Uber’s decision to merge its China business with market leader Didi Chuxing is expected to make the Indian market the focus of global expansion for the San Francisco company
It seems China still remains a tough market for US-based companies to win in, it could leave the American company freer to devote more resources to India, just like online retailer Amazon which has been spending aggressively in India after losing out in China to local rivals.
“India is the next battleground,” said one source who tracks the industry closely. “Uber is out of China, which means their ability to invest in India goes up 2x-3x,” he said.
In India, Uber is already locked in an intense battle with market leader Ola, which counts Didi as a shareholder.
“This merger paves the way for our team and Didi’s to partner on an enormous mission, and it frees up a substantial resources for bold initiatives focused on the future of cities – from self-driving technology to the future of food and logistics,” Uber CEO Travis Kalanick said in a statement, officially announcing the deal.
The valuation of the combined Chinese entity after Didi Chuxing and Uber China merger is pegged at $35 billion, a report in Bloomberg citing sources said. Investors in Uber China, an entity owned by Uber, Baidu and others, will receive a 20% stake in the combined company, Kalanick said.
Uber will continue to operate its own app in China for now.
“This is clearly an acquisition of Uber in China, and no merger. Uber has clearly lost in China. And why shouldn’t Didi be ambitious globally since it has the capital and foresight to create an alliance, and is not at their mercy but gave them a face-saving exit,” said Rehan Yar Khan, an early investor in Ola and founder of venture capital firm Orios Venture Partners.
Didi Chuxing picked up a stake in India’s largest taxi aggregator Ola last year, as a part of the $500 million round of financing raised by the Bengaluru-based company. Didi Chuxing, Ola, Lyft and GrabTaxi are also part of a global alliance that allows these companies to share customers and technology across continents besides compete with Uber.
The news of the merger comes at a time when Ola is again tapping the market for a new round of funding, as it ramped up its cash burn earlier this year to maintain its market leadership against Uber.
“It could embolden international investors to put more money in Ola, since it proves local companies can win,” said Khan.
In March, ET reported that ride-hailing app Uber plans to invest $500 million in India by June as it challenges Ola for leadership in its third-biggest market. But Ola has been able to retain its market leadership in India till now, coming out with lower-cost alternatives like Ola Mini and also strengthening its supply of drivers and cars through the leasing business.
In July 2015, Uber had committed to invest $1 billion in India, a market the company’s founder Travis Kalanick has said could surpass either the US or China for Uber. With sale of Uber China, India is likely to become the focal point of global expansion for Kalanick.
“Uber China – in just two years – has exceeded even my wildest dreams. We’ve grown super fast and are now doing more than 150 million trips a month. This is no small feat given that most US technology companies struggle to crack the code there. That’s why I’m so proud of what our amazing China team has accomplished.
“However, as an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your hear. Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business than can best serve Chinese riders, drivers and cities over the long term,” Kalanick said.
Didi will make a $1 billion investment in Uber at a $68 billion valuation, roughly the same amount Uber has invested in China till date. Uber had earlier said that it was spending at least $1 billion a year to expand its business in China.