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The challenges of finding success in China, as shown by Uber

Thus far Uber is still growing across China, but its next phase of growth will require unprecedented investments to not just survive, but also prosper in the world’s largest market. When you’re losing more than USD 4 million per day, even a billion dollar investment doesn’t create significant runway. The key lesson for all brands entering China is clear – be prepared to face challenges at immense scale with rules that are very different from other markets.

Even with a slowing economy and a turbulent (as was always to be expected) stock market, China remains far and away the largest source of growth for international brands. However this scale and growth can invariably turn out to be far more difficult to take advantage than many realize – whether retail or digital. These difficulties can be quickly brought into perspective by looking at the story thus far of the Silicon Valley darling, Uber, as it attempts to expand in China.

Uber’s global expansion is one of the hottest topics globally. However, in China, Uber is a challenger brand facing immense competition from local ride hailing apps Didi Dache and Kuadi Dache.

Uber launched in China summer of 2013, with a mere dozen Mercedes S-Class sedans in Shanghai, and has since expanded to over a million trips per day across five levels of service – from Uber BLACK to People’s Uber. However, current estimates suggest it is losing an average of USD 4 per ride due to driver bonuses (e.g. 100 per cent tip from Uber itself to the driver on top of the calculated fare paid by passengers). Combined with a planned expansion from 11 cities to more than 50 in the coming months, Uber is facing its toughest challenge yet in the world’s largest market.

Uber has faced stiff competition from numerous local competitors, which have since been consolidated down to two core apps – Didi Dache and Kuadi Dache. Didi in particular dwarfs Uber’s current penetration, and continues to grow faster in nearly all cities. While Uber has received significant investment from China’s leading search engine, Baidu, Didi and Kuadi are funded by fellow Internet titans Tencent and Alibaba respectively. Both are fervently dedicated to ensuring international challengers like Uber do not form a successful beachhead in China.

The scale of China creates victory conditions unparalleled anywhere else globally, and as Uber has quickly realized, any international player entering the market has to be prepared for the long haul. Local startups across all industries speak in terms of 10-year investment strategies, accepting that they will operate at a loss until achieving market dominance.

The challenges extend beyond the financial to include political necessities. Not only is Uber facing the usual protests and attacks on drivers from existing taxi driver unions, but there is significant government scrutiny as well. Already Uber has been required to place servers in China to gain necessary business licenses, and the spinoff of its China operations into a separate entity: Uber China.

Team Mindshare

This article has been authored by the Digital Team of Mindshare Worldwide