This section offers a conceptual background in theorizing on the essential components of the internationalization process for the sharing economy firms. We first conceptualize transactions based on digital platforms, comparing them with the three types of transactions in traditional relationships, such as markets, hierarchies, and social embeddedness. In doing so, we establish the boundary condition for theorization on digital platform-based transactions from the Hayekian approach. We then describe the various business models of the sharing economy in a traveler accommodation industry, a transportation industry, and a finance industry to understand the attributes of the sharing economy in divergent regulatory environments.
2.1 The Attributes of Digital Platform-Based Transactions from the Hayekian Perspective
The notions of platform and ecosystem are essential in understanding the sharing economy firms that organize exponentially growing and scalable business ecosystems through digital platforms. In the field of strategic management, an ecosystem has been considered as “an economic community” supported by interacting organizations and individuals, including suppliers and other stakeholders (Moore,
1996), or a “meta-organization” that consists of multiple legally autonomous entities (Gulati et al.,
2012). In general, Jacobides et al. (
2018) define an ecosystem as “a set of actors with varying degrees of multilateral, non-generic complementarities that are not fully hierarchically controlled.” Also, industry-level platforms are defined as “products, services, or technologies developed by one or more firms, and which serve as foundations upon which a larger number of firms can build further complementary innovations and potentially generate network effects” (Gawer & Cusumano,
2014, p. 420). Since sharing economy firms (e.g., Airbnb) play the central role of leading and promoting the collaboration among the ecosystem participants (e.g., individual owners of houses or other real estates) in the digitalized business ecosystem, they are often called “platform leaders” (Gawer & Cusumano,
2002) or “platform owners” (Alstyne et al.,
2016) in the areas of strategic management. As we discuss below, transactions in the sharing economy happen within the business ecosystems through digital platforms. Specific transacting parties (actors), rules, and governance will differ from other economic formats, such as markets, organizations, and social networks.
Digital platform-based transactions in the sharing economy lie only in the relationships between business ecosystem members who connect through digital platforms. In other words, transacting parties who want to buy or sell the specific services in the sharing economy should have prerequisite memberships and set the price by themselves through digital platforms. To clarify the attributes of digital platform-based transactions, we can distinguish conceptually among four dimensions of transactions, which are rooted in different types of relations: market relations, hierarchical relations, social relations, and digital platform relations. The three types of relationships, including markets, hierarchies, and social networks (or the hybrids of markets and hierarchies), have been analyzed much in the streams of research on transaction cost economics (Hennart,
1993; Williamson,
1991) and socially embedded governance (Granovetter,
1985; Ouchi,
1980; Uzzi,
1996).
Table
1 shows the comparison in detail. First, market-based transactions are open to anyone who can make a deal to exchange goods, services, and money through explicit contracts. Under the exogenous market prices and contractual law, the symmetrical transacting parties in the markets can set the transaction instantly once both parties agree on the deal. Second, hierarchy-based transactions occur within a specific organization between asymmetrical parties (i.e., one party can become dominant over another due to the authority). Transaction cost economics predicts that uncertain, frequent, and asset-specific transactions can be internalized efficiently in an organization. Third, social embeddedness-based transactions occur in the symmetrical social relationships generated by the social gifts, favors, and other socially tied exchanges, which constitute social norms shared by the transacting parties. The social embeddedness-based transactions are relatively time-lagged and slower because the relatively long-term social relationships must be a prerequisite before the exchange occurs. Fourth, digital platform-based transactions are quite different from the others. Key attributions of e-commerce firms’ growth are their fast internationalization speed and the extensive breadth of operations across different areas (Batsakis & Theoharakis,
2021; Swoboda & Sinning,
2022). Especially, sharing economy firms set the protocols and algorithms with the formal programming language for specific digital platforms (e.g., Airbnb apps, Uber apps, etc.) in advance. Once the protocols and algorithms set the types and rules of the sharing economy, autonomous service providers (i.e., specific-assets holders) and customers are self-organized through the digital platforms and make deals autonomously under the automatically transacting mechanism that is already set before they join the membership. Here, we define
self-organization as a distributed governance that emerges collectively from the autonomous behaviors of independent actors through common platforms. Transacting parties choose the best digital platforms autonomously for their own purposes and find the possible transacting parties to make the best deal through the digital platforms. That is, each transacting agent plays the respectively distributed role in occurring digital platform-based transactions.
Table 1
Comparison of different types of transactions
Governance mechanism | Contractual governance | Hierarchical governance | Relational governance | Distributed and self-organized governance |
Regulatory principles | Price/law | Authority | Social norms | Protocols/algorithm code-based rules |
Mode of enforcement | Exogenous enforcement by third parties (e.g., government, legal party, global institution) | Endogenous enforcement by the authority of a dominant party | Endogenous enforcement by both parties themselves | Exogenous enforcement by automatic algorithms |
Terms of exchange | Explicit, legal forms | Explicit, formal forms | Implicit, informal forms | Explicit, formal programming language forms |
Attributes of exchange | Fast, symmetrical, instant exchanges | Very fast, asymmetrical, instant exchanges | Slow, symmetrical, time-lagged exchanges | Very fast, symmetrical, instant exchanges |
In contrast to transactions based on markets, hierarchies, and social networks, digital platform-based transactions allow individuals to possess distributed knowledge and rights for discretionary uses over the assets, but have not yet reached an equilibrium in prices and laws of application. Like Hayek’s (
1945) “dispersed knowledge” approach to the knowledge economy, a self-organizing ecosystem through digital platform-based transactions consists of independent participants, so it does not have a central intervention towards transaction behaviors generally integrated. Hayek’s approach can well capture the salient attribute of the sharing economy in contrast to traditional markets, hierarchies, and social networks. Digital platform providers (e.g., Airbnb and Uber) only offer an online marketplace and adequate conveniences to facilitate transactions between underutilized asset owners and customers without central interventions. The rest of the execution of the transactions is at the discretion of the parties to the transaction. For example, LendingClub, headquartered in San Francisco, California, is the world’s largest peer-to-peer lending company, providing a digital platform to facilitate loans between underutilized capital owners and loan users. Although risk management for the loan business is complicated for individuals compared to banks, this sharing economy business in the finance industry also works well through collective risk management behaviors among individuals with dispersed knowledge. Thus, the existence of dispersed knowledge distinguishes the sharing economy prominently from other traditional economies. For a boundary condition to theorize on the internationalization of the sharing economy firms throughout this paper, we assume the first condition as follows:
Assumption 1: Knowledge that is utilized for digital platform-based transactions is very tacit and continuously changeable by the individuals who have their own property rights, thereby making it difficult to integrate them all into one through a centralized order.
Based on the unique attributes of digital platform-based transactions, we consider the internationalization of the sharing economy firms differently from the existing mechanisms based on markets, hierarchies, and social relationships. To better understand the internationalization of the sharing economy, we use Hayek’s (
1988) notion,
extended order, which refers to a spontaneous process of information gathering between individuals with dispersed knowledge; and we contrast it with the conventional wisdom of Coase’s (
1937) theory of the firm. Traditional IB thinking based on transaction cost economics (Coase,
1937; Williamson,
1985), internalization theory (Buckley & Casson,
1976,
2020), and eclectic paradigm (Dunning,
1988) addresses MNEs’ internationalization from the perspective of extending MNEs’ ownership-based authority. A central proposition of these theories is that MNEs organize the efficient economic structure with hierarchical authority by internalizing the specific assets they want to control. In contrast, the sharing economy firms do not organize specific assets hierarchically ex-ante but rather promote ecosystem participants to self-organize ecosystem-specific assets ex-post due to autonomously interactive patterns among them. As such, we focus on how Hayek’s approach can alter our theorization of internationalization previously based on Coase’s theory of the firm. In the process, we elucidate how Hayek’s approach can offer a new theory different from the traditional theory of internationalization based on Coase’s theory of the firm.
Drawing on Hayek’s (
1988) concept of the extended order, we consider that the internationalization patterns of the sharing economy firms are fundamentally different from those of traditional MNEs. Hayek (
1988) argues that a centrally managed economic model cannot solve the problem from dispersed knowledge among individuals; instead, the only method is to provide information enabling individuals to judge comparative advantages of different uses of resources for serving the needs of distant unknown individuals. The claim suggests that extending an order that enables individuals to self-organize autonomously is better for solving complex economic problems than using central authority to plan and manage resource allocation. In the management field, this perspective can be observed as the dynamics of the emergent self-organization among the interdependent agents in the organizational collectives (Chiles et al.,
2004; Tsoukas,
1996). Especially in a free open-source software ecosystem, individuals can join existing projects or formulate a new project to resolve complex problems through self-organized communications (Foss et al.,
2016). Through the internet and communication technology, since it is more convenient to reconfigure interdependencies between ecosystem participants, the emergence of self-organizing patterns facilitates the expansion of the e-commerce ecosystem remotely from the city to rural areas (Leong et al.,
2016) and internationally from the home country to the host country (Rong et al.,
2015).
Likewise, we consider the extended order in the sharing economy as the extension of established rules and protocols that consist of different information gathering processes to use widely dispersed knowledge among independent ecosystem participants with underutilized assets. We may use the notion of the extended order to describe the internationalization of the sharing economy firms. From this perspective, internationalization is a process of leveraging unique digital platforms that can connect autonomous actors beyond the national borders and facilitate platform-based transactions through the algorithm rules and protocols for the sharing economy as a large-scale business ecosystem. Applying unique rules and protocols through the digital platform algorithms to new participants and their transactional behaviors can be considered Hayek’s extended order. Also, the large-scale business ecosystem can be seen as the result of collective actions among autonomous actors with dispersed knowledge. Thus, we assume the second boundary condition as follows:
Assumption 2: As the knowledge is dispersed among individual actors, the respective actors have their own different plans to adjust to each other, so that the accumulation of each individual action causes a collective action with an extended order.
2.2 Sharing Economy and the Divergence of Global E-Commerce Policy
Peer-to-peer transactions are not new, but they have become a rapidly growing industry. For example, sharing economy business models for home-sharing, car-sharing, and peer-to-peer lending as digital technologies have developed enormously. The growth of the sharing economy offers many opportunities for new businesses and challenges for traditional industries. As such, some emerging regulatory issues have been raised for the sharing economy companies to sustain development and innovativeness. Table
2 shows the divergence of regulations for the sharing economy in different countries, such as the United States, the European Union, and China.
Table 2
The divergence of regulations for the sharing economy
Internet regime for data and digital trade | Market-driven approach Open, secure, and reliable internet | Prescriptive regulatory approach Internal regional integrated and technological sovereignty internet | State-led approach Closed, restricted, and controlled internet |
Regulations for home-sharing (e.g., short-term rentals, travel accommodation) | Hosts: Licenses for short-term rental, regulation-in-proportion (limited period for listings), Withholding tax Guests: Tax (sales, use, transient occupancy, hotel accommodation, etc.) Platforms: Reporting transactions and listings to governments (state, city, etc.), Withholding tax | Regulation-in-proportion (limited period for listings): Hosts can rent their primary places for guest houses only or be approved as a short-term rental with a permitted license Rental income tax | Requirements for information sharing with the government High safeguard for the operational safety of the customers |
Regulations for car-sharing (e.g., transportation, short-term rentals) | Health, safety, and consumer protection: helmet laws for bike-sharing Taxation: sales tax, rental surcharge Insurance: minimum, required levels of insurance provisions Data sharing, privacy, and standardization: creating a transportation network and encouraging innovation | High sustainability regulations in Scandinavia: Electric car-sharing by 2030 Strict regulations in France: All free-floating vehicles must be electric or hybrid Regulatory conflicts with a taxi industry | Internet car-hailing license provisional rules: a required taxi license Insurance Labor contracts: Platform-providers must hire drivers as labor Data sharing with governments |
Regulations for crowdfunding (e.g., peer-to-peer loans) | Exceptional high credit quality for student loan online marketplace lenders Robust small business borrower protections License by Securities and Exchange Commission (SEC) Consistent reporting data for transparent marketplaces to SEC | High capital-adequacy ratios (capital requirements) Limitations to business models Prescriptive disclosure requirements | Limitations to business models as an intermediary only matching borrowers and investors After a wave of scandals and defaults in 2018, the crackdown on peer-to-peer lending |
Regarding internet regimes, there are clearly different approaches to digital commerce and data management. While the US approach is based on liberal markets with an open and reliable digital infrastructure, the EU approach is relatively normative to protect customers and promote innovation. In contrast to these approaches, the Chinese approach is very strongly restrictive. Under such a different internet regime, business models based on the sharing economy must be required to satisfy the different levels of rules while competing with the traditional industries and protecting customers. For example, US home-sharing businesses must be licensed and report transaction information for taxes (Tun,
2020). EU home-sharing businesses should consider similar rules, but they are limited to the relatively more restrictive ones for the limited period of listings and short-term rental permits (O’Sullivan,
2016). On the contrary, the Chinese government requires very strict data-sharing rules and high safeguards for customers. The sharing economy firms must share all identity information about both hosts and guests for every transaction and adhere to high standards of operational safety (e.g., cleaning, maintenances, etc.). Chinese rules may be too restrictive for foreign companies and customers in terms of privacy and high costs for operational standards (Shasha,
2019; Wu & Zhao,
2015). Next, in the car-sharing business, the approach to regulations in different countries is highly divergent. US car-sharing companies should consider only safety, insurance, and taxation, whereas EU car-sharing businesses must use hybrid or electric cars for environmental sustainability, in addition to the similar regulations in the US (U.S. Department of Transportation Federal Highway Administration,
2020). In China, car-sharing businesses are considered as not just a ride-sharing service, but a sort of taxi service. They must follow the taxi industry rules. Drivers must be hired directly as licensed taxi workers and report more detailed transaction data to the Chinses government. Lastly, in the finance industry, the divergence of regulations seems extreme. Both US and EU peer-to-peer lending businesses have some rules about the license, capital requirements, and innovative business models while growing the online marketplace loans as fintech businesses (Deloitte,
2016; U.S. Department of the Treasury,
2016). Although the Chinese peer-to-peer lending companies initially emerged liberally, the industry has almost been suppressed and banned by government restrictions (Liu,
2018).
The sharing economy is based on business opportunities related to the way to create value from the reuse of underutilized assets (Hennart,
2019; Parente et al.,
2018). Due to various opportunities and challenges, the regulatory focus to strengthen positive benefits and reduce negative impacts to existing businesses is divergent in different countries in the context of local industry. In particular, the extent to which business opportunities can be scaled up through internationalization depends on the internet regimes and regulatory environments for digital commerce in different countries. As such, it is critical to understand how global e-commerce policies have developed and how they will affect the internationalization of the sharing economy. E-commerce discussions in the WTO have continued since the first agreements on establishing the WTO Work Programme of e-commerce and the moratorium on the prohibition of customs duties on electronic transmissions in 1998. However, the e-commerce discussions could not develop much because there were continuous conflicts between the developed countries (mainly focusing on the establishment of multilateral norms on e-commerce) and the developing countries (highlighting the development of infrastructure for e-commerce). In December 2017, the first e-commerce Joint Statement Initiative (JSI) was held to advance the discussions in the exploratory phase. The second e-commerce JSI was held to move forward the detailed discussions in the negotiations phase in March 2019. The negotiation proposals include 15 categories of issues for e-commerce policy (Ismail,
2020), but we summarize nine issues to highlight the critical implications for the sharing economy, as Table
3 represents.
Table 3
The implications of WTO e-commerce issues
Issue 1: Electronic transactions and means | Electronic transaction frameworks (electronic authentication, electronic signatures, electronic contracts) | Digital platform-based transactions | The standardized technical means enabling e-commerce are prerequisites for cross-border digital platform-based transactions |
Issue 2: Access to the internet and data | Facilitating public access to and use of open government data On access to the internet and online platforms | Remote localization | Freely accessible internet and open database can enable firms to design algorithms to remotely meet the local customers’ needs |
Issue 3: Flow of information | Cross-border transfer of information Location of computing facilities and data | Remote localization Performance (the improvement of algorithms) | Firms should be able to accumulate and exploit their own data to improve algorithms continuously |
Issue 4: Market access | Goods/Service market access on the basis of liberalization | Remote localization Performance (demand-side network effects) | The larger the market size, the broader digital platform-based transactions can be distributed |
Issue 5: Consumer protection and privacy | Online consumer protection Unsolicited commercial electronic messages (spam) Legal frameworks for personal information and data | Self-organized business ecosystem Distributed governance | Consumer protection plans can facilitate autonomous consumer behaviors for digital platform-based transactions within business ecosystems |
Issue 6: Transparency | Publication of domestic regulations on e-commerce | Self-organized business ecosystem Distributed governance | Individualism and autonomy in a transparent society can promote digital platform-based transactions extensively |
Issue 7: Technical and trade assistance for e-commerce capacity | Development aspects of e-commerce policies for developing countries Reducing the gap of digital access across different countries Cooperation between stakeholders, agencies, and international organizations | Asset-lightness Performance (firms can save huge costs for establishing firm-specific assets and IT infrastructure when entering a host country) | Technical and trade assistance for the developing countries can reduce the entry barriers preventing the expansion of digital platform-based transactions from developed countries to developing countries |
Issue 8: Business trust | Protection of source code and algorithm Intellectual property rights Cybersecurity | Innovation with collective intelligence Performance (motivation for innovators) | The independence of algorithms can secure the legitimacy of new automatic settlements |
Issue 9: Custom duties on electronic transmissions | Prohibition on the customs duties of electronic transmissions Internal taxes, fees, and charges | Innovation with collective intelligence Performance (motivation for entrepreneurs) | Reduced costs for e-commerce can encourage firms to develop new business models with digital platform-based transactions |
The first issue (Issue 1) concerns electronic transactions and means. It is related to the nature of digital transactions per se, including electronic authentication, electronic signatures, electronic contracts, etc. It is a minimum condition for digital platform-based transactions to be carried out in different countries. The sharing economy businesses can be possible if individuals can connect with each other and establish transactions freely through digital platforms. Next, internet access (Issue 2), information flows (Issue 3), and market access (Issue 4) are associated with the conditions of the digitized businesses to internationalize beyond national borders. The different levels of openness and exchange of digital information may determine to what extent the sharing economy firm in the home country can expand its business in the host countries. Consumer protection and privacy (Issue 5) and transparency (Issue 6) are related to the problem of organizing business ecosystems with distributed governance in terms of autonomy and individualism in digital platform-based transactions. If individual economic agents are protected and have access to transparent information, they can be independent enough to have a discretionary right to set the transactions on their own motivation. In addition, Technical and trade assistance for e-commerce capacity (Issue 7) is associated with an investment in digital infrastructure in different countries, which may affect the profitability of the sharing economy firms as they internationalize in different countries. Finally, business trust (Issue 8) and customs duties on electronic transmissions (Issue 9) are associated with innovativeness in digital algorithmic development and business models. The strong business trust to protect source code and algorithms may promote digital technological development as the sharing economies grow. The low level of customs duties across countries can facilitate various business models that can be internationalized in different countries.