CC BY
6UDK 656.072
Dudaiti Georgii
master's degree, National Research University Higher School of Economics
Russian Federation, Moscow
STRATEGIC MARKET EXPANSION IN RIDE-HAILING SERVICES: ANALYZING THE DECISION-MAKING PROCESS FOR ENTERING NEW
MARKETS IN THE CIS REGION
Abstract: This article examines the strategic market expansion of ride-hailing services in the CIS region. It analyzes the economic, cultural, and regulatory factors influencing the decision-making process for entering new markets. The importance of adapting strategies to local conditions for successful implementation is emphasized. Theoretical models providing a structured approach to evaluating and entering new markets are explored. The experiences of various companies are used to illustrate successful practices for integrating into CIS markets.
Keywords: Market entry strategies, ride-hailing services, CIS, economic factors, cultural factors, regulatory factors, decision-making.
INTRODUCTION
The ride-hailing industry has emerged as a prominent segment within the global transportation market, propelled by technological advancements and evolving consumer preferences. As firms in this field aim to broaden their reach, strategic market expansion becomes a focus. Understanding the decision-making processes in entering new markets is crucial for comprehending the complexities and obstacles involved in such expansions. Commonwealth of Independent States (CIS) region presents a unique context for examining these theoretical considerations, given its diverse economic, cultural, and regulatory landscapes.
The primary aim of this study is to develop a theoretical framework for strategic market expansion in the ride-hailing industry, with a particular focus on the CIS region. This involves analyzing the economic, cultural, and regulatory factors that influence market entry decisions and exploring how l models of decision-making can be applied to this context.
MAIN PART. ECONOMIC AND CULTURAL ANALYSIS OF THE CIS
REGION
The Commonwealth of Independent States (CIS) market includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine. Theoretical perspectives on economic and cultural factors influencing market expansion emphasize the need to consider diverse economic environments and cultural dynamics within the CIS. Economic factors such as GDP growth, inflation rates, and investment climates are pivotal in shaping the success of market entry strategies. According to the CIS Interstate Statistical Committee, the region saw a 3.9% increase in GDP in the first quarter of 2024 compared to the same period in 2023. Specific countries like Tajikistan and Armenia exhibited significant growth rates of 8.7% and 8.8%, respectively (fig. 1).
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Figure 1. Gross domestic product growth rate in the CIS Countries in 2023, % [1] Cultural factors critically impact market expansion decisions, as the CIS region is characterized by a rich tapestry of cultural norms and consumer behaviors. In many CIS countries, personal relationships and trust are essential in business dealings. These cultural nuances influence consumer preferences and acceptance of new services, affecting market penetration strategies. Theoretical models suggest that aligning marketing and operational strategies with local cultural expectations can enhance consumer engagement and loyalty. For instance, the rise in retail trade turnover by 10% in the first quarter of 2024 indicates a growing consumer market that companies must strategically engage with [2].
The region's population dynamics, with a declining and aging population in some areas juxtaposed with youthful demographics in others, require tailored approaches to service offerings. For example, Russia and Belarus face aging populations impacting labor markets and demand for certain services, while countries like Uzbekistan and Kyrgyzstan, with younger populations, present different opportunities and challenges regarding service adoption and workforce availability. The overall labor force in the CIS was estimated at 115 million in the first quarter of 2024, with a 13% decrease in unemployment compared to the previous year, highlighting both opportunities and potential labor shortages [2].
Consumer behavior in the CIS region is influenced by both economic conditions and cultural factors. The theoretical implications of these behaviors suggest that ride-hailing services must adapt to varying levels of digital literacy and economic accessibility. The increase in commercial freight turnover by 3.8% and industrial production by 5.4% in early 2024 illustrates an expanding economic activity that could support market entry for ride-hailing services [3]. However, economic disparities affect affordability and usage patterns, requiring companies to consider localized pricing and service strategies to cater to diverse consumer bases.
REGULATORY AND INSTITUTIONAL FRAMEWORK
The regulatory environment plays a critical role in shaping the strategic market expansion decisions of ride-hailing services. Theoretical frameworks on regulatory environments emphasize the dual impact of regulations as both enablers and barriers to market entry. Regulations can provide a structured and predictable business environment, but they can also impose significant entry barriers through stringent compliance requirements. In the CIS region, the regulatory landscape is diverse, reflecting the unique legal and institutional frameworks of each member state [4]. This diversity necessitates a thorough understanding of local laws and regulations to effectively navigate the market entry process.
In the CIS region, institutional pressures include compliance with local laws, adaptation to business norms, and alignment with government policies. For instance, the «On the road traffic safety» law in Russia, which governs the operation of ride-
hailing services, mandates specific requirements for driver licensing, vehicle standards, and operational permits. Similarly, Kazakhstan's «Law on transport» outlines comprehensive regulations for passenger transportation services, including safety standards and operational protocols [5].
The theoretical challenges posed by regulatory frameworks in the CIS region are multifaceted. There is the issue of regulatory heterogeneity, where varying laws and standards across different countries create complexities for market entry. While Russia has implemented strict data localization laws requiring personal data to be stored within the country, other CIS countries may have more lenient or differing regulations regarding data management. Frequent changes and updates to regulations can pose challenges for ride-hailing services trying to maintain compliance. The «On amendments to certain legislative acts of the Republic of Belarus on transportation» law, which introduced new regulations for ride-hailing services in 2023, exemplifies how regulatory changes can impact market operations.
A theoretical understanding of the regulatory environments and institutional pressures is essential for devising effective market entry strategies. By aligning their operations with local regulations and institutional norms, ride-hailing companies can enhance their legitimacy and operational efficiency in the CIS markets.
DECISION-MAKING PROCESSES IN MARKET EXPANSION The decision-making processes involved in market expansion are underpinned by various theoretical models that provide a structured approach to evaluating and entering new markets. One prominent theoretical model is the Uppsala internationalization model, which posits that firms expand into foreign markets incrementally, gaining knowledge and reducing uncertainty through experiential learning. This model is applied in different fields such as medicine, technology, education, finance, and transportation to understand market entry complexities and manage operational strategies [6]. It emphasizes the importance of gradual market entry and the accumulation of market-specific knowledge.
Another significant theoretical framework is the Eclectic paradigm, also known as the OLI (Ownership, Location, and Internalization) model, proposed by John
Dunning. This paradigm suggests that firms' decisions to enter new markets are influenced by the advantages of ownership (proprietary technology, brand reputation), location (market potential, regulatory environment), and internalization (efficiency gains from internalizing operations rather than outsourcing). In the context of the CIS region, these factors play a crucial role as companies must assess the benefits of their unique assets, the attractiveness of the local market conditions, and the efficiencies gained from controlling their operations within these new environments.
Factors influencing strategic decisions for market expansion include both internal and external elements:
• Internal: financial stability, technological expertise, and managerial experience of the company;
• External: market potential, competitive dynamics, regulatory framework, and cultural compatibility.
For instance, the substantial economic growth rates observed in countries like Armenia and Kyrgyzstan, along with their relatively low levels of market saturation in the ride-hailing sector, present attractive opportunities for expansion. Conversely, the regulatory stringency in countries like Russia, with its comprehensive data localization laws, necessitates a thorough evaluation of compliance costs and operational adjustments.
Risk management and strategic adaptability are also pivotal components of the decision-making process. Theoretical perspectives on risk management emphasize the identification, assessment, and mitigation of potential risks associated with market entry. In the CIS region, political instability, regulatory changes, and economic volatility are prominent risks that firms must navigate. The Real options theory provides a useful approach to managing these uncertainties by allowing firms to make sequential investment decisions, thereby maintaining flexibility and the ability to respond to changing market conditions [7]. For example, a ride-hailing company might initially enter a CIS market through a joint venture or partnership,
which allows for shared risk and local market expertise, before committing to full-scale operations.
Strategic adaptability involves the capability of a firm to adjust its strategies in response to environmental changes. The Dynamic capabilities framework underscores the importance of sensing market opportunities and threats, seizing opportunities through effective resource allocation, and reconfiguring organizational structures to adapt to new market realities. In the CIS region, this might involve adapting service offerings to align with local consumer preferences, adjusting pricing strategies to reflect economic conditions, or modifying marketing approaches to resonate with cultural norms.
COMPARATIVE ANALYSIS OF MARKET ENTRY STRATEGIES
The selection of market entry strategies is a critical decision for ride-hailing companies aiming to expand into new regions. Various theoretical models provide a framework for comparing the effectiveness and suitability of different entry strategies, considering factors such as resource commitment, risk exposure, and control over operations. A comparative analysis of these strategies helps identify the most appropriate approach for specific market conditions, especially in diverse regions like the CIS (table 1).
Table 1. Theoretical comparison of different market entry strategies [8,9]
Strategy Description Advantages Disadvantages
Licensing Granting a foreign entity the rights to use ride-hailing technology and brand. Low financial risk, income from royalties, rapid market penetration. Limited control over quality and operations, potential for intellectual property theft, dependency on the licensee.
Franchising Allowing a foreign entity to use the ride-hailing company's brand and model. Reduced financial risk, rapid expansion, local operational control. Less control over franchise operations, potential brand inconsistency, reliance on franchisees.
Joint ventures Partnering with a local company to create a new ride-hailing service. Shared investment risk, access to local market knowledge, shared resources. Potential for conflicts between partners, shared profits, complex management structures.
Wholly- owned subsidiaries Establishing a fully owned ride-hailing entity in the foreign market. Full control over operations, protection of proprietary technology, potential for high profits. High financial risk, significant investment required, potential political and economic instability.
Strategic alliances Collaborating with local firms to enhance Shared resources, reduced risk, access to Potential for conflicts and misalignment of goals, less
ride-hailing services. new technologies, market synergies. control over operations, risk of sharing sensitive information.
Management contracts Providing managerial expertise and operational services to a local ride-hailing entity. Low investment risk, steady income from management fees, potential for strong operational control. Limited profit potential, dependency on the contracting firm, less control over long-term strategic decisions.
From the author's perspective, analyzing the decision-making process for entering new markets in the CIS region requires a comprehensive understanding of the diverse economic, cultural, and regulatory landscapes. Strategic decisions must balance resource commitment, risk exposure, and control over operations to optimize market entry and growth.
This assertion is substantiated by the successful experiences of companies in the ride-hailing services sector. One notable example is Yandex.Taxi, which has effectively expanded its operations across the CIS region. By leveraging local partnerships and adapting its services to meet regional needs, Yandex.Taxi has established a strong presence in countries such as Kazakhstan, Belarus, and Uzbekistan. Its strategic approach includes forming joint ventures with local companies, allowing for shared risk and enhanced market penetration.
In the fourth quarter of 2023, Yandex.Taxi's gross merchandise value (GMV) in the ride-tech sector experienced a significant increase of 50% year-on-year [10]. This growth can be attributed to several key factors. There was a notable rise in the number of trips, driven by an expanding user base. There was a higher proportion of trips at fare levels above the «Economy» tier. This shift resulted from the market trend towards newer and higher-class vehicles.
A prominent example of an American ride-hailing company that has successfully entered the CIS market is Uber. Uber began its expansion into the CIS region in 2013, starting with Russia. The company strategically leveraged its technological expertise and global brand recognition to establish a foothold in the region. By 2021, Uber had expanded its operations to several CIS countries, including Kazakhstan, Azerbaijan, and Belarus. Uber's market entry strategy involved
several significant components. The company focused on forming strategic partnerships with local firms to navigate the complex regulatory landscapes of the CIS countries. In Russia, Uber formed a joint venture with Yandex.Taxi. This partnership allowed Uber to benefit from Yandex's deep understanding of the local market while contributing its advanced ride-hailing technology and global operational expertise. Uber tailored its services to meet the specific demands and preferences of CIS consumers. The company introduced features such as cash payment options and localized versions of its app to enhance user accessibility and convenience. Uber also invested in marketing campaigns that resonated with the cultural nuances of the region, thereby increasing brand awareness and customer engagement.
The financial performance of Uber underscores its successful market penetration and growth in the CIS region. According to the company's Q1 2024 report, the number of trips increased by 21% compared to the same period last year, and the number of monthly active platform consumers (MAPCs) grew by 15% year-over-year. This indicates a significant increase in user engagement and trip frequency, important metrics for assessing market penetration and customer loyalty. Uber's gross bookings grew by 20% year-over-year, reaching $37.7 billion. Uber's revenue for the first quarter of 2024 grew by 15% year-over-year to $10.1 billion, with combined mobility and delivery revenue increasing by 19% year-over-year to $8.8 billion, demonstrating the company's ability to generate substantial income from its diversified services across different regions [11].
The comparative analysis of market entry strategies underscores the importance of selecting an approach that aligns with a company's resources, risk tolerance, and desired level of control. Each strategy, from licensing and franchising to joint ventures and wholly owned subsidiaries, presents unique advantages and challenges that must be carefully weighed against the specific economic, cultural, and regulatory conditions of the target market.
CONCLUSION
The strategic market expansion of ride-hailing services into the CIS region requires a multifaceted approach that comprehensively addresses economic, cultural,
ХОЛОДНАЯ НАУКА №6/2024
and regulatory landscapes. The decision-making process for market entry must balance resource commitment, risk exposure, and control over operations to optimize growth and sustainability. The successful expansion of companies such as Yandex.Taxi and Uber into the CIS region demonstrates the effectiveness of leveraging local partnerships, adapting services to regional needs, and navigating complex regulatory environments. Yandex.Taxi's significant GMV growth and Uber's increased user engagement and revenue in the CIS markets underscore the potential for successful market entry when companies strategically align their operations with local market conditions. The comparative analysis of different market entry strategies further emphasizes the importance of selecting an approach that aligns with a company's resources and objectives, ensuring a competitive advantage and long-term success in diverse and challenging regions.
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