Environment Analysis of Apple Inc - Essay Example

Investment Report: Apple Inc. Table of Contents Introduction 3 a)Macro environment Analysis of Apple Inc. – PESTEL 3 Micro environment analysis: Porter’s five forces 5 b)Impact of industry and globalization on Apple Inc. 7 Technology and Innovation 7 Impact of globalization 8 Internal Issues 9 Product quality 9 Privacy 10 c)Importance of Corporate Social Responsibilities to the organization 10 Moral and ethical issues caused in an international environment 10 Underage Labour 10 Conflict between corporate strategy and ethical responsibilities 11 Intellectual property theft 11 Legislation related to CSR of Apple Inc 12 Sustainability 12 Conclusion 12 Reference List 13 Introduction Apple Inc is one of the most innovative organizations that the technological industry has ever witnessed. The company’s significant market share and constantly growing sales complimented with an amplifying customer base makes it lucrative for any investor, whether it is an individual or an institution. This investment report aims to highlight on internal and external factors that have affected the company’s performance over the recent past, with an underlying aim to assess its ability to provide return for investment. a) Macro environment Analysis of Apple Inc. – PESTEL (Source:  Strategic Consulting, 2013) Political factors In 2005, 52% of sales generated by Apple were outside of America. Apple has a very minimal control over its external relations with other countries due to America’s indulgence in war on terrorism (Strategic planning13, 2014). A majority of Apple’s products are manufactured outside of the US. The list of countries includes names such as, China, Ireland and Korea. Political disagreements with these countries may impact the company’s operations severely (Slideee, 2014; Johnson, Whittington and Scholes, 2011). Economic factors The economic downturn may have a severe impact on the company’s sales and improvements that could be made within the operations. Apple’s products are perceived as luxury segment products by some, which is why individuals have started heavily spending on them. Moreover, due to higher rate of inflation, income is low and unemployment rate is high. As a result, Apple could risk a severe reduction in the level of sales. Due to such volatile economic situations, the value of US dollar keeps fluctuating. Even so, to shield the company from such exposure, considerable amount of foreign currencies is purchased (Strategic planning13, 2014; Slideee, 2014). Socio-cultural factors Possession of Apple products is considered as a demonstrator of status symbol in many societies. This factor has amplified the level of sales for many Apple Inc products. Given the fact that the purchasing power of common people have increased in various markets across the world, purchase of luxury products has amplified as well. As the world cannot be envisaged without gadgets, the products manufactured by Apple have gained worldwide appreciation (Strategic planning13, 2014; Slideee, 2014; Frynas and Mellahi, 2011). Technological factors The technological environment that surrounds Apple Inc has evolved considerably over past few years. Most importantly, computers and phones have become a popular commodity. Apple Inc is placed at the topmost position in the market for manufacturing innovative products and most relevant aspect of the products offered is that the life cycle is very short (Wootton and Horne, 2010). This fact makes it inevitable for higher number of products to be sold later. The developments made in the field of technology have encouraged rival companies to improve the standard of their products, which in turn induces Apple Inc to outperform its own standards (Strategic planning13, 2014; Slideee, 2014). Environmental factors From disclosure of the entire carbon footprint to finding ways to reduce the same, Apple has taken a number of initiatives that are directed towards safety and security of the environment. The company’s commitment towards the environment includes proper disposal of all electronic equipments, after their useful life. Apple Inc is on its way to power all the facilities using energy generated from renewable sources (Strategic planning13, 2014; Slideee, 2014). Legal factors Over the recent past, Apple Inc has participated in a number of legal claims and proceedings, which has considerably affected the company’s reputation. The company’s goodwill with its partners, suppliers as well as customers was also hampered to an extent. Nokia Corporation had sued Apple in 2009 for infringement of its patents related to wireless technology. Apple has also been involved in a few more patent cases with companies such as, Samsung and HTC (Strategic planning13, 2014; Slideee, 2014). Micro environment analysis: Porter’s five forces Existing Rivalry: High: Apple faces steep competition from companies like, Microsoft, which is also known for producing operating system as well as other media for playing music and video. As far as the hardware field is concerned, Apple is challenged by rivals such as, HP, Dell, and Lenovo. Samsung is also a key player in the MP3 segment as it is known to produce creative and stylish MP3 players. Another major competitor of Apple’s iTunes was Napster, which had a similar music store. Hence, Apple appears to face steep competition in its entire product segment, thereby implying that more efficient and effective strategies are required to beat the competition (Fadaei, 2014; Segal-Horn and David, 2010). Threats of new entrants: Low: Given the fact that Apple Inc is a market leader, the company aims to differentiate its products for the customer base. Apple’s enhanced brand image and considerably greater market share adds to its advantage. The company’s distribution channel in the US has encompassed more than 60% of the country’s market. Therefore, the threat from a relatively new entrant is considerably low (Fadaei, 2014). Threat from substitute: Medium: There are several alternatives to products that are sold by Apple Inc. The alternative products can be established in terms of features that are offered by Apple products. For example, as far as music is concerned, satellite radio can be considered as an alternative product. When it comes to entertainment media, normal media and music, XBOX 360 and PS4 can be good substitutes. Music CDs and DVDs can also serve as an alternative source to acquire music. In case of videos, YouTube, cable and other forms of broadcast channel can be regarded as an alternative. Regardless of the availability of such alternatives, the threat is medium as users can find all these alternatives embedded in any one of the Apple products (Mohta, 2010). Bargaining power of buyers: High: The availability of similar products manufactured by other companies has significantly enhanced the bargaining power of buyers. Customers also have the option of sharing music by establishing peer to peer networks, without paying for the music. Also, retailers often pressurize companies for lower prices and better terms of sale. All of these factors have evolved precisely because of steep competition that prevails in this industry (Preston union, 2013; Kourdi, 2009). Bargaining power of suppliers: Medium: Given the fact that the technology industry encompassing both hardware and software is considerably developed, there is a significant concentration of suppliers all over the world. So, Apple Inc has the option to choose a supplier that is the best fit for the budget set. Moreover, the supplier companies have to make sure that delivery made is up to the mark. They are aware of the fact that failing to make proper delivery will deplete their customer base. Therefore, the bargaining power of suppliers is relatively low (Mohta, 2010; Grant and Chichester, 2010). b) Impact of industry and globalization on Apple Inc. Technology and Innovation The technology industry in the US is associated with innovation. The industry participants have always been known to use new technology and market knowledge in order to design a new product and service that customers require (Pontiskoski and Asakawa, 2010). The innovation and technological development made within the industry has proven to be a boon for Apple Inc. These developments have had a considerable impact on organizing, planning, leading and controlling functions that are managed by Apple Inc. The company has taken its infrastructure for planning to a whole new level. Apple Inc does not resort to any form of market research, target markets or other focus groups in order to come up with innovation or latest technology. Apple’s leaders are inherently innovators who have the capability to use their perception so as to acquire a vision of the next best item that should be introduced in the market (Breillatt, 2011). The company is known to conduct various planning and brainstorming meetings, where they hold conclusive discussions regarding developing alternative ways of solving peculiar problems or developing existing plans. Apple Inc has the provision of free thinking, where each and every individual is given the flexibility to set forth any new idea. This initiative enables the company to formulate appropriate strategies that can be directed towards manufacturing innovative products and services. Apple’s employees give optimum effort in order to excel in the field of computer graphics and multimedia. The technology industry also has a considerable impact the ways in which the corporation is organized and led by the managers. Apple Inc’s management regards the staff as its most valuable assets. The work culture is very adaptive and flexible, which enable each and every employee to compliment the technological developments that the industry undergoes with every passing day. Apple Inc managers always strive to implement efficient strategies in order to promptly meet needs and requirements of the customers, thereby staying ahead in the intensively competitive technological industry. The company is known to hire the smartest individuals in order to produce the newest and the most efficient technology. As far as the leading function is concerned, the impact of technology and innovation is highly evident in the way in which the managers motivate and inspire the staff to think big and become visionary. The opinions provided by the employees are taken into strict consideration and appropriate action plans are applied. As far as the controlling function is concerned, the industry plays a key role in ensuring that it is conducted with utmost prudence. The technological developments that have been brought about in this industry require Apple Inc to conduct frequent meetings with the internal clients for educating the decision makers regarding the design directions that are being explored. Consequently, the company is able to influence perception of the clients regarding attributes of the final products. Having done that, Apple Inc is able to observe development of the early specifications of a product, thereby being able to incorporate any immediate changes. By implementing these strategies, Apple Inc has placed itself in a position whereby the company can continue pioneering and innovating new technologies. Impact of globalization According to Porter (1998), a company has the flexibility to implement two fundamental types of business strategies. One is to leverage the business by utilizing the strengths and the second is to combine them with the number of available opportunities to promote the products. The business strategies mentioned above are differentiation strategy and cost leadership strategy. Apple Inc is currently working on improving its differentiation strategy by placing exclusive elements in the development and design of its products. The differentiation strategy can be referred to as one that is aimed towards developing products/services that have unique characteristics, are well-appreciated by customers as well as highly valued. Given the fact that Apple’s products are very unique in their own rights, implementing this strategy will enhance the company’s position in the international market with respect to its competitors. Apple Inc endeavours to offer exceptional usage experience to its clientele by way of providing innovative products in terms of software, hardware and so on and so forth. The company has largely been successful in utilizing its potential to manufacture inimitable products and operating systems with the help of the incorporated design and business units. The company’s success in the international market is largely due to its extensive emphasis on market research and development, which is aimed towards enhancing quality of the products and services offered. As far as Apple Inc’s business strategies are concerned, the company is involved in a incessant process of fabricating a robust platform that will improve the way in which third party contents like, games, apps and other online services, can be listed (Apple Inc., 2010). In addition, Apple Inc’s strategies also involve growth of its distribution network so as to magnify the global reach and deliver superior quality services/ products to the customer base. Hence, it can be said that Apple Inc is positioned distinctively in the international market whereby the company can provide better and integrated digital technology and efficiency solutions. Internal Issues Although Apple has been a pioneer in the field of technology, it has often been involved in several ethical issues over last few years. These issues have had a profound impact on the company’s performance. If these issues are not resolved at the earliest, then Apple Inc’s sterling reputation could be easily tarnished due to severe failure or misconduct. Product quality One of the major issues in Apple Inc that requires a consistent scrutiny is product quality. The company’s brand image hinges upon quality of its product, which is why any mistake can entail severe ethical dilemmas. In the consistently evolving electronics industry where a substantial number of products are being introduced every year, detecting mistakes can become immensely difficult. For example, after the introduction of iPhone 4, customers had started to complain about reception problems. The problems surfaced largely due to the malfunctioning antennas. Apple Inc was severely criticized for providing delayed remedy to the problem. Nonetheless, although such criticisms did not prevent customers from buying iPhone 4, it certainly reiterates the need for greater care that Apple Inc must take regarding product quality. Privacy Privacy is another critical concern for Apple Inc. In 2011, Google and Apple disclosed that certain attributes of their cell phones collect data pertaining to the phone’s location automatically. Government officials and consumers alike perceived this to be an infringement of user’s privacy. The companies announced that users have the option of disabling this feature; however, it was not true for Apple’s products as some of the models continued to collect data randomly. Although Apple has continuously defended its product’s data collection process, it has faced disapprovals from the government. As a result, the government has considered passing legislation on mobile privacy. These actions could have a profound impact on the reputation as well as performance of Apple Inc. c) Importance of Corporate Social Responsibilities to the organization Moral and ethical issues caused in an international environment Underage Labour Apple has identified multiple cases of child labour involving its supply chain companies, which includes a Chinese company that had employed 74 children below the age of 16. This fact appeared to be the latest controversy related to the technology giant’s manufacturing methods. The company’s internal audit identified a flip side of the western consumers’ unquenchable desire for competitively priced and innovative gadgets. The internal audit unravelled 106 cases of underage labour employed by Apple’s suppliers in 2012 and 70 cases historically. Cases of worker suicide were also reported over working conditions at Foxconn, a Taiwanese company that is primarily engaged in manufacturing iPad and iPhone. Apple’s annual supplier report that scrutinizes close to 400 suppliers found out that children were being employed in 100 facilities, which were involved in manufacturing the former’s products. Few of those children were recruited using false identity. In the light of these events, Apple’s internal control was severely criticized, which in turn tarnished its reputation to a certain extent (Garside, 2013). Conflict between corporate strategy and ethical responsibilities Intellectual property theft Intellectual property theft is a major ethical concern at Apple Inc. This is an issue that the company aggressively pursues. Apple Inc is very serious about keeping its proprietary information as a secret in order to prevent other companies from imitating its ideas. Then again, such secrecy has led the company to be involved in several lawsuits with other technology companies. In 1982, Apple Inc filed a lawsuit against Franklin Computer Corporation, which had a severe impact on the intellectual property laws drafted in the US constitution. This lawsuit had also hindered Apple Inc’s operations. It provided technology companies with more alternatives to intellectual property security. Since then, Apple has engaged in a number of lawsuits. One of the lawsuits involved a serious ethical issue on Apple’s part. One of the lawsuits claimed that Apple’s use of the domain name, iTunes.co.uk, was illegal as it was already registered by Ben Cohen in 2000. Ben Cohen had eventually used the same to redirect users to Napster website, which was then a direct competitor of Apple. When Apple attempted to purchase the domain’s registry from Cohen and was denied subsequently, the company appealed to the UK registry Nominet. Normally, the individual or a company who is the first to register a domain name is its rightful owner. However, in this case, the court adjudged that Cohen was the one to abuse his registration rights and take undue advantage of Apple. Although Apple had won the right to use the domain, it was severely criticized, thereby leading to complaints that big companies are favoured at the outlay of smaller companies (Daniel’s ethics, n.d.). Legislation related to CSR of Apple Inc Sustainability Apple Inc has taken a number of initiatives in order to become a greener company. The initiatives involve reducing the environmental impact of its facilities. Even so, the company confesses that a major proportion of emission comes from its products. According to the company’s research, its operations contribute to 9.6 million metric tons of gases released. 97% of the emission came from life cycle of the products, while the other 3% came from the facilities (Daniel’s ethics, n.d.). In order to encourage its users to recycle, Apple Inc has initiated a recycling program at its stores for old mobile phones, iPods and Macs. Customers trading their old iPods will receive 10% discount on new ones. Customer recycling older Mac-book will receive gift cards while purchasing the new ones (Daniel’s ethics, n.d.). Conclusion The investment report reveals that although Apple Inc is a pioneer in this industry, certain macro as well as micro economic factors are present that affect its performance marginally. Certain ethical issues escalated as well, which proved to be a barrier in the company’s pathway towards success. These factors have not only depleted the profit margin, but have also tarnished Apple’s reputation to a certain degree. Despite these facts, Apple proves to be a prospective investment opportunity owing to its capability to induce innovation that is sought after by a majority of customers worldwide. Reference List Apple Inc., 2010. Company Information: Form 10-k SEC filing. [online] Available at: [Accessed 7 August 2014]. Breillatt, A., 2014. You Cant Innovate Like Apple. [online] Available at: [Accessed 7 August 2014]. Daniel’s ethics, no date. Apple Inc.’s Ethical Success and Challenges. [pdf] Daniel’s ethics. Available at: [Accessed 7 August 2014]. Fadaei, R., 2014. Apple Marketing Analysis Report: Apple iPhone Case Study. [online] Available at: [Accessed 6 August 2014]. Frynas, J.G. and Mellahi, K., 2011. Global strategic management. UK: Oxford press. Garside, J., 2013. Child labour uncovered in Apples supply chain. [online] Available at: [Accessed 7 August 2014]. Grant, R. and Chichester, M., 2010. Contemporary strategy analysis. New York: John Wiley & Sons. Johnson, G, Whittington, R. and Scholes, K., 2011. Exploring corporate strategy. UK: Pearson Education. Kourdi, J. 2009. Business strategy, London; Economist in association with Profile Books Mohta, J., 2010. Porter’s 5 forces model case Apple Inc. [online] Available at: [Accessed 6 August 2014]. Pontiskoski, E. and Asakawa, K., 2009. Overcoming Barriers to Open Innovation at Apple, Nintendo and Nokia. Proceedings of World Academy of Science: Engineering & Technology, 83, p. 372. Porter, M. E., 1998. Competitive advantage: Creating and sustaining superior performance. New York: Free press. Preston union, 2013. Porter five forces. [online] Available at: [Accessed 6 August 2014]. Segal-Horn, S. and David, A., 2010. Understanding global strategy, Connecticut: Cengage Learning. Slideee, 2014. 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