E58 – The Impulso Podcast – Why Meituan CEO takes over overseas businesses?

Meituan has had a very challenging 2023, with its falling share price and intense competition from both Douyin and Pinduoduo.

Last Friday (2 Feb), Meituan founder and CEO, Wang Xing, announced in an internal email an organisational restructuring that will integrate a number of businesses related to core local commerce and further raise the priority of technology and internationalisation-related businesses. 

Notably, as part of the restructuring, CEO Wang Xing announced that he will directly oversee overseas operations and drone delivery. 

Tune in to the latest episode of the Impulso Podcast, as we explore the strategic changes made by Meituan and its implications, as well as draw comparisons with Alibaba’s own restructuring efforts. 

Also available on Apple Podcast.

 

Featured materials: 

Meituan CEO Takes Over Overseas Business as China Sales Wane, Bloomberg

Food delivery platforms in Southeast Asia 2024, Momentum Works

Transforming Alibaba, Momentum Works

Why does Alibaba replace Taobao CEO?, the Impulso Podcast

Seeing the Unseen: Behind Chinese Tech Giants’ Global Venturing, Guoli Chen and Jianggan Li

[AI-generated transcript]

[00:00:00] Sabrina

Hello everyone and welcome to the Impulso podcast. Today, Jianggan and I are going to be talking about Meituan’s recent restructuring. so in our latest report, food delivery platforms in Southeast Asia 2024, we actually talked a little bit about some of the challenges that Meituan is facing

so in the report, we mentioned that Meituan has encountered its most challenging year since IPO. And that it’s currently facing challenges in its core profit drivers as well as its largest new business. So for its core local commerce business. Meituan is facing challenges from Douyin, which is the Chinese TikTok, in terms of in store, hotel, and travel deals.

[00:00:38] Jianggan

Sabrina, how good is your Chinese? Very bad. You’re getting all the tones right. Douyin. Douyin. Douyin. Douyin, yes. Okay, go ahead. I’m probably getting the nasal sound wrong as well, because yeah, it’s complicated. 

[00:00:51] Sabrina

Anyway. And under their new initiatives, they are facing strong competition from Pingduoduo in terms of 

[00:01:00] Jianggan

The way you say Pinduoduo No, it’s, it’s, yeah, you probably heard their song, like Pinduoduo, Pinduoduo.

[00:01:08] Sabrina

I think, yeah. 

[00:01:09] Jianggan

That’s the bad influence. 

[00:01:11] Sabrina

When I pronounce Mi Xue as well. 

[00:01:14] Jianggan

Oh, don’t even go there. We’ll talk about Mi Xue in another episode. Amazing case study, yeah. 

[00:01:20] Sabrina

So, like we mentioned Meituan is facing a lot of challenges in China, they’re facing strong competition from Both Douyin and Pinduoduo last year they actually bought back about us 1 billion off their shares, which I think shows us that the company thinks that their stock is currently undervalued in the market.

[00:01:38] Jianggan

Well, I think the stock is undervalued in the market as well. Yeah, but but obviously people, have lots of pessimism about the tech companies in China in general but particularly in mid China, right? So in our food delivery platform in Southeast Asia online briefing, we actually draw a chart comparing like how many times fairing against the global platforms.

Doordash was doing the best, right? I mean, last year, this stock price doubled and Meituan dropped more than 50%. And even if we look at the Chinese tech companies and Meituan is very far behind Alibaba, Tencent, et cetera. So, there’s a tremendous doubt for the investors about. The company’s prospects even I think January this year, it dropped another 20%.

So obviously there’s there’s lots of challenges facing Meituan and I’ve been speaking with some of the people there and they said internally, I think they’re expecting the leadership to. So to give a direction, because of course many people are compensated by the stock and it’s not good to see on one hand, you’re working very hard on the other hand to your stock price just keeps going down.

[00:02:43] Sabrina

And the leadership is doing something right. Just last Friday on 2nd February, their CEO Wang Xing actually announced in an internal email and organizational restructuring. To integrate a number of businesses related to their core local commerce, as well as further raise the priority of their technology, as well as internalization related businesses.

So I’ll just tell you guys a little bit of the restructuring that they are doing. So firstly, the CEO and founder Wang Xing will now directly lead the company’s drones delivery, as well as overseas businesses.

He also plans to integrate business lines that once operated relatively independently, such as their research and in store services. with the main Meituan platform. So in terms of core local businesses, Meituan will integrate the independent businesses from the past, including the integration of Meituan Daojia. Meituan platform and basic research and development. So these departments will now report to Meituan Senior Vice President, wang Puzhong.

And then for the third restructuring, it would be that the businesses of Meituan Dianping. It’s software as a service. Right. Healing as well as mobile power will be headed by Zhang Chuan 

[00:04:00] Jianggan

Zhang Chuan Zhang Chuan is in charge of the boat, but maybe he is 

[00:04:07] Sabrina

senior vice president of Meituan as well. The rest of the organization will remain unchanged. So three pretty big changes from the organization restructuring. 

[00:04:17] Jianggan

So this actually has quite a bit of implications. And obviously this week the few days after, after, after restructure was announced that the stock price actually covered quite a bit.

 And of course, I mean, I think part of that could be attributed to this announcement that give people a little bit of hope, right? So. Let me parse this announcement a little bit. So the Meituan platform, as well as the the two store business and and two home businesses will be in, will be now consolidated and put in charge under one , right?

[00:04:49] Jianggan

So, s relatively young, I think he was born in 1984. I should not that young compared to the founder. Founder was born in like 79 or 80. So it’s a few years difference, but still relatively young. I think Zhang Chuan is a bit older. So he will be in charge of the, the, the core businesses, which drive most of Umitrans volume as well as most of its revenue.

I think consolidating this will probably make it easier because all of these businesses are. Linking the merchants with consumers and of course, the revenue will be a little bit more different, but I think I think what Puzhong has been been put with a very, very heavy responsibility.

Zhang Chuan, who I think, who wrote a letter internally saying that they are facing a very, very tough time and because of the competition. So he’s in charge of Dianping, which is also is by itself a cash call. It’s largest food review platform and of course a good advertising platform. The mobility, which means that has lots of, , shared bikes. They also run a ride-hailing business and also the power banks, right? The shared power banks you see everywhere across merchants in China. So he will be in charge of that. So the drones. And and oversee businesses will be put in charge directly by Wang Xing.

I think it’s interesting that Wang Xing’s taking over that. I think Bloomberg put out an article saying that, sort of the global business will become a priority and they link that to the deacceleration of growth in China. I think it’s more than that. So Meituan overseas business at the moment is actually limited. They have some investments including the one into Gojek and they have a Keeta in Hong Kong. So they have a platform which they operate on their own, according to our friends at measurable dot AI data front. So Meituan is now having like 30% 37 percent market share in Hong Kong, market number two.

But if you think about how they grew the global business, it’s actually quite complicated because there’s lots of thinking which needs to go into it. We probably know that a couple of weeks ago, Meituan told investors that they were not acquiring Foodpanda after some careful deliberation, they’d figure out that, or they sort of came to the conclusion that it’s impossible to be profitable.

So what we have heard is that I think some people internally were keen about that. But but the so called S team, the senior team, the core management eventually took a cautious approach saying that, okay, if we want to acquire food panel now, our strength will not be able to. Be unleashed onto a platform that’s so complicated and so different from our own.

If you look at the drone and and overseas businesses, these are exploratory businesses for Meituan. They have made some progress. I mean, like Keeta in Hong Kong, some of my friends have tried Meituan’s drone delivery in Shenzhen. They’re pretty impressed. But by no means they have reached a mass scale that that needs to be run by a good operator in a group that still explore trade businesses. And we know that Wang Xin himself, he likes to explore. He likes to create. He likes to push the boundaries. So, putting these businesses directly under him would I think, elevate some of the pressure that people like Wang Puzhong, who was in charge of the core business, defend their territories would, would have to deal with, right?

I mean, so he can focus more on the fight against doing, against against Pinduoduo or, and I think, I think Zhong Chuan can look at the businesses, which are core and important to maintain whole portfolio, but are not under intense competition. So Wang Xing goes to explore more forward looking businesses and finding growth opportunities for the group.

 So I think overall, I mean, it’s a rational approach. Rational approach. Rational, not Russian. Oh, oh, rational. Sorry. Sorry. I mean, I be having meetings for the whole day. It’s it’s a, 

[00:08:50] Sabrina

Why is this a Russian approach? 

[00:08:52] Jianggan

Yeah. And I think Wang Xing sent an internal note after announcing these changes, right?

And after the change per se, he said, now, internally and externally there are lots of challenges. All kinds of challenges, but this is also the opportunity for the company to keep growing to the next level. We believe that , we trust that we can consolidate the resources improve the, the efficiency and effectiveness and serve our customers better.

Jiayou. How do I translate Jiayou into? 

[00:09:25] Sabrina

Cheers. Fighting. But fighting is like 

[00:09:29] Jianggan

So somebody translated it literally, add oil, right? Yeah, add oil. 

[00:09:33] Sabrina

Okay. It just means like, continue working hard. That’s what it means. 

[00:09:39] Jianggan

There’s actually a dictionary item for that. Add oil in Hong Kong context means to express encouragement, incitement or support. 

[00:09:51] Sabrina

It’s like you can do it. I would say the translation. So Meituan is not the only Big Chinese tech company we see doing a restructuring this year. Earlier this year we also mentioned Alibaba doing something similar. We launched a report called Transforming Alibaba, talking about Alibaba’s recent restructuring. And of course we also did some podcast episodes on papa’s new CEO as well as the last aligned restructuring. Mm. So why do you think these two big Chinese tech companies are looking at restructuring their organization now?

[00:10:23] Jianggan

Hmm. I do think that historically this company have restructured like once every few years probably more frequent than what large corporates in traditional industries would do because they are facing a Fast moving, fast changing ecosystem. So, which means that you need organization, which I think for many of them, it’s like a quarter million people, et cetera, lots of people to, to actually adjust, to, to respond, to change.

I mean, we mentioned that many times, right? Alibaba has this value code of embracing change or change, or used to be like change is only constant. But as organizations become big, whatever makes, which makes you really good sometimes can limit you. And especially when somebody else coming to the market and trying to attack you with with a different kind of strength, right?

So for instance, I mean, Douyin came into. To attack Meituan with who cash cow business of advertising , from merchants by saying that, Hey, I have to, Douyin has 800 million daily active users in China, so of course they can sell ads to merchants. And there were even rumors of them buying a, a food delivery platform to directly challenge Meituan.

And so in that kind of situation. I think from an organization point of view, they need to look at, okay, whatever set up that were built, which served us well for the last few years do we need to make adjustments? And if we need to make adjustments, and how should we do it? I don’t think this is a rush decision for any of them.

They probably, came after like, you know, Maybe not years, but at least like a quarter or a half year of deliberation. And then they make the announcement. And then, of course, they need to rally the team. We all know that growth has been challenging in China for the last year. And this year is still uncertain, and by the end of this year, there’s a chance that Trump will be elected. So that adds another set of uncertainties. And when that happens, I think keeping your organization agile is probably supremely important for an organization.

[00:12:17] Sabrina

I think that’s why we see Meituan sort of Maybe we’ll see them prioritize overseas businesses a little bit more. Especially as growth stagnates in China.

[00:12:26] Jianggan

I, do know that that I think Wang Xin is a very rational person. So, I do think that he probably vetoed the acquisition of Foodpanda. But now, I think with the organizational change will he have a different calculus about overseas business and would he actually put more effort to think about, I mean, what overseas business can be like?

You remember a few years ago when the founder of ByteDance, Xia Yiming retired from his post of CEO, and he said his dream was to travel around the world to, and to make ByteDance a global company, and now, I mean, TikTok is fairly global, but, but of course, it was also a, a kind of Kind of like unfortunate that he made that pledge at the beginning of 2020.

[00:13:10] Sabrina

It’s the wrong year. 

[00:13:12] Jianggan

He couldn’t travel, but I think the desire for these guys to build global companies is there. I wrote a whole book about it, right? So, I think the desire is there, but how, I mean, the challenging part as, as, as we mentioned in the book that wrote with Prof. Chen of INSEAD is that from a leadership point of view, unless you put lots of mental space to think about all these growth businesses, otherwise you will never move. I think you need organization to have this capability to actually allocate resources. I mean, be agile to, the market conditions in a different market, which can be so different from China and choose the right people and give them the right incentives. So these are all difficult challenges that I think Washington will need to consider. 

[00:13:56] Sabrina

And I think comparing, just comparing Meituan to like Pingduoduo and Douyin, I think going overseas is a lot more challenging for Meituan as well, right? Because the line of businesses that they are in is just so much operationally heavier than TikTok and Pingduoduo.

[00:14:11] Jianggan

Yes, you need to basically build a very local, very offline ecosystem with lots of merchants and stuff 

[00:14:17] Sabrina

and You can’t just centralize everything. 

[00:14:19] Jianggan

So Pinduoduo, I mean, what Pinduoduo does overseas, at least until now, is they control the supply chain in China and they find, they, they know how to spend money on Facebook, you know, Facebook’s stock price, like, overshot, like, 20 percent of the bombastic results and they mentioned that I think China’s, Advertise contributed a lot.

I do think the top customer is probably Pinduoduo, Temu, Pinduoduo. So, they have one strong leverage. I mean, Temu, there is one strong leverage. They use the resources, or sorry, they actually use third service providers and to, to help them expand globally. And TikTok, TikTok has a strong content platform and we just need to force the company ecosystem. But local platforms, be it e commerce, be it food delivery, when we try to expand into other markets, it’s tremendously challenging because we basically need to recreate the ecosystem in the country. 

[00:15:13] Sabrina

And that’s the problem that Meituan is likely to face when they start going overseas.

[00:15:17] Jianggan

I think that they probably know that. So that’s why they took a very, very cautious approach when expanding to Hong Kong. Because Hong Kong is so close to mainland China, right? They could easily send resources, they could easily send people, and they could easily observe it. And I think even the core leaders, even if they don’t speak English, they can read what’s going on in Hong Kong.

 So they took a very, very cautious approach and then lastly, we’re arguing that, okay, maybe, maybe you should just take the jump and buy food panda and then deal with it. At this day, they took the job, so they have, they’re forced to, to grow internationally. But now I think with Wang Xing putting a little bit more effort into that, maybe they were do more in the global markets and that would be really interesting.

[00:15:57] Sabrina

So what do you think this restructuring means for Meituan moving forward? Definitely one thing we mentioned a lot is the potential of them going overseas, right? But how about in terms of its local businesses? How do you think this restructuring positions Meituan to be? Maybe more competitive when it comes to competing with Pingtuoduo or Douyin in their respective fields.

[00:16:18] Jianggan

I think the competition against the Douyin is something really interesting to watch. And because Douyin is attacking Meituan’s core sort of profit driver, which is advertising. And if you think about that if Douyin can do that in China, there’s no reason why TikTok can’t do that in Southeast Asia or in other markets. So I think it food delivery platform like Grab, et cetera, in Southeast Asia. And other markets should probably watch it very carefully. 

And it’s still ongoing, so it’s very hard to say that, okay, who will win, whatever. But I think keep an eye on that, keep an eye on the moves that each platform is taking and look at the, how Meituan leverage this its strength. And also look at how it makes changes to its organization. I think it could be very, very good case study for anybody looking to not, only compete against the TikTok, but also like, you know, , look to revamp the organization.

[00:17:07] Sabrina

How do you think their restructuring is different from Alibaba’s? Since we mentioned Alibaba’s restructuring as well, right? It’s a little different. Alibaba was, they initially wanted to split their business into six different units and then now they have removed cloud services and they’re focusing on five units, right?

And then of course they are returning back to

[00:17:31] Jianggan

I think that would take like days to explain. So it’s two comps that are very different and I think the challenges they face on one hand, there’s some similarity, right, which is a lack of growth in the domestic market. But the competition they are facing, the business models that they rely on can be quite different.

 So I wouldn’t try to like, put that in, in very, very simplistic way. 

There are similarities, but I think I think that there are lots of differences. And, and also, that there are different generation of companies. Alibaba is actually much older than Meituan. So the organizational baggage that they have will be very different from Meituan’s organizational baggage.

If, you force me to draw some similarity, I think both companies have multiple businesses. Right. Multiple business. I think Alibaba is much more diverse compared to Meituan but they, have a complex organization with a lots of, lots of strength on, on the ground, which can also become baggage if the market changes. So yeah. 

[00:18:29] Sabrina

So maybe looking at companies that are from a similar generation, . We do classify Meituan and Pingtuoduo as second gen Chinese tech companies, right? But we know that Pingtuoduo is very, very efficient compared to Alibaba and JD, its predecessors. So how do you think Meituan’s operational, organizational efficiency compares to that of Pingduoduo?

Even though they are in pretty separate

[00:18:52] Jianggan

They’re in very different markets, so it’s hard to draw a direct comparison, I think Pinduoduo is very focused. So they have the team focused on one area and if that area performs well, they think that okay, they can always own the whole team moves to something else.

And moving from Pinduoduo to Duoduo Maicai, which is now, I think, performing better than Meituan Select, right? Actually performing better than Meituan Select. And then now they’re moving the almost entire, like, so sort of core team to, Temu. So you see they are leveraging some strength and try to apply that strength into different areas.

But each, each point of time, there’s one core focus. Meituan is a little bit more, on one hand, it’s, it’s super rational. But on the other hand, I think if you look at the imprint of Wang Xin, the founder, he likes to explore things. So, that probably, I mean, I guess trickle down to the organizational culture as well. Oh, gosh. I mean, if we talk about that, I think that was like a day of discussion. 

[00:19:49] Sabrina

A separate discussion.

[00:19:53] Jianggan

And let me just add something. I mean, after this podcast, I’m actually flying to China for the lunar New Year. And I am actually kind of I kind of miss Meituan, right? I mean, when you are there, , just everything you want, you just buy it. And it gets delivered in like 30 minutes. 

[00:20:07] Sabrina

You don’t get that here.

So thank you guys for tuning in to another episode of the Impulso Podcast. We hope you guys enjoyed today’s episode. If you did do like our podcast as well as follow us on Spotify, apple Podcast or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail and the broader digital economy. 

[00:20:25] Jianggan

Bye Bye