How Uber's Big Loss in China Is Really a Big Win Uber won't dominate the Chinese market but it keeps a significant share in the biggest ride-hailing app in the world's largest market.
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Thirteen months ago Uber was touted as one of the few US internet companies to thrive in China. Now, the company has thrown in the towel, defeated by a worthwhile enemy.
Despite that, this actually puts Uber in elite company. Google couldn't make its engine run in China, losing out to Baidu. Facebook was sidelined in 2009, despite Mark Zuckerberg's ability to speak the language and his infatuation with the country. Twitter, Yahoo, EBay, Amazon, YouTube, Groupon, and Best Buy have all tried and failed in China. Even Apple is struggling there. How did Uber fail? Or, did Uber fail? What exactly qualifies as success for a US tech company in China? These are the questions that need to be asked and answered. So, while everyone else is talking about how Didi Chuxing whipped Uber China, and how investors had been "clamoring" for it to dump its Chinese assets, the real questions are why can't US tech companies succeed in China, and did Uber actually fail?
Here are four reasons US tech companies struggle and why ultimately Uber wins out.
1. Language and culture.
Let's start by being honest, learning to speak Mandarin is hard. Learning to write Chinese characters is even more difficult. On top of these obstacles there are so many Chinese dialects and in China the differences between dialects is equivalent to the differences between the romance languages of Europe. Even Google, which operates the largest translation service in the world could not figure this out and realized too late in its game that no one in China could even pronounce the name of the company. Google also failed to convince the Chinese public that it was built for the Chinese consumer. According to Archer Liu, Regional Manager at BRIC Language Systems Uber did not have this problem. It has a good name that in Chinese is pronounced "youbu" and means "excellent step." Uber, like Google however, didn't recognize the cultural differences between western and eastern expectations of their ride. Didi did and capitalized on this offering rides in almost anything with wheels.
The Chinese population is very patriotic. Despite an affinity for US pop culture and the demand for high-quality US products, nationalism beats Americanism in China. This is a product of 5,000 years of proud and continuous history and culture. It is further engrained into collective thought process through memories of the Century of Humiliation which saw Hong Kong and Shanghai colonized, an opium addiction forced upon the population by Britain, Tibet invaded and the Rape of Nanking, among other atrocities. As a result, on top of national pride there is a degree of insecurity involved in Chinese patriotism. Anything resembling a victory over foreign companies is greeted with enthusiasm, a loss is unacceptable and met with revolt.
Even Apple isn't immune. In the wake of the United Nations Convention on the Law of the Sea ruling in July, Chinese protesters were seen smashing their iPhones.
3. Entrepreneurship with Chinese characteristics: copycats and competition.
The Chinese are entrepreneurs by nature and also necessity. Competing with 1.4 billion people requires creativity, an appetite for risk and the tenacity that very few possess in order to succeed. While many Chinese startups five years ago were copycats of Western tech giants, today apps like WeChat, Xiaomi and Huawei are challenging the conventional wisdom in Silicon Valley that Chinese innovation relies on copying US technology.
This thinking is being overturned as Chinese companies beat their US rivals. These new Chinese tech companies are more than copycats of US brands with a home field advantage. They are inventive, targeted and led by charismatic people who know the Chinese market. In their arsenal is a knowledge of the ins-and-outs of Chinese governmental regulations, a firm understanding the Chinese notion of "face" and a set of business values based on the concept of Guanxi. These entrepreneurs hold a distinct advantage over their foreign counterparts simply because have an understanding of China that few foreign competitors can replicate.
4. Government regulation.
This is a big one. Facebook, YouTube, Twitter and even Wikipedia have all fought this battle and lost. LinkedIn is the lone bright spot among US social media giants, but its success came only after the company caved in to pressure on censorship. While Chinese censorship laws are broad and not entirely transparent, they are the law of the land and must be followed as part of the price of doing business in China. These laws are in place for several reasons, not least among them to prevent organized dissent challenging the continuation of the Party. Facebook went down in 2009 and Twitter followed shortly thereafter in order to prevent a Chinese repeat of the so called "Arab Spring" uprisings that toppled several regimes and left the region in chaos.
While Uber did not get the victory that it wanted in what its CEO Travis Kalanick called its most important foreign market, what most are calling a loss for Uber I see as a win. "Cracking the code" is difficult in China as Kalanick put it. It means fining a balance between idealism and growth. It means learning the language, understanding the culture and abiding by Party laws which are opaque, at best. It requires overcoming nationalistic tendencies that favor Chinese brands while having a respect for China's long and proud history. It demands modesty that Uber is unacustomed to after successfully, and arrogantly, having pushed into other foreign markets.
Despite all of these headwinds and losses totaling in the billions, Uber was able to negotiate a seat on the board of a successful rival and walk away in a powerful position. Yes, Uber wasn't able to dominate the Chinese market but the company and its stakeholders walk away with a significant share in the biggest ride-hailing app in the world's largest market. This is an accomplishment that will help set the tone for a strong IPO for Uber. The company has ended a turf war in China and prevented another one by negotiating a board position with the company that was building a global alliance with to defeat it. Uber now runs the global alliance in the ride hailing world along with Didi and the rest are left to fight for the scraps.