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Interview: Prof. Arvind Bhambri's Perspective on the Topic "Didi Buys Uber China"

21 September 2016

WhichMBA (W): What’s your comments on the merge of Didi and Uber in China as a consumer ? 
 
Professor Bhambri (B): As a consumer, what those apps have done is that they have completely disrupted the transportation industry.  At one time I would sometimes rent a car when I go into a new city, now it’s so much easier. I come out of the airport, pull out my smart phone and call one of the ride hiring services. Even it’s more convenient getting a taxi because you can call in advance, tell when and where you are, and you don’t have to give the directions. So it is an app that is completely transform the industry and the classics of something that is disrupted their business. And that is so much that we can learn from that case study, not just about global strategy. Global strategy was looking in competitors, platform business and disruption.
 
W: As a consumer, you think this is a disruptive innovation as a company right?
 
B: In a way that, from a consumer’s point of view, makes it a lot easier and a lot convenient for me to get a service, yes.
 
W: At the same time , there are a lot business leaders interested in this case. Why do those two companies draw a lot attention from the business community? What those two companies standing for?
 
B: Nowadays, a lot of business executives start talking about who is going to Uber business. Uber has no longer just a name of a company, it becomes like an action verb. It’s like when people say ‘Let’s Google something.’ It doesn’t mean you actually gonna use Google , it means you are going to the internet to search something, so Google and search means the same thing. Uber is becoming a word for disruption, and when we think about what Uber did, it basically talks an industry transforming, because it brought in hundreds of thousands of new players who could give you transportation service and that change the economics of the industry completely, so if we forget about Uber just for a moment, that disruption bring in new players, making a service available more conveniently at a lower price to lots of people who never used to use taxis. This kind of disruption can happen in so many other business, and that’s why everyone interested, not on Uber, but what can we learn from Uber to help us think about our own business. 
 
W: You mean that Uber now as a terminology to transform probably all kinds of industries?
 
B: You are exactly right. It is a terminology that interacts communications of way of completely redefining your business, redefining who provides the service, redefines how people consume service, how they did for the service, and that really means rethinking your entire business model.
 
W: It means if you are a business leader, you can not avoid about Uber, this kind of new innovation?
 
B: It means you cannot avoid that kind of thinking about your own business, because if you don’t think about it yourself, someone else will do it and become the Uber in your industry.
 
W: What’s your general view on these kind of the shared economy? Could they change the whole landscape of business in general?
 
B: The shared economy doesn’t change just business, it actually changes all of society. If you think about what a shared business, a shared economy is, what it really does is that they dig an asset that is not been utilized fully, and it gives you an opportunity to use that asset and earn money from it, so if I have a two-bedroom house and I’m only using one bedroom, that bedroom used to stay empty, but now I can rent it out, and that create the AIRBNB, but the reason for the AIRBNB is that that is an asset that is not been fully used. I own it, but someone else can use it, so one time ownership of an asset and using that asset had to be one and the same thing. Now owning an asset and using an asset can be separated, so that different people benefit from it. That happen of course in housing, in transportation, but it is happening in other industries as well in hiring. If I have the skill to do something, if I’m driving somewhere and I can pick someone up on the way, so it’s happening in many different ways.
 
W: We always say that if there’s anything happen in US or other places, there will be copied in China, so if we say Didi is a copy of Uber in China, but now actually Didi mergers with Uber in China. What are the characteristics and differences of their corporate strategy between those two companies? How to interpret this merger and acquisition? What are they looking for from both parties?
 
B: Only two very important points and each one of them is a little separate. The first point you mean, it was a business case launched in US, then it is get copied in China, that my have been true 15 or 10 years ago , but it’s not necessarily true today. Now what we have our business that be originated in China, that are actually in many ways more efficient, more innovative than what we have in the US. Wechat is a wonderful example. Wechat is so successful globally because Wechat uses in a way that it use messaging in the way that you can transform data, it is more efficient, more economic, more user-friendly, and it is better than anything that is been offered in the US, so Wechat is not a copy of anything that is in the US, it is an innovation that came out of China. The first time I came to China was 30 years ago in 1986, and that time when I traveled in China, I visited all of the companies, all of the US and European companies that operating in China at that time, they all existed purely to receive technology from the US and European used in China, but now when I got to China, our people are not looking at what they copy from the US, but what can we do that will transform not just the Chinese company, but become a global business. Your second part of the question was looking at Uber and Didi. The Chinese market is a big enough market, that it can develop a unique application and a unique service. When we look in at the Uber version of China, when Uber first came into China, they wanted to do the service in ways that actually was not appropriate for China like the way they handled payments, the way they promote services, so Didi actually was able to launch a right hiring service in China that was much better suit to Chinese habits and to the Chinese regularly system, and Chinese architecture.
 
W: You mean that early on, Uber just want to copy their applications anywhere else outside China into Chinese market?
 
B: In stead of thinking about Didi is copying Uber, it was Uber that came to China and wanted to do in China what they have already done in the US, and it didn’t work, and that create an opportunity for Didi to become successful than Uber in China.
 
W: So this is mean why Didi buys Uber’s share now in China.
 
B: Uber was losing so much money in China, it prevents Uber from focusing its time and attention on its other markets, so the only way Uber can be successful in the US and other markets, is they stop losing a billion dollars every year in China. They can not come to the public until they stop losing money.
 
W: This is such a big company, why they are losing such a lot money in Chinese market? Because they are not be focusing on their competitive advantage in this specific market, or Didi and other applications are too strong for them to compete?
 
B: In shared economy type business, you must reach a scale. Until you reach a certain scale, it is not an attractive business, because you do not attract enough drivers, and if you don’t have enough drivers. You do not attract enough passengers; If you don’t have enough passengers, you don’t attract enough drivers. So for the Uber to be successful, they have to attract enough drivers, so they give subsidies to drivers, but they cannot continue it definitely, because among the recent, the Chinese government has published national regulations and it prevents subsidies, but subsidies as a long-term strategy is not just an available strategy, they were not getting enough scale in China. So in a way ,at least from the financial point of view, it’s going to be good for Uber because they stop losing money, and be good for Didi because they stop having to match Uber’s subsidies.
 
W: What will be the impact on the Chinese shared car and taxi market after this merger? After acquiring Kuaidi and merging with Uber , Didi now has the power to set market price, do you think Didi has already formed monopoly as government may concern? We know that once they form market monopoly, no doubt it will sacrifice consumers’ interest. How can consumers avoid this result? As the market follower such as Shenzhou or Yidao which is similar to Didi, how could they compete with Didi?
 
B: The big advantage from the consumer point of view is that the switching cost is low. If I as a consumer, go on the Didi app, and it is going to cost me 200 yuan to go from Jiaotong University to my hotel, and I click on another app and it only costs me 100 yuan, I don’t have to stay with Didi, so as long as that has low switching cost, as long as the government does not prevent other smaller companies, also from offering ride hiring services and keep the prices down, that real risk is not that there will be an monopoly charging very high prices, but whether policies will exist that will allow other companies , as long as other new companies are entering, and as long as drivers can actually participate in multiple systems, you will always have competition and as a result in this kind of shared economy, passengers will find lower price, so is is important that regulation exist that allow new companies to continue to enter the space, otherwise you will absolutely right. If you create a monopoly and you protect the monopoly, undoubtedly the consumer will suffer.
 
W: However, early on you mentioned that the scale is very important, but right now Didi has enjoyed the biggest scale, so for Didi, it is easier to compete with other low scale companies. How those low scale companies position themselves?
 
B: Scale is a very important element, but in a shared economy is very different from scale in a traditional business. In a traditional business, as companies get bigger, they have bigger factories, bigger plants, and therefore they have a lot of cost of manufacturing. In shared economy, the scale means that if I have a lot of passengers, I attract a lot of drivers, and the drivers attract more passengers, so you have to have enough people on both sides for me to create a good platform. Now, however, if the platform starts charging very high prices, the cost of encouraging and attracting new customers onto my platform is not so high, because the cost of a new passenger using my app doesn’t cost me very much money, so the scale advantage is a very different kind of advantage in a platform-based shared economy model.
 
W: As I could understand, you mean that as a passenger, we could keep quite a few apps on our mobile phone, and at the same time, all those drivers will keep several apps on their mobile phone.
 
B: Drivers will more and more keep several apps and one more point I would add is that you don’t have to be a national app, you don’t have to be operating in every city in China, most of the transportation is local transportation, so you could have an app that only works in Shanghai, and for the purpose of most passengers, it would meet their needs. 
 
 
W: According to our research, Didi differs from Uber just specialized in shared car market, but Didi as a Chinese company, their target is internet entrance gate, starting from shared market , Didi probably will involve more cross border services, what do you think their strategy will conflict with one another after this merger?
 
B: The merger is an interesting merger because the brand Uber is going to continue except that Didi will manage the Uber brand as a separate brand now. Didi and Uber, in an effective combined that assets in China, but now Didi has alliances with other companies in other countries, Uber is very hard to grow, so that will also going to see now is really a competition between two different global strategies. You have Uber on one hand that is trying to operate as the global company in many different countries under the Uber brand; Didi on the other hand, is investing a lot of resources in China and then coordinate with companies in different countries , and that’s going to be very interesting to watch how these two different global model play out, but it is going to be complicated and a kind of curious about how we turns out, because now you have the CEO of Didi on Uber’s board and you have the CEO of Uber on Didi’s board, but at the same time the two companies will compete in some other countries, so they are going to be conflict of interest. I would be surprised what happens over the next couple of years, when they will buy out the stock from each other’s companies and become more independent.
 
W: However, for the financial investment, for the long run, it is good for all their share holders right? Because they enjoy quite a few same share holders on the board.
 
B: Yes. In the short term, of course, both companies have stock in the other company, they also have some common investors, but how long this will continue? It is easy to forget that these companies are only a few years old. In Uber, if we look at the company, it only started in 2009, and the whole concept of platform business, shared economy business is really less than 10 years old. It is only the last three or four years that they really started to get established, so a lot of the rules of how they will be managed, that is really going to change over the next several years. We don’t really have rules of how to regulate these businesses, we don’t really establish rules and laws on how they should be monitored, and I think as the government involves the company strategies, lots have to change.
 
W: It is quite interesting that this time Didi is playing a very important role in the whole global market right?
 
B: Didi is playing a very important role in the global market because the number of drivers and number of riders in China, compared to the number of riders in the world , is a very large number. In China, what is happening is that there are lots of new economy business and apps that are originated in China that are extremely innovative and that are better than anything that are available in the US.
 
W: As a Chinese start-up company, Didi is iow taking this opportunity to enter into worldwide market by having shares in Uber. It’s founder also sits into Uber’s board of Directors. Is it a good example for Chinese companies to go abroad? What kind of companies fits global expansion? What are those requirements for companies to go global? As the Top 15 EMBA professor named by Wall Street Journal, what is your suggestions for Chinese company who would like to adopt global expansion strategy?
 
B: The kind of global expansion strategy that you follow has to be unique to the business that you are in. It has to be unique to the ambition that you have. It has to be unique to the capability that you process, so we can look at Didi on the one hand, or you can look it Haier, at the extreme, which is one of the first Chinese companies to really go internationally and to do very very successfully. What Haier did in its global expansion was correct for the business they involved in, and they went to the US and they developed innovative products; They went to the Europe and they developed innovative products, and they developed products that will not be made by other available from any of the established in European factories. That enabled them to become global and be very effective. They made Haier global brand and they followed quality standards that as good or better than anything that you can buy in the US, so that worked for a company that was selling to consumers. It is the same if you look at Huawei. They formed a global company as well, completely different model from Haier, and they worked with government and large corporations. Now when we start to see that globalization become much more rapidly by companies that are based on information and digitization and platforms, then we see companies, Tecent, Wechat, Alibaba, Taobo, and we also look at something like Didi. This is a very interesting situation because you don’t have to dig fixed assets, equipment, plants, factories, you can globalized much more quickly, and that is the model that Alibaba and Didi demonstrates for China. Chinese entrepreneurs are very innovative. People have a lot of ambition and that is what is most rewarded in the new platform business. You have a good idea, you develop quickly, you bring on users, you create skill, and I think that is the lesson that you take away from Alibaba, Didi and Tecent. 
 
W: Because China enjoys the domestic market, the skill is there, so it probably will create more global companies while those local companies, if they go deeper in Chinese market?
 
B: China becomes a platform on which you can be global ambition in this new economy. China is a large market, it is also a very competitive market. You get a lot of entrepreneurs who compete with each other, they create bases on which you can expand to other countries.
 
W: Early on you mentioned Alibaba. We also have this case that Alibaba buys the share of Yahoo China, would you please compare those two cases, Didi with Uber and Alibaba with Yahoo China , and with Yahoo Global.
 
B: Uber and Yahoo are in two different situations. I guess that’s probably the single biggest difference. In the case of Yahoo, Yahoo stick in Alibaba has been the most valuable asset that enables Yahoo to survive. Yahoo gets from a position of weakness. What is common is that the Chinese side was at one time a small growing entity, over time they become more powerful and richer than the US companies. We don’t know whether it will happen in Didi and Uber, but it’s an interesting story if the story have the same trend as it did with Yahoo and Alibaba, and one time we would see Didi to become more valued than Uber.
 
W: There are quite a lot senior management team members and start-up entrepreneurs in USC-SJTU GEMBA program, what do you think this case benefit the students and alumni?
 
B: Every case in every session that we do in class usually have two goals. The first goal is understand what happened in this business or in this industry, but now let’s talk about what can you do, what do you learn from it, what can you do if you want to create a business. If you work in a business but what does mean for you. Our goal through the program is to use a lot of case studies, but only as a way of stating a conversation. In the end ,what we want people to live with is a way of thinking, so that what they realize is that ultimately it’s only their own imagination and their own ambition that limits what can they achieve. When you put a group of entrepreneurs to get into a room and they beat with each other, what you can do differently in a business, how you can do better and uniquely, that keep generating ideas, ultimately all you need is idea that you can stick with and invest to ultimately transform a business, and that’s what we talk about everyday in class.
 
W: Would you please give us some sentences that what is the most important criteria for young managers or young executives to succeed in this new economy?
 
B: The single most important characteristic is to think about possibilities. Do not start by thinking about what I’m doing today and how can I improve what I’m doing today. As soon as you start with what I’m doing today and how I can do it better, you are limiting your potential. Instead of that, if you start by thinking about an imaging what are the things that are possible to do, that could make a big difference, that will create an impact that will really be meaningful for your society, your living, your community, your business that you are in, and then you think back from there: if that is possible, how can I do something substantial, something meaning in the area, then you start with your imagination instead of being limited by today’s situation, that’s the first to do, to think away that excites you ,and then you figure out the way how to make it happen to connect it into reality. 
 
 
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