Analyzing the External Environment of Apple Inc - Case Study Example

Analyzing the External Environment Business Contents Introduction 3 External Environment Analysis 3 PESTEL Analysis of Apple 4 Porters Five Force 7 Monitoring System of the organisation 9 Recommendation 11 Reference 12 Bibliography 13 Introduction In the current market scenario most organisations face external context which are dynamic, complex and global in nature; making it difficult to interpret. Thus to cope with ambiguous and incomplete data and increase the understanding of external context, the organisation engages in a much required process named the “external environmental analysis” which are to be conducted by managers and be aware of the importance of analysing the external environment. To analyse the external environment various models exist, which aims to provide framework to identify the opportunities as well as threats (Ireland, Hoskisson &Hitt, 2008, p.44). The main aim of the paper is to analyse the external environment of Apple Inc, applying all the necessary tools used for analysing the external environment. Apple Inc. was incorporated with aim to create footprint in the technology arena and thus enjoys a competitive advantage over its competitors. Effective technology has made the company one of the most admired brands enhancing the brand value among the competitors. Apple Inc. is recognised as the biggest start-up in the world, formed by the efficient hands of Steve Jobs. Apple has a reputation of valuing individuality and excellence that help in the company’s decision making (Apple Inc, 2012). External Environment Analysis External environment of an organisation can be divided into two major parts, the macro environment and the industry. Macro environment deals with various set of factors as well as influences which are not specific to the industry or organisation, but has the capability to affect them to a very large extent. The macro environmental factors also called PESTEL analysis is grouped under six headings: political and economic factors, social and technological factors, legal and environmental factors (Haberberg & Rieple, 2007, p.105). In addition to PESTEL analysis, the industry analysis also influences the organisations. The Porters Five Forces model has been used to analyse the industry competiveness, which consists of bargaining power of customers and suppliers, threat of substitutes, new entrants and rivalry among the firms in the same industry (Kew & Stredwick, 2005, p.21). SWOT Analysis also plays a role in analysing the external factors by determining the potential opportunity as well as the potential threats existing over the organisation. PESTEL Analysis of Apple Political Factors: Apple is a multinational corporation operating in many countries, so the success and operation of Apple highly depends on global political factors like government intervention in the economy, limitations imposed on import and export, tax laws, labour laws, foreign exchange and other factors. Any changes made on the global scenario or politics tend to have huge impact on the business of Apple. Apple Inc. is governed by “Apple Suppliers Code of conduct” which is built on laws and regulations of countries from which the arts are supplied. According to reports in 2007, about 52% of sales came from outside the U.S. and it had no influence over the global political scenario. Wars, terrorist activities and other natural disasters can influence the overall sales of the company, and it has to take all these factors into account when determining its strategies for the future. If the United States involves itself in any sort of conflict with the countries from which Apple sources its parts, the production process of the company will come under threat (Henry, 2008:99-100). Global politics over the years have been focusing mainly on the environmental impact, where the company operates. The political events are beyond the ability of Apple to control, and in the current situation might not be able to deliver the product on time to its customers. This might damage the image of the company to retailers and the customers. Economic Factors: Apple which is a multinational company usually depends on the global economic condition for its development. It has been argued that the macroeconomic environment is recovering at a rapid growth rate. As per Gartner Inc, the sending over of IT globally was estimated to reach $3.4 trillion in 2010 and all the segments of IT were expected to grow within the same financial year (Gartner, 2010). The performance and operation highly depends on the global economic condition. Uncertainty with respect to the global economic market condition poses a huge risk as the business and consumers tend to postpone spending with response to unemployment, tighter credit, and decline in asset value or income. All these factors are likely to have a negative impact on the demand for product and services. Demand for the product can also differ from the expectation of the company, as it generally raises price on goods which are sold outside U.S., affecting the financial conditions and also the operating result. Therefore it can be said that global economic conditions can significantly influence the performance of the company (Apple Inc-a, 2011, p. 9). Social Factors: In the current scenario, the world is experiencing the benefits of globalisation and the role of technology is extremely important for interaction between the people, on a global scale. It is now impractical to imagine human existence without electronic devices. Thus, Apple rules in the field of technology, not only because of its usage, but also because of its design and quality. The music industry has had a positive impact on the Apple market. Over the past decade, this industry has gone practical and platforms like Apple’s virtual media store are well ahead of the company’s competitors. With high disposable income, the consumers are able to purchase Apple products which were mainly targeted to the high income group of people. In addition the consumers are getting increasingly aware of protecting the environment, and Apple is one such organisation which is known for environmental activities and ranks in the top 10 position by Greenpeace (The Loop, 2013). Therefore it can be said that social influences have a positive impact on the performance of the company. Technological Factors: The race for technological progression has created competition in the global market place. The industry players offer a wide range of technologies that act as an incentive to consumers for buying the product. The race towards technology upgrades is led by Apple, which focuses on continuous technological innovations. These innovations result in a short lifecycle of a given product. Apple lists the top in terms of investment in research and development. Environmental factor: Apple has been working on reducing environmental footprint and does so by focusing on its products. In the year 2011, it was revealed that Apple was responsible for 23.1 million metric tons for green house gas emission and since then it has been improving on products to reduce the impact on the environment. As growth of Apple continues to outpace its competitors, the company remains committed towards the environment and to create products which are likely to have less impact on the environment. Apple product line not just meets but it also exceeds the energy guidelines of “energy star” specification (Apple Inc-c, 2013). Legal factors: Apple seems to comply with all the legal rules and requirements while doing business with various countries, which has helped it to maintain a clear image and expansion strategy. Porters Five Force The Porters Five Force strategy is a tool used to analysis the attractiveness of a given industry based on the five competitive forces (Henry, 2008, p.64). The five forces are as follows: Bargaining power of Buyer: The industry seems to enjoy a moderate demand and with the existence of many buyers, small and large the bargaining power for the buyers is quite low. This implies that buyers do not have the power to force the business to charge inferior prices. In the hardware market, the variation in consumption is moderately low, and thus Apple has the power and it controls the market with its set prices. Bargaining power of Supplier: The bargaining power of the suppliers in this market is stringent and poses a threat to the participating firms. Apple and the entire market are at some risk, as the suppliers enjoy moderate bargaining power. When companies wish to change to a different supplier, high transfer costs are involved. If Apple decides to discontinue its contract with Motorola, for example, and look for other suppliers, the brand’s market position will be under scrutiny and the entire production process of the Mac will change. However, the position of power is integrated with the key producers. The risk of new entrants: From an economic point of view, the new entrants are likely to enter a market if the short-term prices are not equal to the marginal costs. In the computer branded market, brand names do not play an important role, but this argument does not hold true in case of Apple, as it is the brand name which has been the key factor in the success of Apple Inc., thus making it difficult for any new entrant in the computer sector to capture the market share. The consumers stick with the already existing brands, even if the cost is slightly higher. The stiff competition on prices among the pre-existing players, tend to serve as a major barrier for entry into the industry. Proper research and development along with product innovation techniques, pose a competitive advantage for Apple over other companies. Threat of Substitutes: The availability of substitutes in the market is a threat to Apple, as consumers can shift their preferences towards other devices. Apple is aware of this situation, and differentiates itself with its range of products and services, not affecting the business as it do in case of other organisations. In fact, Apple enjoys a large consumer base and because of its innovation in its products, the brand continues to be at the top position in the customers mind. It can be said that innovative designs along with the quality of its products, has achieved a strong consumer base for the company over many years. It is known that Apple receives bookings for its products even before they are launched. Consumer confidence towards the company has taken it to such heights, that it is very difficult for the substitutes in the market to match these consumer expectations. Competition among rivals: The computer industry is a highly competitive one as many key players in the market tend to exist. The top players in the market compete through innovative product designs and also aggressive pricing policies. Apple Inc. focuses strongly on intensive marketing strategies and direct online selling. To making profit in such a competitive industry is not an easy task as the competitors such as Samsung tends to apply ambitious pricing structures. Apple has never showed any intention of following the dominant players with its pricing strategy. Although rivalry among the firms can be said to be moderate to high as with more technology and investment made in R&D, the competitors are doing equally well in the technology world. In addition to PESTEL analysis and Porters Five Force strategy, the external environment of Apple can also be determined through potential opportunity and threats which acts as external factors in SWOT analysis. Potential opportunity for Apple Inc will be to incorporate online business as a part of its business strategy, which in return will reduce the distribution cost to its sales outlets and will have a positive impact on the profit level of the company. Another opportunity is expansion into countries which are yet to be tackled by any other organisation, allowing it to analyse the market and capture the market share. On the other hand threats arise from its competitors such as Samsung, which is a market follower and maintains a stiff competition with Apple with respect to innovation, feature and also quality. Monitoring System of the organisation Apple being one of the top players in the field of computers, mobiles and music has to maintain a certain level of monitoring system towards its external environment. Monitoring the environment is important in order to identify changes which have the potential to affect the operations of the business. Organisations which are able to adapt and address these changes tend to ensure long term survival growth in the business (The Times 100, 2013). PESTEL analysis conducted in the above paragraphs is one of the tools which are used by Apple Inc. to monitor the external environment. Based on the PESTEL analysis it can be said that, any unseen certainties whether from the political factors or economic factors are likely to affect the performance of Apple to a large extent as it operates globally. It has been learned that in order to say ahead of its competitors ad survive in the competitive global market environment, the only main factor is development of innovative product and services. Although Apple is known for its innovation, still market followers such as Samsung tend to follow the innovation, hampering the actual sales of the products. Apple needs to spend more on R&D and develop products which are hard to imitate by its competitors. In order to formulate effective strategy the senior managers of Apple must take into account all the competency of the organisation and scan the environment. Apple determines the actions undertaken by its competitors and takes into account. Apple critically monitors factors which could have positive as well as negative effects. And thus Apple conducts SWOT analysis to get hold of its internal as well as external factors. SWOT is referred as a link between the operations strategy and organisational strategy. However in the reality, SWOT and PESTEL cannot be always implemented to analyse the threats from external sources. No company ever discloses the strategies and thus it will not be possible for Apple to track the competitor’s strategies. It is only after a product is launched companies get to know about the features and other related product. Since Apple strength lies in innovation and technology it should utilise its strength effectively and stay ahead from its competitors. Another important factor in which Apple tends to concentrate is towards environmental protection. Apple in order to reduce the impact of carbon footprint, its products have been improved and designed in such a way, so as to use less material, ship the products with smaller packaging, and making them energy efficient and recyclable. But in spite of all the steps taken, reduction in carbon emission has reduced to only 5% from iPad2 and 21% from MacBook Pro. The company aims to achieve a goal of 70% reduction of carbon emission by 2015 (Apple Inc-c, 2013). But with every R&D and new innovation the environment tends to get affected, and with every fluctuation in the global economy the external environmental factors get affected. Thus to monitor such changes and affects, the tools are implemented so that Apple Inc. is able to adapt to the changes and sustain in the competitive environment. In addition, impact evaluation can also be used by Apple to monitor the external environmental factors. It is a systematic analysis which gives managers as well as the policy maker’s confidence in decision making process, however it is expensive and time consuming (The World Bank, 2002). Recommendation Analysing the external factors of Apple, it is recommended that the company should concentrate more on its R&D and innovation; along with the product quality and make the product much more efficient, user and environmental friendly so that it becomes difficult for its competitors to imitate the product. Apple has a huge brand name and it is important to maintain brand exposure in the long run so that the customers stay loyal towards the brand irrespective of any changes in taste and preference of the target market respective. Analysing the threat of new entrant, it is recommended that Apple should upgrade design to reduce threat from new as well as from the existing competitors. It is also suggested that Apple should maximise the enhancement of its existing products in various areas, which in return will maximise the life and value of the products. Apple needs to constantly assess the internal strength to determine whether it is moving too far beyond its known markets. Apple has been the market leader and in order to maintain the same position it needs to create competitive advantage through innovation and adapting to new technology, and at the same time reducing the carbon emission on the environment to a very large extent. Therefore Apple remains the market leader and aims to maintain it throughout its operations in various countries. Reference Apple Inc, 2012. Working with people. [Online]. Available at: [Accessed 28 Jan. 13] Apple Inc-a, 2011. Form 10-K. [Pdf]. Available at: < http://files.shareholder.com/downloads/AAPL/1826229879x0xS1193125-11-282113/320193/filing.pdf> [Accessed 28 Jan. 13] Apple Inc-c, 2013. Apple and the Environment. [Online] Available at: < http://www.apple.com/environment/#footprint> [Accessed 28 Jan. 13] Gartner, 2010. Gartner Says Worldwide IT Spending To Grow 4.6 Percent in 2010. [Online]. Available at: < http://www.gartner.com/newsroom/id/1284813> [Accessed 28 Jan. 13] Haberberg, A. & Rieple, A., 2007. Strategic Management: Theory and Application. US: Oxford University Press. Henry, A., 2008. Understanding Strategic Management. UK: Oxford University Press. Ireland, R. D. Hoskisson, R. E. & Hitt, M. A., 2008. Understanding Business Strategy: Concepts and Cases. USA: Cengage Learning. Kew, J. & Stredwick, J., 2005. Business Environment: Managing in a Strategic Context. London: CIPD Publishing. The Loop, 2013. Apple ranks highest among Green peace’s top tech companies. [Online]. Available at: < http://www.loopinsight.com/2010/01/07/apple-ranks-highest-among-greenpeaces-top-tech-companies/> [Accessed 28 Jan. 13] The Times 100, 2013. Using skills to respond to the external environment. [Online]. Available at: < http://businesscasestudies.co.uk/logica/using-skills-to-respond-to-the-external-environment/introduction.html#axzz2JF4eFnj5> [Accessed 28 Jan. 13] The World Bank, 2002. Monitoring & Evaluation: Some Tools, Methods & Approaches. [Pdf]. Availableat:< http://gametlibrary.worldbank.org/FILES/215_M&E%20Guidelines%20on%20Indicators%20and%20Data%20Sources.pdf> [Accessed 28 Jan. 13] Bibliography Daft, R. L., 2010. Understanding the Theory and Design of Organisations. (10th edition) London: South-Western Cengage Learning. Jones, G. R., 2011. Organisation Theory, Design and Change. (6th edition) London: Pearson. Morrison, J., 2006. The International Business Environment. Hampshire: Palgrave. Rugman, J. and Collinson, S., 2006. International Business. London: Prentice Hall. Read More