In modern conditions, practically any successful company ultimately reflects on the decisions that may affect its prosperity in the future. One of them involves the expansion of the boundaries of selling the organization’s products and services as well as the access to foreign markets. Moreover, currently, the growing level of internationalization allows the leading companies in a particular industry to go beyond their domestic markets. However, this decision must be justified as the process of the company’s expansion in the foreign market is accompanied by a variety of risks. They are primarily associated with the fierce international competition as well as the legal issues. Thus, it requires thorough market research. Given the unfavorable situation in the political sphere of many countries, the process is quite complicated and requires more careful approach to the study of the environment, the choice of market, and, accordingly, the development of the expansion strategy for a particular country taking into account all its features. At the same time, despite all the risks that accompany the process of expansion, it is often a necessity for the companies operating in the conditions of globalization which contributes to the relevance of the problem. Therefore, the following research focuses on the analysis of the process of expansion in foreign market by using recent activity of Uber Technologies (an American developer of application for the use of taxi services) in India as an example. The work also covers the issues that company has to face when operating in the overseas markets.
Expansion in the Indian Market
Companies are usually involved in foreign economic activities in two following ways: by seeking for organizing the sale of their products and services abroad through the intermediaries or by expansion in the foreign market. Such involvement occurs due to the fact that the organization’s production capacity exceeds the needs of the domestic market, or because the foreign markets offer more opportunities for the development. Prior to entering foreign market, the company must clearly define its objectives and expansion strategy as well as the business model that is to be used under new conditions. First of all, it needs to scale its activities in another country. In this regard, many companies usually do not exceed their capabilities, while starting a small foreign branch. Moreover, some of them adhere to this principle in the future, considering foreign operations as a minor part of their activities. However, other companies perceived the overseas markets as the equivalents to the domestic one and even view them as being superior in terms of value. Second, the firm must decide upon how many foreign markets it will work with in order to avoid wasting valuable financial resources. Third, the company must decide what kind of country it wants to work in. Its attractiveness depends on the type of goods and services offered by the company, geographical factors, income levels and population composition, the political climate, and some other features (Ball, 2010).
Uber entered the Indian market of passenger transportation services in 2013, marking the company’s expansion to Asia. The primary reason for the choice of India as a launch pad for the penetration in other Asian markets (e.g. China) was a high level of development of the IT industry in the country, that made it one of the most attractive markets for the providers of online services. In particular, it is largely concentrated in several clusters such as Bangalore, which was the first Indian city covered by the company’s services (Bellman & Thoppil, 2014). The penetration rate of the fixed internet in the country is not high, but mobile internet is quite popular. In addition to this, internet cafes are the most common access points for users. The number of users is growing steadily including the ones residing in rural areas. Moreover, the Indian market presents a wide array of opportunities for the developers of mobile applications due to high number of mobile phone users in the country as well as users of mobile internet. Additionally, smart phones and credit cards become more common as the number of people using them is growing steadily. Thus, as it was mentioned before, Uber has started its expansion in the Indian market from Bangalore by utilizing its specific business model that quickly went viral (Bellman & Thoppil, 2014). Despite complicated legal framework in India as well as abundance of regulations, which has presented serious obstacles to many other companies, Uber Technologies was capable of entering the market without any significant problems. Since its launch in Bangalore, the company has been expanding its presence to other cities and creating its largest foreign network. According to the estimates, Uber’s platform is used by thousands of Indian drivers as a means of connection with about 15,000 customers on a daily basis (Bellman & Thoppil, 2014).
Despite the fact that Uber Technologies is yet to become the leading company in the Indian market of passenger transportation services, it has already attracted the attention of drivers, customers, competitors, and the government due to its rapid progression, covering new towns with each passing month. The business model of the company is primarily based on a phone application that has simplified the processes of booking and tracking a taxi as well as paying for its services. However, it also includes the presence of small teams of professionals that target new areas and expand the presence of the firm. In general, the expansion strategy of Uber Technologies in India is as follows. First, a team of specialists for the launch in a new city is formed. In most cases, it consists of a local chief executive officer that supervises the process of expansion, community manager responsible for customer support and marketing, and operations manager that deals with drivers. Such approach has allowed the company of running its Indian branch with only 40 people. In its turn, the reduced amount of employees allows cutting the administrative expenses, which has a positive effect on the organization competitiveness. Additionally, the mentioned teams of professionals usually worked in temporary offices that also reduced the company’s operating expenses (Bellman & Thoppil, 2014).
In order to increase the users’ and drivers’ awareness of the company’s services, the management of Uber Technologies has made the decision to organize launch parties in New Delhi and Mumbai. By using well-known automotive brands such as Mercedes, Audi, and BMW, the company has managed to attract the attention of Indian consumers. At the same time, the streamlined recruitment system has allowed finding and training a significant amount of drivers in a short period of time. In most cases, drivers required only the corresponding paperwork and several hours of training to become a part of a newly established system. The absence of bureaucracy and low requirements for the applicants has resulted in growth of Uber’s popularity among the drivers. In particular, the news of the ability to join new company with ease, to make good money, and to receive payments on a weekly basis (which is quite rare in India) has resulted in an enormous inflow of new drivers. The effect was so strong that many of them had to resort to purchasing new vehicles in order to be accepted by the company. Uber Technologies has used newly obtained popularity in introducing a medium-priced taxi ordering service to India, which has allowed it to occupy a significant share of the local market of passenger transportation services (Bellman & Thoppil, 2014).
Thus, it is possible to say that Uber Technologies has chosen to enter the Indian market of passenger transportation services due to its high attractiveness in terms of growing popularity of mobile technologies in the country. By using a streamlined expansion strategy, product placement, and aggressive marketing, the company has managed to increase the consumers’ and drivers’ awareness of it. However, no modern expansion to the foreign market can be complete without competition – a problem that will be reviewed further.
The competition in the foreign markets is a phenomenon that is more complex than the one that takes place in the national market. In particular, on global scale, one must distinguish the competition between national producers that are under the patronage of the government and local authorities, and the one between the foreign players operating in the market that can create more serious problems. The need for examining the state of competition in new market is also important because the company is most vulnerable at the time of entering it. The wider the range of competitive advantages of the firm and the higher their level of quality in comparison with the benefits of competitors, the greater its success in global and national markets. It should be noted that the situation on the external market is not immutable. For example, a new supplier or manufacturer may emerge, and thus change the whole competitive game. The objective of the company is to obtain the ability of mobilizing its efforts and timely adjusting its competitive strategy (Ball, 2010).
Considering growing popularity of the Indian market for foreign businesses and investors, it is clear that the competition between Uber Technologies and other companies working in India is expected. In particular, Ola Cabs, which is currently dominating the local market of the passenger transportation services, is the major competitor of the company. However, the large-scale competition between Uber and Ola is yet to begin. The reason for that is the fact that the majority of people in the country do not even own a car. Still, it is possible to say that the competition in the Indian market of online taxi mobile services reached a new level since Uber Technologies and Ola Cabs have launched new projects to provide car rental. This measure is expected to involve hundreds of thousands of new drivers. In Western countries such as the US, Uber Technologies was able to attract car owners to becoming taxi drivers but, as it was mentioned before, the percentage of ownership of cars in India is one of the lowest in the world, so the taxi companies have to provide drivers with vehicles. In particular, the company has to conduct the negotiations with local automotive holdings and organizations to establish agreements on the rental of the locally produced vehicles to the drivers working with Uber (Bellman & Thoppil, 2014).
Additionally, in order to increase its market share in India, Uber Technologies has presented UberAuto – its first system that allows customers to pay in cash for the company’s services. The service, which involves the first category auto-rickshaws, has been launched in New Delhi. At the moment, it is aimed exclusively at the payment in cash, with the rates being calculated on the basis of the existing transport regulations. The service works like any other form of Uber vehicles and is quite similar to the service that is run by Ola. The user opens the application, selects the parameters UberAuto, and waits for the confirmation from the driver. Due to the focus on the payments in cash, users can order the car even in case they do not have enough funds on their electronic purses (Malhotra, 2015).
The primary reason for the implementation of such system is the fact that rickshaws are an important part of the transport ecosystem in many Indian cities. In particular, they are the cheapest and easiest way to get from point A to point B. Therefore, in this sense, auto-rickshaws are Uber’s main competitors in the sphere of passenger transportation. Thus, providing people with an ability to order a rickshaw through Uber platform allows increasing both coverage and attractiveness of the services at the same time. The amount of downloads of the application is also expected to increase. In addition to this, there is a good chance that by downloading the application, users will want to use other services of the company. This process results in even greater increase in revenue than from the introduction of UberAuto. In the countries of the East including India, the payment in cash still dominates over cashless one, meaning that the described initiative is likely to help the company to expand its presence in the country significantly (Malhotra, 2015).
As a result of all the above mentioned measures including the successful competition strategy, the services provided by Uber Technologies are currently available in eighteen major Indian cities, which makes this country the second largest market of the company after the United States. Still, Ola, a direct competitor of Uber Technologies, remains the market leader as it covers more than 40 cities. However, Uber Technologies is focused on the most important metropolises where the company is rapidly expanding the range of services that are available to users. However, such expansion requires significant investments on the side of the organization. As a result, Uber Technologies plans to invest about 1 billion dollars in the development of its taxi services in India during next months. The additional investments will be used to improve services, to expand into new markets as well as to develop new products and payment solutions. Additionally, Uber Technologies seeks for increasing the number of drivers in India from 50,000 to 200,000 by 2016. The number of the cities covered by the company is expected to increase from 18 to 40 (Mohan, 2015). Finally, the investments made by Uber Technologies to the Indian market will also be spent on the strategic cooperation with other players in the sphere of passenger transportation services.
Thus, Uber Technologies has managed to compete with local and more experienced companies on equal footing. However, the competition is not the only problem that the company has to deal with. As it was mentioned before, India has a complicated legal framework and abundance of regulations, which may present serious legal issues including the ones that will be discussed further.
It should be noted that the rationale for strategy of entering foreign market has a number of important features, for instance, taking into account local legislation, international standards as well as the religion and traditions of the market, corporations, and countries that are among the company’s targets for expansion. The failure to cope with them may result in a wide array of problems for the company, which, in its own turn, may vary from financial fines to the ban of its activities on the national scale (Ball, 2010).
In the case of Uber Technologies, these problems mostly stem from the mismatch of the rules of service provided by the company to the legislation of a number of countries. As it was mentioned before, the hiring procedure used by the company is rather streamlined, and the requirements for the applicants are rather low, which means that the system is poorly protected from the potential criminals and violators. In this regard, the case that took place in 2014 is especially illustrative. In that year, the police force of Delhi has arrested one of the drivers working with Uber Technologies on charges of raping a passenger. Following this, the city Department of Transportation has banned the running of the service. It should be noted that Uber Technologies representatives claimed that the company offers cooperation only to the drivers that have an official license and full insurance (Malhotra & Thoppil, 2015). However, the organization does not run independent checks of the drivers; it relies instead on the inspections carried out by local public authorities. Thus, the failure to ensure the safety of its customers, namely women, has resulted in a significant obstacle to the expansion of Uber Technologies in India. In order to continue its working in the country, Uber Technologies was forced to change the format of its business. The successful steps in this direction have allowed the company to resume its running. As a result, Uber Technologies currently works in Delhi with its own dispatch service. Moreover, after the incident, the company has started working exclusively with the drivers that have passed a police check, thus changing its recruitment strategy. Also, Uber Technologies has started carrying out independent checks on a regular basis. They include the drivers’ checks as well as all necessary documents for vehicles. Such an approach allows not only increasing the level of security of the passengers, but also the quality of the offered services. Another step for ensuring the safety of customers was adding so-called panic button to the application as well as the introduction of customer support service that may be used in emergency (Malhotra & Thoppil, 2015).
It is possible to say that the example of Uber Technologies shows that the presence of unique business model and well-developed expansion strategy may allow the company to enter the foreign market and obtain a significant share of it in several months. One may argue that the primary reason for the company’s success was the viral nature of Uber’s marketing in India. Moreover, taking into account the peculiarities of a particular country (e.g. low salary and the absence of payments on a weekly basis as well as low popularity of credit cards), it may result in a rapid increase in the amount of applicants (drivers). In turn, the company’s presence expands, allowing it to compete with local players on equal footing. However, the very same measures may result in the emergence of some legal issues that may hinder the development of the company’s foreign branch and even lead to a ban on its activities in the country. In particular, these issues resulted in the change of Uber’s business model in Delhi, which was undoubtedly accompanied by the additional expenses without mentioning the damage that was done to the company’s reputation. Thus, the importance of considering all the challenges presented by the global trade, as well as the comprehensive analysis of a potential foreign market, is not to be underestimated.