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In a highly interconnected and globalized world, it is important for businesses to innovate and adapt to the rapidly changing environment. Samsung Electronics is the world’s largest information and technology company by revenue and therefore has to consider all environmental factors to stay in its position (Financial Times, 2013). Samsung is currently ranked tenth by Forbes for the world’s most valuable brands at $38.2 billion (Figure 3). As of the end of 2016, Samsung Electronics maintained 220 worldwide operation hubs, including manufacturing subsidiaries, design centres, and research and development centres, while operating 15 Regional Head Offices in Korea, North America, Europe, Southeast Asia, Africa, and other regions of the world (Samsung Electronics Sustainability Report, 2017). This report will identify and analyze these factors using the PESTLE framework, which consists of the political, economic, social, technological, legal and environmental factors.
The PESTLE framework, which only considers the macro environment, is designed as a strategic warning system allowing businesses to identify incoming threats. This framework can help a business prevent business failure and help plan for the future. Political factors look at how the government affects the economy and the market the business operates in. This can include factors such as the nature of the political system, government involvement and political stability (The Business Environment, 2008). Samsung has recently regained the top spot for smartphone sales in the USA with market share rising to 36.2% from 32.9% in the prior quarter (CNBC, 2017).
However, there is uncertainty as to whether these sales will remain due to President Donald Trump’s views towards international trade and trade blocs, as seen by the withdrawal from the Trans-Pacific Partnership (The Guardian, 2017). Any taxes and quotas on imports would hinder Samsung’s sales and allow domestic or cheaper alternatives to prosper.
Samsung Electronics is running six mobile phone manufacturing facilities in six countries including Vietnam, China, India, Brazil, Indonesia, and Korea. The two factories in Vietnam currently produce fifty percent of all mobile phone production for Samsung (Business Korea, 2015). As most of these countries are a part of the Association of South-East Asian Nations, Samsung is able to keep transportation costs low due to the low or free trade.
However, Samsung is planning to increase manufacturing in the USA. The move comes amid criticism from U.S. President Donald Trump about companies manufacturing abroad for U.S. consumers (Wall Street Journal, 2017). The Trump administration has threatened an import tax for big companies who don’t increase or move production to the USA (Financial Times, 2017). In order for Samsung to prevent any tariffs or quotas, they should continue their move into the USA while still keeping their manufacturing hub in Asia. Economic factors consider the conditions and the forces that affect the cost and availability of goods, services, and labor and thereby shape the behaviors of buyers and sellers (Introduction to Business, 2017). The on-going global economic crisis has affected most of the developed world, damaging its purchasing power and lowering consumption. If not addressed, the economic recession could have severely damaged the company’s sales and its position as a market leader. However, certain opportunities have arisen due to the recession.
The Korean won decreased over nine percent in value against the US dollar from January to June 2008, helping Samsung make significant inroads into world markets for electronics (Samsung Electronics: Managing Innovations in an Economic Downturn, 2017). Changes in the exchange rate can have a big impact on a company such as Samsung who import and export at a tremendous magnitude.
In response to the recent economic downturn, Samsung has had to look towards emerging markets to be able to maintain revenue. While global electronics consumption plateaued after the recession, China’s growing middle class showed a reverse upward trend as they demanded cheaper and more innovated electronics (Financial Times, 2012). Also, Samsung has had the largest market share for mobile phone, smartphones, and televisions in China due to their distribution network formed between the company and Chinese retail titans, allowing them to suppress as much of the damage to sales as possible (Samsung Electronics: Managing Innovations in an Economic Downturn, 2017).
The social environment refers to the composition of society and what needs businesses are addressing. This includes factors such as demographics, culture, level of education and communication and the needs of society. According to BBC, 4 out of 5 adults own a smartphone, equivalent to 37 million people. With current population increase and aging trends, it’s easy to predict that sales for smartphones will increase. For example, Japan has the oldest population in the world with more than a quarter of the population aged 65 or above (Sky, 2017). Decades of improving life expectancy and falling birth rates have produced a rapidly aging and shrinking population (Bloomberg, 2017). There is evidence that consumers across countries shift spending patterns as they age towards health-related services and goods (World Economic Forum, 2015). Also, shifts in class structure in emerging markets have meant that there are more people with higher disposable income, increasing the demand for luxury goods such as smartphones and other electronics.
In order for Samsung to keep up with aging populations in countries around the world, they have to tailor their products more towards the older generation. This could include smart-health products such as wearable tech and healthcare software.
According to Innovatemedtec, the global market for wearable tech will rise to 210 million unit shipments and $30 billion in revenue by 2018 from 96 million unit shipments and $8.5 billion in revenues during 2012. Samsung has been capitalizing on this trend as they have currently released 6 smartwatches in total (CNBC, 2015). YH Eom, Samsung’s European president, said, “The wearable market has a huge potential. So we are making a heavy investment in R&D…. I would say a significant portion of our investment is around wearables and we will be ready in time to deal with the market trend” (CNBC, 2015). Investment in innovation and technology is often seen as a key element in a business’ success and allows it to differentiate itself from competitors. The rise of automation and robotics in many sectors has allowed companies to cut costs and improve efficiency (Brookings, 2016).
Some restaurants have robots that deliver food and self-ordering kiosks available for customers. The number of industrial robots is rising. In 2013, there were 1.2 million robots in factories and warehouses. In 2014 there were 1.5 million robots and rose the next year to 1.9 million (Brookings, 2016). By investing in technology, Samsung has a big opportunity to lower costs while delivering a better product. This would allow Samsung to compete with its big competitors using the price and quality of their products.
Due to a decade-long development programme, Samsung has achieved economies of scale and scope which has become its comparative advantage that few can emulate (Samsung Electronics: Managing Innovations in an Economic Downturn, 2017). Samsung’s innovation and manufacturing power are demonstrated by the fact that its major customers are some of the world’s leading technology companies such as Sony and Apple (Figure 1). By supplying its competitors, Samsung can ensure that it will stay ahead of everyone, as there will always be demand for Samsung products or components.
Also, Samsung has planned to invest 21.4 trillion won in South Korea in order to extend its lead in memory chips and next-generation displays for smartphones (The Business Insider, 2017). They plan to build a new NAND manufacturing facility in Pyeongtaek, a new semiconductor production line in Hwaseong and many other projects (The Business Insider, 2017). These investments projects will help Samsung stay an industry leader as it will increase their innovation. The dependence of other companies on Samsung’s manufacturing will also increase, as they will likely continue to buy Samsung components. Legal factors look at how legal frameworks affect business operations and its relationship with its customers and suppliers. It is closely linked with political factors as they both set out regulations and restrictions on how a business is allowed to behave.
An example of this type of regulation is a patent. A patent is a license that excludes any other company from reproducing, using or selling the same invention during a set period of time (Business Insider, 2011). Samsung was awarded the second most amount of patients in 2015 through to June 2 by any large company, 600 patients behind IBM (Figure 2). In 2012, Samsung was granted over 5000 patents in the United States (Samsung Electronics: Managing Innovations in an Economic Downturn, 2017). This encourages Samsung to innovate and it protects its ideas, allowing Samsung to stay ahead of its competitors. Furthermore, there are regulations that cover employment and labor, the environment, privacy and safety and health. By following all these regulations, Samsung is able to uphold their brand image and prevent having to pay any fines.
Samsung has had a long-running battle with Apple over patent infringements since 2011 (NPR, 2016). Samsung previously had been ordered to pay Apple $399 million in damages (Forbes 2017).
According to NPR, “Apple alleged, in part, that its South Korean rival had infringed three design patents for discrete components of the iPhone. This includes the front face of the device, the rounded edges framing the face, and the device’s distinctive matrix of colorful square icons.” However, the Supreme Court ended up siding with Samsung, overturning the $399 million it had to pay. It is clear that Samsung must be able to find a way to identify if there are any patent infringements during the research and development process to prevent having any legal battles. Environmental factors include climate change, water resources and energy supplies and how they affect a business’ operations.
Adhering to regulations over environmental sustainability can greatly improve a company’s brand image and can prove to be a big selling-point in many markets. A new study by Unilever reveals that a third of consumers are now choosing to buy from brands that are doing environmental good (Unilever, 2017). Also, more than one in five of the people surveyed said they would actively choose brands if they made their sustainability credentials clearer on their packaging and in their marketing. This would uncover a €966 billion opportunity in the market for sustainable goods (Unilever, 2017).
According to Samsung Electronics: Managing Innovations in an Economic Downturn, all Samsung mobile phones and MP3 players introduced on the market after April 2010 are bioaccumulative toxin free. Also, after 2010, 90% of their products earned the Global Ecolabel, landing Samsung as the world’s first in a number of products meeting these standards. Meeting these standards and regulations has safeguarded the company’s sales in developed countries where stricter environmental regulations take place. Complying with environmental regulations also gives Samsung a positive reputation, which could increase sales.
However, Samsung still has to improve to become perfectly environmentally sustainable as seen by the Galaxy Note 7 incident. Samsung has produced 4.3 million Galaxy Note 7 phones, which have all been recalled due to their battery problem. Samsung has announced they are going to dispose of all the phones, meaning that the majority of the components which are brand new and might be still working fine could be destroyed, leading to the tremendous waste of the materials, energy, and labor that went into making these devices (Greenpeace, 2017). Samsung Mobile is constantly dependent on key environmental drivers, which have a direct effect on all aspects of the company. This report has identified and analyzed these factors using the PESTLE framework and has evaluated Samsung’s response. It is clear that succeeding in responding to these key environmental drivers allows Samsung to stay ahead of its competitors in the industry.
Due to current trends in ethical purchases and keeping the environment clean, the environmental factor proves to be an important driver to Samsung. By continuing to be a market leader in complying with environmental regulations, Samsung can ensure they will last a long time.
However, with the recent Galaxy Note 7 incident, there is still room for improvement. Innovation in the smartphone industry is one of the best ways to differentiate Samsung’s products and stay ahead of their competitors, proving to be an important driver for Samsung. Improving and increasing their partnerships and enlarging the scale of their vertical integration can also benefit Samsung as it will give them higher bargaining power against competitors and it will allow them to have more control over their operation. By spreading out their operations into emerging markets, Samsung is able to tap into a large population with a growing middle class. This allows Samsung to increase market penetration and decrease dependency on western countries such as the United States of America, which was heavily impacted by the recent recession.
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