Why is Uber pulling out of Southeast Asia?

Uber is pulling out of Southeast Asia because Grab is both better funded, better managed, and better
localized in the region.

Grab was founded in 2012 by Anthony Tan and Tan Hooi Ling. The company is based in Singapore and it offers ride-hailing services in most Southeast Asian countries, serving 168 cities in that area. As of November 2017, Grab claims to have over 2 million drivers, 3.5 million daily rides, and more than 68 million downloads.

In the past 6 years, Grab has become the main player in the region despite the major influence and recognition of Uber for three main reasons: money, management, and localization.

In the deal to sell its branch in Southeast Asia, Uber will receive a 27.5% stake in Grab–worth $1.6 billion–and Uber’s CEO, Dara Khosrowshahi, will become part of Grab’s board of executives. Grab will assimilate Uber’s business in the region as well as subsidiary UberEats.

Uber has previously withdrawn from regions in which it had tried to expand as a result of competition. In 2016, sold its operations in China to Didi Chuxing in a $35 billion deal and last year Uber merged with Russian competitor Yandex in a $3.7 billion deal, so this deal is not unusual for the San Francisco based company.

Money and Management

Since 2012, Grab has raised over $4 billion in funding rounds and is currently valued at above $6 billion. In comparison, Uber has said that it has invested approximately $700 million in its Southeast Asian business since 2013. This discrepancy reflects the energy put in by both companies in operating in the region: Uber has spent a fraction of the money that Grab has in becoming the main ride-hailing service in Southeast Asia.

Uber also underwent a difficult 2017, reportedly suffering $4.46 billion in losses and experiencing turbulence in their management as former CEO Travis Kalanick was ousted from the company, leaving a vacuum in the office for two months before current CEO Dara Khosrowshahi was hired.

Due to this confusion in the upper levels of the company and its financial deficiencies, Khosrowshahi has been trying to reduce Uber’s losses and has shifted the company from being very growth-oriented to a more practical business model, one which includes jettisoning less profitable ventures, such as the Southeast Asian branch. In an email to Uber staff, he says:

One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors. This transaction now puts us in a position to compete with real focus and weight in the core markets where we operate, while giving us valuable and growing equity stakes in a number of big and important markets where we don’t.

Additionally, Grab has taken a very strategic approach in choosing their executives. In 2016, they announced that Ming Maa, an investor with experience in Ancora, an Indonesian investment management firm, and in Goldman Sachs’ global private equity group would be joining the company as its president. Uber, on the other hand, only hired a CBO for Asia Pacific nearly four years after first starting the branch in the region, demonstrating the lack of organization it had in that area.

Localization

Localization is a very difficult task in Southeast Asia as a result of its diversity in both language and customs, as well as the difficulty in reaching certain geographic locations. Grab, however, has done brilliantly in adapting to local conditions and using these conditions to their advantage.

For example, in Indonesia, Grab encountered difficulties regarding the taxi business because traffic conditions in Indonesia were awful and it would take multiple hours to reach a location that was relatively close by. As a result, Grab launched GrabBike, which did tremendously well in the congested Indonesian streets. It allowed locals to bypass the bad road conditions and reach their locations much more quickly than in a taxi.

Grab credits its success in localization to the fact that most of its employees were raised in Southeast Asia, which gives them better, deeper insight than an American company would have. For example, there are very many local dialects in the Philippines, so Grab employs drivers who speak those local dialects to work in the areas where they would be needed. Details like these allow Grab to deepen their presence in Asia, whereas Uber, who has less insight like this, would have more difficulty reaching that level of integration into the local culture.

Conclusion

All things considered, this deal is a victory for both Uber and Grab. The latter takes on UberEats to help grow its food delivery service, and gains Uber as an investor and Khosrowshahi as a member of the board, providing essential experience and influence. The former becomes, presumably, one of the main investors in a growing company operating in a nascent market, one which is projected to hit $20 billion by 2025. Uber also gets the opportunity to invest in more promising markets with less competition, namely Latin America, the Middle East, and India.

Renato de Angelis, studies at Trinity High School (2020)

Answered Mar 27 · Upvoted by Keith Lea, Senior Software Engineer, Uber Eats at Uber (2016-present) and Travis Addair, Senior Software Engineer at Uber