Analysis of the Market in which Apple Inc. Operates - Case Study Example

Management Economics Table of Contents Introduction 3 2.Internal Organizational Structure 3 3.Analysis of the market in which Apple Inc. operates 43.1 Marketing Environment 4 3.2 Economic environment 7 3.2.1 Macroeconomic Conditions 7 3.2.2 International Trade Conditions 7 3.2.3 Impact of the regulatory environment on Apple’s business 8 4.Performance of Apple Inc 9 4.1 Profitability Performance 9 4.3 Market penetration and Growth Strategy of Apple Inc. 10 5.Conclusion 12 Reference List 14 1. Introduction Apple Inc is a world famous IT company that manufactures various electronic products and it is headquartered in California. The company is known for its high quality goods that are served to the customers (Osterman, 2006). The researcher says that it enjoys leadership in the electronic industry. The company is said to follow a product design of high quality and it serves huge customer base with the unique designs as well as the durability of the products. However the researcher says that the company has very few distribution channels and it focuses in producing electronic goods for the high as well as the middle income groups. It is often seen that the products manufactured by Apple Inc. are hardly compatible with the products of the other company (Osterman, 2006). The company has transformed from manufacturing computers to consumer electronic goods and the company has been successful in setting up its business in the international markets. The paper aims at analysing the market and the economic environment in which the company operates. It also allows the researcher the scope to evaluate the performance of the company and the strategies applied by Apple Inc. in order to set up its business in the international markets. 2. Internal Organizational Structure The managers of Apple Inc. take decisions regarding the production levels of the electronic goods manufactured by the company depending on the demand conditions of the customers. The firms also set the prices of the products that are mostly affordable by the customers who prefer to purchase luxury items for their products (Duriau, Reger and Pfarrer, 2007). The cost that the company bears in order to carry out its activities can be classified into two types of costs that are the fixed cost as well as the variable cost. Fixed costs remain constant throughout the relevant range of production (Zheng, Yang and McLean, 2010). However the variable costs depend on the labour and capital employed within the firm that may include the materials used in the production as well as the wages paid to the workers. The managers of Apple Inc. fix the prices of the products manufactured by the company considering the fixed as well as the variable costs for the products. The large companies like Apple Inc. are said to be more profitable compared to the small companies due to the economies of scale (Angulo, 2009). Economies of scale occurred in Apple Inc. as the company specialises mainly on the smart phones and computers and launches the best quality smart phones in the international market (Pache and Santos, 2010). The company uses advanced technology for manufacturing the smart phones that serves various purposes. It has gained a brand loyalty from the customers by serving them with quality products. Apple Inc (Chawla and Joshi, 2011). uses high capacity Advanced Technology Attachment also known as 100 drive technology with a Fibre Cable Interface in order to have a reliable and fast data access. Apple Inc. faces huge competition from its rivals Microsoft, Google and IBM and the company has to develop artificial intelligence solutions and Big Data in order to launch new products (Rhodes, et al., 2008). However adopting new technology for a company depends on the efficiency of the managers to get accustomed to the new technology and train the workers accordingly. 3. Analysis of the market in which Apple Inc. operates 3.1 Marketing Environment The market for Apple Inc. can be of different types depending on the various products it manufactures. The company operates as an oligopoly market when it manufactures smart phones for its customers. Oligopoly market implies that there are few sellers and many buyers within the market (Seddon, Calvert and Yang, 2010). As the company has very few competitors in its smart phone business it has large customer base and the company serves variety of products within the economy. On the contrary the company also follows a monopolistically competitive market structure within the economy for its production of branded computers (Aksorn and Hadikusumo, 2008). The company produced differentiated products that are it produces different types of computers for different individuals such that the manufactured products can serve various purposes (Gillespie and Dietz, 2009). Figure 1: Diagram showing the market structure followed by Apple Inc. (Source: Gillespie and Dietz, 2009) The price and the quantity of the products to be produced within the market are determined at the intersection of the marginal revenue as well as the marginal cost within the economy. The diagram also shows the profit that is earned by the company which id indicated by the area ‘abcd’. This area is the amount of Profit that Apple Inc. earns by selling the products at a higher price in the international markets. With the entry of the rivals within the economy the company’s profit is expected to fall from supernormal to normal profit (Chen and Huang, 2007). Figure 2: Graph depicting demand elasticity of new products by Apple Inc. (Source: Pollock and Williams, 2009) Apple Inc. has introduced the new range of computers in the years 2009 and the demand was highly elastic to the price (Pollock and Williams, 2009). Before the introduction of the MacBook Wheel the demand curve was flatter and after the introduction of the new range of computers there evolved a steeper demand curve and the company earned a higher profit (Angulo, 2009; Gillespie and Dietz, 2009). The company has been continuously producing new products in order to satisfy the growing demands of the customers (Berkes, 2009). However the company focuses only on the upper and the middle class society and the smart phones manufactured by the company are usually sold at high prices that are not affordable by the common people. The company also undergoes product differentiation in order to satisfy the customers with varying demands. In a monopolistically competitive market there are minimum entry barriers and the firms can enter the market in case there is supernormal profit (Berkes, 2009). Since the products manufactured by Apple Inc. are expensive hence there are other firms producing similar types of products that is affordable to every individual. The fact implies that there are substitutes for Apple’s products in the international market. The company serves its smart phones with unique designs and durability such that it can compete with the other smart phone producers in the market. 3.2 Economic environment 3.2.1 Macroeconomic Conditions The business cycle comprises of the economic booms and busts that takes place and that has a significant impact on the business practiced by Apple Inc. In case there is a boom in the economy the company’s production as well as the sales rises but in case of recession the customers earn a low income and hence they cannot afford to buy the company’s products and hence the company loses its business (Ashbaugh-Skaife, Collins and Kinney, 2007). The economic conditions also have an impact on the society as well as the business practices of Apple Inc. During the global financial crisis of 2008 there was a fall in the company’s sales as well as the profit margin due to which there was a fall in production levels within the economy. There was a fall in the real GDP growth rate of the country which led to the fall in profit shares of the company (Liao, 2007). 3.2.2 International Trade Conditions In case of the fluctuating interest rates there is a downturn within the economy that leads to the economic recession. The fluctuations in the interest rates depend on both the internal as well as the external market structure and in turn affect the consumers’ income as well as the purchasing within the economy (Gebhardt, Carpenter and Sherry Jr, 2006). It also affects the price of inputs and the sales revenue generated by the firms. The fluctuations in the exchange rates further affect the import and export that is to take place within the economy. In case of depreciation of the US dollars the other countries finds it cheaper to purchase Apple’s products from the market (Pollock and Williams, 2009). If there is an appreciation in the value a US dollars the company finds it difficult to export its products to the other countries because the customers have to pay a higher amount to purchase the Apple’s smart phones and other electronic goods. Hence the fluctuations in the exchange rates play a key role in the profit and sales figures obtained by Apple Inc (Chien and Shih, 2007). The technological change adopted by the company brings in innovative products to the markets and attracts the customers towards its products. Due to the technological change adopted by the company it charges huge prices for its products that are only affordable by those customers who prefer to purchase high quality luxury goods (Berkhout, Hertin and Gann, 2006). The technological progress adopted by the company helps the company to manufacture products that can compete with the rivals in the international market. The export of Apple’s products takes place in other countries however these exports are highly affected by the exchange rate fluctuations. 3.2.3 Impact of the regulatory environment on Apple’s business Regulatory environment is extremely important in carrying out a business operation as well as to enhance the company’s ability for developing the business and creating job opportunities. It also helps in creating economic growth within the nation (Ketchen and Hult, 2007). The regulatory laws are mainly meant for the private sector business that serves any of the two objectives that is either to support market competition and control the market power of the large firms or to control the adverse effects regarding business activities of the company. However the researcher says that the impact of regulation on the private businesses has been severe as the production within the private enterprises are controlled. Regulations in various fields affect the organization’s production such as the environmental regulation requires the installing pollution control equipments within the organization and monitoring the release of wastes from the factories into the natural resources (Chan and Kumar, 2007). Apple’s also follows the regulatory policies set by the Government of US such that it does not pose any problem to the society. The managers of Apple Inc. must ensure that the new technology adopted by the company does not pose any harm to the society and the workers within the industry are well accustomed to utilise the technology (Jack Walker, Armenakis and Bernerth, 2007). 4. Performance of Apple Inc 4.1 Profitability Performance The researcher says that if the company maintains its growth rate at this level then the growth is expected to transform into higher long term growth rate (Froud, et al., 2014). However if the growth rate fluctuates then the company would lose some of its market shares and the sales figures would drop. The growth rate of Apply Inc. has been unusual compared to other American companies (Froud, et al., 2014). It has set up a successful business in the field of tablets, smart phones and personal computers. The main reason for Apple’s success is the focused business strategy used by the managers of the company and the company is said to have a unique supply chain that helps in maximising returns as well as minimizing the cost incurred by the company (Froud, et al., 2014). The Figures in the table shows the profitability earned by Apple Inc. over the years from 2005 to 2014. Figure 3: Table indicating the profitability of Apple Inc. (Source: Froud, et al., 2014) 4.2 Critical analysis of Apple Inc’s performance in 2014 Apple’s performance was good in 2014 as it has earned a huge profit. The study shows that the company has recorded quarterly revenue of $57.6 billion and a net profit of $13.1 billion (Froud, et al., 2014). There was an increase in the gross margin in 2014 that is it recorded 37.9% compared to 38.6% in 2013. The sales figure for Apple’s iPhone rose to 51 million and it sold around 26 million iPads (Froud, et al., 2014). The figures indicate that the company has expanded its business in the international market and has gained brand loyalty for its products. Despite facing a huge competition in the international markets the company has gained control over the smart phone market. 4.3 Market penetration and Growth Strategy of Apple Inc. Market penetration refers to the fact that a company enters the market with already existing similar type of products. The managers of Apple Inc. plans to launch new products that attract the customers such that the company can set up its business in the international market despite facing a lot of competition (Ammons and Rivenbark, 2008). Figure 4: Ansoff Matrix for Apple Inc. (Source: Ammons and Rivenbark, 2008) Apple Inc. has a loyal customer base and is planning to expand globally through the growth strategies adopted by the company. The managers of the company are focused in inventing new products through large investments in the research and development and the most identifiable products that the company has launched are iPad, iPhone and Mac notebooks (Kwon and Wen, 2010). The company designs new products and believes in product diversification since the market for Apple Inc. is similar to a monopolistically competitive market structure. The managers prefer to diversify its products range in order to produce variety of products such that it can set up new businesses in the international markets (Yuan and Woodman, 2010). Designing a new product involves a lot of technological progress and the managers have to decide the strategies to implement the projects and train the workers within the company to perform well (Ezzamel and Willmott, 2008). Hence the growth strategy of the company mainly takes place via diversification of products. The patent portfolio followed by Apple reveals two important facts about the design of the smart phones manufactured by Apple Inc. that says the company will continue to launch new products dealing with faster and smarter tools (Yuan and Woodman, 2010). The competitive environment faced by the company will continue the intellectual property related litigation even in future. Through the patents apple Inc. tries to gain control over the smart phone market by defeating its rivals Samsung and Nokia (Ezzamel and Willmott, 2008). 5. Conclusion The research has been carried out on the internal market structure followed by Apple Inc. The study says that the market is mainly monopolistically competitive as well as oligopolistic to some extent. The monopolistic competition prevails because the managers within the company prefer to undergo product differentiation. The differentiated products helps the customers to chose from the wide range of products offered by the company. However the market is said to be oligopolistic because there are few sellers of Smart phones whereas there are large numbers of buyers for the products. The study also reveals that the company has gained a huge profit in the recent years and if this trend continues then it is expected that the company would successful in enhancing its business in the near future. By designing quality products the company tries to grab a higher market share and undergo market penetration by defeating the rivals in the international markets. Often the fluctuations in the exchange rate affect the export of the company’s products to other countries as the prices fixed by the firms are affordable only to the people preferring luxury items. It was also studied that Apple Inc. has very few distribution channels since it manufactures luxury goods and the company has earned patent rights in production of Smart phones by defeating its rivals of Smart phone market. Reference List Aksorn, T. and Hadikusumo, B. H. 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