Amid the global battle for the car-hailing consumer, a truce emerged between the industry’s two biggest foes – Silicon Valley behemoth Uber and Chinese heavyweight Didi Chuxing. The two had been locked in fierce battle for the Chinese market until late July 2016, when Uber blinked and sold its China operation to Didi after spending $2bn over the course of two years trying to win market share in the Middle Kingdom.1 Taxis and rideshare cars in Lu Jia Zui, Shanghai, China, May 29, 2010. Carlos ZGZ/Flickr
The Uber-Didi deal represents a seismic moment in the global car-hailing wars that will be felt from Boston to Bangkok; Rio to Riyadh. 2 It is also a revealing moment in the evolving global commercial order, one that demonstrates the rising power of innovative tech companies in China and reflects the growing ability of emerging market consumer companies to defend their home turf.
The Uber-Didi alliance should be seen in the context of the great commercial battle of the 21st century for the increasingly urban middle-class consumer. Worldwide, companies are chasing the Holy Grail of the middle-class buyer – some 3bn strong. According to Homi Kharas at Brookings Institution, this figure will have reached 4bn by 2021, with the fastest growing sections hailing from emerging markets. 3 This is also where some of the fiercest battles for brand hearts and minds are taking place.
With this in mind let’s examine the Didi-Uber alliance, starting with what we call the Chinese tech companies’ moment.
Taxis and rideshare cars in Lu Jia Zui, Shanghai, China, May 29, 2010. Carlos ZGZ/Flickr
China’s Tech MomentDidi’s defence of its turf was not, as some might suggest, an example of China’s Internet censorship pushing out a foreign rival. With the Chinese government blocking sites such as Google and Facebook, that narrative has some legs but fails to capture the reality of the innovative ability of Chinese consumer-facing tech companies or the entrepreneurial drive of their leaders. In an important cover piece in The Economist on China’s tech trailblazers, the magazine notes Didi out-innovated Uber. “Didi understood the local culture, integrated better with social media platforms, and got taxi drivers onside by incorporating them into its app from the beginning.” Simply put, “Uber was outcompeted”.4
Edward Tse, author of China's Disruptors, describes a world of cut-throat competition, relentless innovation, and business leaders fuelled by an intense desire to win against all manner of competition, domestic or foreign. Tse notes that China’s leading techpreneurs have much in common with their Silicon Valley peers. They have, he writes, “almost all developed their businesses from the ground up, in many instances starting from an apartment or a market stall, or raising a few thousand dollars from friends of relatives” and “they have all built their companies by meeting the needs of their customers, often in businesses that no one else saw as feasible”.5
Amazon – like Uber – also made a big play for China. It, too, faced a feisty and powerful startup, one founded by a schoolteacher that hatched his company in a tiny apartment: Alibaba. After fending off eBay, Alibaba spent the last few years facing Amazon. The Seattle-based retailer eventually retreated and, in 2015, quietly opened a store on Alibaba’s TMall website. 6 7
Apple has had better luck in China. Indeed, the company generates a quarter of its global revenue from the Asian giant, but it also faces scrappy competition – particularly in the smartphone segment – and declining sales. 8 The iPhone remains a status symbol for China’s upper tier middle class, but local rivals such as Huawei, Oppo, Xiaomi, and Vivo are grabbing market share from both the iPhone and Samsung and beating them.9 Though none of these Chinese smartphone makers have the financial war chest that Didi had in order to outlast Uber, they are winning on innovation and expanding across southeast Asia, the fastest-growing Internet market.
Leading Chinese Tech Companies
China’s post-90s generation – those born in the 1990s and beyond – are also among the most robust smartphone users in the world. About 60% spend more than three hours a day surfing the web on their phones and internet penetration is almost 80% – considerably higher than the country at large, according to Credit Suisse.10
The battle for China’s online consumers will play a key role in business competition in the 21st century, the fight among Chinese firms as fierce as with any Western brands.
But there is another story here beyond China’s tech moment: The emerging markets consumer company moment.
Defending Their Turf
Established Brands vs Emerging Market Multinationals
Across these growing markets, local companies are defending their turf against big brand global competitors – and taking the fight to their turf, too. According to the Boston Consulting Group, between 2009 and 2014, best-of-class emerging market multinationals grew three times faster than their developed country peers, and continue to scale new heights. 11
According to a Kantar World Panel study that analysed 300bn shopper decisions in five continents, local brands command 60% of fast-moving consumer goods worldwide, with particularly strong showings in Asia and Latin America. 12 And there is still room for growth. The Indian business paper Mint reports that urban markets are still underserved in the fast moving consumer goods segment in urban India.13
In the Philippines, fast food company Jollibee Foods Corporation has not only stood its ground against the likes of McDonalds and KFC but continues to dominate the local market, according to Euromonitor. Now, it has set its sights on the US, purchasing a 40% stake in Smashburger, a rising player in the gourmet burger market.
In Saudi Arabia, fast food chain Kudu holds its own against a plethora of global brands in one of the most highly penetrated fast food markets in the world. Savvy private equity investors like The Abraaj Group and TPG saw Kudu’s value and each bought a stake in 2015 to support its expansion and growth. 14
In Turkey, fast-fashion retailers like Koton and LC Waikiki hold their own against the likes of H&M and Zara, and are expanding rapidly. In Mexico, Grupo Bimbo is not just the largest maker of baked goods in Latin America, but among the largest worldwide, with deep penetration in the US, Canada, and Spain. In Indonesia, the second-largest instant noodle market in the world, local brand Indomie is the clear favourite. 15 And in other markets from Asia to Africa, the company beats or goes head-to-head with Western competitors such as Nestle’s Maggi. Indofood, the manufacturer of Indomie, has also invested widely in manufacturing facilities across Africa.16
MTN is a leading mobile network provider in South Africa, though its geographic reach spans across Africa and beyond. Some of its biggest competitors in Africa are not only the Vodafones and Virgin Mobiles of the world, but Indian operator Bharti Airtel and the UAE’s Etisalat. Meanwhile, Kenya’s M-Pesa has been a world leader in mobile money payments, transforming business and society in ways unimaginable a decade ago.