How do the PESTEL forces impact Samsung?
Samsung is among the most famous global electronics brands. Apart from being a market-leading brand of smartphones, it continues to remain the market leader in TV appliances for the 14the consecutive year. The company has brought a broad product portfolio that, apart from consumer electronics and smartphones, also includes computer chips and displays. The brand is present in 74 countries and employs 287,539 employees, as of 2020. Samsung also invests an enormous sum in research and development every year. During fiscal 2019, its research and development expenditure grew past 20 trillion Korean Won.
Samsung is a South Korean multinational company, founded in the year 1969. In the recent period, it has focused on making products that help people lead a better and smarter lifestyle. However, because of operating in a global market, the brand is also subject to various kinds of pressures. This is a PESTEL analysis of the brand analyzing how Samsung is affected by the political, economic, social, technological, environmental, and legal forces.
Political factors can have a deep impact on businesses in specific markets. The level of impact from political factors on business performance can also vary from country to country. The direct impact is felt in the form of regulation or trade relationships between various countries. If two countries have strong political relationships, then a business from one country finds it easy to do business in the other and vice versa. In case, the political relationships between the two nations are strained, the impact can be bitter on trade relationships between the two as well. In such a case, a business from one country may not find the business environment in the other very conducive or profitable. For example, the political and military tensions between China and the US and its ally nations are affecting the Chinese business operating in the US. TikTok and Huawei both are bearing the brunt of China’s spoiled political relationships with the United States.
Politics can affect business in many other ways too. Political disruption can disrupt the operations and supply chain and lead to the interruption of business and loss of revenue. Any political turmoil can harm the companies operating in that region. Samsung’s business spans over 80 countries and geopolitical crisis in any of the markets can result in a loss. Moreover, the fear of terrorism also looms large in several areas. All these factors can harm business. However, if the political environment of a market is right, that can be highly profitable for companies. Samsung is a South Korean business enjoying a strong market position in the United States, which is also because of the strong relationships between the two nations.
Economic factors have a profound and direct impact on international business as well. 2015 was a year of economic uncertainties globally. In that year, changes in the US monetary policy, higher volatility in the emerging stock markets as well as constant fluctuation in exchange rates, coupled with the recession, hurt international businesses like Samsung. At the same time, the Korean economy also faced severe difficulties like higher household debts and the restructuring of shipbuilding and steel industries. However, despite these economic difficulties, Samsung had sales of KRW 200.7 trillion (South Korean Won). In 2019, the net revenue of Samsung was around 206 Trillion KRW or approximately 197 billion USD (Annual report, 2019). However, declining smartphone shipments in 2020 mark a further decline in revenue in the latest fiscal.
Such businesses, on the one hand, are impacted by economic forces and on the other hand, they have an important impact on the world economy. These companies are also among the largest employers globally. The condition has changed a lot since the recession and the level of employment and economic activity around the globe has gone up.
However, the pandemic has brought things back to where it had started. A large number of economies have been severely affected, and several industries are also reeling under pressure. The level of unemployment has also shot very high following the spread of coronavirus. While the US is a leading market for Samsung products, the growing unemployment level is going to harm Samsung’s revenues in the US as well. People will be spending more on essential items and less on electronics or other non-essential items. The shipments of smartphones have already declined remarkably during the first quarter of 2020.
The pandemic has affected the employment level globally, including some of the leading markets for Samsung products like India and the US. When the level of employment is high, and people have enough dispensable income, they spend on electronics and entertainment. In this way, rising economic activity can be highly profitable for businesses like Samsung, and falling economic activity can be terrible. The impact of Coronavirus on economic activity is believed to last after 2020, and this could mean severe harm for international businesses like Samsung.
Like the other factors, the socio-cultural forces also have a profound impact on businesses. Changing socio-cultural trends can lead to a rise in profits for one company and fall for another. As these trends change, they affect businesses and their sales. Moreover, these socio-cultural factors have a significant value in terms of marketing. Brands have to take care of these cultural forces in their marketing efforts. The growing use of digital technology and social media around the world has led to an increasing focus on digital marketing as well as social media promotions. Apart from that, a larger number of people around the globe are accessing digital services from their smartphone screens.
These socio-cultural trends are favorable for Samsung, and the brand is investing in technologies that can help it gain popularity in various markets. Its Galaxy range has been quite famous and popular. The demand for large-screen smartphones and mobile gadgets has grown, and Samsung’s smartphones and tablets have acquired relatively higher popularity in most markets, including the Asian markets. In this way, socio-cultural factors can have both a direct and indirect impact on businesses and their profitability.
Technology has come to play an increasingly important role in the context of business, whether for the technological or the other brands. In the 21st century, from operations to marketing and customer service, digital technology affects quality and operational efficiency in every area. Companies are using digital technology for attracting and retaining customers and growing their market influence. Cloud computing, AI, IoT, and other latest technologies are driving rapid changes industrywide. Digital technology has proved to be a savior for millions of businesses around the globe during the pandemic. Several companies altered their business models and grew their use of digital technology for the delivery of their products and services. Samsung also utilizes both physical and digital channels for sales and marketing. However, while a large number of physical stores shut down during the crisis, the company is now mainly relying on digital channels for sales and growth.
Samsung is itself a technology company that makes electronics, smartphones, and other technological equipment including medical equipment. Apart from that it also makes use of digital technology for marketing and better customer service. The role of technology in its business is very big and the brand also makes heavy investments in research and development. Its SUHD televisions have become a special attraction. In this way, you can see that technology has helped Samsung overcome competitive pressure and maintain its position in the market effectively.
Technological advancement has also led to higher competition in the industry. The overall level of rivalry in the smartphone and the consumer electronics industry is very high. Apart from Apple and Huawei, there are several more smartphone makers like Xiaomi and Oppo competing for market share globally. Due to increased competition, Samsung has to invest more in research and development to retain its market share and leadership position. The global smartphone market is saturated, and to find growth apart from focusing on emerging growth markets, the best option before Samsung is continuous innovation.
Sustainability is not just a trend. It has emerged as a key focus area for businesses. Companies are not just working to save energy and minimize their carbon footprint but also to protect the environment. Apart from managing and reducing energy consumption, Samsung has also focused on managing water resources risks. The brand has also enforced a chemical substance management policy and a pollutant management program. In several other areas too, it has taken firm steps in the direction of sustainability.
Sustainability is also having a clear impact on the image of businesses. It is why companies like Samsung are taking it seriously. The highly sustainable companies have a strong market image. Apart from that, the demand for sustainable products that have a low carbon footprint has kept growing in recent years. Samsung has also formulated a detailed sustainability strategy to minimize its impact on the environment. Its focus is also on waste management since the waste produced in manufacturing, if not disposed of properly, harms the environment.
Legal risks also abound for Samsung and these risks can be quite big. There is a large financial risk arising from legal factors. In most corners of the globe, government and legal oversight of businesses have grown which has caused businesses to focus more on compliance. Non-compliance can cause a loss of reputation apart from hefty fines. From employment to environment and tax-related laws, there are many laws that Samsung is required to follow and which can affect its profitability. Apart from its own operations, Samsung also ensures that its suppliers also abide by necessary laws and remain compliant in labor, operations, and other areas. Legal tussles can be quite costly and a fine due to non-compliance can be in millions or even billions and therefore cause huge losses for any business. Samsung has framed and enforced rules and regulations to ensure that its staff remains compliant and no laws area violated at the workplace. The business is also focused on making its business operations ethical and compliant. In this way, you can see law has a major and direct impact on businesses, and compliance risks can be highly costly.