By Tendai Tembo
ADVANCEMENT in technology is reshaping operations. It has transformed how multinational enterprises (MNEs) operate. Digital platforms and ecosystems have emerged, enabling value creation for MNEs.
International business and internalisation theories have come under scrutiny because of the assumptions that the flow of monetised transactions, transfer of tangible resources and physical barriers in the environment that MNEs operate in are the determinants for value creation.
They fail to recognise that contemporary platform MNEs unlike traditional MNEs capture value for collective ecosystems through motivating and incentivising their ecosystem partners.
They are characterised by intangible flows of data and make use of their network effects and ecosystems to create value. The success in entering or expanding into foreign markets is dependent on how rapidly MNEs can create an ecosystem and that MNE’s need to leverage firm specific advantages.
Digital peer-to-peer marketplaces have facilitated growth in sharing economies. According to Zeng 2015, internet platform companies founded with the objective of providing infrastructure, information and technology enabling unmediated transactions or creating valuevia the web-enabled internet portal encompass sharing economy platforms.
As contemporary MNEs make more use of digital infrastructure as part of their ecosystem (Nambisan, 2019), they are typified by impalpable movement of data and information (their intangible resources) and have no geographical boundaries.
Entrepreneurial processes and contemporary MNEsare now less bounded since digitisation, enabling business models to form rapidly, be modified and re-enacted. This makes it unclear to which point a specific stagebegins or finishes.
Such variance is permitted by being able to quickly magnify the aptitude and accomplishment at reduced fee easily, through new digital infrastructure, for example cloud computing and mobile networking.
MNEs on a sharing economy platform’s advantages are intensified when the platform’s value proposition is uniform across internationalborders, making entry into the foreign market seamless. Where digital infrastructures are standardised MNEs can smoothly port these across nations and expand internationally and their value proposition can be the lack of geographical boundaries.
Through use of technology, the user base size and network effects can permit quick entry, scaling, and growth of operations in foreign markets by MNEs.
Network effects, ecosystem
Network coordination permits many people or organisations to collaborate online to solve a business issue with efficacy than through vertical integration.
This method is what built Alibaba’s e-commerce platforms and created niches for other innovative players using digital platforms (Zeng, 2018).
The creation of some standard online tools helped integrate other services into the platform. This same approach was used by Airbnb, whose use of digital platforms and ecosystems permitted new ways of internationalising their business, creating, and delivering value to its customers worldwide (Airbnb, 2018).
Airbnb created an online marketplace connecting travellers with local hosts. Their use of indirect network effects allows hosts to list their available space and leverage technology to earn revenue from it, whilst guests can book accommodation (Airbnb, 2018).
The more hosts Airbnb has, the wider the choice for guests. Airbnb relies on the market exchanges between the organisation,its users in a combined co-creation process, rather than depending on internal resources and endogenous transactions (Brouthers, 2016).
The success in entering new markets depends on how quickly MNEs can create an ecosystemincluding building a customer base.MNE’s do not emerge arbitrarily or in isolation, they leverage firm specific advantages,which maybe proprietary technology and knowledge (Zander, 2015).
Leveraging platform capabilities, cloud computing and mobile applications which facilitate connections between the users, key resources (management, AI, expertise), the MNE’s brand name, data, support functions to initiate the network effects.
A business ecosystem as defined by Nambisan, 2019 is a smart network that evolves to solve a complex customer issue. For example,Airbnb’s ecosystem includes their guests whom they match to their hosts.
The hosts provide the accommodation and a personal service and are part of their two-sided marketplace, and maybe the rental managers too.
Airbnb property managers handle the day to day running of the property, for example welcoming the guests and screening potential guests.
The cleaners do their part and prepare the rooms whilst concierge may range from greeting guests to full on concierge services. The software also forms part of the ecosystem and is a suite of tools they use for scheduling and payments (Dudovskiy, 2019).
With data of over 5,6 million active listings on the Airbnb platform and approximately 4+million hosts in 220+ countries(including in Zimbabwe) (as of September 30, 2020)(Airbnb, 2021), data analytics tools are being utilised (Airbnb, 2018).
Airbnb has developed AI,which they use to perform background checks, for fraud prevention and optimistic pricing (Airbnb, 2018). The combination of Airbnb’s main partnerships, together with its platform, is part of its ecosystem and is the key aspects of its business model.
The more hosts Airbnb has, the wider the selection for guests. The greater and diverse the number of hosts, the easier it is for Airbnb to attract more diverse guests.
It aims to increase the number of guests and retain the current ones through various strategies, considering the value proposition of Airbnb, which has no geographical boundaries.
Each party in the ecosystem relies on the other party to succeed as they are interdependent.
Although there has been a shift in dynamics from the second to the fourth industrial revolution, an argument could be stated that traditional firm-level advantages are not obsolete. However the unique characteristics of platform-based organisations and virtual markets pose a challenge to the conventionalperspective of competitive advantages which mostly prioritise firm-level efficiency (Zeng, 2015).
It is no longer sufficient to predict or explain the future competitive advantages in a new market or different country. The use of AIand other smart objects will aid in driving competitive advantages and value creation opportunities.
With the intangible flows of data, data analytics can be used to make the data valuable for the MNE and its ecosystem partners, for example, artificial intelligence may be used to give insight into previous consumers’ preferences to deliver a personalised service or package (Airbnb, 2018), providing other sources of value.
Whilst MNEs may have firm specific advantages, such as data and brand names, they may not be able to acquire a competitive advantage in the foreign market they are looking to expand into if they do not have a network in place.
They would need to initial the network effect in that foreign market. To enable utilisationof firm specific advantages,exploration into how to utilise entrepreneurial capabilities to build a network from scratch would need to be performed.
It is imperative to learn about the market, how to interact with it and understand the level of competition intensity before formulating a strategy on how to move into it.
Without the customers, MNEswould not succeed, thus it is a prerequisite to understand who the customers are, how they like to interact and to stimulate interaction, as the way MNEs interact with customers in one country differs from country to country (Zeng, 2019) due to cultural differences.
Of importance is to have a holistic view of the customers as despite how advanced the MNE’s service offering is, to have first-hand knowledge is key to be able to penetrate the local network.
This requires attaining information and knowledge beyond the traditional boundaries and forming lasting connections and relationships.
Once these networks have been formed with the providers and consumers, data can then be collected which will be utilised byAI. Without the network of customers there is no data, and without the data all the transferable firm specific advantageswould be unusable.
Therefore, there is need for entrepreneurial capabilities to build the local customer network effects.
Once the networks are built and incentivised, the MNE can transfer the firm specific advantages (ownership advantages) that are transferable, use and maximise these in the foreign market.
Although technology has triggered a paradigm shift, it is not MNEs’ technology alone that makes them create value and be successful when expanding internationally, but it is the ability to capture network effects and create ecosystem specific advantages in the foreign country being invested in.
Technology helps to a certain extent since the ease of use of the platform and the offerings entice users but the MNEs still rely on people using the platform, specifically for asset lite MNEs.
Without the users and hosts and all network alliances it would be impossible to create value.
- Tembo is an Information Technology Risk Specialist who holds a Masters (Distinction) in International Business and Management from the University of Kent, United Kingdom.