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Uber CEO Dara Khosrowshahi speaks to the Nikkei Asian Review in Tokyo on Feb. 20. (Photo by Ken Kobayashi)
Multinationals in Asia

Uber turns over a new leaf in Asia

New CEO wants to move past scandals and friction with foreign governments to grow 'in harmony'

TOMOMI KIKUCHI and YUICHIRO KANEMATSU, Nikkei staff writers | Japan

TOKYO -- On the morning of Feb. 21, Uber Technologies Chief Executive Dara Khosrowshahi appeared at the office of Japanese Prime Minister Shinzo Abe in Tokyo.

The head of the U.S.-based ride-hailing app operator was on a mission: to change Uber's image -- a scandal-filled, expansion-mongering startup -- into that of a friendly company that is in Japan to help the country's taxi industry.

Khosrowshahi stressed to Abe that he is looking for partnership, not confrontation, with the Japanese taxi industry. He eagerly showed Abe a framed map of Japan covered in green dots that represented all the places where over 400,000 Uber users from more than 70 countries opened the app to request a ride in the last three months. Later, Khosrowshahi posted a photo of the moment on his Twitter account, with the hashtag "#partnership."

Two days before Khosrowshahi met with the prime minister, the Nikkei reported that Uber is in talks to partner with Daiichi Koutsu Sangyo, one of the largest taxi operators in Japan, to add its vehicles to its network. It would be the first partnership of its kind for Uber with a major taxi operator in the country.

During an hour-long interview with the Nikkei Asian Review the following day, Khosrowshahi indicated that the talks are progressing well, describing the discussions with taxi partners as "rich" and saying the company's counterparts are "open to and want to be a part of the Uber ecosystem."

Despite entering the market four years ago, Uber's presence in Japan has been noticeably limited, considering its global scale: It is the world's largest unicorn -- a startup valued at more than $1 billion -- and operates in more than 610 cities in 77 countries and regions, with a total 5 billion rides as of last year since it began operations in 2010. 

In Asia-Pacific, the company operates in roughly 130 cities, but its aggressive expansion and oversight on regulations has often put it in conflict with local governments and taxi companies in countries such as India and Malaysia. In Southeast Asia, heated competition with local rivals, including Indonesia's Go-Jek and Singapore-based Grab, has forced Uber to spend heavily, but local players appear to have gained the upper hand in many countries in the region.

Taxis line up at Tokyo Station. (Photo by Ken Kobayashi)

Local regulations prohibiting ride-hailing services from using private cars is the primary reason for Uber's limited operations in Japan. So far, it has been working with licensed car-hire companies, in addition to operating its food delivery service Uber Eats. The company's legally approved trials of private-car ride-hailing have been limited to Japan's rural areas. This means that most of the 400,000 users that have opened the app in the country over the last three months were likely unable to fetch a ride because there were only a few, if any, drivers available in their location.

There also is a strong backlash against ride-hailing operators from the country's taxi industry, which fears that ride-sharing services would put many of them out of business. 

But under the leadership of Khosrowshahi, who took over as CEO last August following the resignation of the company's founder, Travis Kalanick, Uber appears to have found a renewed focus on Japan.

Khosrowshahi's first trip to Asia as Uber's chief executive was packed with meetings, including that with Abe. During his two days in Japan, Khosrowshahi met with SoftBank Group CEO Masayoshi Son as well as with the Uber team in Japan, attended a forum for Uber investors, and traveled to central Japan to meet Toyota Motor President Akio Toyoda and Executive Vice President Shigeki Tomoyama before heading to India.

"I am here in Japan to tell you in no uncertain terms that Japan is important to Uber and its global scope," Khosrowshahi said in the interview.

He was sharply dressed in a suit and a tie, mindful of the Japanese work culture. "I had to practice putting on a tie three times," he joked. "If Uber is coming to Japan, we have to work not just the Uber way but also the Japanese way."

In the interview, Khosrowshahi frequently used terms such as "dialogue," "partner" and "partnership," suggesting a more tactful approach at negotiating than Kalanick, who last year was captured on video in a heated argument with one of the company's drivers.

Khosrowshahi -- who was poached from U.S.-based online travel agency Expedia, where he also served as chief executive, to head Uber in August -- took over the company at a difficult time.

Uber's investors attempted to push out Kalanick after a series of operational scandals and sexual harassment allegations, and the company's history of aggressive global expansion has resulted in some incidents that put Uber's safety policies into question. 

"Looking back at the company, you could argue that we were guilty of focusing too much on growth and not enough on how we achieve the goals of growth," Khosrowshahi said.

He stressed that those days are now over. "The company is under a new leadership," he said, adding that his job is to ensure Uber grows "in harmony" with local markets, governments and regulations.

Khosrowshahi's strong conviction to reform Uber from the inside out is reflected in the list of "Uber's Cultural Norms" he established in November, with input from Uber's team. "It is not just something that the CEO told them to do," he said.

"I am here in Japan to tell you in no uncertain terms that Japan is important to Uber and its global scope," Uber CEO Dara Khosrowshahi said in the interview. (Photo by Ken Kobayashi)

At the top of the list: "We build globally, we live locally." Khosrowshahi noted, "We always have to respect the local norms and customs and teams on the ground, living where we operate."

Japan, where resistance from the local taxi industry has been strong but the potential demand for Uber is large, appears to be the place that Khosrowshahi has selected to test out the company's new growth model through partnerships and dialogues.

Khosrowshahi believes Uber can significantly increase productivity for taxi companies here. "The Japanese taxi industry is [high] quality but it suffers from low utilization rates," he said.

Uber's technology could contribute to Japan's taxi industry, for example, with its dynamic pricing system, which automatically adjusts fares based on real-time demand. Fares tend to increase on rainy days when demand is high, while prices may be lower on days when there are fewer people seeking a ride.

He said Uber would work with taxi operators on regulated fares at first, in order to gain acceptance in the market. But eventually, Khosrowshahi said, dynamic pricing will be key because the system can better match supply and demand and decrease waiting times for taxis, which in turn power earnings for drivers. "That is a dialogue that we want to be able to have with authorities and taxi companies," he said.

Large numbers of commuters, congested roads and an underdeveloped public transportation network make India a prime target for Uber. (Photo by Takaki Kashiwabara)

Yusuke Shimizu of Deloitte Tohmatsu Consulting noted that while Japan does not have as strong a need for ride-sharing services than countries with less-developed public transportation and taxis with bad reputations, ride-hailing apps "have the potential to become widely popular" if companies manage to get enough taxis on board to allow quick matchmaking between drivers and riders.

India is another market where Uber seems to be finding renewed interest. Following his visit this week to Japan, Khosrowshahi visited Delhi where he discussed airport partnerships and the future of commercializing vertical take-off and landing vehicles -- flying cars, in simpler terms -- with Jayant Sinha, Minister of State for Civil Aviation, followed by a town hall session at the Indian Institute of Technology. 

While India has one prominent domestic player, Ola, the market winner has yet to be determined, partly because of the country's vast scale. 

According to news reports, Uber decided to reintroduce UberAuto -- a ride-hailing service using three-wheeled motorized rickshaws -- in Bangalore and Pune, after suspending the service in India a few years ago. The move shows Khosrowshahi's commitment to providing services that answer local needs. A similar service is provided by Ola, too.

The country also ticks most boxes that create demand for ride-sharing businesses: poor public transportation, congested roads and pollution from the high number of privately owned cars, rapid urbanization and a large flow of commuters. "In both Japan and India, I see a great potential for on-demand buses, for example, as a means to solve urban problems," Shimizu said.

Uber now has ample capital to fund expansion in these markets. In January, SoftBank closed a $7.7 billion deal for 15% of Uber. The Japanese technology company had been eyeing a slice of Uber before Khosrowshahi took over and bought shares from existing shareholders at a bargain, following Uber's troubles last year. Based on the price SoftBank agreed to pay for Uber's previously issued shares, its valuation was about $48 billion, or roughly 30% less than the valuation in 2016.

SoftBank also is the top shareholder in Grab, a rival Singapore-based ride-hailing service with the largest market share in Southeast Asia, processing around 4 million rides a day. SoftBank has also invested in Chinese peer Didi Chuxing and Ola.

With Uber now a member of SoftBank's family of ride-hailing companies, it could create a shift in the company's strategy in Asia. Indeed, Uber is in discussions with Grab to reduce its Southeast Asian operations by partnering with its competitor, according to sources familiar with the matter.

Khosrowshahi declined to confirm or deny that report but said his company is open to options. "Our plan now is ... to grow and invest [in Southeast Asia]. But we have always been flexible and we will always be opportunistic about ways to improve our service and to improve our value to shareholders."

Uber previously gave up its operation in China to Didi Chuxing after a heated battle to win market share. The company has also merged its operations in Russia with local internet company Yandex. As for India, Khosrowshahi during his visit expressed his intention to continue investing in the country and dismissed speculation on merging with Ola as "too soon," according to local reports.

Sharpening Uber's focus on certain markets is crucial, according to some observers. "The new CEO is tasked with ensuring proper governance and making the company profitable fast, especially as Uber's shareholders push for an initial public offering," said an investment banker familiar with Grab and other ride-hailing operators. "I imagine that [Khosrowshahi] would want to pick out the markets with most potential, as opposed to investing everywhere," the banker said.

Uber's net loss for the October-December quarter narrowed to $1.1 billion from $1.46 billion in the preceding quarter. But its full-year net loss for 2017 expanded to $4.5 billion from $2.8 billion the previous year, even though its revenue increased 15% to $7.5 billion.

Even with its new approach of expanding through dialogue with industry players and regulators in specific markets, the company could still find it tough to break through in Japan and India.

In India, Uber needs to revamp its image, especially following the rape of a passenger by an Uber driver in India in 2014, which led to the service being temporarily banned in Delhi and brought a strong backlash against the company for not performing enough background checks for drivers. 

In Japan, regulations are the biggest obstacle. Shimizu of Deloitte Tohmatsu said whether Japan deregulates taxi fares to allow dynamic pricing remains uncertain.

"Japanese taxi companies are tasked with a mission to provide stable income for its employees, but dynamic pricing could create volatility in drivers' earnings," he said. 

Still, Khosrowshahi seems to be the best person for the challenging job. During his tenure at Expedia -- another internet company dealing with how people move -- he oversaw aggressive acquisitions and sevenfold growth in the company's market capitalization.

He also knows when to retreat. In 2015, Expedia sold its stake in Chinese travel company eLong to Ctrip, a domestic rival, after years of fierce competition. And perhaps most important, he was seen as neutral and the best intermediary between Uber's board members who had split into pro- and anti-Kalanick camps.

Despite the difficult balancing act, Khosrowshahi is already looking ahead -- he wants to commercialize services using self-driving cars "faster than anyone else," by partnering with automakers in Japan -- and beyond. In November, Uber struck a deal with NASA to develop traffic systems for its proposed flying taxi system. "[In] five to 10 years from now, we believe the solution is to take it to the skies," he said.

Khosrowshahi's eyes brightened as he described his vision for flying taxis in Tokyo. "Just last night, when I landed at Narita [Airport], I thought about how cool [it would] be to fly from Narita and arrive at Grand Hyatt's roof."

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