KrASIA深度｜How Grab grows to be a USD 40 billion business

Grab, one of Southeast Asia’s most valuable tech startups, was conceived at Harvard Business School when its two co-founders, Anthony Tan and Hooi Ling Tan, met in a class called “Business at the Base of the Pyramid.” That class taught students how companies operate in low-income markets, which represent the majority of humanity.

The two came up with a business idea for the Harvard Business School’s New Venture Competition (NVC) in 2011: making taxis safer in Malaysia by connecting drivers and customers through technology. Only 12 years ago, Malaysia’s capital, Kuala Lumpur, had a reputation for having the world’s worst taxis. The vehicles were in shabby condition, and passengers often needed to negotiate with drivers to set the fare. Women didn’t feel safe traveling at night, as there were many reports about taxi drivers perpetrating crimes like robbery and rape.

While working as a business analyst at McKinsey in Kuala Lumpur from 2006 to 2009, Hooi Ling Tan developed a “manual GPS tracking system” that she used every time she needed to work late and go back home by taxi. Tan would send a text to her mother with the name of the driver and the car’s plate number. She would also let her mom know about the route she was taking and the estimated arrival time. This way, her mother could predict her whereabouts, she told Bloomberg TV in an interview released in 2019.

Anthony Tan and Hooi Ling Tan knew there was an opportunity to change the status quo and bring value for both passengers and drivers with technology in Malaysia. Their idea secured them a grant of USD 25,000 from Harvard Business school for winning the second prize at the NVC in 2011.

Anthony Tan himself was no stranger to the transportation industry when the pair launched the startup. His great grandfather was a taxi driver who later started Tan Chong Motor, one of Malaysia’s biggest automobile distributors, making the Tan family one of Malaysia’s wealthiest. Tan briefly worked in the family business before deciding to focus on developing Grab in 2012, which was initially known as GrabTaxi.

Hooi Ling Tan, instead, grew up in what she defines a typical Malaysian middle-class family, she told Bloomberg TV. Yet, many argue her family’s economical condition to be actually in the upper-middle bracket. His father is a civil engineer, and her mother is a stockbroker. After attending public schools in Malaysia, she moved to England to study mechanical engineering at the University of Bath, a privilege not many Malaysians have.

Grab was originally founded in Malaysia but is now headquartered in Singapore. Photo source: Unsplash

A humble start

Grab had a humble beginning. The early team members had to wear multiple hats, even managing troves of data by hand before automated processes were developed and deployed.

Despite coming from a wealthy family, and being a first-time entrepreneur when he started Grab, Anthony Tan was a driven yet humble entrepreneur, said Chua Joo Hock, managing partner of Vertex Ventures Southeast Asia & India, the first investor of Grab in 2014.

“We could tell that he was on a mission to do something big. We like founders who listen, and that’s what Anthony did. From there, we knew that he’s one of the rare breeds of entrepreneurs,” Chua said.

The team at Vertex believed that disrupting the taxi industry was an important cause, considering the many problems in the sector. Grab’s first features like booking the nearest taxi and sharing trips were crucial to increasing convenience and safety, and that convinced Vertex to cut checks for the two-year-old startup.

In 2016, the company moved its headquarter from Malaysia to Singapore, and set up two teams, a research and development (R&D) team, and an operational squad. Grab had grand ambitions and plans, but the people behind the company needed to work on those plans with limited engineering resources.

With resource constraints, they needed to be creative in luring drivers to create enough supply for the platform to run its ride-hailing business. This often meant providing some “perks” in addition to monetary incentives. For instance, they gave out rice in the Philippines and held a lucky draw for a phone to convince drivers to join the platform.

The company’s first fintech products were also built for drivers. New drivers are required to provide a bank account as part of their registration with Grab, but if they don’t have an account, the company helps them apply for one on the spot.

Grab Financial Group senior managing director Reuben Lai told KrASIA how he had to negotiate with different banks in the region to ask them whether they would allow Grab partner drivers to open bank accounts and provide loans for drivers to purchase a car.

“I got turned down by almost everyone until there was a finance company in Indonesia that said yes. We started creating the scoring, collection, and disbursement systems. That was the genesis of our lending business.” From there, Grab was able to partner with more financial institutions to offer new services, including insurance for drivers, Lai said.

Regional leader

From the beginning, Grab had the ambition to become a regional leading player, as many Southeast Asian countries shares similar traffic problems and unsafe transportation systems, especially when it comes to taxis and motorbike taxis. Malaysia is also a small market with a population of around 30 million people. It only made sense for Grab to expand outside its home market quickly.

The startup entered neighboring countries like Singapore, the Philippines, and Thailand just a year after its launch, and expanded into Indonesia and Vietnam, the two most promising markets in the region, in 2014.

The same year, Grab managed to get big-name investors like Vertex Ventures Southeast Asia & India, GGV Capital, Tiger Global, and SoftBank Group on board. Since then, Grab has constantly raised new investments from the likes of Didi Chuxing, Toyota, Hyundai, and Mitsubishi.

Even so, Grab’s business operations and regional expansion weren’t easy. Ride-hailing and the sharing economy concept were new to Southeast Asian consumers. Grab and other apps like Uber and Gojek were seen as threats to local taxi drivers. Thousands of drivers in Jakarta, Bangkok, and other cities across the region held protests against online ride-hailing apps as they became popular, saying that these apps were “illegal taxi services” that affected their regular operations and incomes.

Platforms like Grab and Uber also quickly caught governments’ attention. Grab’s representatives were summoned in different countries by parliamentarians and grilled by conservative politicians who intended to maintain local stakeholders’ status quo. However, this didn’t stop Grab and their competitors from finally gaining approval from local lawmakers.

A turning point in Grab’s rise to dominance in the region was when it acquired Uber’s Southeast Asian business operations in 2018. Despite being the pioneer in the ride-sharing industry, Uber struggled after its entrance into the region in 2013. One main reason might be that the company applied its Western-centric business model for all regional markets, offering credit cards as the only payment option, while only 27% of Southeast Asia’s population had a bank account in 2016, according to KPMG.

“Grab is run by its founders, while Uber’s Southeast Asia was run by hired professionals who don’t have the same level of passion as founders. Anthony Tan was making many sacrifices. He would go to two or three countries a week with budget airlines. Secondly, Uber already had operations in many regions like the US, Europe, and China, while Grab only focused on Southeast Asia,” said Chua.

Southeast Asia consists of different markets, each with its unique characteristics. As a regional player, Grab knew how to gain an upper hand over Uber. It offered cash payment options from the beginning, while Grab’s motorbike drivers, in certain countries like Indonesia, Thailand, Vietnam, and Cambodia, were able to weave through heavy traffic to take passengers to their destinations on time, leaving Uber’s cars in gridlocks. Grab even introduced hyperlocal services like the Grab Tuk-Tuk, or three-wheeled motorized vehicles, in Phnom Penh and Siem Reap.

Having a local team is critical, and it is something that Uber missed, said Chua Kee Lock, CEO of Vertex Holdings. American companies that brought their top executives from abroad, who didn’t quite understand the culture in Singapore, Indonesia, Malaysia, and other emerging markets in the region, have tended to make wrong assumptions, he added.

“Another important thing to note is the culture. Anthony and the team believe that it is important to work with the local authorities and regulators to try to find solutions, while Uber came in as the dominant player, thinking to change the world and the regulations,” Chua Kee Lock said.

After years of intense competition, Grab acquired Uber’s Southeast Asia operations in 2018. As part of the acquisition, Uber gained a 27.5% stake in Grab and a seat on the board.

Anthony Tan said to Bloomberg that when he met with Uber CEO Dara Khosrowshahi in a private meeting in San Francisco, he told Khosrowshahi that it didn’t make sense to have a “street fight city by city.” They started building trust and, finally, the two CEOs agreed that a merger was the best outcome for both companies.

The merger between Grab and Uber’s Southeast Asia also gave Grab an advantage over Gojek, which by 2018 had acquired a huge customer base in its home turf, Indonesia—Southeast Asia’s largest market by population.

Going public

Grab is leading the competition in food delivery, digital wallet payments, and ride-hailing in Southeast Asia. Grab’s services also cover other areas such as last-mile logistics and online health.

The Grab app has been downloaded over 200 million times to date, and is now present on about 30% of Southeast Asia’s smartphones. The platform counts more than 5 million registered driver-partners and 2 million merchant partners in 400 cities across eight countries, according to statistics cited in Grab’s investor presentations.

The company booked USD 12.5 billion gross merchandise value (GMV) in 2020, surpassing pre-pandemic levels and more than doubling its GMV from 2018. The firm completed 1.9 billion transactions and reported USD 1.6 billion adjusted net revenue last year.

After nearly nine years of operations, Grab officially announced on April 13 that it would go public on Nasdaq in the coming months by merging with a special purpose acquisition company, Altimeter Growth Corp, in what is considered the world’s largest SPAC merger so far. The deal would place a valuation of nearly USD 40 billion on the firm.