25 September 2018
Dianping is merging with rival online-to-offline service provider Meituan to create an entity worth about US$15 billion.
Dianping is merging with rival online-to-offline service provider Meituan to create an entity worth about US$15 billion.

Why change is the only constant in business

On a trip to Hong Kong recently, a Chinese businessman was stunned by he said was the apparent contrast in internet-related consumer businesses between mainland cities and Hong Kong.

Consumers can find some group buying discounts for dining in Hong Kong. However, there are various restrictions on the coupons. The coupons, in some cases, can only be used during off-peak hours or have restrictions on the size of the food portions or servings.

And consumers have to print the coupons in advance. Some hot deals are sold out quickly, while the less popular ones may fail to gather enough buyers.

But in the mainland, the situation is different, says the Chinese businessman, a person surnamed Huang.

He says he usually searches for coupons at popular sites like Dianping or Meituan, and most of the time he can easily find coupons for most restaurants.

Also, diners can use the coupons with much less hassle. For example, they can pay 80 yuan for a coupon worth 100 yuan through Alipay or Weixin Payment. They don’t need to spend a lot of time in searching for and printing the coupons, and there is also no pressure of an imminent expiry date for the coupons.

The merger of Chinese group-buying services Dianping and Meituan could create a company worth US$15 billion. The two companies account for nearly 80 percent of group buying services in the market.

Alipay, backed by Taobao, is a key payment tool for online shoppers. Meanwhile, Weixin Payment leverages the popular instant messaging app Wechat. Friends can easily split a dinner bill using Weixin Payment.

Investors have once been fascinated by the rosy prospect of mainland banks. However, banks currently have a P/B ratio of below 1, while internet firms usually have a P/B ratio of 8-10 times. Online banking business could become a big drag for valuation of the internet companies.

The hidden gem is actually in third-party payment system. Paypal is now worth around US$40 billion. Who will become the Chinese version of Paypal?

On the mainland, daily goods are just at the fingertips. Taobao and Tmall have snapped up a lion’s share of the online shopping market. Meanwhile, Jingdong Mall (JD), which is relatively less known to Hongkongers, is also worth nearly US$40 billion.

Taobao has a great concentration of small vendors, and they usually offer products at different quality, price and delivery speed. But too many choices could be a problem sometimes.

By contrast, JD is able to gain ground as it operates its own logistics and offers guarantee for product quality. The self-operated logistics service ensures much quicker delivery.

Another online business segment that has been in the news in China in the recent past is ride-hailing services, where a fierce war is brewing among three players — Didikaudi, Uber and CAR Inc.

Over the last decade, internet leaders in the US like Microsoft and Yahoo have been overtaken by nimbler rivals such as Apple.

The same thing would apply to firms in this part of the world. If Hong Kong thinks it will continue to have a lead over the mainland, it may be mistaken.

Markets always move ahead, and investors should move along too.

This article appeared in the Hong Kong Economic Journal on Oct. 14.

Translation by Julie Zhu

[Chinese version中文版]

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Columnist at the Hong Kong Economic Journal

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