STRATEGIC MARKETING

TOPIC- CASE ANALYSIS OF “OYO: GLOBAL EXPANSION”.

PGDM
Batch 2020-22

Submitted to:
Dr. CHANDAN THAKUR

Submitted by:
Akash Shah M20202713
Ankur Soni 20202259
Jagruti Patil 20202242
Sai Siddhartha 20202246
Sejal Kochar 20202201
Tejendra Rathod M20202710

Page | 1
❖ Agarwal wondered if the company could succeed in international markets or if
he needed to reconsider his strategy of focusing on international markets
instead of the domestic market. Could legal issues in OYO’s home country
create impediments to his growth plan in foreign countries? If so, how should
Agarwal deal with these issues?

Background-

OYO was South Asia’s biggest, among China’s top five largest, and the world’s fastest-growing
chain of leased and franchised hotels, homes, and living spaces.

According to Fast Company magazine, OYO was the 10th most innovative company from India in
2018.

In September 2018, the company was valued at US$5 billion. In April 2019, within six years of its
inception, OYO was present in 11 countries, including India, China, the United Arab Emirates
(UAE), and the United Kingdom.

Case scenario-

Globally, budget hotel space was largely unorganized.

OYO investors, including venture capitalists like UK-based Softbank Vision Fund (Softbank) and
US-based Green oaks Capital, believed that OYO could become a large player in several
geographies.

Satish Meena, senior forecast analyst of Forrester India, stated, “There is an absolute merit in OYO’s
back-to-back entry into foreign countries. The size of opportunity has driven investors to value OYO
that much. Company prepared itself for global expansion, problems occurred in its home country,
India. According to YouGov, a UK-based online market research firm, the customer satisfaction
index for OYO fell from 21 to 15 between July and September 2018, especially among female
customers, owing to safety issues.

Page | 2
In addition, in December 2018, some budget and mid-market hoteliers from India decided to file a
lawsuit against OYO over breach of contract between OYO and these hoteliers.

Jai Vardhan, an expert on Indian start-ups, considered OYO’s global ambitions lofty and believed
that a $5 billion valuation of the company was based on the optimism of its investors regarding
OYO’s international expansion potential and not on OYO’s actual performance in its home country.

Tim Culpan, an award-winning technology journalist, also believed that OYO should focus on
quality rather than international expansion. He stated, “If quality plays second fiddle to expansion,
OYO risks becoming a brand name that’s of little value to anyone.”

Solution-

Yes, legal issues in OYO’s home country create impediments to his growth plan in foreign countries.

Agarwal should deal with the issues following ways:

1. Choice of structure:

It is paramount to consider the structure of the company and the objectives which it wants to pursue.

Apart from this, it should also recognize and realize its capacity to take up projects locally because
exporting the resources will be expensive. Such capacity includes its previous international
experience, legal expertise, language and cultural differences to fully understand the financial, as
well as labor, needs to operate locally in those international markets.

2. Governing Laws

Where the company seeks to operate its business internationally and hires foreign employees, it
needs to make sure that employees filing and payroll obligations are protected and governed by the
laws of their own country of residence.

Therefore, it is required to have a local employment contract in place. It safeguards the employees
and provides more clarification of the terms and conditions of the employment. Where the company
is engaged in selling the goods, it also has to focus on applicable consumer laws, data protection
rules and regulations.

3. Shares

Page | 3
Certain companies offer shares as part of their remuneration and it is worthwhile for an employer to
consider local tax laws and an efficient tax plan for offshore employees to avoid large tax bills. Some
employees may not be willing to accept shares due to the stringent tax laws of the country.

4. Intellectual Property

To avoid infringement of intellectual property such as patents, trademarks, and designs, it should be
registered in all the international markets where the company is operating its business. Where any
company wishes to operate its business in three or more EU countries, it can apply for EU-wide
protection. However, it can opt to file in the individual countries where its target is only limited
markets.

5. Localization of terms

Where the company plans to operate its business and sell its products in international markets, then it
needs to make sure that terms are localized legally and translated into the local language. Inaction on
the company’s part will invite complaints on terms that are not dictated and it will not limit the
company’s liability.

6. Foreign Policies, Politics and Relations

Foreign laws, policies, politics and relationships between countries have a huge impact on doing
business internationally. It is important to keep updated information and follow the latest news of the
country where you wish to operate your business. The laws and regulations of foreign countries such
as labor laws, taxes, raw material costs, transportation and other factors are generally impacted or
influenced by the decisions of political leaders.

7. Tax

As we know that tax varies from one country to another and opting for advice for tax structuring will
help in minimizing tax obligations and global transfer pricing rules can apply for intercompany
agreements. Every tax authority wants its local businesses to pay a maximum contribution and for
such purposes, local payroll taxes and social security payments can be deducted at the source.

8. Data protection

Page | 4
The UK has strict data protection laws to protect the personal data and information businesses
receive. Any private information regarding such owners may not be used or disclosed overseas
without having proper safety measures in place to protect such information and it may also require
the prior consent of the person to whom the information relates.

9. Foreign currency exchange and inflation:

The value of a foreign currency differs from country to country and usually, it won’t be the same as
your home currency. Therefore, it is necessary to consider and be familiar with the exchange rates
between home currency and the foreign currency where you wish to operate the business.

10. Language Barriers

It is significant to consider language barriers when planning to engage in international business. It is

important to know the languages used and spoken in a foreign country where you plan to expand
your business.

11. Cultural Differences

The way each country has its own language; it also has its own culture which consists of food,
traditions, societal norms, arts etc. Such cultural differences are followed and celebrated by the
people of those specific countries. It is not only important but also enriching to acquaint itself with
different cultures where a company wants to operate its business.

Understanding the cultural differences helps in better management of teams, international dealings,
doing overseas business and it highlights the emphasis given to knowing and respecting their culture
which is necessary to conduct a successful business at an international level. One great example of
cultural difference is different time zones.

Page | 5
❖ Would Agarwal reconsider his decision of aggressively expanding
internationally? Were legal issues in India likely to hamper growth of his
venture abroad? How would he manage quality service and growth
simultaneously?

Yes, Agrawal will reconsider his decision of expanding internationally but will also make new
strategy to resolve the problem in the home country. Expanding the business globally together with
the expanding business in the home country with the right decision and strategy would be fruitful for
the OYO.

Strategy that Agarwal could use to solve the issues:

• Minimize the discounting: Budget and mid-market hotels in India suffered due to deep
discounting and changes made by OYO. So, OYO need to do some minimization in the
discounts are per requirement.
• They offering deep discounts for the funding. But OYO need to use a strategy that could
resolve both the problem (less funding and suffering of mid-market hotels)
• Expanding internationally can itself a solution. OYO should not aggressively focus
internationally but should focus as per needed so that it would able to increase customer base
domestic as well internationally. Focusing only in one direction could lead to the problem.
• Buy adopting this strategy, OYO can use the funding that will come from other countries in
domestic markets. Funding can be used for investment in digital markets as 90% of its
customers booked OYO online rather than through online searches which required a heavy
digital marketing investment.
• Then, OYO don’t need to offer the rooms in low prices as it will gain enough funding. Once
the customer base of home country will get retrieved then overall OYO facing losses will
come down.
So last but not least, stop focusing on international market is not the solution, focusing globally
(domestic with internationally) with proper strategy could help Agarawal to solve the issues.

Page | 6
Oyo Rooms - Growth, Expansion and Valuation:

In 2012, Ritesh Agarwal launched Oravel Stays to enable the listing and booking of budget
accommodations. After months of research and experiencing various bed and breakfast homes, guest
houses, and small hotels across India, he pivoted Oravel to OYO in May 2013.

OYO partners with hotels to offer world-class guest experiences across cities. Shortly after launching
Oravel Stays, Ritesh Agarwal received a grant worth $100,000 as part of the Thiel Fellowship from
Peter Thiel, which greatly contributed to shaping his start-up.

OYO Rooms currently houses 17,000 employees globally, of which approximately 8000 are in India
and South Asia. OYO Hotels & Homes is now recognized as a full-fledged hotel chain that leases and
franchises assets.

Over a span of six years, the start-up expanded globally with thousands of hotels, vacation homes, and
millions of rooms in hundreds of cities in India, Malaysia, UAE, Nepal, Brazil, Mexico, UK,
Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, the United States and more. It is even
valued higher than the renowned Taj group of hotels and Oberoi hotel chain.

As per the DRHP filed by the company recently, the total income of OYO, which stood at Rs 13,413.26
crore in the previous FY20 fell by nearly 70% in FY21, standing currently at Rs 4,157.38 crore. All of
these can be pointed out as the adverse effects of the pandemic, which restricted the Indians largely to
their homes. However, it is important here to note that the company saw a massive 70% contraction in
losses though.

The losses of Oyo became as less as Rs 3,943.8 crore in FY21 when compared to the loss of Rs
13,122.77 crore in FY20. This is due to the reason of the huge fall in the expenses of the company,
which was recorded at Rs 22,800.12 crore in FY20 and came down to Rs 6,936.07 crore. The
company's expenses on employee benefits also drastically declined by 63% to Rs 1,742.12 crore in
FY21, from Rs 4,765.28 crore in FY20 because of numerous layoffs.

The business that undoubtedly bore a considerable amount of the brunt of the pandemic is looking to
rise again after the lockdown relaxation this year 2021. Oyo took its first step towards growth by raising
funding from the American software giant, Microsoft, as part of strategic investment.

Along with Microsoft, Oyo has a set of other strategic investors, which includes Chinese ride
aggregators Didi Chuxing; South-East Asian ride-hailing giant, Grab and Airbnb, American online

Page | 7
marketplace for lodging, tourism, and homestays. The total valuation of OYO is $9.6 Bn, as of August
20, 2021, after the company raised $5 Mn from Microsoft.

Oyo Rooms Subsidiaries

Oyo Rooms have acquired 7 companies to date. Denmark-based data science firm, Danamica remains
the last company that was acquired by OYO on September 2, 2019, at $10M.

Manage quality service and growth simultaneously:

There are several principles of quality management that the International Standard for Quality
Management adopts. These principles are used by top management to guide an organization’s
processes towards improved performance. They include:

1. Customer Focus

The primary focus of any organization should be to meet and exceed the customers’ expectations and
needs. When an organization can understand the customers’ current and future needs and cater to
them, that results in customer loyalty, which in turn increases revenue. The business is also able to
identify new customer opportunities and satisfy them. When business processes are more efficient,
quality is higher and more customers can be satisfied.

2. Leadership

Good leadership results in an organization’s success. Great leadership establishes unity and purpose
among the workforce and shareholders. Creating a thriving company culture provides an internal
environment that allows employees to fully realize their potential and get actively involved in
achieving company objectives. Leaders should involve the employees in setting clear organizational
goals and objectives. This motivates employees, who may significantly improve their productivity
and loyalty.

3. Engagement of People

Staff involvement is another fundamental principle. The management engages staff in creating and
delivering value whether they are full-time, part-time, outsourced, or in-house. An organization

Page | 8
should encourage the employees to constantly improve their skills and maintain consistency. The
principle also involves empowering the employees, involving them in decision making, and
recognizing their achievements. When people are valued, they work to their best potential because it
boosts their confidence and motivation. When employees are wholly involved, it makes them feel
empowered and accountable for their actions.

4. Process Approach

The performance of an organization is crucial according to the process approach principle. The
approach principle emphasizes achieving efficiency and effectiveness in the organizational
processes. The approach entails an understanding that good processes result in improved consistency,
quicker activities, reduced costs, waste removal, and continuous improvement.

5. Continuous Improvement

Every organization should come up with an objective to be actively involved in continuous

improvement. Businesses that improve continually experience improved performance, organizational
flexibility, and increased ability to embrace new opportunities. Businesses should be able to create
new processes continually and adapt to new market situations.

6. Quality Management

A model example of great quality management is the implementation of the Kanban system by
Toyota Corporation. Kanban is an inventory control system that was developed by Taiichi Ohno to
create visibility for both the suppliers and buyers to help limit the upsurge of excess inventory on the
production line at any given point in time. Toyota used the concept to execute its Just-in-Time (JIT)
system, which helps align raw material orders from suppliers directly with the production schedules.
Toyota’s assembly line increased efficiency aa the company received just enough inventories on
hand to meet customer orders as they were being generated.

The key resources for OYO’s growth include:

Hi-tech app architecture: OYO expanded its app with two new features in 2020. Smart Pricing
Manager was introduced within the OYO OS owner app to allow its partners to adjust their room
prices instantly based on the prevailing situation on the ground. This feature enables hotel owners to
capitalize on the sudden spike in demand or improve occupancy by reducing the price. It exploits

Page | 9
local knowledge to enhance efficiency. OYO also introduced the Cancellation Prediction Engine
feature, which predicts whether each customer who has booked a room will check-in. It helps hotel
owners to optimize occupancy and avoid overbooking.

44,000+ fully leased and franchised hotel properties with over 1.2 million+ rooms. The company
acquired 17,000 homes under TUI Holiday Homes in early 2020, which has increased its portfolio of
140,000+ homes spread across 70 countries. The acquisition has expanded OYO’s market share in
Europe to become a top 3 player in four key vacation markets.

Customer Database – Oyo has a large database of loyal repeat customers

Employees with technical knowledge like programming, development, and maintenance, and other
staff for business management.

Venture Funding – Oyo has secured funding from many ventures’ capital firms such as Sequoia
Capital, SoftBank’s Vision Fund, etc.

Page | 10