Ctrip: Airbnb's real threat - Jeffrey Towson

Jeffrey Towson

Airbnb has a chance in China, unlike many other US companies in the past, argued Beida business professor Jeffrey Towson earlier in the Guardian. On his weblog he gives the US company six additional advises, including marrying into Tencent and Alibaba. Also, Airbnb's real threat it the travel company Ctrip.

Jeffrey Towson:

Airbnb should worry about Ctrip. This is their biggest threat. 

In September, Airbnb announced it has had “a 500% increase in outbound travel from China in just the past year.” They also said “since 2008, there [has] been over 2 million guest arrivals from China at Airbnb listings worldwide.” These numbers strike me as pretty suspect (if you have good numbers in 2016, you don’t point all the way back to 2008). But let’s assume they have some decent adoption in China today. 

As mentioned, there is no chicken-and-egg problem for Airbnb cross-border. They already have an international network of apartments and guests. And, most importantly, they already have many of the strengths I mentioned in Part 1: a network effect, economies of scale in operations and marketing, a full suite of features and services, an ability to bundle services, and an ability to subsidize across their MSP. 

I don’t think Chinese competitors can compete with them internationally in home-sharing. It is very difficult to launch an international two-sided network in general. But to do so against an entrenched incumbent is next to impossible. So I think Tujia and Xiaozhu on their own have very little chance against Airbnb outside of China. However, Ctrip is a serious competitor internationally. They are making moves in this area (i.e., their recent acquisition of UK-based Skyscanner). They also are the largest investor in Tujia. 

Ctrip should worry Airbnb. My next article on the US-China platform wars is about Ctrip vs. Expedia internationally.

Five more tips for Airbnb at Jeffrey Towson's weblog.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more strategic experts at the China Speakers Bureau? Do check out his list.    

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Why did Expedia and Morgan Stanley fail in China - Jeffrey Towson

Jeffrey Towson

Failing foreign companies are all too common in China. Peking University business professor Jeffrey Towson dives into two specific cases, trying to learn from the mistakes by Expedia and Morgan Stanley, at his LinkedIn page.

Jeffrey Towson:

It all looked pretty good. So why in 2015 did they sell their entire eLong stake for $671M? Why after almost ten years of work did they exit China? What happened? 

My assessment is that they got tired of losing money. eLong was frequently losing money and impacting Expedia's overall returns. In the most recent quarters before Expedia's exit, eLong was still occasionally losing around $20M per quarter. 

This is an example of the situation I call "last man standing". Competitors ramp up spending on capacity or price subsidies and everyone loses money. The market then becomes a contest of who is willing and able to lose the most cash. In the end, whoever is "left standing" gets the market. Uber and Didi recently had this situation. It can be a particularly effective strategy against foreign companies. 

So even though Expedia won big in China, becoming one of the three major players. They were still losing cash after ten years of work. And they eventually cut their losses. They sold their stake in eLong, much of which was then quickly purchased by ctrip. 

Morgan Stanley and CICC: A case of "what have you done for me lately?" 

CICC (China International Capital Corp) was launched in 1995 as a joint venture between Morgan Stanley and China Construction Bank (i.e., People's Construction Bank of China). For Morgan Stanley, this was their single largest investment in an emerging market to date ($35M for 34.3% ownership). And it was their primary strategy for becoming a player in China's domestic capital market. 

And the enterprise was very successful. CICC has gone from the 40 employees at launch to over 4,200 employees today. Revenues in 2015 were over 8B RMB. 

However, Morgan Stanley sold its stake in CICC in 2011 - and had been trying to sell as early as 2008. There are various reasons for this, including the financial crisis and dealing with limits on how many banks / JVs a foreign company can have in this sector. But underneath this was also the fact that CICC was no longer an operational vehicle for Morgan Stanley in China. It had become a passive investment. 

So what happened? 

My standard question for any company in China is "what is your advantage or value-add?". Good answers to this can be technology, foreign customers, a well-known brand, and cross-border operations. But my follow-up question is always "and how long will this advantage or value add last?". This is the question that often catches companies.

More at Jeffrey Towson´s LinkedIn page.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts to deal with your China risks? Do check out this list.  

Chinese brands moving up the value chain - Shaun Rein

Shaun Rein   by Fantake via Flickr

Chinese brands might have been competing on prices and distribution in 2005, in 2010 they are moving up in the value chain and worry Western brands, writes Shaun Rein in Forbes. Quality and image-building have entered China's board rooms.

Look at Google. Our research suggests that Google failed in China in large part because consumers believed that Baidu had far better Chinese-language search capabilities, not just because of an unfair playing field. In head-to-head search comparisons we conducted, Baidu's results weren't necessarily much better than Google's, but its branding as the site that knows Chinese better than Google and that has technology as good has helped it dominate. Unused to serious local competition, Google was slow to roll out local services and marketing campaigns that would resonate with Chinese consumers. Similarly, Ctrip, an online travel site, is beating up Expedia, and Taobao, the online auction site, remains far ahead of eBay. They are better branded, and they fit the needs of local consumers better.

 More trends multinational companies have to watch out for in China in Forbes: rising labor costs and the new focus on domestic consumption.

Commercial
Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

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