By Ji-Su Park
February 2017
We say that today we live in the era of “McDonaldization” or the worldwide homogenization of cultures. In today’s globalized society, everything is supposedly efficient, calculable, predictable and controllable everywhere. To some extent, everything seems to be in the process of global gentrification, with McDonalds and Starbucks in every city around the world.
But we still often run into situations that force us to question such sociological assumption. Think about some of today’s most successful startups from the United States. In today’s gig economy, or a society in which people take short-term jobs or single projects for which they are hired to work on demand, many startups like Uber, an online transportation network company that develops and operates a mobile application that allows consumers to request car transportation, and the so-called “Uber for X” companies provide services that are available at the touch of a smartphone button.
Suppose you leave the U.S. to travel overseas, your plane arrives at a foreign airport, you pick up your suitcase and you are finally ready to exit the airport. Now, do you call an Uber cab? Is Uber available there? Or can you use Google Maps to check how to get to your Airbnb apartment from the airport? Oops, no routes found; the app is not working anymore.
Many startups that successfully became the “big things” in the U.S. naturally strive to expand their business globally. However, numerous governments seek to ban or limit the companies from doing business in their jurisdictions. For example, you will definitely encounter the situation described above at Incheon International Airport in South Korea. Korea, a country still at war today and still divided into South and North, presents a unique legal challenge to on-demand companies like Uber. In order to understand Korea’s Uber ban, we must first look at Google. The South Korean government is not so friendly to Google: The South Korean government has decided to restrict Google Maps services because of national security issues. The law at issue is the Korean law that blocks companies from exporting the government-supplied map data for national security issues, which Google argues that it must do in order to offer features such as driving directions, public transit and transportation information, and satellite maps.
Google has been requesting a license from the Ministry of Land, Infrastructure and Transport since 2008 but had no luck. “The main point is national security,” said Kim Tong-il, an official at South Korea’s Ministry of Land, Infrastructure and Transport, which oversees mapping policy. The Seoul government, also citing national security, blocked Google’s efforts to export map data to data centers outside of South Korea. As a result, a Google Maps search for a driving route between Seoul, South Korea’s capital, and Busan, South Korea’s second biggest city, returns an error message: “No routes found.” In January 2017, Google added a new feature to Google Maps that allows users to call an Uber without ever leaving Google Maps. The Google Maps app will prompt users for their Uber account information, which will provide Google Maps with any linked information including payment methods. Unfortunately, this new convenient feature is extremely unlikely to be available in Korea.
In addition to the Google Maps problem, since its entry to Korea in 2014, Uber faced harsh protests from Korea’s strong taxi union and the locals who refused to accept the American startup’s “my-way-or-the-highway” approach in ignoring local law and regulations. Although Uber has faced similar criticisms in various states in the U.S. for its aggressive bypassing of the local licensing laws, safety laws and/or employment laws amounting to unfair competition, Uber seems to face even harsher criticisms overseas when a deeper cultural misunderstanding comes into play. Jungwook Lim, head of Startup Alliance in Seoul, noted that there were suspected cultural clashes between the local taxi industry and Uber Korea, which was initially run by Korean Americans who were not familiar with the local business culture. Moreover, criticizing Uber for violating the Passenger Transport Business Act yet denying responsibility in the event of an accident, Seoul Mayor Park Won-soon joined North American and European peers in enforcing standardized regulations over sharing economy platforms.
But not all sharing-economy startups from America have failed in South Korea. Consider Airbnb, an online marketplace and hospitality service that enables people to list or rent short-term lodging around the world. Uber and Airbnb are remarkably similar in many ways: Both companies were born in San Francisco, CA, and they are Silicon Valley’s biggest success stories in the on-demand economy. But while Uber has been showing an aggressive catch-me-if-you-can attitude that has put it at odds with regulators in many of the foreign cities that are crucial to Uber’s global ambitions and goals, Airbnb took a much friendlier approach. Airbnb has tilted towards working with local politicians in Korea and also has been hiring and working with ex-mayors of Seoul.
Even though Airbnb has still faced some expensive fines in several cities due to local policies, by and large, Airbnb’s approach has been to work with regulators, not against them. In Seoul, Airbnb is complying with the Korean law and also is beginning to clamp down on illegal listings in the country. In fact, in October 2016, Airbnb vowed to wipe out the illegal listings and delete hosts who have not reported to the central and local governments in Korea. This could have a huge impact on Airbnb’s supply since almost 70% of listings are not registered with the government. In other words, if Airbnb does go through with this plan to work with the government to wipe out illegal listings, it could wipe out much of the transaction it has made in what the country manager Patrick Lee said is among Airbnb’s fastest-growing markets in Asia.
Lee, however, gladly accepts the fact that it would take time for the government to understand that Airbnb is not a threat to Korean society or the Korean tourism industry. Lee says that Airbnb recognizes the difficulties of making business strategies in the gray area of the sharing economy: “Our team has a belief that if our decision is not contributing value to the society or industry, then that was the wrong decision if that business is in the gray area. So we are making decisions based on that belief.” Luckily for Airbnb, the Korean government ran a pilot program in three tourist-heavy areas in Korea that lets people rent out rooms through a special law.
As seen in the struggles of American startups like Uber and Airbnb in Korea, going global is not easy. Uber’s struggle shows that even though a startup’s initial success may lie in innovative ideas such as elimination of transaction costs (e.g. cab search costs), its long-term goals (e.g. global expansion) may ultimately depend on its attitude. What approach a company takes during its global expansion process can potentially make a difference in its brand image and public trust, which ultimately can contribute to its success. To become a global giant, should the company seek to go its way and then ask for forgiveness later? Or should the company ask for a permission, a collaboration and a partnership beforehand?
“Any government can shut you down, so you have to be willing to play the regulatory game,” said Gerald R. Faulhaber, professor emeritus of business economics and public policy at the Wharton School at the University of Pennsylvania, to the New York Times. “You need to work with regulators. There’s no way around that.”