International Expansion of US Retailers - Case Study Example

Critical Issues in Globalisation

Needless to claim, international expansion is an immensely important issue for practically all types of business. The explanation of this lies in the fact, that appropriately implemented international expansion provides organisations, despite their state of affairs or the way of conducting the business with the opportunity to find new markets and obtain new customers for its products and services. Interestingly, in spite of the fact that the majority of the companies clearly understand this, they do no pay enough attention to choosing the most appropriate strategies and approaches to expanding internationally. Therefore, within a framework of this paper, we are going to analyse how the international company Uber entering a new foreign market – Estonia. In addition to this, we will explain the firm’s choice of entry model and its overall entry mode strategy by means of using relevant theories and concepts from international business.

To start with, there is a need to briefly overview the company, the entry model of which we are going to analyse. As it has already been indicated before, Uber is one of the most popular and lucrative start-ups of the recent time. To put it simply, it is an “American multinational online transportation company, with the main office in San Francisco, California" (Abboud & Wagstaff, 2015). The company was launched in March 2009, and since that time has expanded internationally into the majority of the developed and developing countries as well. The main area of expertise of the company lies in the developing, marketing and operating the Uber application. This application allows the users to quickly submit a trip request and find the car.

Entry Motives and Strategies of Uber

Talking about international expansion of Uber, it needs to be pointed out that it has started in 2012. In other words, in 2012 Uber has expanded the coverage of its application to Paris, Canada, and Australia. Later, in 2013 it also expanded its business into Singapore, South Africa, Seoul, Mexico. In 2014, Uber has announced that it has started its expansion into China and India, probably two biggest and rapidly developing markets in the world. In the late 2014, it has also expanded into such European countries as Poland, Denmark, Lithuania, etc. The next country to which the company aims expand internationally is Estonia (Hansalu, 2016).

To choose the most appropriate market or country to enter with its business, Uber uses a wide range of different tools. The first one is Dunning’s Eclectic Paradigm. According to John Dunning, this eclectic paradigm provides the companies with the opportunity to define and analyse three main types of advantages of international expansion of every organisation (Dunning, 2001). Those above-mentioned advantages include ownership advantages, internalisation advantages as well as location advantages. To put it simple, ownership advantages consist of tangible assets, patents and designs and organisational efficiencies. In its turn, internalisation advantages include “reduction in transaction costs, control over operations, avoidance of the tariffs as well as other barriers” (Dunning, 2001). The last but not least are location advantages, which include low-cost labour, low-cost raw materials, government incentives to foreign direct investors (Chowdhury & Mavrotas, 2006).

Giving consideration to international expansion of Uber into Estonia, it is worth mentioning that “since the major goal for Uber is to seek effectiveness in transport via technology, Estonia is an exceedingly logical place for the company to operate” (Hansalu, 2016). The choice of the county is totally based on the market assessment, which includes such features as market potential, competition level, legal and political environment, sociocultural differences (Sakarya, Eckman & Hyllegard, 2006). Talking about the expansion strategy, which Uber is going to use during its expansion, “the company is still looking into what would be the product strategy to use” (Sterling, 2014). To be more specific, in terms of value proposition, UberPop “is definite;y a very interesting service for customer and drivers alike, as well as for the city and the state in the broader sense” (Millian, 2014). Apart from this, in the majority of the countries and markets where company currently operates, Uber just adjusts its service according to the local conditions.

It needs to be pointed out that since the company does not have any ownership advantages, it pays more attention to location as well as internalisation advantages. The company considers that Estonia is the right place to test its new products due to the openness of the government and the customers. Therefore, taking into consideration a number of problems Uber faces with local taxi services around the world, government incentives in Estonia alleviate the process of international expansion.

Apart from using Dunning’s Eclectic Paradigm, to properly choose the new market to enter, Uber applies PEST analysis, which provides the company with the opportunity to estimate political, environmental, social, technological as well as other features of the market. According to Business Dictionary, PEST framework can be defined as a “type of situation analysis in which political-legal, economic, socio-cultural, as well as technological factors are examined to chart an organisation’s long-term plans” (NA, 2016). As it has already been indicated in the previous paragraphs of this paper, the choice of Estonia mostly depends on the political factors. To be more specific, since the attitude of Estonia government toward the implementation of new technologies is positive, Uber considers this country as a nice choice.

Taking into consideration economic factor, it is worth mentioning that in Estonia there are a plenty of expensive taxis, which cannot create a tough rivalry for the company. In spite of this, the company claims that it is not a problem for Uber service due to the fact that it just provides the people with the opportunity to choose but not trying to compete with them. In other words, “in most of the cities Uber has entered, the taxi business has stayed the same – it has just simply added an alternative” (Hansalu, 2016). In addition to all those above-mentioned, Estonia is a European country with a quite solid economy. Therefore, this factor positively affects the decision of the company and allows Uber to continue its European expansion. Talking about socio-cultural conditions, it needs to be pointed out that Uber does not try to change the preferences of the clients or to change their culture. Instead of this, it adjusts their service according to the local conditions and socio-cultural features.

The last but not least factor, which significantly affects Uber’s expansion into Estonia is a technological factor. Briefly speaking, since Uber is a technological start-up, in Estonia it introduced its, probably, the most popular service UberPoP. The explanation of this lies in the fact that it is “very interesting service for consumers and drivers alike, as well as for the city and the state in the broader sense” (Hansalu, 2016).

The choice of an Entry Mode

The other thing, which is worth to be mentioned within the framework of this paper is the choice of an entry mode. Before describing the entry mode of Uber into Estonia, it would be reasonable to briefly overview the major strategies, which are used by the majority of the organisations. Based on the factors mentioned in the Dunning’s Eclectic Paradigm, companies use such modes of entry as exporting, international licensing, international franchising, specialised modes (contract manufacturing, management contracts, turnkey projects), and foreign direct investment (greenfield strategy, acquisition strategy, and joint venture strategy).

Talking with regard to the first mode of entry, it is worth mentioning that it allows companies to have relatively low financial exposure and permit gradually permit the market. Nonetheless, in case of Uber this mode is practically useless since the company does not manufacture the products to export. The same thing can be told regarding other widespread modes of entry such as international franchising, foreign direct investment.

Instead of those above-mentioned approaches to international expansion, Uber uses international licensing. Within a framework of this particular mode, Uber “sets the boundaries of agreement with the local drivers, establishes compensation rates, agrees on the rights, privileges, and constrains conveyed in the agreement, and has the opportunity to specify the duration of the agreement” (Sternquist, 1997). Applying this entry mode means that every Uber driver has to get official license, which is immensely complicated process. To be more definite, “before coming to Uber, drivers need to secure a certificate from punishment register, pass a thorough interview where the company is able to assess if they are fit to Uber partners” (Hansalu, 2016). Apart from all those above-mentioned facts, Uber pays a constant attention to the reputation of the drivers, which it gets from the feedback system – “after every ride, client has to assess the driver” (Hansalu, 2016). Based on all these features drivers get Uber’s license and become company’s partners.

The explanation of the choice of this particular entry mode of Uber lies in the number of factors. The first and most importantly, international licensing has a low financial risk. In other words, all drivers use their own cars and pay small percentage of their earning to Uber for using its application. Therefore, the company does not invest money into the expansion and by means of such actions decrease the possibility of financial losses. Notwithstanding all the advantages, this particular approach has its limitations of drawbacks. To be more specific, the major disadvantages of international licensing include limited market opportunities, potential litigation, and competitive issues.

To put it simply, it is a well-known fact that the majority of the taxi services in all the countries where Uber operates are not too overjoyed at the plans of the company, and Estonian is not an exception. The explanation of this lies in the fact that Uber decreases their target audience by means of having better offering for the clients. Apart from traditional taxi services, Uber also meets the competition from other online taxi services such as Taxify, which is quite popular in Estonia. In spite of the fact that the company claims that “in main cities it cooperates with taxi drivers and people can use their platform to also order a taxi”, the rivalry issues remains to be one of the most notable for Uber (Hansalu, 2016).

Conclusion

To sum it up, in spite of a number of different issues and challenges Uber faces during its international expansion, the overall strategy of the company is quite effective. The only recommendation, which can be made regarding its expansion approach, is to combine different strategies instead of using only international licensing. For instance, it would be reasonable for the company to use the acquisition of joint ventures strategies. These entry modes will help Uber to have a control over firm’s resources, generate immediate revenues, and add new capacities to the industry.