Credit: Uber

Why Uber won't be scared by the Hong Kong police sting

The taxi app faces continued opposition from regulators the world over, but that's doing little to stunt its growth.

by Adam Gale
Last Updated: 08 Sep 2015

Hong Kong police reportedly arrested five Uber drivers in an undercover sting operation yesterday, seizing their vehicles and raiding the firm’s head office in the city. As if the message wasn’t clear enough, authorities repeated their warnings to Hong Kong citizens not to use unlicensed taxi drivers.

For most companies, a run in with the fuzz would be an unusual and shocking experience. Not so Uber, which has made something of a habit of it. Police in Australia raided Uber offices last year, the Chinese have accused it being an ‘illegal car business’ and the French have gone so far as to charge two of the its executives with criminal offences.

Individually, the Hong Kong raid won’t bother Uber’s investors too much. It’s not as though it’s been shut down in the city, after all. Besides, Hong Kong’s licensed taxi service is actually cheaper than an Uber ride, which limits its scope to expand there.

When added to Uber’s wider problems, though, it is a bit more worrying. Is the startup, now valued at $51bn (£32bn), facing an existential threat from authorities protecting entrenched taxi industries?

Why Uber won't be scared

It’s true governments and courts around the world could simply ban Uber and shut down its operations. But despite all the noise they’ve made, they haven’t actually done it.

Since launching in San Francisco five years ago, Uber has expanded to over 300 cities worldwide. In June, boss and co-founder Travis Kalanick said it had just trained its millionth driver (though we wonder what training an Uber driver actually gets), and he expected another million by the end of 2015. A leaked term sheet for investors said the firm had annual revenues of $415m a year and was growing at 300%.

Whatever resistance there has been, it barely seems to have slowed Uber down at all. A cynic might say that this is because this upstart startup is backed by big money (investors that have contributed to its $5bn-plus funding include Google and, naturally, Goldman Sachs), providing it a measure of behind the scenes influence.

More likely though is that authorities actually see the benefits of cheap ridesharing, in reducing congestion and costs. Consumers (i.e. voters) are clearly pretty keen on it too.

The fact that governments haven’t gone so far as to shut Uber down likely means that what they really want is for the company to play ball in terms of taxes, fees and regulations. Uber may find it has to give in to these demands in places, if it wants to avoid being continually ‘disrupted’ by midnight raids and having potential drivers deterred by mass arrests.   

The two countries likely to cause Uber genuine headaches are France – the constitutional court there is considering whether to uphold an outright ban – and China, which Uber expects to be its biggest market by the end of the year, having already spent $1bn on its expansion there.

Uber’s biggest problem in China is probably not going to be the state per se – again it could have banned it already had it really wanted to – but the regulatory and cultural barriers that so often prevent western firms flourishing there. With a few exceptions (and a touch of what one might call a 21st century version of old-fashioned protectionism), Chinese consumers seem to prefer Chinese businesses.

As Didi Kuaidi, a Chinese rival backed by Alibaba and Tencent, already controls over 80% of the market, it’s likely Uber will face an uphill struggle. It may have to console itself with dominating only the rest of the world's taxi industries.

Elsewhere, it's fast becoming 'too big to ban' - so entrenched in so many cities that regulators will have headaches of their own trying to remove it without disruption, and able to shrug off the losses when they do.

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