The Challenges of International Entrepreneurship at Expatica.com case study aims to identify and solve the key problems in its fast internationalization process for the company's management team and help it with the next stage of development.
Christopher Williams; Judith vanHerwaarden
Harvard Business Review (W11202-PDF-ENG)
September 23, 2011
Case questions answered:
- Identify key problems.
- Provide mutually-exclusive solutions.
- Evaluate the solutions.
- Provide Recommendations.
- Provide Implementation Plan.
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Case answers for The Challenges of International Entrepreneurship at Expatica.com
1. Executive summary – The Challenges of International Entrepreneurship at Expatica.com
Expatica is a “born global” company founded with the mission of providing expatriates with quality information and community platform in the host countries. In eleven years, Expatica has expanded rapidly to 11 countries with 9 online products and several offline events, however, it received a poor market response in some countries and certain products have been proved unprofitable.
This report aims to identify and solve the key problems in its fast internationalization process for the company’s management team and help it with the next stage of development. Expatica’s target customer segments are the expats on “orientation” and “settling in” phases in different nations.
To meet customers’ demands, the company focuses on national differences by identifying local needs and using local resources. For their development, although online advertisement has become a popular marketing way bringing an opportunity for Expatica to increase revenue, they faced the threat of customer reduction due to competitor websites and the global economic recession.
In addition to those external threats, Expatica itself has some weaknesses such as lack of product innovation, limitation of the finance, and the shifting corporate structure, in which the front two issues are emergencies that needed to be tackled first.
Based on the assessment criteria, we chose the most reasonable solution for those two problems, including withdraw from unsuccessful markets and cut off the less popular products to focus on its standout services. Detailed implementation plans are provided for Expatica to improve its business actions in the short-term and long-term.
2. Introduction – Expatica
Expatica is an online site that provides tailored products and services for English-speaking expats community away from their home (Williams & Herwaarden, 2011). Bram Lebo, one of the founders of the Expatica, identified this unserved niche market from his own experience as an expat. Expatica was later founded upon Lebo’s entrepreneurial orientation and has from its foundation been an early adopter of internationalization (Knight & Cavusgil, 2004).
In 1999, Expatica was primarily a provider of free, high-quality online news and information to the expat community. By nature, Expatica’s product offering caters to specific, global, niche customers, and already by 2002, still early in the firm’s life cycle, the company served in four countries, namely the Netherlands, Belgium, France and Germany, and their workforce was mainly employed through global sourcing.
According to Knight and Cavusgil (2004), these are distinctive characteristics of a “born global” company. Expatica is pursuing a focused differentiation strategy, as it is targeting a niche market and providing high quality and customer-specific offerings (De Wit & Meyer, 2004)
After the acquisition in 2006, the two Dutch entrepreneurs, Antoine van Veldhuizen, and Mark Welling got controlling ownership over the firm, and from this followed the establishment of a new platform to meet opportunities in the international market arising from emerging technologies and the ever-changing consumer needs.
Although Expatica expanded their offerings to eight online territories, including jobs, housing, ask the expat, dating sites, etc., to secure more markets, it still faced multiple obstacles within the company, external environment change and fierce competition due to the key limitation of “born globals”, namely liability of smallness and foreignness (Zhou et al., 2007).
The purpose of this report is to conduct a comprehensive analysis of the challenges of international entrepreneurship at Expatica. The report is divided into five main sections: (1) Key problem analysis, (2) Solutions, (3) Evaluation of solutions, (4) Recommendations, and (5) Implementation. Following this, a conclusion is made based on these sections.
The report provides, in particular, recommendations concerning the sustainability of the company’s current product mix is and its outlook on internationalization into new markets in the future.
3. Key problem analysis
3.1 Lack of product innovation
The first problem identified for Expatica is the lack of worldwide innovation and learning. Innovation has been long identified as one of the crucial factors that underpin the competitive advantages of an organization (Neely & Hii, 1998). Like many born-global companies, Expatica chose the traditional cross-border innovation processes, which can be analyzed based on sensing, response and implementation capability (Bartlett & Beamish, 2018), to create its new products and services.
It started its innovation first by adopting the “local-for-local” process, where the local initiates sense local consumer needs, resources are allocated locally, and implementation varies from place to place (Bartlett & Beamish, 2018). Expatica has been working with local sales agents through the franchise model and gave full autonomy to local partners to generate and try out new ideas after decentralizing its corporate structure.
However, it has faced decreasing profits and the failure of duplication of its successful “I am not tourist” Expat Fair event in Dutch. As addressed by Bartlett and Beamish (2018), the “local-for-local” approach can face the risk of “reinvention of the wheel” due to subsidiaries’ confidence in resource and protection of autonomy. Expatica experienced this risk in 2010 when its resource-rich partner in Belgium decided to implement several changes and then failed to attract a sufficient number of expats to participate.
Expatica switched to the “center-for-local” innovation process later during the re-centralization phase. Specifically, it launched Expatica Dating in over 130 countries, an idea generated by the center of the company and can be implemented in any country with innovation resources located at the headquarter.
However, this process also has its weakness, the lack of local market responsiveness (Bartlett & Beamish, 2018), as the new Expatica dating sites were not as popular as the first few. Therefore, Expatica’s adoption of only traditional cross-border innovation processes was insufficient for continually developing new products and keep a sustainable competitive advantage.
3.2 Financial limitation
The second key problem identified is that Expatica’s business model is highly dependent on a limited source of income. Scarce financial resources are common characteristics of born-globals and a weakness that may constrain its performance and strategic flexibility (Knight & Cavusgil, 2004). 90 percent of the generated revenue comes from online advertising.
A firm’s ability to perform relies on the firm’s organizational capabilities to utilize key resources (Knight & Cavusgil, 2004). Financial limitations can weaken one aspect of its organizational capabilities – that is, Expatica’s aptitude to adapt to changes in the business environment.
This leaves Expatica vulnerable to negative shifts in the external environment beyond the company’s control. Macroeconomic factors, like economic cycles, are inevitable to all MNCs, and deficient capabilities to manage risks from these external forces limit the firm’s multinational flexibility, and thus abates its competitiveness (Bartlett & Beamish, 2013).
Although Expatica survived the financial crisis in 2008, evidently, advertising decreased and consequently, the competition between suppliers of advertising space increased. The weakness of this business model, which can be referred to as a ‘liability of smallness’, is common amongst many born globals, as these companies often lack the weight of tangible assets that large traditional companies frequently rely upon to increase their performance level when entering into new markets (Knight & Cavusgil, 2004).
3.3 Shifting corporate structure
Lastly, we have identified a shifting corporate structure as a key problem and an obstruction of future growth opportunities for the Expatica. Within the first three years of van Veldhuizen and Welling controlling the company, they changed the structure of the company from a centralized structure depending on in-house personnel, to reducing full-time staff by 60 % and instead rely on franchise based agencies and partnerships by the end of 2007, to again reinforce centralization after the franchise structure started to burst in 2009.
The intention of the franchise structure was to take advantage of cost reduction through commission-based salary and diversify its income generation, but without much core competencies left within the company the firm ended up in quality-cost bargainings with outsourced partners that the company had made itself dependent on. Also, the additional income creation failed to materialize as the franchisees did not deliver results as expected and the ‘I am not a tourist’ fair proved difficult to imitate profitable outside of the Netherlands.
4. Mutually-exclusive solutions
This section provides solutions based on the problems identified in section 2. Out of the three key problems identified, we do not find the corporate structure to be a standalone obstacle for the firm’s success, but rather a resulting outcome of the other problems. Through greater innovation that allows for better global and local understanding and greater financial flexibility, we believe Expatica will eventually settle down with a mature corporate structure. Therefore, the solutions provided are focused on solving ‘lack of product innovation’ and ‘financial limitations’.
4.1 Solution for creating product innovation and learning
4.1.1 Innovating from the bottom-up approach and providing extrinsic rewards
Expatica should encourage employees to work on projects that interest them. The limitations of the top-down approach are that it is difficult to implement when there is an absence of a clear policy or structure of innovation. Additionally, this approach neglects or underestimates the inputs from lower-level employees (Sabatier, 1986).
Research by Birkinshaw, Bouquet, and Barsoux (2011) indicates that the organizations which used only the bottom-up approach were neither greatly successful nor outright failures. The bottom-up approach benefits from a high level of employee engagement and the top-down approach benefits from direct alignment with the company’s goals. Hence, we propose Expatica to use a balanced innovation approach.
Furthermore, employee performance should be associated with rewards and recognition. According to Lawler and Porter (1968) theory of motivation, both intrinsic and extrinsic rewards are the result of a structured work environment. Intrinsic motivation comes from spontaneous satisfaction of the activity itself while extrinsic motivation involves tangible rewards and appreciation that the activity leads to (Gagné & Deci, 2005). So, we suggest Expatica introduce a structured work environment and rewards program.
4.1.2 Consolidate existing popular products, discontinue loss-making products, and retreat from the underperforming market.
Before diversifying, managers must focus on core competencies that provide a competitive edge to the organization (Markides, 1997). Expatica should continue to focus on the expats in the first two phases, namely “orientation” and “settling in”, with existing profitable products, such as “I am not a tourist” Expat Fair. Furthermore, it should adopt “occasionalized” repeated advertising to promote its standardized products, such as the Expatica Dating site, in order to raise brand awareness in different markets and countries.
Expatica should reposition itself by retreating from underperforming markets and change the entry mode for new potential markets. Extensive market research needs to be done beforehand to ensure a comprehensive understanding of the local market. Expatica should establish a closer relationship with its local partners and gather ideas from them. Through this mutual learning and innovation process, Expatica can identify product features that are suitable for implementation worldwide but also with a customization option available. For example, it could offer local news in other languages based on the language mostly spoken by the expats living in the target country other than simply offer English information
4.2 Solution to manage financial limitations
4.2.1 External sourcing through networks and alliances to enhance advertising space
For Expatica to overcome its financial limitation ascending from liabilities of smallness, it can leverage intangible knowledge to gain competitive advantage through reinforcement of resources and hence increase its performance (Knight & Cavusgil, 2004). In niche markets, the sellers and buyers share a unique knowledge, which makes the psychical distance irrelevant, and thus mitigate the advantage of a large supply of tangible resources, and allow the seller to reach multiple markets simultaneously (Bouncken et al., 2015).
Focusing on knowledge-based resources by utilizing networks and alliances with local agents to build their customer base, Expatica can enter numerous new markets through a non-equity mode, and vertically integrate its business across partner-websites that would allow for additional advertising space. This is a forward integration strategy as is extends the company’s reach (Lin et al., 2013).
4.2.2 Add new sources of income from in-house activities to reduce dependency on advertising.
Expatica can take greater advantage of its knowledge-based capabilities, which is its technical systems – The webpage, and its values and norms that the company is founded upon (Porter, 1985).
One solution is adding additional features to its existing offering on its webpage and charging an extra fee in terms of monthly or annual subscriptions that would provide an additional source of income. This strategy is based on an inside-out approach to the competitive advantage that exploits the uniqueness of the company’s offering to add value to the customer (Porter, 1985).
5. Evaluation of solutions
This section will evaluate both the processes and possible results for each alternative. A matrix with two factors, cost (time, money, people), and ease of implementation, is provided to assess the implementation process. Also, best-case and worst-case predictions are provided to evaluate their possible benefits and risks.
5.1 Evaluation of solutions for product innovation problem
As shown in table 1 and table 2, alternative 2 can easily be implemented as Expatica only needs to make an assessment of product and market performance then make a decision. Besides, the company would recover from the loss and save resources to concentrate on its core products. Thus, Expatica can provide high-quality, consistent services, which will retain customers and enhance brand awareness.
As for alternative 1, it may have the advantage of creating a new innovation approach, but it can be challenging for a financial-limited company with few employees to build a sophisticated management system.
Table 1: Process Assessment Matrix
Table 2: Predicted Outcomes
5.2 Evaluation of solutions for financial problem
As shown in table 3 and table 4, although building an advertising partnership has the multiple advantages of increasing revenue and attracting new customers, it cannot change the situation of heavily relying on the sole revenue source. Unlike the former one, focusing on in-house activities can create a new revenue source, thereby increasing the flexibility of the company if faced with potential monetary issues in the long-term. Besides, building corporate relationships is a complex process requiring both time and professional staff and the results will heavily depend on other companies.
In contrast, to charge for activities does not need new staff, the contract programmers can update the website soon and activity staff can take charge of attracting customers to pay the fee to access.