The Business Perspective of the Apple Company - Term Paper Example

? Apple Contents Introduction 3 Products/services and geographic scope 3 Competitors 4 PEST Analysis 4 SWOT analysis 6 Porter’s five forces model forApple 8 Recommendations 9 Conclusion 10 Appendix 12 Introduction The main purpose of this project is to integrate theoretical learning with a real-life scenario. The company selected for this purpose is Apple Inc. The project will primarily discuss the business perspective of the company and will evaluate the SWOT, PESTEL and Porter’s models for analysis. Apple Inc. was formed with the aim of creating a footprint in the technology arena and enjoying competitive advantage. The brand value of the company is incomplete in today’s world. Effective use of technology provides the company with brand recognition, enabling it to stand out among its competitors. The collaborative work of its employees has paved the way for the success of the company, which follows a collaborative work culture. Apple Inc. is recognised as the biggest start-up in the world, formed by the efficient hands of Steve Jobs. There are frequent team meetings in each department in order to discuss the current business scenario, and the company values and encourages the participation of its team members in the decision-making processes. Apple has a reputation of valuing individuality and excellence that help in the company’s decision making (Apple Inc, 2012). Products/services and geographic scope Formerly named Apple Computer Inc., the company is an American multinational corporation which specialises in the design and sale of electronic goods and high-technology personal computers, along with computer software. The best-known products of the company are the Macintosh series of computers and the iPhone. In 2007, the company shifted from offering only computers towards making and selling consumer electronics. In terms of market capitalisation it is the largest public limited company. The company manages its business on a geographic basis, with five operating segments, in America, Japan, Europe and some other regions. The operating segment offers similar hardware as well as software products (Datamonitor, 2009:3). Competitors Apple Inc operates its business in multiple industries, the main one of which is personal computers. Apart from this, the company produces software and consumer electronics. In the personal computer industry, Apple’s main competitors are IBM, Hewlett Packard, Dell Inc. etc. In the consumer electronics industry, the main market competitor is Samsung, which has a similar type of product on the market; Apple has also been facing competition in developing countries. Apple’s direct competitors are Google, Microsoft and RIMM (Research in Motion Limited). In all these industries, Apple is the leader, and no one comes close to this company in terms of revenue and profit or of innovation and brand recognition (Grady, 2009:5-6). PEST Analysis PEST analysis deals with the current situation of an organisation, identifying the political, economic, social and technological influences. It provides a glimpse into the future performance of the company. Political influences: it was reported in the year 2007 that 52% of the company’s sales were made outside its country of origin. Apple has no influence on political scenarios. Wars, terrorist activities and natural disasters can all have an influence on the overall sales of the company, and it has to take all these factors into account when determining its strategies for the future. Apple produces many of its key parts outside the United States. 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). Economic influences: Apple’s products are viewed as luxury items, and therefore if consumers do not have enough disposable income available, they will not opt for Apple products. Consequently the economic condition of the countries in which the company’s products are available is of utmost importance. If the global economy is experiencing depression and the consumers’ income does not increase much despite high inflation rates, the company will have to accrue inventories (Lashinsky, 2012). However, Apple may emerge with distinction, as in spite of the dollar losing value, the company is not in danger economically. During these periods the company purchased foreign currency in order to minimise the risk of the economic effects. It can be said that such strategies are fruitful for the company, as in times of depression the company’s revenue in fact increases. Social influences: the world is experiencing the benefits of globalisation. The role of technology is important in interaction between people worldwide. It is now almost impossible to imagine existence without electronic devices. Apple rules in the field of technology, not only because of usage, but also because of its design and quality. The music industry has had a positive impact on the Apple market. This industry has become virtual over the last decade, and platforms like Apple’s virtual media store are well ahead of the company’s competitors. The piracy problem can be a threat, but the governments of most countries view piracy as a punishable offence. The image of the company is one of loyalty and identification. Therefore it can be said that social influences have a positive impact on the performance of the company. Technological influences: the race for technological advancement creates competition in the market. The industry players offer a wide range of technologies that act as an incentive to consumers in 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 is listed at the top in terms of investment in research and development. SWOT analysis Strengths: Apple Inc. is one of the most prestigious brands among consumers of electronic devices across the globe. The organisation has successfully managed to establish its footprint in terms of brand value among consumers, who expect highly technological, sophisticated and entertaining devices from the company (KWHS, 2012). The company has been able to generate loyal and enthusiastic consumers driven by the innovation of its products. The brand value of the company becomes enhanced as consumers support the brand. The company has diversified its product offerings, now producing a wide variety of products ranging from PCs, notebooks, software and other hi-tech devices. The brands have penetrated into the wider market. In terms of revenue and profit, Apple Inc. beats Google and Microsoft, two of the most recognised brands in the world (Yahoo Finance, 2011). Innovation and the capability to rapidly improve and redesign its products are Apple’s key strengths (KWHS, 2012). The profitability scenario of the company acts as a very attractive incentive for its investors. The existing stakeholders, as well as new investors, have confidence in the operations of the company. Its revenue, along with net profit, is an upward rising curve. Higher economies of scale have been achieved by the company as the costs of sales are increasing less in proportion to the increase in revenue. Its liquid assets are being converted into long-term investments, and the company’s dependence on inventories for paying its short-term liabilities are decreasing. The earnings per share and the company’s stock price are solid. For higher inventory turnover, the company has concentrated on higher long-term investments, which indicates better future prospects for the company. Consequently, overall, the company is in an excellent position financially (Schneiders, 2011:15). Weaknesses: the company’s products are expensive. The products are offered to a niche group of society, only at a premium price. Some consumers complain that the devices are complicated to use and handle and that the products are not user-friendly; some prosperous consumers therefore reject the use of these products. The company has a financial weakness in that it is quite dependent on its inventory for paying short-term credit or loans, as the current ratio of the company is less than 1. The company is not very efficient in quick payments to its creditors, as it needs its inventories to be liquidated (RIC Centre, 2012:1-3). Opportunity: Apple, Inc. can only concentrate on controlling the quality of its offerings. The company excels in the arena of research and development, but it is quality that is expected from brands like Apple. Online selling of its products can comprise one opportunity. If the company employs this type of sales strategy, it will reduce the costs of distributing its products to sales outlets. This will have a positive effect on the firm’s profit level. The company can expect higher investment opportunities in future, as it has reported efficient asset performance over the last four years (NASDAQ, 2012). Threats: the industry in which the company operates is influenced by some major competitors, like Samsung, Sony and others. Microsoft enjoys a vast market share with the Windows operating system. Macintosh is does not approach Microsoft as a competitor. The great innovation iBangle has been under scrutiny in many countries (McDaniel and Gitman, 2008:334). The company is highly dependent on its long-term asset performance, as it has invested a huge amount in its long-term projects. Competitors may affect its future returns through similar kinds of innovations (SRM University, 2008). Porter’s five forces model for Apple Porter’s five forces model is applied in order to analyse the possible outcomes as well as to impede the threats for a concerned company (Silvius, n.d.:2) The risk of new entrants: from the point of view of economics, the entrants will try to enter into a market if the short-term prices are not equal to the marginal costs. Usually, in the computer market, brand names do not play a significant role, but this argument does not hold in the case of Apple, for whom the brand name has always played a major role. It is not easy for a new entrant in this sector to gain market share. Consumers tend to stick with the already existing brands, even if the cost is slightly higher. The tough competition on prices and among the pre-existing players serves as a barrier to entry into the industry. Product innovation techniques and proper research and development pose a competitive advantage for Apple over other companies. Competition among rivals: the industry is a highly competitive one. The players in the market compete in the industry through aggressive pricing policies and innovative product designs. Apple Inc. focuses strongly on intensive marketing and direct online selling. Making a profit in this market is not an easy goal, as the participants apply ambitious price structures. The industry competitors are often found in competitive spirals. Apple has never showed any intention of following the dominant players with its price strategy. The market has barriers to entry, and dependence on a specific sector poses a huge risk to part of the company, as a downturn in the sector risks busting the existing players. Computer manufacture is capital-intensive, which sets up impediments to exit strategies. The buying power: the industry enjoys moderate demand, and the presence of many small buyers results in low bargaining power for the buyers. This implies that buyers cannot force the company to charge lower prices. In the hardware market, the fluctuation in consumption is low, and therefore Apple has the power to control the market with its set prices. The suppliers’ power: 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. 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 in spite of this, it differentiates itself with its Mac range of computers; therefore, its market is not as affected as the market for other competitors when consumers shift their preferences. In fact, Apple enjoys a large consumer base. The innovative designs and quality of its products has achieved a strong consumer base for the company over many years. Apple receives bookings for its products even before they are launched. Consumer confidence in the company has taken it to such heights that it is very difficult for the substitutes in the market to match these consumer expectations. Recommendations The company needs to concentrate on making its products better quality, more efficient and more user-friendly. This type of strategy will lay the foundation for the company to enjoy a competitive advantage and become more acceptable to its consumers. The company can focus on the efficient management of long-term investment in order to generate adequate returns from the huge amount of funds put into the buying of fixed assets, as well as some other long-term investments. The company should retain a sufficient amount to pay short-term liabilities in order to improve its relations with its creditors. The company has huge growth opportunities in terms of its massive long-term investments, and has a track record of substantial returns from its previous investments. Apple already has sufficient investment opportunities from its shareholders or potential new investors, as it has generated greater than expected returns on its equity and earnings per share in 2011, as well as in the last four years. The company now needs to focus on securing sufficient investment from its creditors. Conclusion It can be concluded that Apple is on a stable path. However, it can diversify its services, not because its market is experiencing a low, but primarily because doing so will pave the way for the company to try its luck in other sectors. Although the company is involved in such strategies, as the price of the products it offers is much higher than that of the competitors, it is difficult for a major proportion of consumers to afford them. If Apple can invent technology that will reduce the price of its products while still offering the same level of service, the revenue of the company will take a major leap. The strengths of the company allow it to take such actions. The user manual for the products could also be simplified, because usage of the products is a major concern for Apple’s consumers. The buying power of the consumers is not great within the market, but the buying power of the suppliers is. There are not many suppliers within the market and Apple has to outsource production of some of the key parts of its products. Shifting from one producer to another also involves huge costs, as this may change the configuration of the line of products offered tp the consumer and hamper their interests in these products. Gaining a competitive advantage puts a company in an advantageous position in any market sector (Bach, 2007:12). Apple, with its innovative technology and high-quality efficient products, always gains the competitive advantage. The company has huge opportunities to grow in the near future, and steps are being taken by the management to exploit the situation, with new products being produced that are expected to capture huge market share and achieve new sales records. Appendix Apple’s market is depicted in the above figure. There is competition among the industry players, although Apple enjoys a competitive advantage on some of its products. The threat of substitutes is relatively minimal for the company as its target consumer base is different. Apple targets people with a higher income, and can therefore expect to generate huge sales from the moment it launches a new product. There are potential new entrants into the market, but as the company in question is placed firmly within the industry structure, the threat is relatively low. The suppliers enjoy an amount of bargaining power within the market structure. The company has to rely strongly on some key suppliers for the deliveries of some of the parts essential in the production process. On the other hand, the bargaining power of the buyers is quite low. The price of the company’s products is high relative to those of its competitors, and yet it generates sufficient sales revenue. In time, the company has been able to gain brand value. The quality of the products and the line of the designs attract the consumers, and the brand image encourages them towards the shops. The consumers’ confidence is the driving force for the company to establish its place in the market. Apple invests a considerable amount in research and development. The only area the company can work on is making its products more user-friendly. Consumers often complain that the products are difficult to handle and lack user-friendliness. The company is now in a good position to shift from depending too heavily on inventories in order to repay its short-term loans. It can increase its efficiency in terms of making quick repayments to its creditors. Apple Inc. engages in production processes in the United States, so the performance of the dollar is important. The company acted very well during the recent times of depression, and more impressively, it did not have to suffer any losses during this period of turbulence. The benefits of globalisation are also felt by Apple. The music industry has created a strong demand for Apple products, and there are many other opportunities waiting to be exploited by the company. Various selling strategies can be undertaken, which are anticipated to produce a flow of demand for Apple’s products. The above picture depicts a flow diagram. If Apple develops a new technology, this process is expected to produce a competitive advantage. The customers will set new expectations regarding the product. The new technology will soon be known by the company’s competitors, who will then provide competition in the market by creating new products using Apple’s technology at lower prices. Consumers are therefore expected to shift their preferences and opt for the lower-priced product, causing the demand for Apple’s products to fall. However, Apple seems to be an exception to this rule. Through its brand image and brand loyalty, the company has been able to gain the confidence of the consumers, so in spite of the availability of cheaper products, the consumers carry on buying Apple’s products. Sustainability in the market is most important in order for a company to taste success, which can only be achieved through the successful evaluation of marketing techniques. Successful marketing techniques will also attract new potential investors. The options for Apple include the introduction of more efficient technologies at lower prices, which will help the company to enlarge its share of the market, and consumers from all income brackets will demand these products, as the quality and efficiency of the products made by this company are unquestionable. References Apple Inc. 2012. “Working with people”. Web. Retrieved from on 9th November 2012. Bach, B. 2007. Implications of Enabling Technologies for Apple Inc.: Cyber marketing & Enabling Technologies. GRIN Verlag. Germany. 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