Grab, a ride-hailing platform with significant market share in Southeast Asia, today launched its ‘Grab 4 Indonesia’ 2020 master plan, endorsed by Badan Koordinasi Penanaman Modal (BKPM), the Government of Indonesia’s Investment Coordinating Board.
Under the plan, Grab will invest $700 million in Indonesia over the next four years to support the nation’s goal of becoming Southeast Asia’s largest digital economy by 2020.
This development comes within a day of Grab hiring Indonesia’s former national police chief, Badrodin Haiti, to oversee corporate governance and long-term plans for its biggest market, as well as to smoothen relations with Jakarta.
‘Grab 4 Indonesia’ covers a range of programs that aim to provide all Indonesians an opportunity to move into the digital economy, including opening a Grab R&D centre in Jakarta, to develop technology innovations for the local market market. It also plans to launch a social impact fund to invest in companies focused on deepening financial inclusion, and increasing access to mobile payments and financing opportunities across the country, the ride-hailing app company said.
Ridzki Kramadibrata, Managing Director, Grab Indonesia, said, “Since day one, we have demonstrated our commitment to Indonesia’s long-term economic growth targets and job creation through the expansion of our business to multiple new cities, hiring a strong local team, and providing our Grab driver partners with compelling income opportunities.”
“The ‘Grab 4 Indonesia’ 2020 master plan takes this commitment one step further; each program represents a building block toward creating a foundation of sustainable growth for Indonesia’s digital future. We will train engineers and invest in aspiring technopreneurs so that they, in turn, can develop technology solutions and create new economic opportunities,” he added.
However, it will have to contend with Go-Jek, which raised a major round of financing from private equity (PE) firms KKR and Warburg last year. In addition to this, Go-Jek is planning for a major regional push from this year onwards.
Ernst & Young noted in its quarterly PE briefing report for Southeast Asia that published last month: “While Go-Jek is entirely focused on Indonesia at present, Grab has stated that its key goal is to further penetrate the Indonesian market. This could see the two companies go head- to-head in a more aggressive manner going forward. The market in Indonesia for ride- hailing applications is estimated at US$15b by Grab, providing significant opportunity. Further, this market looks to increase as diversification into food delivery and logistics continues.”
Indonesia is critical to Grab as it is the largest possible market for Grab to expand to in the region, outside of the Philippines and Vietnam. With Grab unable to expand outside of Southeast Asia and become a supra-regional player – with India and China representing intensive competitive markets and Uber dominating North America and Europe – future growth for Grab depends on Indonesia.
The Go-Jek factor
Jeffrey Perlman, Warburg Pincus Managing Director, and Head of Southeast Asia, that is an investor in Go-Jek, had spoken about PE players infusing capital into the consumer internet space in Indonesia in a recent interaction with this portal.
Perlman explained: ” The sectors that you are referencing are all around the emergence of the middle class in SEA. We talked of real estate being so large because one of best ways to emerging consumption and scale is through real estate. That is the urbanisation of the cities for the first time having to have income for the families to be taken to shopping malls for entertainment and food.”
Perlman added, “Ultimately you have seen investments in Indonesia in the cinema sector and that is obviously on the back of broader consumption pattern. When we think of Go-Jek it is more than a ride sharing platform, it is more about the consumer business. This is the ultimate integrated platform. They crowd-sourced motorbikes but if you look kind of some of the highest frequency activities that they are doing is ride sharing, food, consumption of food, either through delivery. And then ultimately high use of delivery of food, goods is e-wallet, the mobile payment business.”
Perlman fruitier noted that Go-Jek had launched Go-Pay on the back of high frequency activity and the fact that a significant majority of Indonesian consumers are unbanked today, with most lacking a credit card.
Go-Pay is essentially a conduit for bringing people into the banking system, with Go-Jek’s force of 150,000 drivers in Jakarta essentially representing 150,000 mobile ATMs. Perlman remarked: “That is kind of pent up demand for access into the banking system.That is the emergence of middle class.”
In the context of the broader TMT vertical within the region, Perlman explains that the future will see increased activity. He noted: “One of the issues in larger investors is that sometimes there are early-stage, seed investor and B-stage investors in TMT and you have got some of the larger PE firms. Some of the larger PE firms there is still not a lot of these businesses of the size and scale that can absorb that kind of capital that some of the ride sharing businesses can.”
“That is going to take time. You will continue to see the size of the capital raises in the goods commerce and this kind of service or mobile commerce. But I think for some of the other business models, it is going to take probably some time before you start to see that amount of capital being absorbed by these businesses,” he added.
Jakarta R&D centre
The ‘Grab 4 Indonesia’ 2020 master plan follows a strong year of growth in Indonesia for Grab, with its GrabCar and GrabBike businesses each growing more than 600 per cent over the course of 2016.
The three pillars of this plan call for Grab to upskill Indonesia’s human capital, launch a social impact investment fund and expand access to mobile payment and financing opportunities.
Grab plans to open an R&D centre in Jakarta and targets hiring 150 engineers over the next two years; the R&D centre will focus on developing Indonesia-specific innovations, building on existing localised solutions. Engineers from this centre will also be able to access training opportunities at its R&D centres in Singapore, Beijing and Seattle.
These include algorithms to address new road regulations in Jakarta and GrabHitch (Nebeng), a “bike-pooling” service that caters to nearly 1.4 million commuters in greater Jakarta.
H.E. Rudiantara, Minister of Communication and Information Technology, comments: “We want all Indonesians to benefit from information technology to improve their lives, develop new skills and build the next wave of global leaders in technology. Grab’s investment to train and hire more ICT professionals and mentor young entrepreneurs will accelerate the growth of Indonesia’s digital economy. This kind of app has to be positioned as a tool to spur and empower people and the economy.”
Following its 2016 expansion to several new cities – with a presence in Jakarta, Bali, Bandung, Padang, Makassar, Medan, Surabaya and Yogyakarta – Grab aims to expand to more cities in the archipelago nation. Grab reports that it continues to see highly active user engagement and stickiness across its multi-service platform, with one in three of Grab’s Indonesian passengers using more than one Grab service.
The company maintains that its driver partners are a key pillar of this growth and claims that Grab drivers earn 40-70 per cent more per hour than the average transport or delivery driver in Indonesia, having reportedly generated in excess of $260 million of income for its driver partners in Indonesia.
This comes at a time when Grab is competing with Go-Jek in Indonesia for market share, while Uber Indonesia is exploring opportunities to establish partnerships with local taxi firms, having entered into a partnership with taxi company PT Express Transindo Utama Tbk (Taksi Express) and has announced plans to partner with transport firms in every major Indonesian city where possible.
Impact fund & finance play
Grab will start the ‘Grab 4 Indonesia’ social impact investment fund to finance companies focused on deepening financial inclusion across all cities and income levels in Indonesia. Grab will invest up to USD 100 million in startups or aspiring technopreneurs to grow the next wave of Indonesian companies with social aspirations to bring more Indonesians into the digital economy. The fund will focus on the mobile and financial services industries, with a particular emphasis on serving smaller cities and communities who have yet to benefit from the digital economy.
The ‘Grab 4 Indonesia’ social impact investment fund will help selected startups accelerate their products to market with both capital investment and technical assistance from Grab. In support of the “1,000 Digital Startups National Movement” initiated by the Government of Indonesia, Grab will also organise a series of entrepreneurship programs in collaboration with selected partners including educational institutions and entrepreneurship organisations. This will include seminars for aspiring technopreneurs and mentorship from Grab executives on developing sustainable business plans with social purpose.
Grab will continue to launch and enhance mobile services to increase Indonesians’ access to mobile payments and financing opportunities. Grab will expand its mobile payment solutions in Indonesia through GrabPay Credits, its cashless stored value option, and existing partnerships with Mandiri and their e-Cash solution, while also continuing to develop a shared e-money payments platform with Lippo Group and Nobu Bank to enable all Indonesians to use Grab to pay for services and goods at Lippo’s retail partners.
Grab is determined to expand new services specifically for Indonesian preferences, as the country is Grab’s largest market. Nearly 95 per cent of Indonesians do not use credit cards. Grab said it will continue to partner with leading companies to launch innovative services to cope with these challenges. In addition, Grab will provide its driver partners with access to more financing opportunities to purchase their own smartphones and automotive vehicles, giving them the opportunity to build sustainable livelihoods and become micro-entrepreneurs.
Grab will continue to expand to more cities in Indonesia, grow its transport services, and invest in GrabPay as a mobile payments platform. Since its launch in 2012, Grab has evolved from a simple app for booking a taxi into the largest ground transportation app in Southeast Asia. To date, the company has more than 630,000 drivers and 33 million downloads across the region.