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3 Lessons from Uber’s Defeat in China

When I was in China this March, one of the best conveniecnes was to ride around town on Uber. The price was ridiculously cheap. Uber drivers told me how much bonus they would get as long as they were on the road.

Uber-ChinaI knew Uber was locked in a bloody battle with its Chinese rival Didi Chuxing. In order to gain market share, Uber subsidized its riders heavily, losing $1 billion a year. To me, that was a sign of trouble, because competing on price is never the way for foreign firms to win in China.

When Apple invested $1 billion in Didi this May, I knew Uber’s days in China were numbered. Didi had more than 80 percent market share in China’s ride-hailing business. Apple clearly saw that Uber had no chance and bet on the top dog.

Even without Apple’s blow, Uber was in a disadvantageous position. It was a late comer to China. When Uber entered China two years ago, Didi already had a large presence in Chinese cities. For a long time, Uber used Google maps, which did not work well in China. Switching to Baidu maps was a good move, but it was too late. As an American company, Uber offered a credit-card based payment system, while most people in China do not use credit cards.

Didi, on the other hand, had a solid grip on the local market. First, it worked with taxi drivers rather than individual car owners. This immediately won over local authorities and pleased grumpy taxi drivers. In addition, Chinese riders tend to trust a taxi driver more than a stranger who happens to own a car.

Second, Didi gives riders an option to pay in cash. This is a great convenience to Chinese as most of them are accustomed to paying in cash for their daily activities. Soon, Didi incorporated WeChat’s payment system, which has become hugely popular.

In time, Didi also added car-pooling and bus-hailing services. These are highly welcomed by Chinese users.

Uber had an uphill battle with Didi. One of the reasons is that Tencent, WeChat’s parent company, had invested in Didi. Sometimes, WeChat even blocked Uber from using the app, which hurt Uber’s business.

In a way, Uber’s defeat is not a surprise. China’s internet world is a very different universe. Few Western firms have had luck cracking it. eBay failed a long time ago, Google retreated, Amazon hasn’t gained much footage. The lessons remain the same: adapt to local markets and respect local cultures.

To summarize:

  • Never compete with Chinese companies on price – that’s a no-win strategy
  • Find partners that are critical to your business. In Uber’s case, it’s map and payment services.
  • Understand local market needs: consumer payment preferences and trust profiles.

It’s easier said then done!

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