A Pestel analysis of the smartphone industry
The global smartphone industry generated around $522 billion in revenues in 2018, despite a slight decline in overall demand. China, India, and the United States remain the largest markets for smartphones with the highest number of users. In 2018, while the demand for smartphones declined by almost 3% compared to the previous year, sales were still strong at 1.44 billion units. Samsung, Huawei, and Apple remain the leading players in the smartphone industry. However, the US ban affected the demand for Huawei phones negatively. Apple’s sales, on the other hand, grew stronger following the release of the iPhone 11.
There are several factors driving demand in the smartphone industry including changing consumer lifestyles, technological innovation, and the proliferation of internet-based services that can be accessed easily through smart devices. After the slowdown in 2019, when the demand for new handsets declined due to several factors, demand is again expected to grow in 2020. According to counterpoint research, the launch of 5G devices and services as well as strengthening demand in emerging economies like India, Indonesia, and Russia could again drive faster growth in the smartphone industry in 2020. There are several factors in the international market that affect the demand and growth of the smartphone industry including economic and political factors. Take a look at this Pestel analysis for a detailed picture.
Political :
The role of political factors in the context of international business has become increasingly significant in the 21st century. Higher government and regulatory oversight of technology firms have made it evident. It was also evident in the Huawei ban that governments are now highly aggressive in terms of their control of technology firms whether domestic or foreign. Several more tech businesses like Facebook and Google have also faced significant problems in overseas markets caused mainly by regulatory issues. The Huawei ban and the China-US trade wars are also a sign that governments and regulatory agencies are going to play a more significant role in the area of international business. In the smartphone industry as well, the level of regulation and political control are growing higher. The trade war between the US and China is affecting nearly all the large technology firms in the US and China. Not just Huawei but Apple and other technology firms were also affected by the higher tariffs which led to higher operational costs for businesses operating in China.
In the case of Huawei, the imposition of the ban resulted in a swift decline in smartphone sales. For smartphone companies, such political and regulatory issues mean reduced sales and loss of revenue. It is not just Huawei but Big tech in the US is also facing similar troubles. Apple, Amazon, Google, and Facebook are also facing antitrust probes. Google has entered the smartphone industry with its Pixel smartphone. However, its share in the industry is currently minimal. In the future, political factors might have a larger role in shaping the smartphone industry. A large number of emerging concerns in the last decade have made governments around the world acquire an aggressive position concerning tech regulation. Consumer privacy, as well as data security, are some of the leading concerns attracting the greatest attention from government agencies. The supply chains of companies like Apple and Samsung are spread over several countries throughout the globe. Political changes like higher tariffs can affect their supply chains and manufacturing network and drive operational costs higher.
Economic :
Economic factors also have a definite impact on international businesses and the economic conditions in key markets affect sales and revenue directly. The situation of the world economy or significant local economies affects both demand and sales. Strengthening demand in the rising economies is expected to drive the smartphone industry towards faster growth in 2020. The condition of the global economy also has a direct impact on the sales of smartphones and revenue of brands like Huawei, Samsung, and Apple. The economic situation has a direct impact on several important factors like employment, poverty and overall purchasing power of consumers. Strong economic conditions in key markets mean stronger demand and higher sales. If the economic situation in a market is strong, it will result in higher employment and therefore higher consumer confidence which in turn results in higher sales of products and services.
The unemployment rate in the US had been shallow in 2019. It is a good sign for the economy since it boosts consumer confidence. The number of smartphone users in 2019 in the US was above 260 million, according to Statista. In China, the number of smartphone users in 2019 was around 882 million. In the second quarter of 2019, Apple, Samsung, and LG held the largest market shares in the US. The Chinese economy, on the other hand, has seen a decline in performance in 2019. The GDP growth rate of China during the third quarter of 2019 was the slowest since the first quarter of 1992. Competition is also a significant factor affecting the demand and sales of smartphones. With time, competition among the leading players has grown a lot. Companies are investing a lot more than ever in research and development to release new models that are more attractive and loaded with features. The overall sales of items like smartphones still depend to a large extent on the economic situation in a region. China is a leading market for smartphones. However, demand could slow down or become static since economic performance in China is slowing.
In 2020, the situation has only grown worse due to the spread of the pandemic. Covid-19 has caused economic activity to decline in several leading markets of the world, including the western and the Asian markets. However, the pandemic has also grown people’s dependence on digital technology and their smartphones. While there was a sharp increase in the number of people sticking to their smartphones watching Netflix or engaging on social media, the smartphone industry also experienced less decline in demand as compared to several others like the automobile industry and the aviation industry. Despite that, the smartphone industry has faced one of the worst declines in its history caused mainly by a declining economic activity. According to the industry research website Gartner, the sales of smartphones to end users declined by more than 20% during the first quarter of 2020.
Social :
Sociocultural factors are now a key consideration in the area of business. In the smartphone industry, social trends are also playing a pivotal role in driving demand. During 2018, despite a slight decline in demand for smartphones, it remained strong worldwide. One of the key reasons was changing customer lifestyles throughout the globe. The number of smartphone users globally has grown a lot during recent years. Smartphones are now a part of consumers’ lifestyles.
However, the growing use of smartphones has also taken a form of addiction among teens and young people. In several cases, high smartphone use has been associated with psychological harm. Research has associated excessive smartphone use with an increase in negative attitude as well as anxiety and depression. In many cases, young people do not even know when to put their cellphones away. While the relationship between cellphone addiction and psychological problems may not be apparent, still overuse can be problematic in other ways. Teens remain stuck to social media and TikTok, which can lead to very high cellphone use and lead to neglect of the remaining aspects of life.
However, the number of smartphone users continues to grow around the world, and companies are investing more in researching people’s habits and preferences. A large number of large-screen smartphones are now available in the market, which people use to visit social media sites as well as for gaming and other forms of entertainment like streaming videos. Smartphone businesses study these trends to know people’s preferences and bring models to the market which cater more efficiently to people’s needs. In this way, social factors are of core importance in the smartphone industry, and studying them helps businesses produce more appealing models and grow sales. Consumers are at the center of the picture, and knowing their needs and habits allows firms to create the models that have a stronger appeal for customers.
Technological :
Technological factors play a central role in the growth of the smartphone industry. In this industry, technology is not just a major differentiator but also the primary factor driving growth and an important source of competitive advantage for brands. Leading brands like Apple, Samsung, and Huawei invest a lot each year in research and development to grow the popularity of their existing models and bring new ones with improved features. Competition in the smartphone industry has kept growing intense which has led to higher focus upon quality and user experience. Apple recently released iPhone 11 and iPhone 11 Pro which come loaded with the A13 Bionic chip. This chip provides higher performance and better processing speed. It makes the new iPhone highly attractive for gamers and professionals. The result was that the iPhone 11 attracted very high sales. So, technology has become a core focus for smartphone makers since innovation is essential for growth in sales and market share.
The main source of competitive advantage for market-leading brands like Apple, Huawei, Samsung, and LG. Google has also primarily relied on technological innovation to differentiate its Pixel smartphone from the other leading brands in the market. The result was that it gained market share in the United States market. The smartphone industry relies mainly on technology for growth. Apart from manufacturing and sales, the role of digital technology in other areas including marketing and promotions has grown a lot. Samsung also focuses heavily on technological innovation to grow sales and market share. Its line of Galaxy smartphones is one of the main competitors of the iPhone.
Apple has spent around $12.1 billion during the first three quarters of 2019 on research and development, which is more than $1.6 billion compared to its R&D expenses during the same period last year. Samsung has also kept increasing its investment in R&D over the past several years. In 2018, the company spent 18.7 Trillion KRW on R&D compared to 16.8 Trillion KRW. A high focus on research and development is essential for smartphone makers so that they can strengthen their competitive advantage and retain their market share. The smartphone industry is experiencing intense competition, and maintaining market share requires more focus on technology than ever. Moreover, the role of digital technology and smartphones in the lives of people has kept growing. Improved user experience leads to higher sales and faster growth for a smartphone brand.
Environmental :
Industrywide the impact of businesses on the environment and community has become a significant concern. Government agencies have also tightened the regulations related to the environment. Moreover, the environmental impact of businesses also has a direct effect on their image in the society. It is why companies are now growing conscious of their environmental impact. Their focus on sustainability, sustainable sourcing, and manufacturing, as well as sustainable processes, has grown. Investing in sustainability offers several benefits, including reduced operational costs as well as a better social image. Governments around the world have made stricter laws related to the environment, and businesses need to focus on sustainability to remain compliant with these laws. Leading smartphone brands like Apple and Samsung place a heavy focus on CSR and sustainability to make their products free from risks for the users.
For example, some of the main focus areas for Apple, a leading smartphone maker in the area of sustainability include 100% reliance on renewable energy sources as well as water conservation, recycling, and the use of environmentally safer raw material for the production of smartphones. By 2018, the company had achieved 100% use of renewable energy in its facilities globally. Moreover, the company has restricted the use of harmful substances in the production of Apple products including Mac, iPhone, and iPad. However, not just in its own operations, but the company is also supporting its suppliers to go carbon emissions-free in its operations. Samsung, another leading smartphone maker also focuses heavily on CSR and sustainability. Overall, while focusing on sustainability helps build a stronger reputation, it also helps strengthen a firm’s competitive advantage by reducing operational costs and improving its social image.
Legal :
Law and legal factors are now of paramount importance in the entire technology industry for successful global operations. Government control and oversight of technology firms, including smartphone brands, grew due to several factors. On the one hand, while the growing influence of tech businesses worldwide is an essential concern for governments, on the other, emerging concerns like consumer privacy and data security have also given rise to the need for higher scrutiny. Focusing on compliance is vital for operating successfully in various regions around the globe. It is why the smartphone companies have dedicated compliance teams that focus upon complying with local laws in the areas where the business operates as well as international laws that influence the firm’s business. Some of the standard rules that affect large and global enterprises include labor laws, product quality laws, environmental laws, and data security and privacy laws. Patent laws and some other laws also affect smartphone firms.
For the smartphone brands, it is necessary to comply with these laws to avoid incurring hefty fines inflicted by the government or regulatory agencies. Apple, among other leading technology firms in the US, faced an antitrust probe. In a tax-related case in the EU, Apple paid around $15 billion. The different income tax structures in various regions, as well as the evolving legal framework in the Asian markets and the US, also give rise to troubles for the leading tech firms whose size makes them a frequent target of government action.