The Malaysian government is providing a swathe of incentives to encourage more people to drive for ride-sharing services, effectively backing what remains, technically, an illegal activity by law.
As the Malaysian prime minister tabled Budget 2017 in end-October, one thing became clear: ride-sharing is here to stay in the nation.
The question now is whether big local corporates will take the government’s cue and bring their considerable resources to bear on innovation in the transportation space, especially ride-sharing.
To recap, Prime Minister Najib Razak urged taxi companies to stop complaining about ride-sharing services and be more competitive — thus effectively declaring government support for the ride-sharing sector, which is technically still an illegal business activity.
The incentives effectively rope in Proton into the ride-sharing scene, albeit indirectly. They also set the tone for the local innovation scene even as Uber shifts resources to Southeast Asia after conceding China to its local equivalent Didi in August.
Across the region, Grab – Uber’s main opponent in 30 cities across six Southeast Asian countries — is preparing for a renewed fight with Uber.
It’s an important battleground for both companies. Home to 600 million people, the region counts a bigger population than the European Union or North America. Its ride-sharing market was worth US$2.5 billion in 2015, according to a joint study by Alphabet’s Google and Singapore’s state investor Temasek Holdings.
The same study expects that market to grow more than five times to hit US$13.1 billion by year 2025.
The sheer potential of the market and its many possible niches have, of course, drew in more creative start-ups than just the big boys hogging the limelight and headlines.
In Malaysia, for example, we have the likes of Tumpang, which began as a ride-sharing app but has since shifted focus to cater to businesses instead of consumers. And then there is Riding Pink, which is essentially ride-sharing for ladies who seek that extra security and comfort of riding with a female driver.
Want to car-share and go green at the same time? There’s Cohesive Mobility Solution (COMOS), which allows registered (and paying) members to share usage of electric vehicles they can pick up from just under a dozen locations around Kuala Lumpur.
Alternatively, Malaysians can also just get into car rental app GoCar when they need to get around. Notably GoCar became a 55% subsidiary of Mayflower Acme Tours in February this year.
Certainly these players are filling an important, emerging gap. Malaysia has heavily invested in mass rapid transportation, but an essential component in actually getting people to embrace public transport is providing that first-mile, last-mile connectivity – i.e. getting people from the bus stop or train station to their final destination.
Otherwise public transport may not be alluring enough for those who live in non-service areas as they could not easily get to the nearest train or bus stations. Having a world class LRT or MRT service may be meaningless to the man on the street if he still finds it more convenient to drive from home rather than go through the hassle of getting to the nearest station.
The hassle can be plenty: parking fees at the station may be prohibitive, not to mention possible scarcity of parking space and a host of other deterrents. Ride-sharing services have come in at an opportune time to fill that gap given shifting attitudes to not owning a personal mode of transportation.
Year-to-date car sales in Malaysia as at September is lower year-on-year, although this may also be driven by tighter belts among many consumers. Intense competition for sales has cut into auto distributors’ margins, putting pressure on both their topline and bottomline.
This may be why some of these auto distributors are turning to ride-sharing for business. Hertz Global Holdings, for example, recently signed a deal with Uber and a San Francisco-based Lyft to supply cars for ride-sharing.
That will ripple to Malaysian shores via its local distributor Sime Darby Motors and may signal the beginning of more cross-overs by other players. The emerging picture here is that Uber, Grab and possibly Lyft will not just be facing each other for control of the Southeast Asian market.
They may also need to contend with local start-ups although the latter will unlikely be as well-funded as the big boys. Indeed, even US$3 billion-Grab is far outmatched by Uber, which is valued at US$69 billion.
The only missing element in the Malaysian scene now is local funding. Before the Budget 2017 announcement, none of the local transportation-linked corporates such as DRB-Hicom, Sime Darby, Perodua and the Naza group have made a real splash.
They can afford to, of course. Listed players DRB-Hicom and Sime Darby, for example, have RM4.7 billion in cash on hand as at June 30 between them. Privately held companies Perodua and Naza would only add to that figure if added in.
In comparison, investing a few hundred thousand ringgit, or even a million or two, into a promising local start-up or three is a tiny drop in an ocean of funds, especially in terms of the potential returns (although this is balanced by the dismal success rate among start-ups in general).
So will big Malaysian corporates take the government’s cue and bring their considerable resources to bear on innovation in the transportation space, especially ride-sharing? Watch this space.