Didi Chuxing now lays claim to 300 million users, 10 million orders per day and 14 million drivers in over 400 Chinese cities. Founder Cheng Wei is only 33 years old and joins a long list of young Chinese changemakers that are disrupting Chinese markets.
But as promising as Didi Chuxing’s sharing-economy business model may be, two challenges remain unaddressed. First, ride hailing will be officially regulated for the first time from 1 November 2016. This will sting, with regulations on drivers and cars in Shanghai, Beijing and Shenzhen and other major cities likely to force Didi Chuxing into operating more like a traditional taxi company.
Second, big profits are yet to turn up. In response the company has added private taxis, high-end drivers and a host of other functions to its platform. After the Uber China acquisition, the company launched three new initiatives: ‘drive-to-own’, a service similar to the traditional taxi business that it set out to disrupt, ‘car rental’, which seeks to diversify the revenue stream, and ‘bike sharing’, a collaborative project with university dock-less bike sharing service Ofo. Even with a dominant market position and a large bag of investor cash, innovation is still a necessity for Didi Chuxing.
There are three ways that Chinese tech companies stay competitive and innovative. First, they are eager to experiment and ‘get out of the building’, as illustrated by BAT’s inroads into logistics, healthcare, travel, education and online finance. The business logic here appears to be ‘try first, cut your losses and then tinker with the business model until it succeeds’. This freedom to experiment is possible due to the size of Chinese business ecosystems, which comprise hundreds of ventures and investors.
Second, Chinese companies have a unique entrepreneurial urgency and decision-making speed. In the tech market speed matters more than perfection. Getting products to the market that are just good enough makes sense in an emerging consumer market where consumers’ preferences are unpredictable.
Third, Chinese tech companies are highly customer focused and willing to develop products in response to market demand. Regardless of the size of the market or profit margin, companies release an unmatched variety of products. China’s booming middle class craves more diverse, higher quality and safer products and companies are left running fast just to stay in the same position.
Although Didi Chuxing is now a global unicorn – that is, a venture with a valuation over US$1 billion – some still question whether the company can successfully internationalise as its strategic focus has always been on the Chinese market. Even Alibaba has only recently articulated a global strategy after their historic IPO, which includes mergers and acquisitions overseas, opening subsidiaries in Europe and the US, increasing cross-border e-commerce transactions and internationalising Alipay’s third-party online payment platform.
While the ambition to build global tech companies certainly exists in China, Chinese companies are held back by their general business approach. Many Chinese tech business models are built around an ecosystem of companies, products and technologies. These ecosystems are mostly localised, giving room for speed, flexibility and experimentation. But the challenge is then trying to build them abroad. China is a virgin land compared to the mature markets and ecosystems of the US and parts of Europe.
The strong customer focus in China works well because local tech companies understand the Chinese customer. But this does not work abroad. Western consumers may be less technologically savvy than their Chinese counterparts but they have more experience and less appetite for change. At the same time, Chinese companies have little overseas market experience — even though they are equipped with big data tools. Despite Chinese success with global champions like Huawei and Haier, Western consumers generally still have negative impressions of Chinese products.
Chinese tech companies are agile and eager. If they cannot enter or operate abroad by themselves then they will find alternate channels to reach the Western consumer. Entrepreneurs like Didi Chuxing’s Cheng Wei are not likely to easily give up the chance to become a global changemaker.
Mark Greeven is Associate Professor at the School of Management, Zhejiang University.