CAGE Analysis of Apple - Essay Example

Business Topic: Apple Table of Contents Business Topic: Apple Table of Contents Question 3 2 Porter’s Diamond Model 2 FactorConditions 2 Demand Conditions 2 Related and Supporting Industries 3 Strategy, Rivalry and Structure 3 CAGE Analysis 3 Cultural 3 Administrative 4 Geographic 4 Economic 4 Ansoff Matrix 4 Recommendations 5 Appendix 7 Question 3 In the context of the analysis of the business strategies one of the most suitable strategies includes the aspect of international expansion. This includes expansion into emerging markets like India and China that can offer considerable potential to the company to propel itself in the future. The following sections would highlight some of the strategic aspects of Apple’s expansion into China. This form of expansion would include setting up a manufacturing base for sourcing products to the Asia pacific region and USA. Porter’s Diamond Model Michel Porter’s diamond model is used to analyze the aspect of success of firms in a particular international market (refer annexure 2). The dimensions of this model include the following aspects (Klug, 2006, p.14). Factor Conditions Apple with its talented pool of resources and innovative approach can easily use the talented pool of resources available in China. China offers a ready supply of skilled labor force at cheap rates that can help the company to manufacture products at very low prices. Demand Conditions China is the largest populated nation of the world and is also witnessing high growth in its economy. According to the CIA the GDP of the nation in terms of purchasing power parity is about 10.09 trillion US dollars as of 2010. Along with this the growing Western influence has also affected the consumer behavior of the Chinese consumers making it a market with huge potential for Apple to exploit (CIA, 2011). Related and Supporting Industries The presence of suppliers and a close co-ordination helps generate competitive advantage for the organization. Apple has been known to have a cordial approach in its relationship with the suppliers and also shares an innovative approach in research and development that can be very well replicated in China to generate competitive advantage. Strategy, Rivalry and Structure The industry segment catered by Apple is highly competitive with a large number of firms competing against each other in the market. The Chinese market is also categorized by the presence of fake and pirated goods. Apple with its innovative and high quality product offering can easily fill this gap that arises between the consumer demands and the product offering and generate competitive advantage. CAGE Analysis CAGE analysis is often used by organizations to evaluate new markets and nations by firm while expanding internationally. CAGE stands for cultural, administrative, geographic and economic distance (Sethna, 2008, p.25-28). CAGE analysis is often used by organizations to evaluate new markets and nations by firm while expanding internationally. CAGE stands for cultural, administrative, geographic and economic distance (Sethna, 2008, p.25-28). Cultural Cultural factors are very important in case of international expansion as it helps in generating a better connect with the customers. Hofstede’s proposed five dimensions that can be used to analyse the cultural aspects namely, power distance index, individualism, masculinity, uncertainty avoidance and long term orientation. In these aspects China has been ranked 118 in the world and has the highest rank in Asia (refer annexure 3). This shows high values for culture and hence implies that Apple must follow a ‘glocalised’ approach in its expansion into China. Administrative China has autocratic governance and has strict laws governing the nation. The nation however has opened up its economy and is keen on getting foreign investors in the nation as a part of its liberalisation program. China however still maintains a cautious outlook towards foreign companies and tries to protect its domestic industries. Geographic Geographically China is situated in the Asian region and has a large pool of skilled resources that can help in generating advantage for foreign companies. Chinas has developed a world class infrastructure including ports like Shanghai and highly developed railway infrastructure like bullet trains that generates a good infrastructural aspects for companies like Apple (CIA, 2011). Economic Economically China is the fastest growing economy with high GDP growth rate of 10.3 percent as of 2010. This shows considerable domestic demand from the nation that can help companies like Apple to increase its bottom line profitability (US Department of State, 2011). Ansoff Matrix The Ansoff matrix provides general strategic options that are available before an organization. The four options include market development, market penetration, product development and diversification (refer annexure 1) (Mercer, 1996, p.171). The most appropriate strategy for Apple involves a mix of market penetration, market development, and product development. Apple continuously strives to bring about innovations in its product lines and derives its core competence based on innovation in the product line. It can use its research and development to undertake product development. It can expand into new markets that have potential to bring about market development, this would include expanding its operations and manufacturing facilities to new locations that have considerable demand and can generate considerable opportunities for the organization. Apple can finally use its existing products to penetrate further into its existing markets. This can be done by expanding into smaller towns and cities as well as augmenting a marketing communication strategy so as to increase the sales of its products in its existing markets and generate competitive advantage. Use of the online channel such as iTunes as well as popular social networking sites can also help the company to penetrate deeper into its existing markets and generate advantage in the market. Recommendations The analysis of the study reveals considerable scope for opportunities in China. The best strategy for Apple could be to inject FDI and open up a partnership with one of the local partners. This would help the company to better understand the local market as the local partner would have a better understanding of the market. In addition to international expansion the company should also undertake penetration of its exiting market while keeping up with its core competence of innovation. Finally last but not the least Apple should have a control and evaluation strategy like a balanced scorecard that would help the firm to evaluate its financial as well as non financial strategies so as to generate sustainable competitive edge in the market. References CIA. (2011). The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html. [Accessed on November 30, 2011]. ITIM International. (2011). China - Chinese Geert Hofstede Cultural Dimensions Explained. [Online]. Available at: http://www.geert-hofstede.com/hofstede_china.shtml. [Accessed on December 01, 2011]. Klug, M. (2006). Market Entry Strategies in Eastern Europe in the Context of the European Union: An Empirical Research Into German Firms Entering the Polish Market. DUV. Mercer, D. (1996). Marketing. Wiley-Blackwell. Sethna, B.N. (2008). Ghemawat v. Friedman: Is the World Flat? [Pdf]. Available at: http://www.decisionsciences.org/decisionline/Vol39/39_4/dsi-dl39_4books.pdf. [Accessed on November 30. 2011]. US Department of State. (2011). China. [Online]. Available at: http://www.state.gov/r/pa/ei/bgn/18902.htm. [Accessed on December 01, 2011]. World Bank. (2010). Industrial clusters and micro and small enterprises in Africa: from survival to growth. World Bank Publications. Appendix Annexure 1: Ansoff’s Matrix (Source: Mercer, 1996, p.171) Annexure 2: Porter’s Diamond Model Illustrated (Source: World Bank, 2010, p.53) Annexure 3: Hofstede’s cultural Dimensions (Source: ITIM International, 2011) Read More