Groupon is a deal-of-the day Internet start-up company that was launched in 2008 in Chicago. The website offers discounted deals for local as well as national companies. Now operating in more than 150 markets as diverse as the United States, Canada, Taiwan, Brazil, Europe, South America, South Africa, the United Arab Emirates, China, Russia and many more. Consequently there is no doubt that this company is a multinational enterprise (MNE). Groupon had 35 million registered users by October 2010 and thus has been one of the fastest growing businesses in the world (Lacrote, 2011).
According to Andrew Mason, founder and CEO, Groupon was founded to be the first company to offer the very best deals available. This could only be done by contacting local merchants directly which gave Groupon its competitive advantage. Using this local responsiveness Groupon is able to offer the best deals every day within 24 hours (Cutler, 2010).
The aim of this paper is to analyze how successful Groupon’s global strategy can be implemented worldwide.
Firstly an overall impression of Groupon’s business model and organizational structure is given. Secondly a deeper insight in the corporate strategy as well as the global strategy is provided. Furthermore the unsuccessful entry to China is analyzed and evaluated. Finally this paper conducts to what extent Groupon can be considered socially responsible before a conclusion is drawn in the last section.
2. The Business Model
Groupon is a multinational start-up company that offers one “Groupon” per day in each of their markets (Deborah, 2009). In the beginning of the process Groupon congregates with another business to set up a deal for a certain product or service. As a next step, both parties negotiate a minimum number of participants, which have to sign up for a deal to become available. In the end the price discount of each voucher has to be identified. This price is paid by the end consumer and is usually split equally between Groupon and the merchant. The reason why merchants are attracted to Groupon’s business model is that the high quantity sales of each voucher are very beneficial. In addition, merchants profit from several marketing channels, which are used by Groupon. Thus a win-win situation is created.
3. Organizational Structure
Groupon’s top-level corporate management is based in Chicago. CEO, Andrew Mason and the most important worldwide functional managers navigate the global coordination from the headquarters. Top-level corporate managers provide direction and purpose, leverage corporate performance and ensure continuing renewal (Bartlett and Beamish, 2008). Hence, the most important strategic decisions are to be made in the headquarters. Groupon’s Geographic subsidiary Managers are established for certain geographical areas (Organizational Chart Groupon, 2012). Those managers have to interpret cultural differences on the one hand and implement the corporate strategy on the other hand (Bartlett and Beamish, 2008). In order for Groupon to be locally responsive the company is providing small- and medium-sized businesses (SMBs) from which they can manage their subdivisions in different
geographic areas. For Groupon it is important that geographic subsidiaries have a high degree of freedom and thus react quicker and respond to local demand. As a result, Groupon’s subsidiary orientation can be considered geocentric because geographic managers make decisions about local responsiveness while headquarters decide on the overall corporate strategy (Perlmutter, V. 1969).
4. Groupon’s corporate strategy
As Groupon is established in many countries of the world, a global strategy has to be pursued on the one hand. This leads to a gain in brand equity, brand awareness and global efficiency. On the other hand Groupon offers national as well as local deals, which caused the business to act locally responsive as well. Groupon, for this reason, can be considered transnational, as the company acts “more responsive to local needs while capturing the benefits of global efficiency” (Bartlett and Beamish, 2008, p13). Today’s MNEs compete in highly complex, diverse and constantly changing business environments. This is due to globalization of markets as well as acceleration of product and technology life cycles. Most importantly however is the intensification of global competition for Groupon. Most online services are easy to imitate. Therefore it has been of utmost importance that Groupon’s managers take the right actions and develop appropriate strategies. Groupon has access to highly educated international managers that sense and interpret complex and dynamic environmental changes.
These managers have developed and integrated multiple strategic capabilities in order to cope with today’s business world. As it was very hard for Groupon to enter foreign markets, Groupon identified several companies that were interested in forming joint ventures. An important part of their global expansion strategy that was centrally managed from Chicago, was developing five pronged strategies that led to global efficiency and competitiveness. First of all, Groupon has introduced a coordination strategy that focuses on an analysis of various goods and services that would be engaging and appealing to the subscribers. Once these goods and services have been identified, Groupon’s managers start the process of initiating, negotiating, arranging, and executing. As soon as the coordination strategy is in place, Groupon discovers a pricing strategy. Due to the high discounts for customers on the one hand and the provision of highly effective marketing instruments for companies on the other hand a win-win deal is created. Groupon sets a fixed price and a fixed deadline when the deal ends.
By doing so, the target group has limited time to purchase the offerings and is therefore under some pressure to buy the product instantly. In Addition, the deal only takes place when a minimum number of buyers are reached. This way the seller obtains full planning certainty for the particular deals. Another important part of Groupon’s strategy is advertisement. Many companies find it interesting to offer products via Groupon because of their heavy marketing activities they undertake. By advertising and selling the company’s products, companies benefit of free marketing as Groupon only charges a fixed percentage of the selling price. Product offering is the fourth of the five strategies they came up with. In this section, they identify possible highly demanded products and undertake a lot of research and carefully examine the preference of the people catering to the local market. Finally, Groupon added a special features strategy in which they market their service as well as the products in a unique way.
5. Groupons Global Strategy
Joint ventures play an important role for Groupons expansion strategies. As Groupon has successfully started and expanded their business in the United States they quickly realized that there is a high demand for deal of the day business overseas as well. One of the first market entries outside the United States was entering European market. Although well-established companies were already the deal of the day their business model, Groupon was eventually able to benefit from those competitors. Oliver Samwer, founder of Citydeal was the first competitor who interacted with Groupon. Andrew Mason described this meeting as follows: “After a few days with Oliver [Samwer] and the rest of the Citydeal management team, we realized that they were among the best operators we’d ever met“ (Chan & Lee, 2011). Afterwards Groupon analysed the situation and realized that Citydeal was already dominating the European market. Competing with them would have been extremely difficult and risky as opening own facilities all across Europe would have been a substantial investment.
As a result, Groupon was rather interested in a acquisition and bought Citydeal in 2010 for 126 million dollars. This investment enabled Groupon to instantly gain access to the European market. Groupon was providing their experience from America, whereas they received local marketing expertise and well educated employees. When engaging in cross-border collaborations MNEs try to overcome any protectionist barriers as well as overcoming national regulations by having good political contacts. (Bartlett and Beamish, 2008) Nevertheless, those relationships often involve great risk as a substantial amount of capital investment is required. It is often uncertain whether companies can actually benefit from economies of scale and scope as well as arbitrage opportunities. To illustrate the source of forming competitive advantage more precisely this paper introduces the AAA-Framework by Ghemawat, 2005 (Appendix 1). In this model Groupon can be placed close to adaption as they attempt to act locally responsive by supplying their customers with national as well as local deals. Aggregation also plays a vital role because Groupon “attempts to deliver economies of scale by creating regional (…) operations; it involves standardizing the product (…) offering and grouping together the development and production processes.” (Bartlett & Beamish, 2011). Moreover, Groupon is trying to make use of arbitrage opportunities, which “is the exploitation of differences between national and regional markets, often by locating separate parts of the supply chain in different places (…)” (Bartlett & Beamish, 2011) However, arbitrage takes an inferior position as Groupon is providing a service and does not have production facilities.
6. Groupons entry to China
After successfully expanding business into many markets before, Groupon ran into some difficulties when starting a joint venture in China. Groupon’s general strategy when entering new markets is aggressively penetrating the market to gain market share very quickly. As competition in the market was a lot more intense than expected, this strategy did not work in China (Chao, 2012). Using a unified entry strategy in every country without adapting to the differences, which are present in each market, is known as the United Nations Model (Bartlett and Ghoshal, 1986). When Groupon entered the Chinese market they were proclaiming to become the biggest online shopping site right from the beginning. This arrogant attitude did not take any strong competitors in the Chinese market into account (Chao, 2012). Competitors knew exactly how to treat customers and vendors according to the Chinese circumstances. One example is that Groupon tried to split the profits with vendors equally. Local competitors were used to charging only ten percent, which gave vendors no incentive to consider Groupon (Chao, 2012). In addition to that, the world leader in the discount deal business did not consider hiring more than 2 Chinese managers in their senior management team. This resulted in very low local responsiveness, as western managers did not know the Chinese culture well enough (Chao, 2012). To overcome cultural difference Groupon startet a joint venture with the Chinese online deal website Tencent (Chan & Lee, 2011).
This joint venture gave Groupon the opportunity to adapt a rather local strategy. It would have been easy to learn from Tencent and employ a more responsive strategy afterwards. Again, Groupon did not take notice of the need to learn from this locally established company and hired expats to run operations around the country (Zhu, 2011). Consequently, there is evidence that Groupon’s competence of local organization in China has been very low. Since the Chinese market provides a significant purchasing power, China can be viewed as an environment of high importance for Groupon. A subsidiary that can be characterized by a high strategic importance and a low competence of local organization is called a “Black Hole” (Bartlett & Ghoshal, 1986). Managing once way out of a “Black Hole” is extremely difficult and Groupon would have to choose the right strategy to do so successfully. Bhattacharya and Michael describe in “How Local Companies Keep at Bay” that local companies can beat multinational Enterprises by pursuing several distinguishing strategies (Bhattacharya & Michael, 2008). As strong competition has been one of Groupon’s main problems when entering the Chinese market, in order to gain market share against local companies the MNE has to analyze how locals are able to outperform their global strategies. Afterwards those strategies have to be used against the local companies (Bhattacharya & Michael, 2008). In the case at hand, Groupon would have to adapt to the locally responsive strategies and pair them with their own expertise.
More specifically Groupon would need to start by learning from its venture partner and hiring local managers who know how the Chinese market works. Besides choosing the wrong entry strategy, Groupon’s low local competence was caused by ethical differences. On the one hand Chinese employees felt like they were not treated fairly when Goupon fired around 400 people in 2011 (Chao, 2011). On the other hand Groupon ran an offending advertisement during the Super Bowl in the USA (Chao, 2011). A solution to such a conflict of cultural tradition is for the manager to ask oneself if the company’s practices would be acceptable if the manager’s country were in a similar state (Donaldson, 1996). If Groupon is able to successfully implement those changes the national subsidiary would take the new role of a “Strategic Leader”. A “Strategic Leader” is characterized by a high competence of local organization and a high strategic importance of local environment (Bartlett & Ghoshal, 1986).
7. An evolving global role
Multinational enterprises are more and more responsible for the establishment of a tremendous gap between rich and poor all over the whole world. Using global strategies and exploiting economies of scale and scope can be viewed as very exploitative and irresponsible. To see if Groupon is acting socially responsible one can analyze the level of responsibility by distinguishing between four MNE postures. Firstly there is the exploitive MNE, which is known to use socially irresponsible opportunities to maximize profits. An exploitive company might take advantage of the cheapest possible workforce it can find by employing children in unsafe environments working long hours. Secondly a transactional MNE is described. This posture is characterized by trying to maximize profits and acting socially responsible on the other hand. Those companies settle at the boarder to being socially irresponsible while not actively engaging in any social efforts. Thirdly there is the responsive MNE. In contrast to the transactional MNE the third posture is characterized by an active engagement into corporate citizenship behaviour.
Finally the transformative MNE defines itself by taking responsibility to solve the problems in less developed countries in the world (Bartlett and Beamish, 2008). Applying Groupon to the MNE types, they can be classified as a responsive enterprise. Even though Groupon was criticized by some companies for being harmful to certain industries, a large amount of social responsibility has been shown. Having noticed the ability to raise money from groups of people, Groupon has established charity deals on their website. When customers buy one of those deals Groupon will match the amount and donate everything for example to the Red Cross (Campbell, 2012).
The Internet deal company Groupon was established in 2008 and became a multinational company in a very short period of time. The corporate structure is made of the main functional managers in the corporate headquarters and geographical subsidiary managers in each location. The fast growing business can be characterized as transnational because it is pursuing a global strategy while having a great focus on being locally responsive. In order to expand as rapidly as Groupon did, the cooperation had to acquire businesses in some countries and start joint ventures in others. As mentioned before, in most European countries this strategy worked out perfectly well. When Groupon decided to enter the Chinese market, however, some problems arose. Even though Groupon claimed to behave in a responsive manner they were reluctant to adapt locally responsive management practices in China. Consequently, the Chinese competition disabled Groupon from becoming market leader.
To answer the problem statement if Groupon’s global strategy can successfully be implemented worldwide a conclusion can be drawn. While Groupon implemented the global strategy very successfully in the European market, there are some major difficulties when using the same strategy in China. To overcome those problems Groupon has to hire more Chinese managers in order to understand how the Chinese system works. Additionally, Groupon should use the opportunity to learn from their venture-partner Tencent. Finally it is important for Groupon to analyze the competitive advantages of the competition in order to beat the local leaders by using their own methods. Coming back to Groupon’s overall strategy one can identify Groupon as a transactional company since it is actively engaging in corporate socially responsible activities.
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