Motives and triggers for Uber’s internationalisation.

First: Motives of Internationalisation

There are a mixture of motives that positioned Uber to be receptive to internationalisation triggers. These motives can be proactive, reactive, or both. The former “represents stimuli to attempt strategy change, based on the firm’s interest in exploiting unique competences (e.g. a special technological knowledge) or market possibilities”, where the latter indicates “indicate that the firm reacts to pressures or threats in its home market or in foreign markets and adjusts passively to them by changing its activities over time” (Albaum et al, 1994).

When Uber’s basic internationalisation model was investigated, it seemed like Uber is able to initiate a regional office in four days and kickoff operations (Smith, 2014). Yet what goes “under the hood” is much bigger and deeply complex. We were able to track a proactive, country-by-country localization pattern that consist of firstly identification of an opportunity, then positioning the firm to meet its needs. From such pattern, we concluded that managerial support and the desire to expand what was once a SME to a large transnational company. The management style in Uber is best described as entrepreneurial, risk taking with dynamic recruitment and communication systems (Koh and Winkler, 2014). Top management, as well as development team are all technologists who understand each others’ trade.

Management at Uber created a pricing model that aims to capture global economies of scale using a penetration pricing strategy; a low-entry price in order to build up market share and establish long term dominant market position, then rising the price as the demand for the service rises. This strategy wreaked havoc on the taxi industry. Not only convinced taxi drivers were persuaded to leave their low-paying job and join Uber, but other individuals who desire to earn more income had joined the fleet. By doing so, Uber is standing toe-to-toe with a century old industry (Dutton, 2014).

What the Taxi industry does not realise, it that Uber surpasses it in customer support and communication.It created a ‘People Operations’ department to deal with customer complaints and communication and take them very seriously. People Operations are also proactive; they make sure that customers receive a better service than the usual. People Operations contact customers who cancelled the service to ensure that the cause is not from their side, and if it was, clients are immediately reimbursed with Uber credit.

We have previously mentioned how uber is utilizing already existing technology advancement to connect drivers with customers, track the trip via GPS, and handle electronic payment (cash/card free) to create a cloud based application that is user-friendly.

Thus, Uber’s proactive motives aligns with Albaum’s et al (1994) suggested proactive motives for internationalisation which are profit, growth, managerial support, technology competence and foreign market opportunities. Yet Uber does not rely only on proactive motives, but reactive one as well.

As for reactive motives, it has to do with how a firm reacts to pressures and adjust passively (Albaum et al, 1994). Uber’s beginnings were, indeed, preactive motives as we have mentioned in the global expansion section of this case. Where people would download the app in locations where Uber is not yet operating in. Moreover, research revealed active Uber users had used the service in more than one european city. Lastly, Uber controls market saturation using their price surging model. As some point, demand will rise the price to make Uber costs the same as regular taxis. By doing so, Uber is actually controlling the demands of their service.

Westhead et al. (2002) reported the as a firm grows, it gradually move away from reactive motives towards proactive ones. In Uber’s case, reactive motives such as competitive pressures, saturation of market, Unsolicited foreign orders, and proximity to international customers were some of the passive motives for Uber’s internationalisation.  

Second: Triggers of internationalisation

It is suggested that internal and external triggers (also known as change agents) are key initiators for an SME’s, such as Uber, to internationalize (Hollensen, 1998). The internal ones’ deal with companies characteristics, while the external deals with environmental ones’ (Albaum et al, 1994). Certainly, these triggers did not arise on the spur of the moment, but as a result of the above mentioned proactive and reactive motives until the time is right to implement internationalisation.  

Internal Triggers

​It has been drawn from earlier discussion that Uber’s most valuable competency is it’s management and concept. Although Uber is a tech company at it’s core, it focuses on recruiting leaders who are open-minded and forward thinking (Smith, 2014). Uber’s claims to be borderless in its mindset, meaning they are not focusing on satisfying one market at a time, but many. Top management at Uber are comfortable in meeting people they don’t know well, such as potential country managers and drivers, and trust is given with boundaries (Smith, 2014) . Some of it communication is strictly virtual, where they have never met in person before. Thus, the organization is ran using an individualistic mindset that can be accustomed of US firms (Hofstede, 1990).

We have established earlier that management at Uber is perceptive in nature (Hollensen, 2012) and proactive for the most part. Thus constantly seeking opportunities to develop and expand their operations using new technologies, thus a new product life cycle “PLC” and diversified risk. New technologies are acquired through inhouse R&D, where founders themselves are tech savvy and capable. Their expertise allowed them to create a strong, yet user-friendly interface in an industry that seem unwilling or unable to innovate. For example, Uber introduced UberBoat, a boat taxi service, and UberHelicopter, a helicopter taxi service . Moreover, Uber is now catering towards business travel, as inhouse research suggested that business people are a profitable and sustainable market (Lauren, 2014).

Management have a keen interest in global opportunities. Especially that technology is fairly young with not many players in the market, thus Uber should be able to establish infrastructure, branding, market share, customer loyalty and trust before competitors. To illustrate the importance of these factors, a quick look on how Microsoft efforts for recognition had led them to pay $US400 million to have their products used at a sporting league, yet announcers were still calling them by the rival name, iPad (Gains, 2014).

By diversifying it’s country and product offering, Uber will be able to alleviate some of the risks and fluctuations in different markets. This could be seen in the way they manage foreign offices. Where Uber doesn’t try to “dropship a San Francisco solution” in each city (Smith, 2014). Managers in each city obtain the autonomy to alter the initial product as they see fit for the culture or market in which they operate. Whether it was luxury cars, standard cars, boats or even helicopters. Regional managers get to communicate on behalf of Uber, form partnerships, and decide on the special publicity stunt delivery events that Uber often conducts in certain cities. An example of a publicity stunt that has been done before is offering ice creams or kittens to customers (Petroff, 2013). This is an example of management's perceptive interest in internationalisation and localization.  

When comparing other modes of private transportation (car rental, ownership, taxi) with Uber ride sharing in terms of consumer’s theory income elasticity of demand, we can conclude that Uber, much like taxis, is considered an inferior good; when income falls, demand for Uber rises. Reasons being, Uber is cheaper and requires less commitment from the customer. It is also a mean of income for car owners with low income (Fowler, 2014). A recent study by Uber team compared Washington DC’s Uber hail before and after the U.S government shutdown in 2013. One could clearly see increase in usage of Uber due economic mischiefs, or special events (Hollensen, 1998).

Management’s mindset and the way it influences organizational dynamics is what’s defined as internal triggers of internationalization (Hollensen, 1998). While Uber’s core service, as a ride-sharing smartphone application, seem to remain the same across most of its global ventures (Petroff, 2013); it follows a centralized yet adaptable structure in various environments. To illustrate, Uber HQ prepared a standard, yet detailed, operating guideline to supply regional offices, but at the same time allows each city to execute the objectives in the most appropriate way to that certain culture or market (Petroff, 2013).

External Triggers

When considering external triggers, PEST country attractiveness analysis at the industry level comes to mind. This analysis examines drivers in home and potential markets. Due to the latitude of Uber’s global expansion, that is having a low risk entry cost and being able to start operation as quick as four days, we shall conduct PEST analysis from a global scope and provide country-specific examples.

There seems to be no hold back to political factors of which Uber choose to operate in. Yet there are reactive political movements in different countries. Some jurisdictions, such as USA had legalized it (Scribner, 2014) after a long court battle led by Uber’s recent hire, David Plouffee, Barack Obama's chief political strategists. Other jurisdictions, such as Australia, had banned and fined Uber due to the strong lobbying and oligopolistic nature of the Taxi industry in the country (Grubb, 2014). This is a new and challenging battle for Uber, whose political and legal arsenal isn’t strong yet. Uber’s tactic was to first, compensate fined drivers and make sure they remain a part of the operation. Second, start a political campaign leveraging on public demand for the service to target opinion leaders and political figures to break the taxi service oligopoly and transform markets (Grubb, 2014).

When it comes to economic factors, we have previously stated two facts. First, Uber is considered to be an inferior good, which demand raise as income falls. Costs of owning a car across countries will influence the usage of Uber (e.g. maintenance, parking, tolls, gas...etc.) Second, the data collected from application downloaders provide detailed demographic layout of the market. While the core product and service will remain the same, the type vehicles and fares will differ. We will use the previously mentioned comparison between UK and Ireland. Data collected suggested that London customers were willing to pay more for a faster and more prestigious service, UberLux. Where Irish demographics suggested the need for regular service, UberX.

Uber confessed using a price surging strategy, where the increase of demand rises prices of service. This strategy is very much country and city specific. This strategy intends to capture market share, by undercutting taxi services, then gradually increase prices as popularity, loyalty and demand arises. While many customers considered it “price gouging”, it actually motivated drivers to take more customers and rise demand (Hegde, 2014).         

Uber understands that different cultures require different approaches. For example, the kitten delivery campaign launched in USA may have not been successful say, in China (Petroff, 2014). The way Uber adapts itself to local and cultural conditions is relates to the fact that doesn’t want to “dropship a San Francisco solution” in every city. Regional hiring process leverages on local experts only to operate in each of their native cities, whereby localization, and marketing adapts to the local environment. Uber in Saudi Arabia, for example, had major success due to the fact the locals, in general, dislike arriving in a yellow painted taxi and found that Uber gives them the prestige they require, and the discreet to travel comfortably (Alriyadh, 2014).    

It would seem obvious that Uber, being a tech company at core, will rely on the smartphone market penetration. Yet some of the biggest markets, such as India, has smartphone market penetration of 16.8% only (Google, 2013) which may create an entry barrier for Uber unless it comes up with an alternative. Uber is already an industry leader and prides itself on having a strong R&D systems. It can perhaps leverage on the facts that India is the second user of cellphones in the world (CIA, 2013) and cheap labor costs (Said, 2013) to create a call-center type operation to serve that market.

It is not clear, until this moment, whether or not Uber operates in a gray area of the law. Since Uber doesn’t directly own any of it’s fleet or hires drivers, it may seem that they are not injecting FDI into any country. But in fact, Uber relies on it’s brand name and technological advancement to aid drivers. Some jurisdictions rules with it, some against it. If it was considered a car hire service, then it is faced with taxes and regulatory requirements. Uber was banned in some countries and permitted in others. Thus, for the time being, the 5 year old Uber is labeling itself as a “ride sharing” service to avoid lawsuit. Yes, it might lose few battles, but the war is not over yet. If Uber poured all of it’s resources in battling these lawsuits alone and liberalizing the industry, followers (i.e. competitors) may as well have the road paved for them, gaining a competitive advantage while Uber had lost millions in court cases. With that being said, it might not be in Uber’s best interest to fight these court cases alone.

Nawaf Almohaimeed