Uber and Under: China’s Hometown Advantage Claims Another Victim | Hacker News Reader

Uber and Under: China’s Hometown Advantage Claims Another Victim

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93 pointssteven47 comments

Article works like this:

1. First I start with my pet theory (China kills foreign competitors to local companies)

2. The headline case does not support my theory with facts

"Uber in the ride-sharing market; in fact, Uber felt it was treated fairly by a government interested in transportation innovation. According to reports on the ground, Didi used its local knowledge to act more nimbly in satisfying Chinese customers."

3. I draw stories from fantasy world

"But my guess is that if the American ride-sharing company had been more successful, China would have put a Mao-sized thumb on the scales."

4. I go on as if the facts (Uber being clobbered) support my pet theory.

5. Page views + Expert!

(I'm not saying China doesn't protect it's companies)

The bulk of the article is pretty good, though. It just opens and closes with half assed tie-ins to the big stories of the day (Uber and Trump).

It's basically an interesting post mortem of the Chinese government's dealings with Google and Apple, plus a few paragraphs of random hypotheticals to ignore.

If an American company failed in China, it must be because it is treated unfairly.

Wait, Walmart, MacDonald's, Procter & Gamble, etc are hugely successful in China. Nah, they are not tech companies. Wait, Apple is successful in China. Microsoft has a good run, too. Even Yahoo had a few good years there.

Not to mention all the American fashion brands that are doing great in China, like Levi's, Coach, Polo, etc.

Add in the makeup brands like Lancome, Estee Lauder, Clinique, etc.

The Chinese public values hardware and tangible stuff. Plus its made in China, so the Chinese Govt lets them live. Apple, VW, GM, Caterpillar, Fashion.

The Chinese public don't much value IP, software or services and so the Chinese Govt doesn't need to let anyone get a foothold. Plus these companies don't really help the Chinese economy with jobs, etc. so Google, Uber, Software? Consulting? Banks?

actually most IP is pretty misleading anyways.

sure there are good IP examples but since the 21th century the most stuff is over patented.

especially design shapes. most development will lead to the "optimal" design anyways maybe not "exactly" the same but the same as it would threaten somebodies IP. software patents, too. so much stuff that is patented that you will probably have a really hard way to come up with a new video codec without violating "something".

patents should be invalidated based on "evolution" of triviality and state of the art, but they will never be since somebody will pay a huge amount to just keep this stuff.

and that just applies to IP in "our" world. In other stuff it's even worse.

McDonald's and Yum are starting to struggle there, and the parent corporations will likely be squeezed out of China in the coming years as primary operators. They'll be semi-forced to sell off their ownership inside of China as their position weakens, and they'll retain a minority holding (Yum is in that position right now, they've already begun pursuing that end result out of necessity). Yum has lost half of its market share in four years, and McDonald's lost 20% of its market share in that time. I'm not implying these companies aren't responsible for that, but they are not going to be held up as successful examples five years from now.

Since when has China been a successful venture for Walmart? They've struggled there since day one, and have thrown everything they can at it. Their sales are falling in China, rather than rising, and they've gone through one re-branding after another. It's anything but hugely successful.

Apple just lost a huge portion of their sales in China, and are increasingly coming under the same nationalistic attack that so many other US companies have. Apple is likely to see its position there erode consistently going forward as nationalism sways toward other domestic competitors and China places restrictions on Apple's ability to operate freely in media and apps.

Walmart failed miserably in Germany, I guess it's the governments fault.

Sort of:

http://www.ft.com/cms/s/0/26ca4d4e-decd-11d9-92cd-00000e2511...

Walmart brought all kinds of weird american business ethics to Germany, like shouting the company's name every morning, an "ethics code" which disallowed employees to flirt with each other and a mandate to spy/report on colleagues. This was struck down in German courts and gave bad press. Together with a pro-union work force and cut throat competition of Aldi/Lidl/Metro Walmart did indeed fail miserably (and no one misses them).

> I draw stories from fantasy world

The author talks about the problems Google faced with the Chinese govt. Isn't that the bulk of the article?

With that he also says since Uber wasn't large enough to compete with Didi, that why Chinese Govt didn't need to intervene.

Title should be: "Here's a narrative that makes me feel good and righteous"

I don't really see Uber as a "loser" or "victim" in this latest development. They accomplished a lot here:

  * Stop losing $1B/yr in a non-premium market (low average fare)
  * Get a 20% stake in the new Didi/Uber hybrid company, which will grow over time without much active effort by Uber
  * Negate Lyft's efforts to run around Uber in China by empowering Didi to crush them
  * Align with Apple, who invested $1B in Didi

All of this just by giving up a failing Chinese taxi business. Uber claims they're not just a taxi company and that they can be a worldwide logistics network. If that's true they can fine-tune that technology elsewhere and re-enter China in other businesses later.

So weird to see people trying to put a positive spin on this for Uber.

Uber lost in China, flat out.

> Negate Lyft's efforts to run around Uber in China by empowering Didi to crush them

What? Didi and Lyft struck a deep partnership. Lyft doesn't have Chinese operations. The pressure induced on Uber by Didi and Lyft working together is part of what got Uber to admit they were losing the fight and didn't have a reasonable path to victory.

As for framing their 20% stake (actually, it is 18%) as a win, consider this:

Uber burned over $2B in cash in China. If simply owning a % of Didi was an acceptable "win" state for Uber, they would've been much smarter to simply invest that $2B into Didi. Just a year ago, Didi was valuated at only $13B... even then, the $2B would've resulted in a ~13% ownership stake. Last year, they were valuated under $10B. Tencent got a ~20% stake in Didi for just $15M only 3 years ago.

In fact, Uber could've played a much stronger hand and ended up with far more than 18% of Didi if they'd offered to invest $1-2B and agreed not to enter China in the first place. Or, they could've made a credible threat by growing rapidly (as they did) for a year, and then offering a merger + an investment from a position of strength. Instead, they played a suboptimal strategy. They continued to operate in China and their growth slowed, meanwhile they burned even more money, their investors started making noise about backing out, and they gave Didi time to strike huge strategic partnerships (Kuaidi and Lyft) and raise a bunch more money, all of which strengthened their position relative to Uber even further.

The time to strike a combination with Didi was 1-2 years ago. They could've got a much, much better deal while still spending only the same total amount of money.

This was a loss for Uber, and it absolutely wasn't their intended outcome, nor their best outcome.

Uber has absolutely dominated in other markets. So, it's not like they're dummies or poor operators. They are amazing in terms of market domination. But let's not put a sugar coating on this. Call a win a win and a loss a loss.

For what it's worth I am not trying to put a spin on it for Uber, I am generally one to root against Uber (you can see this in my comment history). But I do respect their ability to almost always get what they want.

You're right they could have done better, but they did a great job at mitigating loss and backing out of China with a lot more than just money lost. They'll get a piece of the pie going forward.

My comment about Lyft was that by partnering with Didi just like Lyft did, Uber can now minimize the possibility that Lyft gets farther in China than Uber does. Everyone is relying on Didi, so Lyft and Uber will both get some of China but not the lions share and Uber will continue to beat Lyft in all other markets.

> Just a year ago, Didi was valuated at only $13B... even then, the $2B would've resulted in a ~13% ownership stake. Last year, they were valuated under $10B. Tencent got a ~20% stake in Didi for just $15M only 3 years ago.

Interesting. Btw, what share did Apple get for their $1B?

Ugh, this is a poorly written piece. Points are muddled, poor segues, poor references/unbacked claims, and a meandering story. Not what I'd hope for from Levy.

From the article:

> "..in fact, Uber felt it was treated fairly by a government interested in transportation innovation"

Anyone have a source on this?

Also, this seems to me like something you'd say even without believing it, if you were afraid of disgruntling the government (either for Uber's operations, or for your prospective future endeavors).

About the only thing I agree with Donald Trump about is that we should be more aggressive with China. They're clearly protecting their domestic industries very aggressively via tactics like the Great Firewall and subsidizing of domestic companies, but any protectionism on our end would apparently be a trade treaty violation. Very, very unfair. But nobody wants to challenge it because too many American companies are still getting rich off cheap labor in China.

Indeed, most of their big industries are heavily owned and controlled by the government. It is interesting how the WTO has allowed China's eg heavily state controlled and owned steel producers to endlessly dump below cost with zero consequences. The same thing is going on in several other industries at the moment.

"This is not to say that Chinese government regulation drove Uber’s deal with Didi, which was clobbering Uber in the ride-sharing market; in fact, Uber felt it was treated fairly by a government interested in transportation innovation." ... and then he follows up with a story about the Chinese government treating google unfairly. Nice segue man.

A cursory search shows that the US is protectionist too: http://www.cnbc.com/2016/02/22/huawei-well-re-enter-us-marke...

A cursory search will also find gun deaths in the UK and Australia. I guess Somalia and Yemen don't have a problem at all!

I'm using this extreme example to demonstrate that the degree of protectionism employed by the US (and your example isn't even definitive) pales in comparison to that employed by China.

I'm not saying I agree with this article.

Don't forget Snowden's laws, in particular the Zero, First and Second laws:

Zero) Any US company might be in bed with government.

First) Any US company might be forced to deny involvement with the US government.

Second) Any US company can be tried in secret courts.

So, basically all US companies are potentially government branches.

This is not tongue-in-cheek.

Can you share the links to news sources describing companies or company officers being tried in secret courts?

If I am right, we are talking about FISA / FISC [1]. This was widely reported during the Snowden scandal, but I do not have the links.

Anyway, this is secret stuff, so by definition you won't find a lot of information out there.

[1]: https://en.wikipedia.org/wiki/United_States_Foreign_Intellig...

The classic standby; I don't have proof of the conspiracy, that's how far it goes!

We got some hints.

And since the end of the Cold War, it has always appeared alongside a healthy dose of whataboutism.

Are you forgetting the the secret courts have been proven to exist? I try to be charitable but your comment is either trolling or borne of sheer ignorance.

The existence of the "secret courts" was never a secret.

What they do is secret

> So, basically all companies are potentially branches of their respective governments.

FTFY

If Uber's goal is to dominate the Chinese market, it lost the war, of course. But Uber as a business company, making profit is it's ultimate goal which is actually accomplished in its deal with Didi. Also Uber can focus on all others markets in other countries where it is more possible to be the dominant.

I find it interesting that major Chinese internet sites like qq.com, weibo.com, baidu.com & taobao.com seemingly have no interest in becoming globally recognised like western social media brands, and seem content with their mandarin speaking audience (which is quite a big audience, mind you).

" Uber has become one more casualty in China’s other wall, a towering fortress of restrictions, regulations and unfair play that keeps down American internet companies. "

The government is protecting the home grown companies as any other good government would do. So whats the problem ?

The problems are deep and broad and lead to the Napoleonic Wars and the United States' independence among other things.

I'm wondering, how Coca-Cola being a US company is successful in China ? (OMG did I just gave China a opportunity to restrict a US company??)

Plenty of US companies are successful in China: McDonald's, KFC, and Apple come to mind.

I think Uber failed to adapt to local conditions. I was in China about a year ago and suggested Uber a couple of times, but we always ended up using Didi. A major part of that was payments: Didi integrated with the mobile provider's payment system making everything nice and transparent, while Uber wanted a credit card.

Notice a common thread between those companies? It's not tech and it's not IP. It's brand.

All the companies you mention are having big problems in China right now.

Apple will lose at least 50% of its sales in China over the span of about two years. They just lost a third of their sales there as of the latest quarter, while their market share is plunging rapidly. Zero chance that situation will turn around. In China, if you lose your position, you're toast.

Yum is desperately trying to figure out how to liquidate out of China as their market share collapses rapidly. Yum is finding out that China is hard to operate in to begin with, and much harder to operate in when the ground is sinking out from under you. They'll be out of China entirely, holding a minority position, within just a few years. McDonald's is in the same increasingly struggling boat:

http://www.bloomberg.com/news/articles/2016-08-03/china-star...

first of all, Uber China is not the first competitor DiDi killed, it is the 31th which means there are 30 China "uber" dead before. In another way, Uber cannot even beat Lyft at hometown. What this story tell you?

It is not in their national interest to have activities of Chinese citizens controlled by foreign companies. They can create their own services, which will serve a huge domestic market, keep the wealth in the country and support domestic economy.

>even to the point where its CEO has learned to speak Mandarin

Does this seek to create an undertone of fear that English might not be the dominant business language of the next century?

Way to stoke the xenophobia, Steven Levy.

There are many reasons why one might want to speak Mandarin.

Because it's a cool language, for one.

Because one wishes to do business in a country where Mandarin is the primary language, for another. In this light, learning that language is a strong signal of respect, which is prized.

Because one might have personal friends?

When seen in this light, fear doesn't seem like a particularly strong reason...

Also Zuckerberg is married to Priscilla Chan who is ethnic Chinese although she grew up speakingk Cantonese.

https://en.m.wikipedia.org/wiki/Priscilla_Chan_(philanthropi...

...Wait. Why is Zuckerberg learning Mandarin then?

Because business isn't generally done in Cantonese. It's a common story that families that historically spoke Cantonese are now teaching their Mandarin alongside or instead of Cantonese because Mandarin is more useful in the professional world.

Yeah, what a bizarre statement. CEO learns language of major non-English-speaking market. What a shocker! It's almost like companies are putting effort behind their desire to capture a potential 1.3 billion customers.

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