5 lessons foreign companies interested in China can learn from Uber

Image credit: TIA.

Plenty of ink has already been spilled about Didi’s acquisition of Uber China as the American firm conceded defeat in the Chinese market earlier this week. But foreign tech companies aspiring to enter China might be wondering: what can we learn from this? What did Uber do wrong?

The short answer is: not much. Entering China is tough. But you can still learn some important lessons from Uber China’s downfall.

1. If you want China, you need to move very, very fast.

Uber was founded in 2009. But the company didn’t even start experimenting in China until mid-2013, and didn’t brand itself or launch officially in China until early 2014. But Uber’s biggest competitors, Didi Dache and Kuaidi Dache (which later merged) were both founded in the fall of 2012. That meant that they had well over a full year to build, brand, and expand before Uber had really brought any power to bear on the market.

It’s tough to blame Uber for that – it’s not like the company was really moving slowly, all things considered – but in China even “fast” often isn’t fast enough. If your startup has achieved any level of success or fame in your home market, you can bet that there’s a Chinese startup already working on adapting your model to China. Chances are there are quite a few. In Uber’s case, there were dozens.

In another economic climate, that might not matter as much. But for the past few years, funding has been freely available to promising growth-stage Chinese startups, meaning that any company that gets a foothold can probably find the cash to expand fast. A month before Uber officially launched in China, Didi already offered coverage in more than 30 cities. By two months after Uber’s launch, it had expanded to cover a total of 178 cities. Two months after that, Kuaidi Dache was in 256 different cities. In other words: before Uber had even been in China six months, it had two major local competitors already offering coverage in hundreds of cities.

To some at the time, that looked like overexpansion. It looked like Uber could move more slowly, deliberately, and wait for the flood of investor cash to run dry. But that never happened. And as long as China’s VC market stays that way, foreign companies will have a very tough time keeping pace with domestic competitors. If you let major Chinese competitors get a head start in the current market, they can simply ride the apparently never-ending waves of investor cash and leave you in the dust.

2. If you want China, you need to be prepared to bleed cash for years.

Image credit: David Dennis.

Speaking of investor cash, any foreign company hoping to enter China will need plenty of that, too. Because even if you do hit the market early and get a head start on the local competition, excessive fundraising can be used to bleed you dry.

That’s essentially what happened to Uber China. After Didi and Kuaidi merged, the new Didi was able to wage an unending price war with Uber. It didn’t matter what kind of losses Didi took; it was easy for the Chinese firm to simply raise another record-breaking round and keep the wheel turning. Ultimately, that may have been what did Uber in. A recent report from Reuters says that it was Didi’s recent US$1 billion funding from Apple that put the nail in Uber China’s coffin. Uber’s backers realized they simply couldn’t keep up with a company that had so many powerful, deep-pocketed backers.

Of course, not every foreign tech company entering China will be up against a competitor that’s backed by Alibaba, Tencent, and Apple. But most foreign tech companies also won’t have the financial backing that Uber did – don’t forget, Uber global was raising record-breaking funding rounds during this time, too.

3. Picking the right partner is crucially important.

4. You need to maintain intensity and focus.

5. You’ll probably fail anyway. Know when to walk away.