Uber’s once seemingly irresistible march to world domination has suffered a setback as it agreed to merge its business operations in China with local competitor Didi Chuxing.
Uber had been employing the practices that served it well elsewhere, by engaging in subsidizing of rides and drivers’ income to gain market share. However, in China a domestic ride sharing incumbent made from the merger of Didi and Kuadi in February 2015 (later renamed Didi Chuxing) could match Uber’s financial power, as it drew backing from Chinese internet companies and Apple. The price war spiraled into a cost of billions of dollars, and despite promising legal signs from the Chinese regulators, Uber’s investors eventually began to pressure the company to focus its efforts elsewhere.
While the company is relenting, it is not a shameful retreat- it has gained a stake in China’s largest ride-sharing app by exiting the deal, and the Chinese price war was costing the company dearly financially. It could now focus its efforts in other markets, or begin to gear up for its initial public offering (IPO).
Uber is the latest Western company that has failed to crack the Chinese market, although by recent standards has acquitted itself admirably. Internet giants such as Google and Twitter struggled with strict censorship, and Yahoo! sold its businesses in China to Alibaba.
For Didi Chuxing, in the short term it intends to continue subsidizing its rides in an effort to bolster its market share following Uber’s exit- much to the dismay of investors hoping it would temper following the end of the skirmish with Uber. The deal will cause some political friction though, as Didi had been striving to form an anti-Uber coalition, investing and cooperating with other ride sharing companies such as Lyft in the US and GrabTaxi in South East Asia. It remains to be seen whether they will continue to weaken Uber having handed the US giant a rare setback in its monolithic rise.
