In China, online ride-hailing services have grown rapidly in recent years and now constitute over a third of taxi services.

In response to this rapid growth, a diverse set of business models have emerged, shaped by the institutional logics (as sources of legitimacy for organisations) in the Chinese context. Our research has examined the platforms’ responses to institutional logics and their impacts on drivers.

Three main business models

Three main business models have emerged in the online ride-hailing sector. First, newly established ride-hailing platform start-ups, such as Didi (the largest ride-hailing platform in China; around 90% market share in 2018), are based on a customer to customer (C2C) model, using platform technology to connect drivers and customers.

Second, established car service companies including traditional taxi companies (e.g, Shouqi), car rental companies (e.g, Shenzhou), and car manufacturing companies (e.g, Caocao), have developed ride-hailing platforms using a business to customer (B2C) model.

Third, an additional business model has emerged, known as aggregation platforms, using a business to business to customer (B2B2C) model. This model, operated by businesses including Gaode (a Chinese web mapping company) has a low asset base and low running costs, as the business uses existing platforms to allocate users’ orders for other ride-hailing platforms.

The ‘institutional logics’ shaping ride-hailing sector

Institutional logics present the institutional setting that shapes actors’ behaviours and rules in organisations as sources of legitimacy. In order to achieve legitimacy, organisations are expected to conform to institutional logics in the fields they are embedded in. We suggest ride-hailing platforms are faced with three main institutional logics in the Chinese context. First is the state logic arising from the Chinese regulatory system, that covers, for example, the authorisation of cars, and driver accreditation. However, Chinese regulations in terms of work relations are still inadequate and vague, as there is no legal definition of drivers’ employment status.

Second is the market logic, where the source of business legitimacy is profit and shareholder value. In this logic, platform companies primarily need to meet the expectations and interests of shareholders and large investors (e.g., Sofbank Vision Fund and Tencent Holdings for Didi, Geely Holdings for Caocao, and Alibaba for Gaode).

Third is the corporation logic, which suggests that market share and revenue growth are legitimate business goals. In the face of stiff competition, platform companies exercise more control over organisational operations (including their drivers) to ensure the ongoing growth of market share.

Platform start-ups versus car service companies

Based on interviews with about seventy drivers and three managers from Didi, platform start-ups and car service companies adopted different approaches in terms of drivers’ employment status in the early years of the sector. Platform start-ups treated drivers as self-employed and effectively excluded them from employment protections from the start; however, car-service companies directly employed drivers on labour contracts, which gave them the protection of labour regulations. In addition, drivers in platform start-ups were exposed to unstable earnings as they relied heavily on commission and incentive bonuses, whilst drivers in car service companies had a stable basic wage. These differences are outcomes of two types of business models emerging from different organisational fields.

However, both used platform technology to motivate and control drivers, for example, by providing mandatory directives on time and locations in which drivers must accept trips, utilisation of incentive packages, such as bonuses and surge pricing, and by paying more to those working longer hours.

More recently, in contrast to platform start-ups, car service companies have been faced with high labour costs and net losses. Facing pressure from shareholders, car service companies have started a new ‘field-level’ restructuring process, reflected in a change of strategy towards drivers’ employment status. In 2019, Shouqi asked most existing drivers to sign service agreements to replace their labour contracts. This meant they moved to self-employed status, relying on commission fees instead of basic wages. Only a small proportion of drivers remained on labour contracts and consequently faced compulsory working hours and periods (e.g., peak time) and increased monthly revenue targets. Similarly, new drivers who joined the Caocao platform were not offered labour contracts and had to rely on commission-only remuneration.

Following a passenger murder scandal in 2018, Didi faced pressure from the government to take concrete actions regarding passenger safety. Didi mandated drivers to make sound or video recordings in their cars, monitored by AI and big data. This further reinforced its corporation logic by exercising more control over drivers. Moreover, Didi has faced a data-related cybersecurity investigation by the government, which resulted in the temporary removal of the Didi app from app stores and a suspension of new passengers and drivers’ registrations.

The emergence of ride-hailing aggregation platforms

The crises at Didi offered opportunities to other companies, especially the newer aggregation platforms, to capture the market. The aggregation platforms took advantage of their existing user base, attracting new passengers to other ride-hailing companies, via appealing discounts. Other (often smaller) ride-hailing companies established incentive packages, such as referral schemes and higher bonuses, to lure more drivers (even unauthorised drivers) to register on the platforms as self-employed. Some of these incentive packages have proved unsustainable, with individual drivers unable to get an adequate number of trip orders, and facing increasingly precarious wages and longer hours. As most of these drivers are operating illegally, they also face the higher (financial) risk of being caught and fined by police.

In sum, Chinese ride-hailing companies with different business models have balanced and/or integrated institutional logics in a dynamic way. However, there seems to be convergence on worsening outcomes for work relations, with a degradation of wages, job insecurity and poorer working conditions.