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Airbnb Company Internationalization: Success and Challenges Essay

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Introduction

International companies are gaining increasing amounts of success and popularity all over the globe. Such organisations are helping thousands of customers to find goods and services easily and with an economical expenditure of time and money. The realisation of a variety of projects, which have become possible due to internationalisation, has enabled company owners to earn good profits and reach a high level of customer satisfaction.

However, at the same time, functioning in many different countries can pose threats to managers in these organisations, such as fines due to violating local policies or disrupting local businesses. The paper will review case studies on Airbnb and relevant streams of literature with the aim of analysing the firm’s success as well as the challenges facing the company.

A Brief Description of Airbnb’s Internationalisation (Success and Challenges)

Airbnb, founded in 2008, quickly became one of the most popular services for renting or sharing a room or an apartment for a short period (Gerwe & Froján 2017). In 2011, after only four years of existence, the company reached the record number of one million bookings. By 2016, this number had doubled, and Airbnb’s worth was $7 billion higher than that of Hilton Worldwide (Gerwe & Froján 2017). The most significant aspect of the organisation’s popularity has been associated not with more investment in real estate but rather with encouraging more owners to list their properties on the organisation’s website and drawing more tourists to book accommodations. Therefore, internationalism has played a crucial role in increasing Airbnb’s success.

Internationalism has both positive and negative effects on the company’s functioning. The most significant success factor is the possibility of finding customers in many countries all over the world and satisfying their needs. The challenges posed by working in an international market include the legal issues that surround the sharing economy, the conservative cultures of some countries that do not comply with Airbnb’s culture of openness and the difficulty of retaining users (Yip 2017). Further sections will discuss various aspects of the company’s success and challenges in more detail.

The Role of Network Relationship and Social Capital in Foreign Market Entry

International entrepreneurship is regarded as an opportunity to achieve a competitive advantage by exploiting non-domestic markets. According to Musteen, Data and Butts (2013), a network relationship has the potential to encourage the process of internationalisation. One aspect of such facilitation is that international networks promote knowledge of the foreign market which, in turn, helps to increase an organisation’s successful functioning.

However, some peculiarities are intrinsic to forming social networks in business. Prashantham (2015) notes that these connections differ between the local dimension and international markets. Thus, the geographic location of social capital becomes a significant element in making a distinction among the types of social capital in the “social capital portfolio” of a new enterprise (Prashantham 2015, p. 13). For Airbnb, one key to success has been establishing a level of local and foreign network relationships.

Network relationships are considered to have a particularly beneficial effect on social networking tourism. In their analysis of the modern tourism industry, French, Luo and Bose (2017) remark that Airbnb is one of the most successful modern alternatives to classic travel services due to its active engagement in network relationships. According to the scholars, social capital is an “intangible” benefit obtained with the help of social interactions (French, Luo & Bose 2017, p. 803).

Joining social capital presupposes connecting people from diverse backgrounds, which inevitably involves the establishment of strong network relationships. Eberhard and Craig (2013) also argue that the international market venturing of small and medium-sized enterprises (SMEs) is facilitated by network relationships. At the same time, these authors emphasise that success is dependent on the time-lag effect. In addition, Eberhard and Craig (2013) note that the outcomes of such relationships can become less productive if an organisation reflects family ownership. Thus, according to this evidence, Airbnb has good prospects of benefitting from network relationships.

Other studies focusing on this issue analyse the impact of network effects and social capital inequalities on internationalisation. Ciravegna, Lopez and Kundu (2014) mention that the use of information technology helps SMEs to enter foreign markets despite their size. One of the most positive aspects of companies such as Airbnb exploiting networks is that they can reduce resource constraints. Research by Tolstoy (2014) indicates that network relationships help SMEs to develop strategic flexibility. This concept involves the capability of an organisation to manage issues arising from market changes and to maintain competitiveness at a high level.

At the same time, inequalities in social capital are reported to impose a negative effect on a company’s market entry process. Verhaeghe, Van der Bracht and Van de Putte (2015) note that dissimilarities in ethnic and socio-economic dimensions can slow the process of conquering foreign markets. Due to these potential complications, Yip (2017) identifies the need to localise user experience as one of the most important aspects of Airbnb’s development.

Social development in the tourism industry is greatly promoted through social practices. Mosedale and Voll (2017) remark that recognising the significance of social innovation in entrepreneurship is vital since it allows dealing with the current challenges that societies face. Since Airbnb’s focus is on hospitality, it is important for the company to develop its social capital. This question is further analysed by Ikkala and Lampinen (2014), who mention that social exchange is a vital element of Airbnb’s hospitality network.

Sub Conclusion

The role of social capital and network relationships in promoting successful entry into foreign markets cannot be overestimated. Scholarly literature presents much evidence testifying that these aspects are crucial for Airbnb and the company should continue pursuing success in these fields. Network relationships and social capital help to facilitate a better understanding of the foreign market as well as promote the accommodation of services in new locations. It is possible to conclude that so far, Airbnb has been successfully implementing these features.

The Internationalisation of Digital Born Global Firms (BGFs)

The success of Airbnb’s internationalisation is inevitably related to factors such as getting localisation right, which involves prioritising the data, paying close attention to details (such as language preferences of its users) and building a translator community (Yip 2017). Another aspect of Airbnb’s successful internationalisation is related to using a mix of two marketing approaches: top-down and bottom-up. One more key to success is the company’s referral programme, which enables the word-of-mouth system of exchanging opinions about the organisation’s services. Finally, offline tactics for supply play a crucial role since not all target markets have proved to be reachable by online methods (Yip 2017). All these and a few other factors constitute the benefits of digital BGFs’ internationalisation.

Airbnb is one of the greatest examples of digital BGFs that have managed to gain success within a surprisingly short period of time. Since the company has reached a total of 190 countries in only eight years, such a definition is justified (Gerwe & Froján 2017). BGFs are defined as organisations that strive to grow global performance within a short time after their launch. Ezepue and Ochinanwata (2017) establish the following characteristics of BGFs: collaboration (partnership, teamwork, network), dynamic capabilities (differentiation, entrepreneurial orientation, novel needs, technology) and innovation (switching costs, integrating products, alternative offerings).

Strandberg (2018) outlines three external and four internal contextual factors that play an important role in the internationalisation of such companies as Airbnb. External aspects include the market, the customer and availability. Internal factors are the business model, the product, the focus of the organisation and its resources and the value proposition. Based on a case study presented by Yip (2017), Airbnb can be deemed successful in implementing these aspects.

Internationalisation has become one way to revolutionise innovation management. According to Brem and Viardot (2017), the acceleration of globalisation has played a major role in transforming the management system. This process is closely associated with both demand and supply. Internationalisation has also been reported to have an impact on different aspects of modern business, such as the workforce, venture capital, markets, and manufacturing and supply chains (Kenney 2016). In Airbnb’s case, the market aspect has experienced the greatest change (Gerwe & Froján 2017). Due to the expansion of services in many countries, Airbnb has been able to internationalise its processes to a considerable extent.

In some sources, Airbnb’s success is considered a threat to the world’s hotel industry. In analysing Airbnb as a disruptive company, Chu (2017) remarks that the availability of rooms in Airbnb is higher than that offered by the most popular hotel groups. For example, as of 2014, Airbnb offered nearly a million rooms for rent, whereas Hilton, Marriot and the InterContinental Hotels Group did not reach even 700,000 (Chu 2017). Vargas-Hernández and Mariscal (2016) also examine the disruptive potential of Airbnb and mention that the company’s sudden expansion poses a threat to large hotel chains.

Apart from current success, internationalisation allows companies to promote the sustainability of their business interests in the future. According to Momaya (2017, p. 4), Airbnb has brought “enormous value to key stakeholders” due to establishing excellent international capabilities. The main reason for such success, according to Momaya (2017), is that Airbnb employs digital technology for promoting its services. Patitucci and Risa (2015) even view Airbnb’s story of success as a good example of a new paradigm and suggest that local stakeholders should consider trying to use it.

Skoultsos, Kontis and Sarantakou (2017) view the evolution of such peer-to-peer businesses as Airbnb as offering an increased number of opportunities for customers. In addition, scholars note that BGFs affect the industry in a variety of ways and regulation that establishes a legal framework for the BGFs’ activity may be needed to address their influence. On a related note, Siqueira, Priem and Parente (2015) consider the demand-side perspectives of companies functioning internationally. According to scholars, the decisions taken by managers should involve not only regard for a single company but attention to ecosystems and the value systems of other organisations.

Siqueira, Priem and Parente (2015) note that researching the demand in international business is more complicated than it is for business operations in a single country. Therefore, implications suggest further research in this sphere. In their analysis of the future of BGFs, Bergsten and Gertzell (2017) remark that such companies should focus on foreign markets’ political systems, culture and economic conditions to reach success with customers. Also, Bergsten and Gertzell (2017) emphasise that new BGFs may find it difficult to internationalise because they do not pay due attention to optimisation.

Sub Conclusion

Internationalisation is an increasing trend in the modern business arena. Airbnb is known to have implemented this method successfully and to have reached much success within a short time. By arranging the right localisation and mixing two marketing approaches, this BGF has become one of the most effective entrepreneurship ideas of the past decade. With the help of the referral programme and by exploiting offline tactics, Airbnb has been able to increase its popularity and profits. However, scholars remark that it is crucial for BGFs like Airbnb to comply with local policies in order to sustain their success in different countries.

The Institutional Theory and Its Applicability for the Explanation of Airbnb’s Internationalisation’s Challenges

Whereas internationalisation, network relationships and social capital have promoted the success of Airbnb, one serious threat to the company’s development remains, which is represented by the implications of institutional theory. This theory has recently gained much attention from scholars who have started to use it in the exploration of entrepreneurship (Karataş-Özkan, Yavuz & Howells 2014).

As Furusten (2013) remarks, an analysis of the institutional environment helps in understanding organisational change. Institutional theory promotes a better understanding of the social structures with which businesses cooperate (Karataş-Özkan, Yavuz & Howells 2014). The significance of examining social aspects of the business environment is particularly high in Airbnb’s case. According to Yip (2017), the greatest challenge for Airbnb is the organisation’s failure to comply with the legal issues associated with the sharing economy.

Yang and Su (2014) note that institutional theory has a profound effect on the structure, behaviour, strategy and processes of any company. Scholars remark that in order to gain a competitive advantage, managers should learn how to combine efficiency and legitimacy. In the case of Airbnb, such a combination has not yet been reached since it has violated specific rental regulations in a number of countries (Gerwe & Froján 2017).

Some scholars consider that institutional theory does not pay sufficient attention to power, concentrating on capitalist relations rather than moral philosophy (Munir 2014). However, Munir (2014) acknowledges that the theory has a great impact on business success. Kauppi (2013) analyses two variants of institutional theory: social and economic. The researcher notes that an important role in the theory belongs to the uncertainty of its applications (Kauppi 2013). Wu et al. (2016) mention that the institutional development of host countries has a great effect on internationalised enterprises’ innovation performance. This presents yet another evidence of Airbnb’s difficulty in entering some markets due to the specifications of institutional theory in them.

Other scholars acknowledge concepts of institutional theory as decisive aspects of a BGF’s success. Estrin et al. (2016) note that local institutions have the potential to limit the internationalisation strategies of enterprises. Meanwhile, Fuenfschilling and Truffer (2014) remark that institutional theory can be beneficial and can promote positive change in cases where organisations conceptualise the degrees of internationalisation. Williams and Shahid (2014) conclude that the greatest effect of the theory is produced on companies that operate informal enterprises.

Sub Conclusion

To this point, institutional theory concepts constitute the biggest challenge to Airbnb’s development (Gerwe & Froján 2017). In order to eliminate the negative impact, it is necessary that the company should pay more attention to formal arrangements related to rental policies in various countries. The problem is that Airbnb has been failing to comply with the existing regulations in local markets, which has already led to considerable losses (Gerwe & Froján 2017; Shepherd 2017). To make sure that aspects of institutional theory do not cause problems for Airbnb, the organisation’s managers need to investigate these policies strictly and negotiate their fulfilment with local authorities.

Conclusion

The thorough analysis of case studies, as well as abundant evidence from the three streams of literature, allows drawing the conclusion that Airbnb is one of the most successful global digital BGFs of the latest decade. The organisation has been able to reach great success through the process of internationalisation. Important facets of Airbnb’s development involve network relationships and social capital.

With the help of these aspects, the company has been able to enter the foreign market. However, despite an exceptional history of success, Airbnb also faces some challenges, the major one relating to the concepts of institutional theory. To continue developing its success at the present rate as well as avoid threats, the organisation needs to pay more attention to local regulations and comply with their policies.

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