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Uber looks to combat its foreigner status in nationalistic China with more local partnerships

By Michael Carney , written on March 19, 2015

From The News Desk

In Uber’s quest to blanket the world with its on-demand transportation service, China represents a gaping hole in its network. But the company is adamant on changing that.

Uber revealed yesterday that it has signed a partnership with China Yongda Automobile Service Holdings Ltd., a luxury auto dealer, to offer purchase discounts, financing, and ongoing vehicle service to drivers in its network. A joint statement by the two companies reads:

Both parties have reached preliminary agreement on vehicle sales services of Audi and Volkswagen brands. The initial amount of automobile finance reaches RMB hundreds of million yuan. Soon afterward, other luxury brands such as Jaguar/ Land Rover and BMW, etc. will be included. Yongda will provide purchase loan amounting RMB200 million yuan [$32.3 million USD] to Uber's consumers.
Uber has struck similar dealer and automotive finance partnerships elsewhere in the world, with mixed results. The company’s Santander-backed auto-loans in the US have come under scrutiny for offering onerous terms to subprime borrowers and serving as an artificial lock-in to drivers that would otherwise have more flexibility to come and go from the platform. Independent of Uber, Santander recently made headlines for illegally repossessing the vehicles of more than a thousand military veterans.

The on-demand transportation market in the world’s most populous country and its second largest economy is dominated by two home-grown services, Kuaidi Dache and Didi Dache, which recently agreed to merge in a $6 billion deal and now control an overwhelming percent of China's ride-hailing market – up to 99 percent, according to China’s Xinhua News Agency. Prior to the merger, Didi was backed by Tencent, DST Global, GGV Capital, and Temasek Holding. Kuadi had backing from SoftBank, Tiger Fund, and Alibaba.

Uber’s service is currently available in nine Chinese cities – Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangzhou, Wuhan, Chengdu, and Hangzhou – while Didi Dache and Kuaidi Dache combine to operate in more than 300 cities across China. The country has more than 150 cities with a population of at least 1 million people, compared to just nine in the US, a fact that makes this both a highly attractive market and one that’s incredibly difficult to serve comprehensively. Uber currently operates in more than 250 cities across 55 countries.

For Uber to break the stranglehold of Kuadi and Didi Dache and gain a meaningful share of the Chinese market will be a challenging task. An association with Yongda, which is one of China’s largest and best known automotive dealerships and is traded publicly on the Hong Kong Stock Exchange, is certainly a good way to add visibility to the brand. Of course, adding newer, more luxurious cars to its network should also help.

Uber also announced a strategic investment from Baidu, one of China’s internet giants, in December that included a partnership with the company’s Baidu maps division. This highly visible partnership with a premium domestic brand should help blunt Uber’s outsider image and put the company on par with the Tencent and Alibaba backed homegrown competitors.

With Uber’s valuation climbing seemingly by the day, the company’s investors are betting big that it will be able to achieve global ubiquity. In that bet, China represents an absolutely crucial market. And, as we’ve covered previously, Uber is already facing serious legal challenges in a number of other key markets. Establishing a meaningful presence in China would go a long way.

The history of US technology companies seeking to enter China is littered with corpses and horror stories. This has been particularly true in the Internet sector, but even Tesla, a darling in much of the world, recently announced that it was pulling resources out of China after a less than stelar reception in the country. The most successful foreign companies have attacked this market through local partnerships, but most have still found themselves making major compromises in order to even survive, let alone thrive in this market. And as all foreign entrants into the Chinese market have learned, simply duplicating the strategies that made you successful elsewhere in the world is rarely enough to succeed here.

Uber has been been beating odds since its earliest days. Whether the company can keep that fact going and succeed in China remains to be seen. But one thing’s certain: the stakes couldn’t be higher.

(Image via China-Mike)

[Disclosure: Michael Carney has accepted a position as an associate at Upfront Ventures that begins in April. To the best of Pando’s knowledge, the companies in this post and their competitors have no affiliation with Upfront. This post went through Pando’s usual editorial process.]