International Business Environment: Samsung Case Study

Executive Summary

This study analyzes Samsung to understand the opportunities and threats facing international businesses.  Forces affecting international businesses are evaluated to foster understanding of the international business environment. Opportunities and threats confronting international businesses are also discussed in detail showing how they affect Samsung.  Strategies used by international businesses to address environmental forces and opportunities are also discussed.  In line with these strategies, Samsung’s operations are examined to visualize how the company has been dealing with the environmental forces.

Introduction

International business has been on the rise in line with globalization trends. It has become easier than ever for businesses and economic systems to interact in the global economy due to the ever reducing interaction barriers. Some businesses are taking their production activities in the international environment with the aim of exploiting the vast opportunities created by international business. Other businesses are exploiting the global market, and this is enabling them to maximize sales.  The international business presents both opportunities and threats.  The vast opportunities have attracted many businesses leading to a sharp increase in the number of multinational companies.  Samsung is one of the companies that have been engaging in international business for decades.

Samsung Group is a household name in the global business environment. The company was established in the year 1938 to carry out trading activities. The next two decades after the company’s establishment was characterized by massive growth and diversification. The company diversified to food processing, textile, and insurance services and started exploiting international business opportunities. The company joined the electronics industry in the 1960 and has since then enhanced its presence in this market to be among the world’s largest vendors of consumer electronics and manufacturer of semiconductors (Michell 2016). Samsung later diversified to construction and shipbuilding being a substantial player in these sectors.  Companies affiliated with Samsung Group include Samsung Electronics, Samsung Engineering a construction company, Samsung Heavy Industries a shipbuilding company, and Samsung C&T a construction company. These affiliates are recognized globally in their respective sectors.  Most of the company’s revenue comes from Samsung Electronics that is the world’s second largest ICT company based on revenue.  The company’s revenue for the year 2017 was 174 billion, and the company employs around 500000 people in its global operations (Michell 2016). Samsung exploits both the global market and the international production environments. Although most of the company’s factories are in South Korea, it has strategic facilities across the globe, especially in Asia. Samsung faces a complex international business environment comprising of factors that determine the opportunities and threats facing multinational companies.

International Business Environment

The international business environment is made of factors that influence firms participating in international business. Factors in this environment are broad, and most of them cannot be influenced by individual companies and governments.  International businesses are therefore only required to align their strategies with the realities of the international business environment.  Succeeding in the international business environment is dependent on the extent to which managers understand key factors in the international business environment. International environment factors include political, economic, technological, and social-cultural factors. These factors to great extent influence strategies implemented by a multinational company.

Political Factors

The political environment impacts operations of multinational companies. Samsung’s operations are spread worldwide implying that it interacts with many segments of the political environment.  The legal environment is a segment of the political environment since laws are made through political processes.  Factors of the political environment that affect multinational companies include political stability, business sentiments, legal factor, and relationships among countries (Keillor 2013).  Political instability interferes with business operations which is damaging to profitability. South Korea is a relatively stable country and the government invests heavily in ensuring a supportive business environment.  As a result, the company’s activities in the home country are not disrupted by political dynamics. However, the fact that the company operates in the global economy makes it vulnerable to political instability in other countries.  The Arab world has been facing instability in the past one decade. This instability has affected sales in the affected countries adversely. Samsung commands a substantial market share in the Arab countries implying that political turmoil in these countries is reducing sales. Business sentiments in the global environment affect performance.  These sentiments are classified into pro-business and anti-business sentiments. Pro-business sentiments are positive statements about a business made by influential political leaders. These statements enhance the company’s position in the market. On the other hand, anti-business sentiments erode a business image (Hamilton 2015). In the year 2017, Samsung faced a problem emanating from faulty high-end phones that attracted many anti-business sentiments. These sentiments had a negative impact on the company’s market share in the high-end smartphone market. The legal environment influenced the operations of multinational companies.  A multinational company is expected to comply with a diverse legal environment comprised of distinctive legal environments. The complexity of the legal environment exposes multinational companies to non-compliance risks. In the past, Samsung has faced cases emanating from non-compliance.

Economic Factors

The global business environment is comprised of more complex economic factors compared to the national or regional business environment. Some of the main global economic, environmental factors include tariffs, taxation, financial systems, and income levels (Peng 2001). Countries implement tariffs to regulate trade with other countries. Tariffs impede international trade as they prevent companies from exploiting international markets without restrictions. The level of taxation varies across counties, and this influences location selection. Some countries charge a higher corporate tax to foreign companies while others treat foreign and local investors equally.  Financial systems play a crucial role in international business environment.  Globalization of the financial sector has made it easy for multinational companies to raise capital. Samsung and other multinational companies raise capital from diverse source, and this ensures capital availability. The number of multinational financial institution has increased making it easy for multinational companies to acquire seamless financial services.  Income level in a country determines the viability of a market.  A high per capita GDP or household income implies that the market is characterized by people with a high purchasing power. Income trends influence pricing decisions and investment decisions. For instance, Samsung manufactures both high end and low-end consumer electronics. The high-end consumer electronics’ demand is higher in Europe and America than in Asia and Sub-Sahara Africa. This reality has forced the company to develop products that are in line with the characteristics of specific market segments.

Social-cultural Factors

Social-cultural factors impact the operations of multinational companies.  Social-cultural factors that are relevant to multinational companies include demographic factors, language religion and beliefs, tastes and preference, social institutions, and value systems. These elements have direct impacts on marketing and production operations.  Demographic factors such as the level of education influence marketing since marketing communication must reflect the ability of the target market to understand the marketing message (Peng, Wang & Jiang 2008).  Language also influences marketing strategies. Samsung and other multinational companies design their marketing communication and product packaging in different languages to ensure the target market interacts with the company effectively. Samsung’s consumer electronics are programmed in different languages.  The diverse social environment affecting multinational companies influence the human resource management. Taking production activities in another country leads to the creation of a diverse workforce. A diverse workforce has strengths and weaknesses. The strengths support realization of organizational goals while the weakness impedes the same. Samsung has a diverse workforce that is efficient, and this supports the company to pursue its course.

Technological Factors

Technology is an important component of the international business environment. It refers to the tools and techniques applied in converting inputs into outputs (Cantwell, Dunning, & Lundan 2010).  Just like any other business, Samsung is affected by changes in the technological environment.  The fact that Samsung Electronics is an ICT firm makes the company more susceptible to technological dynamics.  Technological environment is characterized by changes that influence business operations. It also influences the relevance of products which requires businesses to invest heavily in research and development to ensure products meet the prevailing technological environment. Technological developments vary from one country to the other. Going global requires firms to use technology that is in line with the realities of the host country. Samsung is a technology company, and it has been revising its product features to exploit opportunities presented by the emerging technologies.

Opportunities in the International Business

Globalization of business provides many opportunities to entrepreneurs. Cost cutting is one of the main opportunities brought by international businesses.  Firms seek to reduce costs to gain a competitive advantage. Lowering costs allows a firm to charge competitive prices. It also increases the profit margins, and this allows firms to make more profit at the same sales level.  Comparative advantages vary across countries where the cost of producing a particular product varies across countries. The international business allows firms to cut costs by taking production activities to countries with low cost of production (Sethi & Guisinger 2002). Samsung’s activities are spread across the globe to enable the company to realize low production costs associated with operating in a foreign market.

Sales maximization is another opportunity created by international business.  Business success is evaluated based on the market share, revenue, and profit. These three measures are increased through sales maximization. International businesses allow firms to maximize sales by accessing the international market (Peng, Wang & Jiang 2008). Globalization reduces trade barriers which enhances the ability of a business to sell its products the global market.  As a result, businesses can maximize sales that also support exploitation of economies of scale. Samsung and other multinational companies sell their products in the international market allowing them to sell more.  Most of the company’s sales are from international market making Samsung South Korea’s largest exporter.

International business enables a company to manage risk.  The unpredictable business environment exposes businesses to many risks.  Some of these risks are specific to a market segment or an economy. For instance, a foreign exchange risk exposure varies across countries implying that some countries are more exposed than others.  Operating in the global business environment enables a business to enhance operations in markets or countries considered less risky. Political risk is a serious concern for multinational companies. Some countries experience more political volatility than others (Hill 2008).  Expanding in politically stable countries enables a company to leverage political risk thus enhancing business survival. Financial risks are also relevant to international businesses. The interest rates vary across countries. Making financing decisions in the international business environment requires investors to consider the interest trends in the host country to control the cost of capital. International business also allows businesses to control market risk associated with sales fluctuations stemming from changes in demand and competition.

Risks in International Business

Although international business presents valuable opportunities, there are specific threats that limit the exploitation of international business opportunities.  Compliance threat is a major hindrance to international businesses. Operating in the global business environment implies that a business is required to comply with many regulatory environments. Each country has a unique regulatory environment seeking to ensure business activities meet the interests of different stakeholders (Peng 2001). Failure to comply with the regulatory environment has grave consequences.  Firstly, it leads to costly litigation that limits profitability. Samsung is not new to is not new to litigations as the company has in the past been involved with serious cases leading to heavy fines. Secondly, non-compliance impacts the company’s image since people are reluctant to relate to an entity that does not obey the law.

Foreign exchange risk is a serious threat to international businesses.  Exploiting the international market implies that transactions are denominated in different currencies. Translation to the home country’s currency is needed when preparing the books of account.  The fluctuation of different currencies exposes a multinational company to exchange risk (Sethi & Guisinger 2002). The exchange risk also affects companies carrying out production activities in foreign countries and those that engage international suppliers. Transactions with a foreign manufacturing department involve translation, and this exposes a company to exchange risk.  Some suppliers denominate their prices with their home currency thus exposing the buyer to exchange risk. Samsung engages international suppliers implying that transactions with customers expose the company to exchange risk.

Human resource risk faces international businesses. Expanding a firm in the international business environment requires hiring workers of diverse backgrounds. Managing a diverse workforce is an uphill task, and this exposes the employer to the risk of low productivity caused by workplace stress and conflict (Peng 2001).  International business also exposes a business to remuneration problems since the compensation of expatriates differ with local employees. Harmonizing the salaries for expatriates and those of the local professionals is associated with resistance that threatens teamwork in the workforce. Multinational companies operating in developing countries face the problem of lack of competent workers in the host country.  Skills shortfall increases the human resource costs as it necessitates investment in training.

Responding to the International Business Environment

Businesses continue to thrive in international businesses implying that they are implementing effective strategies to counter the international business environmental forces.  Forming sustainable strategic alliances is helping multinational companies to address global business forces. These alliances enhance the organization’s ability to confront threats and exploit opportunities due to resources advantage. Samsung has been forming alliances with local and foreign partners, and this has helped the company navigate the technology sector that is characterized by fierce competition.  International businesses also engage in mergers and acquisition to strengthen their resource position. Vertical integration enables a company to strengthen its grip on the supply chain (Peng, Wang & Jiang 2008). For instance, Samsung has in the past acquired suppliers of key inputs enabling the company to control inputs. The company has also engaged in horizontal integration to strengthen position in specific industries.

Effective human resource practices and systems enable multinational companies to exploit opportunities emanating from human resources as well as combating risks associated with the same. Multinational companies that seek to address compensation problems establish clear policies that show the remuneration of expatriates and the local employees. Comprehensive training and development programs are implemented to enable businesses to address the lack of skills problem that mostly faces operations in developing countries (Sethi & Guisinger 2002).  Exchange programs are implemented to support skills transfer from the home operations to host countries. Samsung has internal training and development programs that endure local and international employees possess the right skills. The company also implements exchange programs that enable employees to learn from departments located in other regions.

Conclusions

International business presents opportunities and threats to businesses. Successful businesses focus on not only exploiting the opportunities but also protecting the threats posed by international business environment. Samsung is a good example of a multinational company that has been confronting the forces in the global business environment to be among the world’s leading technology companies. Factors of the international business environment that affect businesses include political, social-cultural and technological factors. These factors present opportunities and threats to international businesses.  Opportunities in international business environment include risk management, sales maximization, and cost reduction. Risks confronting international businesses include foreign exchange risk, human resource challenge, and the compliance threat.  Forming strategic alliances, business integration, and implementing effective human resource strategies and systems enable international businesses to address these threats.

References

Cantwell, J., Dunning, J.H. & Lundan, S.M., 2010. An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment. Journal of International Business Studies, 41(4), pp.567-586.

Hamilton, L. 2015. The international business environment. Oxford University Press.

Hill, C., 2008. International business: Competing in the global market place. Strategic Direction, 24(9), pp.83-89.

Keillor, B. D. 2013. Understanding the global market: navigating the international business environment. Santa Barbara, Calif, Praeger.

Michell, T. 2010. Samsung Electronics and the struggle for leadership of the electronics industry. Singapore, Wiley.

Peng, M.W., 2001. The resource-based view and international business. Journal of management, 27(6), pp.803-829.

Peng, M.W., Wang, D.Y. & Jiang, Y., 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of international business studies, 39(5), pp.920-936.

Sethi, D. & Guisinger, S., 2002. Liability of foreignness to competitive advantage: How multinational enterprises cope with the international business environment. Journal of International Management, 8(3), pp.223-240.

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  1. what are challenges faced by the samsung company?

    explain how Samsung company overcome these challenges related to international business environment ?

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