Technological Company Apple Incorporated - Research Paper Example

Apple Inc. Apple Inc. is a well-known technological company. Apple was started in 1976 by three main founders. The paper introduces le Inc with explanations on how the firm operates. Apple is the leading innovator. The paper examines Apple from a macroeconomic point of view. The paper looks various factors to understand how the firm operates. Apple is discussed, in details, to reveal strength and weaknesses of the organization. It looks at threats of substitutes and new entrants to the state of Apple in the industry. Apple market structure is analyzed to understand how the firm operates. Apple operates in both oligopoly and monopolistic conditions. Keywords: Apple, function, industry Introduction Apple Inc. is American technological company with headquarters in Cupertino, California. Apple is a huge, tremendous corporation that is the business of design and selling smartphones and computers. Apple is also a strong competitor in the business of offering online services. The company was founded in 1976. The three founders of Apple are Steve Jobs, Ronald Wayne, and Steve Wozniak. The company became Apple Computer Inc. in 1977. The name was changed to Apple Inc. in 2007. Currently, Apple is the second largest information technology based on revenue earned. It is bettered by Samsung Electronics, which holds number one position. The company employs 72,800 employees who are permanent and work full time. It has 425 retail stores that are found in over fourteen countries. Moreover, the company is responsible for operating its online businesses, which are Apple and ITunes stores. The company enjoys brand loyalty and high revenues. The paper examines Apple Inc. from a macroeconomic perspective. Supply and Demand Supply and Demand have a direct influence on business operations. Supply affects the amount of products in the market, which will eventually affect the price of products. Price increase with a decrease in demand.. Demand refers to the desire of consumers to obtain a service or product. The interplay of supply demand leads to the price elasticity, which explains how changes in price affect demand for products and services. Apple is a multinational company, which means United States and global economic conditions affect its operations. It is obvious Apple is affected by the dynamics of supply and demand, which are at the center of all markets. Apple Inc. has been affected by increase in the number of people who have use computers and smartphones. The increased demand for smartphones and computers is due to the need for growth. In response, the company has been able to register an increase in sales. The demand has been distributed towards major technological companies like Samsung, Google, and Microsoft. Apple is forced to battle it out with these major corporations to get a share of the global market. The company has registered growth in sales from 2011. The company registered earnings of $182 billion in 2014 (Apple, 2014). The recession that took place in the 2007-2009 negatively affected the demand for Apple products. The recession led to inflation, which meant the things got too expensive. In effect, the purchasing power of consumers went drastically. The ultimate effect is reduced demand for technological products, which are considered luxurious. Regardless, the gradual recovery of the US economy has seen Apple Inc. register growth in the US market. Price Elasticity of Demand Price elasticity of demand refers to the responsive of quantity of goods demanded to a change in price. It is used in making important decisions that are related to product pricing. Price elasticity of product has a significant influence on the pricing strategy that an organization is likely to use. A high number of people prefer Apple products because they are unique, durable and high quality. Apple Inc. leads in the smartphone innovation, which has seen the company, gain a huge base of loyal customers. Apple Inc. possess a number of strengths that has seen the company remain competitive in the US and the global economy. The products from Apple are highly differentiated, which makes the unique from other similar products. The company has innovated with a brand that is associated with class and quality. As a result, the company employs premium-pricing strategy, which means the price elasticity of Apple products is inelastic. A change in the price of Apple products will not lead to an exponential reduction in demand for firm’s products. Production differentiation and a reputation for cutting-edge innovation have made Apple enjoy the benefits of brand loyalty. The firm has a huge base of customers who believe in Apple products. Therefore, the sales of Apple are not largely dependent on the price. The inelasticity of demand for Apple products is demonstrated by the fact that Android phones are much cheaper than IPhone, but some people would still prefer IPhone. Most IPhone users have stuck to the brand for many years. They believe all Apple products are high quality. Most of these customers focus on quality and not the price. It is apparent that the price elasticity of demand is inelastic because of brand loyalty. Price changes do not have a huge influence on the demand for Apple products. Cost of Production The financial analysis of Apple Inc. continues to impress. The company registered billions of dollars in revenue in 2013. Apple Inc. has a relatively low cost of production because it does production in China. According to IHS, Apple spends approximately $191 dollars to build a single IPhone 5s, which has an internal memory of 16 gigabytes. It costs $210 dollars if the IPhone 5s has a memory of 64 gigabytes. If the cost of assembling is taken into account, it is approximated that Apple uses $199 and $218 dollars to make an IPhone. It should be noted that these labor costs are estimation. The cost of production is affected by many factors that include tax and labor availability. Apple Inc. manufactures its phones and other products in China. China forms a suitable location for offshoring production because it has huge labor force and low tax rates. Therefore, the company incurs less cost of production compared to a company that is producing in the United States. It has been estimated that Google spends four extra dollars to make one phone. The high costs of production in the United States pushed Apple to make the decision of establishing production plants in China. A look at estimated figures reveals that Apple would incur $600 million additional costs by producing in the United States. This estimation relies on the estimation that Apple sold 150 million phones, which would be made an extra cost of $4 dollars in the United States. Moreover, the bills would go up because of heavy tax bills. Currently, Apple gets a rate of 2% for all products sold outside the United States. The organization would have to pay a tax rate 35% percent without including the 2% that has already been paid. Therefore, the move to offshore production has worked in the favor of Apple Inc. Additional analysis reveals Apple will be forced to spend an extra $4.2 billion if it decides to manufacture in the United States. The money factors everything, which include labor, tax and the general factors to consider when determine the cost of production. The company pays less for the labor in China. The company posted a revenue of $37.4 billion in June with a net profit (quarterly) of $7.7 billion. The company spends little on the production compared to the pricing of its products. Premium pricing and low production costs guarantee Apple high revenue. Competitive Advantage It is necessary to analyze the strengths of Apple in order to understand its competitive advantage in the industry. A SWOT analysis can reveal the strengths, weakness, opportunities and threats of the firm. Opportunities and strengths make up a competitive advantage for the firm. The main strengths of Apple Inc. are the customer loyalty, high-tech innovation, a strong financial base, brand reputation, retail stores and effective promotional campaigns. First, Apple Inc. enjoys customer loyalty. The company does not share its production of techniques. It operates in a closed ecosystem. The closed ecosystem has enabled the company to produce a range of products that complement each other. The production of products that complement each other increases customer loyalty. The expanding range of products from Apple and customer loyalty increase the competitive advantage of Apple. Second, Apple has been voted the best innovator in the world for three times. The ability of the company to innovate high-quality products that appeal to consumers is a strength. It gives the company the much-needed competitive advantage. In addition, Apple Inc. has an impeccable financial performance. The company is the second largest technological company in terms of total revenue. The high revenues have given Apple enough money to undertake acquisitions. The firm enjoys a huge profit margin compared to its competitors. It has no debts that might affects overall earnings due to heavy interest rates. The high financial performance gives Apple the power to gain advantage through investment in marketing and promotions. The company has a brand that enjoys a positive reputation. Therefore, consumers associate the Apple brand with quality and durability. Apple has retail stores that are spread in fourteen countries. These stores ensure the customers receive high-quality service. The store improves brand awareness, which gives Apple an influential competitive advantage. The final competitive advantage for Apple is the possession of effective marketing teams. Apple performs heavy promotional campaigns compared to its competitors. Apple products are advised in a convincing manner. Entry Barriers for Firms in the Industry There are entry barriers in the information technology industry. It requires a huge capital and government regulations. In addition, a few giant corporations rule the industry, which makes it hard to compete. The existing companies are threatened by new entrants, which will reduce the share of the market controlled Apple. As a result, Apple differentiates its products to maintain the support of consumers. The barriers that prevent new firms from entering the industry are huge capital and scope of operations. It is hard to make succeed in the industry. New entrants will require time to gain the trust of consumers and formulate strategies on how competitive favorably. The industry is full of technological giants, which makes it hard to make an impact. Substitutes The substitutes available for Apple products are from Samsung, HP, Microsoft, Dell, and Lenovo. These substitutes can perform the same basic functions. Close competitors of Apple are Samsung, Nokia, and Google. These companies have produced substitutes that have threatened the position held by Apple. For example, in 2001 Samsung S2 registered high sales compared to IPhone sales in the US in the same year. Apple Inc. owns approximately 10% of the global handset market (Apple Inc., 2012). It is famous worldwide. Apple relies on, on innovation and brand loyalty, to compete favorable against substitutes. The threats posted by substitutes are either performance related or price related. Consumers are likely go to for fair prices without compromising quality. Consumers can also switch because of the desire to switch. However, it is hard for companies to threaten Apple products. Apple has created a closed system, which has seen many consumers purchase Apple products to gain access to standard apps from Apple. Therefore, it is safe to state that IPhone is not threatened so much by substitutes. Industry Market Share for Firms. According to 2013 projections, Samsung has 31.3% market share of the smartphone manufacturing industry. Apple stands at 15.3% while each of Lenovo, LG, and Huawei has 5% market share. Apple lost its market share, which was at 18% in 2012 (Apple, 2014). Samsung has penetrated the smartphone market. Market Structure Market structure refers to the operating principles that affect the flow of goods and services. Different types of markets are used to explain the power that is held by buyers and sellers. It is possible that Apple can be found in two market structures, which are oligopoly and monopolistic competition. Monopolistic competition is the one that describes the firm’s market because it involves the exchange of differentiated products. Oligopoly is under the control of few powerful firms. They do not have typical card. Firms that are big and powerful dominate monopolistic competition and oligopoly. These firms can maintain their position because it is too costly for firms to enter the market. Apple Inc. is an oligopoly when it comes to operating systems for mobile phones. Android, Apple, and Windows are important players in the industry. the three operating systems control the economy. These three firms are oligopolies when it comes to operating system for mobile phones. New features are added to a different operating systems for the companies to compete favorably. It is likely that Apple operates in a monopolistic competition market structure. Apple operates in monopolistic competition when it comes to dealing with Apple branded computers. The industry is made of players like HP, Toshiba, and Lenovo. The competitor in a monopolistic competition market is relatively few. However, they are more than the competitors in Oligopoly (Etro, 2009). Relatively few companies deal in the manufacture and sale of computers. These firms are able to generate so much revenue because they are few and powerful. The market is big enough to handle all the firms. In conclusion, Apple operates in both oligopoly and monopolistic competition. Apple deals in the production and sale of smartphones and computer products. The use of a closed ecosystem gives Apple some properties of a monopoly. The firm controls its products. Its products. The only way to access standard apple apps is to purchase an apple product. It is apparent to notice that sometimes Apple is like a monopoly. Future Apple Inc. is an established company with very revenues. The firm boasts of immense success due to innovations and design of their products. Therefore, it is very hard to tell the future of Apple Inc. The firms use a number of strategies to ensure it remains at the top in the industry. Fire, Apple uses the differentiation strategy, which separates Apple products from products made by rival companies. In effect, Apple grew to become a brand that is synonymous to quality. Differentiation encourages innovation because the company has to impress. Apple outsources some of its functions to reduce the overall cost of production. The manufacturing plant for Apple is in china. The firm has saved so much by offshoring its production. The company would spend more by if the production were in China. The cost of labor and tax rates would lead to heavy usage of finance resources. Apple should consider revisiting their pricing strategy. Samsung surpassed IPhone because it is efficient and affordable. Apple Inc. can reduce the prices of its products, which will increase the number of customers. In addition, Apple must give priority to the worldwide retail centers. The management of these retail centers should focus on maximizing sales and efficient service delivery. Apple has weakness in the field of pricing and penetration. Apple products are not found in many markets in the globe (Apple Inc., 2012). The company should consider availing products in all markets. It will increase the amount of revenue that the business earns from the business. It is also important for Apple to consider the legal and political implications of its operation in different countries. Apple should focus on managing its activities in the countries with Apple manufacturing plant. Apple has been accused of mistreating workers in China. The company has been suspected of disregard for the environment. Therefore, Apple management should formulate ways to check Apple operations all over the world. It would help manage the company’s reputation. References Apple. (2014, July 22). Apple Reports Third Quarter Results. Retrieved from Apple: http://www.apple.com/pr/library/2014/07/22Apple-Reports-Third-Quarter-Results.html Apple Inc. (2012). Apple Inc. SWOT Analysis. Apple Inc. Etro, F. (2009). Endogenous market structures and the macroeconomy. Dordrecht: Springer. Linzmayer, O. W. (2004). Apple confidential 2.0: the definitive history of the worlds most colorful company. San Francisco, Calif: No Starch Press. OGrady, J. D. (2009). Apple Inc. Westport, Connecticut: Greenwood Press. Worstall, T. (2013, September 25). If Apple Brought iPhone Manufacturing To The US It Would Cost Them $4.2 billion. Retrieved from Forbes: http://www.forbes.com/sites/timworstall/2013/09/25/if-apple-brought-iphone-manufacturing-to-the-us-it-would-cost-them-4-2-billion/ Read More