Strategic analysis of Mobike’s business model in China and its applicability in Germany


Term Paper, 2017
43 Pages, Grade: 1,0

Excerpt

Table of Contents

1. Introduction

2. Literature review & Methodology
2.1. Methodology

3. What is Mobike?

4. Strategic analysis of Mobike in China
4.1. Chinese environment analysis
4.1.1. Political factor
4.1.2. Economic factor
4.1.3. Social factor
4.1.4. Technological factor
4.1.5. Environmental factor
4.1.6. Legal Factor
4.2. Mobike’s Business Model
4.2.1. Block 1,2: Customer Segments, Value propositions
4.2.2. Block 3: Channels
4.2.3. Block 4: Customer Relationships
4.2.4. Block 5: Revenue Streams
4.2.5. Block 6: Key Resources
4.2.6. Block 7: Key Activities
4.2.7. Block 8: Key Partnerships
4.2.8. Block 9: Cost Structure
4.3. SWOT analysis Mobike
4.3.1. Strengths
4.3.2. Weaknesses
4.3.3. Opportunities
4.3.4. Threats
4. Analysis of applicability of Mobike’s business model in Germany
4.1. Competition analysis of German bike-sharing companies . 20
4.1.1. Industry Rivalry between established competitors
4.1.2. Competition from substitutes
4.1.3. Threat of Entry
4.1.4. Bargaining power of Buyers
4.1.5. Supplier Power
4.2. Macro analysis in Germany
4.2.1. Political
4.2.2. Economic
4.2.3. Social and Demographic
4.2.4. Technological
4.2.5. Environment
4.2.6. Legal Factor

5. Results & implications
5.1. Key comparison characteristics and implications
5.2. Recommendations

6. Conclusion

Table of Figures

References

Contributions of the students in a group

1. Introduction

Innovative and resource saving mobility offers are needed in times of urbanization, climate change and an increasing scarcity of resources. Car2Go and BlaBlaCar are some of those companies that disrupted the traditional mobility market over the last years. Another example is the Chinese bike rental company “Mobike”, which provides users with flexible, on-demand and nearby access to mobility through a large fleet of bicycles that are distributed across the largest cities in China. The company’s usage of the newest IoT (Internet of Things) technologies and a large amount of funding have resulted in a massive expansion across China, Singapore and just very recently UK in just 1,5 years. It also resulted in a replacement of traditional transport modes, such as the car, as the primary mode of transportation. Thus, one can say that Mobike and its many competitors help to transform Chinese megacities in a less polluted and more liveable area.

All of those mobility disruptors, named before are based on the principle of “sharing economy”. Its most important characteristics are access over ownership and collaborative consumption. Recent social, demographic and political changes in Germany have made mobility schemes based on the “sharing economy” a potential option to traditional transport modes. As climate change and the resulting need to lower emissions is not only a Chinese issue but a global one, it is only fair to ask whether the business model of Mobike can be applied in the German market. Hence, this paper aims to answer the following question:

Is the business model of Mobike applicable in the German market?

It will do so firstly by reviewing relevant literature on business models and bike sharing. This review will be followed by a strategic analysis of the Chinese market in general and Mobike in specific. In order to derive at an answer to the research question at hand, the analysis of the Chinese context will be succeeded by a strategic analysis of the German market. It is necessary not only to analyse the company itself, but also the country it originates from as well as the country it aims to expand to, since macro-environmental factors serve as cornerstones and affect a company’s success in any industry.

2. Literature review & Methodology

The field of strategy has considerably grown in the past few decades. Different approaches have been evolved like the resource-based view, dynamic capabilities and the game theory, which helped scholars and practitioners to understand and interpret the dynamics of competition (Casadesus- Masanell, 2009) in their environment. As a result of this knowledge, one is able to define a companies’ competitive advantage and to develop a guidance on how firms should set their corporate strategies.

However, many drivers such as technological improvements in combination with the internet and the globalization have changed the competition significantly. The companies’ need to compete ‘differently’ and to innovate in their business models (Casadesus-Masanell, 2009) has reached a profoundly magnitude within the more and more becoming complex environment, where creating and capturing value plays a central role. That’s why having a substantial business model is becoming even more important.

What factors has to be included in a business model has not always meet accordance under scholars and practitioners. Even though the origination of the expression business model can be track down to the writings of Peter Drucker (1954), it has reached significant relevance only in the last few decades. While there is still no widely accepted definition of what a business model is about (Markides, 2008), some are widespread like Joan Magretta’s (2002) definition of business models, which is often referred to “stories that explain how enterprise work”. More specifically her definition provides answers on two fundamental questions. The first one is who is the customer and what is her/his value. It refers also to all activities related to the selling process, including the customer acquisition, the sales process or the delivery of the service. The second one has to provide an underlying economic logic, which aims to explain how the value to the customers can be delivered at appropriate costs (Casadesus-Masanell, 2009). It refers also to all activities concerned with the creation process including the designing, the purchase of raw materials or the manufacturing process.

One of the latest and most comprehensive frameworks (Ovans, 2014) of business models is introduced by Alexander Osterwalder and Yves Pigneur (2010). The rationale of how an organization delivers, creates and not to neglect captures value can be analyzed subsequently through a nine-part framework, which are called building blocks. The concept is named “Business Model Canvas” and is on the one hand simple and intuitive and on the other hand it is not oversimplifying the complexities of how enterprises function (Osterwalder, 2010). In comparison to Magrette’s concept, it delivers a much more shared understanding of what a business models are about and thus making comparison of different business models much more comprehensive. That’s why the paper will use this approach as an analytical tool to describe the business model of Mobike.

When it comes to bike-sharing business models, they haven’t been always as they are today but have changed considerably over time as did the definition/concept and scope of business models. In general, a bike sharing system is a public service that provides short term, on demand rental of bicycles and is usually provided by private and state-owned enterprises to municipalities or directly to end-consumers. According to Shaheen & Martin (2014) there have been four major generations of bike sharing models. The first generation, which started in 1965 in Amsterdam operated as a non- profit. It provided the citizens with approx. 50 bicycles that could be used free of charge and could be left at any location throughout the city without the need for user registration. This system failed within a short time due to theft and vandalism as result of the bikes being left unlocked. The second generation, which was first launched in Denmark in the early 1995, was based on a coin deposit system (Bachand-Marleau, Larsen, El-Geneidy, 2010). Over 1000 Bikes located at 110 different dogging stations could be unlocked with a coin deposit, but again the anonymity of the users gave rise to theft and vandalism. In 1998, IT technology was used for the first time initiating the third generation of bike sharing model. Launched in Rennes, France bicycles and docking stations were equipped with RFID technology that allowed electronic locking, user identification as well as the tracking of bicycles using a personalized smartcard (Bachand-Marleau, Larsen, El-Geneidy, 2010). The fourth generation, which is also the one currently employed by Mobike, is the demand responsive system (Shaheen, Guzman, Zhang, 2010). This latest generation features a station-less bike sharing scheme and makes use of GPS/GPRS and big data for demand sensitive, real time fleet management and redistribution. Furthermore, the bicycles are designed robustly in order to resist vandalism and utilize modern electronic as well as app-based technologies to enable innovative locking systems, geofencing (restricted riding areas), booking and real time localization and user registration (ESB 2016). Services such as bike-sharing that are based on collaborative consumption, access over ownership or in general a sharing economy have become increasingly appealing to consumers in the recent years and technological advancements made it possible to scale (Firnkorn & Muller 2011). Other factors supporting the popularity is the increasing concern about climate change paired with the desire for social embeddedness as well as the global mobility and the need for convenience (Albinsson & Perera, 2012; Botsman & Rogers, 2010).

This phenomenon has disrupted the classical business models in a sense the distinction between companies that provide services and consumers has become blurry (Cohen & Kietzmann 2014, Botsman & Rogers 2010). For example, in the case of Airbnb or Uber who do not own any assets (products) but merely provide platforms that connect asset owners and potential consumers (peer to peer). While it is true that Mobike inhibits some of the characteristics of companies, such as Uber and Airbnb, that is access over ownership, collaborative consumption via an online platform, the need for a value creating activities of Mobike in both its services and products as such are still crucial, as it both owns and operates its assets (bikes).

2.2. Methodology

The analysis of the business model in this paper will be based on the concept of Osterwalder’s (2010) literature as described earlier. The approach can be described through nine basic building blocks, which aim to illustrate the logic of how the company intends to generate money. While these blocks basically cover four main fields of a business, which are the infrastructure, offer, customers and the financial viability, they in sum act as a blueprint for a company’s strategy. The implementation is managed through organizational structures, processes, and systems, which are simple, visual and comprehensive.

In order to gain insights about the Chinese market and environment in which Mobike is operating, the PESTEL (Downey, 2007) framework serves as a proper macro-environmental strategic analysis tool. Since our research question is about the applicability of Mobike’s business model in Germany, the tool will also help to understand the German market and environment in a comprehensive way. In addition, it is necessary to analyse the level of competition within the German bike-sharing industry, so that we can draw inferences about the attractiveness and profitability of the market for Mobike. For this part of the analysis, the framework of Porter’s Five Forces (Grant, 2010) will help to provide valid insights.

3 . What is Mobike?

Mobike is a Chinese bike-sharing company headquartered in Shanghai and one of the world largest bicycle operators. Founded in January 2015, Mobike was able to get funding from several big companies like Foxconn Technology Group and Tencent Holdings (Chinese largest and most profitable e-commerce platform). After the launch of the first bikes in April 2016 in Shanghai, the company became a unicorn in less than a year – with a worth of more than one billion US$. Their greatest competitor in the Chinese market, who became a unicorn at a comparable pace, is the Beijing based bike-sharing company Ofo. Mobike provides a fully station-less bicycle-sharing system, allowing customers to pick up an available bike in their surrounding area and parking it at any public place they want. In April 2017, Mobike counted roughly 20 million rides per day equipped with 3,65 million bicycles, it operates across over 50 cities (Dongmei, 2017). The first global expansion in March 2017 took place in Singapore. In June 2017, Mobike announced its expansion to Manchester with the intention to introduce the first bicycles in July 2017; making Mobike the first Chinese bike-sharing company to penetrate the European market.

4. Strategic analysis of Mobike in China

4.1. Chinese environment analysis

In order to be able to compare the Chinese with the German setup, a PESTEL analysis will be conducted for both countries, where special attention will be paid to the bike-sharing industry.

4.1.1. Political factor

In the 1960’s and 1970’s, cycling was averagely a faster alternative to arrive at work on time compared to the bus (Lusk, 2016). That’s why the government subsidized all commuters who were willing to drive with the bike, while at the same time instructed to build an extensive bicycle infrastructure in the main industrial cities like Shanghai and Beijing. This was the foundation of China’s well developed bicycle lanes, from which the bike-sharing companies like Mobike and Ofo still benefit. The government is key to the Chinese market in general, since they launch reforms, set growth targets and control the principle formations of China’s economy. The desired economic targets and initiatives are planned and set through China’s Five-Year plans – an instrument of planning economic activities in centrally planned economies. The Second Plan from 1958 to 1962 and the Third Plan from 1966 to 1970 included the encouragement of economic growth through industry and transportation, which includes the mentioned expansion of the bicycle road network.

The latest 5-year Plan – the ‘Thirteenth Plan’ (2016-2020), focuses besides other matters on the following fundamental areas: ‘Innovation’, which is defined in this case as the build-up of an information intensive branch of the economy and abandoning the industrial-style production industry. Another one is ‘greening’, which aims to develop a low-carbon industry and ecological standards. The last one is ‘sharing’, which should encourage the development of a sharing-economy – including new models such as networked means of transportation rentals and online housing rental services (KPMG, 2016).

China is nowadays known as the world’s second largest economy after the U.S. and aims to intensify their international economic ties, by investing more abroad and seeking investment for the home market, as well as inviting skilled workers in to freshly developing industries with lack of expertise. For much of the population, living standards have improved dramatically and the room for personal choices has expanded, yet political controls remain tight. All of the mentioned points are factors that affect Mobike’s business and will be touched upon in later sections.

4.1.2. Economic factor

The (GDP) annual growth rate in China averaged 9,74% from 1989 until 2017 (Tradingeconomics, 2017), adding more value to the society with increased purchasing power (PP) of the consumers (Kuo, 2016). The percentage of population living in urban areas was 56,1% in April 2016 (Sin, 2016) and thus increasing the demand for alternative transportation within the cities. Even though the increased GDP and PP in China comes around with a car industry, which has registered a huge growth in sales in the past years (Zhang, 2017), Mobike and its greatest competitor Ofo have managed to increase the supply of bicycle sharing in Chinese cities significantly. One reason for their successful establishment in a market marked with an increasing demand for cars is the time saving aspect. The latest ‘China Bike Sharing Report’ (Brennan, 2017) analysed and interviewed the customers of the two companies. It reveals that 69,2% of the customers use the shared bike opportunity to cover distances faster from subways/bus stops to their individual destination (Brennan, 2017). This is often referred to as solving the “last mile” problem, which describes the difficulty in getting people or commutes from a transportation hub like bus or railway stations to their destinations.

A closer look to some economic indicators may reveal other reasons for Mobike’s success. First, the working practice in comparison to other industrial countries is labelled with cheap labour cost, especially in the operative segment. Second, the Chinese society consists of a large number of skilled workers, which can boost the profitability of a company considerably (Eichner, 2016). Third, China and Chinese investors have gained a sigh rate of savings (Bulloch, 2016) over the time of the economic rise, which creates huge potentials for capital investment. According to this, Mobike received a $10 million U$ Dollar fund in August 2016 by Panda Capital, which almost triggered a wave of following funds including Tencent Holding in January and June 2017 with $215 million U$ Dollars and $600 million U$ Dollars, respectively (Crunchbase, 2017).

However, high inflation rates caused huge capital outflows in China. While in the 1990s foreign firms entered the Chinese economy, and caused a large influx of foreign capital into the market (Bulloch, 2016), it is now the Chinese companies engaging massively in outward direct investments (KPMG report, 2016). Mobike has done likewise with its expansion to Singapore and Europe.

4.1.3. Social factor

Since Mobike is only available in urban areas, the company is targeting the younger cluster of the population, so that 70% of their customers fall between the age of 20 to 40 years, while men are slightly but not considerably the primary users (Brennan, 2017). China’s population of 1,37 billion people in 2016 is characterized by an increasing urbanization rate of 3,05% (Indexmundi, 2016). The age structure has a median of 37 years from which the highest rate fall between the age of 20 to 25 years (Indexmundi, 2016). The rate is even higher in the urban areas.

An approach to measure the impact of cultural factors on Mobike’s business can be inferred through the model of the ‘six dimensions of national culture’ based on research done by Geert Hofstede (2017). Due to the scope of the paper, however, only two dimensions are going to be mentioned. The first one is ‘Individualism’ and represents the degree of interdependence a society maintains among its members. China’s score of 20 from 100 is very low, which means it is a highly collectivist culture where the people belong to groups and act in the interests of the group rather than for themselves (Hofstede, 2017). Hence, the wide-spread collectivism in the Chinese society, which engages people to share and cooperate (Harry, 2001) may favour the principle of sharing economy on what Mobike’s business model is based on. Second, the sixth dimension is called “Indulgence” and defines the extent to which people try to control their desires and impulses. China has a very low rate of 24 from 100, which means China is a ‘Restrained society’ where people are under the perception that their actions are restrained by social norms (Hofstede, 2017). These social norms in turn may have been set by the government, since it is a considerable influencer of culture (Lynch, 2012) and sharing-economy is an inherent part of the Thirteenth Five-Years Plan of China.

Chinese consumers tend to be very experience-seeking when it comes to trying out new services, follow new trends and opinion leaders through social media (KPMG, 2016), which has become one of the number one social activities in China. More than half of the nation is using the internet (Millward 2017), while the highest rate is pooled in the urban areas. Chinese internet users are using mostly and actively different social media platforms, where WeChat, an instant messaging social media platform similar to WhatsApp, is the most common one. Mobike’s service is only available through the internet. Hence, a lack of internet users is apparently not a barrier for Mobike. The wide spread Chinese internet community is instead a necessary and well utilized condition for Mobike’s business model.

4.1.4. Technological factor

Mobike’s intellectual property is supposed to be saved by 28 patents, which makes them one of the most innovative bike sharing companies in China when compared to Ofo, which only owns one patent. Their patents include the needful feature of a bike system that links the control and registration system, the cloud storage, the management centre of the company and the user’s smartphone together. China is the owner of one of the largest amount of state-owned Research and Development institutions around the world, which record an R&D growth of about 18% over the last years. Forecasts of leading consulting companies see China developing from an ‘innovative sponge’ to a global ‘innovation leader’ (Reitmeier, 2016). The value of a nation’s intellectual property includes the issued number of patents. China’s domestic patent office – the Property Office of the People’s Republic of China – leads the world benchmark of applications with over one billion patents, followed by the U.S with roughly 600.000 (Reitmeier 2016). This is one result of China’s latest Five-years plan of creating a more innovative economy, which also refers to Mobike.

The payment solution offered by Mobike is based on an upcoming trend in the Chinese economy: The mobile internet in China is becoming a driving force in the e-commerce business, which leads to technological improvements like the online payment solutions by Alibaba, ‘Alipay’ and Tencent, ‘Tenpay’. The latter is an integrated payment function in WeChat. Apparently Mobike has anticipated this trend by offering both of the mentioned payment methods through a smartphone. This is also due to the fact that the Chinese market has a significant low credit card penetration and its usage as an online payment method is even lower. Since Chinese consumers are very trust sensitive when it comes to payment and especially to online payments (Xiao, 2017), Alipay handles online payments in escrow with a considerable focus on buyer protection, which brought them roughly 50% of the market share of online payment services regarding the transaction volume (Yu, 2017).

Since Mobike relies heavily on their increased need of physical assets, a cheap access to bicycle suppliers is a key factor. Many foreign organisations are supplied by Chinese companies, because of the low production cost based on an improved manufacturing by technology. Mobike can also profit from these conditions. That’s why they are cooperating with Foxconn, which is one of the leading contract manufacturing companies in the world and better known as the leading manufacturer of iPhones.

4.1.5. Environmental factor

Even though it’s impossible to figure out the real impact on the environment by the usage of bicycles as an alternative mode of transportation in numbers, it’s unquestioned that it has a positive impact when using it instead of a car. According to Mobike’s competitor Ofo, for each mile travelled by bicycle instead of motor vehicles, the carbon emission is reduced by 0,27kg (Ofo, 2017). This can be referred to Mobike as well, since both companies offer a similar service. China’s environment and public health suffered from the country’s rapid and massive industrialization in the last decades. It becomes nowadays the world’s largest nation by carbon emission, which makes roughly one third of the world’s carbon emission (Edgar, 2016). Especially the big cities like Beijing are affected by the contamination, where citizens experience severe smog almost on a daily basis; the concentration of hazardous particles was forty times greater than endorsed by the World Health Organization (WHO). The Air Quality Index (AQI) in Bejing for instance frequently rates an ‘unhealthy’ status.

4.1.6. Legal Factor

Capturing value through patents proves to be a challenge for companies operating in China. In April 2017, Mobike was starting to face trial, because they were accused for stealing a patented QR recognition technology. Even though the result is still pending, it has to be questioned if this depicts a real threat to Mobike in China. The reason for this is that even though Chinese laws basically offer protection for patents, trademarks or copyrights, the enforcement of those laws, however, is often ineffective and therefore often violated (Nash-Hoff, 2016). In 2001, China has joined the World Trade Organization (WTO) and thus became a member of the TRIPS (The Agreement on Trade- Related Aspects of Intellectual Property Rights), who decide on the conditions, under which most patents are protected; these minimal standards are expected to be enforced by the national governments. Before that and even after this agreement, however, several western organisations claimed that Chinese companies were stealing American or European intellectual property for developing their own products and technology (Branigan, 2016). In case of Mobike’s mentioned trial, it might be an advantage for them when the enforceability of patent laws is insufficient. However, what is an ongoing threat for western companies can become the same threat for Mobike as well. Bluegogo is the latest entrant to China’s dock-less bike-sharing industry and is operating with a similar QR-Code technology as Mobike. While Ofo is using a different technology, Bluegogo seems to become an upcoming threat for Mobike.

Criminality and vandalism in multiple Chinese cities challenges Mobike and its competitors. On the one hand the dock-less design increases the probability that bicycles are found in one’s immediate surrounding. On the other hand, however, it allows users to park their bikes in remote locations, where property managers started to complain. As a result, many thousands of bicycles were found destroyed in dumpsters or were thrown in rivers (Quartz, 2017). How Mobike manages this problem will be described in the business model section.

4.2. Mobike’s Business Model

The concept of Canvas allows you to visualize the business model of Mobike in a clear and structured way of including all important key factors for operating the company. This illustration is presented in Figure 1 and visualized the nine building blocks of Mobike.

-- Insert Figure 1 about here –

Abbildung in dieser Leseprobe nicht enthalten

4.2.1. Block 1,2: Customer Segments, Value propositions

Since Mobike is a bike sharing company, it is obvious that it is creating value for those people, who benefit from alternative transportation. As stated in the China Channels report (Brennan, 2017), people mostly use the service for solving the ‘last mile’ issue and to save time. The ‘last mile’ in Mobike’s case is in 60% of the trips for distances less than 3km and only roughly 10% for distances over 5km (Brennan, 2017). Therefore, bike sharing is mostly used by people who are in need to overcome short distances quicker than with other transportation. While gender is not a factor that has prominent impact on bike-sharing use, the age is an important factor though. The age distribution for most of the cities is mainly between ages 18 and 45, which accounts for more than 90% in the average age (Wang, 2017). This customer segment is summarized in Figure 1 as the ‘short-distance travellers’ (under 3km) with an age distribution of 18 to 45.

The value for this customer segment is basically delivered through an improving service performance. Even though traditional bike sharing already existed in major Chinese cities, where users needed to register at specific offices before using it, and were required to take and return the bike to designated parking stations, this service, however, was not taken up by very many people. This process was considerably simplified by the help of Mobike’s app, which aims to link all channels at one spot. People do not require their own bike with this, which means they don’t need to buy one, thereby taking care of the potential maintenance cost and the risk of theft. In addition, the accessibility, convenience and usability was facilitated, which is one of the most important reasons for Mobike’s success. Thus the ‘app based service’ and ‘station-less bicycles’ represent two points in the value propositions on the illustration.

The second customer segment represents city planners, local businesses and authorities in a variety of smart urban planning projects. This is why Mobike launched a new artificial intelligence-driven platform, nicknamed ‘Magic Cube’, to create better solutions to solve urban mobility challenges. Each ride by Mobike’s customer is recorded through the GPS technology in order to leverage real- time trips and city data. Saved into a storage, which is in general also referred to as ‘big data’ is a highly valuable source of information. Local businesses, for instance, could receive the information at what time the most riders are passing their store and thus adapt their sales or marketing actions to that.

The next building blocks of Mobike’s business model will mostly refer to the first customer segment, since Mobike’s bike-sharing concept is based on their needs. Furthermore, very scarce information is available on how Mobike deals with the second customer segment.

[...]

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Details

Title
Strategic analysis of Mobike’s business model in China and its applicability in Germany
College
Copenhagen Business School
Grade
1,0
Author
Year
2017
Pages
43
Catalog Number
V463946
ISBN (eBook)
9783668955301
Language
English
Tags
strategic management, corporate strategy, market entry, swot, green mobility, ebike, bike sharing, china, germany, smart mobility, sharing economy, mobike, ofo, intellectual property
Quote paper
Marko Francesevic (Author), 2017, Strategic analysis of Mobike’s business model in China and its applicability in Germany, Munich, GRIN Verlag, https://www.grin.com/document/463946

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