External and Internal Environment of Apple Inc - Case Study Example

External and Internal Environment: Apple Inc. Introduction Apple Inc. (hereafter referred to as Apple) was founded in the United s in 1976. The company has grown rapidly since inception and at present its products and services are sold in many countries all over the world. The present paper analyses two general environment forces that affect Apple. The paper also discusses two of the five forces of competition that have the biggest impact on the operations of the company. An attempt has been made to identify the strengths, weaknesses, opportunities and threats of Apple. A strategy is devised so that Apple can take advantage of its biggest strength and benefits from its most lucrative opportunity. Likewise a course of action is enumerated that helps Apple overcome its primary weakness and bypass its biggest threat. A modest attempt is made to understand the resources, capabilities and core competencies of the company. Finally, a value chain analysis of Apple has been conducted to identify the linkages between different primary and secondary activities and also understand how the interaction between these activities leads to sources of competitive advantage. General Environment The general environment includes political, economic, social, technological, environmental and legal aspects. The technological environment and economic environment of Apple have been discussed in the ensuring paragraphs. Technological Environment Apple operates in a highly competitive and dynamic business environment. The American multinational has developed some immensely popular gadgets like the iPhone, iPad, and the iPod. The company has also diversified into related software applications, operating systems and a variety of accessory and support offerings. Some of the recent innovations from the company include the iTunes Store, iBooks Store and iCloud (Apple, 2014). The technological environment has a monumental affect on the business operations of Apple. The fast rate of change in technology has the potency to render Apple’s products obsolete. The company’s offerings tend to have a short product life cycle as customers demand state-of-the-art products. It is for this reason that Apple has launched numerous generations of the iconic iPhone. Apple recognizes the impact of technological environment on its business and has made new product development central to its business strategy. The company spends a lot of money on research and development (R&D) which helps it in developing innovative products from time to time. Apple spent $ 4,475 million on R&D in 2013, up 32 percent from $3,381 million incurred on R&D in 2012 (Apple, 2014). Such heavy expenditure helps Apple remain competitive in the marketplace. Economic Environment The economic environment, which includes factors like the general state of the economy, rate of inflation and income levels, has a huge impact on Apple’s business. In periods of economic boom, the consumer sentiment as well as consumer spending is high. On the contrary, consumers tend to tighten their budget strings and cut down on discretionary items during recessionary conditions. A high rate of inflation will increase the prices of goods and services. Consumers may have to spend more money on essential items and may be left with little money to buy Apple’s products. Apple pursues a price skimming strategy and charges a high price for its products and services. Difficult economic conditions tend to make Apple’s products out of reach of the target market. High levels of income bode however well for Apple’s business as consumers will have enough money for elective shopping. Five Forces of Competition Michael Porter suggested that the five forces of competition; intensity of rivalry amongst existing players, barriers to entry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers determine the attractiveness of a particular industry. Of these, the intensity of rivalry amongst existing players and bargaining power of buyers have significant bearing on the operations of Apple. Intensity of Rivalry amongst Existing Players Apple competes in a highly competitive market where many international companies vie to grab a large chunk of the market share. Big names like Samsung, HTC, Blackberry, Sony and Microsoft are Apple’s main competitors in the smartphone market. In addition to this, Apple sells its products in many countries and has to devise strategies to ensure that local companies holding a dominant position in a particular country or region do not eat into its market share. For example Micromax is a low cost player in the Indian smartphone market space and has been consistently challenging Apple by rolling out low priced, feature loaded mobile phones (Bahree, 2012). The Cupertino, California based company has diversified into many businesses, and has a different set of rivals in different business. It competes with the likes of Google and IBM in the software business. Apple vies with Dell, HP, Sony, and Lenovo when it comes to the personal computer business. The fierce competition acts as a deterrent for new players to enter the personal computer business. The existing players compete either on the basis of price or on the plank of differentiation in this fiercely competitive marketplace (Jinjin, 2013) Bargaining Power of Buyers The bargaining power of buyers is high since there are many rival brands of comparable price and quality available in the market. The present day consumer is aware of the prices and features offered by different brands. The switching costs for the consumers are also low. Companies roll out promotional offers and give price offs to attract customers. Exchange schemes, and the option of payments in equated monthly installments (EMIs) are also designed to woo customers towards a particular brand. Apple strives to make its products extremely user friendly so that they attract customers and reduce the latter’s bargaining power. Improve Ability and Address Forces Apple should compete on the plank of differentiation in order to counter the impact of the abovementioned industry forces. It should roll out innovative products so as to create the ‘pull’ impact on the consumers. Apple has already revolutionized the consumer electronics market by rolling out sleek, easy-to-use and functionally top-notch products (Gupta and Prinzinger, 2013). The company should venture into new product categories and create a diversified portfolio. Apple has pursued the strategy of forward vertical integration by opening its brick-and-mortar stores (Apple, 2014). This has eliminated the need of the distribution channel and thus reduced the bargaining power of buyers in some regions. The modus operandi has also brought Apple in touch with the consumers. Opening more company-owned stores will help Apple better serve the customers, improve its margins and thus make it better placed to tackle competition. Threats and Opportunities A scrutiny of the macro environment reveals threats and opportunities. The following paragraphs elaborate some of the biggest opportunities that Apple should take advantage of and the threats that the company should be wary of. Opportunities There is a huge and growing demand for some of the Apple’s products like iPad Mini, iTV and iCloud. Apple can strengthen its position in the marketplace by obtaining more patents. Apple has a dominant position in its home market United States. The company has the expertise to replicate its success in foreign markets as well. Growth in emerging markets. The emerging markets like India represent a huge opportunity for Apple. At present India is the fastest growing smartphone market in the world. The raid growth rate in sales of smartphones has catapulted India to the third largest smartphone market in the world after United States and China (Thoppil, 2013). India boasts of a huge middle class population which is moving from feature phones to smartphones. Apple should cash in on this opportunity by developing localised product offerings. A new range of low priced smartphones should be launched specifically for the emerging markets. Threats Increasing competition, growth in popularity of Android operating system, legal issues over intellectual property and strong dollar are some of the threats that Apple has to deal with. Problems in supply chain. Apple outsources some of the manufacturing work to China. There have been cases of worker suicides at Foxconn, a China based manufacturer of iPads. Foxconn employs 4, 00,000 workers and is known for strict discipline. Poor working conditions and low wages have been cited as the reasons for the worker suicides (Ford, 2010). Such problems in the supply chain bring a bad name and pose a major problem to Apple. Strengths and Weaknesses Apple is a well known brand name and has exemplary expertise in sales and market. The biggest strength of the company is its robust financial position. Apple had a huge cash balance of $14,259 million and earnings per share (EPS) of $39.75 (diluted) as of September 28, 2013. The behemoth earned a net income of $ 37,037 million during the fiscal ended September, 2013 (Apple, 2014). The company should use its financial muscle to increase its foothold in emerging countries like India and China. Investment in such countries will reap benefits for a long time and ensure steady growth for Apple. High priced products, patent infringements, incompatibility with different operating systems are some of Apple’s weakness. Loss of iconic Steve Jobs and the vacuum created thereof however is the biggest weakness of the company. Steve Jobs absence is still being felt as he was a visionary genius and had the knack of conceptualising consumer friendly, innovative products. To be candid, it is difficult to find a suitable replacement for the late legendary Steve Jobs. To overcome this weakness, Apple should encourage a culture of openness and innovation. The company should encourage employees to take initiatives and contribute their ideas for new product developments. Resources, Capabilities, and Core Competencies Apple has the requisite financial, human, technological and infrastructural resources to successfully compete in the marketplace. The biggest asset of the company is the non-tangible asset of goodwill. The good reputation of the company helps in building and maintaining customer loyalty. The user friendly products of Apple enjoy ‘cult-like following’ amongst the consumers. Apple has demonstrated its capabilities in numerous functional areas. The marketing prowess of the company is well known. Apple has the ability to create hype about its new product launches. Apple aficionados go that extra mile to grab a gadget manufactured by their favorite company. Apple has an employee base of 80,300 permanent employees and 4,100 temporary employees (Apple, 2014). These people are adept in their respective domains. The company has ensured that all its departments are adequately staffed. The financial allocations are in a manner that all departments can pursue their respective goals without paucity of funds. Apple’s core competencies lay it its ability in product design and development. The company has a track record of manufacturing some of the most immensely popular products that the world has ever seen. The iPhone, iPod and iPad have gained iconic status. Apple designs and manufactures products keeping the needs of the end user in mind. This aspect has enabled Apple relentlessly pursue product differentiation and attain leadership position in the market. Value Chain Analysis Michel Porter averred that there are four secondary activities and five primary activities in a firms value chain. The five primary activities include inbound logistics, operations, outbound logistics, marketing and sales and services. The support activities are infrastructure, human resource management, technology development and procurement. The support activity of infrastructure which includes strategies and plans provide the basic direction to Apple’s operations. The role of procurement as a support activity in Apple’s context is no less important. The company outsources its manufacturing to China where the cost of labor is low. This provides the company some cushion in the cost of production. The procurement function ensures that the entire supply chain is intact and that the requisite products are shipped to different locations in a timely manner. The marketing capabilities of Apple are important for the company’s success. Advertising helps Apple products rise above the clutter of brands available in the market. The promotional techniques play a vital role in creating brand equity for the company and its products. Apple’s value chain suggests that there are important linkages between the support activity of technology development and the primary activity of operations. The R&D (support activity) team works assiduously to convert consumer requirements into product specifications. Thereafter it is the role of the operations (primary activity) team to give the specifications the shape of a product. Apple’s core competencies emerge due to the linkages between its R&D and operations capabilities. References Apple. (2014). Accessed April 25, 2014. Retrieved from http://www.apple.com/ Bahree, M. (2012, Mar 21). A $400 phone for the masses? --- Indias micromax, known for low-price handsets, pushes into smartphone arena. Wall Street Journal. Retrieved from http://search.proquest.com/docview/929135140 Ford, P. (2010, May 25). Why have suicides spiked at apple iPad supplier Foxconn in China? The Christian Science Monitor. Retrieved from http://search.proquest.com/docview/325395573 Gupta, A., & Prinzinger, J. (2013). Apple, inc.: Where is it going from here? Journal of Business Case Studies (Online), 9(3), 215-n/a. Retrieved from http://search.proquest.com/docview/1418712125 Jinjin, T. (2013). Strategic analysis of Apple Computer Inc. & recommendations for the future direction. Management Science and Engineering, 7(2), 94-103. Retrieved from http://search.proquest.com/docview/1420205473 Sheehan, N. T., & Foss, N. J. (2009). Exploring the roots of Porters activity-based view. Journal of Strategy and Management,2(3), 240-260. doi:http://dx.doi.org/10.1108/17554250910982480 Thoppil, D. A. (2013, May 14). Smartphone shipments to India rise sharply. Wall Street Journal (Online). Retrieved from http://search.proquest.com/docview/1350550298 Read More