What’s Been Happening?
In 2016, Uber did the unthinkable – it conceded defeat in a costly battle that it has been waging for a year with its local rival Didi Chuxing in China. Uber had been reportedly spending $1 billion a year in its effort to compete with Didi whilst the latter was offering driver and passenger subsidies to stay dominant in its home country. Uber Technologies will sell its brand, business and data to Didi. As part of the deal, Uber Technologies and its other shareholders will receive a combined 20% stake in the combined company.
With China settled, the arrangement is seen to benefit Uber in the long run as it cuts its losses in China and focuses on other opportunities such as gaining market share in other countries in Southeast Asia, India and America.
Grab, the ride-hailing company competing with Uber in Southeast Asia has successfully raised $2 billion in new financing from existing investors Didi Chuxing and SoftBank. Grab operates in 36 cities across seven countries in Southeast Asia where it claims to have 50 million downloads from users and 1.1 million drivers on its platform.
This spells trouble for Uber as they had previously lost the battle against competitor-turned-partner Didi in China. Uber only began to see profits shortly before its exit from China last year, approximately three years after it entered the region via Singapore.
In a bid to establish a stronger foothold in Southeast Asia’s ride hailing market, Grab is likely to use the new financing to further develop a mobile payments platform as Grab sees the revenue growth as being “stuck” due to the country’s outdated banking system.
Uber is under increasing pressure from strong challengers such as Grab in the South East region. By providing financial support to Didi, Grab will inevitably further hurt Uber’s expansions, forcing it to leave Southeast Asia too, rather than burning more cash. Although Grab entered the market as a challenger rather than the first mover, they have been growing at a much faster rate than Uber due to its excellent knowledge and adaptation of local customs.
Some examples are:
- Subsidizing internet and smartphones for economically disadvantaged drivers
- Allowing cash payments from customers rather than card payments
Despite the growing list of problems at home and abroad in Southeast Asia, a rumour is circulating that SoftBank is looking to take a multi-billion dollar stake in Uber as it tries to acquire a wider share of the Southeast Asian ride-hailing market. If this holds true and takes place, it may be a much needed silver lining for Uber to continue its operations and expansion plans in the region.