The winners and losers in international markets
International growth is notoriously difficult to execute. Strategically there’s the question of which are the right markets at the right time. Operationally there is the matter of localizing products and marketing approach, finding the right talent and partners and avoiding regulatory pitfalls, to name just a few. We take a look at who were the trailblazing stars and who were lost strays in international markets in 2018.
- Bird / Lime
Electric scooter- and bicycle- sharing startups Lime and Bird clocked up enough column inches between them to circumnavigate North America in 2018, after raising $355m and $300m in June and July 2018 respectively. Apart from rolling out in over 100 US cities and campuses, they also turned their attention to international markets, starting with Paris, and subsequently launching in a handful of other cities in Europe and elsewhere.
Source: Crunchbase, LinkedIn, Company websites
Both companies appear to have avoided major controversy in international markets so far, perhaps after having learned lessons from objections raised by US cities such as San Francisco, Nashville, LA, and Denver. Indeed, international launches by these companies have been characterized by measures to appease local users and governments – Lime for example has reportedly invested $3m in a “Respect the Ride” campaign, asking new users in Paris to sign a charter for good behavior, in return for which they received a free helmet. Given the scale of these companies’ operations in the US, further international growth is expected to be a focus for 2019, potentially aided by an Uber acquisition of one of the two companies, and regulatory reviews, which might mean electric scooters can be used in more countries, for example, Germany.
Building on its launch in Canada and the UK in 2017, the direct-to-consumer beauty brand launched in Ireland, Denmark, Sweden and France in 2018. True to form for the company which started life as a blog, it has leveraged its community to grow internationally. The company reportedly searches its 1.6m Instagram followers for its international ‘superfans’ – not necessarily influencers, but highly engaged followers and brand fans. Employees then meet regularly with this core group, inviting them to exclusive dinners and events. This approach not only has the benefit of driving gains in word-of-mouth based awareness in new markets, but also of allowing the company to gather regular feedback and input from its customers to fine-tune its approach in new markets. The company has reportedly grown from $50m revenues in 2017 to $100m in 2018.
Glossier’s Paris launch was one event used to build the company’s ‘superfan’ community
It’s been a busy year for the Seattle-based dog-sitting marketplace (and Expansion Partner client). Fresh off the back of securing $155m in funding in May 2018, the company appeared to embark on a path of organic growth in Europe, setting up operations in London in July. In a slightly unusual move, Rover.com then made an M&A-based play, acquiring its largest European competitor DogBuddy in October, adding operations in Spain, France, Germany, Italy, and the Nordics to the mix. The combined build-then-buy play was a smart strategic move by the company. Planting a flag on the European continent gave the company additional market knowledge and a stronger negotiating position with its European competitor, enabling it to ensure it did not overpay for the acquisition. It was also no doubt a move which pre-empted major US-based competitor Wag, which raised $300m to expansion both in the US and internationally in January 2018, from claiming market leadership in Europe via a similar acquisition.
Rover.com’s London launch featured a dog swimming gala
- Ofo / oBike
While 2018 saw Bird and Lime take flight, it also saw bike sharing schemes Ofo and oBike crash and burn. Even given the companies’ access to Chinese-manufactured bikes, which reportedly cost as little as $300 a pop, the business model is enormously capital-intensive to expand. The problem was exacerbated by loss rates in new markets where, especially as first-movers, they suffered high incidences of vandalism and theft. oBike filed for bankruptcy in its home market of Singapore in July, and amidst reported difficult negotiations with major shareholder Didi Chuxing, Ofo withdrew or scaled back from a long list of international markets including the US, the UK, Spain, Italy, Australia, Germany and others.
What could the companies have done differently? We would argue they should have taken more time to engage government stakeholders and win the hearts and minds of consumers, proving they wanted to act responsibly to improve the lives of city-dwellers, rather than just dumping product onto city streets. As it was, they faced fines from the Environment Protection Authority in Melbourne, licensing and limits on fleet size in Singapore and a temporary ban in the Netherlands.
Uber appears to be experiencing some growing pains from its efforts to scale globally. The company continued to burn eye-watering sums of cash – a loss of over $1bn in Q3 2018 alone – but the year was more marked by stories of the company’s withdrawal from, rather than entry into, new markets.
In echoes of Uber’s withdrawal from China in 2016, Uber withdrew from Southeast Asia this year, in return for access to a minority stake in the market leader in the region, Grab. In the end it came down to funding and focus: Grab raised a total of $6bn to finance growth, dwarfing Uber’s relatively modest investment of $700m in the region. Uber similarly withdrew from Russia and central Asia, acquiring a stake in local incumbent, Yandex.Taxi.
These developments beg questions about the success of Uber’s plug and play international expansion strategy. Its competitors in local markets – the likes of Indonesia’s Go-Jek, India’s Ola, and of course, China’s Didi Chuxing, which snapped up Brazil’s 99 earlier this year – are all much better positioned to engage government effectively and offer a truly localized product. As as a home-grown company, Go-Jek drew the support of Indonesia’s government and people in a way Uber never could have done. And one of the secrets of Grab’s success was its ability to localize effectively in Asia, offering a bicycle-hailing service in Vietnam, and ensuring customer service representatives speak the dialect of the city of the caller in the Philippines, for instance.
Mark Zuckerberg must be breathing a sigh of relief that we are drawing to the end of 2018. Facebook has suffered a wave of data breaches, most seriously in March, when news emerged that third party developer, Cambridge Analytica had used the personal data of 87m Facebook users to help target ads for political campaigns in the US and UK, and latterly in September and December when further breaches were reported. The company faced scrutiny and tightening of regulation in the EU, when it had to change the way it collects data and consent from users to comply with GDPR, and it was fined $650m in the UK for the Cambridge Analytica scandal. The European Commission further ramped up pressure on the tech giant in September when it warned that if Facebook doesn’t change its “misleading terms of service” by the end of the year, it will call on consumer-protection authorities in EU countries to impose sanctions.
Facebook share price with major data breaches and regulatory action || Source: Yahoo! Finance
For the tech giant, the most concerning outcome of all these developments is probably the impact on Facebook usage in Europe. The company reported decreases in the number of daily active users in Europe for the first time in Q2 2018. The company blamed the GDPR rollout in May – which required all users inspect their privacy setting – as being responsible for the decrease. However, a further decrease in daily monthly users in Q3 is potentially suggestive of the start of a broader trend, as consumers in Europe become increasingly aware of data privacy issues and the impact of social media on mental health.
Source: Facebook Q3 Earnings slides
What can we take away from these observations? Firstly, that innovators need to act responsibly: it’s worth sacrificing some pace in execution for the sake of avoiding the ire of local governments and consumers and ensuring operations will be sustainable in a new market. Secondly, looking at Rover.com’s case, that rapid and nimble decision-making, and a test-and-learn approach are important organizational asset when it comes to launching effectively. Thirdly, many next generation consumer startups – Glossier and Peloton to name two – focus on building community; get it right and that community can be an invaluable assets in helping to inform strategic decisions on where to launch, as well as reducing launch marketing costs. Fourthly, it’s perhaps inevitable companies attract more regulatory scrutiny as they grow in prominence and revenues – investing in solid governance and data security measures should be key priorities as companies scale. Finally, looking at Uber’s case, perhaps the lesson is simply that international growth gets harder with time: ‘easy’ markets, the low-hanging fruit of international expansion are rightly gobbled up first, and there reaches a tipping point at which entering new markets organically – especially ones with strong local competition – may no longer represent a viable return on investment.