2 You are required to identify, review, analyse and critique International Business Practice of a real organization of your choice.
The article reports that in 2017 Uber merged its Russian assets with Yandex Taxi. Uber is an international technology platform that connects drivers-partners and the riders: an idea that was funded by two innovates. Garret Camp and Travis Kalanick met in 2008 in an annual LeWeb conference for startups and thought about how to crack the horrible taxi problem in San Francisco. The duo conversed and came up with the idea of connecting drivers and riders who were always stranded through mobile technology, and the Uber was officially launched in 2010. Since the introduction, Uber has continued to facilitate the functionality of the mobile application with the incorporation of up-to-date versions to advance the experience of the users; this has enabled the growth of Uber into more than77 countries and more than 616 cities in the world (Carolina and Amal, 2018, p.64). In 2013, Uber embarked on the global expansion to grab the advantage in the ride-sharing business; however, the expansion into markets such as Russia, South East Asia and China has resulted into losses of much money as it tries to gain a monopoly (Aman, 2018, p.566). Failure into the entry of such markets has resulted in merges with other transportation companies that understand the local business, and the landscape better than Uber, such as merging with Yandex Taxi.
Uber entered into the Russian Market in 2013 and begun operating actively in 2015 and invested over $ 100 million in 2016 with the aim to control over 50% of the Russian market. However, there was stiff competition from international companies such as Gett, Takeit and Yandex among many others (Kolhatkar, 2018, p.53).When companies expand into the global market; they face different challenges that range from political, cultural and economic factors (Rivera and Oh, 2018, p.245). Therefore, to succeed these companies need to have strategies entry strategies and before every entry, Uber always consider two most important factors: price competition and the ease of access into the market.
The principal entry strategies include direct exporting that entail right sling to the target market using own resources such as own distributors and agents. The second is the acquisition of an oversee company since the existing companies always tend to have a large market share and economic environment advantage over the new entrants (Hovenkamp and Carl, 2018, p. 1999). The strategy tends to be expensive but still offers the entrant instantly with the standing of being a local company hence receives all the assistance of the local knowledge, well-established customer base and local treatment by the government. Licensing entry strategy entails the transfer of the rights of the use of the product and services to another different company. The method is advantageous to the purchaser as it acquires a large share of the market.
Merging refers to the consolidation of assets of two or more companies with an aim to increase the performance and reduce the operation costs facilitating the growth of all the stakeholders (Braid, 2017, p.655). The merging of Yandex and Uber Apps ensures that the end users can acquire the services of the either of the two companies, a move that facilitates the seamless global roaming (Taxi Merger, 2017, p.10). For example, an Uber User from Paris going in Moscow can contact a Yandex. Taxi by using the Uber application thus becomes one of the most ride-sharing roaming agreements in the world. The merging is also advantageous to the Uber in Russia that was almost failing and being kicked out of the market due to stiff competition by the local companies, to remain relevant to the customers. Additionally, the move added the number of riders in the market hence reduce the waiting time, and cost of riding. The merging saw Uber investing about $ 225 million with a 36.6% share of the venture while Yandex spent $100 million with a 59.3 % of stock and the remainder was shared among the employees. The business venture operated in Russia, Azerkhastan, Belarus, Kazakhstan and Georgia.
Forms of Merging
There are different forms of mergers: Horizontal merger that takes place when two or more companies that are potentially active in the same market, at the same level of activity decides to join resources as one entity (Herger and McCoriston, 2018, p.324). Vertical merging takes place when different firms at different operational level decide to come together, and a conglomerate merging takes place when two firms from totally unrelated business activities come together.
Theories of Merging
Merging are important business development strategies and many business merges depending on the motives, hence results in different theories and models. These theories have been grouped into either economic, management, strategy or synergies motives.
Value Creation Theory
Value creating of merging that takes place when the business owner wants to create a value of the firm, through the use of another well-established firm; hence the owner approaches the firm to acquire synergy. According to Horowitz,Provizer and Barry(2013,p.1812) synergy refers to an increase in performance that a single united company obtains over those that are separated or independent since they incur negative synergies rather than positive synergies such as lower cost of operation. According to Czamy (2018, p.43) Identifies three sources of value creation in merging, these are financial synergy, managerial synergy and operational synergy. The financial synergy helps in achieving both the short and long-term goals. The short-term financial synergies include tax effects, price-earnings and improved liquidity while the long-term financial synergies include stabilized earning, capital redeployment and increased debt capacity. The managerial motives such as power needs, power growth and risk diversification also act as a source of merging of companies. The operating system such as economies of scale, services techniques and redeployment of assets also facilities merging of companies.
The Q theory of Investment
The Q investment theory also dictates why companies go for merging. The theory points out that when a company buys another company. The Q represents the quotient of the company’s market value to the replacement cost of the firm's physical assets (Murugesan and Murali, 2018, p.2637). Thus the theory states that if q is more than one (q>1), then any additional investment in the company would be valid since the profit acquired would be greater than the cost of the firm’s assets; however, when the q is less than one (q<1), the firm will be better off selling the assets rather than putting the assets into use.
Uber’s Porter’s Five Forces
Porter’s five forces were developed by Michael Porter in 1980 to be used by business as a competitive analysis tool in the market (Stindt.2017, p.994). The model is currently sued by industries that are going international to determine the probability of their success through conducting extensive research on the forces that entail: Threats of substitute products, the bargaining power of buyers, Threats of new entrants, instants rivalry within the industry and bargaining power of suppliers and forms the management tools.
- Competitive Rivalry within the industry forms the main driver of the success of a business in every market. The numbers of competitors determine the price of a product, thus when there are few competitions the product price tends to be high and when they are many competitors the product’s price tends to be low thus reduce the market attractiveness leading to the collapse of weakly established business enterprises (Ceptureanu, 2018, p.58). The Russian market tends to be competitive with a good number of established riders companies such as Gett and Yandex Taxi. These well-established companies offered Uber stiff competition as the new entrant hence would not have survived through licensing, direct exportation or any other means other than merging.
- The bargaining power of customers asses how easy the buyers can drive prices down: a large number of customers tend to drive up the price of a product and service, and when the number of buyers is few, the price tends to go down.
- Threats of new entrants occur when other business organizations launch into the same market to get the share of the success. With the new entrants into the market, the market share is reduced resulting in fewer profit margins. Uber was one of the apps that connected drivers and riders, however, many other companies such as Apple, Toyota, Microsoft and many others that have also come up with different ideologies such as Zipcar for car sharing, and self-driving cars posing the existence of Uber in different economies.
- The substitute products s and services also reduce the market share of the product as customers are always divided among the product and the substitute. In the transport industry, there exists the traditional taxi, bus and train private car owner who reduces the number of customers that are supposed to be acquired by the Uber industry hence reducing the profit margin. The advantage of the Uber over the others substitute such as train, is that customers are picked at the exact time, point and dropped wherever they need. Secondly, the Uber is cheaper than the traditional taxi with almost 1o-twenty percent.
- The bargaining power of suppliers always affects the price of a product or a service. When the number of suppliers; that Uber driver in the market, they tend to compete for the few riders in the market hence reducing the price of the service. On the same note, other drivers always tend to be multi-homing by driving both the Uber and the Yandex or other ride-hailing companies at different times of the day causing the bargaining power for the drivers since May results into shortage.
Uber’s 7Ps Analysis
After every entry into the market, business always conducts an extensive marketing process to enhance the awareness of the product or the service to the prospective customers (Mohammadi, Saghaian and Alizadeh, 2017, p.996). Uber being a technological application that connects drivers and customers conducted a marketing mix that entailed product, place, price, promotion, people, process and physical evidence.
- Product entails the needs of the customers, for example, the need of the riders to have a cheaper, convenient and reliable transportation system, unlike the traditional Moscow taxi drivers, bus and train system.
- Place ensures that the product is available at the point where the consumer needs it, therefore, through the use of Uber, the riders can be picked and dropped in every point they need without wastage of time and money.
- Price always dictates the value of the product and service and a large number of customers prefer relatively affordable prices. Uber cost tends to be cheaper than the traditional taxi riders by 10% less and picks drops customers on their points of need any time hence creating great value.
- Promotion entails the advertising strategies that create awareness of the product and services to potential customers (Poturak and Duman, 2017, p. 253). Uber Technologies does this through word of mouth the facilitated by the social media platforms such as Facebook and Instagram.
- People entail staff such as managing director that run the company from the frontline. The competence of the people dictates the success of the business, for example, the two founders: Garret Camp and Travis Kalanick are very innovative and business minded.
- Processes entail the delivery of the service to customers that ensures that the quality matches with the amount paid. The Uber’s application is easy to operate and contains a database of various drivers hence making it more reliable.
- Physical evidence requires that the services offered to entail some physical evidence that will agitate the customers. For example, Uber Tech is a service but has the availability of the phone and the car to make the customer receive the physical product.
Uber’s CAGE analysis
CAGE framework was developed by an international strategy guru, Pankaj Ghemawat to offer business with a way to evaluate different countries regarding the distance between them when a market entry research is conducted (Karpovich and Rymanov, 2018, p. 496). The CAGE framework identifies distance as an important aspect and includes both the physical geographical distance between the countries, cultural, administrative and economic factors (Dominguez, Gomez and Maicas, 2018, p.93). These factors provide a broader way of thinking about the perceived location, opportunities and concomitant risks associated with the global business movement.
Uber enjoyed the US cultural background that is more based on the individualistic approach, however, failed to acknowledge the subtle and nuanced difference in other foreign countries such as in Russia. In the US, trust becomes after the friendship is built, unlike the Russians that tend to believe in someone‘s honesty to build the trust. The difference creates different business relationship posed difficulty to Uber as aggressive entry into the market provide less time to consider those aspects.
The administrative distance entails the laws, policies and political process that are enforced by governments. The international relationship between countries such as treaties and international organizations tend to create grounds for the relationships between countries. For example, the Uber always experienced had time with the regulators and labor groups that always complained that the company operated as an unlicensed taxi service instead of being a mobile application, hence draining money from the transportation market (Berisha, Kutllovci and Shiroka, 2017, p.589). Such complains resulted in anti-Uber protest making the government to either ban or heavy levy fines on the drivers. The Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing in 2016 penalized Uber with one hundred thousand rubies for consumer’s confusion over the quality and safety of transportation services. The Uber database is accessed by both the driver and customer sorting out the riding service; however the customers do not get informed about the availability of the driving license and medical conditions if the taxi drivers.
Uber should have considered a careful look at the business practice and policies in Russia to determine whether they were appropriate for the business entry and model. For example, the operations should have been permitted by relevant authorities to convey its respects to the regulations and institutions. Uber should have also invested time in building the relationship with target market after knowing the existence of rival company such as Yandex: this would have helped in understanding the market trend and the customers’ behavior.
VIRO Framework is a tool developed by Barney J., and used to analyze the company's internal resources and capabilities to understand the competitive advantage (Lopes et al., 2018, p.659). According to Barney, the company's internal resources must be Valuable, Rare Imitable and Organized.
The fits analytical question is whether the resources add values to the firm to improve on the opportunities and defend it from the possible threats that might hinder the growth of the firm. If the response is yes, then the resources are considered valuable and if the response is no, the funds are considered not relevant (Lopes et al., 2018, p.660). The Uber’s resources in Russia, initially were not valuable as the firm continues running into loss, however, after the merging with Yandex, the firm experienced growth since it was not facing any threat and used the capability of the Yandex to prosper across the country, therefore, currently the resources are valuable.
The second question of the analysis determines the number of companies that can provide the same product or services in the market. When there are few suppliers of the same product, the resources become rare, thus grant the opportune it to monopolize the market, and when the suppliers are numerous, then the competitive advantage is reduced. Uber was the first company to connect drivers and riders; however, countless other companies have worked on the same technology such as Yandex the most popular search engine in Russia. Yandex embarking on taxi industry made the resource famous hence Uber was unable to infiltrate the market entirely.
When a resource is costly to imitate, it makes it difficult for other organizations to enter into such a business. The apps that connect drivers and riders tend to easy to imitate and cheap that is why they are numerous entrants into the business, and the provision of either the same or compatible products by companies such as Gett, Yandex, Traditional Taxi, Train and Buses, these reduce the competitive advantage of Uber in Russia.
The resources are required to be organized to capture the values through the management system, organizational structure, organizational culture, processes and policies. Through these, the organization is capable of realizing the potential of its valuable, rare and imitability of the resources. Uber’s organizational structure is organized with well-structured policies that enable it to make decisions on the available opportunities to grow.
Every business always dreams to expand; however the expansion follows different steps, and strategies to ensure success. Merging entry strategy is determined by motives that differ with each business such as Uber and Yandex. The motive to continue to grow and develop within the Russian market even after facing stiff competition pushed Uber to merge with rival Yandex. It is imperative for every business organization that is going abroad to conduct a CAGE framework analysis to understand the distances in an administrative, cultural, geographic and economic environment to tailor the business strategies appropriately to succeed.
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