Uber finds it needs a local in the driving seat
CORPORATE hubris is a funny old thing. CEOs always think they can do it better than the other guy, but often repeat their mistakes. Discovery raced into US insurance as that country was devouring the globalisation dreams of Old Mutual and Sage. A bit like car-sharing service Uber did this week, it bailed on its plan before serious damage was done.
Sadly for Sage, once a top-flight South African insurance company, it no longer exists. Discovery does. It pulled the plug on Destiny Health after it lost R1-billion, but rather than give up on its global aspirations, it approached the strategy differently. Since then we have seen it expanding globally using the Vitality programme. It partners with big players in rapidly growing markets and allows them to use Vitality as an incentive on top of existing products. Why compete when you can probably make more money being co-operative?
All Uber had to do was some research on Naspers to realise that flying solo in China is a high-risk activity.
Uber Technologies said this week that it was selling its China operations to its fiercest rival in that country, rather than engage in an expensive price war that has so far cost it $2-billion (about R28-billion). Instead, it will take a minority stake in Didi Chuxing, the dominant rival. Didi, in turn, will invest in Uber and the respective CEOs will sit on the other’s global board.
It took them two years to figure out the adage that sometimes it’s best to keep your friends close and your enemies closer. For Uber, China was an expensive distraction from other markets and is thought to be a key reason that it has not yet listed.
This is great for Naspers shareholders. Naspers owns just over a third of Tencent, one of China’s biggest and fastest-growing internet companies. Tencent was an investor in a rival Chinese ridesharing service called Kuaidi, which last year merged with Alibababacked Didi. So now Naspers, via Tencent, is a shareholder, albeit small and indirect, in China’s biggest commuter business.
It could so easily have worked out very differently.
Naspers made its first speculative investment in Tencent in 2001. It paid $32-million then for a 46.5% stake. That was diluted to a little more than a third when Tencent listed in Hong Kong 12 years ago. It may seem like chump change today, but then it was a big bet on an unknown entity.
Where previously Naspers had sought management control of its investments, the Tencent experience showed there was a significant downside to rushing into a new market and shouting the odds. That stake is now worth more than 2 000 times what Naspers paid for it.
Before going the partnership route, Naspers, like Uber, had tried to go it alone. Late Naspers executive Antonie Roux once told The Washington Post the firm had burnt through $100-million trying to make its mark in China. Rather than barnstorming local entrepreneurs like it had when it entered China, Naspers was happy to be a minority shareholder with a seat on the board. It had the good sense to leave the management and growth up to local business leaders. This has become a preferred model for the company.
Sometimes it’s useful to learn from others’ experiences and not seek to reinvent the wheel.
On the subject of failing to learn from the past, I bumped into independent economist Roelof Botha this week. He was uncomplimentary about the Reserve Bank’s handling of interest rates and says it’s a prisoner to inflation expectations. Botha makes a compelling case. He has charted currency blowouts and their trajectory with inflation. He believes that inflation surprises on the downside as the currency strengthens, based on the fact that inflation data is backward looking, relying on 12-month-old information. So the base for inflation remains unrealistically high until the benefits of a strengthening currency can be factored in. He may be right, and the short-term health of the rand depends now on how the ANC responds to the election results.
This column was partly written from the back of an Uber . . .