Just a few days after selling its China operations to Didi Chuxing due to a costly market-share war which it was losing, Uber Technologies is facing a similar problem in expanding its operations outside the mainland region. On Thursday, Uber’s Southeast Asian competitor, Grab, said it is raising funds to fortify its presence in the region and hand another defeat to the San Francisco based ride-hailing giant.
Grab, a Singapore based ride-sharing company valued at $1.6 billion, is planning to conduct another round to raise around $1 billion from investors, including Japan’s SoftBank Group and China’s ride-hailing giant Didi Chuxing. Grab is expected to raise around $600 million by the end of this week, according to news sources
Grab CEO, Anthony Tan said: “With the deal in China, we expect Uber to turn more attention and divert resources to our region, they’ve lost once, and we will make them lose again.” Mr. Tan also added that: “Didi’s success reinforces what we have believed all along, that local competitors can beat Uber in their own backyard.”
In China, Uber finally gave up on its efforts to expand its business after going through a costly fundraising war with Didi, which was backed by Chinese Internet giants Alibaba Group Holding Ltd and Tencent Holdings Ltd. Didi, valued at $28 billion, also received $1 billion investment from Apple Inc. Later on, Uber’s investors pushed it to call a truce with Didi. Travis Kalanick, Uber’s CEO also criticized Didi for promoting irrational.
However, after entering into an agreement with Didi, Mr. Kalanick said, “As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart. Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there.”
Like China, which Mr. Kalanick used to call a key strategic hub for the company, stakes are also high for both Uber and Grab in the Southeast Asia. According to a latest report released by Google and Temasek Holdings, a Singaporean state- investment firm, the ride-hailing market in the region is expected to develop more than five times by the end of 2025. According to their estimates, the market could be worth as much as $13.1 billion. It was worth $2.5 billion back in 2015.
Yesterday, CBN reported that Uber is eying India as its next destination after failing to achieve a dominant position in China. However, Uber faces tough competition from Ola in the country, which is financially backed by SoftBank. Likewise, expanding into India might also incur heavy costs to the US based ride-hailing app.
Uber burned more than $1 billion in cash every year in China due to subsidized rates to attract drivers and customers. To expand in India, the company is likely to provide more incentives and discounts than it did in China. This is due to other cheap modes of transportation available in the country. According to reports, in 2015, Ola lost more than $119 million in India after it provided subsided rates to its customers.
Uber’s deal with Didi also frees up a lot of capital and substantial resources, which it could use to expand in other emerging markets. The company said it has 150 engineers from its Chinese operations, which it intends to deploy in other emerging markets. Moreover, it has a global workforce of about 8,000 employees, divided into engineers and marketing professionals, which it plans on putting to use in order to expand its operations in emerging markets.
Similarly, Uber recently received about $5 billion from the government of Saudi Arabia and will also get about $1 billion from Didi once the deal is approved by regulators. Analysts believe Grab will give a tough fight to Uber in Indonesia, Thailand, Singapore, Vietnam, Philippines and Malaysia.
Just like in China, Uber intends to hire local engineers to expand its operations in India. At present, it operates in about 27 Indian cities. Uber is also developing its own mapping application in order to end its reliance on Google Maps. In emerging markets, Google Maps has often been inaccurate and unreliable.
The upcoming fundraising round will be vital for Grab if it wants to take on Uber. However, it is possible that Uber-Didi merger could produce complications for the company. Uber is expected to receive an 18% stake in Didi after the merger receives regulatory approval. Moreover, the CEOs’ of both companies are also expected to join each other’s board. This is likely to change the relationship between Didi and its partners outside China including Grab, Ola and Lyft. According to news sources, Didi will also sign a non-competing agreement with Uber on markets outside China.
Uber Technologies is valued at about $68 billion, which is more than the combined worth of other four ride-hailing companies. The end result of the tie-up between Didi-Uber is yet to be seen. However, it’s not all doom-and-gloom for the US ride-hailing company as it still has a share in Didi, which is poised to rule the Chinese market. On the other hand, the partnership between the two ride-hailing giants could be bad news for Grab.
However, there is still some hope for Grab as the deal between Didi and Uber still requires the green light from Chinese regulatory authorities. The Chinese Ministry has said: “No application has been received in order to give a green signal to the deal. No merger filing has been filed till now and such transactions have to be filed in advance. If they are not filed, merger between the two companies cannot be carried out.”