On November 21, six months after entering (the country of) Mexico, Didi finally announced that it had started operations in Mexico City (population 21 million), the second-largest city for Uber.

It means that after acquiring Uber’s China business for more than two years, Didi is again directly competing against Uber in a large market, with its own brand name.

There are also rumors that Didi may soon rename 99Taxis, the Brazilian Taxi company it bought, to Didi’s own brand name and competes against Uber in São Paulo, Uber’s biggest city across the world.

Two important factors make Mexico City such a significant market for Uber: security and urban planning.

Street view in Mexico City

Before the age of mobile ride-hailing, Momentum Works colleagues had visited Mexico City several times and we were repeatedly warned by our friends not to hail a taxi on the road, because kidnappings and robberies happened frequently.

When we needed a car, we always called for one by telephone. Although ride-hailing apps require driver’s registration information, they cannot completely solve the security problem. Uber has been repeatedly facing safety issues in Brazil.

Friends familiar with Chinese cities always marvel at “so many low-rise buildings” when they go to Latin America. In fact, many Chinese cities were also quite low-rise before the rapid renewal over the past two decades.

Low density by Chinese standard

As a result, though populous, Mexico City’s population density is far lower than that of China. So, it is relatively difficult for public transportation to cover urban travel. In many cases, you have to hail a taxi. This is also true for São Paulo, Cairo, Tehran and other mega cities in the developing world.

Didi’s Strategy in Latin America

Didi is by far the only Chinese Internet giant to have a direct presence in Latin America. (More specifically, it is the only Chinese giant that operates there except for Baidu’s now-defunct operations and the fast-growing Tik Tok.)

Step 1: Acquire 99Taxis to enter Brazil

Didi’s first stop in Latin America was Brazil. In January, Didi announced the acquisition of 99Taxis, Brazil’s second-largest taxi hailing company. In fact, it had invested $100 million in the company a year before the acquisition, and eventually decided to exercise greater control.

Tiger Fund and Softbank played their roles in this dealing. In the process of acquisition, Didi could have integrated some other taxi hailing companies, but due to the timing, distance and people, only founders of 99Taxis managed an exit.

The sector in populous countries, such as the U.S., China, India and Indonesia, have been seized by major players, including Uber, Ola, Lyft, Grab and Go-Jek. These companies all have backers behind, and it now seems unlikely for Didi to enter these markets via acquisition.

While many cities in Latin America have large populations and low population density compared with China, their public transportation systems still need further development, and people face certain dangers in travel. All these are very conducive to the development of taxi-hailing platforms.

99Taxis and Didi were once on the same side, both members of “anti-uber alliance” invested by Tiger Global.

When Didi ended its competition with Uber in China and began to look overseas, these “same camp” companies became its first choice. This is why Didi and Softbank both invested in the C-round of 99Taxis last year.

With São Paulo leading the way, Didi is bound to gradually enter other Latin American cities. As is known that São Paulo is Uber’s biggest overseas city market, but what about second-largest one?

Step 2: Enter Mexico City Directly

In January, Momentum Works predicted that after acquiring 99 Taxi, Didi would directly enter Mexico City in the next step.

Just refer to its competitor Uber. Uber literally has very small profits in Latin America, and UberEats contributes most to the profits. Uber has operated ride-hailing services in more than 100 cities, but the only ones that are truly profitable are São Paulo, Rio, Mexico City and Santiago de Chile, all of which are built on large order volume (millions of orders per week).

Uber Drivers in Brazil’s protested against government’s law on travel

Didi has entered São Paulo and Rio de Janeiro in Brazil by taking over 99 Taxi, so Mexico City is naturally the next step. Just like São Paulo, Mexico City has numerous conditions favoring taxi-hailing platform.

As for Mexico, basically no companies there once received direct investment from Didi and there is little interference posed by strategic interests, so Momentum Works believed direct entry is the best choice for Didi.

However, Didi has taken a more cautious approach: in April, it entered Toluca, the capital of the State of Mexico, and then set business in Monterrey and Guadalajara, the third and second-largest city in Mexico respectively.

This is because that every state in Mexico has different rules and permit requirements for operation. Didi first chose to enter a few cities that are relatively easy to access, and then enter Mexico City when its approval is granted. By then it has already polished its operations in the country. This is a safe choice.

Why do we think such practice makes more sense compared to overall rapid expansion?

There have been painful lessons. Easy Taxi under Rocket Internet was once number one in the Brazilian market, but it only ranked third in São Paulo. As it turned out, the market share of important cities matters most.

Easy Taxi once expanded business to Costa Rica, Honduras, Uruguay and other small countries. Only later did it find that these markets, which are not that significant, had seriously affected the strategic focus.

Capturing major markets is often more important than solely pursuing wide market. Mexico City is the crucial key to Didi’s success in Latin America.

Easy Taxi still operates in Mexico City. Although its parent company has merged with Spanish Cabify, their operations in Mexico are relatively independent. But it is expected they both will suffer from the war between Didi and Uber.

Step 3: Other Latin American countries

Apart from Brazil, taxi-hailing markets in other Latin American countries are more fragmented and less competitive. After all, there are no other strong competitors except for Uber.

Didi’s offline activities in Mexico City

As we have repeatedly stressed, Colombia is quite a good market. Ecuador, though small, is worth exploring. And Chile is pretty good except it’s relatively small.

Among all Latin American countries, it may be harder to operate business in following markets: Venezuela (where toothpaste is unavailable and bulletproof cars are prevalent), Argentina and Peru. As history suggests, when it comes to aggressive development in disruptive areas, Chinese companies tend to be much better than their American counterparts.

Challenges for Didi

In fact, the overall environment in Latin America might not be friendly.

The first is the instability of the political and economic environment. Specifically, neighboring President Trump is extremely unfriendly towards Mexico. He has been aggressive with Mexico on a number of issues, including border security, immigration, economy and trade, and demanded that Mexico pay for the construction of the border wall

Mexico’s newly elected President Lopez Obrador (AMLO), even known as the “Mexican Trump,” has published a book entitled “Listen Up, Trump”. It seems difficult for the two countries to ease relations in the short term.

AMLO and his book

The second is Mexico’s own social problems, which have plagued the country for years with drugs and other crimes. Didi has also launched background examination for drivers and real-time dynamic monitoring of the surrounding areas.

But Didi has encountered a number of such crises in such a safe environment at its home market in China. Will this set of safety measures play a significant role in Mexico?

Didi and Uber, Who will win?

Over the past few years, Didi has been making investments and acquisitions around the world: Grab and Ola in Asia, Lyft in U.S., 99Taxis in Brazil, Taxify in Europe and Careem in the Middle East.

After a fierce price war in the Chinese market with Didi, Uber in the end withdrew from the Chinese market. But now it’s clear that Didi has declared war on competitors globally!

Each player has plenty of  money anyway. Both Uber and Didi are backed by Softbank’s huge warchest.

Whoever wins, this gentleman have the last laugh ↓↓↓

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.