Rather than spending all their efforts competing, Uber and Russia’s top internet company, Yandex, have decided to join forces. Uber and Yandex will form a joint venture operating in 127 cities across Russia, Armenia, Azerbaijan, Belarus, Georgia and Kazakhstan. Uber will contribute $225 million and own a 36.6 percent stake, Yandex will contribute $100 million and own a 59.3 percent stake, and employees will own the remaining 4.1 percent. The deal is expected to close by the end of 2017.
Yandex, also known as the “Google of Russia,” has a vast online network and access to information through its web search, maps and mobile navigation businesses, which had made it difficult for Uber to compete with in the past. The acquisition will help Uber reduce its net losses, which hit $3 billion in 2016, while strengthening Yandex’s position against other ride-hailing apps including Fasten/Rutaxi, Maxim, and Israel’s Gett, which is backed by Volkswagen.
The Cost of Pursuing International Expansion Alone
The deal highlights the difficulties with entering into an international market alone. Companies are faced with regulatory issues and cultural differences and often lack the expertise needed for conducting business in a new country. In many cases, the government may have regulations limiting business operations of foreign companies.
Even Uber, a large company with seemingly countless resources at its disposable, has faced this obstacle. The company has been fighting an uphill battle over the past three years to succeed in the Russian market. Last year, faced with intense (and expensive) competition, Uber was also forced to strike a deal with Didi Chuxing in the Chinese market. The company sold its Chinese operations to Didi Chuxing while purchasing a 17.5 percent stake in the Chinese firm.
Many of these challenges can be solved by partnering with a local player in a variety of ways including through joint venture, strategic alliance, minority or majority stake, and acquisition. A local company will have the expertise, an established presence and customer base, and a deep understanding of the country’s culture. In a region such as Russia, where the government does not welcome foreign business, partnering with a local firm that has a grasp of the business environment including regulatory and legal landscape can be the key to success.