike Brown, Regional General Manager for Uber Asia-Pacific, who visited Korea to celebrate the launch (Uber Technologies Inc., 2019).

To reach these customer segments, Kang and his team used the following marketing mix:

Product.

The K9 was a luxury black sedan. A problem with UberX was its employment of nonprofessional drivers, but the new UberBLACK service solved this problem by working with experienced, accident-free taxi drivers. “We will conduct a specialized training session for the drivers and provide other regular instruction to ensure quality service”, Kang said (Eun-Jee, 2018). The drivers’ dressing code – tuxedos – complemented the luxurious atmosphere created by the black, immaculate leather interior of the vehicle.

Price. (Uber Technologies Inc., 2018a)

  • Base fare: ₩5,000 ($4.37).

  • Per minute: ₩250 ($0.22).

  • Per KM: ₩1,303 ($1.22).

The rate was on average 66 per cent higher than that for a regular cab, but the same as that of competitor KakaoTaxi Black.

Place.

Uber disrupted the taxi transportation industry by introducing the first ever taxi hailing application for smartphones. Or, as the company liked to advertise it: “Your ride, on demand”. Staying true to the concept that made it world-famous, Uber delivered the same application for South Korean users through a mobile application interface:

Whether you’re headed to work, the airport, or out on the town, Uber connects you with a reliable ride in minutes. One tap and a car comes directly to you. Your driver knows exactly where to go. And payment is completely cashless (Uber Technologies Inc., 2018b).

To boost its presence in the motherland of Samsung, Korea’s largest chaebol, Uber was also continuously developing the application on Samsung’s most recent flagship phones, and since January 2016, the application was also available on Samsung’s smartwatch, the Gear S2.

Promotion.

In South Korea, three key elements were noticeable in Uber’s Promotion strategy. First, the company extensively used American-based social media – Facebook, Twitter, Instagram – as opposed to Korean-based social media – commonly called “SNS” for Social Networking Service. Although American-based social media was widely used in Korea, Kakao Talk remained the most popular SNS platform, with a 41 per cent penetration rate, compared to 27 per cent of Facebook (Exhibits 10 and 11) (via Statista.com, 2015). Second, the company held promotion campaigns in partnership with international brands like Pernod Ricard, at events and parties attended by many foreigners. Third, the company used discount codes to boost its sales and increase visibility as a typical element of Uber’s revenue model.

Competition

Daeri Unjeons

The driver-hailing service actually existed way before Uber was introduced in South Korea. Daeri unjeon, which literally meant “substitute driver”, started in the late 1990s, targeting businessmen who wanted to get home in their own vehicles after soju-swilling company dinners (Ramirez, 2015). Indeed, South Koreans’ heavy alcohol consumption was well-known, and drinking was an almost integral part of doing business in the country.

The Korea Service Driver Society, a lobby group formed by daeri unjeons, estimated there were 400,000 registered companies and about 1,000 unregistered ones in 2014, employing up to 120,000 replacement drivers for inebriated people. “We believe approximately 400,000 people a day call for a ‘daeri’ driver”, said Kim Ho, a director of Korea Service Driver Society (Kyu-wook, 2014). Around 2010, daeri unjeon smartphone applications began to replace the traditional phone service.

KakaoTaxi

While Uber was busy battling the Korean government over legal issues, KakaoTaxi stepped right into the market in March without facing interference from the government, as the service it launched was a taxi-hailing service, similar to the non-controversial UberTaxi. Because this kind of service only employed licensed taxi operators – not “volunteer” drivers – they had the support from other taxi drivers, who did not see the service as competition but a way to increase their own revenue as well (Yoon, 2015). However, Kakao was expected to introduce its first driver-for-hire app – reportedly called Kakao Drive – later in 2016 (KDB Daewoo Securities, 2016).

The KakaoTaxi app had four types of taxi services: mid-size, large, mobeom – a premium black cab – and Black, which was at first using the same base fare as UberBLACK, until Uber decreased its base fare from ₩8,000 ($4.96) to ₩5,000 ($4.37) (Exhibit 12). Only KakaoTaxi Black allowed automatic payment like Uber did, via the KakaoPay service. An important disadvantage regarding foreign customers was that credit cards issued overseas were not accepted by KakaoPay. A customer explained:

I didn’t expect it [the payment] would take more than 10 minutes to succeed. First, I typed in my corporate Visa card, which was rejected. A second try with my American Express card also failed. A third try with Hyundai Card finally worked (Ji-Eun, 2018).

KakaoTaxi had around 200,000 drivers and received over 500,000 ride requests a day from its app. Four months after the launch, the application was run on average 90 times per week by drivers and 3.5 times per week by passengers (KDB Daewoo Securities, 2015). There was no doubt that KakaoTaxi was dominating the market in South Korea. However, anyone who was out in the busy parts of Seoul at night knew that there were times when it was impossible to find an available taxi, even one from KakaoTaxi (Ji-Eun, 2018).

Foreign companies in South Korea

Impacts of culture on domestic preference

A number of Asian countries, particularly China, Japan and South Korea, were known for being collectivistic and closed-off to outsiders, making it difficult for foreign companies to create business opportunities in these countries. Indeed, Geert Hofstede’s Culture Comparison applied to South Korea showed a low “individualism” rating of 18 out of 100 points, highlighting South Koreans’ loyalty to their families and government (Exhibit 13) (Geert Hofstede, 2018). This cultural value led to skepticism towards foreign companies and loyalty and preference for domestic companies, which would be a reason why the Seoul Metropolitan Government would go against a foreign company coming in and trying to take over the market.

Impacts of regulations

The South Korean government had heavily regulated foreign investments and gave preferential treatments to domestic industrial conglomerates, the chaebols, to drive the country’s rapid economic growth. Thus, it had become the norm for American companies to create partnerships with domestic enterprises in South Korea to have a greater chance of success in penetrating the market (Chavy, 2015). For instance, Starbucks owed its success in penetrating the South Korean market to a strategic joint venture partnership with the domestic conglomerate Shinsagae (Passy, 2014).

Uber should have learned from the failure of its first entry into the South Korean market and this cultural difference. Therefore, one of the most important elements it used to re-enter the market was the partnership with Kia, an affiliate of the conglomerate Hyundai Motor Group.

Impacts of “Copy culture”

The “copy culture” was another issue that was often pointed out in the South Korean way of doing business. The Uber case had demonstrated this local culture after it was pushed out of Seoul. With the demand for app-connected car services that was clearly seen, the daeri unjeon call services started to accelerate the launch of their own similar apps, while multiple Uber “copycats” like Limo Taxi and Baek Gisa also popped up, followed by Kakao Taxi in late March (Ramirez, 2015). Kakao Drive, to be launched later in 2016, would probably be the biggest copycat of Uber’s business model.

Towards more openness to foreign companies

To the advantage of companies like Uber, the business environment in South Korea was slowly changing: the central and Seoul city government had made information and assistance more accessible to foreign entrepreneurs, while the general public appeared to be more eager to discover businesses operated by foreign people who did things in a slightly different way (Todd Sample, 2014).

Conclusion

Although becoming better prepared with their re-entry into South Korea, Uber still had to encounter many challenges arising from the unique nature of this Asian market. Uber seemed to be climbing up a steep hill in this second battle that would risk little direct payoffs. If foreigners, rich South Korean travelers, and disabled people in the South Korean market were only niches that could act as catalyst for Uber’s innovations and early adopters, how could Uber grow its customers base further? Should Uber enter into another strategic partnership? While Uber had push its base fare to be lower than that of Kakao Taxi Black, there were chances that Kakao would try to align its base fare with Uber’s. What should Uber do to circumvent this price war? Should Uber continue to price its services even lower and keep competing on price? Or, should it focus more on service differentiation and innovation? With Kalanick’s trial coming in a few months and some taxi drivers still frowning upon Uber, how should Kang address these critical local public related issues?

Notes

1.

Chaebol was a large industrial conglomerate run and controlled by an owner or a family in South Korea.

2.

All currency amounts are in US$ unless otherwise specified.

3.

Uberization was a transition to an economic system where agents exchange under-utilized capacity of existing resources at low transaction costs, commonly through a software platform.

4.

₩, the won, is the symbol of the Korean currency. An exchange rate of 1 won = 0.00087 USD is used for all conversions from Korean won to US dollars.

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Venture-backed start-up company Company description Last valuation Value (In US$bn)
Uber Technologies Inc. An American peer-to-peer ridesharing, food delivery and transportation network company August 2015 51.0
Xiaomi Inc. A Chinese electronics and software company December 2014 46.0
Airbnb An American company, operating an online marketplace and hospitality service June 2015 25.5
Palantir Technologies A private American software and services company, specializing in big data analysis October 2015 20.0
Meituan-Dianping A Chinese online and on-demand delivery platform company January 2016 18.3
Snap Inc. (Snapchat) An American technology and social media company February 2016 16.0
WeWork An American company, providing shared workspaces, technology start-up subculture communities and services March 2016 16.0
Didi Chuxing (formerly Didi Kuaidi) A Chinese ride-sharing, artificial intelligence and autonomous technology company, providing transportation services in China September 2015 16.0
Flipkart Pvt. Ltd. An Indian electronic commerce company with products including tablets, USB flash drives and laptop bags April 2015 15.0
Space Exploration Technologies Corporation (SpaceX) A private American aerospace manufacturer and space transport services company January 2015 12.0

Source: Created by the case authors based on Akan (2016)

Locations Level of legal problems
United States
Eugene, Oregon Full ban
Nevada Full ban
Anchorage, Alaska Suspended operations
Auburn, Alabama Suspended operations
Tuscaloosa, Alabama Suspended operations
Panama City Beach, Florida Suspended operations
Portland, Oregon Suspended operations
San Antonio, Texas Suspended operations
Europe
Brussels, Belgium Partial ban
Germany Partial ban
Netherlands Partial ban
Spain Suspended operations
Cape Town, South Africa Banned but operating
India
Karnataka Full ban
Maharashtra Full ban
Telengu Full ban
Hyderabad Banned but operating
Mumbai Banned but operating
New Delhi Banned but operating
Thailand Full ban
Taiwan Banned but operating
Fukuoka, Japan Full ban
South Korea Suspended operations
Australia
Victoria Partial ban
Western Australia Partial ban
Queensland Banned but operating

Source: Created by the case authors based on Grant and Khosia, 2015

Region Number of cities with Uber’s operations
North America 201
Central and South America 35
Europe 77
Middle East 11
Africa 12
China 61
East Asia 9
South Asia 29
Southeast Asia 15
Australia and New Zealand 15
World (Total) 465

Sources: Created by the case authors based on Uber technologies Inc., www.uber.com/cities/ (accessed 5 June 2016)

Financials Year ended December 31, 2014 Three months ended March 31, 2015 Three months ended June 30, 2015
Gross Bookings 2,932.7 1,499.1 2,131.6
Other Revenue 24.6 12.9 17.2
Total Revenue 2,957.3 1,512.0 2,148.8
Contra Revenue
Promotions - Price Cut 57.3 21.9 50.1
Net Partner Earnings 2,240.1 1,118.5 1,597.1
Partner Incentives and Other Payments 86.6 49.6 80.5
Join and Support Payments 16.2 3.7 2.6
Refunds 13.9 9.5 13.4
Taxes and Fees 47.9 21.5 29.2
Total Contra Revenue 2,462.0 1,224.7 1,772.9
Net Revenue 495.3 287.3 375.9
Cost of Revenue 399.5 171.3 466.2
Operating Expenses
Operations and Support 159.9 60.1 99.0
Sales and Marketing 246 98.2 196.8
Research and Development 65.9 38.1 56.6
General and Administration 177.7 72.4 106.3
Depreciation and Amortization 11.2 6.2 10.1
Total Operating Expenses 660.7 275.0 468.8
Earning Before Interests and Taxes (564.9) (159.0) (559.1)

Source: Created by the case authors based on Efrati, 2018

Financials Year Ended December 31, 2014 Six Months Ended June 30, 2015
Net Cash Used in Operating Activities (462.1) (753.3)
Net Cash Used in Investing Activities (171.2) (154.9)
Net Cash Provided by Financing Activities 2,356.8 3,096.0
Effect of Exchange Rate Changes on Cash and Cash Equivalents (0.7) 0.3
Cash and Cash Equivalents at Beginning of Period 238.2 1,961.0
Net Increase (Decrease) in Cash and Cash Equivalents 1,722.8 2,188.1
Cash and Cash Equivalents at End of Period 1,961.0 4,149.1

Source: Created by the case authors based on Efrati, 2018

Year Mode share (%)
Subway Bus Passenger car Taxi Others
2002 34.6 26.9 26.0 7.4 5.1
2003 35.6 26.4 25.6 7.1 5.3
2004 35.8 26.4 26.2 6.6 5.0
2005 34.8 26.3 27.5 6.5 4.9
2006 34.7 26.3 27.6 6.3 5.1
2007 34.9 26.3 27.6 6.2 5.0
2008 35.0 26.0 27.8 6.2 5.0
2009 35.2 25.9 27.8 6.2 4.9
2010 36.2 24.1 28.1 7.2 4.4
2011 37.1 28.0 23.5 7.0 4.4

Source: Created by the case authors based on Seoul Metropolitan Government, 2018

Year Trip Purpose
Send off Return home Commuting Attending school Business
2000 40.2 35.7 37.0 27.9 79.8
2006 42.9 34.0 36.9 28.7 69.6
2010 38.0 34.7 36.5 26.7 69.7
Year Trip Purpose Average
Return to work Shopping Leisure
2000 51.2 30.7 42.8 43.2
2006 37.3 30.9 42.9 40.4
2010 37.8 30.3 44.4 39.8

Source: Created by the case authors based on KTDB Research, 2018

Year Age group
Below 10 (%) 10s (%) 20s (%) 30s (%) 40s (%) 50s (%) 60s (%) Over 70 (%)
2000 5.4 4.1 16.6 46.3 46.7 35.4 19.8 7.6
2006 6.9 6.1 17.1 43.0 48.7 39.5 24.4 12.2
2010 17.4 12.2 17.9 42.9 48.2 40.6 25.7 13.8

Sources: Created by the case authors based on KTDB Research, “A Decade of Change in Korean Travel Patterns,” accessed February 21, 2018, www.ktdb.go.kr/,4

Type of Taxi Features Taxi Fares
Regular taxis The most common type in Seoul with a seating capacity up to four passengers (excluding the driver) 3,000 Won for the first 2 km, and 100 Won per 142 m thereafter
Usually silver or white-colored but for newly deployed, available in orange 20 per cent higher during 12:00 am to 4:00 am
100 Won per 35 seconds when the speed below 15 km/hr
Deluxe taxis Black-colored with the same seating capacity as regular taxis but more spacious Higher than regular taxis, charging 5,000 Won for the first 3 km, and 200 Won per 164 m thereafter
Taxi drivers with at least 10 years of accident-free driving experience as a regular taxi driver 200 Won per 39 seconds when the speed below 15 km/h
Jumbo taxis Black-colored, accommodating groups up to eight passengers (excluding the driver), serving larger passenger groups Same as deluxe taxis
Wheelchair-accessible taxis Yellow-colored, modified from vans and designed for people with severe disabilities The lowest among different taxi types, charging 1,500 Won for the first 5 km, 300 Won/km for the next 5-10 km, and 35 Won/km thereafter
Advanced service booking system

Source: Created by the case authors based on Research Office of the Legislative Council of Hong Kong (2018)

Application Share of Population (%)
Kakao Talk 41
Facebook 27
Kakaostory 17
Facebook Messenger 12
Twitter 10
LINE 7
Instagram 7
GooglePlus 6
Twitch 4
Tumblr 3

Source: Created by the case authors based on via Statista.com (2015)

Rank Name Developer
1 Kakao Talk Kakao
2 Facebook Facebook, Inc.
3 NAVER Naver Corp.
4 Kakao Story Kakao
5 Youtube Google Inc.
6 360 Security Qihoo 360 Technology Co., Ltd.
7 BAND Camp Mobile
8 Messenger Facebook Inc.
9 CM Security Cheetah Mobile Inc.
10 Chrome Browser Google Inc.
11 Instagram Facebook Inc.
12 Cash slide NBT Inc.
13 Google Google Inc.
14 Naver Webtoon Naver Corp.
15 Internet for Samsung Galaxy Samsung Electronics Co., Ltd.
16 Melon Loen Entertainment
17 Bettery Doctor Cheetah Mobile, Inc.
18 Naver Map Naver Corp.
19 Daum Kakao
20 Popup cash Popup cash

Source: Created by the case authors based on Mobiinside (2015)

Characteristics KakaoTaxi Black UberBLACK
Launch date November 11, 2015 January 19, 2016
Major vehicle models Mercedes-Benz E-Class Kia’s K9
Drivers Qualification Actual taxi drivers People doing it in their free time, usually retired taxi drivers
Training required for deluxe taxi drivers Five or more years of taxi driving experience without an accident
Base fare 8,000 won ($4.96) 5,000 won ($4.37)
Distance fare 1,400 won / km ($1.22) 1,303 won / km ($1.13)
Time fare 300 won / minute ($0.26) 250 won / minute ($0.22)
Company commission 15 per cent (Kakao) + Taxi company commission 20 per cent
Payment Mostly Korean credit cards via KakaoPay Also cards issued overseas (VISA, MasterCard, AmEx)
Communication channels Kakao and Naver platforms Facebook and Twitter

Sources: Created by the case authors based on Uber technologies Inc., available at: www.uber.com/cities/seoul/ (accessed 28 February 2018)

Cultural Dimension South Korea United States
Power Distance 60 40
Individualism 18 91
Masculinity 39 62
Uncertainty Avoidance 85 46
Long Term Orientation 100 26
Indulgence 29 68

Sources: Created by the case authors based on Geert Hofstede, “Compare Countries,” The Hofstede Centre, accessed February 28, 2018, www.geert-hofstede.com/

Exhibit 1. The most valuable start-ups in the world, as of march 2016

Table EI

Exhibit 2. Uber’s operating locations with legal problems as of April 2015

Table EII

Exhibit 3. Uber’s worldwide penetration as of June 2016

Table EIII

Exhibit 4. Consolidated statement of operations 2014-2015 (In million $)

Table EIV

Exhibit 5. Consolidated statement of cash flows 2014-2015 (In million $)

Table EV

Exhibit 6. Seoul’s transportation mode share (2002-2011)

Table EVI

Exhibit 7. Travel time by trip purpose in South Korea (Minutes)

Table EVII

Exhibit 8. Mode share of cars by age group in South Korea

Table EVIII

Exhibit 9. Features and fare structures of taxis in Seoul

Table EIX

Exhibit 10. Social network service penetration in South Korea (November 2015)

Table EX

Exhibit 11. Top 20 most downloaded mobile applications in Korea (September 2015)

Table EXI

Exhibit 12. KakaoTaxi black versus UberBLACK

Table EXII

Exhibit 13. Hofstede’s cultural values for South Korea and the US

Table EXIII

Acknowledgements

This work was supported by JSPS KAKENHI Grant No. 15K03694.

Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision-making. The authors may have disguised names; financial and other recognizable information to protect confidentiality.

Corresponding author

Wiboon Kittilaksanawong can be contacted at: wiboon@mail.saitama-u.ac.jp

About the authors

Wiboon Kittilaksanawong is Professor at the Graduate School of Humanities and Social Sciences, Faculty of Economics, Saitama University, Saitama, Japan.

Margaux Afanyan is based at the Nagoya University of Commerce and Business, Nisshin, Japan.