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[Analytics] Can Indonesia’s Go-Jek loosen Grab’s grip on Southeast Asia?

A GrabBike driver in Jakarta, Indonesia. Photo: AP

Pan Pacific Agency | COMMUICATION AGENCY FOR PACIFICA REGIONS

Indonesia’s ride-hailing giant Go-Jek is pulling out all the stops in its battle with rival Grab to dominate the Southeast Asian market. Resty Woro Yuniar specially for the South China Mornong Post.

Fresh from a regional expansion drive that saw the launch of its app in Thailand, Vietnam and Singapore last year, the company last week closed a first round of fundraising in which investors including Google, Tencent, JD.com and Mitsubishi are said to have given it an extra US$1 billion dollars to play with. That’s a tidy sum for a firm already valued at US$10 billion.

The company said the funds would be used to deepen its market penetration in Indonesia and strengthen its presence regionally, following the introduction of its services Go-Jek in Singapore, Go-Viet in Vietnam and Get in Thailand.

In particular, the funds will help it manoeuvre in its two-horse race with Singapore-based Grab in the Southeast Asian market, which could be worth US$31 billion by 2025 (up from US$8 billion last year) according to a joint report by Google and Singapore’s state investment fund Temasek.

Go-Jek is a household name in Indonesia, but not in Southeast Asia, where Grab has the first-mover advantage. Grab, which acquired Uber’s Southeast Asia business last year and was last valued at $11 billion, has more than 8.5 million drivers and merchant partners across the region; Go-Jek has 2.4 million drivers and merchants.

The pair have been battling it out in Indonesia, where both companies first launched their motorcycle-taxi hailing apps in early 2015, a few months after Uber entered the country. The popularity of these services in congested cities drove investment into both companies. Since Grab was founded in 2012, it has raised more than US$7 billion from investors such as SoftBank and Toyota, while Go-Jek has raised more than US$3 billion.

But if Grab is ahead on the funding stakes, its merger with Uber may inadvertently have helped Go-Jek’s push into new markets, particularly Singapore.

The city state’s competition watchdog ruled last year that the merger was “anti-competitive”, fined the company S$13 million and told it to end its exclusive partnership with taxi operators. A Grab spokesperson said the fine had been paid and it would not appeal the decision. Grab has also been fined 16 million pesos (more than US$305,000) by the Philippine competition watchdog over its merger with Uber.

The measures in Singapore could be lifted if another ride-hailing firm obtains a third of the market share. If Go-Jek manages to do this, analysts say a price war is likely. During its beta launch in Singapore in November, Go-Jek undercut Grab’s fares and promotions.

“I think promotions and low fares are the only way to expand in Singapore. There have been several small ride-hailing entrants coming into Singapore since Grab and Uber entered. All have failed to acquire meaningful market share,” said Walter Theseira, transport economist at the Singapore University of Social Sciences. “Basically, none of the small entrants had enough money to use on promotions and discount strategies, so the Singapore market basically ignored them.”

Users in Singapore have welcomed the aggressive pricing strategy, with some complaining that Grab had hiked fees since Uber pulled out.

“I’ve been using Go-Jek since they started and it’s great to have two different ride-sharing apps now. Users can compare prices and not [be forced to] accept Grab’s exorbitant fares,” said Singaporean Ekta Kalwani, 26, a consultant in the relocation industry who uses ride-sharing services on weekends.

“Grab has been quite frustrating and I think users are happy with Go-Jek’s arrival.”

But while promotions and cheap fares could help Go-Jek get its foot in the door in new markets, analysts warn the strategy is not sustainable. Among the reasons Uber left the region were the losses it sustained in its price war with Grab and Go-Jek.

“Go-Jek obviously is selling rides at below cost right now, so they are already engaged in discount pricing. That said, because everyone now has personal experience of how wasteful sustained low prices are, I expect [Go-Jek and Grab] are trying to restrain themselves,” the economist Theseira said.

“But that has to be balanced against the need to expand, for Go-Jek, and the need to demonstrate that they remain dominant in the market. The real competition is for investors, and the investors will shy away from a company that shows it cannot be a top player in the market.”

Go-Jek is also aggressively expanding into Vietnam, where it claims to have gained 40 per cent of the two-wheeled ride-hailing market since its launch in August.

Its entry in the country comes as Grab becomes bogged down in a legal case against local taxi firm Vietnam Sun Corp, or Vinasun. In December, a Vietnamese court ordered the firm to pay 4.8 billion dong (US$200,000) to compensate Vinasun on the grounds that Grab’s popularity meant Vinasun was making a loss from idling taxis.

Grab appealed the decision last month. It is also threatening Vinasun with a defamation suit if it doesn’t retract accusations of unfair business practices.

Legal cases against Grab in Vietnam could mount as the Vietnam Competition Council has ordered the country’s antitrust regulator to further probe the merger with Uber, to see if it broke local rules by failing to notify the competition watchdog and by controlling over half of the market in Vietnam. Grab denies any wrongdoing.

“To date, we have fully cooperated with the competition authorities in their investigations. Grab proceeded with the transaction in the good faith belief that there is no breach of competition laws after diligent consultation with legal counsel,” Grab spokesperson Melanie Lee said. “The key point of contention may lie in the difference in the authorities’ and our definitions of relevant market and what constitutes a competitive playing field.”

Go-Viet, Go-Jek’s service in Vietnam, currently offers only motorcycle-taxi hailing, courier and food delivery services, but the company also plans to offer car-hailing and its payment service GoPay in the next few months.

Meanwhile in Thailand, Go-Jek, or Get as it’s known locally, has introduced its two-wheeler ride-hailing and delivery services in 14 areas across Bangkok. It is also preparing to launch in the Philippines, where it looks likely to expand its GoPay services, having acquired local financial service firm Coins.ph.

“We see a huge opportunity in the Philippines to improve access to financial services, particularly among the unbanked,” says Darragh Ooi, senior vice-president of communications at Go-Jek. “We see a great deal of synergy between Coins.ph and GoPay as both businesses were founded on a shared mission to improve lives and enhance financial inclusion.”

Go-Jek’s expansion will be far from plain sailing. In the Philippines, the Land Transportation Franchising and Regulatory Board denied its application to operate, saying the firm violates a local law that requires at least 60 per cent of any public utility franchise to be owned by Filipinos. Most of Go-Jek’s Philippine business is now owned by Singapore-based Velox Southeast Asia Holdings. Go-Jek says it has filed a motion for reconsideration.

In Vietnam, The Saigon Times reported that some drivers with Go-Viet had quit as the company implemented a commission rate of 20 per cent (it was initially zero). In Singapore, riders have complained about difficulties in getting a ride during peak hours and being cheated by drivers who accept a booking but fail to show up.

As Go-Jek is still a relatively new player in Southeast Asia, the company is still fine-tuning its products for the new market. As it does so, investors and stakeholders will be closely monitoring it for regulatory compliance, particularly if it goes beyond ride-sharing to introduce services such as GoPay. “Our expansion strategy involves analysing the needs of each local market, and payments is a core part of how we believe we can deliver value in each of these markets,” Ooi said. “As each country is very different, we are working with local stakeholders to identify the best way forward.”

For now, Go-Jek is focusing on launching ride-hailing, small parcel, and food delivery services in Southeast Asia. Analysts say that could be a smart strategy, as transport markets are close to saturation, especially in developed countries like Singapore.

“The remaining areas of growth are in service delivery and e-payments. I therefore expect more attention in these areas going forward, because the companies can deliver more interesting growth stories for investors than the ride-hailing story, where investors are increasingly sceptical that the service can grow further and sustainably earn high profits,” said economist Theseira.

Some analysts expect another high-profile merger could be on the horizon, especially if there is a price war.

“The markets, given how competition is on price, may not be able to sustain two large players, because of the tendency that those large players have to compete aggressively. One stable market outcome might be for the weaker player to be bought out by the larger one,” Theseira said. “That is, I expect the Grab and Uber dynamic to play out again, but it’s unclear who will buy whom.”

But Grab is adamant there is plenty of room for growth in the ride-hailing market. “[Ride-hailing] still serves a small percentage of commuters. It has improved the taxi services and added another point-to-point option, however there are still not enough options in-between the mass transit services and taxis and private hire cars,” a Grab spokesperson said. “As the region strives to be more car-lite, commuters must also be able to choose between these different travelling options, from both public and private operators, and combine and switch among them seamlessly when required. This is the vision Grab has, and we are building towards it.”

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