TL;DR – No need to worry lah.
There’s this article in Straits Times asking us to beware of being taken for a ride by Uber and Grab. It suggested that the Singapore government treated those foreign companies with “kid gloves” because those companies managed to convince the regulators that they were tech companies, not private-hire car operators or taxi companies.
Of course, the development strategies of those two companies in Singapore have shown that Uber and Grab aren’t exactly what they had claimed. In 2014, Uber set up Lion City Rentals. It rents out cars to those who want to drive with Uber for a living. With that, the article claimed, Uber is essentially doing what a taxi company does. Then there is Grab. It is currently in talks to take over SMRT’s taxi business. Uber has also announced today that it is not ruling out expanding into the taxi industry in Singapore.
The article then went on to make this alarmist claim:
“Now that they are entrenched, it will be a matter of time before they start doing what they set out to do: Make money. For commuters, that means fewer freebies and discounts in the years to come. For incumbent industry players, thinner profits. And for the country, perhaps, lower economic returns as more cash gets repatriated to the home countries of the two newcomers – the United States and Malaysia.”
What’s wrong with that claim? There are at least three things wrong with that claim.
1. Singapore cannot adopt economic protectionism
The idea that we should be wary of foreign companies doing business here because “cash gets repatriated” to their home countries reeks of economic protectionism. That’s like saying we shouldn’t allow Nestle to sell Milo in Singapore because that leads to lower economic returns as more cash gets repatriated to Switzerland?
Then what? Should Singapore produce every product and service that’s needed in Singapore? Don’t import anything at all? Not even our vegetables, and meat? Because that would mean profits for those are being repatriated to other countries, right?
Anyone with any knowledge of basic economics will know that, as far as possible, each country should focus on pursuing their own economic comparative advantage. Because in so doing, each country can produce goods and services for one another at a higher quality and lower price.
2. Improved service at a reasonable price
And indeed that is the case for Uber and Grab. Uber and Grab have provided improved service at reasonable prices. Let’s set aside the discounts and freebies. In the past, if you really needed a taxi, you would have to stand in the hot sun hoping that one would appear. Then when you flag it, there’s a chance that the taxi just doesn’t want to go where you want to go. Changing shift and all that jazz. So the wait, in the hot sun, continues.
Now, that’s no longer the case. You can use the apps to book a ride. Then you roughly know what time your ride would arrive, so you can spend most of the time waiting in the comfort of your home or office, or anywhere indoors, away from the glaring hot sun. Heck, you can even tell how much your ride will cost even before you get into the ride. How much more do you have to pay for that improved service? Even without any discounts, you probably don’t have to pay a lot more for the improved service.
In that way, these “foreign companies” have already brought economic benefits to Singapore. But that’s not all the economic benefits that they bring.
3. Creates higher value add jobs in Singapore
These companies also bring higher value add jobs to Singapore. Grab is headquartered in Singapore. It hires a lot of Singaporeans. And not just in any low paying job. But high value-add jobs with great development potential such as software developers and data analysts.
This means that a sizeable portion of Grab’s revenue goes to pay Singaporeans and other people they employ in Singapore. These people lie in Singapore, spend in Singapore. That means that there is money flowing into Singapore because of Grab’s presence here.
What the real problem is
The real problem isn’t that these foreign companies are going to start making profits off Singaporeans soon. As economist Donald Low put it on his Facebook page:
“The real problem is the dearth of large local companies in the technology space. That is what we should be upset about, not the fact that Uber and Grab are foreign-owned, or that they repatriate their profits.”
Whining about how these foreign companies are repatriating profits to their home countries won’t help. Instead, we should try to solve it by “growing large local companies (preferably not government-linked ones) and by trying to raise the wage share.”
What we need is a concerted effort to develop large local companies into global multinational companies that can leverage on technology to compete against the best companies in the world. We also need to support promising new start-ups, and invest in the development of deep technology. We need innovation to happen. There are efforts made in these areas. But these efforts have yet to bear fruit. Will they ever? That is what we really need to be concerned about.
To fuel that sort of growth, we need to encourage more people to develop skills in science and engineering. The problem is that many youths shun these subjects because they are perceived as difficult. That is a problem.
Wringing our hands in worry about how Uber and Grab may be taking us for a ride, and thinking of protectionist policies to hamper their development is not the way to go. Instead, we need to learn from them, and aspire to grow Singaporean companies that will be like or, even better, surpass them.
Meanwhile, read our exclusive interview with Mr Warren Tseng, General Manager of Uber Singapore.