BUS1001 being decentralized, Samsung successfully became one of the

    

    

BUS1001
Business Environment
    

    

Document subtitle

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TABLE OF CONTENTS

PART I: EXECUTIVE SUMMARY.. 3
PART II: MACROECONOMIC
FACTORS FOR ANALYSIS. 3
Section I: Introduction
and Company Overview.. 3
Section II: Political
and Legal Analysis. 5
A. Political Ideology. 5
B.  Political risk. 5
C. Legal system.. 7
Section III: Economic Analysis. 7
A. Economic system.. 7
B. Economic Freedom.. 8
C. Economic Development 8
Section IV: Social Analysis. 9
Section V: Technological Analysis. 10
Part III: Conclusions and Recommendations. 10
 

 

PART I: EXECUTIVE SUMMARY

This report discloses to the reader the importance of changes in business macro-environment
regarding the international corporate environment based multinational enterprise. In order to support the discussion, the
paper will analyze the key political and economic influences,
using Samsung as an example. In addition, this report will serve and evaluate
the various opportunities and constrains
facing future business performance and implement recommendations to overcome
possible threats. In conclusion, this report will essentially concentrate on
the international business environment of Samsung and the external influential
factors which may affect the multi-national enterprise.

 

PART II: MACROECONOMIC FACTORS FOR ANALYSIS

Section I: Introduction and Company Overview

A. Company Overview

Established in 1969 by founder Byung-chull Lee, Samsung Electronics quickly
transformed from a small import-export operation into an industry leader by
securing a firm foothold in the flourishing home appliances business.

The next decade witnessed its global
expansion and core business diversification, spreading its reach even further
into electronics, semiconductors, optical telecommunications and new
fields of technology innovation. In 1987, Byung-chull
Lee passed away, succeeded by his second-generation Kun-hee Lee, who “made it a
world-class trading group” (Lee & Li, 2008). Under the second pioneering, Samsung adopted drastic changes
to reform and restructure current business as well as enter new ambitious ones, diversifying into aerospace, genetics and macromolecule while incorporating electronics, semiconductor and communication at the same time.

In the mid-1990s, Samsung Electronics
once again experienced virtually one of the most critical revolution in management system and business philosophy. With
quality control holding paramount importance and managerial power being
decentralized, Samsung successfully became one of the world’s top 5 electric
companies, providing total customer satisfaction and readily engaging in
globalization.

Samsung is now seeking profitability
in the Infotainment business – information, telecommunications, and audio and
video – as well as in life care businesses. With acute awareness of
globalization and the trend towards innovations, Samsung Electronics has
responded rapidly and accordingly to changes while ruthlessly maintaining its
unrivaled quality and pursuing disruptive innovation. Samsung now ranks 10th in
the world and is a world-renowned brand with 200 subsidiaries in three core
business divisions – Consumer Electronics (CE), IT & Mobile Communications
(IM), and Device Solutions (DS).

 

B. PESTLE+C framework as a method of analysis for researching & analyzing
external environment factors

Aided by falling trade barriers and technological
advancements over the past few decades, globalization has been effecting far
more drastic changes than ever in politics, economics, socio-cultural values,
law, technology and environment. Globalization
is characterized by the concept of denationalization in which national
boundaries become less relevant, and today economies have been thus becoming increasingly
intertwined. Today, no business can consider themselves largely immune from
events in the international business environment and macro external factors. As
managers long for more and more wealth and efficiency, “they begin to see the
entire world as an opportunity (J.Wild & L.Wild, 2002), leading to increasing
competition among all firm. Furthermore, globalization also extends its
profound influence on the national
business environment as nations open up and drive towards greater
interdependence. Companies must stay constantly alert to the potential changes
in the environment, at home and abroad, within which it operates to act
accordingly. This is particularly critical for multinational enterprises in
which management, production and
marketing activities are widely dispersed in distant locations with each one
possessing distinctive characteristics. To have a comprehensive understanding of the entire business environment, managers
and company decision-makers should adopt a strategic and integrated approach to
macro-environmental events, occurrences and operations (Yüksel, 2012).

PESTLE+C analysis, which incorporates various external factors
including politics, economics, technology, culture, law and environment, helps
business owners and analysts make informed decisions
and wide-ranging assessment in
reviewing business operations and whether or not to expand markets.

 

C. Political, economic, social & technological forces (PEST) as primary forces

Political, economic, social and
technological forces serve as the main pillars for establishing a society. PEST analysis, which categorizes
environmental factors (political, economic, social, technological), covers all macro environment forces
affecting an organization by nature. PEST helps organizations have a better
position to plan an effective strategy to meet their objectives and minimize
any errors that might be causing a performance-expectation gap. Should an
organization fails to take into account any one of these factors, it may fail
to plan and operate properly.

 

Section II: Political and Legal Analysis

A. Political Ideology

1. Wide political
participation of South Korean citizens

South Korea was
rated “Two” out of seven (the smaller the better) for its both residents’
political rights and civil liberties in 2016 according to
Democracy Index report by the Economist Intelligence Unit (EIU), reflecting its
citizens’ significant ability to influence their own country’s political
health. In fact, South Korean people are encouraged to take part in voting by
the Korean Election Management Bodies (EMB). Recently, the power of residents
is increasingly upheld after the devastating scandal of its own president Park
Geun Hye., which sparked hundreds of demonstrations across the country.

 

2. A flawed
democracy

In principle, South
Korea is a representative democratic republic which establishes a presidential
system of government. This system seems to be an effective democratic model for
mass societies as it is both time and cost-effective when it comes to making a decision on formulating and proposing a certain
policy. While South Korean government facilitates trade transactions, it is
noticeable that with 7.22 points in democracy index (10 stands for an ideal
democracy) in 2015, South Korea is still classified as a flawed democracy.

 

B.  Political risk

1. Level of
political risk

Those who have the intention of doing transactions in certain
countries should have thorough insights of the way that political instability can
affect their trading activities. When it comes to South Korea, the political
risk rating is 77.5 (according to The
PRS Group, Inc in July 2016), which can be considered to be at a Low level, and
Samsung can greatly benefit from this low political risk level.

 

2. Sources of
political risk

There are twelve
components that are sources of political risk, which are grouped into five
levels in table 1.

 

Table 1 – Political
risk components by level in South Korea

Source: The PRS
Group

Of all components, corruption has remained prevalent in South
Korea over the last few decades as all the presidents of the democratic era
have become ensnared in corruption-related charges. The deep root of this norm
is the way Korea is run, with government
taking a strong role in the direction of
the economy and having a very close tie with family-owned conglomerates (Nation
Encyclopedia). According to Denny
Roy, a researcher on Asia Pacific security issues, after the new president Moon
Jae-in took over, leadership changes may affect the South Korean political
landscape, including dismantling social, economic, and political structures.
Besides, one of the most vicious conflicts in this country has been its relation with North Korea. In 2017, bilateral
tension has not shown any positive improvements (Reuters, 2017).

Overall, the local
political landscape is statistically benign
to Samsung as its various affiliated companies still account for more than
20 percent of the entire market value of the Korean Stock Exchange. Samsung has
proved remarkably resilient amid rising military tensions as the company’s stock in fact only experienced a
minor turbulence during its Northern neighbor’s ballistic tests (Grace Donnely
and Scott Decarlo, 2017).

The pressure of
massive political corruption scandals in South Korea in recent years has
unfortunately engulfed Samsung, exposing the corporation to unprecedented
public scrutiny regarding its powerful close ties with the political elite.

C.
Legal system

1. Common law

Civil law is
practiced in South Korea, which emphasizes statutorily detailed set of rules
instead of court’s precedents. As all obligations, responsibilities and privileges are explicitly codified, less
time and money are therefore spent on interpreting former cases of similar
nature.

 

2. National
enforcement of property rights

Since its entering
into WTO in 1995, the Republic of Korea has attempted to adopt certain shared
international standards in its practice of Intellectual Property (IP) Rights.
IP is classified into three types: copyright (1), patents, utility models and industrial designs (2) and trademarks (3). South Korean patent law
operates under the ‘first to file’ principle – that is, the first one to file
the application will be awarded the patent (Intellectual Property Office,
2013).

Samsung has to be very
much vigilant about the legal issues like copyright and other pirated issues as
many considerable disputes with Apple over unauthorized
copying patented smartphone designs and features have arisen over years,
causing million dollars in damage.

 

Section
III: Economic Analysis

A.
Economic system

1. Type of system

South Korea has a
mixed economic system which includes private freedom, coupled with centralized
economic planning and limited government regulations. In fact, family-run
conglomerates such as Samsung, Hyundai, and LG have been nurtured by successive
governments (Kim, 2017).

 

2. Fiscal and
monetary policies

South Korea is
already struggling with worsening employment indicators, tepid domestic
consumption and record-high household
debt. The uncertainty in the political landscape also puts a damper on its
economic health (Song, 2016).

A 20-trillion-won
(US$17 billion) fiscal stimulus package, 1 percent higher compared to last year
spending, has been adopted in response to the current situation. With job
creation of the highest priority, some 17.1 trillion won will be used solely to
add more jobs, and ineffective state-funded projects relating jobs will be scrapped.
State-owned companies partly hold
responsible for welcoming new employees and financing the budget. Meanwhile,
its monetary policy will “remain accommodative for a considerable period of
time”, according to Bank of Korea chief Lee Ju-yeol,
holding a record low interest rate of 1.25% (Kim
& Kong, 2016).

The country is
evidently facing daunting challenges in private consumption and warning
unemployment, which in turn lessens consumer spending on consumer goods. The
expansionary fiscal and monetary policies can actively defend the economy but
after extended periods of time. They may increase the livelihoods of the
general public and embrace macroeconomic risks rather than effect radical
changes for the slowing trend in the short run.

 

B.
Economic Freedom

South Korea (74.3 points) ranks sixth in Asia – Pacific region,
classified into mostly-free country group
(according to the Index of Economic Freedom released by The Heritage
Foundation) with the marginal state restriction on international transactions.
It is also worth noting that South Korea’s tariff rate, according to the IEF
released by The Heritage Foundation, is only 5.2%, which may only affect mildly
the prices of our products.

As regards the
Monetary Freedom, South Korea possesses a stable currency and a market-driven
monetary policy, setting price controls only on some particular items such as
fuel, rice and electricity.

 

C. Economic Development

1. Country
classification: South Korea as a developed country

In 2016, South
Korea’s GDP per capita adjusted by the purchasing power parity (PPP) was 34,549 US dollars, making it a
developed country (Investopia, 2016).

 

2. Gross Domestic Products

South Korea’s GDP in
2016 was 1,411,246 million dollars, which remained moderately stable compared
to that of recent years (CountryEconomy, 2016). This indicates a strong and
steady economy which can provide a firm and positive business environment Samsung and its strategic partners.

 

 

 

3. Macro-economic
indicators

South Korea’s inflation rate reached 2.2% in March of
2017, which was the highest annual rate since June of 2012 (Mario, 2017).  

The average unemployment rate in 2016 was estimated to be
worth 3.7%, which remains the highest rate since 2010. It is noticeable that
South Korea faced an unprecedentedly high unemployment rate for the youth,
which was 9.8% (Kim, 2017).

In general, these two facts may have a profound impact on
the personal income, which consequently affects the consumer spending.
Businesses may have to experience a decrease in their revenue due to consumers’
inability and unwillingness to purchase.

 

Section
IV: Social Analysis

Samsung is primarily a South Korean Chaebol or a family-owned
multinational, meaning that it still operates from the core as a Korean company
despite its global footprint. As a result,
they face competition in new forms for which their hierarchical management
structures and complicated, dynastic ownership are inappropriate. The social
factors including the demographic changes, trends in the way locals live, work
and think and cultural aspects of the macro environment affect customer needs
and the size of potential markets. Samsung is facing growing competition in its
core businesses and in particular in the production of mobile phone. Therefore, some aspects its global operations
include adapting itself to the local conditions. Samsung has had to adopt a local
strategy in many emerging markets because of being a Global company has had to
act locally.

Secondly, according to Mintel (2016), customers are changing behavior using smartphones that is
progressively leading tablets to lose their Unique Selling Point (USP). Phablet
owners prefer using their phones to perform more complex or time-consuming
tasks, such as online shopping, gaming or watching video content, which led to
the rise of phablets (smartphones bigger than 5 inches). As a result, phablets are quickly taking over
tablet activity and explains why tablet
sales (for both Samsung and Apple) have been decreasing for all the major phone
companies in the last 2 years.

Apart from this, Samsung has had to adapt its products to the
quickly-changing consumer choice in the various markets within which it operates. It should be noted that lifestyle preferences have a chief influence on Samsung’s operation and the corporation should customize
and localize its product attributes according to suit the tastes of each market
niche and the differences among regions.

Section
V: Technological Analysis

Samsung can be regarded to be among the world’s leading
innovative companies, meaning that the company is at an advantage as far as
harnessing the power of technology and operating change for sustainable
business advantage is concerned. The obsession with
being the state-of-the-art market leaders compels Samsung to continuously
innovate to reach the market with its latest products. Consequently, the
company falls into the patent wars with Apple with many major lawsuits over the
imitation of Apple’s product design.

The decelerating development and slowdown of smartphone
infiltration are continuing to open up
more rivalry, forcing traditional players in the smartphone market to come up
with new innovations and upgrades that can sustain or bolster revenues as
evidenced by the emergence of virtual reality and 360-degree videos. The next
battleground of innovation as rivals hit the market may prove to be
smartphone-based virtual reality headsets, and wireless charging technology
with their own solutions and features hoping to differentiate themselves
(Mintel 2016).

 

Part
III: Conclusions and Recommendations

South Korea’s
political landscape has recently been characterized by discredit in the wake of
the massive corruption scandal. However, the country still preserves its
stability with a low rate of political
risk. A sound legal framework is in place with government’s enormous effort to
protect the Intellectual Property Rights.

Samsung should
chalk out some legal bindings in this perspective. Moreover, Samsung should
conform to the legal issues in order to avoid
patent disputes and to gain back the trust from its customers.

The world’s
11th-largest, export-oriented economy possesses desirable conditions for doing
business with high level of economic freedom and advanced infrastructure,
particularly its telecommunication system. Despite still facing mounting
challenges in lower global demand and high unemployment, positive signs of
recovery are becoming apparent (Lee, 2017), and the government is actively
undertaking a number of initiatives including expansionary fiscal policies,
structural corporate reforms and boosting the competitiveness of small and
medium-sized enterprises.

 
 

 

 
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