LG PESTEL ANALYSIS
LG Electronics is a South Korean Multinational company with its headquarters in Seoul and a part of the LG group. It is a leading global brand in consumer electronics, home appliances and mobile communications. More than 75000 people work for LG in 118 locations. The brand had a global sales of more than 47.9 Billion US dollars in 2016. Its four main business units include Home Appliance & Air Solutions, Mobile Communications, Home Entertainment and Vehicle Components. Apart from it, LG is also a leading maker of flat panel televisions, mobile devices, air conditioners, washing machines and refrigerators. Being a global leader comes with several risks and challenges as well as opportunities. While globalization has brought the nations of the world closer together, due to their varying socio-cultural and political set up, the international brands also face challenges operating in foreign countries.
This PESTEL analysis deals with the challenges that LG can come across and how these various forces can impact its business in the international market. PESTEL is an acronym for the six important forces that affect international businesses in the 21st century. These forces are Political, economic, socio cultural, technological, environmental and legal. They are important forces which can have a direct or indirect and deep impact on businesses.
The role of the political factors has grown more important in the 21st century. Government and political regulation of businesses can have a deep effect on business and profitability. Moreover, the political environment of a nation bears a direct relationship with the economic environment of the country and in this way gets to effect businesses by influencing consumer confidence. It is especially true about countries in Asia where a large part of consumer electronics companies like LG’s supply chain is located.
The Chinese suppliers are a large part of consumer electronics companies’ supply chain and China itself is developed and fast growing market. So, the political environment in countries like China and India gets to influence the sales of these companies in these markets. Political disruption in these countries can disrupt the supply chain and operations of the companies in this market. Moreover, for an international company like LG, the geopolitical changes and other threats like terrorism also pose big risks. Political relationships and trade pacts between nations also have a major influence on international businesses. It is easier for LG to conduct its business in countries with which South Korea has friendly relations or a trade agreement. In this way, the political factors can have a deep impact on the profitability of international brands like LG.
Economic factors can always have a direct impact on the profitability of international businesses. Apart from the recession we have seen major fluctuations in the global economy in the last ten to 15 years. While economic slow-down affects consumer confidence and brings down spending, it can affect the productivity and profitability of businesses too. Several thousands of businesses saw their profits being badly affected during the recession. People were laid off in millions and overall, the scenario was very poor for large international businesses. With economic activity back on track, the situation has kept growing better with time. Now that the recession has passed and economic activity has gone high in several nations, the level of employment has also gone up. In return this has led to higher spending on consumer electronics and mobile communications. This situation is profitable for LG but the situation is not the same in all countries and economic fluctuations from time to time can have a detrimental effect on its business. In this way, you can see that the economic factors can affect an international business in several ways.
Socio-cultural factors also have an important relevance in the context of business. Social trends impact business and profitability of brands. Changing trends can make the demand for certain products go up or down. It is why most brands focus on innovation to remain ahead of the competitors and to make the best of changing trends. The recent trends have led to an increase in sales of smart phones and flat Televisions which are both beneficial for LG. Apart from it, socio-cultural trends also matter in terms of marketing. In the area of marketing and advertising too, brands must take care of societies and their cultures and market their products and brands accordingly to be successful. Socio-cultural factors matter and they can make a difference in terms of business strategy too since brands are often required to have different strategies for different markets and regions.
Technological innovation has become important for business success in the 21st century. Everywhere from marketing and sales to customer service and all the aspects of business, technology has become indispensable if a business wants to remain competitive. Technological changes affect businesses in other ways too and technology is changing at a very fast pace. New technologies come and make the old ones obsolete. Every brand is in a race to keep ahead of the competitors technologically. LG has also invested in innovation and therefore is ahead of several others on several fronts. Its flat panel televisions have been a hit. Apart from technological innovation and quality, the brand has also been able to offer its customers great products at affordable prices. Technology has become an important determinant of profitability and competitiveness and apart from operations, in the area of marketing too, LG has made extensive use of technology to reach its customers and followers.
Sustainability is not just a passing fad but something that has got associated with brand image and brand equity. The brands that have focused on sustainability and sustainable growth have been able to achieve faster growth and a better image. LG has also invested in environment and environmental awareness as a part of its sustainability and CSR program. Apart from sustainable business operation, the brand has also invested in promoting sustainable economic growth of the communities. It also provides its employees training in sustainable business practices.
Law is also an important factor affecting businesses globally. From taxes and other business and labor related laws to environmental laws, there are several that can affect businesses. It is why compliance is an important focus area and can lead to higher operational costs in case of any major global brand including LG. Any tussle with law can prove costly as has happened with some technological giants in EU. While in US, the legal environment is generally favorable, still there are areas where any brand would not want to be face to face with law. It is why big brands like LG especially focus on compliance so that tussles with law can be avoided.
Wikipedia: LG Electronics