Hikvision PESTEL Analysis Russia Ukraine War

PESTEL Analysis of Hikvision in light of Russia Ukraine War

Hikvision business operations are impacted by Russia Ukraine war and it has to adapt to the changes in the business environment in the industry. Some of the PESTEL Analysis factors that are impacting the Hikvision business environment are –
War in Russia and Ukraine, loss of market opportunities in Russia & Ukraine, financial collapse in emerging markets , high inflation , increasing defence spending , big tech shares collapse , high government debts , technological changes such as ChatGPT and AI , rising housing debt and increasing mortgage rates,crypto currency frauds and crash , end of an era of easy liquidity, diversification of supply chain because of both Covid and Russia Ukraine war , and increasing interest rates
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Slowing Growth Rate [Political & Economic Factors]

– As the Fed has decided to do whatever it takes to bring down the inflation to 2%, it will result in high interest rates and slowing growth rates across the world. Hikvision needs to build resilience to survive in the slowing economy. It can do so by focusing on fast developing emerging economies, building product offerings that can cater to lower spending rates of the consumers in the industry.

High Private Debt [Political & Economic Factors]

– In 2023 in an environment of rising interest rates, private debt in United States is extremely high. There is 16.1 trillion USD in household debt, 12 trillion USD in mortgage debt, 1.6 trillion USD in auto loans, and 1 trillion in credit card debt. 67% of the retired Americans already have an unpaid credit card debt. This point towards an extremely fragile situation if US enters into a recession.

Emergence of AI and other automation technologies [Technology Factors]

– ChatGPT has brought new excitement to the field of Artificial Intelligence and automation. Even though the technology right now is in nascent stage, it has potential to disrupt the economic system in the coming decade. The Chinese government has even banned the use of ChatGPT in the country.

High probability of Recession in United States [Economic Factors]

– As Federal Reserve intends to bring the inflation back to 2%, it will require interest rates above 6%. The high interest rates and monetary tightening will result in United States going into recession. Hikvision has to prepare its business model to be recession resilient. It has to bring down the costs, focus only on lucrative customer segments, and build a diversified revenue stream in the industry.

Increasing Housing Payments [Social & Economic Factors]

– Over the last one year the mortgage payments have increased almost 60%. The mortgage payment now accounts for almost 33% of the average US homeowner income. The 33% share is far higher than the long term average of around 24% and just below the all time high of 34% in 2006. The trend suggests that a lot of households will be either struggle to make their payments or drastically cut down on the spending, or both. It points towards a looming housing market crash and recession.

Bursting of Crypto Bubble [Economic Factors]

– Cheap money and government lockdowns led to the speculation and bubble in Crypto currency segment. The crash has wiped out savings of millions of people across the world. Secondly it has burned the young investors for a decade.

Rising Interest Rates in United States and other Developed Economies [Economic Factors]

– – As the inflation rate is above 8% in the most of developed world, central banks are actively cutting rates to control the inflation. Hikvision should strive to cut costs by streamlining operations and workforce, reduce dependence on customers’s discretionary spending.

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Increasing Debt on Credit Cards in United States [Social & Economic Factors]

– Another distress sign in the US economy in 2023 is the rising debt on credit cards in United States. Hikvision will be seriously impacted by this trend because most of the purchases of its products in the industry are done on credit. 67% of the retired Americans have already unpaid credit card debt. If the financial markets crash then retired Americans will face challenges to meet their expenses from the retirement savings.

Extremely high government debt [Political & Economic Factors]

– The debt levels in both the developed countries and emerging markets have increased because of the COVID spending and strengthening dollar. This has put financial health of numerous countries in danger. In October 2022, we saw a run on GBP when government declared tax cuts. Similarly the Debt to GDP ratio in most developed countries is above 80%, which is not sustainable in the long run.

Business in a hyper political world [Political & Economic Factors]

– Businesses now have to focus more on the political and legal factors in the PESTEL analysis. In the last 20 years, under the WTO regime, businesses can rely on fairly consistent rule of law across the world. Two words that have captured business imagination because of the war between Russia and Ukraine are – Friendly Countries, and Friend Shoring. Now businesses have to make decision not only based on operational efficiency and financial considerations, but also keeping in mind the political and geopolitical risks.

Increasing cost of fertilizers [Social & Economic Factors]

– According to World Bank, fertilizers prices are likely to remain high given that Russia and Belarus are two of the biggest suppliers of fertilizers to the emerging markets – Russia and Belarus accounts for 40% of total global MOP exports, a key ingredient for Brazilian and Argentine farmers. Secondly because of the rising gas prices there are significant cut backs in the production of ammonia in Europe. Russia accounts for 16% of global urea exports.

Increase in commodities prices [Political & Economic Factors]

– As Russia is one of the biggest suppliers of commodities in the world, the sanctions on Russia by United States and European Union has led to the increase in cost of commodities across the world. Hikvision needs to keep a close eye on the commodities prices to have a sustainable business model.

Lockdowns in China [Political & Economic Factors]

– The continuous zero lockdown policy in China not only disrupted the global supply chains but also reduced the demand for players such as Apple. Apple has decided to reduce the production of iPhones in 2023 not only because of supply chain disruptions in China but also because it expects lower demand from China and other major economies.

Technology war / Chips war [Technology Factors]

– CHIPS and Science Act passed in 2022 has not only aimed to encourage more CHIP investment in United States but also preventing companies to manufacture and ship high end chips to China that could be used in military hardware. This only marks the beginning of technology restrictions and economic competition. It also makes tech companies vulnerable to not only direct sanctions but also to secondary sanctions by United States.

Check out the SWOT analysis of Hikvision

Emerging Markets Financial Collapse [Political & Economic Factors]

– In 2022 a number of companies have either defaulted are on the verge of declaring bankruptcy and defaulting on sovereign bonds. Countries such as Argentina, Venezuela, and Turkey have inflation above 80%. Sri Lanka has already defaulted and Pakistan is on verge of defaulting. Bangladesh, Ghana, and many other African countries have asked for IMF withdrawing facility in case the local currency comes under pressure because of strengthening USD.

Increasing cost of climate change and natural disasters [Environmental Factors]

– The increasing intensity of hurricanes into United States, extreme heat season in Canada and Europe, floods in Pakistan, and extreme winter temperatures in United States suggest that the governments have to deal with increasing costs of climate change both in terms of infrastructure damage and rising energy costs to manage the extreme weather.

Increasing cost of doing business [Economic Factors]

– As the growing considerations are on diversifying supply chain away from China, geographical diversification, friendshoring – building manufacturing and other supply chain in friendly countries, it will increase the cost of doing business not only for transnational companies but also on the local companies. Businesses have to make higher inventory provision, tolerate greater inefficiencies, and ensure high due diligence in source of material and its usage.

Increase in Wages in United States, EU, and China [Social & Economic Factors]

– Increasing interest rates, high employment levels, slowing economy has created a perfect storm for stagflation in the US economy. The increase in wages has made it difficult for Hikvision to drastically cut costs without impacting the operational performance. There are numerous case studies in the industry, when companies are failed to cut costs fast enough to remain viable in a slowing economy.

Over Reliance on Supply Chain based out of China [Economic Factors]

– Covid exposed companies to the scenario where the whole supply chain can be disrupted if one country is shut down. Now companies are trying to diversify the supply chains geographically. This will result in not only increase in costs but also prevalent operations strategy of “Just in Time”. Politicians especially in United States and UK are putting pressure on companies to locate supply chain in liberal democracies and friendly countries.

Hikvision SWOT Analysis, SWOT Matrix, Weighted SWOT Case Study Solution & Analysis

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Books and References

Paul Ingram and Yoojin Choi (2022) "What does company really stands for?", Harvard Business Review , 92
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Ahir Gopaldas and Anton Siebert (2022) "What You’re Getting Wrong About Customer Journeys", Harvard Business Review , 92
Linda A. Hill, Emily Tedards, and Taran Swan (2021) "Drive Innovation with Better Decision-Making", Harvard Business Review 86
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