Why do two-sided marketplaces that succeed in one market fail in another?
That’s a big question, and there’s certainly no shortage of answers. From unfavorable unit economics to regulatory problems, emergent marketplaces can run into all sorts of problems as they work to achieve global scale. Uber is a favourite example: the company has seen major success in many countries, but recently had to shut down or scale back its operations in some big markets like China and Russia.
So what happens when everything is seemingly going right - when the marketplace has dominant market share, is scaling domestically, and is ready to take the next big step in their growth? Introducing a business to a new country always comes with a considerable amount of risk. How do these companies choose which international markets to pursue, and which to avoid?
Less-than-scientific approaches to growth
Some marketplaces choose to follow their competition, using their rival's success (or failure) to gauge the viability of a new market. Others look for countries with similar political, cultural, and economic conditions. A successful marketplace based in the United States, for example, is likely to look first to Canada or the United Kingdom when plotting their international growth. It would be surprising to see that company choose somewhere like the Netherlands or Indonesia for their first effort abroad, even if those countries are better aligned with the marketplace's needs.
There’s nothing inherently wrong with these expansion strategies. Pushing into comparable markets can reduce the risk that comes with unfamiliar territory. Similarly, taking a wait-and-see approach as your competitor gambles on a new country can help you avoid making a costly mistake - even if it means ceding potential first-mover advantage. Still, there's often nothing particularly scientific about these expansion decisions, and companies end up leaving a lot to chance. If marketplaces want to ensure their best shot at successful expansion, they need to properly evaluate potential expansion targets and weigh the viability of each individually.
The 2018 Marketplace Expansion Index
At Hyperwallet, we work closely with marketplaces gearing towards international growth and have a unique perspective into the many factors that influence success in a new country. It's our experiences in this space that inspired Hyperwallet to create the 2018 Marketplace Expansion Index, which is amongst the first major efforts to provide marketplaces with a data-driven tool to inform their global growth efforts. Through our own extensive research of 209 countries using a number of sources, we've settled on a list of 36 nations that we believe represent the ideal targets for overseas expansion.
How did we do it? Thorough analysis of the available information enabled us to identify four key indicators of expansion-readiness, which we further distilled into sub-parameters. Here they are, in addition to some of the top scorers for each category (ranked on a scale to 100):
Here, we considered factors that determine a marketplace's ability to operate efficiently in a given market—things like payments infrastructure, logistics infrastructure, and the ease with which companies can expect to do business (e.g., government position on marketplace platforms, regulatory environment, etc.).
- Top Payments Infrastructure: Finland
- Top Logistics Infrastructure: Germany
- Top Ease of Doing Business: Singapore
This category highlights the availability of the freelance workforce in a country, with special consideration given to English language proficiency.
- Top Availability of Freelancers: Thailand
- Top Level of English Proficiency: United Kingdom
Ecommerce activity helps indicate a population's openness to transacting online and engaging with digital marketplaces. We considered the size of each country's existing ecommerce market, in addition to high-growth potential in emerging regions.
- Top Retail Ecommerce Market Size: China
- Top Retail Ecommerce Growth: India
- Top Ecommerce % of Overall Retail: China
This category looks at the competitive landscape that a marketplace faces when entering a particular country, including the strength of local incumbents, acceptance of foreign goods/services, and overall marketplace popularity.
- Top Global Marketplace Dominance: United States
- Top Cross-Border Transactions: Hong Kong
Of course, no one factor can determine the ideal country for a marketplace's growth. For example, China may be fertile ground for marketplaces given its high level of ecommerce activity, but it's ease of doing business ranking is quite low - marketplaces will have trouble establishing themselves without local support, and regulations in the country can make freelancer payouts difficult. Likewise, Germany has exceptional infrastructure, but low unemployment and strong worker protections make for a smaller pool of available freelancers. The value of the Index comes from considering these factors alongside one another and choosing targets that match your organisation's strengths.
The full 133-page 2018 Marketplace Expansion Index is available as a free download. You can get your copy and visit our interactive map here, which allows you to quickly search and compare our top 36 expansion-ready countries.