Asian e-commerce has been a tough nut to crack for Western companies. The Chinese market has significant regulatory limitations, and it can be difficult to cater to local tastes in other markets around Southeast Asia and East Asia. But there is much to be gained since these markets (China in particular) are some of the fastest-growing e-commerce opportunities in the world.
Uber's experience in China shows just how hard it can be. After spending billions of dollars in establishing a foothold, the company still couldn't win against local ridesharing favorite Didi Chuxing. Uber ended up selling its Chinese business in exchange for equity in Didi in an admission of defeat.
Booking Holdings (NASDAQ:BKNG) has taken a somewhat different approach in Asia and has achieved a surprising level of success. Here's how they did it.
A partnership model
There were several directions Booking could have gone to establish its presence in Asian markets, but the company has chosen to partner with local e-commerce leaders. Booking's partnerships have involved making equity investments in exchange for access to a large user base.
Booking's Chinese partnerships with Ctrip (NASDAQ:TCOM), Meituan-Dianping (OTC:MPNGF), and Didi Chuxing are likely as much about avoiding the burden of Chinese legal issues with accessing China's population of over 1 billion. The partnership with Singapore-based Grab gives Booking access to users across Indonesia, the Philippines, Thailand, Vietnam, as well as other areas.
|Partners||Established||Company description||Partnership description|
|Ctrip||2012||China's top online travel booking website||Booking bought Ctrip stock. Ctrip uses Booking for outbound international travel.|
|Meituan Dianping||2017||One of China's largest platforms for food delivery, shopping, travel||Booking bought $450 million in Maituan Diaping stock. Meituan lets users book hotels on Booking from the Meituan platform.|
|Didi Chuxing||2018||Ride-hailing in China, Taiwan, Mexico, Australia, Brazil, and Japan||Booking invested $500 million in Didi stock. Didi enables users to book hotels on Booking from the Didi platform.|
|Grab||2018||Ridesharing in Southeast Asia||Booking bought $200 million of stock in Grab, which lets users book hotels on Booking from the Grab platform.|
What's in it for the Asian platforms? More options for users. While Ctrip and Meituan-Dianping have many travel options for domestic hotels and flights in China, they lack Booking.com's deep inventory of international travel options in greater Asia and around the world. And providing more features (such as travel) makes the online platforms more valuable to the users -- creating a win-win proposition for Booking and its Asian partners.
In addition to drumming up more business for Booking, the partnerships have provided some nice gains on its equity investments. In Booking's annual report, it notes an unrealized gain of over $400 million on its Ctrip investment. The company's $450 million investment in Meituan-Dianping is now worth about $1 billion -- a cool 120% return in just one year.
Didi Chuxing and Grab are not yet public, so it's hard to determine if Booking has made money on these investments, but there is a good chance it will come out with nice gains. Both ridesharing companies have strong market positions and are still growing.
Booking's equity investments in its Asian partners were as strategic as they were financial. One of the nice things about this arrangement is that the company has multiple ways to win.
Lots and lots of growth
By all accounts, the Asian market for booking online travel is growing really fast. In 2018, more than 130 million Chinese residents traveled internationally. This is just a small fraction of the global market for travel booking today, but Chinese international travel is expected to become a large portion of total travel by 2050. Booking also has a nice "call option" on Southeast Asian travel through its partnership with Grab and its ownership of Asian travel booking website Agoda.com.
This all spells lots of growth for Booking coming out of Asia. The company's partnership approach has enabled it to establish a strong presence in the region that should benefit it for years to come.