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| Jeffrey Towson |
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.
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