After burning through $2 billion in the past two years, Uber waved a white flag and announced that it is selling its China operations to homegrown rival, Didi Chuxing which controls 80% of China’s ride-sharing market.
Uber joins the list of foreign giants like Best Buy, eBay and Mattel that had to exit China with tails between their legs because they couldn’t win the battle with homegrown businesses.
In my final leg of my recent backpacking trip in China, I had the most interesting conversation with a regional sales manager about doing business in China while on board a sleeper train heading from Guilin to Shenzhen.
Here’s what I learnt from the conversation.
Chinese startups are quietly observing startups in Europe and US
The Chinese are looking at the European and US markets to learn about the latest trend and find out what’s the latest app in the market. Many would fly out of China to visit tech conventions to see what’s up and coming.
Once China startup see that looks to be gaining traction, they get their team of engineers or developers reverse engineer the idea. Reverse engineering is a nice way of saying, “hey I’m copying your product right now!”
That’s what China startups are really doing right now and many of them do it really well.
Speed to market is everything
While startups in US and Europe have the history of building their prototypes in their garage-turned-office setups, startups in China play a different game here.
If a startup in US spent 100,000 USD and 2 years to build their first prototype, the China startup is willing to burn through 1,000,000 USD to reverse engineer the prototype and build something even better in 6 months. The plan is simple. Build a similar or better product in Chinese and conquer the China market before the US startup expands overseas. It’s that simple.
Lower tier cities continue to mimic developed cities in China
The same approach is adopted in remote cities where entrepreneurial individuals from remote cities are observing what the big players in more developed cities are doing.
For example, if there is a growing trend for Smoothie Bars to specialise in selling mango smoothies in Beijing, entrepreneurs from Xian would either purchase a franchise or start their own brand, and set up Smoothie Bars in Xian to sell mango smoothies.
Their goals are the same. Get first mover advantage in their remote city and become the market winner there.
Foreign giants will find it hard to win in China
If this is the winning strategy for many of the largest Chinese companies today, foreign giants are going to have their work cut out for them if they want to enter the Chinese market.
What’s your business strategy to enter China?