The Business Strategies of Apple - Essay Example

?Introduction The paper discusses the business strategies of Apple. With the help of various tools, the paper analyzes the current and anticipated strategies of the company. Primary tools used for strategic analysis of the company are PESTLE analysis, value chain analysis, and Porter 5 Forces, Ansof Matrix, and BCG matrix. In 1980 Apple went public and by 1983 Apple had become the fastest growing company in history. Among Apple’s long list of products include the iPad, iPhone, iPod, iTunes, Mac, PowerBook, and Power Mac. As of May 2010 Apple had a gain of 1.8% at $222.12 billion (Apple Annual Report 2010). With the power of innovation, advanced technology, and high investment in Research and Development, the company has outpaced competition thereby creating an edge of its competitors. Mission statement of Apple is “to produce high-quality, low cost, easy to use products that incorporate high technology for the individual. We are proving that high technology does not have to be intimidating for non computer experts”(Apple Annual Report 2010). The strategies and mission of Apple is largely affected by the external environment it operates in. This would better be analyzed through PESTEL analysis of Apple. PESTLE Analysis Apple being a US company faces barriers related to rules and regulations imposed by the DOJ, EPA and the SEC. The governmental agency like SEC inspects the fair practice and compliance and the governmental agencies like DOJ and EPA inspects the antitrust laws and environmental compliance. Political risks are high in Technology Company like Apple. In addition, the laws in communication industry are subject to change that affects the compliance of Apple. The required the company to invest heavily in compliance of laws and regulations and even pay fines as a result of investigations. Apple is technology company build on a global platform where factors like inflation rates, interest rate and current exchange rates in bear some impact, but such impact can’t be considered influential (US Technolgy Sector Analysis, 2010). As the interest rates are slashed as a result of recession in the economy, the company could borrow money at a cheaper interest rate. Same is the case with changes in current exchange rates. Change in economic conditions could also materially affect the performance of the company in an adverse way. The socio-cultural forces impact the company’s operations as Apple network spans across various countries and continents. Information display, privacy issues and information sharing across people in different countries depends upon the socio-cultural forces operating in that country (US Technolgy Sector Analysis, 2010). It can be argued that if Apple spans in network to the country like India (For e.g.) it has to keep in mind the culture of people there and whether the current configuration of the company is best suited for operating in that country. Global markets for different products and services of Apple are subject to technological changes in rapid advances along with high competition (US Technolgy Sector Analysis, 2010). Technological factors possess a great impact on the success of the company and a failure to cope up with these could materially affect the financial position of the company. Legality also has a role to play in operations of any company that intends to span globally. Apple has expanded its business across continents and political and legal policies of the countries can well decide on the fate on how the company can operate within a country. Issues over intellectual property rights, trademarks and patents lead to legal proceedings against the company from time to time (Apple Annual Report 2010). The environmental forces do not have a significant role to play in the operations of the company. When the company was incorporated, its primary target was young generation which wanted to connect to each other in spite of differences in physical boundaries. With the growing aging populating, the company has also shifted its focus to people of senior age groups. This is a positive move by the company as this would affect revenues due to expansion of customer base. The PESTEL analysis analyzed the external environmental factors that are affecting the company or are working in their favor. The BCG Matrix described below will analyze how the company has performed in its external environment. BCG Matrix Analysis Apple should be considered as the cash cow as it had been distribution quality from past so many years constantly along with extra services for its customers. The company has always come equipped with new and innovative products and services for its customers (Apple Insider, 2011). Following the same streak Apple could also be considered as a star as it had put in a lot of efforts for increasing the level of awareness of its customers and providing them the benefits of e-commerce and retailing. With the net income of $14 billion on 2010 the company has shown an increase of 45% in net profits which gives a positive signal in the scenario when the economy is reviving from recession and slowdown (Apple Annual Report 2010). Apple’s brand reputation as a technology leader is a strong contributor to the success of Apple. One of Apple’s strongest selling points is related to innovative technology. Apple produces products with brand new technology (US Technolgy Sector Analysis, 2010). Different from most companies, Apple does not do market research or host focus groups and instead hire exceptionally smart people (Apple Insider, 2011). The thought process is that consumers do not know what the latest technology will be and Apple’s product designers are paid to think ahead. The life cycle of a company also analyzes a primary factor in generating cash flow for a company. The life cycle of Apple is analyzed below. Life Cycle Analysis The industry in which Apple operates is in the growth phase of industry life cycle. Apple also operates within the growth phase of the company life cycle. This is a charaterstic of high growth rates, expansion of product lines, increasing customer base and market capatilization. The companies in the industry are gaining market share with Apple being an industry leader with valuation of over $325 billion (US Technolgy Sector Analysis, 2010). However, according to the Bureau of Labor Statistics, the technology world will maintain to upsurge with jobs in IT increasing by 16% in the short-run (Folbre, 2011). IT spending is expected to remain vulnerable to shocks in key regions like Europe and in industrial sectors where decisions will be determined by the return on investment. This will impact the forecasted cash flows of the company as the projections of shocks could not be predicted. To maintain this position in life cycle Apple is required to come up with new products and strategies. This is described in the Ansoff Product Market Matrix Analysis below. Ansoff Product Market Matrix Analysis As discussed earlier, Apple takes risks by developing new products even though some of them do not fit the distinctive competence of the company. Apple has penetrated into several new markets in the recent part. Apart from serving his home and neighbor markets of US and UK, the company has largely penetrated into the markets of Asia, specifically in the countries of India, China and Japan (Apple Annual Report 2010). Though these penetrations have been done with the help of collaborations and partnerships to a large extent, but these has been successful in emerging economies. The company has currently penetrated into the markets of America, Europe, Japan, and Asia-Pacific (Apple Annual Report, 2010). This will have a two-way effect on the company’s strategies, both in the positive way. Firstly, Apple would employ the increase in purchasing power of emerging economies thereby increasing its market capitalization and secondly, production unit in these countries would give the advantage of cheap resources of production. Apple being a company of innovations has always tried to outperform competition by coming up with innovative technologies. The company spends a large amount in research and development, which helps it in new product development. Apple was first in its segment of launching the smart phones in US. It’s counterparts Nokia, Motorola and others entered the segment quite late compared to Apple. The products like i-phone and i-pad have defined the success story of the company. The new product development strategies if Apple have always paid well to the company in past and is expected to do in future as company launches new range of products. As discussed earlier, new products by Apple has always been a breakthrough in the market giving advantage to the company in capturing markets. Market development has always been a difficult challenge for marketers. As discussed above, Apple has always tried to penetrate in new markets with existing products (Apple Insider 2011). This has been largely successful by marketing strategies of the company. Marketing has served as the cornerstone of Apple’s success. A large portion of Apple’s marketing is targeted toward the Apple brand. The Apple brand is about lifestyle, imagination, innovation, simplicity, and the removal of complexity from customers’ lives (Marketing Minds, 2010). Apple’s brand reputation as a technology leader is a strong contributor to the success of Apple. One of Apple’s strongest selling points is related to innovative technology. Apple produces products with brand new technology (Apple Insider, 2011). Different from most companies, Apple does not do market research or host focus groups and instead hire exceptionally smart people (Pragmatic Marketing, 2010). The thought process is that consumers do not know what the latest technology will be and Apple’s product designers are paid to think ahead. This gives the advantage to Apple in launching breakthrough technologies, giving their customers beyond expectations. Apple has always been relying on diversification of its product portfolios for market penetration, market and product development. Ever since the launch of Apple i-pod, the company has diversified its portfolio from launching different series of i-pods, after which the company shifted to i-phones and i-pads. This well describes the diversification strategy of the company. Diversification with caution will always be advantageous to the company. If Apple overestimates the potential of the markets it is entering, that would have a material impact on the revenues of the company. This also depends upon the power the company possesses over its external forces which could be better explained by Porters Five Forces Analysis. Porters Five Forces Analysis Bargaining power of Suppliers: The assembly of many parts of the company is performed by third party vendors in China, California, Texas and Korea. The company supplies and manufactures its critical components from many third party vendors in different countries like China, United States, Germany, Japan, Israel, Thailand, Taiwan, Philippines, and Singapore etc. With the diversification in supplies of components and assembly the company possesses high bargaining power over its suppliers. High bargaining power of Apple could also be explained from the fact that company purchases in huge bulks from its suppliers. Bargaining power of Customers: With the biggest company in its segment, it could be argued that Apple have a high bargaining power over its customers. This is because Apple has always been a supreme player, out-placing competition and giving its customers a better technology product compared to its competitors. Apple sells its products by charging premium prices and this strategy also has a positive impact on the revenues of the company. This means the company possesses high bargaining power over its customers. Threat of new entrants: The threat of new entrants always prevails in the type of industry Apple operates. This is because, the industry is led by innovative products and an innovative product and application by one company can eat the market share of other company at a rapid pace. Though the companies currently operating in the same segment like Microsoft, IBM, Dell and HP poses a primary competitive threat to Apple, the threats of new entrants also prevail in the industry. Building strategic partnerships with technology leaders, especially in computing segment will help company to remain a leader in the industry. Threat of Substitute Products: Worldwide IT spending has been into a negative turnaround ever since the global financial crisis spread its wings. The financial meltdown led to reduced IT spending throughout the globe in 2009. Apple is into that market scenario wherein a substitute product largely affects the revenues of the company. For e.g. even though the company’s i-phone is having a maximum market share in smart phones, but a continuous threat of substitute products is prevailed from companies like Nokia, Sony, Microsoft and Dell that tend to produce similar products with additional features. Competitive rivalry within the industry: Competitive rivalry in the technology industry is growing for Apple day by day. This would increase manifold if Apple acquires or enter into collaborative partnerships with country specific firms for penetrating into different markets. As the porter five forces highlight the external strength of the company, it is majorly dependent on the value chain analysis of the company. Value Chain Analysis As the company is based on continuous process of innovation, it has been able to perfectively chain its line of activities. The process starts with the storming of new ideas, which are tested and developed into successful products, thereby launching them in different markets. Technology and product design had been the core component of the capabilities of Apple (Hassab 1997). The company invests extensively in R&D, which amounts to almost 8 to 10 percent of the total revenues of the company (Apple Annual Report 2010). This helps the company to fund its research process. Cutting edge development of technology has been the story of successful history of Apple. The examples of this could be successfully launched products like ipods, iphones, ipads and Macintosh etc. The company has a manufacturing facility in Ireland where it manufactures its products. The assembly of Apple’s products is done from third party vendors in many countries primarily being China. The company has also outsourced the production process for some of its products to the companies like iMacs and Foxconn electronics. This reduces that cost of goods produced as company employs cheap resources in developing and emerging markets. For distributing its products to customers, the company relies primarily on retail formats. The company also uses its website as a source of distribution. This is done with the help of e-commerce technologies. Apple and Dell and the two companies that forms the example of making profits and improvising the supply chain process with the help of e-commerce technologies (US Technolgy Sector Analysis, 2010). E-commerce technologies have always helped the company to maintain a better value chain connecting its customers, vendors and suppliers to the company. Conclusion Based on our analysis it could be concluded that the company is performing strongly in IT and hardware industry. The company believes in meeting the requirements of its customers, thereby keeping a place in their heart. Apple has always believed in the strength of customer loyalty as a necessary pillar of success for the company. The products of Apple have always tried to fulfill the needs and demand of its customers, be it in style of in performance. Advertising is a core pillar of Apple’s strategy and it brings new people to Apple products (Macworld, 2010). The combination of brand recognition and Apple’s success in advertising greatly support the new projector laptop product release (Macworld, 2010). Consumers will already be drawn to a new product release designed by Apple because of the brand recognition. In addition, the advertising campaign will ensure the market is aware of the new release. Apple’s previous product releases have been extremely successful and by using the same marketing plan the projector laptop product release will also be successful. The company needs to continue using its strategies by coming up with innovative products and expanding into new emerging markets. This would remain the success stone for the company in future. References Alvesson M. and Sveningsson, S. (2007). 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