The Dominance Of The Ride-hailing Services In Vietnam: Investment Opportunities Analysis

Starting from April 2020, Decree No. 10 (on conditions for transport business by car) officially took effect. This marks the end of a years-long dispute over the delimitation of technology taxi models and opens up development opportunities for the taxi industry in Vietnam.

The rival between traditional taxis and ride-hailing apps

The Vietnam Taxi Market was worth USD 0.41 billion in 2021, and it is predicted to reach USD 0.79 billion in 2027, with a compound annual growth rate (CAGR) of roughly 10.25 percent between 2022 and 2027.

COVID-19 caused substantial damage to the taxi business in 2020, with lockdowns and restricted periods affecting taxi demand. Also, the border closure has made it difficult for many cab firms that rely on tourists to function. However, the demand for transportation services, primarily technology applications, increased after the country's activities began to reopen.

The primary services of a traditional taxi company remain vehicle booking over the phone and calling a car on the street. However, cheap taxi fares and quick vehicle booking via smartphone are allowing digital taxi services to take over the Vietnamese taxi sector progressively. 

When ride-hailing apps entered the market, many taxi firms failed to react, causing a severe drop in revenue. However, to keep up with customers' needs, several traditional taxi companies have begun to apply technology to their activities. Major players in this market include Mai Linh, Vinasun, VinaTaxi, GrabTaxi, Gojek, and Be.

Mai Linh, a Vietnamese taxi company, has teamed with local e-payment service provider VNPAY in June 2020 to deploy SmartPOS devices throughout its entire fleet, making it the first in the country to provide smart payment options to its customers. Some other traditional taxi companies have also started to launch their ride-hailing applications, typically the merger of 7 taxi firms to create the G7 brand.

Two new models for technology vehicles

At the direction of the Prime Minister, in early 2016, the Ministry of Transport issued a pilot plan to apply connection support technology for contract cars with less than nine seats in Decision No. 24.

After that, on January 17 (2020) the Government issued Decree No. 10 regulating business and conditions for transport business by car, effective from April 1 (2020) including the official management section for the application of connection support technology for contract cars.

Specifically, Article 35 of Decree No. 10 stipulates the responsibilities of ride-hailing application software providers in two cases:

In the first case, the unit only provides application software to support transport connection (does not directly operate the vehicle or driver; does not decide on freight rates) and must comply with the law on electronic transactions and other relevant laws.

The second case is that the application software provider has performed at least one of the transportation activities to make a profit (like directly operating a vehicle or deciding on freight rates), they must comply with regulations on business and conditions for automobile transport business in accordance with the provisions of Decree No. 10, the law on electronic transactions, and other relevant laws.

Therefore, the companies providing application software to support transport connections actively choose the proper business model to ensure compliance with Article 35 of Decree No. 10. From there, businesses can choose to be a provider of application software to support transport connections or a transport unit.

New competitive opportunities for traditional taxis and technology taxis

Before Decree No. 10 took effect, the most controversial issue was the identification of rail-hailing brands based on the law to have an appropriate management plan. For many years, Grab has been operating in our country with a business model detrimental to traditional taxi firms.

On the one hand, this enterprise has always identified itself as just a supplier of application software to support transport connections. But on the other hand, Grab operates no different from a transportation business when it directly determines freight rates and intervenes in many other fields, which are not reserved for units that only provide ride-hailing software.

That makes many traditional taxi companies constantly protest because they cannot compete with competitors that operate on technology platforms like Grab. While many regulations bind traditional taxis, Grab and ride-hailing apps are not under much pressure. A representative of the Vinasun taxi company said that when Grab first developed in Vietnam, its business activities decreased seriously. In the first three months of 2017, 4,239 employees quit their jobs, and 300 vehicles had to stop working.

Decree No. 10 has redefined the types of auto transport, allowing both traditional and technological taxi businesses to choose the appropriate model for themselves.

With technology taxis, businesses will now have to be responsible for their obligations to their employees, like traditional taxi businesses. In return, technology taxis will no longer be controlled in 5 pilot localities (Hanoi, Ho Chi Minh City, Da Nang, Quang Ninh, Khanh Hoa) but can operate across the country. Technology taxis are also limited in the number of vehicles like traditional taxis.

Now with apparent regulations, businesses have the right to choose, and the competition will be fiercer, but in a healthy environment. Because the transport order will be re-established, the state can manage the transport activities, and the businesses must comply with the regulations.

Investment Opportunities

The online car-hailing sector in Vietnam is considered an attractive field for domestic and foreign investors, with revenue of almost 2.4 billion USD in 2021 and an average growth rate of roughly 30-35 percent per year from 2015 to now.

Direct investment in the taxi market

Many media taxi companies are gradually converting to a technology taxi model. These businesses' strengths are a large team of experienced drivers, reliability and safety, and being available in many large domestic markets such as tourism. Even some traditional taxi companies' fares are cheaper than technology taxis.

To successfully transform, traditional taxi companies need to mobilise financial resources for operation in the new context. Taxi transportation is a large market-oriented business that requires an expensive initial investment. After a certain period, firms must capture a relative market share regarding orders and number of passengers. Businesses that want to succeed often must meet important factors such as ensuring usability, wide coverage and efficiency.

In addition to the "big players" in the current technology taxi market such as Grab, Gojek and Be, many new technology carriers who desire to develop from niche markets are being developed. One of the potential markets today is car rental with a driver for a period of time.

Although the taxi market is facing some difficulties due to high gasoline prices and the rise of private vehicles, the demand for taxi services will continue to be developed due to the increasing demand for transportation and the return of domestic and foreign tourists.

Integration with other service ecosystems

Most taxi businesses, both traditional and technological, are currently attempting to create an ecosystem around transportation services to suit clients' increasingly diverse needs. 

Grab has evolved from a ride-hailing app to a "super app" with all the conveniences of payment, restaurant ordering, delivery, travel, and more. These services were created to address transportation-related demands and enhance income for Grab's drivers, either directly or indirectly. GrabFood, the food delivery service of Grab, has consistently topped the market in terms of utilisation, accounting for around 79 percent of the total.

The "mega app" development trend is continuously booming around the world. Baidu, Alibaba, and WeChat are all instances of super applications in China that integrate all services from transportation to delivery, electronic payment, entertainment, and communication.

Traditional taxi firms, such as Mai Linh, focus on developing a conventional ecosystem, including tourism, telecommunications, insurance, cargo transportation, and car repair shops. The Mai Linh Group established its first Mai Linh Food shop at the end of 2021. When all proceeds from sales operations are transferred to the driver, Mai Linh drivers will have the possibility to raise their income.

Conclusion

Many traditional taxi firms could not adjust to ride-hailing apps' emergence in the early stages. Furthermore, management policies have failed to respond to market changes, resulting in disagreements and debates between the two sides. With the implementation of Ministry of Transport Decree No. 10, Vietnam's taxi sector now has the opportunity to compete and develop, creating significant investment opportunities.

If you are looking to invest in the Vietnamese taxi market, contact Viettonkin for the most up-to-date and reliable information. Viettonkin and our team of specialists have over 12 years of expertise in the sectors of investment and business consulting. Contact us now.