Benefits, Costs, and Risks of Lyft's Business in Vietnam (Case Study Sample)

Analysis of Lyft's International Business Strategy
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Analysis of Lyft's International Business Strategy
Introduction
This case study presents Lyft, a ride sharing entity that dominates the North American market as its geographic area of specialization. The entity had good financial performance that led it to be among the few firms that proved direct competition to Uber. However, the COVID-19 pandemic adversely impacted the ride sharing and other businesses of Lyft due to overall negative impacts on economic conditions. Several governments had to close their countries and to restrict movements to curb the spread of coronavirus globally (World Bank, 2020). Accordingly, Lyft considers expansion to other geographic regions to maximize on its revenue generation and has selected Vietnam in South Asia as its first destination in global expansion. Accordingly, this report looks at benefits, costs and risks of entering Vietnam and the different approaches that the company could use to enhance effectiveness of its globalization strategies.
Benefits, Costs and Risks of Doing Business in Vietnam
Benefits of Doing Business in Vietnam
Before entering into a market, it is essential to conduct market research to understand potential benefits, risks and costs of operation. Marketing research helps firms understand the expected internal and external forces that will impact it as it engages in the targeted market (). While COVID-19 pandemic adversely impacted economic conditions in different countries, the world remains united towards fighting the pandemic. According to Deshmuk (2021), Vietnam's ride-hailing industry would continue to record positive performance over the next five years, making its expected revenue to hit US$4billion by 2024. The forecasted compound annual growth rate for the sector in Vietnam is expected to be 16% from 2021 to 2025 (Deshmuk, 2021). Currently, there is an increase in consumer demand for the industry services, a major potential benefit to Lyft as it enters the market. However, there are increased new entrants and new innovative products into the sector in Vietnam over the recent years. Accordingly, the analysis of expected market is that Vietnam provides a potential entry level for Lyft due to its forecasted growth rate.
A major benefit that Lyft would get from venturing into Vietnam is the potential of growth. As firms enter into international markets, they enhance their revenue sources (Hill, 2014). The ride-sharing market is expected to record 16% annual growth over the next five years. Such potential growth in demand is a significant boost to Lyft's survival and success chances in Vietnam since more demand would make people look for other means that enhance their convenience. Higher demand can significantly reduce the adverse effects of higher competition in the market (Wild & Wild, 2012). Secondly, Lyft would obtain first-hand experience of its business strategy's applicability in other southeast Asian countries. As a business ventures into a region, it needs to conduct a feasibility study to test and determine success rates in the area due to international differences. Specifically, Lyft has concentrated its operations in North America, exposing it to a different business environment and culture from South Asian regions. Such cultural differences may pose a significant threat and risk to business success if the entity fails to learn and take necessary corrective actions (Moran et al., 2011). Consequently, entering the Vietnam market would provide Lyft with the opportunity to learn, understand, accept and incorporate its business model to other neighboring nations like Malaysia, Indonesia and Cambodia, among others.
Vietnam has developing customer demographics with a young population. Demographic factors play significant roles in determining the degree of change acceptance and adoption of technology. The young people are more willing to try new service delivery methods and prefer adopting technology than the old customer base. In this case, Lyft can rely on the young population to attract more customers willing to consume taxi services using app-based orders. A significant strength of Lyft per the case study is its ethical approach. Business ethics creates a positive or negative image in consumers' minds and dictates the overall brand position in the market (Crane et al., 2019). Public relations significantly influence a business's success since people love to consume services that make them feel important, appreciated, and respected. Accordingly, Lyft can rely on its robust ethical approach to improve its goodwill and succeed in Vietnam. Besides, most Vietnamese travel by motorbike. Therefore, there is a high probability of Lyft succeeding in the market motorbike segment of its business model within the Vietnamese market.
Costs of Doing Business in Vietnam
As the company enters the Vietnamese market, it will have to incur significant costs to ensure smooth operations. Lyft will invest high initial costs on product promotion to attract qualified drivers and customers to its business. Marketing and product promotion must adhere to the Vietnamese local government's regulations, and the message must be culturally acceptable to be effective (Crane et al., 2019). Secondly, Lyft will spend substantial resources to obtain governmental approval and also pay income taxes. Most governments use foreign investment as a source of revenue through taxation. Accordingly, Lyft must consider the frustrations experienced while dealing with bureaucratic approvals. Besides, Lyft will require an office as its headquarters in Vietnam, hence incurring costs to obtain its PPE. However, the main risk is business failure due to overcrowding in the Vietnamese market. Besides, most Vietnamese deal in cash, increasing failure risks since Lyft offers only cashless transactions.
Risks of Doing Business in Vietnam
The first analysis of market risks is to check the existing market share and identify potential competition. Market share and competition would help an entity understand the competitive landscape in an international market before venturing into it (Hill, 2014). Once a company understand the competitive landscape, it becomes easier to look at different strategies that would effectively venture into the market and create a brand position in the short and long-term (Hill, 2014). The dominant player in Vietnam's ride-hailing industry is the Singapore-based Grab, having launched the first app-based motorbike taxi in the region in 2014 (Deshmuk, 2021). Grab's influence in the country is significant that it completed sixty-two million rides in the first half of 2020 despite the adversity of COVID-19 (Deshmuk, 2021). In this case, Grab holds seventy-five percent of the market share in the country, making its position to remain stronger in most urban centers like Hanoi and Ho Chi Minh City. Other major shareholders of the market in Vietnam include Vietnam's Be and Indonesia's Gojek (ReportLinker, 2020). Such market dominance presents a major risk to Lyft since it would be difficult to break the market unless it adopts unique strategies to succeed. However, such market share also provides potential benefits since it would give Lyft the necessary popularity and edge if challenges the leader in the market. There are talks of likely merger between Grab and Gojek in the industry, posing a potential risk to operation of Lyft in the sector due to increased competitiveness. Such merger would increase the firm's bargaining powers, which would make it hard for competitors to use pricing to create a competitive niche in the market. For instance, Grab's acquisition of Uber's southeast Asian operations rendered the firm more bargaining power in the market that helped it dictate pricing, drivers' fees while scaring potential competition in the region (Deshmuk, 2021). Thus, the main potential risk is failure due to stiff competition and adverse business environment caused by huge dominance of the market by Grab.
Entry Strategy
Licensing
Successful globalization depends on the preferred entry mode. One of the proposed entry modes is licensing, representing a contractual arrangement to transfer a firm's right to distribute or manufacture a product or service in a foreign nation (Neelankavil, 2015). Lyft could identify an existing company and license it to utilize its expertise such as patents, trademarks, company name, technology and design in Vietnam. This venture approach would make Lyft receive a fee and a percentage of the sales revenue to exchange the rights. Using this approach would provide a better choice if the Vietnamese market has substantial barriers to imports and investment and low sales potential in the target market. However, Vietnam does not have restrictions to foreign direct investment in the hailed taxi sector. According to Dezan Shira and Associates (2015) report, Vietnam has witnessed an increased surge in foreign direct investment over the past ten years. Its relatively low wages, high political stability and inclusion in the Trans-Pacific Partnership have made it a better target market for foreign companies. There is an increased liberalization of market access by foreign companies due to Vietnam's WTO accession (Dezan Shira and Associates, 2015). In this regard, Vietnam presents a more promising market, and licensing would limit revenue potentials. Besides, Lyft intends to learn the applicability of its business model in South East Asian countries. In this regard, using the licensing approach would deny it the opportunity for a first-hand experience of the market.
Even though licensing would provide Lyft with an easy entry into