Challenges That the Company Faces - Essay Example

Critical analysis of the microeconomic and macroeconomic environment and challenges that the company faces Introduction Apple Inc is a publicly traded company of U.S. It is an American multinational company that designs, sells and manufactures different consumer electronic goods and services. The company was founded in 1976 by Steve Jobs, Ronald Wayne and Steve Wozniak. This firm got recognized as Apple Inc in 1977. Presently, it is the second largest information company of the world. Apple has it’s headquarter in California. The company believes in innovating new types of products and services. Apple sells its products and services in different parts of the world. The company deals in electronic equipment industry. It is one of the strongest players in this industry. As per market capitalization Apple Inc became largest public trading company in 2014. In the electronic equipment industry new products and services are continuously developing. The companies in this industry use advanced technologies for developing innovative products. Apple wants to provide best experience to its customers by incorporating modern technology in its business and products. This essay will highlight the macro and micro environments in which Apple is operating and the challenges it is facing in its business. The essay will also focus on the profit maximization practices of Apple and the considerations followed by this company for operating in global market. Profit maximization Profit maximization is one of the important objectives of Apple. For maximizing profit, Apple focuses on both its both inputs and outputs. It helps the company in understanding the difference between total cost and revenue. The company controls its variables till the time it is unable to increase its profit. For this reason Apple considers each unit of output and input based on its profit. At the point q*, the slope of OR is equal to the slope of OC. At q*, MR=MC and Π is at maximum profit. But in such situations, MC and MR are at two different points, p* is at minimum profit and another is at maximum profit. So, to find out at which point the profit is maximum and minimum double derivatives is performed at the point q*, Application Apple uses MR and MC for deciding the amount of goods it requires to produce. When the company thinks that MR is greater than MC then it produces one extra unit of output for getting additional revenue at a lower cost. But if the additional unit incurs more cost than the revenue it generates, then the company prefers not to produce the extra unit of output (Hoag & Hoag, 2006). This condition arises when MR is less than MC. When MR=MC the company feels satisfied because at that stage it earns maximum amount of profit. This basic rule of profit maximization is followed by Apple. This profit maximization theory helps the firm in creating its strong position in the monopolistic market (McEachern, 2014). Economic implications of operating in different markets Apple Inc operates its business in different parts of the world and in various markets. The company has wide range of products and services which facilitate the firm in operating in various markets. For operating in global market the company analyses the demands and trends of people. Based on the analyses, Apple develops innovative and unique products which help people in making their life easy (Khan, 2007). The products of Apple are highly priced. For this reason, the disposable income and the employment level of the countries are related with the sale of Apple products. In the developing countries the people having high disposable income purchase Apple’s products (Doyle, 2013). The sale of Apple’s products is high in the developed countries like U.S, U.K etc. This is because the economic condition of these countries is stable and employment rate is high in these countries compared to others. For this reason most of the people of U.K, U.S etc. afford to buy the products and services of this company. Presently the world’s economic condition is getting better and the level of inflation is becoming low in many countries. As a result of this, the sale of Apple’s products is increasing gradually (Zhen-tao and Yan, 2005). In the recent years, the revenue of Apple has increased in the global market. The products and services produced by Apple are very unique and those are not produced by other companies in electronic equipment industry. The products are highly different from other electronic goods manufactured by other companies. Apple mainly operates in the monopoly market. In this type of market, Apple spends huge amount of money for establishing its position in global market. In the monopoly market structure the company focuses more on its products and services rather than the market competition. The close substitutes of Apple’s products are not available in the markets where the company is operating its business. Impacts of ethical and regulatory considerations Apple Inc follows strong ethical principles which help the company in operating its business in various countries of the world. The company developed a code of conduct which its employees need to follow for handling various situations. The success of Apple is based on its unique products and innovative ideas. (Eisenmann, Parker & Van Alstyne, 2011). This graph highlights that from December 2011 to March 2014, Apple is experiencing huge growth that other Smartphone companies. The economic decisions, marketing strategies, unique products and ethical issues of the company contributed Apple to achieve this success. The ethical considerations of this firm contribute in enhancing the success factors of the company. The four main ethical principles followed by Apple are respect, compliances, honesty and confidentiality. The ethical codes of this company are applied to its different operations. The misconduct related to Apple’s finance and audit committee is handled through its Business Conduct Helpline. The components of Apple’s products are manufactured in different parts of the world where labor cost is low. For making the manufacturing process ethical the company follows Suppliers Code of Conduct which is signed by its suppliers. As per this ethical act, the suppliers need to do factory audit for ensuring compliances. The suppliers who do not follow the ethical standards of Apple are not appointed by the company. For making its ethical principles clear to its suppliers the firm annually publishes Apple Supplier Responsibility Report. The company takes various corrective actions for its organizational members who violate its ethical rules. Apple provides safe working conditions and environment to the employees (Eisenmann, Parker & Van Alstyne, 2011). By this process, the company establishes ethical and fair workplace. The workers of this organization are treated with respect and dignity. Impact of macroeconomic environment on corporate operations There are many macroeconomic factors that influence corporate operations of the company. The macroeconomic factors create uncertainties for the company and can also have adverse effects on the retail activities. The key macroeconomic factors that influence Apple’s corporate operations are economic progress measured by gross domestic product, policies of taxation, exchange rate, standards of living of the people, inflation, and average income of population. Economic progress of the country is very important because if the country’s growth is stagnated then the people of that country will postpone their investment plans on luxury goods. Most of the products of Apple are priced at premium and the company’s operations will be highly affected if the people are not buying their products (August, 2010). With timid sales, the company’s production processes will slowdown. Since the market of US and UK is presently experiencing slowdown and recession, the company has decided to expand operations in global emerging markets like China and India. Taxation policies of one government vary with another and since Apple is a global company, it can face double taxation problems. For example, if Apple is paying taxes in US for its overall revenues generated from global operations, there may be instances when it will have to pay taxes for operations of subsidiaries in other countries. The tax policies can affect corporate operations of the company because tax disputes can de-motivate Apple’s management to continue operations in countries where it will face tax disputes (Sun and Yallenis, 2007). Exchange rate is also important macroeconomic factor that influences the company’s operations. Variations in exchange rates can sometimes be favorable as well as unfavorable. Exchange rates are of concern when the company is highly involved in the business of importing and exporting. In case of Apple, it only has manufacturing units in some countries and most of its products are exported. If the value of dollar depreciates relative to the country of export then the company has to bear the loss. To avoid such losses due to foreign exchange fluctuations, Apple Inc. can slowdown or temporarily withholds operation in volatile markets. Hence, exchange rates can affect Apple’s corporate operations. Other macroeconomic environments such as inflation, standard of living, average income, etc. are also important considerations. Since the company sells premium products to customers, it is evident that these factors will be the key determinants of its future outlook and profitability (Goodwin, Nelson, and Harris, 2008). To illustrate the point, consider the average income of population which influences the people’s standard of living. Generally, high average income will give more disposable money in the hands of the buyer. If the disposable income increases then people will be motivated to purchase more goods and services. Under such optimistic scenario, the company will be able to sell more products and make more profits. However, if the case is reverse and the country is presently facing problems of high inflation, slow economic growth and lack of industrial revolution, then it is likely for the company to stop operation and exit from that market, at least for the time being until things start to improve. In addition, Apple also faces global pressure from foreign competitors like Microsoft, Samsung, and Google. Impact of the microeconomic environment of corporate operations The microeconomic environment of Apple focuses on industry, competition, individual buyers and sellers. The industrial structure is considered as a significant element for any product that the company manufactures. The industry is highly influenced by modern technology and adaptation of market players to the latest technology (Roach, Harris, and Codur, 2015). For instance, Apple has recently launched Smart Watch but many other competitors like Google and Samsung have advanced their technological skills and they are planning to launch similar products as well. This can lead to increased competition between Apple and its competitors which could even lead to price wars. To resolve the predicament, Apple creates innovative application tools for users which provide extensive range of ease-to-use products for customers. In order to fully understand Apple’s microeconomic environment, we could take a glance at how the company manages its supply and demand issues for the goods manufactured. The company defines demand as an economic principle describing customers’ willingness, desire and capability to pay a value for a utilizing specific service or good. We can relate this to the theory of demand which states that once price decreases demand increases while when price increases demand decreases (Kadocsa and Francsovics, 2011). In addition, there are issues which can cause swings in the demand for Apple’s digital and computers products. Due to this reason, Apple increased its manufactured goods substantially in the recent years by introducing innovative products such as the iPod and iPhone in the market. These new product launches were part of company’s product differentiation strategy to create a new market and boost the demand for its latest products. Apple’s iPhone is considered as a product that has the aptitude to cause shifts in supply and demand situation in the market and because this product established a completely innovative section in the leisure industry. Consumer tastes and preferences also influence sell of products in the market and can also shift the supply and demand situation of the company, drastically. The demand further depends on the purchasing power of the buyer, average income, etc. The purchasing power influences the ability of people to buy Apples products as they are targeted to high and medium income consumers. If the demand for company’s product is very low then it could seriously affect the company’s corporate operations. There are some scopes for achieving economies of scale as the company’s products are highly reputed in the market. However, the company is also subjected to business cycles and presently it is in the tough phase in business due to economic slowdown (Kosacoff and Ramos, 2006). This can also affect the corporate operations of the company adversely unless the company plans to trim cost of operations. Conclusion and Recommendations This paper provides a critical analysis of microeconomic and macroeconomic environment of Apple Inc. and the challenges that the company faces. Research on the company reveals that the company is regulated by the United States Securities and Exchange Commission and it is also covered by EPA. Some of the factors of the markets specific to this industry are innovation, low priced products, and user friendliness of technology. The company also faces global pressure from competitors like Microsoft and Google. The cost structure of the company includes both fixed and variable components. The annual report of the company filed in Form 10-K highlights a separate section for ethical issues (Security and Exchange Commission, 2014). There are opportunities for the company to achieve economies of scale but there is also risk of business cycle fluctuations. Given the fact that the company has very good reputation in the market, its products will help the company to establish very easily in new markets. The company has also mentioned in its annual report that it plans to expand operations in emerging markets like China. As a result it will invest significantly in the emerging markets. This will help the company to diversify operations in new markets and also mitigate the risk of economic slowdown of the advanced economies like US and UK. In short, the long-term outlook of the company is stable and profitable. References August, L. (2010). Macroeconomic Analysis of the Domestic Economy. Retrieved from https://governmentofvanuatu.gov.vu/Macroeconomic%20Analysis%20of%20the%20Domestic%20Economyd9e8.pdf?download=12%3Amacroeconomic-analysis-of-the-domestic-economy. Doyle, G. (2013). Understanding media economics. New York: SAGE Publications Limit. Eisenmann, T., Parker, G., & Van Alstyne, M. (2011). Platform envelopment. Strategic Management Journal, 32(12), pp. 1270-1285. Goodwin, N., Nelson, J. and Harris, J. (2008). Macroeconomic Measurement: Environmental and Social Dimensions. Retrieved from http://www.ase.tufts.edu/gdae/education_materials/modules/Macro_Measurement_Environmental_and_Social_Dimensions.pdf. Hoag, A. & Hoag, J. (2006). Introductory Economics. London: World Scientific. Kadocsa, G. and Francsovics, A. (2011). Macro and Micro Economic Factors of Small Enterprise Competitiveness. Retrieved from: http://uni-obuda.hu/journal/Kadocsa_Francsovics_27.pdf. Khan, M. (2007). Perfect Competition. Pakistan Institute of Development Economics. Working Paper. pp. 1-3. Kosacoff, B. and Ramos, A. (2006). Microeconomic Behavior in High Uncertainty Environments: The case of Argentina. Retrieved from: http://repositorio.cepal.org/bitstream/handle/11362/3538/S2006303.pdf?sequence=1. McEachern, W. (2014). Economics: A Contemporary Introduction. Canada: Cengage Learning. Roach, B., Harris, J. and Codur, A. (2015). Microeconomics and the Environment. Retrieved from http://www.ase.tufts.edu/gdae/education_materials/modules/microeconomics_and_the_environment.pdf. Security and Exchange Commission. (2014). Form 10-K: APPLE INC. Retrieved from http://www.sec.gov/Archives/edgar/data/320193/000119312513416534/d590790d10k.htm. Sun, Y., and Yallenis, C. (2007). Perfect competition in asymmetric information economies: compatibility of efficiency and incentives. Journal of Economic Theory. 134(1). pp. 175–194. Zhen-tao, Q. and Yan, Y. (2005). Competitive Monopoly Market Structure under the Conditions of New Economy. Harbin University of Commerce. 1(1). pp. 3-7. Read More