Transportation network companies present challenges and opportunities in Asia’s booming cities


Since the advent of the automobile roughly a century ago, there has been relatively little innovation in the way people move around cities and suburbs. That relative stasis changed just a few short years ago. Transportation network companies (TNCs), an industry that began as a set of startups in San Francisco and Silicon Valley, have created a viable travel alternative in many places worldwide. As long as smartphones, GPS navigation, and roads exist, TNCs can offer shared rides in any urban context.

This is certainly the case in South and Southeast Asia, where cities from Beijing to New Delhi prove that emerging economies are an especially fertile ground to adopt new urban mobility models. Surging populations and growing economic clout have made Asian cities big business for TNCs. The recent $8-billion merger between Uber China and Didi Chuxing is just the latest seismic shift in a fast-growing, unstable marketplace.

Yet while the business community continues to focus on ridership counts, fundraising rounds, and cutthroat competition, the larger impacts on urban development should not be overlooked. TNCs offer an enormous opportunity to better connect Asian households to economic opportunity, but that opportunity will only be fulfilled if TNCs are available to all potential users and support long-run objectives related to housing affordability and well-connected neighborhoods.

Urban and spatial context

Supersized urbanization across South and Southeast Asia not only drives business growth for TNCs—it also serves as ground zero for major urban challenges facing the entire planet. While emerging Asian economies urbanized later than peers in Europe, North America, and even Latin America, they have quickly made up the difference—and likely represent a key segment of users to take advantage of TNCs in years to come. In 1980, China had an urban population that equaled that of the United States and Canada combined; in 2015, its urban population was three times that size. Similarly scaled growth occurred in Southern Asia—led primarily by India—and Southeast Asia. Even more impressive, these countries will house an additional 1 billion urban residents by 2050.

Urban Population by Global Region, 1980 - 2050

Many of these new urban dwellers—whether due to rural migration or natural birth—will reside in “megacities,” or metropolitan areas with over 10 million people. The continent is already home to more megacities than any other, 14 of which are in emerging economies. Another seven cities in emerging Asian economies will join the ranks by 2030. Overall, that’s an enormous pool of potential customers today and a promise of even more customers tomorrow.

Fortunately, Asia’s urban population is also growing wealthier. In aggregate, many of these metro areas still lag behind places like New York and London, but the Brookings Global Metro Monitor shows how Asia’s largest metro areas experienced significantly higher GDP-per-capita growth between 2000 and 2014. In most cases, GDP per capita grew faster in metro areas than their overall countries—signifying the growing economic clout of city versus rural dwellers. And all of that new wealth creates real purchasing power for the higher-earning individuals living in cities.

However, this combination of urban population growth and greater wealth also introduces significant spatial challenges. Asian cities continue to grow outward and consume more land, even if their overall densities are increasing. But unlike Europe and North America, Asian sprawl is typically more chaotic and often reserves less space for transportation. China is the exception, but even their past preference for superblocks incentivizes sprawl. As NYU researcher Shlomo Angel and his colleagues pointed out back in 2005, growing distances and limited transportation infrastructure would limit mobility, and therefore access, in emerging cities.

It should not come as a surprise, then, that motorized transportation—whether through private cars or motorcycles—is now more than just a symbol of wealth in emerging economies; it is quickly becoming a necessity to reach jobs and other places of interest. For instance, China’s car ownership rate is 25 cars per 100 people—to compare, Italians have 60 cars per 100 people—but it added 23 million new cars to the road in 2015 alone. The Philippines, India, and Laos are following China’s car ownership push. Meanwhile, a Pew Research Center survey found over 80 percent of people in Thailand, Vietnam, Indonesia, and Malaysia own a motorbike.

The issue is where to put all these vehicles. Not only do Asian cities now dominate the top rankings of TomTom’s congestion index, these hypercongested places are also seeing their numbers get worse. The economic cost associated with lost productivity and time is also enormous, equaling two to five percent of aggregate GDP. Meanwhile, local commute times are getting even longer. While average commutes in London and Tokyo are below 40 minutes, Beijing’s and Shanghai’s already exceed 50 minutes. Anyone who has traveled to megacities like Bangkok and Jakarta, Indonesia, has a vivid picture of streets bursting at the seams. Finally, parking is a growing concern in Asian cities, as storing all those vehicles threatens to consume land that is in increasingly short supply.

Gauging the potential impact of TNCs

Combined, these urbanization trends create business opportunities for TNCs and economic opportunities for cities. The swelling middle class in Asian cities offer TNCs a growing customer base—a marked contrast with more developed cities where stalled population growth forces a focus on greater market penetration. At the same time, for every private driver that can switch to a shared TNC service, the host city theoretically benefits by removing a current or future vehicle from the road and related demand for parking space.

The business opportunity is already real. China’s largest ridesourcing company, Didi Chuxing, provided over 1.4 billion rides in 2015 through a combination of taxi hailing, private chauffeurs, pooled rides, and even buses. Grab offers a mix of taxi and motorbike services across six Asian countries. Go-jek focuses exclusively on motorbikes in Indonesian cities and averaged 340,000 bookings per day in January 2016. Ola is the homegrown entrant in India, with a significant but uncertain market presence. Meanwhile, Uber competes in all of these countries (although their Chinese presence is changing due to the Didi merger), although not always in the same cities.

Financial markets have responded to this business growth with a major vote of investor confidence. Even before the Uber China merger, Didi landed an enormous $7-billion private investment in 2016. Ola raised $500 million in late 2015 and is reportedly set for a $1-billion fundraising round this summer. Grab has already raised $680 million, while Go-Jek reportedly closed a fresh $550 million in new funding. The numbers are staggering; tracking them is almost dizzying.

For city leaders, though, it would be easy to get distracted by the eye-popping numbers and simply let the marketplace develop on its own (or try to stop it altogether). Either approach would be a mistake. Instead, government officials should recognize market demand for TNC services and consider how it can be leveraged for a more focused civic goal: better connecting people to economic opportunity.

On this count, work is far from complete.

First, not all residents can access and afford TNC services. Smartphone penetration in Asian cities is far from ubiquitous. China and Malaysia have the highest figures around 60 percent, but other emerging nations like India and Indonesia are closer to 20 percent (although the market is growing rapidly). Even if an individual owns a smartphone, there’s no guarantee they have a mobile data package to support ride hailing in any location. But it’s the cost of the rides that may be the biggest barrier. Even with privately-subsidized fares and growing incomes in the region, it still may be too expensive to rely on TNCs for ubiquitous urban mobility.

Consider motorbike travel in India. The country’s average GDP per capita in current dollars is $1,120 (USD) a year. Ola’s motorcycle taxies charge a rate of two rupees per kilometer and one rupee per minute with a minimum 30-rupee fare—meaning that the service targets those with commuting distances that exceed the five-kilometer national average. Taking an Ola motorcycle to and from work every day—assuming 250 working days per year—at the minimum fare would cost a commuter roughly $250 USD a year, or 22 percent of an average income. What if a person’s commute exceeds the minimum, or a user wants to take additional trips? Those may be affordable rates for India’s wealthier individuals, but they’re an absolute barrier to the average Indian worker.

There are also very real concerns about whether TNCs will only intensify demand for urban sprawl. While early research finds that ridesharing can reduce vehicle ownership and overall driving, those results derive from developed countries. There are still major questions about whether Asian TNCs can have the same effect. Do TNCs induce people to drive less or do they shift current pedestrians and bike riders to motorized alternatives? Do TNCs make suburban housing more attractive to Asian families, thereby leading to more aggregate driving? As Asian cities confront the costs of sprawl, they need to closely monitor TNCs’ related impacts.

Potential economic opportunities and steps toward better planning

Yet even with these challenges, TNCs offer great opportunity for Asian cities.

First, city leaders need to respond with innovative transportation policies. The long-term answer can’t simply be a blanket on-or-off switch like the situations in Bangalore and Thailand. Instead, Asian regulators should follow the lead of many North American cities and consider a broad range of public policies that seek to collaborate with private-sector TNCs to deliver shared public benefits, especially around access to economic opportunity. It could mean offering public subsidies to TNCs if they connect people to fixed route transit, which could shorten TNC trips, boost transit ridership, and reduce congestion in the urban core. Similar subsidies could apply if TNCs bring residents to vital economic sites like hospitals or schools. Governments could enter data-sharing agreements with TNCs, trading the right to operate in the city for better information about how people move within it. Other policies could promote TNC usage while increasing costs for solo driving, along the lines of congestion charges. In short, cities need to try to be as innovative in their transportation policymaking as the TNCs are in designing new mobility solutions.

Second, cities should consider TNCs a tool to deliver the built environment they would like to see. This isn’t as cut and dry as only building compact cities or only promoting peripheral development. It’s about considering how TNCs will impact land use and whether related policies should adjust. Presumably, higher TNC usage would require less space for parking and even less space for future roadway expansions. Cities must begin to consider how that land could be repurposed, especially to promote transportation access. A similar planning process should involve housing policies, whether that’s the need for more multifamily housing in denser nodes; increased demand for suburban, single-family housing; or managing urban slums. Ideally, the growth in TNCs can motivate construction of more affordable housing and ameliorate spatial mismatches.

Third, there’s no more powerful way to give people access to TNC services then to get them connected to the digital economy. That means ensuring all residents—regardless of income—have access to transportation services like TNCs whose full functionality are only available to those with a smartphone and a mobile data plan. Not only would boosting smartphone penetration help achieve this goal, it has the added benefit of giving people experience with digital skills, facilitating access to services like mobile banking and distance education, and supporting a transition to e-governance. The potential spillovers are enormous.

Like the rest of the world, all signs point toward TNCs attracting more customers and leading an overall evolution around how urban dwellers in Asia’s emerging economies use digital technology to share resources. Yet the growth of ride hailing is about more than just mobility as a business—fundamentally, urban transportation is about getting people to where they need to go, ideally at an affordable price. TNCs have the opportunity to deliver that kind of accessibility in Asia’s cities, but delivering on that promise will only be possible with purposeful public policy.

Celia Healy contributed to this piece.