Sharing Economy: Challenges with global expansion

The rapid growth of the sharing economy over the recent years has created endless possibilities for sharing in many parts of the world. As discussed in my previous blog, today people are willing to share everything from their homes and cars to skills and knowledge. Advancement in technology, Internet connectivity and social networks has fueled a collaborative environment with extensive reach among people.

This global nature of the sharing economy has allowed many online peer-to-peer (p2p) services such as Uber and Airbnb to expand in international markets. In 2014, Uber was launching at the rate of a city a day and is currently in 76 countries worldwide.

Airbnb is truly considered global with its market in over 190 countries. According to Nielsen’s survey in 2014, 68% percent of global online consumers are willing to share or rent their personal items in share communities for payment. He also reported that people in Asia-Pacific were the most willing to share.

Although people’s willingness to share has been advantageous for p2p services and has aided in the impressive growth of the sharing economy on a global scale, there is an overriding focus on technology to drive the sharing economy. Thus, it creates a digital divide when it comes to exploiting these services. Only those that live in cities with adequate Internet connectivity and have access to (and comfortable using) online or mobile technology are gaining from the benefits offered by the sharing economy.

There are many factors that p2p services companies need to consider when expanding to international markets. They face various obstacles in different countries when it comes to abiding by local regulations. The differences in economic, financial, social, cultural and political factors also pose several challenges for the success of sharing economy in different countries.

In this blog post I will cover the key challenges and how they have become barriers for development and adoption of sharing services in certain nations.

Telecommunications infrastructure

The Internet connection in many developing countries is unreliable due to poor telecommunications network and power supply. In some countries, the cost of Internet access is not affordable by majority of people (Alyoubi, 2015). This makes utilizing sharing services (that are offered through online platforms) difficult for many in these nations, especially the rural regions, with low Internet penetration.

Even in the urban areas of developing countries that have adequate Internet connection, some of these regions use 2G cell phone networks compared to 4G in most developed countries. Because of this difference, Uber had to create a simplified version of its ‘arrival time’ screen to cater for slower network connectivity.

Banking and payment system

Electronic payment, generally through credit cards, must exist in a country for the success of p2p services. However, many developing nations do not have secure and reliable online banking and payment mechanisms. Also there are a low number of people that have credit cards and make online transactions.

Most banking sectors in developing countries lack a national clearing system and potential customers are suspicious of being cheated and hence do not trust online transactions (Lawrence & Tar, 2010). This causes a barrier for many p2p services that require people to utilize electronic payment mechanism for transaction between consumers.

Technical skills/knowledge

Many people in the developing countries are not as widely exposed to technology compared to the people in developed countries due to low income and access to technology. In most developing countries, school curriculum does not include computer education. Therefore, they would lack the skills and confidence in using mobile and computer applications. Since sharing services rely on a growing consumer base that consists of people with comfort and knowledge of using online platforms, they face significant challenge in expanding their business to these demographic.

Trust

Trust is a crucial factor for sharing economy’s success. It requires people to trust other individuals in the society in order to exchange goods and services among each other. However, not all cultures have the same level of trust with hiring and paying strangers. Some cultures are also not comfortable with bypassing the ‘middleman’ authority for services, which is the key benefit gained from p2p services. This ability to source trust is lacking in countries like India, for example, which is the reason that these models are taking time to find roots. Home sharing, like AirBnb, doesn’t work as well in India as people are scared to go through the difficulties of properly checking guests before hosting them for small durations.

Language

For many p2p services that have a presence in international markets, catering for differences in language and dialect is a common concern. Airbnb made this a priority and is currently available in 26 different languages. Furthermore, the company also caters for variants of the same language that are used in different parts of the world. For example changing words like ‘vacation’ to ‘holiday’ depending on the usage specific to the country. Uber eliminated the signature “U” in its logo because the letter had no relevance in many of the countries, where the company operates, with different languages.

Government restrictions

Certain cities and countries, like Beijing, New Delhi and Singapore, restrict the number of cars that can be on the road at certain times. This affects sharing services like Uber, which developed a carpooling application, UberPool to ensure that drivers can be available to riders at any given time, helping the company combat with the changing demands caused by such restrictions.

Existing competition

The challenge that many sharing services face, particularly in Asia, is fighting for consumers with existing local competitors. For example, Uber faced considerable competition in China (Didi Chuxing), India (Ola) and Indonesia (Go-Jek) where ride matching services were already widely used by people.

Go-Jek, a motorbike ride servicing company, claimed that it has an edge over Uber because they accept cash payments and offer a mobile “wallet” for electronic payments instead of credit cards, which are not widely used in Indonesia. Also in overcrowded urban cities like Jakarta, only a motorbike ride would be useful in helping people reach their destination faster and cheaper.

These obstacles and many more, particularly regulatory hurdles in different countries — a topic I will be covering in my future blog post — have contributed to the differences in success and distribution of sharing economy in different cities and countries. Although companies find solutions for some challenges, many become barriers for business growth in nations with varying economic and social conditions. The technology infrastructures needed to successfully adopt sharing economy are expensive for many developing countries and are likely to not be a part of it.

In my next blog, I am planning to explore how the sharing economy has disrupted traditional businesses, how those companies are reacting to the change and the legal and regulatory consequences. The final blog will explore the much popular debate regarding Sharing Economy — is it creating value or causing more problems? And considering the differences across nations discussed in today’s post — are some countries or populations missing out on sharing economy’s benefits?

References

Alyoubi, A. (2015). E-commerce in Developing Countries and how to Develop them during the Introduction of Modern Systems. Procedia Computer Science, 65, 479–483.

Lawrence, J. E., & Tar, U. A. (2010). Barriers to e-commerce in developing countries. Information, Society and Justice, 3(1), 23–35.