Apple Operations - Term Paper Example

? Apple Operations Table of Contents Introduction to Apple 3 Domestic Operations of Apple 3 Value Chain of Apple 4 Outsourcing 5 Capability of operations 5 Global Operations of Apple 5 Apple’s International Market Entry Strategy 6 Apple’s transnational strategy 7 Apples Global operations in China and Europe 7 Conclusion 8 Introduction to Apple Apple Inc. is an American company which manufactures and sells consumer electronic goods. The company is presently headquartered at California, USA (Yahoo Finance, n.d.). It was established by Steve Jobs, Ronald Wayne and Steve Wozniak in the year 1970. The company has a wide range of products such as desktop computers, laptops, mobiles and different application software. Along with its subsidiaries the company develops and markets various portable applications as well. Some of the bestseller items of the company include portable music players, mobile communication devices and several other digital gadgets. Buzzwords such as I-pod, I-phone and I-pad are all creations of Apple. The company also has a strong presence in the field of software. The software segment includes operating systems such as Mac OS and other utility and productivity applications like Quick time player, I-work and logic studio among others (Apple Store, n.d.). The company has a global presence and owns more than 370 stores. It has a workforce of 20,000 people. Apple mainly distributes its product through whole sellers, retailers and Apple owned exclusive stores. Hewlett Packard, Dell, Google and Research in Motion Limited are the direct competitors of the company (NASDAQ, 2012). However companies such as Lenovo, Compaq, Toshiba and Hitachi are also considered as the circumlocutory competitors of the company. The aim of the report is to offer the domestic operations of the company. Also the report will stress on the global operational strategy of the company. In the operational strategies the report will offers insights about the way Apple markets its products. Finally the report will conclude by revealing the differences between the domestic operations and the global operations of the company. Domestic Operations of Apple Operations management can be regarded as the process in which human, material and financial inputs are transformed into output of products, service or other utilities (Pride, Hughes & Kapoor, 2006, p.279). However the actual creation of the product takes place in the mid half of the process and is referred to as manufacturing, production or the operations (Finch, 2008, p.164). In addition to that material management or logistics controls the transfer of raw materials through the process of value chain. The distribution on the other hand deals with the delivery of goods to the end customers. Finally the after sales provided by the company are known as support. Figure 1 (Source: McCubbrey, 2010) Value Chain of Apple The value chain of the company is discussed below:- Inbound Logistics Most of the essential components which are required for manufacturing Apple’s products are available from several sources. However some of the essential materials are obtained from single sources. In order to cite an instance IBM is the only supplier of G5 processor, which is being used in the products of PowerMac, while Motorola is the only supplier of G4 processor to the company. Operations The company has highly innovative products (O’Grady, 2008, p.xii). Hence the materials also need to be of high quality. Now as the raw materials are obtained the final assembly of the products is carried out in the manufacturing and assembling plants of Apple. Sacramento and Cork are the two places where the operations take place. Nevertheless the operations are also carried out by external vendors in places such as Netherlands, Korea, China and Taiwan among others (Day, 2010). In the portable category the products are assembled in Japan, China and Taiwan. Therefore from the findings it is clear that Apple only manufacture few of its products in USA and most of them assembled by third party vendors. Outbound Logistics The distribution model of the company is quite interesting. In the past that is before the beginning of 2000, the company used to sell its products through a network of distributors and resellers. This led to higher prices of the product and thus generated greater distance with the potential customers. With the course of time the company changed its distribution policy. Presently the company distributes the products through resellers, wholesalers, cataloguers and retailers. Apart from that the company also sells its products through online stores. The online store operation has been a huge success for the company. In the year 2001 the online channel accounted 43% of the total sales. The online platform also serves as a communication medium between the company and the customers. However the flagship stores of Apple are slowly losing their charm, due to lower footfalls. Marketing and Sales In order to market its products the company uses various strategies. It spends huge amount of money for the purpose of promoting their products. Apple mainly uses innovative advertisement to grab the attention of the consumers. In order to sell their products the company uses various channels as mentioned in the outbound logistics. Furthermore the company also uses several public relations (PR) techniques to create hype for their new products. Service In this segment the company is very careful. They believe that if customers get satisfied with the service of company, they can be a word of mouth promoter. In this context Apple has initiated a number of customer service programs. The Apple care program of the company helps customers to a large extent. It provides online tutorials, manuals, hardware support, diagnostic tools and also web based support. However in the recent past the company has outsourced its service department to one of the consulting giants of US, AT&T, to ensure quality service and experience of the consumers. Outsourcing It has been already discussed that Apple outsources its product assembling and servicing to various vendors around the world. In addition Apple has outsourced some of its logistics and transpiration. Although such outsourcing activity reduces the fixed cost of operations for the company, it also has some negative impacts (Ritzer & Ryan, 2011, p.436). Some of the negative impacts of outsourcing are reduction of company’s control over few activities, which may result in lower quality of output (Andersen & Schroder, 2010, p.115). Apple uses various logistics companies to transport the manufactured goods to the house of distributors and resellers. Capability of operations Apple is hugely dependent upon the manufacturing capabilities of foreign vendors. The foreign vendors of the company are present in Netherland, Korea, Taiwan and Czech Republic among others. However there is always a possibility the company may not supply product according to the demand due to its limited operational capability. To cite an instance after the launch of company’s IMac the demand was so high that the company failed to supply adequate volume which reduced the demand to large extent. Hence it indirectly impacted the revenues of the company. Global Operations of Apple Apple primarily manages its business on the basis of geography (Schneiders, 2010, p.48). The main markets of Apple are America, Europe including the Middle East, Asia pacific, Africa, Japan and some other retail segments of Australia. Although the company has widespread operations, the US segment is responsible for the maximum sale. This segment is the largest geographic segment of the company. It represents 58 % of the net sales of the company. However the rest 42 % sales come from its global operations. In addition to that most of the raw materials of the company are obtained from the overseas market. Also the final assemblies of the products are done in various parts of the world. Some of the places where Apple has its assembling department are Czech Republic, China, Taiwan, Korea and Netherlands among others. The marketing and sales subsidiaries are also found in various countries of the world for the principal purpose of catering to a larger geographic segment. Among the foreign segments the company highlighted in its report that France and Japan is the most prosperous markets apart from the US market. However the company found difficulties in entering the countries like United Kingdom and Germany due to restrictions, responsiveness pressure and also cost. In order to be more effective in the global market the company extended its retail operations by launching Apple stores in various parts of the world. The first international Apple store was opened in Ginza, Tokyo. With the global expansion the company the company tried to increase its profitability by adopting simple strategies. The company lowered the prices of product and used penetration strategy for tapping more customers. The company started its expansion from the early 1980s and the intensity got further strengthened from the year 1990. In the meantime the company got tremendously benefitted by adopting the penetration strategy. These benefits have provided Apple the opportunity to diversify its product line and have also led them to produce better quality and variety of products, achieve efficiency in the production process, innovation and responsiveness of the foreign countries. It is significant for the company to strengthen and even maintain the progress towards internationalization by considering the positive facets of international expansion. Apple’s International Market Entry Strategy While entering any international market the company considers various aspects. The factors that are considered by the company are as follows:- Size of the market Culture of local consumers Buying capacity and wealth of the local customers Evaluation of the potential competitions in the host country. Apart from that the company also uses various other assessments before entering any market. Like any other company, Apple also analyses the external business environment of the host country. Factors such as political, legal, technological, social, cultural and environmental conditions are thoroughly examined. Furthermore the industry analysis in the context of the target country is carried out. Once the assessments are over the company depending upon the outcomes of country analysis, selects the most appropriate mode of market entry. In general the company uses its subsidiaries to market their products in the host country. From the early days of its internationalization Apple used simple export strategy in order to avoid any possible foreign risks which may arise due to wrong decisions. However with the course of time the company discontinued the practice as it was incurring huge costs. The costs were related to shipping cost, competitors offering at cheaper cost, fluctuation of exchange rate etc. Nevertheless the company altered its international operation strategy by employing fully owned subsidiaries in some of the countries of the world. For example the Cork plant in Ireland is a fully owned subsidiary of Apple. In addition to that Apple also started to license the production of personal computers in the US market. The most interesting fact about the company’s global operation is that they never considered franchising or joint ventures. The principal rationale behind this decision is that the company never wanted to share the production process and technical know-how of their products. Hence presently Apple operates with a sound strategy by allocating the subsidiaries with the products from its manufacturing and assembly plants. Also apart from the ‘Microsoft deal’ the company never opted for a major strategic alliance with other companies (Buchanan, 2000, p.34). In order to gain competitive advantage in the global market place the company uses product proliferation, pricing games and maintaining excess capacities. Apple’s transnational strategy Among the four possible strategies the company is positioned in the fourth quadrant. It signifies that Apple is facing high pressures from the local competitors as well as the company is facing pressures for the purpose of cost reduction. Despite of the fact that in the present world customers are more and more interlaced towards high number of computer owners, a number of consumers are not aware about the technology of Apple. Therefore the company is moving towards the transnational strategy, from a position among transnational and global strategy. Figure 2 (Source: Hines, 2007) Apples Global operations in China and Europe In the countries like China and parts of the European Union the company has huge base of customers. Especially in the European countries such as France and Ireland the Apple has large number of customers. The company depends heavily in these countries for its overall sales. Similarly in China the company has high number of customers. If reports are to be believed the I-Phone sale in China will reach 35 million by the year 2013 (Whitmore, 2012). In this country the company operates through exclusive stores. Apart from its exclusive stores the company also operates through retail operations. It retails mainly through the retail outlets of China. However, owing to high sales of products in grey market the company decided to sell its new products through online stores. The principal rationale behind this decision is to lessen the impact of grey market sales. Apple also thinks that the potential customers for such products are technology savvy and therefore it would not create any major obstacle. Nevertheless in China the company is presently facing huge difficulties. The iconic products of Apple are struggling to gain markets due to fake dressed up shops, unauthorized seller. This is the reason why recently five of Apple’s flagship stores in Shanghai and Beijing have lost their customers to these unauthorized activities. Hence in order to revive the markets of Apple in China the company changed its Chinese operational strategy. It started to do tie ups with the telecom service providers of China in order to ensure that the technology of Apple supports the network. According to Jane Wang the strategy of Apple is to tap high end markets of China (Yee, 2011). In the European countries of France, and Ireland the company has the highest number of customers apart from the US. In these countries the company uses fully owned subsidiaries to cater to the market. With the presence of large number of customers in Europe, Apple uses a number of distribution channels. Like any other country, Apple uses intensive distribution in Europe. The company mainly operates through its flagship stores and online stores. Most of the sales are however generated from the online store. Apart from that the company also uses distributors and resellers. Furthermore Apple is also in the process of tying up with some renowned service providers of Europe. However the company has faced incidents where the devices were unlocked and resold. In order to administer the operations of the company in a foreign country, the company has appointed a number of location managers. These location managers administer the overall operations of the respective allotted locations. Conclusion The study was carried out to get insights about the operations of Apple. In this context both domestic as well as global operations of the company has been thoroughly examined. The value chain analysis of Apple in the domestic context illustrated that the company uses various sources to manufacture as well as to assemble their products. The study also highlighted how the company effectively uses outsourcing. In the global context Apple uses various mechanisms to market their products. Depending upon the external business environment of the target country the company also alters its operational strategy. After doing the required research, it can be stated there are few difference in the mode of operations of the company in the domestic and global market. In the domestic market Apple mainly uses direct channels such as Apple store and online store to sell its products, but globally the company is mainly focused on appointing resellers to sell the products. Furthermore the company also does tie ups with various service providers of the host country to market their products. References Andersen, T. J., & Schroder, P. W. (2010). Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures. Cambridge: Cambridge University Press. Apple Store. (No Date). Mac Software. Retrieved from http://store.apple.com/us/browse/home/shop_mac/software. Buchanan, W. (2000). Computer Busses. Oxford: Butterworth-Heinemann. Day, C. (2010). How critical are manufacturing jobs to the US economy. Retrieved from http://www.physicstoday.org/daily_edition/points_of_view/how_critical_are_manufacturing_jobs_to_the_us_economy. Finch, B. J. (2008). Operations Now (3rd ed.). Noida: Tata McGraw-Hill Education. Hines, A. (2007). Get Your International Business Terms Right. Retrieved from http://www.cbsnews.com/8301-505125_162-28040297/get-your-international-business-terms-right/. McCubbrey, D. J. (2010). Using Information Technology Competitively. Retrieved from http://cnx.org/content/m35523/latest/?collection=col11227/latest. NASDAQ. (2012). AAPL Competitors. Retrieved from http://www.nasdaq.com/symbol/aapl/competitors. O’Grady, J. D. (2008). Apple Inc. California: ABC-CLIO. Pride, W. M., Hughes, R. J., & Kapoor, J. R. (2006). Business (9th ed.). Connecticut: Cengage Learning. Ritzer, G., & Ryan, J. M. (2011). The Concise Encyclopedia of Sociology. New Jersey: John Wiley & Sons. Schneiders, S. (2010). Business Deconstructed - Apple Inc. Munich: GRIN Verlag. Whitmore, C. (2012). IPhone has huge potential in China and sales will exceed 35 million in 2013. Retrieved from http://handysoft.org/blog/iphone-huge-potential-china-sales-exceed-35-million-2013. Yahoo Finance. (No Date). Apple Inc. Retrieved from http://in.finance.yahoo.com/q/pr?s=AAPL. Yee, L. C. (2011). Analysis: Apple struggles to take bigger bite out of China. Retrieved from http://www.reuters.com/article/2011/12/16/us-apple-china-idUSTRE7BF0DS20111216. Read More