The rise and rise of ride hailing in Southeast Asia

Southeast Asia is a market of over 650 million people and its ride hailing sector is expected to be worth about USD20 billion by 2025. The industry is expanding to food and logistics and its rapid growth in the region is evident, but the pertinent question is: how can it grow sustainably?

With Grab’s acquisition of Uber’s Southeast Asian operations in March this year, the former emerged as Southeast Asia’s leading ride-hailing platform: operating in 200 cities across 8 countries. The Singapore-based company, founded in 2012, is currently valued at around USD10 billion with leading investors like Toyota, Hyundai and Didi Chuxing. Yet despite Uber’s retreat, Grab still faces competition from local startups, most notably Indonesia’s Go-Jek.

In the Philippines, Grab controls over 90% of the ride hailing market but struggles to keep up with the overwhelming demand. This gap presents an opportunity for local companies like iPARA Technologies and Solutions Inc, who launched the ride hailing app OWTO, and Hype Transportation Systems to tap into the market. The two companies have recently been approved by regulators.

Similarly, Vietnam’s Vivu and most recently, Aber, along with Malaysia’s MyCar, are quickly working to fill the competition gaps left behind by Uber. Vivu has recently received a USD10 million investment from the Vietnamese transport company, Phuong Trang, while in a mere two months following its launch in February 2018, MyCar reported about 57,000 registered drivers and 5000 riders.

Go-Jek, however, commands 50% of the ride hailing services in Indonesia – a pivotal market in the region – and is backed by investors like Tencent, JD.com and more recently, Google. The company has furthermore announced plans to expand into Vietnam and Philippines, presenting an even greater threat to Grab’s current regional dominance. Indonesia is thus a proxy battleground between Grab and Go-Jek.

Ride-hailing has brought undeniable benefits to Southeast Asia: it has created employment opportunities, increased access to mobility and made transportation more efficient. But its repercussions, too, have not gone unnoticed. Since the arrival of ride hailing, the taxi industry has declined sharply, and violent protests have broken out in response.

In Indonesia, for example, thousands of taxi drivers took to the streets in Jakarta in March 2016 to protest against transport apps like Grab and Go-Jek for making traditional taxi services unprofitable. Additionally, revenues for PT Blue Bird and PT Express Transindo Utama, two Indonesian taxi companies, declined by 32% and 48% respectively in 2017. More recently, worries of Grab’s virtual monopoly have emerged in response to customer complaints of increasing prices and decreasing quality.

Governments are consequentially imposing regulations to create a more level playing field and subject ride hailing drivers to stricter requirements. In Malaysia, there are plans to require ride hailing drivers to obtain a public service vehicle license, just like taxi drivers. Similarly, in Vietnam, a draft decree is in the works which would require ride hailing apps to register for licenses as enterprises doing electronic businesses.

There is a risk, however, that subjecting ride hailing companies to the same regulations as taxi companies will restrict innovation and progress. A report by McKinsey outlined that smart solutions like ride hailing can contribute significantly to a reduction in living costs and emissions in Southeast Asia. However, the public and private sector need to cooperate and strike a balance between economic efficiency and market regulation.

Southeast Asia is a cash-based economy, with 1.5% of the region’s total GDP spent on transacting and printing money. Grab’s recent announcement that it would advance its FinTech and encourage e-payments could therefore lower transaction costs for customers and contribute to a more efficient, cashless economy.

Furthermore, the Grab NUS AI lab plans to share its findings on traffic patterns with governments to help the region ameliorate its problem of urban congestion. Developments like these are examples of how the two sectors can work together to foster innovation that will benefit the region’s economy, standard of living and resistance to climate change.

During the 32nd ASEAN summit, countries committed to smart cities and sustainable development.  In that sense, if handled correctly, the ride hailing industry has the potential to catapult Southeast Asia into an exemplar for smart and sustainable cities and development.

 

Martina Chow is an undergraduate student from Malaysia studying Politics and International Relations at the London School of Economics and Political Science.

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