Uber learned much from the failures of other American internet companies who tried to enter the China market, but still failed. China veteran Kaiser Kuo looks in ChinaFile at the competitive market in China, making it almost impossible for foreign internet companies to gain substantial market share.
Uber didn’t just bumble into the China market without a good map of the pitfalls that doomed so many other U.S.-based Internet companies trying to make it in China. In fact, they studied the failures of their predecessors carefully, and avoided many of their missteps. They created a highly autonomous China entity and gave their people on the ground extensive decision-making power, allowing them to take the gloves off where needed—not that Uber as a company has ever shied from doing so. They partnered with, and received investment from, China’s largest search engine (Baidu), and leveraged not only Baidu’s market position (by integrating Uber directly into Baidu Maps) but also its deep experience with government relations. Uber committed huge amounts of capital, and paid out billions in subsidies to win market share. They offered services tailored to the Chinese market.
And all things considered, they didn’t do at all badly: They rolled out aggressively into many Chinese cities, and for a while even enjoyed a market share lead in some of those cities, like Chengdu and Xiamen.
That despite all this Uber ultimately surrendered to Didi Chuxing shows just how tough local competition has become, and should give would-be entrants even greater pause. I doubt that within my lifetime I’ll see a major U.S.-based Internet company win a market share lead over domestic Chinese competitors. (Conversely, I doubt even more strongly that I’ll see a Chinese Internet company make significant inroads into any major Western market). The China Internet market will prove elusive to American Internet players even when censorship and other Chinese government policies aren’t significant factors—and just to be clear, they weren’t real factors in Uber’s case: some municipal governments may have played favorites, but Beijing mostly kept out of the ride share war that’s raged on for the last few years. This was a fair fight—or more precisely, both parties were free to fight dirty.
But it was an uphill fight for Uber from the beginning. A manager is, after all, always at a natural disadvantage when competing with an entrepreneur; the entrepreneur always has more skin in the game. And when that entrepreneur is focused on a single market, has nearly inexhaustible resources, can draw on the strength of China’s two largest Internet companies (Tencent and Alibaba both, since Didi’s absorption of Kuaidi in February 2015), and is determined to destroy its competition by any means, you know who to bet on.
Uber got good terms of surrender, though. The devotion of that much time, attention and capital by Uber’s senior management toward a market destined to bleed money for the foreseeable future just didn’t make sense. Now Uber ends up with 20 percent of the merged entity, and that’s nothing to sneeze at.
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