Uber is arriving now : An Institutional Analysis of UberX Location Decisions

Your Uber is arriving now: An Institutional Analysis of UberX Location Decisions Matthijs Punt, Utrecht University, m.b. punt@uu.nl. Starting date: September 1, 2016. Expected final date: September 1, 2020. State of the art: Literature on the geography of the multinational enterprises (MNE) has thoroughly discussed the necessity and consequences of congruence between firms’ activities and local contexts. With a focus on location advantages this literature often addresses hierarchies in geographical locations, ranging from a multiplicity of location specific costs (factor costs, costs of space and time, etc.) to local expertise and proximity of specialist services. Even though some literature has included institutional analysis in their location theories, they usually still focus on the search for fit between firms’ and the local institutional context. Research gap: These different mechanisms of matching organizational activities to local conditions assume a certain socio-political legitimacy of the nature of firms’ activities; a legitimacy that cannot easily be assumed for services like UberX. Therefore, we argue in this paper that these theories do not always suffice in explaining location decisions for new organizational forms in the gig or sharing economy, such as Uber. By using institutional theory on legitimacy and organizational forms we argue for location theories that focus on more dynamic processes of legitimization, in our case the mobilization of audiences. Main theoretical arguments: The traditional literature on MNE location decisions mostly covers socio-political legitimacy, since it focuses on the fit between firms’ activities and formal institutions (regulations, laws, etc.). The carriers of this legitimacy are local regulators and incumbents. However, in the case of UberX this socio-political legitimacy is lacking and therefore we argue that cognitive legitimacy is more important to them. We argue that UberX can overcome their liability of foreignness through cognitive legitimacy spillovers (spread of knowledge about UberX) generated by networks of business travelers and the tech community, two of Uber’s early core audiences. In other words, business travelers and the techies that have encountered UberX in other cities, will carry legitimacy for this service in subsequent cities that they visit. Methods: In order to examine what influences UberX’s location decisions, we used an time to event analysis in which we can study the impact of different covariates on the risk of an local UberX introductions occurring. We used the Internet Archive’s Wayback Machine to find UberX introduction dates on archived webpages of Uber’s website. We used existing data of the Globalization and World Cities (GaWC) Research Network in order to measure cities global business and tech connectivity and Institutional Profiles Database 2012 in order to measure local formal institutions. Results: Our results show that in accordance with the traditional literature, some formal institutions and market characteristics are influencing the likeliness of local UberX introductions. However, what seems to have a big impact is the global business connectivity of a city. The better cities are connected in this global business network to cities that already have UberX, the more likely they are to experience an UberX introduction. The results didn’t show any differences between the tech and the business network connectivity.