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What are the Competitive Strategy Implications of Uber’s European Regulatory Woes?

Posted January 10, 2018|

Let me be clear right from the start – I loathe Uber. While I’m a big fan of ride-hailing services, I simply can’t give my business to a company that harasses its employeeswhose CEO berates its drivers, uses questionable means to skirt regulation, and allegedly steals trade secrets from its competitors. I’m a Lyft guy through and through.

That said, I feel sorry for Uber given the blow it suffered last month when the European Court of Justice ruled that the company is in fact a transportation firm, not an “information society service” (Uber’s words, not mine) and must be regulated as such. The ECJ’s ruling is final and cannot be appealed, and means that Uber will face tougher regulation in all 28 EU member states.

The ruling is the latest in a string of unfavorable regulatory actions against Uber in Europe. Transport for London refused to renew Uber’s license, claiming that it did not believe the company was “fit and proper” to run a taxi service, pointing to several safety concerns, according to The Independent. Uber also lost a separate appeal in the UK in November 2017 against an employment tribunal ruling that said Uber’s drivers were workers, not independent contractors, and must be given commensurate legal rights such as a minimum wage in the UK, sick pay and holiday pay.

What do these rulings say about Uber’s competitive strategy, and the external forces that influence how any firm can position and operate in the market?

On one hand, the ruling exposes the obsolescence of European transport regulations. According to an analysis in the Financial Times, transport has been a persistent blind spot of the single market’s regulations on services, including transportation. Regulators have not fully considered the cross-border aspect of the transport sector; the business of taxi companies was seen as a national issue confined to national borders. The emergence of firms like Uber is exposing holes in the EU’s regulatory structure that the ECJ’s ruling is now trying to plug. Given these regulatory deficiencies, isn’t it sound competitive strategy to exploit them to achieve optimal positioning as a market disruptor?

On the other hand, one could argue that Uber should have known better. To be sure, market disruptors like Uber, Airbnb, and Grab (an Asian version of Uber and Lyft) are mainstays in free market economies, and by design are almost certain to run afoul of prevailing regulatory structures. But, isn’t acknowledging regulatory constraints and attempting to operate within them while advocating for changing them a better approach? Maybe, maybe not, given the pressure for rapid growth, outpacing rivals, and building up pre-IPO valuations.

What’s certain is that good competitive strategy must confront the countless, external constraints that beset all market participants – be they young entrants like Uber, or 100-year-old incumbents. To set competitive strategy without taking into consideration regulatory forces, demographic changes, and economic conditions – important factors over which any company has little to no control – is to compete with one eye blindfolded and one arm tied behind your back.

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