Uber’s China Retreat Signals the Escalation of War in Southeast Asia
Within two weeks, Southeast Asia’s startup eco-system went through a monumental shift. It’s also a lesson for how entrepreneurs and investors could approach the region.
It started with Uber selling its Chinese operations to chief rival Didi Chuxing, in exchange for ~20% of the combined entity. This cuts Uber’s mounting losses in China and removes an obstacle to an IPO. In a platform world, a slice of the gold medal seems infinitely preferable to the silver.
With the China dilemma out of the way, Uber now has added focus to conquer Southeast Asia. It’s already said to be profitable in the Philippines and Singapore, two of its biggest markets in the region.
Grab is obviously not taking this sitting down. Uber’s deal was quickly followed by Grab’s announcement to raise an additional $1 billion in fresh capital from Softbank and Didi itself. And then, wildcard Go-Jek announces a fresh round of $550 million from private equity players such as KKR and Warburg Pincus.
With Grab’s balance sheet, Uber’s renewed focus, and Go-Jek’s fresh funding, that’s likely more than $2–3 billion available to be pumped into local economies for the next few years. And because a large portion of that goes to driver subsidies, expect transport related players — from taxi fleets to local couriers — to benefit immensely.
It’s a fascinating time, one that mirrors another longstanding regional conflict: the CPG wars between Unilever and P&G that escalated in the 2000's.
Sometime in the early 2000s, P&G restructured its Southeast Asian operations from country fiefdoms to a regional organization. All key brand management, market research, finance, and supply chain functions were centralized in a Singapore HQ, with the country units acting as sales and trade marketing hubs.
It was an aggressive move, one that P&G felt it had to do to catch up with Unilever, its fiercest rival and the leading player in most consumer categories across Southeast Asia.
I spent the first four years of my career as a soldier for P&G. Traveling almost every month, our teams were assigned to pursue new market expansion across multiple categories and market segments.
One week we could be doing upstream design on a brand extension for Safeguard in the Philippines; in another it could be figuring out the right go-to-market strategy for Olay in Malaysia and Thailand. At one point, I had to interview teenagers about their periods in Indonesia for the Whisper feminine care brand. Growing up in predominantly Catholic and English-speaking Philippines, I found it an awkward yet fascinating experience that pushed me out of my comfort zone.
That experience also made me realize an uncomfortable truth: that there’s no such thing as a “Southeast Asia”.
Southeast Asian countries are so complex and fragmented — politically, economically, and culturally — that lumping them together as one region is meaningless and un-actionable.
Southeast Asia is also fragmented within countries: there is probably more in common between the Philippines’ financial capital and Singapore, than between the capital and Philippine provinces.
It’s not just about consumer tastes, it’s also about drastically varied regulatory policies, competitive dynamics, and supply chains. For instance, countries are progressing unevenly: while Indonesia and Vietnam are already moving ahead on cutting corporate taxes and easing foreign investment barriers to compete with Singapore, Filipinos are still distracted with the means of revising their Constitution to make such changes remotely possible.
ASEAN is mostly a talk shop, and as we’ve seen, reluctant to even take a unified stance in the simplest of resolutions in the tensions with China on the South China sea. The announcement of an ASEAN Free Trade Area in 2015, expected to be a bang, went by with a whimper.
And though smartphones and messaging apps have made it easier for teams to collaborate, it remains to be seen whether this tech can drastically cut down the coordination costs of operating across the region.
A few years ago, I argued that startups and investors routinely underestimate the difficulty and complexity of scaling up across Southeast Asia. Three years after writing that piece, that original thesis is proving to be correct.
Rocket Internet is not meeting its aggressive GMV targets in the region, selling off Zalora’s Thailand and Vietnam units. Alibaba’s investment in Lazada was essentially a bail out. Rakuten has drastically scaled back its operations in the region. VCs are smartly doubling down in the more startup-dense markets of Indonesia and Vietnam. Post series-B startups are taking a country-by-country approach, instead of the blanket-the-whole-region strategy that daily deals sites like Groupon and Ensogo did 5 years ago. Look where they are now.
This brings us back to Uber and Grab.
All are playing a smarter game: more or less city-based operations, led by strong local GMs with a sufficient level of autonomy, and customized offerings on top. Regional in name, local in game.
It’s also the same dynamic that makes up and comers like RedMart, PropertyGuru, Pomelo, Carousell, HappyFresh, and Shoppee take regional expansion slower, but smarter. These founders understand that underestimating this complexity has its costs: Rocket employees who joined after 2013 are likely seeing any of their equity gains wiped out.
Why do we still believe in a Southeast Asia? Well, for one it’s convenient nomenclature. Two, it’s an easier sell for startups and VCs alike, who have to partly play the total-addressable-market game. But we can’t underestimate the herculean complexity of the task.
