Uber’s crash in China, local love and playing a numbers game

In the first of an upcoming APAC series, Pamela Whitby looks at the importance of choosing the right local partners - especially in China

APAC is certainly not one size fits all. Diverse cultures and currencies, multiple languages (even within countries), a booming market for mobile commerce, rapid uptake of new technologies and affinity with mascots make this an interesting, at times, challenging environment.

Given the insularity of many APAC markets, nobody would dispute the value of securing the right local knowledge and insight through strategic partnerships or joint ventures, ideally with a local number one, two or three player.

All big name movers in online travel understand this because in Asia, while consumers will rapidly adopt new technologies to quickly become your biggest brand advocate, there also is very little tolerance for irrelevant products or messages – more insights next month.

Having a localised product that combines the right mix of rates from global and local online players as well as direct rates from hotels, with a strong mobile focus, has certainly helped Wego’s growth trajectory in Asia, says Anna Trushkina, manager of commercial hotels at the flight and hotel metasearch. The model is one that is now also working in the Middle East.

But sometimes, even with local partners, international ventures into Asia haven’t panned out  - usually because an inability to inspire local love. eBay, for one, failed to gain traction in China because it hadn’t understood that consumers wanted instant messaging functionality - something that competitor Taobao could offer. It also nose-dived in Japan where it launched in 2000; here buyers baulked at inputting credit card information, a requirement of eBay at the time. Even global monopolies Google and Facebook [although the social network is booking in southeast Asia – also more on this in the coming weeks] – haven’t found away to skin the Chinese tiger.

Is Uber in the right gear for China?

So after last week’s reports that Uber’s CEO Travis Kalanick had admitted at a private event in Vancouver that it was losing $1bn in China because of a ‘fierce’ competitor, questions were left hanging.

Had the global mobile taxi app chosen the wrong local ‘partner’ and, if so, can it survive in APAC’s biggest market?

When Uber launched in China in February 2014 confident Kalanick reportedly wrote to backers saying that: “Chinese cities, more than any other cities around the world, needed Uber”.

By the end of that year, came the first strategic partnership with offline-to-online search engine Baidu and on its Chinese website Uber announced that “it couldn’t be more pumped” about the deal.

With the big local competitors (Alibaba-backed Kuaidi Dache and Didi Dache, which in 2012 had secured a $15m investment from Internet giant Tencent) embroiled in an aggressive battle for market share, it seemed Uber’s acceleration into first place was par for the course.

Not so. In February 2015, the two local players made a sneaky inside move to announce a surprise Valentine’s Day merger. Didi Kuadi became Uber’s biggest headache. It seemed local love had won the day.

In September 2015, however, Baidu led another $1.3bn investment round into Uber China (some estimates put that so far undisclosed stake at around 5%).

Which brings us to another question: had Uber wooed either of its two direct competitors first, would it have been a different tale today? Didi Kuaidi CEO and founder Cheng Wei, who doesn’t have a licence,doesn’t seem to think so. He is quoted inthis Forbes report saying that this has been “the most successful merger in China’s Internet history” and believes that their strong local understanding will prevail. There doesn’t appear to be any love lost between the two players.

While neither is yet profitable, Didi Kuaidi  (which also fundraised to the tune of $3bn in late 2015) claims to be breaking even in half the 400 cities it operates in. Uber has a presence in just 40, though is hopeful it can more than double this to 100 by the end of the year.

So Uber lags and so will it survive in China? Well one thing you can say about this Asian tiger, nothing is a given. As mentioned earlier, eBay, Google and Facebook, and numerous others, haven’t.

Max Kraynov, chief executive of search engine JetRadar, which has Asian headquarters in Thailand, has a different view.

“In the case of Uber, I personally think it's the ‘too big to fail’ type of story as there's lots to be lost if it does,” he says.

Bottomless pockets

While local knowledge and expertise certainly gives home spun success stories the sharper edge, Kraynov argues that Western firms do have one major advantage – that of ‘bottomless pockets’.

“Newcomers or local entrants in Asia tend to be funded by venture capital or by friends, family and fools, while bigger more established local players to use earnings for growth. But that is still pocket change,” he says.

Foreign firms, on the other hand, are more able to “buy their financial stamina”, and so they can sustain losses for longer.

So perhaps Uber, which also has a local giant Baidu onside, still has time.

With traffic congestion reaching epic proportions in China, which recently committed to reduce carbon emissions by 2013, there is certainly room for more than one player that is innovating in ground transportation. And Wei, who doesn’t drive, has said that there is no need for every Chinese family to own a car – as they do in the US.

In the end, says Kraynov “it will be a numbers and money game”. It will also depend on how Uber, which has come under fire for perceived ‘arrogance’, charms its Chinese consumers and, perhaps more importantly, the drivers.

Join us in Singapore (June 15-16) for the Travel Distribution Summit, Asia, where brands like JetRadar and Wego will be sharing more insights alongside numerous other players with a foot in Asia’s door

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