For the largest ride sharing service in the world, it wasn’t a smooth ride for Uber in China. Even though the company has pioneered the idea of private car-hailing services, in China, Uber has been a distant second to a much larger competitor, Didi Kuaidi. The Chinese company, which is the product of earlier merger of two competitors, currently holds about 80% of the market to Uber’s just over 10%.

Didi-Kuaidi, valued at $15 billion, boasts more than one million drivers in 360 cities, compared to Uber’s roughly 100,000 drivers in 20 cities. It has also recently invested $100 million in Uber’s main rival Lyft. Two companies agreed to offer services to each other’s users in the countries where each isn’t currently present.

What are the reasons for Uber in China being unable to become the market leader despite having an early mover advantage?

Uber in China competition
The claim that a foreign service provider being squeezed out by the government in favor the local competitor doesn’t really hold water. Beijing’s recently published draft law on regulating private car-hailing services is going to affect both rivals equally. In fact, Uber China is already structured as a local company in the eyes of Chinese law. Uber Global is listed as an investor of Uber China, among several others mostly local companies.

There are, however, three main reasons why Didi-Kuaidi has managed to capture commanding market share and all of them have to do with Chinese rival’s better understanding of the market.

First reason is the fact that Didi-Kuaidi, unlike Uber, doesn’t see traditional taxi industry as the enemy. In fact, it treats it as a partner and cooperated with taxi drivers by distributing their mobile apps among them to be used as an additional channel to attract more passengers. This allowed Didi-Kuadi to quickly gain more drivers, enabling the company to scale much faster and in more cities than Uber in China.

The second reason is strategic partnership with the right internet conglomerates: Alibaba and Tencent. On the opposite side, Uber has managed to secure strong backing of another internet giant Baidu, the third member of the infamous Chinese BAT (the collective term used to describe three companies that practically run Chinese internet).

Unfortunately to Uber, Tencent and Alibaba are much better positioned to add value to a car sharing service. Tencent is behind WeChat, most popular mobile social media app that has now integrated private cab hailing capability within the app itself. Uber has already complained that WeChat is shutting them out of the app but there is little they can do about it.

Alibaba, the largest ecommerce company in the world, has been integrating similar capability into its Alipay mobile wallet used by hundreds of millions of Chinese on daily basis.

On the other hand, Baidu does have a potential to help Uber getting more clients through its mobile navigation app, although it is still not as popular as WeChat or Alipay Wallet and has many rivals in this market. Recently, Baidu started to add Uber pickup points to its map – a new service that Uber has been introducing in some cities.

The third reason of why Uber in China couldn’t catch the lead is the fact that it was too slow to introduce features that Chinese users seem to like. Didi-Kuaidi has been much more innovative in this regard by offering more ride options to its users. For example, it has a popular group ride-sharing service along defined routes called “Hitch.” The company even tapped into busy travel market by offering bus services to tour groups and transportation to events. In addition, in an effort to help with drunk driving problem, the company has also launched a new “chauffeur service” that enables customers to hire a designated driver to take them back home in their own car.

So far, it hasn’t been easy for Uber in China but it certainly isn’t going anywhere. Even a tenth of China’s lucrative market of 800 million city dwellers represents a much larger business than in many of other Uber’s locations where it dominates the market.

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