T

he case of Indonesia’s ridesharing startup, Go-Jek, and its success against Uber in the Indonesian market suggests that there might be limits to Silicon Valley’s quest for global domination of the sharing economy.

It also underscores the continued importance of adjusting your business model to local market conditions even in a digital era. It is this understanding of emerging markets that will position Indonesia’s new generation of entrepreneurs and startups to succeed not only in their local market but in the rapidly growing emerging markets in the ASEAN region.

In his classic work, Strategy and Structure, business historian Alfred D. Chandler traced the rapid growth of large US corporations such as DuPont, General Motors and Sears Roebuck in the early part of the 20th century.

In Chandler’s view the reason these companies were so successful was that they had adopted a multidivisional corporate structure, concentrating planning (or what we now call strategy) at the center and leaving day-to-day operations to their divisions.

However he also noted that this approach was successful because, unlike their European counterparts, in the period after the US Civil War American firms had the benefit of operating in a large rapidly growing and increasingly homogenous market that stretched from the East Coast to the West Coast.

If Chandler were still alive today he might be documenting the emergence of a new set of US firms taking advantage of technology-induced change in global markets. With the growth of mobile connectivity, we appear to enter a new era where it is possible for US technology-based businesses to build a single, universal disruptive digital business model that will allow them to succeed regardless of the market they operate in.

Viewed from the bubble of Silicon Valley, the whole world is starting to look like a single undifferentiated market. And there are plenty of examples that seem to support this notion. In addition to tech giants like Google and Facebook, the last decade or so has seen the emergence of new Silicon Valley based businesses, like EBay, Netflix, Uber and Airbnb, that leverage the power of digital to disrupt key industry sectors all across the world.

In Indonesia, however, local startup Go-Jek has been able to take the market away from Uber, its Silicon Valley rival. While on the face of it, Go-Jek has a number of similarities to Uber. There are some important differences that reflect its superior understanding of the local market conditions. Go-Jek focused on motorbikes not cars. This has a number of key advantages.

First in emerging economies, more people can afford to buy and run a motorbike than a car meaning that the supply of drivers is easier to grow. Go-Jek’s better understanding of the local market and its ability to get motorbike owners onto its platform has meant that it was able to get to scale more quickly than Uber who entered the market late.

Second, in dense urban environments such as Jakarta, motorbikes offer a much better and more flexible mobility solution.

Third, Go-Jek rapidly built on ridesharing to integrate a broad range of personal services onto its app. With the current version of its app you can organize pickup by a motorbike or car, book a truck to move boxes, book movie tickets, get groceries delivered from the local market and, even, have a masseur and beauty therapist waiting for you when you get home.

In its traditional markets Uber is only just now starting to broaden its range of services and is well behind what is offered by its rivals in emerging markets.

Go-Jek’s local market knowledge and connections have also helped it outfox Uber. Because it knew its local market well it was able to bundle features into its app that better suited local drivers and also local consumers. Just as importantly, the fact that it was an Indonesian-based startup, with strong local connections, meant Go-Jek has been more successful in navigating the local regulatory environment.

Unlike Uber, which tends to enter its markets and follow with an army of publicists and lawyers to bash its way through local regulatory conditions, Go-Jek has skillfully navigated its way into the market. Changes in regulation introduced earlier this year have further constrained Uber, forcing it to work through rental car companies and limiting its use of surge pricing.

Go-Jek’s approach has not only allowed it to succeed in the vibrant Indonesian market but has positioned it to successfully expand into other emerging markets in the region. Armed with over US$550 million from its latest capital raise, valuing the company at over $4 billion post money, Go-Jek has the opportunity to dominate mobility and mobile personal services across the ASEAN region, a market of over 650 million people with high rates of mobile penetration.

Go-Jek will not be the only local Indonesian startup that will take the market away from its bigger and better funded Silicon Valley rivals. Another key battleground will be payments. Both Apple and Google continue to aggressively expand their digital wallet initiatives, Apple Pay and Android Pay, into new markets.

The problem for them in markets like Indonesia is that their solutions build on and rely on an existing banking and payments infrastructure. In a market where 85 percent of the population is lightly banked and players like Visa and Mastercard do not have a well-established payments infrastructure, it is hard to see their model working for more than the very wealthy.

By contrast, startups like Xendit, co-founded by UNSW Business School alum Moses Lo, are offering mobile payment solutions that are better suited to the local market conditions and the majority of consumers.

Just like Go-Jek, Xendit may find itself beating out its much bigger Silicon Valley rivals in emerging markets because it has adapted better to the local market conditions.
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The writer is the associate dean (digital & innovation) at the UNSW Australia Business School.