Apple Inc.
BUS 478 D 300
Company Synopsis
Hyosub Kim
Jordan Tieu
Kevin Tsai
Jianfeng Zhang
Weilan Tong
INTRODUCTION
The American corporation, Apple, was founded by Steve Jobs and Steve Wozniak in 1976.
Apple began as a computer company with the goal of marketing the personal computer towards the
average consumer (Richardson, 2008). The introduction of the iconic products such as the iMac,
iPod, and iTunes in the early 2000s revitalized the company’s direction and their success was
widespread in the portable music player market. The launch of the iPhone revolutionized the
smartphone industry and Apple currently remains a leader as a mobile phone brand. Today, the
company is involved in the computer, computer tablet, mobile, music, smart watch, and smart TV
industry (Apple Inc., 2016). Digital services are distributed through the App Store and products are
sold online, through third party companies, and in over 400 physical stores worldwide. Apple
currently has 116 000 full time employees and is the largest publicly traded corporation on the
NASDAQ exchange by market capitalization (NASDAQ, 2017).
Figure 1: Historical Products by Apple illustrating important Apple product innovations in a timeline.
ENVIRONMENT
Political
Laws and regulations are factors that affect the company’s business in terms of policies in
different countries. Policy changes could be costly not only to the company, but also to their
consumers. As reported by the Apple’s annual report, activities that will be affected by law and
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regulations include advertising, digital content, consumer protection, real estate, billing, ecommerce, promotions, quality of services, telecommunications, mobile communications and
media, television, intellectual property ownership and infringement, tax, import and export
requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data
privacy requirements, anti-competition, environmental, health and safety (Apple Inc., 2016).
In addition to the examples mentioned above, many legal issues that relate to mobile
communication and media are extensive and subject to change. Changes mentioned in the annual
report include restrictions on the production, manufacture, distribution and use of devices,
locking devices to a carrier’s network, or mandating the use of devices on more than one
carrier’s network. These devices are subject to certification and are regulated by standards,
governments, and cellular carriers. Certification processes can be time consuming and could
lead to serious problems such as product re-testing delays, product modifications, product
shipment delays, and prohibition of certain products (Apple Inc., 2016). In the first quarter of
2016. Apple’s iTunes, Movies and iBooks provider were forced to shut down just six months
after they introduced the service in China because of changes in policy. Prior to this, Apple
concluded a high-profile conflict with the FBI about regarding its consumer privacy policy on
matters of terrorism in the United States. Changing political policies and problems dealings with
regulation are issues that Apple will continue to face in the future (Khamooshi, 2016).
Economic
Global and regional economic conditions will greatly affect the company’s operations and
performance. Unpredictable factors such as unemployment rates, negative financial news, and
financial market volatility all affect customer spending. Other factors such as increasing energy
costs could affect demand throughout different regions. According Apple’s 2016 annual report,
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factors such as real estate, labor, healthcare costs, consumer confidence, mortgage markets and
other macroeconomic factor can affect consumer behaviour. These factors can also adversely
impact demand for the Apple’s services and products. Exchange rate fluctuations between the
United States and foreign markets require price adjustments by Apple. Such fluctuations can affect
foreign demand of Apple products. In 2015, the devaluation of the Canadian dollar relative to the
American dollar resulted in a decrease of sales for Apple Products. In response, Apple discounted
iPhones in Canada to match prices in other markets (Apple Inc., 2016).
Sociocultural
Social factors such as cultural differences have significant impact in foreign markets where
Apple chooses to pursue business. For example, China is a country known for heavily controlling
media through censoring and filtering information. Because of this, companies such as Facebook,
Google and Twitter cannot operate in the Chinese market. In 2016, the Chinese government
prohibited Apple from offering its iTunes Movies and iBook store service because they believe those
activities would threaten the ongoing campaign of keeping out Western ideologies (Pei, 2016).
Technological
The technology sector is highly competitive because of the frequent introduction of new
products, short product life cycles, continual improvement in product characteristics, product
upgrade and advancements by competitors. In order to continue to dominate the market, Apple
has to put significant effort into innovating new products and services that have more advanced
technology into the marketplace. Research and development remains a key focus at Apple in
order to continually improve and progress technology to differentiate their products from the
competition (Apple Inc., 2016).
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Information system failures and network disruption limit Company’s activity. According to
the Apple’s annual report, these may be caused by accidents, power disruptions, telecommunications
failure, physical or electronic break-ins and natural disasters (Apple Inc., 2016).
Porter’s Five Forces Analysis
An overview of the forces impacting the industry is included in Table 1, below.
Table 1: Porter’s Five Forces Analysis
Threat of new entrants
1. High capital requirements (weak force)
2. High cost of brand development (weak force)
3. Capacity of potential new entrants (strong force)
Power of suppliers
1. High number of suppliers (weak force)
2. High overall supply (weak force)
Power of buyers
1. Low switching cost (strong force)
2. Small size of individual buyers (weak force)
Product substitutes
1. High availability of substitutes (moderate force)
2. Low performance of substitutes (weak force)
Intensity of Rivalry
1. High aggressiveness of firms (strong force)
2. Low switching cost (strong force)
Competitor Analysis
Apple’s competitors depends greatly on the market. Please see Table 2, below.
Table 2: Apple’s Main Competitors by Market
Personal Computers:
• Dell, Hewlett-Packard (HPQ), Acer and Lenovo
Mobile Computers:
• Google, Samsung, Nokia and Asus
Smartphones:
• Huawei, Samsung, Sony, Lenovo
Entertainment Media & Applications:
• Google, Android
Mobile Payment:
• PayPal, and local software (e.g. Alibaba, WeChat)
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CURRENT SITUATION
Financial Performance
For a review of Apple’s financial situation, please refer to Table 3 below.
Table 3: Net Sales by Operating Segment and Product of Apple, 2014 – 2016
Source: Apple Inc. (2016). Annual Report. Retrieved from
http://files.shareholder.com/downloads/AAPL/3753557772x0x913905/66363059-7FB64710-B4A5-7ABFA14CF5E6/10-K_2016_9.24.2016_-_as_filed.pdf
Market Conditions
Apple is currently facing pressures from aggressive competition in all areas of its
business. The markets are highly affected by frequent product introductions and rapid
technological advances. As well, Apple’s competitors that sell devices that use Android
operating system, such as Samsung and Huawei, adversely affect the company’s financial
condition by aggressively cutting prices. For example, the company’s net 2016 sales in Greater
China decreased by 17 percent compared to 2015 (Apple Inc., 2016). This could be driven by
increasing market share of Chinese companies such as Xiaomi and Huawei.
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Current Strategies
The company dedicates to offer the best user experience to its customers through its
innovative hardware, software, and services. The company uses differentiation as its business level
strategy, which leverages its unique ability to design and develop its own operating system,
application, and services to offer products and solutions with innovative design and superior
usability (Apple Inc., 2016). For instance, Apple Pay is a contact payment technology that works
on iOS devices. It saves credit card and debit card information in Wallet and enables customers to
pay with fingerprint (Betters, 2016).
As a corporate level strategy, the company uses product development strategy, which
requires that the company must offer attractive products and high quality buying experience to
retain customers and grow its market share. One of its corporate level strategy is to expand its retail
and online stores and its third-party distribution network to reach more customers and provide
them with a high quality sales and post-sales support experience. The company believes this leads
to increased sales of its product and services (Apple Inc., 2016).
STRATEGIC CHALLENGES
New U.S. Policies That Would Affect Apple Manufactures
Apple Inc. has been manufacturing overseas for many years. The plants overseas lower
the costs and enhance production efficiency to meet global demand. However, Donald J. Trump,
the new President of the U.S., is looking to bring overseas manufacturing back to the U.S. from
places such as China and Vietnam. If the new government were to pass bills that restricts U.S.
firm’s overseas manufacture, it will create great challenges to Apple. According to Apple CEO
Tim Cook, Apple was not able to shift much of its overseas manufacturing back to U.S. due to
the fact that there are not enough workers with proper skills they needed (Pressman, 2016). In
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addition, Trump’s policy, which just passed in January 2017, limits Muslim immigrants from
entering U.S. will create another barrier for Apple to employ foreign workers, considering the
fact that many of those immigrants may have the skills that Apple appreciates. Moreover, forcing
Apple to shift its overseas manufacturing back to U.S. will significantly increase the labor costs
and reduce its level of output, which will lower Apple’s competitiveness, especially on the
smartphone market. As Apple plans to increase number of physical retail stores globally, a drop
in output creates a critical problem of insufficient supply to fill their stores.
Penetrating the Smartphone Market in India
As the Chinese smartphone market increases is increasingly saturated, leading
smartphone manufacturers are shifting their attention towards India. However, Apple’s
competitors have been developing their businesses in India previously, making Apple the laggard
that has to play the catch-up role. Moreover, local government officials have pressured Apple to
create manufacture facilities in India in order to enter the market.
Traditionally, Apple sells their smartphones at full price to carriers, who then sell them
directly to consumers at a discounted price in exchange for signing a multi-month mobile
contract (Reuters, 2016). However, phones are generally sold in many different small retail
stores and carriers in India are not used to this business model.
Although Apple’s CEO sees the opportunity to roll out 4G service in India, it is still
unclear whether India is ready for it as a developing country. In addition, high-end smartphones
– costing from $300 – make up only six percent of the market. Apple will need a stronger
marketing strategy to promote its product in countries with low average income in order to
sustain their position as a premium-end player in the low-income markets.
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REFERENCES
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http://files.shareholder.com/downloads/AAPL/3753557772x0x913905/66363059-7FB64710-B4A5-7ABFA14CF5E6/10-K_2016_9.24.2016_-_as_filed.pdf
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