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Tuesday,  Oct 24,2017,16:25 (GMT+7)

Painful competition

Son Nguyen
Friday,  Jun 2,2017,19:48 (GMT+7)
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Painful competition

Son Nguyen

In any competition in a market economy, what is desirable is a win-win scenario for all stakeholders, from market players to consumers and the national economy as a whole. To obtain this scenario, the State role as a market regulator is indispensable.

However, in the current war between traditional taxi operators and ride-sharing firms like Uber and Grab, the process is increasingly painful for many stakeholders.

In the Great Battlefield of taxi services, as the competition is referred to lately in local media, traditional taxi operators decry the business war as unfair, State agencies complain of a fast rise in the number of cars joining Uber and Grab, which piles pressure on infrastructure, and drivers on both sides worry about a certain fall in income. Perhaps only consumers and Uber and Grab are happy.

Local media has recently given extensive coverage of the fierce competition, digging deep into facts to show why such a competition has not been desirable, while State officials are confused over what to do to bring the market into order.

All traditional taxi operators like Mai Linh and Vinasun have reported a sharp plunge in profit, and the vision looks somber in the coming time. The key reason, say these operators, is unfair pricing that is ushered in by Uber and Grab.

Mai Linh, in a financial report to shareholders, says 2016 was a year of unprecedentedly tense competition due to a jump of new Uber and Grab cabs, especially in Hanoi and HCMC. While the company’s revenue rose a staggering 32.3% against 2015 to VND3,730 billion, its pre-tax profit took a nosedive to a mere VND61 billion, down a whopping 62%, according to Vneconomy news website. The gloomy picture is also the same for Vinasun.

Ta Long Hy, chairman of the HCMC Taxi Association, says in Tuoi Tre newspaper that Uber and Grab cabs operate similarly to traditional peers, but the former do not face as restrictive regulations as the latter. For example, traditional taxi firms are subject to a value-added tax of 10% and a corporate income tax of 20%, while Uber and Grab enjoy a VAT of a mere 3%.

In addition, the traditional taxi fleet is restricted, at only 11,000 vehicles in HCMC for example, while the number of Uber and Grab cabs has reportedly exceeded 20,000 units.

Nguyen Ngoc Giao, an official at the HCMC Department of Transport, is fretful about the surge of Uber and Grab taxicabs. By the end of 2015, the number of vehicles transporting passengers on a contractual basis was between 200 and 300 only, but the number had skyrocketed to over 22,000 units by early this April after Uber and Grab services were launched, he says on Vneconomy.

Similarly, Hanoi City’s Department of Transport also complains that the growth of Uber and Grab cars is too fast, to over 4,000 units as of early April. The department suggests that Uber and Grab cars be treated as taxis, so regulations for traditional taxi cabs should apply to Uber and Grab as well.

Taxi drivers for both sides are also hurt. As the taxi fare goes down, drivers see their incomes shrinking. Those drivers who join Uber and Grab are owners of cabs themselves, and therefore they are not covered by social insurance and other incentives for laborers, which poses a big risk for these drivers. To survive the tough competition, traditional taxi operators have recently also announced a shift in business to cut costs, asking drivers to lease cabs and no longer enjoy insurance either.

But despite repeated calls from traditional taxi operators to deter the booming service of Uber and Grab, authorities say the restriction now is not well-reasoned, as long as the new taxi service operators do not violate the competition law, let alone the new service has been beneficial to consumers.

At a seminar in Hanoi on May 10 to gather comments on the Competition Law, which turned into a war of words against Uber and Grab, experts pointed out that ride-hailing services cannot be banned, according to Bao Dau Thau newspaper.

Experts at the seminar said that the Competition Law by nature is not meant to restrict competition, and as Uber and Grab are startup businesses relying on technological innovation for development, they cannot be banned.

Deputy Minister of Transport Nguyen Hong Truong, in an interview with Phap Luat Viet Nam, appreciates operations of Uber and Grab, saying their services have created a new playground, “a playground for those transport enterprises that know how to apply technology to enhance business efficiency, cut costs, and bring benefits and conveniences for customers.”

Meanwhile, Doanh Nhan Sai Gon newspaper emphasizes that the competition on the taxi market is not a war between enterprises, but rather the war between two business models. The paper says that the new business model is unavoidable, as it allows for a sharp cut in labor and cost while maximizing the utilization of transport means. The new business model serves as a catalyst for business changes in the country.

However, as Uber and Grab thrive, a greater danger is looming large, according to Tuoi Tre.

Trillions of Vietnam dong including savings and loans has been poured into the service, and tens of thousands of families are facing the threat of bankruptcy as drivers’ incomes tumble due to the high number of cars in service. Banks may see their bad debts from consumer loans ballooning, while traffic congestion is becoming a heavier burden for the society, says the newspaper.

Tuoi Tre stresses that State agencies have failed to anticipate the development of Uber and Grab services, and therefore have not prepared measures to cope with it.

The upsurge has prompted a painful competition, as “huge amounts of capital have been poured into the new ride-hailing service while measures to solve frictions between old and new business models have not been ready, and tax obligations have not been clarified,” says Tuoi Tre. As the State role as a market regulator has not been well done, the consequences therefore are unavoidable.

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