What will it take to win in China? Part 2.1
At The Shaker we’ve been looking into the alluring destination China for global tech companies, and like we said in part-one - if you can make it in China, you can probably make it anywhere.
Last week we looked at the role of capitalism in the downfall of Google, but with so many examples of other companies meeting the same fate, we had to give you another. This is the story of Uber in China.
To succeed in countries like China, companies need to develop strategies that balance risks with anticipated rewards. For many Western firms, China presents a far greater risk than it's worth, and many rightly elect to stay out.
Uber understood the importance of proceeding slowly and investing in relationships. Travis Kalanick made frequent visits to China to cultivate political relationships and develop an extensive network of drivers. Uber attempted to tailor its efforts to the Chinese market, setting up a separate Uber China with a Chinese name (Youbu), storing data within the country, accepting an investment from internet company Baidu, and integrating Baidu maps into the Uber app. Officially launching in in 2014, after spending a reported 1 billion USD in advertising and attracting support from big-name Chinese investors.
Uber’s experience in China is a testament to the risks that late-stage U.S. companies take when trying to appeal to the Chinese market. China’s ridesharing conglomerate Didi-Chuxing was backed with billions in cash from Tencent and China Investment Corporation (CIC). The combination of capital and support by leading Chinese corporations and state-controlled entities proved effective in its competition with Uber.
The Didi-Uber battle officially commenced in 2015 when Kalanick gave Will Cheng an ultimatum: Didi could either offer Uber a 40% stake in Didi or battle it out with his San Francisco-founded giant. Confident of his understanding of the Chinese market, Cheng surprised Silicon Valley by choosing battle.
Veronica Wu, the founder and managing partner of Hone Capital, the U.S. arm of Chinese venture capital firm CSC Group, told Crunchbase News in an interview that the government role in allowing risk and encouraging investment is central to the China equation.
What you see is this concentrated investment in selected verticals, whereas in the U.S. […] it is very much so based off of the individual willingness to take risks,” Wu said. “You have a government who basically underwrites a part of that risk saying, ‘we’re going to invest in these sectors,’ which attracts more private dollars into those segments.
As a result, Uber couldn't sustain the high cash burn from its subsidy war with its China-based rival. After two years in the country and $2 billion dollars spent, Uber sold its China operations to Didi Chuxing for a 17.7 percent stake in the company. Officially bowing out of the country on August 1, 2016.