Foreign Divestment in E-business: Analysis of foreign market exit of Groupon and Lyyti

Abstract

E-business is expanding dramatically as more companies are using the Internet to conduct business online. The Internet enables companies to internationalize rapidly and to expand to new markets outside of their home country. However, in recent years a new trend has become evident in the e-business industry: an increasing number of e-business companies is divesting operations from their foreign markets. This research examines the factors that lead to foreign divestment in e-business. The research question is divided into four sub-questions, i.e. what is the role of (1) environmental stability, (2) attractiveness of current operations, (3) strategic fit, and (4) governance issues on foreign divestment in e-business.

The chosen research method was a qualitative case study. Lyyti and Groupon were selected as case examples through criterion-based sampling. Both are e-business companies that have divested operations from a foreign market. The empirical data was collected through three semi-structured interviews with key participants in the cases. In addition, in Groupon’s case public data and statements were used to complement the information from the interview. The interview themes derived directly from the theoretical framework of Benito created in 1997. The findings of this research support the validity of Benito’s divestment model in both cases. The strongest factor contributing to the decision to divest foreign operations was found to be ‘Attractiveness of current operations’. In both cases the current operations were not perceived as viable enough to continue. In Lyyti’s case the foreign operations were not financially profitable, whereas in Groupon’s case it was the poor performance of the parent company that led to a reallocation of resources in more promising markets. In addition, strategic considerations and governance issues were found to have an impact on the decision to divest. Environmental stability, however, was only a minor factor explaining foreign divestment decisions.

The findings of this research have proved that even within the same industry the factors contributing to foreign divestment are not always the same. Even though there was evidence found for all factors of Benito’s divestment model, the importance of the given factors was found to vary greatly. Based on the findings of this research, four managerial implications can be drawn: (1) the company’s overall performance can be improved by reallocating resources to markets with better potential; (2) if a strategy appears to be bad, it should be changed already at an early stage; (3) a careful pre-investment analysis can help to avoid foreign divestments later on; and (4) a good contact in a foreign country can be the key to success