Uber’s efforts to build Chinese Business ultimately fail against home-grown rival Didi

Car-hailing app service Uber’s office in Cheung Sha Wan, Kowloon, Hong Kong

World Street Journal

So far, no US internet-based company has succeeded in conquering the Chinese market.

Uber Technologies Co. tried harder than perhaps any other American internet firm to build a truly Chinese company that could win in China. In the end, it wasn’t enough.

After almost three years, Uber agreed to sell its China business to its archrival, Didi Chuxing Technology Co., the Chinese company announced Monday. Despite launching private ride-sharing services in China a full year before Didi, Uber has been outmanoeuvred by the home-grown player, which added localized features, landed powerful investors and wooed local regulators and press.

Uber isn’t the first American internet company to fail to conquer China. In fact, no US internet company has. Google Inc., Facebook Inc. and Twitter Inc. have come up against the deal-breaker barrier of Chinese censorship. US tech giants from Apple Inc. to Microsoft Corp. have felt a sales chill in China amid Beijing’s growing focus on using “secure” domestic equipment.

Uber is swapping its China operations for a big stake in its $28 billion home-grown rival, Didi Chuxing. WSJ’s Rick Carew shares what you need to know about the deal in the world’s largest ride-hailing market.

Even the least politically sensitive tech companies—like Yahoo Inc., eBayInc., Amazon.com Inc., and now Uber—have stumbled as Chinese rivals adapt more quickly to the preferences of the Chinese consumer.

“So far we haven’t seen a foreign internet company that has made it big in China,” said Andrew Teoh, managing partner of Ameba Capital, an early investor in Didi.

It was likely no coincidence that Uber Chief Executive Travis Kalanick’s decision came on the heels of China’s new ride-hailing regulations, which were announced last week but had been in the works for two years and were known to companies in the industry in advance. The guidelines officially legalized the industry, but gave an edge to the player with the largest user base. That was Didi, which is backed by Apple Inc. as well as Chinese internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd

The rules forbid companies to operate ride-hailing services below cost, putting an end to the rivals’ ruinous subsidy wars but making it difficult for UberChina, with its smaller scale, to match Didi on price. The guidelines also require companies to implement stricter driver oversight and incur other overhead expenses, measures likely to be less costly per ride the larger the user base.

Didi and Uber disagree on their China market share, but most third-party researchers put Didi significantly ahead. According to one research firm, Analysys International, Didi had 42.1 million active users in May while UberChina had 10.1 million.

Didi said it would maintain the Uber service and brand separately in China. But Uber’s future in China is unclear. A similar promise was made after the merger of Didi Dache and Kuaidi Dache in 2015 to form Didi Chuxing, with the smaller Kuaidi product subsequently marginalized.

 


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