Rocket Internet - Enabling Entrepreneurship

COM217 Organizational Communication

World Organization Research Paper

Prof. Reece Darham

Chan Jing Dao, Leon (50293624)

Marcus Chin Ding Tai (50211087)
Goh Yu Lin (50293629)
Ho Jia Wea Shannon (50293658)
Angela Loh Wan-Yun (50293621)

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1.0 ​Introduction

Founded by the Samwer brothers since 2007, Rocket Internet (RI) is one of the fastest growing

technological “startup factory” (Baumann et. al., 2018). RI is notorious for their method of

replicating companies, which has earned RI the reputation of a “clone factory” (Baumann et. al.,

2018). The company functions as a business incubator; accelerating the growth of consumer and

service-centric tech startups through the extraction of already-proven business models and

replicating them in emerging markets (Mance, 2013). It was found that RI was not just any other

business incubator organization, but rather a hybrid of a corporate incubator, venture capitalist

and diversified holding company (Baumann et. al., 2018). Hence, RI’s operations include mainly

the following: incubation, investment, and growth. As the name of the company would suggest,

RI was founded to build market-leading companies in the internet and technology space. The

company’s access to investors makes RI a key player in the internet business landscape, enabling

many businesses through the partnership between businesses and potential investors and venture

capitals. Lastly, RI’s operational support accelerates the growth of the various ventures through a

dynamic and scaling process. RI focuses predominantly on four industry sectors of e-commerce,

namely in Food & Groceries, Fashion, General Merchandise and Home & Living, of which make

up a significant share of consumer spending (Rocket Internet SE, 2019). As a business

conglomerate, RI bases its global operations in Berlin, Germany and has multiple business

entities across the globe, mainly the Asia Pacific Internet Group and Middle East Internet Group.

Region-specific groups enable RI to understand each region’s technological and business outlook

and tailor its operations to each region’s context. Since its inception, RI has been one of the

fiercest competitors in the startup landscape and has come out with many familiar big-name

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brands like Zalora, Lazada, Foodpanda, Vaniday and many more in the Asia Pacific (APAC)

region.

Moving forward, we will be focusing more on RI’s strengths and weaknesses, organizational

management style and theories, impacts on the global community, and finally our evaluation of

RI as a whole.

2.0 ​Strengths and Weaknesses

Rocket Internet’s strengths and weaknesses are identifiable through its multifaceted portfolio.

The company exerts its presence in the global market through a variety of internet business

subsectors. Within the Southeast Asian market landscape, where global e-commerce giants like

eBay and Amazon have had limited access to, the Zalora Group, a subsidiary of RI, has

successfully positioned itself as a key player in the fashion vertical within the APAC region. RI’s

successes in its replication approach has been largely attributed to the ability to avoid mistakes

that a conventional startup growth process would usually experience. Oliver Samwer, CEO of

RI, claims that the company has efficiently solved most of the problems a startup would usually

encounter in its pilot phase (Maier, 2015). For an incubator like RI where businesses are

replicated at a rapid rate, it is essential that the concern for production is at its peak. According to

Channel News Asia (2019), RI is aiming to build even more businesses than before in 2019, on

top of the 100 over entities that RI has helped build. The nature of RI’s business - where existing

business models are copied and replicated elsewhere, also means that there is little room for

agency for executives in regards to business decisions.

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2.1 ​Strengths

Rocket Internet’s organizational success as Europe’s largest tech investor has accounted 85 per

cent of the market capitalization of all German IPOs since 2014, with global office expansion in

various countries and has accumulated around 3.8 billion euros in liquid funds (Schr​ö​der and

Tuma, 2017). Factors that contributed to the company’s success are how RI mitigates start-up

venture risks, and the spread of improving existing services through high investor confidence.

2.1.1 ​Mitigation of start up venture risks

Rocket Internet uses a thundering herd approach that allows the company to expedite a startup’s

growth in a matter of weeks instead of the average process of taking months (Kahn, Nicola,

Ricadela and Satariano, 2016). After selecting a business idea, a team of existing workers is

assembled to start working on the new venture idea using existing contacts with lawyers to

facilitate initial administrative processes and provided usage of existing IT assets that can be

tailored to the startup needs, thus enabling the ventures to begin operations quickly (Baumann et.

al., 2018). The centralized functions of the organization mitigates the costs and time-consuming

processes of recruitment and financing, thus enabling a “rocket-like” growth at the pace at which

new ventures are grown (Baumann et. al., 2018). David L. Preston, states that the “inherent

genius” approach that RI takes eliminates technical risk, market risk and team risk (Baumann et.

al., 2018). According to Samwer, the company takes lessons from one successful startup and

applies the knowledge to their own ventures, followed by recruiting the talent necessary for its

portfolio companies (Kahn, Nicola, Ricadela and Satariano, 2016). Team risk is reduced as RI

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investors hand-picks and micro-manages the new venture team (Baumann et. al., 2018). It is

difficult for business operations in a competitive and saturated market, therefore launching an

already successful business model from one market to a different geographical market is a more

efficient option (Tolentino, 2017). Hence, according to Wharton management professor David

Hsu, the RI model helps to “push down market risk by tailoring or importing a model that works

in one part of the world” (“Can Cloning Businesses Work? Ask Rocket Internet”, 2015).

2.1.2 ​Spreading out and improving existing services through high investor confidence

On November 2017, Zipjet – a laundry and dry-cleaning company backed by RI- formed a

merger with its French competitor Cleanio (Ohr, 2017). Previously, Cleanio only specialized in

France, while Zipjet was already one of Europe’s leader in on-demand laundry and dry-cleaning

service. With the amalgamation of Zipjet and Cleanio, users from Berlin, London, and Paris can

enjoy better functionality in regards to the service provided by Zipjet. For instance, Zipjet has an

application and a website to allow potential customers to engage their services, which includes

picking up and returning the laundry all within 24 hours (O’Hear, 2018). As a result of their

success, big brands like Bosch and Siemens have invested more money into Zipjet to bring better

quality products for consumers who use Zipjet (O’ Hear, 2018). This shows that RI has the

power to attract investors, which in turn helps to fund the business and allow further

improvements of existing products.

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2.2 ​Weaknesses

Despite all the strengths that RI possess, several inadequacies have been identified, hindering

them from greater success. Factors that contributed to their weakness includes high turnover

rates and lack of room for creativity.

2.2.1 ​High Turnover Rates

Despite one of the approaches to deploy managerial talent from a steady stream of the talent pool

at will, it has been found that RI faces a surprisingly difficult issue of retaining staff. According

to the Economic Times, a number of new recruits use the company as a springboard in boosting

portfolio for a couple of years before venturing on a non-rocket startup (Kahn, Nicola, Ricadela

and Satariano, 2016). For RI, it was not unusual for a 24 year-old to be managing the whole

venture and to bear the responsibilities of building a business from scratch, of which many MBA

graduates dribble at the opportunity to prove their capabilities (Chong, 2018). However, despite

the great career growth opportunity, the crucial factor for the high turnover rate in the company

has been attributed to the long hours and demanding environment of the company (Kahn, Nicola,

Ricadela and Satariano, 2016). These factors are also reflected in the review site, Glassdoor.com

from current and past employees, where many reviewed that the company lacked the “personal

touch” and had a “stressful work environment that was fast-paced and demanding”

(Glassdoor.com, 2019). Rocket Internet scored relatively low for its work culture and values, as

well as in employee’s perception of work-life balance; 2.8 and 2.9 out of 5 respectively, and only

56 per cent of employees were in approval of the company’s CEO, Oliver Samwer

(Glassdoor.com, 2019).

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2.2.2 ​No room for Creativity

Although, through this “copycat” approach where Brauman and ​Köhler​ imitate promising

business models into their own businesses which is deemed to be successful for RI. ​In doing so,

it “separates the creative process of ideation from the operational process of execution.”

(Baumann et. al., 2018). It inhibits their employees from being innovative about their own

business models and the motivation of possibly coming up with a better one. “Further, very few

fundamentally new technologies will be created when the founding impetus is copying someone

else’s innovation” (Baumann et. al., 2018). This would mean that these firms sets back from

other companies by not having an intellectual property that is defensible if the proposed business

model does not work. Hence, the lack of space for creative ideation pose as a weakness by

hindering creative thinking and further improvements that could potentially be beneficial for the

business.

2.2.3 ​Unreasonable Internal Benchmark

Given the success of numerous companies under RI, the company has an abundant amount of

capital to support all its operations including its rapid expansions. The financial capacity and the

rationale of ​proven winners​ enabled RI the power and confidence to expand into new industries.

RI’s incubating process is known to be coherent where they would strive to preserve a certain

burn rate before selling it to its potential buyers to evaluate the measures to make the business

more lucrative (Parr, 2016). Some establishments were forced to shut down as it failed to attract

prospective investors in a given timeframe. It was revealed in an interview with a member of RI

that the higher management decided to shut down OfficeFab; an e-commerce website retailing

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office stationeries despite its success, as it was deemed to be significantly less attractive to

investors as compared to Zalora and Lazada (Horwitz, 2019).

3.0 ​Organizational management style and theories

Every organization has a few specific organizational management style that shapes its identity.

For RI, it is clear that profit is key over employee welfare. Further elaboration on the kinds of

organizational management RI employs is shown below.

3.1 ​Blake and Mouton’s managerial grid: Authoritative Compliance

One management style that was prominent of the top brass of RI was the ​authoritative

compliance​ style under the Blake and Mouton’s managerial grid theory. Authoritative

compliance is characterized by high concern for production and low concern for people (Miller,

2015). Is is without surprise then, that RI suffers from very high turnover rate, as mentioned in

the earlier sections of this paper. In an article, it states that the “average turnover at RI’s ten

largest companies has grown more than 200%” (Looveren, 2015). Parr (2016) also says that

Oliver “burned through people like crazy… top management was coming and going”. Thus, it is

shown that RI does not take into account the welfare of their employees, therefore leading to

very high turnover rates and unhappiness amongst the employees.

3.2 Paradoxes of Participative Democracy

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The application of democracy in workplace is inevitable and ethically preferred. In the process of

instituting a participative and autonomous workplace, it is not uncommon for paradoxes to occur

(Miller, 2015). Contextually, the paradox pertaining to an individual’s ability to exercise

autonomy and have agency over their own tasking is especially observable in RI’s operations.

RI’s approach of selecting business venture ideas to clone and execute, followed by tasking

teams to implement them, contradicts established entrepreneurial practices and principles

(Baumann et al., 2018). Thus, despite RI statement of “enabling entrepreneurship”, where the

company provides startup founders with resources to kick-start the launch of the venture, it runs

counter to the reality that the founders are not given the full autonomy to actualize their vision

when RI selects ideas that they deem best. In addition, it was noted that the CEO, Oliver Samwer

was a “micromanaging and domineering boss, calling startup founders at all hours to pepper

them with questions”, showing that every autonomous action that was taken would be heavily

criticised by RI (Kahn, Nicola, Ricadela and Satariano, 2016).

3.3 ​Likert’s System I - Authoritative organization

As seen in RI’s organisation, it is exemplified in Likert’s System I. Within the Likert’s System I,

an exploitive authoritative organisation is distinguished by motivation through instilling threats

and fear where communication flow takes on a top-down directional flow. Top-level decision

making and control is also displayed in an organization (Miller, 2015). This is observable within

RI’s outlook towards staff retention. As mentioned in the earlier portion (2.2.1), many employees

of both past and present cited that the workplace culture was harsh and working hours were long,

thus it is observed that RI values production over concern for staff well-being. Employees of the

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various entities by RI risk losing their jobs if they are classified to be substandard as compared to

their colleagues (Parr, 2016). Key Performance Indicators (KPI) are often demanding at RI

companies, and underperformance does not go unnoticed. Employees with KPIs unmet, no

matter hierarchical seniority, are dealt with critically. This is a pressing concern due to

employee's vested interest in the company's equity distribution. Management or not, if an

employee is removed from his or her post prematurely, they also risk losing their share of equity

in the company (Baumann et. al., 2018).

3.4 ​System Theory: Requisite Variety

System theories suggest that an organization’s makeup is synonymous to a biological system,

where it comprises of components alike organs in a human body that work independently in

order for the organization to function and exist. Requisite variety is a system property which

states that an organization’s relationship with its environment must be as intricate as the

problems of the ecosystem it exists in (Miller, 2015). RI’s network of companies has brought

about a multitude of services within the technological space across globe. Businesses and

services that were once native to North America and Europe were brought to the then-developing

APAC region. In particular to Singapore, where online merchandising giants such as ASOS and

Amazon were exclusive to the western part of the world, the penetration of RI in the local

landscape had since brought similar services which were lacking in this part of the world. Zalora

and Lazada are just some of the entities by RI that had populated this part of world with

e-commerce and e-retail services. These services were unprecedented prior to circa 2012, when

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the said brands officially entered the local e-commerce scene. Thus, it is conclusive that RI had

contributed to fill the void of e-services in this part of the globe.

4.0 ​Impact on the global community

Rocket internet has included measures that is ethical in the global community. They have

exemplified their worth through several factors that has positively impacted the environment.

These includes coming up with standard guidelines for their business ventures, introducing new

services into new markets and cultivating a startup culture within each region.

4.1 ​Setting guidelines for related business ventures

First of which would be taking into account of environmental matters which they have

considerably requested indications from their targeted companies if their business activities are

involved in any adverse impact on the environment. They also encourage initiatives that would

be beneficial to the environment as well as to promote greater environmental countermeasures.

There is also an attempt to encourage developments and application of environmentally friendly

technology. As seen in the Non-financial report, it is stated that RI has taken measures to ensure

that all their businesses are environmentally friendly and exclusively deals no notable

environmental damage. Therefore, it shows how they have vastly contributed in making an

environmental impact in their organisation globally. RI’s notion of advocating for greater

environmental awareness has trickled down to its subsidiaries such as Zalora. Job positions such

as the ‘Regional Sustainability Manager’ were created in efforts to place emphasis on the

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organization’s high ethical standards, pertaining specifically to adhering to ethical trade, concern

for the environment, and maintaining a responsible workplace.

4.2 ​Bringing new services to new markets

One example of this can be linked to Singapore. Before local online retail shops were available,

Singaporeans only had access to older platforms like Ebay to buy items from other people online.

With Zalora and Lazada- both started by RI- the online retail industry in Singapore and

Southeast Asia as a whole has really boomed. In a report from the US Department of Commerce,

the online marketplace in Singapore is growing faster than ever and is expected to have a 10.1%

annual growth rate by 2022 (Singapore- eCommerce, 2018). The ease of purchasing items from

these online marketplaces followed by swift deliveries makes shopping online a breeze.

Furthermore, Zalora and Lazada encourages people to spend by having bumper sales such as the

Single’s Day sale and the “11.11” sale, which has led to huge jumps in sales figures (Tee, 2019).

4.3 ​Cultivating startup culture

Rocket Internet’s mission is to enable entrepreneurship on a global scale (Glassdoor.com, 2019)

and is notable for incubating businesses by providing it with the necessary capital and resources

until its establishment. Oliver Samwer mentioned that the business structure of the company has

been greatly recognised and valued for its efforts invested to nurture a startup culture in various

countries all over the globe, especially in Berlin, Germany (Schröder and Tuma, 2019). Aside

from contributing capital, RI also provides aspiring entrepreneurs the security to establish a

startup by enabling them the dependability of an esteemed company as well as valuable

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experiences which may be obtained from setting up their businesses at Silicon Valley (“Can

Cloning Businesses Work? Ask Rocket Internet, 2015).

Conclusion

Rocket Internet has been hugely successful in the tech space, affirming its foothold in the

business as a ‘cloning factory’ through the incubation of companies whilst encouraging

entrepreneurship in the process. It is worth noting that the company has had its downfalls. At the

pace RI duplicates businesses, it is no surprise that despite the advocation for startup culture, it

leaves a limited capacity for creativity from employees to innovate in their respective roles.

Employee’s satisfaction can then be correlated to RI’s volatile rate of staff retention. Despite the

bad press and negative connotations that come with ‘copying’ successful businesses, RI’s

business model has been proven as an effective and efficient method - through its portfolio that

encompasses numerous business entities that have successfully gone public. RI’s swift hiring and

firing processes and structured methodology to run a business are attributable to the company’s

progress and these factors will continue to pave the road of success for RI in the years to come.

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