Foreign internet firms find Chinese market hard to crack

In this picture taken on Aug 16, 2016, delivery men sit on steps as they watch their smartphones, whilst another man rests on his scooter in Beijing. (STR / AFP)

NEW YORK - In a recent move, Uber decided to end its lone fight in China, and merge its China unit with its bitter rival Didi Chuxing, a Beijing-based transportation network company, after investing about US$2 billion in the market in less than two years.

"Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there," said Travis Kalanick, CEO and Co-Founder of Uber on the company's official website.

Though hailed as one of the world's most valuable startups, Uber, the San Francisco-headquarted American multinational online transportation network company, had trouble developing business in China, the world's largest car-sharing market.

In less than two years, Uber won 17 percent of the Chinese market share, while Didi Chuxing controlled 70 percent of the local market.

By this merge, investors in UberChina unit will own 20 percent of Didi; while Didi will invest 1 billion dollars in Uber.

"This is a win-win situation," says Li Xiaoxi, Portfolio Manager at Principal Global Investors Funds. "Merger could be the best option for Uber to advance in and benefit from the Chinese market."

Uber is not the first western internet company not to succeed in China. Yahoo had attempted to enter China and it was unsuccessful, eBay did the same, and there's also WhatsApp. Popular as they are at home, when playing away game in China, most of these companies are dwarfed by their Chinese rivals.

Why foreign startups can't crack the Chinese market? The reasons behind this phenomenon are complex.