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 service 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 pursed a rapid internationalisation

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 donations to

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 presented challenges and opportunities to Lyft. Lyft launched a

program called "Essential Deliveries", this service involved the delivery of medical supplies,

test kits and meals for vulnerable individuals (with a focus on children or seniors) that could

be picked up from distribution centres for contract free drop off. However, COVID-19 also

caused disruptions for the firm. There has been a decrease in ridesharing and ride-hailing

activity, and the Lyft Scooters segment of the business has faced significant challenges.

"In Japan, establishing a company is a simple process. There are numerous advantages that draw many investors." ("Benefits of Registering", 2023). Commencing business in Japan can be a great opportunity for Lyft as Japan has one of the largest economies in the world. Japan's population is over 122 million people providing a vast consumer market for Lyft's services. However, as there are benefits there are costs for those benefits and risks that come along with it.

Firstly, some of the benefits that Lyft can obtain expanding their business in Japan are:

• Strong Tech infrastructure- Japan is widely recognized for its technological advancement. This well-developed technological infrastructure provides a smartphone penetration rate of approximately 80% and access to reliable internet connectivity. This technological luxury entices consumers to embrace new technologies, which can indicate a higher tendency for acceptance of Lyft's app-based innovative services. Japan takes great pride in their strong tech industry consisting of their skilled engineers. This great attraction can constitute fruitful partnerships with Lyft to enhance Lyft's app-based platform, explore innovative features such as routing algorithm, and safety measures to cater to locals.
• Strong infrastructure- "Japan is undoubtedly one of the world's easiest countries to travel!" (Brown, 2023). Japan's public transportation system is small but robust and efficient with widespread high-speed internet access. This transport system includes trains, which are the most common way of transport followed by buses and then taxis. Commonly, taxis are an expensive alternative to public transportation. Despite its cost, these are still used as the buses and trains are unavailable after midnight. Ride-share apps such as Lyft and Uber aren't commonly used in Japan.

Here lies Lyft's opportunity to become the cheaper taxi alternative in the country. Lyft can offer complementary service for first mile/last-mile needs and instances where public transportation isn't available. In addition, a significant portion of the population resides in major cities, these densely populated areas can increase demand for Lyft's services. Lastly, Lyft can benefit from Japan's logistics network when setting up its own fleet of vehicles (maintenance/repairs) or partnering with local car rental companies.

• Skilled Workforce-Fortunately, Japan possesses a set of highly educated and skilled workforce. The Japanese workforce is known for its dedication, discipline, and strong work ethic. By establishing a presence, Lyft has access to a readily available local pool of talent to hire from. This talented workforce can help Lyft localize its operations, customize its services to the Japanese market and navigate regulatory complexities effectively.

Secondly, some of the costs that Lyft will incur commencing businesses in Japan are:

• High Operating Expenses-"Operating costs for foreign businesses in Japan area are generally higher compared to other countries." (Sugiyama, 2023). It is known that Japan has a high cost of living and doing business especially in major cities. Operating expenses such as rent, utilities can be significantly higher compared to other Lyft's current markets. Due to strict labor regulations, and relatively high wages it can increase Lyft's expenses in terms of driver compensation and benefits.

Moreover, the high cost of living impacts both drivers and consumers using Lyft's services. Consumers may be more price-sensitive, affecting demand, while workers may require higher earnings to cover their living expenses, potentially decreasing profit margin. Lyft will need analyze and establish a financial balance to ensure fair wages and working conditions while remaining competitive in the market.

• Cultural Differences & Language Barriers-Despite English being widely spoken in business settings, Japanese remains the primary language in everyday interactions in Japan. Language barriers could pose communication challenges amongst drivers, passengers, regulators, and business partners. Lyft may need to invest in language training, and language translators' services to overcome this barrier effectively.

Moreover, Japan has a distinct culture, social norms and consumer preferences that may differ from Lyft's normal markets. Lyft will need to invest in thorough market research and culture sensitivity training that should assist in decision making process and in adapting to Japan's communication styles and business etiquette. Proper adaptation and understanding to these differences and barriers can allow Lyft to effectively market its services, build customer trust, and provide user experience that resonates with the locals.

• High Entry Barrier-"Market entry in Japan involves navigating numerous regulations, permissions, certifications, and procedures, often extending beyond what is typically required in countries like the UK or the USA." (Sugiyama, 2023). It will be challenging, expensive, and time consuming for Lyft when registering its business in Japan due to Japan's complex, and strict regulations governing transportation services, including licensing requirements, vehicle inspections, insurance mandates and safety standards. However, Lyft can develop a well-defined strategy to mitigate these costs and ensure a smooth entry into the foreign market.

Lastly, some of the risks associated with starting the Lyft business in Japan are:

• Natural Disasters-Japan is prone to earthquakes tsunamis, typhoons, and volcanic eruptions; and as a result of these natural disasters, it disrupts Japan's transportation networks, damage infrastructure, and pose safety risks to workers and consumers. Lyft can invest in disaster preparedness and planning which includes training, and the development of emergency response plans. Since Lyft is tech based, the company should implement backup systems and redundancy in their operations to ensure continuity of services even if primary systems are affected.
• Currency Fluctuations- The Japanese Yen (JPY) is known for volatility. If Lyft operates in Japan, it will be exposed to foreign exchange risks such as currency exchange rates fluctuations. Once the value of the Yen decreases, it negatively impacts Lyft's financial performance, profitability, and cash flow. Revenues generated in Yen must be reported in US dollars (USD); therefore, the conversion of the Yen revenue with a low exchange rate will not yield to a favorable revenue in USD. This unfavorable revenue can be a negative sign for financial statement users and investors.

Lyft must implement a hedging strategy such as forward contracts which will allow Lyft to convert the JPY to USD at a predetermined exchange rate in the future. Another hedging tactic can be currency ETFs, where Lyft invest in currency ETFs that reflect the Yen performance relative to the US dollars, Lyft can then offset potential losses resulting from a weakening Yen.

• Legal & Regulatory Risks-Japan's legal and regulatory environment poses numerous risks and complicate legal matters. Legal risks such as contractual disputes, intellectual property infringement claims, and liability lawsuits; and regulatory risk such as licensing requirements, compliance obligations and regulatory changes. Lyft can mitigate legal risks by ensuring compliance with Japanese laws, secure appropriate insurance coverage and seek legal counsel to resolve legal issues effectively. Regulatory risks can be mollified by being updated of regulatory developments, engage with regulators, and advocate favorable regulatory framework.

By carefully assessing these risks and implementing appropriate risk strategies, Lyft can minimize their impact and increase chances for success in the Japanese ride-hailing market. It is advisable for Lyft's expansion in Japan. Lyft can leverage Japan's technological enthusiasm to integrate cutting-edge features into its app-based platform to stay ahead of competitors. Japan's infrastructure and collaboration with local talent can facilitate efficient ride-sharing operations and foster innovation to continuously improve services. Lyft can financially manage all these benefits, costs, and risks by careful planning, and can even partner up with a local company to overcome the challenges and position itself for success.

Questions

Lyft has appointed you as a consultant, and now that the coronavirus pandemic is over, the

company is considering investing overseas in 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 Japan.

4. Debate the relative merits of fixed and floating exchange rate regimes.

From the perspective of Lyft, critically appraise the most critical factors in the choice between

systems.