Lyft’s Global Expansion into Vietnam: A Critical Analysis

QUESTION

Case Study Report International Business

Answer all questions.

Lyft Case Study – Global Strategy In recent years, several tech start-ups have grown in size and scale to become dominate players in the modern global economy. Amongst these are Lyft Inc and Uber Inc, both American tech start-ups offering ridesharing services. Lyft was launched in 2012 under the name Zimride, changing the name to Lyft in May 2013, and it is viewed as a smaller rival to Uber. Lyft was initially only a ridesharing/ride hailing firm, but has since expanded into offering vehicles for hire, a bicycle sharing system, motorised scooters, and more recently food delivery. In 2017, Lyft entered the food delivery service, initially partnering with Taco Bell for a short period. In 2020, the firm entered a partnership with another tech start up, GrubHub to develop a takeout delivery service. This strategic move was chiefly undertaken in response to the outbreak of COVID-19 and reduced ridership. The scooter services offered by Lyft are motorised scooters that can reach speeds of 15MPH; customers unlock them for a small charge and then pay additional fees per minute of usage. In 2019, Lyft partnered with Segway-Ninebot, in order to offer a more durable scooter. Lyft had previously partnered with Chinese multinational, Xiaomi, for its scooter service, yet this relationship ended in 2018. Lyft’s car rental service is offered in partnership with the German multinational car rental service, Sixt. This allows Lyft customers to rent a vehicle through the Rental tab of the app. Customers can get a Lyft ride to a Sixt location where they can pick up the rental vehicle. Lyft holds around 30% of the market share in ridesharing services in the US (second only to Uber), and in 2018 its revenues reached $2.2 billion. In 2018, there were 4.2 billion rides given by Lyft. Whereas Uber has an extensive global presence, as it pursued a rapid internationalization strategy, Lyft is restricted to North America. This presents Lyft with the opportunity to learn from Uber’s global activity and strategy. When comparing Lyft and Uber, Lyft has made several attempts to present itself as the more ethical alternative to Uber. Lyft has taken this approach as in recent years Uber has experienced a series of public relations failures, with allegations of systemic sexism, sexual harassment, and a disregard for regulation (at a global level). Lyft has seized on this opportunity to present itself in a different light, with substantial donationsto charity, and allowing customers to round up their fare to make a charity donation. However, these attempts to be viewed as a more ethical alternative have only been moderately successful. The outbreak of COVID-19 has presented challenges and opportunities to Lyft. Lyft has launched a program called “Essential Deliveries”, this service involves the delivery of medical supplies, test kits and meals for vulnerable individuals (with a focus on children or seniors) that can be picked up from distribution centres for contract free drop off. However, COVID-19 has provided disruptions for the firm, not only has there been a decrease in ridesharing and ride hailing activity, but it has also presented challenges for the Lyft Scooters segment of the business. Questions Lyft has appointed you as a consultant, once the current coronavirus pandemic is over, the company is considering investing overseas in Southeast Asia as global expansion is perceived at this time to be a potentially important element of the company’s long-term strategic goals. The country that Lyft is considering is Vietnam.

1. Carry out a critical evaluation of the benefits, costs, and risks associated with doing business in Vietnam.

2. Lyft has narrowed down its entry mode (into Vietnam) to three options: licensing, a joint venture with a host country firm or setting up a wholly owned subsidiary in Vietnam. Critically evaluate these three options. Which one would you recommend?

3. Use the Geert Hofstede framework on international workplace culture to compare and contrast the cultures of USA and Vietnam. Discuss how cultural differences would influence business/management practices.

4. Debate the relative merits of fixed and floating exchange rate regimes. From the perspective of Lyft, critically appraise the most criterial in the choice between systems.

ANSWER

 Lyft’s Global Expansion into Vietnam: A Critical Analysis

Introduction

Lyft, a prominent American tech start-up offering ridesharing and other services, is contemplating expanding its operations to Southeast Asia, specifically Vietnam. This report aims to provide a comprehensive evaluation of the benefits, costs, and risks associated with doing business in Vietnam. Additionally, it will critically assess three entry mode options: licensing, joint venture, and wholly owned subsidiary, and recommend the most suitable approach. Furthermore, the Geert Hofstede framework will be employed to compare and contrast the cultural differences between the USA and Vietnam, exploring their potential impact on business and management practices. Lastly, we will debate the relative merits of fixed and floating exchange rate regimes from the perspective of Lyft, offering a critical appraisal for the choice between systems.

Benefits, Costs, and Risks of Doing Business in Vietnam

Benefits

Untapped Market: Vietnam presents a growing market with a population of over 97 million people, offering significant growth potential for Lyft’s services.
Economic Growth: Vietnam has experienced robust economic growth, making it an attractive destination for foreign investments.
Government Incentives: The Vietnamese government offers various incentives to foreign businesses, such as tax breaks and simplified regulations.

Costs

Infrastructure Challenges: Vietnam’s infrastructure, particularly in transportation and logistics, may pose challenges for Lyft’s operations.
Cultural and Language Differences: Adapting to local customs and overcoming language barriers could require substantial investment in training and localization efforts.

Risks

Regulatory Environment: Navigating Vietnam’s complex and evolving regulatory landscape might present compliance challenges for Lyft.
Political Stability: Political uncertainties and potential changes in government policies could impact Lyft’s operations and investments.
Competitive Landscape: Lyft would face competition from local and established international players in the ridesharing and delivery markets.

Evaluation of Entry Mode Options

Licensing: Licensing would involve partnering with a local Vietnamese company that holds the necessary licenses and permits. This option offers low initial investment and limited exposure to risks. However, Lyft would have less control over its operations and revenue-sharing arrangements.
Joint Venture: A joint venture with a host country firm would allow Lyft to benefit from the local partner’s expertise and market knowledge while sharing risks and costs. However, decision-making and profit-sharing may become complex, and cultural differences could lead to conflicts.
Wholly Owned Subsidiary: Setting up a wholly owned subsidiary provides Lyft with full control over its operations and brand image. This approach offers greater long-term benefits but involves higher initial costs and risks associated with managing all aspects independently.

Recommendation: Considering Lyft’s aim for global expansion and the potential challenges in Vietnam, a joint venture seems the most suitable entry mode. This allows Lyft to leverage the local partner’s insights while minimizing risks and costs. However, careful consideration and a well-structured partnership agreement are crucial to address potential cultural differences and conflicts.

Comparing USA and Vietnam Cultures

Using Geert Hofstede’s framework, we can compare the cultural dimensions of the USA and Vietnam:

Power Distance
USA: Low power distance, emphasizing equality and decentralized decision-making.
Vietnam: High power distance, respecting hierarchical structures and authority.

Individualism vs. Collectivism
USA: Individualistic culture, valuing personal achievement and autonomy.
Vietnam: Collectivist culture, prioritizing group harmony and loyalty.

Masculinity vs. Femininity
USA: Moderately masculine, emphasizing success, ambition, and material rewards.
Vietnam: Moderately feminine, emphasizing cooperation, quality of life, and caring for others.

Uncertainty Avoidance
USA: Low uncertainty avoidance, promoting risk-taking and adaptability.
Vietnam: High uncertainty avoidance, seeking stability and adherence to rules.

Long-Term Orientation:
USA: Short-term oriented, focused on quick results and innovation.
Vietnam: Long-term oriented, emphasizing perseverance and tradition.

Impact on Business/Management Practices: These cultural differences could influence various aspects of Lyft’s operations in Vietnam, such as decision-making styles, employee motivation, and customer service approaches. Lyft must adapt its management practices to align with Vietnamese cultural norms to foster a successful business environment.

 Debate on Exchange Rate Regimes

Fixed Exchange Rate

Advantages: Stability and predictability in international transactions, reducing exchange rate risks and fostering investor confidence.
Disadvantages: Lack of flexibility to respond to economic shocks, potential for speculative attacks, and need for significant foreign exchange reserves.

Floating Exchange Rate

Advantages: Automatic adjustment to economic changes, allowing for better macroeconomic stability and reduced government intervention.
Disadvantages: Exchange rate volatility, uncertainty in international trade, and challenges for businesses in planning and pricing strategies.

Recommendation: Given the nature of Lyft’s business and its potential expansion into Vietnam, a floating exchange rate regime may be more suitable. This would provide the flexibility to adapt to economic fluctuations and mitigate risks associated with fixed exchange rates. Lyft should implement effective hedging strategies to manage exchange rate risks effectively.

Conclusion

Lyft’s prospective expansion into Vietnam offers both opportunities and challenges. A careful evaluation of the benefits, costs, and risks of doing business in Vietnam is essential for informed decision-making. A joint venture entry mode is recommended to balance the advantages of local insights and risk sharing. Understanding the cultural differences using the Geert Hofstede framework will aid in adapting Lyft’s business and management practices to the Vietnamese market. Lastly, a floating exchange rate regime appears more appropriate, given the nature of Lyft’s operations and the potential for future uncertainties. By navigating these considerations strategically, Lyft can position itself for successful international growth and contribute positively to Vietnam’s dynamic economy.