Market Model Patterns of Change: Apple Corporation - Research Paper Example

?MARKET MODEL PATTERNS Market Model Patterns of Change: Apple Corporation Word Count 028 (4 pages) I. Introduction Apple Corporation is a key symbol of what could generally be defined as a monopoly—in almost every sense of the word. In almost every area, from computers to phones to MP3 players, Apple dominates the technology market. One must ask oneself, “Why is this so and how does Apple deal with this kind of power? The pattern of change in terms of monopolies can be harsh, but so far, Apple has benefited richly from its style of operation. According to Froeb and McCann (2009), “If competitive firms live in the worst of all possible worlds, monopoly firms live in the best. ... For example, in 1983, the Macintosh computer's innovative graphical user interface gave Apple Computer a unique, user-friendly product” (pp. 122). The short- and long-term behaviors of the model in the technology industry demonstrate how Apple’s inherent success might live on long after its co-founder Steve Jobs passed on. Elementally important behaviors crucial to Apple’s continued success as a monopoly are demonstrated in these factors: the transaction costs the company pays; strategies in order to deal with the transaction costs; and productivity measures that can be utilized to enhance the company’s sound financial stability in a market economy. II. Transaction Costs Three possible areas for Apple’s technology industry that could lead to transaction costs include: production; shipping; and technical support. Production costs are probably nominal considering what production costs would be if production were not being outsourced. Apple is notorious for outsourcing most of its assembly and labor associated with production to China. Of course, this isn’t the most ideal scenario, as many people would complain that Apple is trodding on the backs of the poor in order to have its menial workers live in roach- and rat-infested quarters, working round-the-clock to fulfill orders. Because of its demand, Apple also carries the additional burden of having to ship orders worldwide within a certain time frame. Not only this, but Apple must be able to provide 24/7 technical support around the world in order to satisfy customers and ensure that their customer base is loyal to their brand. No matter whether one has to pay low wages to Chinese factory workers, come up with revenue to ship the products, or provide well-paid tech support—Apple’s transaction costs have been cut significantly in order to ensure that their ability to produce revenue is reduced as much as humanly possible. More will be discussed about these strategies in the next section. III. Strategies for Dealing With Transaction Costs The behavior that helps Apple stay at the top of its game are its abilities to: 1) maintain low production costs; and 2) ensure that it maintains high-quality, licensed products for the price. Low production costs have effectively been implemented by ensuring that the workers being hired are being paid the lowest possible rates. In China, this means that people are only making minimal wages, sometimes for pennies on the dollar. In the United States, people known as Mac Specialists who work at the Genius Bar in the Apple Store may get salaries, but it takes a long time to become a Mac Specialist. Floor salesmen are rumored to make $10 per hour, possibly plus a commission. This means that, in most cases, Apple is paying its hourly employees almost double the minimum wage for most states. However, as most people might relate, $10 per hour is a paltry sum compared to the amount that one needs to make weekly in order to maintain one’s budget if there is only one working person in the household. In order to keep production costs low, Apple needs to pay employees less. It’s that simple. Unless they scaled back wages, Apple would never make a profit because they need to utilize those funds to put money back into their product testing, design, and engineering—as well as to be able to continue producing high-quality, high-concept products. One knows that if one buys an Apple product, not only is it going to most likely be of the highest quality, but the product will also be licensed. This means that no one else can legally copy the software or any aspect of the product. According to Shuen (2008), “One pleasant side effect for Apple of the DRM deal with the music companies is that it is difficult for Apple to license that DRM technology, preserving Apple's monopoly there” (pp. 148). So, for example, iTunes is a platform for buying music that no one else can replicate. Not only that, but iTunes only works on Macintosh (Mac) Apple (OSX) operating system software. This means that one must fully buy into Mac products in order to get them to work. This thereby increases customer loyalty to the Apple brand. This means that people are willing to pay higher prices for these products, which offsets the costs of production, shipping, and tech support. Apple’s monopoly on licensing is one way of reducing transaction costs, and so far, its strategy seems to be working. IV. Productivity Measures No one needs to look at Apple’s financial records to know that their executives are money-making geniuses—although, for the sake of research, it will be accomplished here. Steve Jobs died with assets ranking in the billions several times over. According to Christman (2004), “Looking at the balance sheet, after making seasonal payments, the company expected to have $70 million in cash on hand, while inventory at year-end was $425 million. The company finished the year with 855 stores…” (pp. 56). Of course, this data was recorded 8 years ago. Now it is rumored that Apple has assets worth $400 billion—and, supposedly, Apple’s amount of cash-on-hand is such a ridiculous number that it would make someone incredulous. The major factors that affect the degree of competitiveness in the tech industry—whether it be phones, computers and laptops, or MP3 players—is that the technology is a solid, quality product (certainly one factor of production) and that it works, a second factor. People buy Apple products also because they know Apple does research on its production before it goes to the factories where the products are assembled. Not only that, but Apple’s user-friendly products don’t require the buyer to read a stack of complicated manuals chock-full of instructions. Therefore, user-friendly interfaces are a third productivity factor which make Apple an absolutely huge competitor in the tech market. V. Conclusion However one analyzes the situation, Apple is a monopoly—and, as monopolies go, Apple is sure to be a major contender in the years to come. Whether its sleek MacBook Air is reduced in price (which it was), or whether it releases the iPhone 5 in the future (which it most certainly will)—Apple has shown itself to be a company that can rebound and last, innovation being key. The creativity of the people who work at Apple has been proven time and time again—including the facts that they have been able to keep their balance sheet explode with profits because of their executives’ ability to appropriate their finances in an expert manner. The crucial beahviors that have characteristically defined Apple’s success include: maintaining its low or moderately-priced transaction costs which it has effectively managed; utilizing successful strategies in order to properly handle the costs of transactions; and productivity measures that are utilized in order to better the company as a whole and provide it with ample opportunity to compete and stabilize itself in an uncertain global economy. WORKS CITED Christman, E. (2004, March 20). Transworld: back in black. Billboard, Vol. 116, No. 12, pp. 56. Froeb, L.M., & McCann, B.T. (2009). Managerial economics: a problem solving approach. US: Cengage Learning. Shuen, A. (2008). Web 2.0: a strategy guide. US: O’Reilly Media, Inc. Read More