Chinese ridesharing company DiDi Chuxing was formed from the 2015 merger of rival firms DiDi Dache and

Fantastic news! We've Found the answer you've been seeking!

Question:

Chinese ridesharing company DiDi Chuxing was formed from the 2015 merger of rival firms DiDi Dache and Kuaidi Dache. Its vision is to become a global leader in transport and transport technology, through providing taxi and ridesharing services, ranging from chauffeur-driven services, to bus and car ride sharing, and even bike hire, with access gained through smartphone applications. Services extend to organizing car-pooling and private long-haul buses to help reducetraffic congestion and pollution, and in 2018 the company estimated this saved 500 million litres of fuel and reduced daily carbon emissions by 13.5 million tons.

In 2016 the company was valued at $28 billion and employed 7000 people, of whom 40% were female. DiDi put-maneuvered Uber in China and finally purchased Uber’s Chinese business in 2016, but in return Uber gained a small stake in DiDi Chuxing. DiDi is the dominant player in China but this is a saturated market with little room for growth. Cheng Wei, CEO of DiDi Chuxing since the 2015 merger, implemented a growth strategy and a company spokesperson described this strategy to Forbes: “We will put more energy and resources in the international market to explore the frontier technology, innovate new models of business, and seek like-minded partners”. Moving into markets outside mainland China meant moving into some markets already dominated by Uber.

DiDi’s expansion outside China

Since then the company has moved quickly to establish footholds in markets, including India, Southeast Asia, Japan, Latin America, Mexico and is starting to get a foothold in the US. Its entry to some of those markets have been through investments in competitors, such as Ola in India, in Singapore and Lyft in the US. DiDi plans to across Australia and New Zealand, but in 2019 was only operating in Brisbane, the Sunshine and the Gold Coasts in Queensland, Newcastle in New South Wales, Melbourne and Geelong in Victoria and launched in Perth, Western Australia, in November 2019. In Australia, the DiDi service charge is 11%, which leaves a better rate for drivers as well as competitive rates for passengers.

Things have not been going well for Uber (valued at $70 billion). The company suffered from the leak of 57 million rider and driver records, was accused of spying on competitors and has been enmeshed in costly litigation in different countries.

DiDi capitalized on Uber’s setbacks. Its growth focused on expanding across continents at the same time. This is risky because of the cost and risk associated with expanding overseas, especially when competitors like Uber are already entrenched. According to an analyst with Bloomberg News, DiDi should have started its overseas expansion in southeast Asian markets that did not have as much entrenched competition – like Vietnam and Malaysia. However, the company seems to want to make a bigger splash by expanding across multiple contents at once via different expansion models.

The expansion outside China started with a partnership in the island neighbor of Taiwan. DiDi starts operations there with the help of a Taiwanese partner named LEDI Technology, which was DiDi’s authorized franchisee in the country. Taiwan is a tricky market to enter because its lawmakers and its taxi industry have been successful in forcing organizations to conform to its transportation rules. Fines for illegally transporting passengers can be as high as US$834.000/infraction, and Uber reportedly racked up more than US$30 million in fines in one month alone, causing the company to briefly suspend service across the country. DiDi is trying to avoid making the same mistake.

DiDi used another model of expansion in South America and India by purchasing existing companies. Fortune reported that in 2018 DiDi acquired Uber’s largest Brazilian rival, 99, “potentially creating a formidable rival to Uber in Latin America’s largest economy”. Cheng Wei stated that “globalization is a top strategic priority for DiDi”. It’s not easy in the ridesharing industry because of competition from Uber. It is a fight for brand, and DiDi doesn’t have a global name that probably has a same recognition level as Uber.

DiDi has not been shy about expanding north of Brazil, even without significant brand recognition in the Americas. The company hopes to enter the Mexican market next year without a Mexican partner. This would be the first overseas operation outside China without local partner management or the purchase of an existing organization. It would also allow DiDi to utilize its own smartphone app and recruit local drivers to its platform. This is especially significant Mexico City, one of Uber’s busiest markets in the world. And the move put it right on the US doorstep. Trying to enter an Uber-dominated market that also includes Cabify (Spanish rideshare company) without local partner support could be costly and risky. Consider what happened to Uber when it challenged DiDi in China: it lost billions of dollars sudsidising drivers to keep its prices low, and in the end it still had to bow out. Is DiDi ready for another price war in order to gain market share?

DiDi Chuxing’s CEO is a different personality to Uber’s Kalanick, being much more restrained and private. Nonetheless, DiDi has had its own problems; in two separate incidents in China, two drivers were charged with the murder of two passengers, which caused a public backlash against the company and passenger use fell. In early 2019, DiDi laid off around 15% of its Chinese staff. In addition, former car companies DiDi had previously been in partnership with are setting up their own ridesharing services in competition. Another major problem that DiDi faces is that while valued at an estimated US$60 billion, much like Uber, its is struggling to turn a profit. DiDi executives reported that in early 2019, the company was losing 2% on every fare.

Questions:

1. What obstacles remain for DiDi as it challenges Uber’s control of the ridesharing industry?

2. DiDi’s CEO Cheng Wei stated that globalization is a top strategic priority for the organization. Explain how DiDi is utilizing major developments in globalization to its advantage.

3. DiDi is based in China and as part of its expansion strategy has targeted countries in its own region and the other BRICS nations of India and Brazil. Why is this significant?