The real story behind the Didi-Uber merger in China

When news broke out that Didi is merging with Uber in China, many believe this is another case study of an ambitious foreign internet company failing in China. The way it looked, Uber had followed the footsteps of well-known brands such as eBay, Google, Facebook, Groupon and Amazon. This makes the foreign entrepreneur wonder: Is the Middle Kingdom impossible terrain?

Is the Middle Kingdom impossible terrain?

Many commentators attribute this to the company’s arrogance and failure to understand China. I disagree. This might have been true in the early 2000s, but companies like Uber are run by very clever people – there is no way they can build a successful business elsewhere and not understand China, especially after so many failure case studies they can learn from. Besides, Uber will not have been able to amass more 10 million active users in the country without understanding the market.

Another reason put forth is the lack of a good local team and trust in the local team. I highly doubt it. Uber China has actually built a formidable local team made up of top brass in each category. The Strategy Head of Uber China, Zhen Liu, is the cousin of Didi President Jean Liu, and niece of Lenovo Founder Liu Chuanzhi. Uber is run by a team of dedicated people who are proud to work for the company. It’s difficult to think a team such as this is not trusted.

So why did Uber fail? A number of market factors:

1)   Timing – When Uber entered China in 2013, Didi (and then rival Kuaidi, which merged with Didi in 2015) had amassed millions of customers through its taxi business. Unless you have a bigger war chest than your local rival, it is very hard to catch up in a cash-burning game.

Timing

2)   The force of capital: I think Travis Kalanick would have fought longer and harder if the investors didn’t apply pressure on him as he’s not burning his own money. In China, we have seen a number of high profile mergers when two leading players realised they could not best their competitors.

The force of capital

3)   The complexity of running a global app: Being China focused, Didi is much more flexible. It could easily add features such as advanced booking etc., while a global app such as Uber needs much more effort to build local specific features. There was just no way it could be as agile as its competitors in the market.

The complexity of running a global app

Overall, I think Uber has done a phenomenal job. The current deal, although well short of Kalanick’s wild ambitions, is still very good for Uber and its investors.

China is a huge market. It naturally attracts a lot of capital and fierce competition for dominance. It is very hard for multinational companies to commit as much time, money and other resources as local players do. This is especially true for consumer-focused businesses with low entry barriers.

Fortunately for tech startups in Southeast Asia, it is also not that easy for Chinese companies to come out and succeed out of China. There is a reason why Alibaba chose to acquire Lazada instead of building its own e-commerce presence. WeChat’s failure to crack any of the markets in the region despite huge investments is quite telling as well.

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it is also not that easy for Chinese companies to come out and succeed out of China.

The solution? Focus on building a strong business in the region first and you will find synergy with your counterparts from China. 

Focus on building a strong business in the region first and you will find synergy with your counterparts from China.