The Essay Explores Macroeconomic Effects On Samsung's Operations In India And UK.

Samsung in India and UK

Question:

Discuss about the Consumer Purchase Intention at Samsung Smartphone.

Samsung electronics is a South Korean electronics company. The company has become global leader in telecommunications and digital media and started working in 1969 and having it’s headquarter in Suwon, South Korea (Park, 2015). The company offers a variety of electronic components such as semiconductors, chips, flash memory, lithium-ion batteries and hard drive devices. It supplies electronic components to Apple, Nokia, HTC and Sony.

This report is going to focus on the operations of Samsung in India and UK and is going to investigate how macroeconomic environment within these two situations can affect the economic activity of Samsung.

In 2014-15 the electronics hardware production was estimated at US$32.46 billion. It represented about 1.5% share of the world’s electronic hardware production. The purchasing power of consumers in India is still very low. Indian economy is one of the world’s leading and fastest growing smartphone markets. The electronic industry is growing industry in the world. Out of the electronic industry, mobile industry is growing fast and India is adding more mobile connections every month. The telecom industry is dominated by the mobile phones in India (Forsgren, 2017). Samsung is one of the leading brands in India. The company focuses on high and mid-range markets. The mobile industry is attractive destination for the mobile phone manufacturers because of the broad range of customers (Baker & Saren, 2016).

The electronic market in India can be classified by oligopoly competition. Samsung is one of the brands which dominate the market. The firms are price makers which mean firms can fix prices without losing profits. There are only few sellers of differentiated products. There are more electronic businesses in India when compared to US. Samsung account for 40% share in the market. The electronic industry in India has observed strong presence from multinational corporations and small and medium size enterprises (Dinnie, 2015). The electronic item stores are major purchasing points for mobiles.

The competitors offer slightly different products, for instance Samsung has launched Google Android and has taken advantage of Google Android operating system and has launched attractive handsets. The company sells wide series of smart phones. There are no barriers to newcomers which are seeking to enter in market (Auer & Schoenle, 2016). Such players make huge investment in advertising and promotions to increase their market share.

The sales of Samsung in UK are comparatively low as the respondents focus more on the Apple iPhones. According to a report of 2017, Apple have 48% share market and Samsung has comparatively less that is 34%. UK is a developed market and over the years it has seen that the domestic electronics items have grown by an estimation of 10-15% annually in comparison to the global average of 2%. The sales of smart phones remained flat in the third quarter of 2017. Due to lack of product software it has to depend on other companies. Samsung along with Huawei provides strong volume platform in the country (Park, 2015).  Samsung also identifies the contribution that that BBC makes to UK. The mission of British Broadcasting Corporation (BBC) is to make public service available to customers.

Oligopoly competition in the electronic industry

In 2018 the company is likely to lose ground in the smartphone segment. It is due to the growth of other smartphone companies and dominance of Apple. The share of Apple in market stands for 48% whereas Samsung’s share kept decreasing to 34% (Wu & Vasquez-Parraga, 2016). According to the market research, the UK electronic market is mainly composed of Apple and other smart phone companies such as Huawei, Sony Xperia, HTC, Nokia, LG, Xiaomi and Microsoft. The electronic sector in UK is made up of 16.6% which contributes to the country’s economic growth. The electronic companies in UK has doubled from 2007 to 2012 and showing increasing trend towards the mobile segment. The country is the most exclusive smartphone market in the world. The focus in the industry remains with the top players Apple, Samsung, Huawei, HTC, and LG (Chen & Ann, 2016). These five companies accounts for 91% of overall market. Huawei and LG have captured the rural part of country where as Samsung and Apple has focused on urban UK. Xiaomi enjoys it’s online strategy. Samsung leads among the top five brands in the country (Rumokoy, Pangemanan & Manorek, 2015). The arrival of new companies in the electronic industries has headed to the Samsung’s operations in UK being categorised as one of the characteristics of oligopoly competition. The oligopoly market includes only few large firms and there are high barriers to entry. It shows understanding of cultural environment country. The competitor companies produce either homogenous or differentiated products to understand culture of UK and high tariffs are assigned to import of smartphones (Elshandidy & Neri, 2015).

Figure 1: GDP growth comparison

Source: Haver analytics, 2017

The graph represents rapid growth rate of India from 2005-2010 preceding an upturn in the economy in 2010-2015. GDP growth showed signs of further improvement over the period. It can be seen in the period of 2015-2016. In UK, GDP growth from 2005-2015 is 1.5 times higher than the India’s peak period in 2010 (Word Bank, 2016). The slow growth rate in 2005 accredited to drop in exports from manufacturing sector.

In 2011 Samsung released first series of ads in UK that defined company for the next three years.  It included the features which were missing in the competitor’s product. At the end of 2012, the profits of the company increased up to 76% and it was made possible by the growth of mobile division (Bank for International Settlements, 2018). To see growth of GDP the company decided to increase number of stores which positively enabled consumer to spend (Hampshire, 2017). The GDP growth rate in 2010 created more jobs and it resulted in increasing spending to higher levels of output. The company recorded higher growth in sales and increased revenue (Hughes, McMunn, Bartley & Kumari, 2015). In India the growth over the period was not up to the buying capacity of consumers. The increase in revenue attributed to the performance in India. It represented fewer chances for the company in India due to growing metropolitan and middle class customers.

GDP growth, inflation rate, and unemployment rate

Figure 2:  Annual inflation rates (CPI) of UK

Source: Trading economics, 2018

The inflation rate of UK in 2010 was 3%. In 2011 the inflation rate increased to 5.1%, in this situation the company is forced to increase prices. In 2012 it reduced to 2.2 % which represents supply of products is higher than demand (Campbell, Goldfarb & Tucker, 2015). It increases employment which is a positive sign for Samsung.

Figure 3: Annual inflation rates of India

Source: Trading economics, 2016

In India the inflation rate in 2011 was 9.6% and it increased to 10.1% in 2012. Comparatively the inflation rate in UK was more stable. The inflation rate in India was less predictable. It revealed number of fluctuations. It could constrain the company’s expansion in India and could obstacle in generating revenue for company due to price variations. The stability of inflation rates in UK can contribute to well-functioning of market. It could enable Samsung to increase incentive to control costs and enhance productivity.

Figure 4: Unemployment rate of total labour force India

Source: Trading economics, 2018

Figure 5:  Unemployment rate of UK

Source: Trading economics, 2018

The explanation of unemployment rate in India and UK has been given in the appendice 1.

The government structural balance in 2008 was -8.2%. However it fluctuated in recent years and tends to decrease in the period of 1996-2017. It ended at -2.8% in 2017.

The general government structural balance in 2013 was 33%. In 2015 it reduced to 31% and finally reduced to 26% which is a positive remark.

The current account of UK shows it has a determined current account deficit in the past years. In 2012 it had a current account deficit of 3% of GDP.

The current account balance of India shows it had current account deficit of 12% in 2011. It has improved over time. It reached to 10% in 2013 and further brings positive changes and resulted in 27% in 2014.

The effects of credit crisis have been intensified by the overflowing of UK’s decade-old house price bubble. It has implied severe taxes on the economy. The GDP anticipated growing by 4 per cent in 2009, the country’s first downturn in 17 years. The retail price index is estimated to fall by 1.7 per cent in 2009. It is increasing concerns over devaluation and the number of unemployment is likely to extent 3 million people before the economy recovers.

Trade policies

The government follows two key fiscal rules in UK. According to the golden rule, the government can borrow to invest over the economic cycle. It cannot fund on current expenditure. The other rule is sustainable investment rule. The public sector debt is a part of GDP and will be detained over economic cycle at a practical level (Laokulrach, 2018).

The unemployment in 2014 continued to fall more rapidly than expected. The CPI also falls below the target of government. The re-emergence of inflationary pressure can be seen if the economy recovers appropriately.   Despite falling unemployment the UK government can keep a strong case for loose monetary policies. It can be helped by stagnant wage growth and companies can expand and keep up with the demand. It can allow company to hire more employees (Anand & Khera, 2016).

Samsung sells electronic items and the sales rely on disposable income. It promotes growth. Consumer spending and inflation reduction can be profitable for the company. The efforts of company can be contributed to industrialisation and it brings wealth and investors and exposure of UK to captivate modern technology culture. The sales of the company increased with the improving GDP of country. It creates wealth and growth for country (Cevik, Dibooglu & Kutan, 2014).

The trade policies of UK are constructed in such a way that it benefits all. The European Union manages trade policy on behalf of UK. The government supports and develops new trade policies. It monitors the treatment and invents the policies for UK exports (International Monetary Fund, 2015).It trains teams, government and interested parties. It also involves stakeholders to develop country’s international trading environment. The trade policy of UK has surpassed India due to liberalisation of trade policies. It also involves number of decisions such as tax, subsidies and price control to foster growth and investment of country. Being member of WTO the country derives benefit being part of incorporated global trading system. UK is involved in various bilateral and multidimensional trade agreements. It enables entre to new marketplaces for the products of country (Buckley, Pass & Prescott, 2016). 

The incorporation of Indian economy through trade and capital flows has enhanced which led to the growth of $2.3 trillion in 2016 from $ 475.37 billion in 2004. The per capita income also increased in these years. It can also be evidenced by the participation of country in WTO (Hopewell, 2015).

The currency is valued between two countries for the exchange of goods and services. For instance, the value of Indian currency is weak when it’s compared to UK pound. It is done to encourage exports to sustain economic growth. It can create exchange rate for Samsung. The revenue from India depreciates against the Samsung’s trading currency the UK pound. It could impact the future investment decisions concerning growth in the economy (Criscuolo, Laursen, Reichstein & Salter, 2018).

Samsung could be affected by the exchange rates if there is devaluation in currency in the country company supplies.  It can happen only if the company is involved in international trade. It provides good value in lower amount. It can benefit to company in the form of higher revenues (Chuang & Lee, 2015). For instance, increase in the exchange rate of UK from 2010-2015 enabled company to trade in UK pounds to experience great purchasing power for electronic equipment in UK.

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