A deal between ride-sharing service Uber and Chinese rival Didi Chuxing was announced last week, with Uber selling its operations in the Asian country to Didi for $35 billion.
The merger puts an end to the rivalry between Uber and Didi in China, as the competition has cost both companies billions of dollars in their attempts to dominate the country. Uber, for example, was said to be losing about $1 billion per year from its Chinese business.
The deal can be considered a good one for both companies, as they can now both focus on the development of their services instead of on how to cut each other off. Didi, which has an overwhelming 85 percent market share in China, has not been hitting its profit targets because of massive subsidy and marketing costs to continue challenging Uber. With the merger, Didi could start making a lot of money.
In a Fortune article by New York University Stern School of Business associate professor of international management Robert Salomon, he wrote that he was not surprised that Uber succumbed to its losses and agreed to sell its Chinese operations to Didi.
Salomon noted a few months back that Uber was not in a good position to conquer China's ride-sharing market, and the merger proves his claim. Uber CEO Travis Kalanick has earlier said that he was not concerned about the company's slow start in China, but shareholders did not share the same sentiment and pressured him to cut Uber's mounting losses in the country and move on.
According to Salomon, the failure of Uber to conquer the Chinese market is also being experienced by Western companies, specifically those from the United States. The banking system, financial markets and infrastructure of China are underdeveloped compared with the West, which adds difficulties to the operations of Western companies in the country. In addition, the legal system, political structure and regulations of China are comparatively complex and confusing.
There is also the Chinese practice of mixing personal and business relationships, which is not practiced by companies from the United States who are accustomed to strictly transactional relationships. Lastly, the tastes of Chinese consumers are very different compared with customers from the West, which has made it challenging for Western companies to adapt their offerings to meet the needs of customers in the country.
Salomon noted that if Uber partnered with a company like Didi from the beginning, instead of trying to tackle the Chinese market alone, it would have found more success.
What does this mean for the rest of the world and all the companies that are looking to enter the lucrative Chinese market? According to The Guardian's John Naughton, Uber's exit from China confirms that the plans for world domination by U.S. tech companies end upon reaching the borders of the Asian country. China, which is now the biggest internet market in the world, has already seen tech players Google, Microsoft and Amazon withdraw from the country.
In addition, China was seen by supporters of Brexit as one of the significant trade partners for a non-EU United Kingdom. Uber's exit from China paints the picture of a very difficult market to forge a connection with, and so Brexit supporters may want to temper their hopes of having China as a trade partner.