Merger could tip scales in ride-hailing

10:00 | 04/06/2020
The two local ride-hailing platforms be and FastGo could negotiate a merger to break the dominance of Grab in Vietnam.
1494p16 merger could tip scales in ride hailing
The two local players may break out of obscurity by teaming up Photo: Le Toan

Nguyen Huu Tuat, CEO of the local ride-hailing company FastGo, last week shared his views about a possible partnership with be Group in a Facebook status titled “If be and FastGo merged, what would be their name?”

The status immediately caused a stir, with many speculating that that FastGo intends to reach a merger with be. However the two sides have remained silent about any such plans.

Regarding the issue, Nguyen Viet Hung, a consultant for several local technology startups, told VIR that as Grab is dominating the market, a merger between FastGo and be may create a big counterbalance against the Singaporean firm.

In 2018, in the same year that Grab acquired the local branch of Uber to reign supreme in Southeast Asia, FastGo and be were launched with high expectations to be the local David taking down the Singaporean Goliath. However, over the past two years, the market also saw the new Indonesian rival Go-Jek entering Vietnam with its app Go-Viet.

During the ensuing tough competition with the experienced overseas players, FastGo and be have remained inferior in the local market.

According to Hung, despite getting great financial support from an alliance of banks, be has soon revealed inadequacies in its operation. Similar to Uber and Grab, the local firm has applied an aggressive penetration strategy to quickly scale up its presence in the market instead of methodically developing and diversifying its services.

Meanwhile, after four years of operation, Grab has successfully created an entire ecosystem including ride-hailing, e-payment, food delivery, and other services. Go-Viet, despite only jumping on the bandwagon in 2018, has carried out the same strategy with decent success.

As a result, be, which only focuses on ride-hailing without added functionalities, might be left behind if it does not change its business focus.

Meanwhile, FastGo also seems to be worn-out from an unsuccessful business strategy. The firm chose to directly confront Grab in Vietnam while aggressively expanding to foreign markets, following the same blueprint Uber used five years ago. The strategy has spread FastGo too thin, putting it at large risk as it has been steadily losing momentum in Vietnam.

“The strategies of be and FastGo are different and be has the upper hand,” said Hung. “FastGo may fail in the next two years if it does not alter its course.”

According to US-based market research company ABI Research, Grab commands about 73 per cent of the local ride-hailing sector. be, with 16 per cent, ranked second, while FastGo only holds a single per cent.

Grab is also leading the market with about 146 million rides carried out in total. Meanwhile, be comes second with 31 million rides, and FastGo last with just two million.

With such dreary prospects in Vietnam, a merger might not be an idea either ride-hailing platforms would scoff at.

Ride-hailing is still a relatively new business area and companies have been racking up great deficits. Grab, after nearly 10 years of operations in Vietnam, also reported that it has not turned a single dime of profit yet.

As such, Grab Vietnam’s accumulated losses as of 2018 were about VND2.6 trillion ($113 million). Meanwhile, Go-Viet and be saw deficits of VND500 billion ($21.4 million) and VND100 billion ($4.34 million), respectively.

Reaching an alliance could also benefit these companies in the area of capital mobilisation. Last January, a mysterious investor from the British Virgin Islands poured nearly VND881 million ($38,300 million) into FastGo and acquired an ownership rate of 25.23 per cent. The remaining shares are split between other parties, including FastGo’s CEO Nguyen Huu Tuat (41.62 per cent).

Elsewhere, be has been supported by some shareholders of VPBank who have constantly invested in the firm, according to Dealstreet Asia.

Throughout their time in the market, both FastGo and be have been constantly mobilising capital to maintain operations. Thus, reaching an alliance could make the two firms more attractive in the eyes of future investors.

By Van Anh

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