Chinese ride-hailing company, DiDi Chuxing has started operations in South Africa’s ride-hailing space.
This marks its first expansion into Africa and its 17th active country across the globe. The company had earlier launched in Russia, Japan, Australia, and several South American markets in the last few years.
Founded in 2012, Didi Chuxing now has over 550 million users and tens of millions of drivers across several continents. The company has raised over $20 billion and crossed the $60 billion valuation in 2018.
DiDi’s latest expansion drive could be geared toward increasing its valuation for a potential mega-IPO of $100 billion, as reported by Reuters.
Didi enters in SA
The expansion follows the successful pilot launch of its operation in Gqeberha, South Africa, on 1 March. In less than a month, more than 2,000 drivers and over 20,000 local residents have already signed up with DiDi, according to BI.
DiDi’s Senior Vice President and Head of International Business, Stephen Zhu says the company is providing better earning opportunities for drivers as well as safer and more affordable mobility options for everyone.
“South Africa has been hit particularly hard by this pandemic that has upended all of our lives – so as this beautiful country looks to recover and rebuild, we would like to do our part, to be a partner in building back better by providing better earning opportunities for drivers as well as safer and more affordable mobility options for everyone.”
Stephen Zhu, senior vice president and head of DiDi’s International Business
With its launch in the South African market, the Beijing based company will be taking on established rides-sharing competitors including Uber and Bolt.
According to data from App Annie, Uber has roughly 5.3 million users in South Africa compared to Taxify’s 2.1 million.
This means Uber dominates the market with an estimated 71%, followed by Taxify with 28%.
DiDi Vs Uber vs Bolt; different companies, not-so-different models
DiDi’s launch into the South African market isn’t the first time the ride-hailing company has competed with Uber or Bolt.
Uber’s competition with the company started as far back as 2014 when it launched in China. Then, their competition led to rounds of subsidy wars that saw Uber push against DiDi’s dominance in the market.
However, Uber later succumbed to superior firepower and bowed out of the Market in 2016, selling its business in the country to DiDi.
Even now, DiDi still favour’s its cheap and discount model even though it burns through money and guarantees lower profits. This is because the model has significantly helped grow its user base and gain market dominance in several markets.
Looking at the 0% commission it offered drivers in SA post-launch, it’s probably the same model it’s going to push against Uber and Bolt’s dominance in the market.
In comparison, Uber and Bolt also offer discounts. However, Bolt offers more discounts than Uber, according to riders. Bolt could give between 10-30% discount while Uber gives between 10-25%.
However, if DiDi starts with even larger discounts, it could lead to a subsidy war that would probably be determined by how deep the pockets run. Notably, of the three, Bolt has the lowest valuation at $1.9 billion.
Commission Battle
Asides from pricing, the percentage commission the ride-hailing companies offer is instrumental in attracting drivers. This is because drivers naturally go for the company that makes them more revenue.
In South Africa, Uber takes 25% commission per trip while Taxify only takes 15%. However, Uber reportedly offers additional incentives such as fuel rebates, cell phone packages, and health care to drivers.
Although it’s still not clear what percentage of commission DiDi offers, it’s possible that it may be around that was offered to drivers in Mexico or even lower to match Bolt percentage.
This could be a major edge for them to win over drivers who are no longer satisfied with Uber services.
After the success of Uber driver employment claims in the UK, SA drivers are also filing a similar class-action suit against the ride-hailing company in the country.
Regulatory woes
Although the South African market is a relatively stable environment compared to other countries on the continent, the Beijing based company won’t be exempt from regulatory challenges from the government.
Uber and Bolt have been able to find their feet despite the government pushing to protect traditional metered taxis in the country. Didi will have to do the same if it wants to have any significant market share.
Summary
With its touchdown in South Africa, DiDi has spread its footprint all over the world either by expansion or investments.
While its success in SA is yet to be seen, the growth rate of its model shows a high probability of success.
However, the driver classification issues that ride-hailing pioneer, Uber is having in the market could also potentially affect the company. This is because, in the baseline, all the ride-hailing models are operating the same on-demand ride-hailing model that seems to be evolving.
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