When formulating a business plan, you have to pay attention to the regulatory environment. Otherwise,
your rivals can accomplish through regulation what they cannot accomplish in the market: From Competition Policy International
A German court on Wednesday banned Uber from running services using unlicensed cab drivers and set stiff fines for any violations of local transport laws by the pioneering online taxi firm.
Uber, worth an estimated $40 billion making it the world's most valuable venture-backed start-up, has set out to revolutionise local transport services worldwide, from taxis to carpools to fast-food delivery.
The latest case, brought in the Frankfurt regional court by German taxi operator group Taxi Deutschland against UberPOP, is one of more than a dozen lawsuits filed in countries across Europe in recent months against the San Francisco-based company.
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ReplyDeleteUnderstanding the regulatory environment is critical when running a business and understanding competitors. Not being compliant to regulations can potentially give one’s competitors a “leg up” on you. Sometimes it is difficult for a business owner to accurately predict the impact of new government regulations. One outcome of these regulations can be an increase in the cost of doing business, resulting in a profit shortfall. One may have to consider cutting operating costs in other areas in order to reach your profitability targets. Industry associations and trade publications often provide analysis of what new government regulations mean for companies in the industry. Monitoring these can help you prepare for new regulations in advance.
Hill, B., (2015) How Do Changes in the Business Environment Affect the Cost and Profit Analysis?, www.chron.com
German labor laws are highly regulated to begin with. Uber is bold and daring to enter such a territory and should expect quite a bit of backlash/legal trouble from the competing firms (such as Taxi Deutschland). Uber is serving as a substitute service to the existing taxi companies that operate throughout Germany. The customers have high buying power in this aspect, especially if the service is more easily available than Taxi Deutschland. Having spent some time in Germany myself, it’s not that easy to get a taxi outside of the populated cities. However, if a local is registered through Uber to provide transport services, this method is clearly more convenient than say waiting a half an hour for a taxi. Uber has successfully identified an attractive industry, which is not only desired by customers, but also has not experienced competition in this manner. If anything, Uber could be a new leader of the industry and is re-writing the way people commute from point A to point B.
ReplyDeleteAmanda F., did you read Luke's blog post? Uber can't be a "new leader" because their service is now illegal. Basic reading comprehension.
ReplyDeleteYes I did read the article and the post... Anyways.... Have you seen a service that is used and now worldwide like Uber elsewhere? Probably not.... In my eyes this makes them a new leader of this service sector. Just because they failed (for the time being) in Germany, doesn't mean they don't have lessons learned that can be applied going forward. Thanks for your comment and have a great day :-)
ReplyDeleteGermany’s ruling, which bars operations of Uber, is an example of an entry barrier due to government protection. In this case the protection requires permits and licenses for cab drivers. Uber has a competitive cost advantage by not paying for permits or licensing. The government requirement of permits and licensing generates municipal revenue to offset the expenses of regulating the safety and operations of the industry. Uber’s use of technology is similar to a disruptive technology challenging the status quo. Uber is employing new technology and ride shares which improves efficiency and is less costly.
ReplyDeleteWhen will taxi services migrate away from radio-controlled dispatch to newer technology? Government regulators that protect the jobs of current taxi drivers are rewarding inefficient operations. The consumer is now aware of a better substitute product and will have less tolerance for long waits and high prices.
I don’t think that the Uber taxi phenomenon can be stopped more than temporarily. Uber is targeting customers who were not counted for by the “traditional” taxi service. Uber answered a simple question: what would the train or bus riders pay to get a service which is individual transportation, fast response to calls through a dispatcher, and similar to a taxi but not as expensive as a taxi? Who are these customers willing to ride on an Uber car? Most of them are young customers, who want short rides in highly urbanized areas. The ban in Germany is against UberPOP, a service that matches drivers with customers, and where the drivers are not licensed taxi drivers (Rooney, 2015). Uber operates another two taxi services in Germany, UberBLACK and UberTAXI, which both use licensed taxi drivers and are not affected by the ruling (Rooney, 2015).
ReplyDeleteUberPOP intends to hire one million women drivers in the next few years, worldwide (Rooney, 2015). It currently employs about 160,000 women drivers in United States, mostly middle aged but also young women taking driving assignments on a part time basis. Here again Uber has seen an opportunity, and this time is to use an untapped pool of work force, not-unionized and very flexible in terms of working hours. Breaking a long-standing stereotype was definitely not a company objective, but it surely sells well with younger customers.
Reference:
Rooney, B. 2015. UberPOP banned in Germany. Retrieved from http://money.cnn.com/2015
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ReplyDeleteThe Uber ruling is a textbook case of enacting “strategy to reduce competitive intensity” by creating a barrier to entry and by getting the government to do it. (Froeb, MCCann, Shor, & Ward, 2014 pp. 119). Uber was eroding the profit of the Taxi Deutschland group by obtaining the services of unlicensed drivers, which undoubtedly reduced its cost while expanding the pool of drivers available to them. While the New York Times article did fully explain the basis of the decision, it is likely the German government viewed requiring licensing a public safety issue. I do agree that this set back will only be a temporary one for Uber, especially since Uber’s other operations include licensed drivers. It would seem that Uber has the financial and technological resources to overcome this barrier in time, but for now the Taxi Deutschland group has at minimum a temporary competitive advantage through this barrier to entry. It will be interesting to see whether the ruling is upheld.
ReplyDeleteFroeb, L. M., MCCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics. Mason: South-Western Cengage Learning.
All these regulations in Germany and in America keep the taxi industry safe from competitors. This way they can keep their price discrimination at the most competitive levels. In NYC, taxis are everywhere, but in Brooklyn, there are hardly any taxis. Customers are forced to call (the old fashioned way) a car service. Car service in Brooklyn is very flaky - they will lie to you that they are coming in a half hour - when they know they will not come for an hour. It always made me late and I could never trust them. Uber is now in Brooklyn and it is the best thing that has ever happened to Brooklyn. Many people now have jobs as well, where as before, it was a hard industry to get into. A very protected industry. Just like all other protected industries with their "associations" that use unreasonable rules and regulations to keep the profits in their pockets.
ReplyDeleteGermany banning Uber services has to do with regulating safety within their country. While it has proved to be very popular in many places, Germany may believe that it is not worth the risks. Another positive of banning Uber for the German government is that public forms of transportation and bring in more income to their government and economy. It is important for Germany to make their own rules in relation to regulations because if they simply follow the pack, then there's the possibility of running into problems down that road that may very well prove to be more damaging than making the ban in the first place.
ReplyDeleteAll these regulations in Germany and in America keep the taxi industry safe from competitors. This way they can keep their price discrimination at the most competitive levels. In NYC, taxis are everywhere, but in Brooklyn, there are hardly any taxis. Customers are forced to call (the old fashioned way) a car service. Car service in Brooklyn is very flaky - they will lie to you that they are coming in a half hour - when they know they will not come for an hour. It always made me late and I could never trust them. Uber is now in Brooklyn and it is the best thing that has ever happened to Brooklyn. Many people now have jobs as well, where as before, it was a hard industry to get into. A very protected industry. Just like all other protected industries with their "associations" that use unreasonable rules and regulations to keep the profits in their pockets.
ReplyDeleteI have often wondered if this would be a worthwhile side job on an empty block of time and after speaking to many drivers in US and EU markets, here is what I've gathered.
ReplyDelete