Grab goes big on Indonesia with US$700m road map

Singapore

GRAB will be investing US$700 million in Indonesia over the next four years - the largest investment the ridehailing app has made in a single country, The Business Times has learnt. The sum is in fact nearly half what Grab has raised in total private equity and venture capital (US$1.43 billion) since its incorporation in 2012.

While Grab said on Thursday that the investment is to support Indonesia's goal of becoming South-east Asia's largest digital economy by 2020, observers warned that this could fuel the artificial competition among ridehailing players in the region, and eventually hurt consumers.

A Grab spokesman said: "We see tremendous opportunity for long-term growth in Indonesia... we are investing to ensure we capitalise on the huge opportunity ahead of us."

Grab is doing this under the 'Grab 4 Indonesia' 2020 master plan, which it launched on Thursday, and is endorsed by Badan Koordinasi Penanaman Modal, the government of Indonesia's Investment Coordinating Board. The plan comprises several initiatives that aim to help Indonesians shift to the digital economy.

First, Grab will set up a 'Grab 4 Indonesia' social impact investment fund, through which it will invest up to US$100 million in Indonesian startups that offer mobile and financial services, and are focused on "deepening financial inclusion across all cities and income levels" in Indonesia.

BT understands that this is Grab's first fund that is targeted at startups. The spokesman said: "Our investments will be made over a few years, and we are excited to support Indonesia's next generation of technopreneurs. In fact, we expect to exceed the committed amount of investment."

Grab will also open an R&D centre in Jakarta, for which it will hire 150 engineers over the next two years. This will be Grab's fourth R&D centre globally, where it will develop innovations specific to Indonesia, including algorithms to address new road regulations in Jakarta and GrabHitch (Nebeng), a bike-pooling service.

Grab's other three centres are in Singapore, Seattle and Beijing. The spokesman noted that Singapore is home to Grab's regional R&D centre, where innovations such as GrabChat (Grab's in-app messaging service) and GrabPay Credits (a cashless stored value option) were developed and later rolled out across the region.

Thirdly, Grab will expand access to mobile payments and financing opportunities for Indonesian consumers - through its partnerships with Bank Mandiri for their e-Cash solution, and with Lippo Group and Nobu Bank for a shared e-money payments platform that will allow consumers to use Grab to pay for goods and services at Lippo's retail partners.

Grab chief Anthony Tan said that the 'Grab 4 Indonesia' 2020 master plan underlines a "deep commitment" by Grab, the largest homegrown technology startup in South-east Asia, to drive the region forward. Indonesia is reportedly Grab's largest market, where its drivers earn up to 70 per cent more per hour than the average transport or delivery driver.

Observers lauded the US$700 million as a significant investment into a fast-growing emerging economy, but said this could intensify the already unhealthy competition among ridehailing players there - as Donald Wihardja, partner at Indonesia's Convergence Ventures, said: "Grab, Go-Jek and Uber will only continue to offer heavily-subsidised rides."

He told BT that such predatory pricing will result in players exiting the market solely because they are less well-funded, and not because they lack more efficient economies of scale or innovative offerings.

"It's unhealthy competition. If you ask the players when they will stop with the price dumping, the answer is simple - when the other two are dead."

Mr Wihardja said the ideal scenario is for all three platforms to co-exist, and act as one another's check and balance, and so that consumers have options.

"As long as the players are building a fleet to bring convenience to riders and jobs to drivers, it's perfect. But if they are doing this to artificially kill one another, it will have damage to the ecosystem," he said.

Lee Der-Horng, director of the NUS-LTA Transport Research Centre, said that he was not at all surprised by Grab's aggressive move to deepen its presence in Indonesia. "Given the country's poor public transport system, and demand for a secure, quality point-to-point transport service, I think people there are really desiring a service provider such as Grab."

Dr Lee added: "With the partnership with Lippo, Grab's penetration into the cashless payments space is the real game changer. The ridehailing service is just a stepping stone."