Will Uber exit Hong Kong market?

March 27, 2018 14:39
After burning a lot of cash on international expansion, Uber appears to be focusing more now on improving its financials. Photo: Bloomberg

Uber Technologies has taken another significant step to cut its losses in Asia after facing bruising competition and regulatory challenges in the region.

The ride-hailing services company announced Monday that it is selling its Southeast Asia business to Singapore-based Grab, ending a costly battle with a bigger regional rival.

It marked another retreat from the Asian market for the US-based firm after it withdrew from China in 2016 via a deal with Chinese player Didi Chuxing.

The latest deal, as well as an initiative last year to offload its Russian operations, makes it clear that Uber is now focusing on improving its finances rather than international expansion.

After burning cash through aggressive forays into various markets, the company has redrawn its strategy as it prepares for an initial public offering next year.   

The business rethink appears to have gained traction after Softbank became a key shareholder earlier this year, as the Japanese firm -- which holds stakes in various other ride services startups -- has made no secret of its wish for industry consolidation. 

Following the latest Grab deal, questions arise as to what Uber will do next in Asia and if it will seek to exit some other markets in the region.

While we can only speculate what might happen, one potential move could be in relation to the firm's Hong Kong business.

Facing an unfavorable regulatory environment as well as opposition from traditional taxi operators in the city, it is quite possible that Uber may take a fresh look at its Hong Kong operations.

While Uber has told its users that the disposal of the Southeast Asia business doesn't affect the Hong Kong unit, the fact remains that the Hong Kong business finds itself at a crossroads.

Regulatory obstacles and fierce protests by licensed taxi operators have hampered Uber Hong Kong, with some drivers even being arrested on charges of running an illegal service. 

If Uber loses patience or sees no quick resolution to its problems, it could opt for a withdrawal or sale of the business in the city. 

Also, it is apparent that Uber, under its current CEO Dara Khosrowshahi, is seeking a partnership and investment model in the region to avoid burning too much cash.

The company needs to scale down its business to achieve profitability, which remains a top priority as it seeks to go public.

Against this backdrop, Uber Hong Kong, which claims to have 30,000 registered drivers, may be on the way for a merger with a rival in the region.

Interestingly, Grab is reported to have hired a public relations agency in Hong Kong. It suggests that the Singapore-based firm may be preparing to enter the market.

The ride-hailing industry is facing a tough regulatory framework in Hong Kong as the city is yet to find out a way to legalize the Uber-type business model -- providing public services with private cars -- as the car owners do not have third-party insurance to protect the passengers.

And then there is the continuing opposition to the services from traditional taxi owners and drivers.

Hong Kong has 18,163 licensed taxis and 40,000 taxi drivers. The sector has come out strongly against suggestions that authorities ease the current 1,400 private car-rental permit scheme so that more ride-hailing vehicles can be on the road legally.

The government has been taking a tough stance over Uber and a local court had once held five Uber drivers guilty of illegally offering ride-hailing services.

It may not be easy for Uber to get the government to change its tough stance against the firm's business model.

Authorities will be reluctant to antagonize the taxi groups which are generally deemed to be pro-establishment entities. Hence, a major policy decision that would make things easier for Uber is unlikely anytime soon.

Given this situation, we shouldn't be surprised if Uber decides to merge its Hong Kong business with that of a regional rival, or simply exit the market due to lack of a clear roadmap for the ride-hailing model.

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EJ Insight writer