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Does Uber defeat by Chinese rival Didi spell trouble for the taxi firm?

5 min read

02 August 2016

After years of attempting to dominate the Chinese market by batting away the nation's biggest taxi firm with a stick, Uber has decided to end the costly struggle by selling its operations in the Eastern Asia nation.

It’s been said that China is Uber’s largest market. At the same time, the company loses more money there than anywhere in the world. In fact, 2015 saw the firm loose more than $1bn – and coupled with its costly battle against Chinese rival Didi Chuxing, the company was on its way to financial ruin.

This was further highlighted by Arun Sundararajan, a New York University professor, who claimed the biggest existential threat to Uber over the last two months was that in China it lost capital in a way that potentially threatened the rest of its worldwide operations.

According to the BBC, it was a long time coming though: “Critics of the way China’s economy is structured would argue that Didi’s backers – Tencent and Alibaba – are so well connected to the government that Uber didn’t have a chance. It was clearly an uphill slog.”

It also didn’t help that Didi had invested in US competitor Lyft, as well as partnered with Ola in India and Grab in South East Asia to put even more pressure on Uber – a move that seems to have worked.

Uber has admitted defeat. After a battle that cost the firm over $2bn in little more than two years, investors put pressure on the company to cut a deal. The two companies are now set to merge, which will leave Uber with 17.7 per cent of the new company. Investors in Uber China will have 2.3 per cent, while Didi would account for the remaining 80 per cent.

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As part of the deal, Didi will invest $1bn in Uber and founder Travis Kalanick will join Didi’s board. Both companies will maintain separate brands.

“As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” Kalanick said. “Uber and Didi are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”

Similarly, Cheng Wei, founder of Didi, said the two had “learned a great deal from each other over the past two years in China’s burgeoning new economy”, adding that the deal would “set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level”.

Essentially, it’s a win-win situation, with Sundararajan having suggested: “The fact is that in the short term it may seen as a loss, but in the long run it’s a good move. Now it can focus on the rest of the world.”

The deal is nonetheless, a loss for Kalanick given that he once said success in China meant being number one there – and rivals across the globe are starting to raise their pitch forks a little higher.

Take, for example, Anthony Tan, CEO of Grab. He recently wrote to staff: “After more than a year of intense competition, our investor and global partner Didi has effectively won the battle for market share dominance in China. Didi’s success reinforces what we have believed all along: That we live in a very diverse world and there is no one-size-fits-all answer. Localised solutions best solve local problems.

“With the deal in China, we expect Uber to turn more attention and divert resources to our region. But we have seen that when the local champion stays true to their beliefs and strengths, they can prevail. We see this happening in China, and it will be the same here. Uber lost once, and we will make it lose again.”

Uber has been on a money-raising streak and now has a valuation near £43.1bn, making it worth more than all but 11 companies in the FTSE 100. There’s absolutely no question about it, Uber is transforming the taxi industry at an unprecedented force – and you can learn lessons from the company without trying to be it.

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