The Real Reason Uber Is Losing in China

By Robert Salomon

[Uber] severely underestimated the challenges of operating in countries that embody totally different economic, political, and cultural environments.

By Robert Salomon

What made the startup successful in the U.S. won’t work elsewhere.

Uber recently revealed that it is losing more than $1 billion per year in China. This is a colossal sum of money for any company, let alone one that has been in business for less than a decade. Despite the eye-popping headline number, Uber claims that its losses in China are nothing to be concerned about. According to its chief executive and founder Travis Kalanick, Uber is in a much better market position than its chief Chinese rival, Didi Kuadi, and he believes Uber can weather its early stumbles there by subsidizing losses with profits from other operations.

I am not so sure I take such a rosy view of Uber’s plight in China. I think they are symptomatic of deeper-seated global strategy problems and that they reveal some serious strategic flaws.

When companies expand abroad, they face unfamiliar cultural, political, and economic environments that put additional, unforeseen pressures on their domestic business models. They also face competitors who understand the local environment far better than they do.

See the full article is published in Fortune.

Robert Salomon is an Associate Professor of Management and Organizations.