|Grab’s reach has exploded in the last two years with moves into food delivery and more, photo Le Toan |
Grab had told its major investors that Gojek wanted a 50-50 deal if a merger were to happen, while Grab wanted a significant majority. Although the final contours of the transaction are still being worked out, the merger may raise concerns about lessening competition in Vietnam’s ride-hailing market.
About two years ago, Grab acquired Uber’s Southeast Asia operations in a swift move, integrating its competitor’s ride-sharing and food delivery business in the region into its existing platform. The acquisition saw Grab taking over Uber’s operations and assets in Singapore, Malaysia, Indonesia, the Philippines, Thailand, Myanmar, Cambodia, and Vietnam.
At this time, under the Law on Competition 2004, the Vietnam Competition Council ruled that the Grab-Uber transaction did not constitute economic concentration, thus, did not fall within the scope of the law.
However, things might be different under the new Law on Competition 2018. The prevailing competition regime in Vietnam now provides concrete guidance on what kind of transactions may constitute “economic concentrations” by detailing the key determining concepts of “govern and control” and “group of the affiliated company”.
“Govern and control” currently not only means a company gains ownership of more than 50 per cent of the charter capital or voting shares, or assets during all or one business line of the target, but can also be constituted if the company has the right to decide important matters in the business activities of the target such as its scope.
Also, the provision on “group of the affiliated company” that defines a group of enterprises jointly subject to control and governance by one or more of the enterprises in the group, has the capacity to capture transactions similar to the Grab-Uber merger. Furthermore, in contrast with the relatively mechanical substantive standard under the previous law, the Law on Competition 2018 introduces a more qualitative test so that “any economic concentration that has or may have the effect of substantially lessening competition on the Vietnamese market shall be prohibited.”
Rivalry in ride-hailing
With one of the fastest-growing urban populations in ASEAN, Vietnam is a hot market for companies like Grab and Gojek. According to a 2018 Google-Temasek report on e-commerce in the region, the ride-hailing market in Vietnam is anticipated to climb to $2 billion by 2025 with an expected annual growth rate of 26 per cent between 2015 and 2025.
During 2019, Grab seized the opportunity to dominate the market following Uber’s departure and captured more than 70 per cent of the ride-hailing market in the country, poised to capitalise on all that growth.
In 2019, a massive network of Grab drivers was providing transport as well as food and package delivery services in 43 Vietnamese provinces and cities.
The biggest threat to Grab in the future may come from be Group, which is the latest local player that has managed to tremendously accelerate its market share to 16 per cent, leaving major competitor Gojek behind at the third place with 10.3 per cent.
The ride-hailing market in Vietnam also sees the emergence of many startups with minor market shares but vigorous ambitions to scale up their business. FastGo, VATO, and Aber are three ride-hailing startups that were also launched in 2018 on the back of Uber’s exit. CEO of FastGo, Nguyen Huu Tuat, is extremely optimistic in the face of harsh competition.
He stated, “Other companies might have similar ideas and targets, but success lies not in ideas, but in the way these ideas are realised under the leadership’s vision.”
The proposed merger between Grab and Gojek may cause concerns about competition in the local ride-hailing market as Grab’s market power would substantially increase.
Prices are usually decided by the market, and since Grab already has no major competitors, it does not have to follow the market when setting its prices. Eventually, consumers will lose out if Grab ever decides to raise its prices.
Market power can, however, be exercised in many other ways such as by lowering the quality of its products without a compensating price; reducing the range or variety of products; lowering customer service standards, and/or changing any other parameter relevant to how it competes in the market.
Additionally, ride-hailing also features high barriers to entry and expansion. Due to strong network effects, any new entrant into the ride-hailing industry would likely have to incur a significant amount of upfront capital to attract drivers and riders, so it would be difficult for local apps to attain a sufficient network of drivers and riders to compete effectively against Grab, especially if the merger talks with Gojek are successfully closed.
However, some local players in Vietnam still think positively about the proposed merger. Tran Thanh Hai, general director of be Group, commented that there was still potential for new entrants in Vietnam’s market. Startups like Grab are still receiving massive investment into their services, including their fintech offerings. The differentiation strategy into fintech is a common one, and new companies entering the market should proceed with caution to avoid burning money.