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Foreign Tech Companies Struggle in China, but Losers can be Winners

05 August 2016

This week Uber announced that it was ending its two-year venture in China by selling its business to rival Didi Chuxing after losing billions of dollars in a bitter turf battle for the car hailing app market.

US tech companies have had a challenging time trying to succeed in China, including tech giants Google, eBay, Amazon, Yahoo and Facebook. Their lack of success can be attributed to various factors. Firstly, each of these foreign tech companies has an established Chinese rival with China’s search engine Baidu, social networking sites WeChat and Weibo, as well as online shopping platform Alibaba. Secondly, China has close to 700 million internet users, so it’s extremely challenging for a foreign tech company to gain a substantial foothold in such a vastly developed market. Another factor is that foreign companies sometimes enter the Chinese market and simply try to replicate their homegrown business, failing to grasp the nuances of the Chinese market and the need to offer a product or service specifically tailored for the Chinese consumer and their consumption habits.

However, all is not lost for Uber China, and it looks like Uber may be one of the first giant foreign companies which has developed a new model for success in the Chinese online market. Uber has sold its business to Didi, but will retain 20% in the new merged business. Didi is currently valued at $35 billion, which gives Uber a huge stake in a highly prospective business, and importantly Uber also gets to keep its brand in China which will undoubtedly assist Uber with its global aspirations.  The sale also cleans up Uber’s financials ahead of any potential IPO, as it ends the costly subsidies it was spending in an attempt to gain Chinese market share. So although Uber China seems to be retreating, they have actually ended up with a strategic investment and important business connections in China.

There are undoubtedly some valuable lessons to be learnt from Uber’s foray into China. At the Australia China Business Council, we regularly assist our members to understand the complexities and opportunities presented by the Chinese market, and invariably the message is to understand your market and forge important relationships.

Helen Sawczak
National CEO, Australia China Business Council
0407 362 228