Most two-sided marketplaces — companies that function like Airbnb and Uber — have an ambition to take their businesses global, but they don’t always know what that means or what it takes. They follow their competitors to new international markets and duke it out for dominance, or plan their expansion around a little more than a hunch.
Simran Singh, Hyperwallet’s director of Strategy and Business Development, said that this method isn’t necessarily doomed to fail — but it’s not the best way to go about it either. Better to begin with a thought-out trajectory with quantifiable milestones along the way.
“It’s not a terrible strategy — just a blind one,” Singh said. “It may work for you, but you will never really know why. Even if a competitor is operating in the same space, their strengths and weaknesses will be different. You have to look at what your competitor did to succeed or fail, and how that translates to your own growth.”
For example, Singh noted that a company might expand to Canada and succeed because its business model thrives in condensed urban environments with strong payment infrastructure. Another company’s business model might fail if it needs a significant pool of available freelancers or needs to move goods rapidly across the vast distances of the country, whereas that same marketplace could find success in a country like South Korea, which is better aligned with its requirements.
A marketplace must know itself; it must know the country into which it hopes to expand and it must analyze how those two things line up, said Singh. Successful marketplaces like Uber and Airbnb have thrived because they took a holistic approach, rather than simply following a linear trajectory. They knew their own strengths and weaknesses, as well as those of the countries where they were putting down roots, which enabled them to adapt to any unique challenges in the markets.
Singh described his experience of founding and expanding a marketplace company, noting his own blind approach to expansion. Yet the question of where to expand is so fundamental and expensive, Singh said, that it’s surprising how many companies are willing to just throw their business model at the proverbial wall and hope that it sticks. The data is out there, Singh said, and it is in marketplaces’ best interest to leverage it.
That’s why Hyperwallet created the 2018 Marketplace Expansion Index: to help companies compare international markets side-by-side and make an informed decision about where they should expand for their best chance at success. Singh walked PYMNTS through the findings.
Things Are Not Always As They Appear
For the Index, Hyperwallet assessed 209 countries at the macro level, then narrowed their list down to 60 for deeper analysis. The company looked at factors like business logistics, workforce, internet penetration, payments infrastructure, market size, regulations and more. It also considered which companies and marketplaces had succeeded there — domestic and regional marketplaces only, or global marketplaces too?
In the final version, only 36 markets made the shortlist of the most appealing destinations for global expansion — though in Singh’s eyes, after you get past number 30 or 31, the attractiveness dissipates. He recommends that companies wait until those markets ripen.
“Certain countries might be attractive in some parameters, but they lack other things — and you need to know and account for that,” Singh said. “For example, Brazil is one of the largest markets in Latin America and there’s a lot of demand for marketplace services, but it’s so hard to move money in and out of the country — you’d need a plan for that.”
Singh said some countries have strict regulations around sharing economy business models. Even if all the necessary factors are in place and consumer demand is present, legislators have essentially prevented marketplaces from setting up shop.
According to Singh, this sort kind of barrier to entry typically emerges when legacy players who have clout with the government don’t want to compete with marketplaces and pressure leaders into legislating against it. Still, customer demand has forced the government to yield in some cases. Just because a market is off-limits today doesn’t mean it always will be.
For example, Singh noted, South Korea just rescinded its strict sharing economy regulations so that two-sided marketplace services can be established as long as they meet certain criteria — most importantly, demonstrating that the company is doing social good and not simply generating corporate profit. Simran Singh believes a similar change will happen in other restricted markets as customer demand continues to grow.
Singh also pointed to a few diamonds in the rough — countries not typically targeted by expanding marketplaces but which offer some overlooked advantages. Singh emphasized that just because a company’s competitors aren’t moving into a certain market doesn’t mean there isn’t a good opportunity.
The United Arab Emirates is a good example. Not only does it rank highly in many of the key parameters Hyperwallet measured, but it can also serve as a beachhead for expanding into other Gulf markets. Singapore fits a similar role, Singh said, and while many marketplaces dismiss it because the market is so small, the city-state can serve as a base for fine-tuning operations before branching out through Southeast Asia.
Australia is another country which often goes unnoticed, particularly by U.S. marketplaces. However, the sharing economy is wildly popular there, with 35 percent of the population participating as providers in a sharing economy. In the U.S., only 10 to 15 percent of the population can say the same.
What It Means
The sharing economy has boomed in recent years, and Singh projects that the trend will only continue. After all, young people are perhaps the biggest supporters of these new economy businesses. Even traditional companies are starting to look at ways to adapt to the marketplace model, whether creating their own platform or embracing an external one (for example, Nike finally selling its sneakers on Amazon).
“Companies are realizing that unless they evolve and embrace the sharing economy, they’re going to be extinct pretty quickly,” Singh remarked.
But it’s a big evolution for companies that are used to doing things a certain way, and many legacy businesses are going to need all the help they can get. Singh’s hope is that Hyperwallet’s 2018 Marketplace Expansion Index gives them a good place to start.