HO CHI MINH CITY -- Despite a deal with Uber that has opened Southeast Asia's ride-hailing market, Singapore-based Grab is struggling to expand in Vietnam, where it has failed to secure approval from local authorities in the country's rising tourist destinations that are crucial for its growth.
These areas include Khanh Hoa, located on Cam Ranh Bay, a southern province that the government has designated as a test market for ride-hailing services.
The government in Hanoi has launched a five-year ride-hailing pilot program, running through 2021, in which ten companies, including Grab and traditional taxi operators, are participating. As part of the program, these companies can offer riding-hailing apps only in Hanoi, Danang and Ho Chi Minh City, and the provinces of Khanh Hoa and Quang Ninh -- the biggest tourist destinations of the country.
A document released by local unit Grab Vietnam complained that Khanh Hoa has not provided detailed instructions for Grab to follow in the province, while allowing other taxi operators to operate pilot ride-share services there.
"We are having problems launching services in Khanh Hoa, despite the fact that the location is included in the five-year pilot program," a Grab representative told the Nikkei Asian Review.
Khanh Hoa authorities had allowed the GrabTaxi service in the provincial capital of Nha Trang on the condition that Grab partner only with taxi companies based in the city and that its taxi fleet is capped at around 1,200 cars. However, Grab was soon accused by authorities of violating the rules by accepting drivers from other localities and private cars to provide service in Nha Trang, causing congestion in the city.
A representative from Khanh Hoa's transport department said that authorities "cannot approve Grab's entry because the traffic infrastructure in Nha Trang has been overexploited, with congestion now a regular problem on many streets."
Grab provides multiple services, including GrabTaxi, GrabBike, GrabShare and delivery in the pilot locations and is eager to expand them to other parts of Vietnam. Earlier this year, Grab acquired U.S.-based Uber Technologies' Southeast Asian business, removing a potent rival that had waged a price war in the region.
Expansion is crucial for Grab to sustain its growth in Vietnam, as cities covered by the pilot program are rising as foreign-tourist destinations. That goal has taken on urgency as new players, such as Vietnamese startups Fastgo, Aber and Vato, are scaling up their operations, while foreign competitors, including Indonesia's Go-Jek, through is local partner GoViet, and Singapore-based MVL, are entering the market, according to industry observers.
In June, Vietnam's Ministry of Transport refused Grab's proposal to expand its services, including bikes and delivery, to other provinces, notably the tourist destinations of Ninh Binh, Ninh Thuan and Lam Dong, under a program for e-commerce services. The planned expansion encountered a roadblock as local governments classified the services as ride-hailing, according to the company.
Many Vietnamese users of ride-hailing services object that local authorities have refused to allow Grab's entry without legal grounds, in order to protect local taxi operators. But taxi associations in locations where Grab services are available complain that they have lost market share against the powerful competitor.
Meanwhile, the Vietnam Competition Authority is still assessing the Grab-Uber deal. In May, the antitrust watchdog said that Grab's market share in Vietnam after the acquisition had surpassed 50%, violating local regulations.
Generally, Vietnam's central government does not place a cap on Grab's fleet, but it limits local taxi operators' fleets.
In a document sent last week to Vietnam's prime minister, the Hanoi taxi association said the "unreasonable" condition has led to a greater number of cars with fewer than nine seats -- those which have contracted with Grab -- and tripling the number of traditional taxis after the two first years of the pilot program, which in turn has disrupted the transportation planning of major cities and causing traffic congestion.