The next country for Zipcar’s expansion
Robin Chase and Antje Danielson started Zipcar Inc in 2000 following their knowledge about the car-sharing programs in Europe (Esswein par. 1). Notably, the decision to start the company was inspired by Chase’s family ownership of one car that her husband took to work, and her desire not to bear the cost of a second family. In particular, Zipcar started with two cars, one of them operating in Boston’s Beacon Hill neighborhood (Esswein par. 2). Currently, Zipcar operates in Canada, Austria, the US, the UK, and Spain.
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Next, Zipcar should start operating in China. Zipcar will tap numerous opportunities in the Chinese market presented by its high population, economic growth, a large number of university and college students, young professionals, and environmental hazards in mega cities like Beijing. Notably, since the global financial meltdown, the economic growth of China has slowed down from double digit to single digit growth.
In particular, China’s gross domestic product (GDP) real growth rate has declined to 6.8 percent (2015) from 7.3 percent (2014) (Central Intelligence Agency [CIA] n.pag). The drop in the economic growth means that a significant number of Chinese consumers are unable to buy or maintain their cars. Mainly, Zipcar car-sharing program will provide such users with an opportunity of driving cars without incurring purchase and maintenance costs. Overall, the current economic situation in China compels Chinese consumers to appreciate Zipcar car-sharing model because of the inherent economic benefits.
Zipcar provides a car-sharing network in urban areas and university (and college) campuses, the UK, the US, Spain, Austria and Canada (PRNewswire Zipcar Expands in Sacramento par. 9). Similarly, a car-sharing network will benefit the company following the growing number of universities and urban migration. Notably, China has more than 2,409 colleges and universities (Bradsher par. 22). Currently, China produces 8 million graduates in a year from community colleges and universities. Notably, China is expected to produce 195 million university and community college graduates in the next decade (Bradsher par. 26).
Mainly, these Chinese statistics present an enormous opportunity to Zipcar in that college and university students are one of their prime targets due to their “low” economic status and busy schedules that require convenient transport means.
China has a vast infrastructure network linking principal cities and urban areas. Again, the Chinese government continues to expand and improve road infrastructure in the mega cities. Statistically, the road network in China covers more than 4,106,387 kilometers, with 3,453,890 kilometers paved and 652,497 kilometers unpaved (CIA n.pag). Notably, 84,946 kilometers in paved road network constitute expressways. As a result, China is positioned at number 3 in the world regarding the road network (CIA n.pag). In this regard, the presence of an extensive system of the road in China will benefit Zipcar through coverage of many areas and low maintenance costs of cars.
The current cases of traffic congestion and severe air pollution in China main cities like Beijing are compelling government to consider mitigation strategies such as raising parking fees and fuel costs (Zeng par. 1). Despite the presence of such problems, the ownership of cars is unlike to stop soon. However, increased parking fees and fuel costs will make Chinese consumers such as young professionals unable to maintain cars despite their demand.
Thus, a car-sharing scheme in China can reduce the demand for cars while meeting the personal mobility needs of increasing young professionals. According to Zeng, the car-sharing network in China is anticipated to grow approximately by 80% per year over the next five years (par. 2). As such, Zipcar should enter the China’s market to tap benefits from the growing industry.
Mode of entry for Zipcar
Zipcar can use to enter the Chinese market using numerous entry modes. Notably, Zipcar has managed to access the already established car-sharing network in Austria following the acquisition of CarSharing.at (Zipcar par. 3). However, in China, a joint venture is a more appropriate mode of entry. In particular, Zipcar should form a joint venture with BYD Auto. Mainly, Zipcar should possess the majority of the stake and assume the control of the enterprise. The choice of the joint venture is based on underlying government based obstacles to doing business in China, the competition, and the benefits associated with BYD Auto.
The Chinese government is a major player in the market in terms of controlling the activities of both domestic and foreign-owned firms. Notably, Chinese government uses favoritism towards local companies. On the other hand, it has a history of initiating obstacles to foreign-owned companies it considers unfavorable (Perlez par. 5). In this regard, Zipcar needs to maintain a good relationship with the Chinese government to have an easy time of doing business in the country. Mainly, a joint venture presents the best mode of entry, as Zipcar will enjoy not only a good relationship with the government but also favoritism directed towards BYD Auto.
Zipcar will enjoy strategic benefits through a joint venture with BYD Auto. For instance, the joint venture will enable the company to enter the Chinese market with popular and environmentally friendly cars. Notably, the use of environmentally friendly cars is congruent with Chinese government policies of reducing air pollution in main cities such as Beijing (Wong par. 1). As such, Zipcar will receive positive reviews from the Chinese government due to its objective of meeting transport needs and at the same time reducing traffic congestion and improving air quality. Again, Zipcar will enjoy lower vehicle acquisition costs since the company will not incur high import taxes associated with foreign automobile imports in China.
Although Chinese car-sharing industry is still on growth stage, there are already well-established competitors. One main competitor relates to the increasing car ownership. Suwei and Qiang note that “in 2011, about 55 in every 1,000 people owned a private vehicle, while only a negligible 0.27 persons in every 1,000 people in 1985” (40). Notably, the estimates show that privately owned cars in 2010 were 55 million, a number that is likely to increase to 140 million by 2020. Many individuals would like to own cars, but car-sharing model presents a better choice to young professionals, university and college students, and low-income earners. Mainly, this is because of inherent maintenance costs, parking fees, gas prices, and insurance costs associated with car ownership.
The public transport and eHi’s FastCar are other main competitors that Zipcar will face in China. Notably, eHi is a leading car-sharing service provider in China (PRNewswire eHi Car Services par. 1). Thus, a joint venture with BYD Auto will facilitate a quick and easier entry into Chinese market due to the company’s local popularity. In short, a joint venture is the only viable mode of entry into the Chinese market.
Bradsher, Keith. “Next Made-in-China Boom: College Graduates.” The New York Times. 2013. Web.
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Cable News Network (CNN). “The Big Debate: Must we give up Our Cars? CNN Online. 2007. Web.
Central Intelligence Agency (CIA). “East & Southeast Asia: China.” World Factbook, 2016. Web.
Esswein, Pat Mertz. “Zipcar: Robin Chase” Kiplinger’s Personal Finance, 65 (2011), 1. Web.
Perlez, Jane. “In China, the Dangers of Due Diligence.” The New York Times. 2013. Web.
—. Zipcar Expands in Sacramento Becoming 26th Major Metro Market: Based on Strong Demand, Zipcar Increases Number of Vehicles, Will Open Office. 2013. Web.
Suwei, Feng and Li Qiang. “Car Ownership Control in Chinese Mega Cities: Shanghai, Beijing and Guangzhou.” Journeys, 2013, 40-48. Print.
Wong, Edward. “China’s Plan to Curb Air Pollution Sets Limits on Coal Use and Vehicles.” The New York Times, 2013. Web.
Zeng, Heshuang. “Car-Sharing Grows in China as an Alternative to Vehicle Ownership.” The City Fix. 2014. Web.
Zipcar. “Zipcar Acquires Leading car-sharing Service in Austria, CarSharing.at.” Mergers & Acquisitions Week, 196. 2012. Web.