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Samsung: Background, PEST Analysis, Recommendation

Introduction and Background of the Company

This paper is about the micro and macro factors affecting the chosen company with particular focus on Political, Environmental, Social, and Technological (PEST) analysis. Samsung is one of the world largest companies that mainly focus on electronic products to their worldwide clients. The company was founded as a minor business in 1938, before advancing and expanding their operations in 1947 after expanding to Seoul (Chang, 2011). Today, the company is a major electronics manufacturer and distributor with their headquarters in Seoul, South Korea. Samsung consists of various ancillary allied firms that all operate under the brand name of Samsung. Some of the noted ancillary firms include, but not limited to, Samsung electronics, Samsung C & T, Samsung engineering, and Samsung heavy industries. Among these, Samsung electronics is the most recognized subsidiary of Samsung Corporation due to its worldwide brand. Currently, Samsung operates in the consumer appliances and consumer electronics, manufactures, and other range of products such as phones, Television, Washing machines, refrigerators, air conditioners, calculators, among other products. In the consumer electronics section, Samsung Company has gained a giant market share for itself, resulting in significant profits. Many people have linked the tremendous growth of Samsung over a relatively short period to the tantamount growth of the Asian Tigers. Samsung business model has greatly influenced the globally thriving market for consumer electronics and has managed to stay on top of the market competition. It is obvious that the business operations and model of Samsung Company is affected by both the internal and external influences that impact their national and international performance. The macro environment of Samsung is mainly understood through PEST analysis as will be evident in this report. Currently, the main competitors of Samsung are the players in the smartphone industry as shown in the diagram below (Ferrell & Hartline, 2010).

PEST Framework

In any business, there are other macro-economic factors that determine the performance of the company, aside from the company internal resources. These factors need to be carefully analyzed in order to shape the strategy that the company needs to take.  According to Muralidaran (2007), PEST analysis is a business analysis tool that is commonly used to assess the four external factors (Political, Economic, Social, and Technological) in relation to the business situation. Basically, the PEST analysis determines how the above mentioned four factors determine the performances and the activities of the business on short-term and long-term basis. In some instances, PEST analysis is used in collaboration with other industry analysis factors such as the Porter Five Forces and SWOT analysis (Doole & Lowe, 2005). Apart from providing the overview of the different macro-environmental factors that influence the company, PEST analysis is a useful tool necessary for the understanding of the market growth or the decline, business position, potential and the direction for operations. Moreover, PEST analysis is significant for the business since any slight changes in the operational environment can come with significant opportunities that should be exploited, or with threats that should be dealt with. Example, the opportunities that come with new technologies should be exploited to provide the customer with the best quality products (Viardot, 2004).

Application of PEST Framework

Political

The political factors that influence the operations of the company relates to the government guidelines and the intensity of intervention by the government to the business operations (Pahl & Richter, 2009). It has been observed that a country’s political legislation has a direct and indirect impact of the fundamental areas of business operations. Since Samsung operates in various countries, the company is subjected to various forms of political risks that have a direct impact on their business operations and strategies. The levels of political risks vary from one country to another such that some countries pose high political risks while other countries have low political risks. In the home country, the company faces an increasingly risky political environment due to the political nature of the country and increased aggression from North Korea. In addition, the country faces similar political risks in some parts of Africa and south East Asia since the business environment in such places are hostile. On the other hand, Samsung faces positive political influence in countries such as India and China since their governments have provided a conducive business environment for any business to exploit (Mitchell, 2010).

The political environment has an impact on the legal environment of doing business. Over the past few years, there have been a plethora of patent laws within the smartphone industry due to the competitive nature of the handset industry. The players in the industry are very aggressive in protecting their intellectual properties by suing their competitors whom they suspect to be infringing their patents and eating into their profits (Lee, 2006). In the recent past, Apple launched a lawsuit against Samsung for copying their design features in their Galaxy line of Android phones. The shortcoming of such legal lawsuits is that they are associated with high legal costs even if the company wins the lawsuits.

Economic

The economic factors have a direct and indirect interplay between the finances and the resources of a country. According to Chang (2011), the economic factors that can impact the operations of a business such as Samsung includes; interest rates, taxation, economic growth, and economic development. High interest rates results in reduced borrowing capability, leading to reduced access to capital to finance the major operations of the business. On the other hand, high inflation leads to high salaries or continued squabbles with trade unions for the business to increase their salaries. Since Samsung operates in different countries, the company is continually faced with varying rates of economic risks. These varying economic situations influence the decisions of the company in any particular country of operations. To respond to such risks, Samsung has stipulated suitable policies in the markets of operations basing on the economic strength and the size of their targeted customers (Lee, 2006). In addition, Samsung employs selective targeted market policies since their products require a larger consumer disposable income. To escape the economic pitfalls, the company operates in areas where its goods are in preliminary stages, especially in developing nations. This policy has proved beneficial for the company since their products are at the declining state in developed markets.

In the 2008, the American economy was hardly hit by the global financial crisis and this greatly reduced the spending ability of their consumers. In this regard, the sales by Samsung in that market reduced considerably, resulting in reduced profits for that segment of their market. In the same U.S market, the unemployment rate is relatively high and this has an impact on the sales of electronics products that are being produced by Samsung (Chang, 2011). Such high unemployment rates are also evident in markets where Samsung operates such as Canada. The high unemployment rates in the United States and other market in which Samsung operates impact the confidence of their customers, resulting into reduced consumer spending. On the global economy, it is reported that the consumer spending dropped by 0.2% in 2011 that comes from reduced hiring and consequent reduced purchasing power from the consumers. Since consumer spending accounts for more than 70% of the U.S economy, any reduction in this area has a negative impact on the sales by Samsung.

Social

The social environment is one of the factors that have an impact to operational businesses such as Samsung. The social environment that affects a business consists of customs, practices, and traditions that vary from one environment to another environment. Social factors such as ageing, increase the pension payments for the workers and this tends to eat on the profits of the company. By constantly incorporating itself into new markets, Samsung has succeeded in overcoming the social challenges that threatens the success of their business. In this regard, the company has incorporated the approach of thinking globally while acting locally with the aim of being sensitive to socio-cultural factors influencing their business.

The rise in information age has made the telecommunication industry in which Samsung operates to be more important for people both in business and pleasure (Mitchell, 2010). The society is becoming more receptive to the advancements in technology, particularly the smartphones. A better understanding of the primary targets of particular products can easily be obtained by measuring the smartphones adoption by age. Currently, the highest number of smartphone users is between the ages of 25 to 34 years old. However, the fasted growing age segments of the smartphone users are between the ages of 13 to 17 years and the adults more than 55 years old.

Technological

Technology forms the core of Samsung operations since invention changes the products and their production processes. Since Samsung is largely involved in consumer electronics, it is hard to separate technology from their operations. According to Lee (2006), the benefit that comes with such a company employing the use of technology is their ability to cut down on the operational costs and to improve the quality and the design of their operations. Over the years, Samsung has successfully advanced their technology and improved the manufacturing of their products and their features so that they increase their marketability. The driving force of the company vast ability and pride is embedded in their innovativeness and this can only be supported by constant technology application. One of the most important technological aspects of the business related to the cellular network infrastructure that also varies from one place to another. Unlike the developing countries, most developed countries have requisite infrastructure that supports both the voice and data transfers. In addition, most urban places are currently equipped with the necessary infrastructure that supports the use of smartphones in various ways.

Recommendation from the PEST Framework

From the PEST analysis, it is evident that there is some room for the improvement in Samsung operations. Before taking an economic adventure, Samsung should consider investing only in countries with increased political stability with the aim of getting a business friendly environment. This is because regions with political instability and political rivalry threaten the smooth running of the business operations. On the other hand, Samsung should be aware of all the patents and copyright issues in order to reduce the levels of wastage that comes from increased patent litigation from various related companies. In economic terms, Samsung should consider the interest rates and economic stability of every country they are putting their investment. This is because high interest rates with increased economic instability would make the company to realize low returns on their investment. In addition, Samsung should invest in countries with low inflation rates and high employment rates for their citizens since such an environment result in increased purchasing power. In this regard, the Samsung should increase their investment in Canada, as opposed to the United States since there is a high unemployment rate in the United States. In social terms, Samsung should segment their market and increase the products that are targeted at the teens between the age of 13 to 17years and the adults over the age of 55 years due to their increased acceptance of Samsung electronic products. On the other hand, Samsung should continue integrating advanced technology in their production system since this will help to cut on the production costs and improve the quality of their products (Mitchell, 2010).

Conclusion

 Samsung is one of the world largest companies that mainly focus on electronic products to their worldwide clients. It is obvious that the business operations and model of Samsung Company is affected by both the internal and external influences that impact their national and international performance. PEST analysis is a business analysis tool that is commonly used to assess the four external factors (Political, Economic, Social, and Technological) in relation to the business situation. Basically, the PEST analysis determines how the above mentioned four factors determine the performances and the activities of the business on short-term and long-term basis. From the PEST analysis, it is evident that there is some room for the improvement in Samsung operations. Before taking an economic adventure, Samsung should consider investing only in countries with increased political stability with the aim of getting a business friendly environment. In economic terms, Samsung should consider the interest rates and economic stability of every country they are putting their investment. In social terms, Samsung should segment their market and increase the products that are targeted at the teenagers and the older adults due to their increased acceptance of Samsung electronic products. On the other hand, Samsung should continue integrating advanced technology in their production system since this will help to cut on the production costs and improve the quality of their products

 

Bibliography

Chang, S.-J., 2011. Sony Vs Samsung: The Inside Story of the Electronics Giants’ Battle For Global Supremacy. London: John Wiley and Sons.

Doole, I. & Lowe, R., 2005. Strategic marketing decisions in global markets. London: Cengage Learning EMEA.

Ferrell, O. & Hartline, M., 2010. Marketing Strategy. 5th ed. London: Cengage Learning.

Lee, D., 2006. Samsung Electronics: the Global Inc. London: LEE Dongyoup.

Michell, T., 2010. Samsung Electronics: And the Struggle For Leadership of the Electronics  Industry. London: John Wiley and Sons.

Muralidaran, S., 2007. Business environment analysis: an introduction. London: Icfai University   Press.

Pahl, N. & Richter, A., 2009. SWOT Analysis – Idea, Methodology And A Practical Approach.  London: GRIN Verlag.

Viardot, E., 2004. Successful marketing strategy for high-tech firms, Volume 5. London: Artech    House.

 

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