Turning point ahead for Vietnam’s competitive ride-hailing market

Transport authorities in Vietnam want ride-hailing companies to operate like traditional taxi firms.

Vietnam wants ride-hailing companies to operate like transportation services, including installing taxi-style light-boxes. Photo by Shutterstock

While driving on the streets of Hanoi during a recent rainy day, Nguyen Tai Hiep said he might have to think twice in the future before putting his family car on the road for Grab rides. Hiep said he has read reports in local newspapers about the debate on whether ride-hailing vehicles should install a taxi-style light-box on their roofs.

“It’s burdensome for sure,” Hiep said. “I will have to take it off when using this car to go on personal trips to my hometown. I’m also concerned that my car will be mistaken for being a taxi and people will start hailing it on the street.”

For the past three years, Vietnamese authorities have been struggling to amend a decree on transportation businesses that may subject ride-hailing companies to the same requirements as taxi companies.

Following numerous revisions and countless debates among senior government officials, the latest proposal stipulates that all ride-hailing cars must carry roof-signs similar to those used by taxicabs. Additionally, providers of ride-hailing services must operate like conventional transport companies if wanting to stay in business. Currently, ride-hailing services for cars are only permitted in five cities and provinces under a pilot scheme that has been implemented by the Ministry of Transport since 2016.

Ride-hailing apps transform Vietnam’s urban zones

Grab and Uber both entered Vietnam in 2014 to formulate the first wave of ride-hailing apps in the country, transforming how Vietnamese urbanites travel on a daily basis. For the first time, commuters in Hanoi and Ho Chi Minh City became part of a platform-based economy, arranging for rides in cars, taxis, and on motorbikes using their smartphones.

In the era before Grab and Uber, riders would have to bargain with xe ôm (motorbike) drivers, or at times risk traveling in an illegal taxi that may use a route that is longer than expected. Ride-hailing apps made all details transparent, allowing users to see the cost of the trip and information of the driver. These features may be taken for granted now, but were a pleasant surprise for many people in Vietnam when they were first introduced a few years ago.

Until its exit from Southeast Asia in April 2018, Uber had about 6,000 cars registered on its platform. It served millions of riders in Vietnam.

Uber’s departure gave Grab the opportunity to pull ahead of regional competition. After launching in the country merely five years ago, Grab is now present in 43 provinces and cities in Vietnam, offering all kinds of services including ride-hailing as well as food and package deliveries. It has a network of about 190,000 car and motorbike drivers, and has ambitions to become one of Southeast Asia’s super apps.

Grab and Uber’s success in defining the Vietnamese ride-hailing market served as a wake-up call to not just existing taxi companies but also local tech companies that wanted a slice of the pie.

According to Google and Temasek’s latest e-Conomy SEA report, Vietnam’s ride-hailing market was estimated to be worth about USD 500 million in 2018 and is expected to reach the USD 2 billion benchmark by 2025. In the past years, a slew of ride-hailing apps have popped up; Grab’s most noteworthy competitors in the market are Go-Viet, an affiliate of Indonesia’s Gojek, as well as Vietnamese firms FastGo and Be. And it looks like more are diving into the sector. With the launch of MyGo, one of Vietnam’s biggest telecoms providers Viettel is also attempting to wrangle its way into ride-hailing.

With more players join the fray, companies are burning resources to attract customers and drivers. The opposition from conventional taxi companies is also intensifying, and regulators have become more aware of the need to regulate this lucrative sector.

The road to becoming one of the dominant ride-hailing firms is no longer smooth.

Constant objection from traditional taxi companies

In June 2018, Singapore’s sovereign wealth fund GIC divested its entire stake in Vinasun, one of Vietnam’s biggest taxi firms that was hit badly by the increased popularity of ride-hailing apps.

Vinasun, which has reported consistent losses in recent years, was entangled in a lengthy lawsuit with Grab beginning in June 2017. Grab was initially ordered to pay Vinasun VND 4.8 billion (USD 208,700) in damages but then appealed the ruling. This case, which lasted for 18 months, was the first of its kind in Vietnam between a tech platform company—a disruptor—and a company whose business model was under existential threat.

Transport industry associations have also repeatedly petitioned the government to implement stricter regulations for ride-hailing services providers, even calling for a halt to all ride-hailing services for cars until a new regulatory framework has been established.

Headaches for government regulators

Last week, as reported by local media, Prime Minister Nguyen Xuan Phuc asked the Ministry of Transport to reconsider the requirement for ride-hailing cars to install light-boxes. The Prime Minister particularly noted that additional business barriers will do the country a disservice in the long run.

Others have chimed in to reject the proposed regulation. Nguyen Quang Dong, director of the Institute for Policy Studies and Media Development, said the requirement to install light-boxes does not make sense because “riders don’t hail the cars from the street.”

The latest instruction from the Prime Minister shows that regulators and government officials are still at odds over what they think is the best option to regulate providers of ride-hailing services in Vietnam. Across the region, officials in other countries are also deliberating over various proposals to figure out the best way of regulating ride-hailing companies.

Singapore’s new bill, called the Point-to-Point Passenger Transport Industry Bill, also proposes to issue two types of licenses to separate taxis from ride-hailing vehicles. Malaysia has also recently required e-hailing drivers to apply for Public Service Vehicle licences.

But no government in the region has moved to merge both types of services under the same umbrella and apply a single set of regulations to them.

Ngo Tri Long, an economics and finance expert, noted that if regulators don’t approach this legislation carefully, Vietnam can fall into the habit of creating more barriers and administrative hurdles to platform-based companies, discouraging the development of innovative business models in the future.

On the other hand, transport officials believe that the installation of light-boxes will enable traffic police to manage urban traffic flow more efficiently, especially on streets where taxicabs or privately hired cars are banned. More importantly, Vietnam’s transport minister Nguyen Van The stressed in a recent question-and-answer session at the National Assembly that upcoming regulations will be designed to create a level playing field between taxi and ride-hailing companies.

Dong from the Institute for Policy Studies, however, believes that a level playing field needs to be about removing operational barriers and administrative roadblocks for taxi firms. The government, he added, should only demand tech platforms to work with the authorities and ensure that their driving partners do not violate existing laws and regulations.

“I believe that we have the capacity to effectively regulate ride-hailing companies without giving up any public benefits,” he said. “The wave of technology will replace the old and the outdated and public governance should not go against that.”