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Analysis of Samsung Mobile using PESTLE analytical framework...

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Analysis of Samsung Mobile using PESTLE analytical framework 100197513 WORD COUNT: 2750

100197513 Executive Summary This report will aim to apply five key environmental drivers that have significance to Samsung Mobile using the PESTLE (political, economic, social, technological, environmental and legal) analytical framework. This framework will dissect the impacts of the drivers on Samsung Mobile as well as appraise the responses the company had to said drivers. This report will also provide management recommendations that Samsung could perform in relation to the drivers

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Table of Contents 1.0 Introduction........................................................................................................................4 2.0 Analytical Framework.......................................................................................................4 3.0 Key Environmental Drivers..............................................................................................4 3.1 Political............................................................................................................................4 3.1.1 Samsung’s response to Political Factors...................................................................5 3.1.2 Evaluation of Samsung’s response to Political Factors............................................5 3.2 Economical......................................................................................................................6 3.2.1 Samsung’s response to Economical Factors.............................................................6 3.2.2 Evaluation of Samsung’s response to Economical Factors.......................................6 3.3 Social...............................................................................................................................7 3.3.1 Samsung’s response to Social Factors......................................................................7 3.3.2 Evaluation of Samsung’s response to Social Factors................................................8 3.4 Technological..................................................................................................................8 3.4.1 Samsung’s response to Technological Factors..........................................................8 3.4.2 Evaluation of Samsung’s response to Technological Factors...................................9 3.5 Legal................................................................................................................................9 3.5.1 Samsung’s response to Legal Factors.......................................................................9 3.5.2 Evaluation of Samsung’s response to Legal Factors.................................................9 3.6 Environmental..............................................................................................................10 3.6.1 Samsung’s response to Environmental Factors.......................................................10 3.6.2 Evaluation of Samsung’s response to Environmental Factors................................10 4.0 Recommendations............................................................................................................10 5.0 Appendix...........................................................................................................................12 7.0 References.........................................................................................................................14

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100197513 1.0 Introduction Samsung was founded by Lee Byung-Chull on 1 March 1938 in Taegu, South Korea. The company was originally a grocery trading store but they diversified and entered the electronics industry in 1969, with several electronics-focused divisions. The divisions first products were small black-and-white televisions that they began selling in the 1970s [ CITATION Pet15 \l 2057 ]. By the 1980s, Samsung was engineering, delivering, and trading a wide range of appliances and electronic products throughout the world[ CITATION Tae08 \l 2057 ]. Samsung has majority of its operations in the Americas with 159 subsidiaries around the world [ CITATION Mar17 \l 2057 ].

The company operates through three business divisions [figure 1]: The IT and Mobile Communications (IM), consumer electronics (CE), and device solutions (DS) which includes semiconductor, and display panel business. The IM division includes the company's mobile communications, networks, and digital imaging businesses.[ CITATION Mar17 \l 2057 ] This division that would be focused on throughout the report. Each division is managed separately with the characteristics of each product being taken into account [ CITATION Joh17 \l 2057 ] 2.0 Analytical Framework The tool that will be used to identify the key environmental drivers is PESTLE analysis which was developed by Francis Aguilar in his 1967 book “Scanning the business environment”. PESTLE analysis is a tool used by marketers to evaluate and monitor the macro-environment (external marketing environment) factors that have an impact on an organisation[ CITATION Tam05 \l 2057 ]. The model has two main functions for a company: identification for the environment in which the company operates being the first main function and providing data and information that will enable the company to predict future situations and circumstances [ CITATION Doc14 \l 2057 ]. 3.0 Key Environmental Drivers

3.1 Political Political factors determine how the government are able to influence the economy or industry. This is particularly evident now with the increasing interdependence and interconnectedness caused by the globalisation of markets. Governments are offering corporate tax incentives to attract multinationals into operating in the country[CITATION Des09 \l 2057 ]. Due to the

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100197513 market being highly competitive, any reduction in cost would benefit Samsung and increase their competitive advantage by giving them the ability to compete on price rather than the features of the phone after being heavily criticised for ‘copying’ the iPhone’s software and physical appearance[ CITATION Ste15 \l 2057 ]. Samsung would also be able to offer their smartphones into developing countries where the disposable income isn’t as high, if their prices were lower than that of Apple’s. With Samsung offering different devices at varying price point, Samsung provided roughly half the smartphones sold in Africa in the year 2013 [ CITATION Sop14 \l 2057 ]. However, by reducing their prices, Samsung may inadvertently reduce their profit margins due to the ever-increasing costs of R&D.

3.1.1 Samsung’s response to Political Factors Samsung is building a $3bn smartphone factory in Vietnam that will operate in conjunction with another $2bn facility the company already owns in the country, which began production in March 2014. Experts say, Samsung decided to shift its factories from China due to the tax breaks and relatively cheap workforce in Vietnam. The Vietnamese government already said that Samsung would not need to pay corporate taxes for the first four years of operation and only half the normal rate for the following nine years if the firm was to meet the demands set out in its investment applications [ CITATION Leo14 \l 2057 ].

3.1.2 Evaluation of Samsung’s response to Political Factors The creations of the two factories will save Samsung a lot of money in the long run by reducing their fixed and variable costs. This will enable Samsung to reduce the prices of their smartphones and offer them to the emerging markets for the diminished price, thus attracting more customers. There is importance to this because as Tibken (2014) stated, emerging markets want high-end devices but at low-end prices. By doing this, Samsung will be able to gain market share lost to other phone providers such as Xiaomi after their miscalculation of emerging market needs[ CITATION Sha14 \l 2057 ]. The reduced costs could further benefit Samsung because the money saved can be funnelled into R&D as an attempt for Samsung to participate in non-price competition and provide a USP for their products, such as improving their app store to attract more consumers who are keen to use them as payment methods due to their inability to access credit cards[ CITATION Sop14 \l 2057 ]

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100197513 3.2 Economical Economic drivers determine a counties economic performance. This can have a direct impact on a business’ functionality. Factors that may change are interest rate, exchange rates, inflation and unemployment. Due to Samsung being a multinational company, changes in exchange rate are important because they affect the inflation rate, import and export balance and other macroeconomic situations in a country [ CITATION Tod10 \l 2057 ] which affect business conditions. Due to China being the second largest economy as well as a key market for Samsung [ CITATION Sha14 \l 2057 ], fluctuations in the exchange rate will determine how successful Samsung is there.

3.2.1 Samsung’s response to Economical Factors With the appreciation of the Won, Samsung is spending more to boost their sales of smartphones and other consumer products. This follows the Won’s seven percent jump against the dollar in the final quarter to a three year high. [ CITATION Sam18 \l 2057 ]. The rise in costs cannot be offset unless there is a rise in price, and due to the competitiveness of the market, an increase in the price of the mobile phones could cause Samsung’s revenue to fall and thus lose market share. Sales in Won fell to 66 trillion won from 67.6 trillion won in the fourth quarter.

3.2.2 Evaluation of Samsung’s response to Economical Factors The appreciation of the Korean Won would mean the value will increase when compared to the Chinese Yuan. This would mean Samsung’s products would lose competitiveness in the market because they are now more expensive for the Chinese to import into the country resulting in a fall in demand for Samsung’s products. However, due to the appreciation, Samsung would be able to buy Chinese exports at a cheaper price, which in theory should mean they can produce some of the products cheaper if key components are being exported from China. This reduction in costs may not offset the loss they would make from the fall in demand because of the other competitors in the Chinese market such as Xiaomi and Micromax who are providing virtually the same things as Samsung but at a fraction of the price[ CITATION Sha14 \l 2057 ].

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100197513 3.3 Social These factors focus on the social environment through looking at different determinants such as cultural changes, demographics incorporating population analytics. Cultural changes can include the growing popularity of social media, and the population analytics can measure the changes in population size and age. The rapid aging of the world population will bring about unique challenges for Samsung, with these challenges spanning multiple business areas, including strategy, human resources, marketing and cross-cultural management while operating simultaneously at the functional, corporate, and public policy levels nationally and internationally[ CITATION Cha14 \l 2057 ]. The aging population will particularly affect Samsung’s sales in the Japanese market; which is one of Samsung’s biggest import and export counties; where the population is projected to shrink by a third by 2065. The number of people in the country is projected to decrease from 127 million in 2015 to 88 million in 2065 but people aged 65 or older will make up more than 38 percent of the population in 2065, significantly outnumbering the under-14s at just 10 per cent. [ CITATION Dan17 \l 2057 ]. This is an important driver for Samsung because the higher number of people pension age (dependants) would require a higher number of people of working age, but in Japan they are being outnumbered. This could cause the government to change their policies in order to deal with the increased strain the pensioners are putting on their services. They could do this by increasing income taxes[ CITATION Cha14 \l 2057 ], which would reduce the amount of disposable income people have, therefore affecting the demand of mobile phones in the country. This will cause a fall in Samsung’s market share. However, currently little policy changes have been made. Population aging has been slow and because large baby-boom generations have been fuelling business activity and economic growth. Also, the policy changes that may be undertaken could see the rise of the legal pension age to combat the disparity between the dependents and people of working age [ CITATION Blo11 \l 2057 ].

3.3.1 Samsung’s response to Social Factors With Samsung’s market share in India being so high [figure 2], Samsung have started to focus their growth there because it is the only BRIC country that doesn’t have a rapidly aging population[CITATION The10 \l 2057 ]. In 2017 Samsung reaffirmed its commitment to India by spending $740 million to add capacity to a current plant[ CITATION Sam17 \l 2057 ].

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100197513 They are aiming to capitalise on the youthful and vibrant population India has and continue to be a key pillar for the governments ‘Make in India’ and ‘Digital India’ initiatives.

3.3.2 Evaluation of Samsung’s response to Social Factors In the long run the exploration of India will be beneficial to Samsung due to India being full of young, talented and well-educated individuals. These people will be able to help Samsung advance not only by providing manual labour for the creation of components in factories, but they will also provide vital ideas which can help Samsung with their R&D. This could help Samsung create new products before their competitors so scenarios like that mentioned in [ CITATION Ste15 \l 2057 ], and thus creating increased sales leading to higher profits. However, in the long run, Samsung may have higher fixed costs with the cost of labour increasing in India[ CITATION Nik11 \l 2057 ] due to the population becoming more educated.

3.4 Technological Technological factors cover the rate of innovations in the industry. This can include changes in digital and mobile technology, research and development and automation. Changes can also be made in distribution and logistics. These alterations can affect the operations and the market for the better or worse. Research and development are key factors into the improvement of technology and is a major driving force for reduction in costs [ CITATION Bre10 \l 2057 ]. The rapidly changing environment can make or break a business, and if a business isn’t quick to adapt change then it can quickly falter [ CITATION Sim13 \l 2057 ]. The R&D will allow Samsung to create new innovative products for a fraction of the cost, and with the ever-changing market they will be able to produce these products quicker to meet consumer demand.

3.4.1 Samsung’s response to Technological Factors Samsung is the leading tech company for R&D spending in 2016 [figure 3], spending $13 billion dollars. However, Samsung did have a setback in 2016, over the launch if the Galaxy Note 7 when a small percentage of the devices caught fire, causing Samsung to recall the product [ CITATION Cor16 \l 2057 ]. Samsung have also increased the number of R&D personnel by 27%, since 2010, for a total of 63,628 employees[ CITATION Sam14 \l 2057 ].

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100197513 3.4.2 Evaluation of Samsung’s response to Technological Factors Although Samsung is spending billions on improving their R&D they may be too quick to deliver product to the consumer unlike their rivals Apple who take at least a year to release a new device[ CITATION Cha12 \l 2057 ]. This not only dulls the anticipation of new products for consumers, but means careless mistakes like that of the Galaxy Note 7 take place. This in the long run can cause a fall in revenue for Samsung which in turn can cause a fall in profits. However, by Samsung constantly increasing the amount of staff in research and development, they may be able to vet the product before release in case of any issue[ CITATION Sam14 \l 2057 ]. They will also be able to diversify their product line, which is especially important in the highly competitive smartphone industry.

3.5 Legal Laws can affect the business environment in a country. These can dictate the way a business operates because laws can affect staff working hours, health and safety as well as consumer laws. Laws can also work in favour of Samsung by enabling them to create patents to protect their intellectual property and the products they created through R&D. This can help them in the highly competitive market by preventing Samsung’s competitors from making similar products, which in the long run would enable Samsung to establish first-mover advantage. First-movers tend to perform better than their followers[ CITATION Van97 \l 2057 ].

3.5.1 Samsung’s response to Legal Factors In 2016, Samsung was granted more US patents than any other country. They were granted 8,551 patents to add to their total of 335,155 [ CITATION Jam17 \l 2057 ]. When their competitor, Apple, released some iPhones and iPods, Samsung filed a lawsuit for patent infringement[ CITATION Tim14 \l 2057 ]. This helped them not only protect their products, but they managed to get compensation that amounted to $158,400 in damages.

3.5.2 Evaluation of Samsung’s response to Legal Factors Samsung’s patents help the company ensure their products remain as unique as possible in a market where there is little product differentiation. This would mean they are able to extract as much profit from the products they release. Their patents could also cover equipment that would enable them to produce their products quicker, which too may increase their profit margins [ CITATION Tam05 \l 2057 ]. However, when filing for a patent you have to disclose

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100197513 what your product is. This would put certain products that Samsung want to patent at risk of replication by competitors [ CITATION Ell94 \l 2057 ].

3.6 Environmental These factors have become increasingly important for businesses. Businesses are encouraged to be more sustainable and environmentally friendly in both the creation and the distribution of their products. Sustainability obliges firms to make intertemporal trade-offs to safeguard intergenerational equity[ CITATION Ban14 \l 2057 ]. Consumers are increasingly becoming more environment conscious and many are willing to pay more to ensure their products are being manufactured in a sustainable way [figure 4]. Hence, the acceptance of fair trade goods. Samsung has to produce and market their products in a sustainable way to access consumers that would change their consumption if the product was not environmentally friendly.

3.6.1 Samsung’s response to Environmental Factors Samsung electronics established its Eco-management scheme in 2014 and they set a plan in place for where they want to be by 2020. They plan to reduce their GHG emissions at both the product use and when the product is being produced [figure 5] by improving the energy efficiency of the products [ CITATION Sam13 \l 2057 ].

3.6.2 Evaluation of Samsung’s response to Environmental Factors Samsung’s response would greatly benefit the company for now and the future. This is because if there were possible regulation changes concerning emissions, they would be covered. Also, Samsung would benefit from the consumers who are concerned about the sustainability of brands. A third of consumers would rather buy products from sustainable brands[ CITATION Uni17 \l 2057 ]. This would give Samsung a competitive advantage over other brands such as Apple and provide a unique selling point for them, which would be very beneficial for the market with little product differentiation. 4.0 Recommendations Samsung should continue to invest in countries that provide a tax incentive for multinationals as it would help save them large amounts of profit which can be retained and reinvested into research and development....