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For the major U.S. tech firms clamoring to grow in China, Uber’s effective exit this morning sent a clear message: Easier said than done.
Uber sold its China business to rival Didi Chuxing, a retrenchment in the world’s largest market, where it plowed in over $2 billion, and an admission that it can deploy funds in better ways than competing there.
That’s a troubling sign for its Silicon Valley peers — both those operating in mainland China but grappling for a stronger footing (like Apple) and those plotting expansions in the country (like Google, Facebook and Netflix).
But it’s a promising sign for India, the second-biggest ballooning Asian market. If U.S. tech is stymied in China, it may send more dollars south in the search for global growth.
And China is stymieing of late. Unlike Uber, which, as a ride-hailing company, was able to expand in China within legally gray territory, internet companies must comply with the nation’s stringent government restrictions. That is too steep a wall to climb, said Bill Bishop, a longtime China observer who operates the newsletter Sinocism.
“I would put the odds of Google/Netflix/Facebook being able to build a China business in the current environment lower than the odds that Jill Stein wins the presidential election,” he said, referring to the long-shot Green Party candidate.
Others noted that Apple is the only U.S. tech behemoth with a shot in the market.
The Great Wall of China ... Zuckerberg learns Chinese meant zilch, google leaves in 2010, Uber sells, only Apple left ...
— howardlindzon (@howardlindzon) August 1, 2016
Even Apple’s outlook isn’t sunny. Sales in China fell 33 percent last quarter. CEO Tim Cook, on the earnings call, assigned this drop to a currency downturn.
But Cook was much more bullish on India. “We see huge potential for that vibrant country,” he said.
Albeit much smaller than China, India lacks China’s fierce homegrown tech competitors. That explains why India is such a focal point for Apple and the web giants.
Despite operating in China for more than a decade, Amazon is mostly an afterthought there, dwarfed by both Alibaba and JD.com. That failure helps explain why Jeff Bezos is so obsessed with winning in India, where he has promised $5 billion of investments in just three years since Amazon India launched.
Uber’s retreat from China also underscores how treacherous the market can be. Rumors swirled that Google would be returning parts of its business to China this year, and the company has spoken publicly about the nation’s draw. But nada yet.
Facebook has been trying to get into China for years, but has not yet found a way to work with or around the government’s tight restrictions. (Its efforts in India also hit some very unexpected resistance.) Some execs at the social network even blame Google for scorching the path with its own ugly exit six years ago.
The bigger question may not be if the companies can return, but: So what if they do? Local giants like Tencent, Alibaba and Baidu might, like Didi, prove too dominant.
While rivals and regulations are the biggest hurdles in China, a lagging consumer market — and the dearth of internet access that comes with it — is the gating factor in India. Still, India’s hurdles might be smaller in comparison.
Logically, that would dampen the appeal of China’s market.
Of course, the temptation remains.
“[A]s an entrepreneur,” Uber CEO Travis Kalanick wrote in his memo about the Didi deal and his efforts in China, “you’d be crazy not to try.”
This article originally appeared on Recode.net.
