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Saturday, April 20, 2024

OYO downsizing illustrates risk associated with its rapid growth strategy, says GlobalData

Following the news that OYO’s growth strategy is currently being re-evaluated due to questions surrounding its ability to become profitable.

Ralph Hollister, Analyst, Travel & Tourism at GlobalData, offers his view on the situation:

“After what seemed to be a meteoric rise for OYO in the lodging sector, the company will now be laying off 15-20% of its employees in India and South Asia. Oyo group chief executive officer (CEO) Ritesh Agarwal hinted that this step has been taken to drive ‘tech enabled synergy’, but it is likely that the change in strategy is spurred by the increasing pressure from Softbank to show profitability as soon as possible.

“It is common for companies in the tourism industry to change strategy due to changes in the micro and macro-economic environment. Because of the company’s aggressive expansion into a range of markets such as the US and UK, it is now more difficult for the unicorn to scale back operations and focus primarily on core markets such as India.

“Significantly reducing staff numbers provides a short term fix to improve profit margins. More importantly however, the company’s core business model needs to be scrutinized to evaluate its ongoing viability. Attempting to standardize low cost accommodation in a range of source markets is proving a difficult challenge to overcome.

“Softbank – a major investor in OYO – is gaining a reputation for encouraging rapid growth strategies. The situation bears resemblance to that of WeWork, another company, which was heavily backed by Softbank and which recently hit the headlines after aborting a planned IPO.”

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