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In business, macro-environmental factors like political instability, economic recession and socio-cultural practices present considerable impacts to companies within a given market. This report dissected the UK’s external business environment using PESTLE analysis. The dissection was conducted from the perspective of smartphone manufacturers. Evidently, the UK external business environment has become relatively unstable, especially after the Brexit. Smartphone manufacturers face challenges stemming from the UK’s political, economic, legal, cultural, environmental and technological spheres. Of the six macro-environmental spheres, the political and economic spheres emerged as the most impactful factors for smartphone manufacturers in Britain. In July 2016, the top five smartphone manufacturers participating in the UK market were: Apple, Samsung, HTC, Nokia and Sony Xperia. Roger and Taylor (2016) documented that Apple enjoyed a market share of 46% followed by Samsung and Nokia at 32% and 5% respectively. Other mobile phone manufacturers with relatively small market shares in the UK include but not limited to Motorola, LG, and BlackBerry. In 2014, the United Kingdom featured as the leading market for smartphones in Europe, accounting for a market value exceeding 14.6%. In 2014, the demand for mobile phone devices and services in the UK was predicted to rise by 4.9% annually through to 2020. According to Roger and Taylor (2016), leading smartphone manufacturers like Apple and Samsung consider the UK as the largest market for mobile devices in Europe. Consequently, the top smartphone manufacturers have strategically intensified their operations in the UK as a means of optimizing their share of the lucrative British mobile devices market. The strategic manoeuvrings of competing smartphone manufacturers in the UK is significantly influenced by the British external business environment. Succeeding sections of this report utilizes the PESTLE analysis approach in examining the manner in which the UK’s external business environment affects smartphone manufacturers.
The United Kingdom is known for its traditional monarchy system of government. The UK political sphere is largely made up of two primary divides, the right-wing Conservatives, and the left-wing Labour Party. Government functions run under the parliamentary system. Currently, the UK parliament, commonly referred to as the House of Commons, is made up of 331 members from the Conservative Party and 231 from the Labour Party, with the remaining 88 members distributed amongst 14 minor political parties. Whereas the right-wing Conservatives advocated for economic freedom and deregulation of the business environment, the left-wing Labour Party favours the regulation of big businesses and increment of taxes so as to support the poor people. In 2015, the Conservatives were mainly campaigning for Britain to leave the European Union while the majority of the Labour Party wanted Britain to stay in the EU. After the referendum, the Conservatives won, meaning that the UK business environment is more likely to experience economic freedom and sufficient deregulation of markets. Alam, Khan and Shabbir (2015) mentioned that smartphone manufacturers in the UK may benefit from the expected substantial deregulation of markets after the Brexit. However, Brexit rendered the UK political environment relatively unstable, with members like Scotland expressing interest to leave the United Kingdom.
The United Kingdom, being the second economic powerhouse in Europe after Germany regarding GDP, has a relatively stable economic environment. The UK enjoys diversified economy characterized by the equitable presence of both public and private enterprises. The sizable British population known for its superior purchasing power makes the UK smartphone market highly profitable. However, the British economy is not absolutely strong. After the Brexit referendum on June 23rd, 2015, the British financial sector stumbled. Brexit ushered in unprecedented detriments to the UK currency at the foreign exchange markets. Roger and Taylor (2016) mentioned that for the first time since the 1980s, the British Sterling Pound hit an all-time low in April 2016, roughly a year after the Brexit. Both the British Treasury and the International Monetary Fund (IMF) predicted that the economic consequences of the Brexit might trigger a recession in the UK. A recession coupled with a plummeting value of the British pound means British consumers will experience declining purchasing power while companies in the UK may experience increased costs of doing business. Low purchasing power coupled with high-priced smartphones as a result of rising cost of doing business will inevitably render the UK smartphone market relatively unprofitable.
In 2013, Britain had a population of 64.1 million; half of the nation’s population made up of citizens below 45 years. The dense population coupled with the large portion of young citizens means that the United Kingdom has an active consumer-driven economy. Azim and Hassan (2013) agreed that members of the younger generations are fond of popular consumer products like smartphones; thus, the UK is a suitable market for smartphone manufacturers. Also, the UK is a cosmopolitan nation characterized by one in every eight members of its population being immigrants. According to Roger and Taylor (2016), immigrants provide cheap labour; hence, reducing the cost of production for smartphone manufacturers in the UK. Unfortunately, the positive attributes of the UK social environment are threatened by social challenges like rising dependency ratio, religious extremism, and social unrests associated with the on-going migrant crisis in Europe.
The UK has an open and competitive technological environment. The UK government has enacted legislations meant to encourage technological innovations and spur the consumption of high-tech goods and services. Smith and Weber (2016) reported that in 2013, the UK government spent over £150 million in infrastructure programs meant to increase mobile network coverage across remote parts of rural Britain. Also, the government has provided subsidies for the introduction of 4G mobile technology in the UK. In essence, the UK business environment is filled with incentives for technological development. In particular, the presence of latest mobile networks like the 4G coupled with widespread network coverage makes the United Kingdom a favourable market for smartphone manufacturers.
The UK has some of the most elaborate intellectual property laws in the world. Technology companies like smartphone manufacturers have nothing to worry about the infringement of their copyrights and intellectual properties. Also, the UK has well-functioning quality standards enforcement agencies. The effective quality assurance system in Britain ensures that dubious competitors cannot enter the UK smartphone market and ruin the business environment for established and quality-driven manufacturers like Samsung and Apple Inc. Furthermore, the UK legal business environment is monitored and regulated by established agencies. The UK communications market is monitored and regulated by Ofcom. According to Smith and Weber (2016), Ofcom performs license issuance and revocation duties for smartphone manufacturers and sellers across the UK. Therefore, smartphone manufacturers in the UK must meet specific requirements introduced by Ofcom, regardless of how the requirements affect their business models.
In 2014, studies indicated that ethical consumption in the UK grew by approximately 8% annually. Consumers in the UK are increasingly looking to green alternatives while making purchase decisions. Concerning electronic products like smartphones, UK consumers are becoming increasingly conscious about the energy efficiency of products and the use of renewables during the manufacturing of goods. According to Azim and Hassan (2013), the utilization of green energy sources and green energy features in smartphone manufacturing will influence the revenue figures of smartphone manufacturers in the UK. Also, the UK government is providing enticing subsidies and incentives for the use of green manufacturing processes. Since 2010, the UK government have been providing subsidized installation of solar panels on rooftops of manufacturing firms. In this regard, the alignment of business models with green economy policies will give smartphone manufacturers competitive advantages within the UK market.
How the UK Macro-Environment affect Smartphone Manufacturers
Increase Cost of doing Business
Smartphone manufacturers use lithium ion batteries as the primary sources of power for the mobile devices products. Globally, the demand for lithium as a primary material in the manufacture of lithium-ion batteries is rising. According to Elgin and Hassan (2014), automobile manufacturers, who are the largest consumers of lithium material, are turning to electric vehicles. Leading manufacturers like Tesla expected to demand at least 50,000 tons of lithium each year by 2020. Currently, 70% of the world’s lithium supply comes from mines in the South American nations of Bolivia, Chile, and Argentina. Surveys show that there is no substantive alternative supply for lithium material once the reserves in the South American countries are depleted. Therefore, the increasing demand for lithium coupled with the expected decline in supply for the raw material will invariably lead to skyrocketing of lithium prices in the market. Elgin and Hassan (2014) agreed that smartphone manufacturers in the UK will have to factor in the high cost of the raw material, particularly because the UK government and consumers of electronic goods will be sensitive about the use of batteries as green sources of energy. In this regard, the environmental factors associated with green alternatives will make the manufacturing and sale of smartphones in the UK more expensive for Apple, Samsung, and other smartphone manufacturers.
Reduce Sales Revenues
The current economic environment in Britain is unfavourable for smartphone manufacturers regarding sales revenue. Lee (2012) mentioned that recently, most manufacturers of electronic products have relocated their manufacturing plants to Asian nations like China, India, and Korea, definitely because of lower costs of production in Asia compared to Western nations. In this context, licensed distributors and retailers of smartphones in the UK have to import finished electronic products from outside the UK. The falling British pound makes imports expensive, mandating sellers to pass on the higher import costs to consumers. In response, the high prices of smartphones in the UK market will discourage most consumers from making purchases, leading to declining sales of the mobile devices. According to Lee (2012), the declining value of the UK currency against other currencies in the world will trigger consumer recession in the UK. Consequently, consumer recession not only makes consumers more price-sensitive but also leads to more saving and decline in disposable income. Thus, the economic effects of the Brexit will impact the revenue patterns of smartphone manufacturers in the UK negatively.
Disruption of Business Models
Apple and Samsung have relatively similar business models where customers can either visit retail stores and purchase the smartphones or browse through a catalogue of smartphone products online and order for customized delivery of their preferable products. Mika (2011) mentioned that when Britain was an EU member, millions of customers from all the other 27 European Union countries would visit retail stores of smartphone manufacturers in the UK and make purchases. After the Brexit, travel regulations will impede the inflow of customers from the other European Union nations into the UK. As a result, smartphone manufacturers will be forced to either contend with an inadequate consumer population or change their business models as a means of addressing the changes brought by the Brexit. Either way, the legal, economic and political consequences of the Brexit will invariably necessitate smartphone manufacturers in the UK to adjust their business models to remain profitable.
Two Most Impactful Macro-Environment Factors
There has been no identifiable time in the history of the Britain when the nation experienced political division than after the Brexit. In the June 23rd, 2015 referendum, 51.9% of the UK electorate voted to leave the European Union while 48.1% voted to remain within the European Union. Alam, Khan and Shabbir (2015) highlighted that after the Brexit, 55% of the Scottish people have expressed their interest to leave the United Kingdom with 45% of the Scottish wanting to remain within the UK. Admittedly, Britain is struggling with so immense domestic political fallout that the business community cannot afford to ignore the intended and the unintended eventualities of the political uncertainties bedevilling the nation. According to Mika (2011), trade agreements and trade regulations are made by the political stakeholders of any nation. In Britain, Brexit means that new trade agreements and trade regulations may be introduced because of the changing political climate. In this regard, business stakeholders like the smartphone manufacturers in the UK will operate under the whim of the UK political environment. In essence, smartphone manufacturers will have to endure whatever political upheavals ensue after the Brexit; thus, the political environment is the most immediate macro-environment factor affecting UK’s smartphone manufacturers.
Roger and Taylor (2016) recorded that on June 22nd, 2015, one day before the Brexit referendum, 1 British pound traded for 1.5824 US dollars. On December 22, 2015, six months after the Brexit referendum, 1 British pound traded for 1.4882 US dollars. On October 11th, 2016, nearly one and half years after the Brexit, 1 British pound traded for 1.2298 U.S dollars. Roger and Taylor (2016) mentioned that the IMF and World Bank predicted that by June 2017, the value of 1 British pound could hit a new low of 1.1500 U.S dollars. Before the Brexit, a UK business firm wishing to import Apple smartphones from the U.S would receive $1582.4 upon exchanging £1,000. On October 11th, 2016, the same business firm would receive $1229.80 after exchanging £1,000. The falling value of the British pound, which is attributable to the currency fluctuation effects of the Brexit, is making imports into the UK exceedingly expensive. Currency exchange forecasts indicate that in future, the price of imports into the UK will continue to rise. In this context, smartphone manufacturers importing either raw materials or finished products into the UK will have to persevere with the exorbitant economic consequences of the Brexit. Therefore, the dominant economic factors within the UK business environment feature as the second most influential factors after the political factors.
Evidently, Brexit has not only stirred up political instability in the United Kingdom, but has also triggered detrimental financial consequences to the British economy. Invariably, business stakeholders like smartphone manufacturers in the UK will be forced to either persevere with the external environmental challenges caused by the Brexit or exit the British smartphone market. Identifiably, political factors and economic factors are the leading macro-environmental aspects likely to affect smartphone manufacturers the most. Most probably, smartphone manufacturers in the UK will feel the effects of the political and economic factors as increased cost of doing business, declining revenues and as necessity to change business models.
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