Uber Left China, Operations Sold to Didi Chuxing
Earlier this month, Uber announced the cessation of its operations in China with a takeover by Didi Chuxing for US$35 billion. Despite spending a considerable amount of money in the country, China proved to be a great wall that could not be conquered. Uber now joins the ranks of Google, eBay and Facebook, American companies that have failed to advance in the Chinese market. What went wrong? How big a blow is this defeat to one of America’s biggest tech companies?
Despite meeting regularly with government officials and obtaining legalisation for ride-hailing apps in China, Uber founder, Travis Kalanick, was still unable to overcome the competition from local player, Didi Chuxing. Fiercely backed by local and US companies, Didi Chuxing engaged Uber China in a price war which eventually burned most of Uber China’s funding. On top of this, one of Didi’s earlier investors, Tencent, blocked Uber from China’s most popular social network, WeChat. The combination of the price war and the denial of access to social networks proved to be too much for Uber to handle.
Another factor that may have led to the demise of Uber China was Apple’s involvement in the ride-hailing app war. Having partnered with Uber in many other markets, Apple’s decision to side with Didi Chuxing may have raised a red flag for Uber, forcing them to re-think their strategy and consider other options.
Although Uber has retreated from China, they are far from being at the losing end of the sale of their operations. New York Times revealed that the sale of Uber China will result in the formation of a new ride-hailing company which will see Uber owning a 20% stake in. They will also benefit with a transfer of $7 billion worth of shares in Didi, and a place on Didi’s board for Travis Kalanick. With the price war effectively over, both parties can now concentrate on maximising profits for the unified entity, which is exactly what they did as soon as the merger was sealed.
Uber’s adventure in China serves as a great learning lesson for a lot of companies who are trying to expand in foreign markets. If you can’t beat the dominant player, join them so you’ll both reap the benefits!
#merger & acquisition #transport tech