Uber to Sell China Business to Didi — Thoughts on Startup International Expansion

About 11 hours ago I saw Bloomberg broke the news on Uber selling their China business to Didi after losing billions in that competitive market. It got me thinking, why didn’t Uber evaluate the possibility of a joint venture/franchising model with a strategic Chinese partner early in the process to help itself not only to localize, but also to navigate the difficult business environment?

In a scenario of a 60/40 Joint Venture model, for every $1 burnt Uber can reduce the lost to $0.6. Even more drastically, in a franchising model, a royalty deal can be negotiated to collect a % of the gross sales revenue to virtually reducing the financial loss to $0. It may sound crazy to think about leveraging joint venture or franchising models for startups when it comes to international expansion. But why should it?

The joint venture/franchising model has long been adopted by fast food companies when they think about how to localize their offering and adapt existing products to appeal to consumers in different markets. And oftentimes, it requires a complete rethink of the business model from the ground up. With over 5,000 outlets in China, KFC is one of the most successful western brands. In 1987 the first KFC restaurant in Beijing, and was a joint-venture between KFC (60% stake), Beijing Tourist Bureau (27%) and Beijing Food Production (13%). Fast forward to 2016, you can even find Chinese street foods such as shaobing (燒餅) and youtiao (油條) in its chains.

Maybe it is time for American startups to rethink international expansion not purely as plug and play, it requires jiediqi (接地氣). Taking a page from the old playbook may not be the worst option.

Here’s what I am expecting to see shifting in the tech ecosystem, especially for companies thinking about expanding in China:

• Global alliances — like what the airlines did to provide seamless hand-off of customers, instead of directly challenging market incumbents (for service based companies)
• Risk mitigation — in forms of majority owned joint ventures with strategic partnerts or simply exporting brand and platform to foreign franchisees
• Talent — increasing emphasis on recruiting employees who grew up as third culture kids (like myself) early on, if not as a core member of the founding team to prepare the company from the start

As markets starting to become more globally, startups have to think globally as well.

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