It was 10:30 pm on a Friday night. I’d been walking around for 30 minutes in the streets of Shanghai’s Former French Concession. My cheerful and optimistic demeanor from a delightful night out with the girls was quickly overshadowed by the mounting frustration I felt as I frantically sprinted from one side of the road to the other.
I was just trying to catch sight of taxi before the couple behind me beat me to it. Those were the days before I caught on to the mobile ride-hailing frenzy.
It was only in 2014 that Uber entered the Chinese market, four years after having pioneered the groundwork for a new transportation ecosystem. With barely two years in, Uber China has managed to expand its market share from two percent to 20-35 percent (depending on the source) and launched a battle of seismic proportions with local rival Didi Chuxing, backed by Alibaba and Tencent.
Travis Kalanick, the CEO of the San Francisco-based start-up told the Wall Street Journal last year, “You’re not going to find a country with 80-plus cities over five million people anywhere else… The vastness of the opportunities really isn’t matched in any other market.” China boasts nearly 700 million Internet users with most of them using their mobile phones for purchases. A combination of factors has made China a ripe market for the rapid development of a sustainable sharing-economy. With a high population density, rapid economic growth and millions of first generation technology users having mobile devices as their first computers, China’s Internet and tech sector are plump with opportunities.
With a slowing economy and a widening gap between rich and poor, Chinese millennial and Generation C are both embracing and driving the growth of alternative consumption models. A communal history and the Confucius values of a collective society are seeing a revival as the memory of hunger and economic hardships has started to dwindle away. Rather than rushing to amass material possessions, the millennial are beginning to favour more budget conscious options.
With this in mind, a US$62.6 billion valuation and the momentum of its Western conquests, Uber has charged head on. And why not? After all, powerful investors like Baidu, Microsoft, Goldman Sachs and India’s largest newspaper conglomerate Bennett Coleman & Co. have subsidised its war chest with ample investments.
In an effort to localise, Uber China, led by a Chinese team, and valuated at US$8 billion, was created. The Alipay system was introduced to its platform while Baidu maps replaced Google. In December 2015, not long after the announcement of a partnership with over 100 car rental companies, Uber launched a product outside of the US for the first time. UberCommute, a profit- free carpool service piloted in Chengdu, Uber’s top city, was created in an effort to curb government crackdown on private-car hailing platforms. Unfortunately for Uber, shortly after its Chinese debut, Tencent-backed Didi Dache and Alibaba-backed Didi Kuaidi, both fierce competitors in the taxi-hailing app sector, merged to form Didi Chuxing. The two rivals decided to bury the hatchet to focus their resources on drowning out their foreign competitor. At the beginning, they occupied separate spaces as Uber catered to the premium private-car crowd. However, as a result of the merger, Didi quickly became a powerhouse with a valuation of US$16.5 billion, a 99 percent share of the taxi-hailing market and a roughly 80 percent of the private car market. As of now, it operates in nearly 400 cities compared to Uber’s 37 and completes seven million daily rides compared to Uber’s one million.
Although still alive and kicking, Uber is taking quite the beating as it encroaches on Didi’s turf. Tencent went on the offensive by enforcing a ban of its opponent on the Wechat platform, citing guideline violations. Wechat is one of the world’s most powerful marketing platforms with a repertoire of users exceeding the entire population of the European Union. As the battle ensues, both companies are using cash to expand in emerging markets and putting off monetising as they race to acquire a larger customer base. But their strategies differ. Despite localisation efforts, Uber’s use of hardball tactics to “grow as quickly as it can until it’s too big to ban” is not acclimatising well to the political or cultural climate especially with a Goliath tailgaiting its every move. Along with ripping a few pages from Uber’s playbook, the Chinese company enjoys a hefty competitive advantage as it masters the nuances of its native market.
Crocodiles in the Yangtze: Didi’s competitive advantage; Big Data
China’s internet empire is dominated by three monarchs known in the tech sector as BAT; Baidu, Alibaba and Tencent. They command the search, e-commerce and social media sectors respectively. These companies have spent billions investing in and acquiring hundreds of startups to expand their reach in the Internet and mobile devices sector. Although Uber has found support in Baidu, the famous search engine is no match for Alibaba, known for the largest US-listed IPO and Tencent, the operator of QQ and Wechat. Add Didi’s additional vast customer base, it gives these three companies the upper hand in terms of breadth and scope of big data. It allows Didi and its backers to expand vertically at a much quicker rate and more efficiently. In an interview with Tech in Asia, Stephen Zhu, Didi Chuxing’s Vice President for Strategic Development said, “We want to focus our resources on innovation and build a world-class big data team. The same algorithms that work in San Francisco don’t work here in Beijing. Because of the complexity of the city, the population density, all kinds of factors.” David Sullivan, an analyst at Alliance Development Group (ADG) notes, “In the big picture, I would say big data and all of what that entails is being massively embraced by China, by the Chinese government, by the Internet companies.”
Big data allows governments and regulatory bodies to better understand trends and assist in the development of strategies for public transportation, traffic congestion and environmental problems. At the same time it opens up new advertising and sales channels as companies use the data to better comprehend consumer behaviour. Uber has already established several partnerships in the public and private spheres in the West. However, they are nowhere near to have the same capabilities in China.
Transportation Natives
In January 2016, Didi announced it completed 1.43 billion rides across its seven platforms over the course of 12 months while Uber only completed its one billionth ride over the course of 5 years. According to Tech in Asia, Didi claims its user base surpasses the 250 million mark, making it “the world’s largest mobile-based transportation platform.” Furthermore, unlike Uber, Didi has opted for a strategy of cooperation with the taxi industry and regulators, paving the way for a number of strategic partnerships and easing of tensions with the government. In a Geekwire interview with Didi’s founding CTO, Zhang Bo said, “We are very local and we are very Chinese. It’s not about going into markets and slashing others. It’s about working with local champions.” And with that spirit, Didi formed an Asian anti-Uber ride-share alliance with America’s Lyft, India’s Ola and South East Asia’s GrabTaxi. This strategic partnership will allow users of the platforms to easily book transportation when travelling.
It is clear that Didi has mastered the Chinese transportation sector. Its monopoly of the taxi-hailing platform and main investors’ command of the big data sector makes Didi an authoritative figure in tailoring the technology according to the needs of the market. Taxis are also co-owned by the state. Consequently, with the intricate system of Guanxi, Didi is at a natural advantage.
Guanxi
In the Journal of Asia Entrepreneurship and Sustainability, Edward Yiu-chung Lee and Alistair R Anderson point to Guanxi as one of the most critical cultural characteristics for business. It is a Confucian concept of complex and deep-rooted harmonious networks. Unlike the western concept of networking, these relationships are more intimate bonds formed over time that incorporate notions of respect, face, hierarchy and mutual benefit. It should be seen as a strategic tool to achieve business goals and expand market share. China’s business and political landscapes are inseparable. Strong, genuine relationships must be cultivated with government officials and other influencers so as to ensure smooth business operations. This is where Uber is at a disadvantage. Its bulldozing style of disrupting traditional industries and forcing the hand of governments is the antithesis of the Chinese system. Didi on the other hand, with its Alibaba and Tencent connections, has managed to cultivate a close relationship with the authorities. Focusing on cooperation rather than insubordination, Didi began working with Shanghai authorities in May of 2015 on an initiative to register all drivers under the same platform. This allowed the company to have a stake in the drafting of regulation that eventually led to securing the first license to operate in Shanghai. Later on, Didi, along with partners Tencent, Lenovo and Linkedin, co-founded the Commission on Sharing Economy of China (CSE) as a response to the government’s proactive “soliciting of various business chambers for input on legislation.” Uber is currently still “gathering documents,” as it continues to operate illegally.
Uber has been a formidable combatant in the battle of the ride-hailing beasts. Its quest to dominate the global sharing economy has been cut-short by unexpected cultural and political hurdles. However, demand in the world’s largest consumer market still remains large enough to accommodate a second dominant player.
