Apple: Competing In The Global Arena - Case Study Example

Competing In The Global Arena Apple Computer This research based on global Apple company who intend to launch new computer product. This research will equally focus on global trends with the help of SWOT analysis. Case Issues of Apple Products Core Competency (CI#1): Apple design, develop and market numerous product and service lines. They sell their products to education, consumer creative professional, business and government customers. As apple appears to show many products and conduct business on dissimilar segments, it is lawful to speculate what the company is actually good at? Too much variety is precisely what compressed Apple. Cannibalization (CI#2): According to the expert analysis in the course of January 2005, Apple has release 102 retail stores. Though these launches are potentially helpful, Apple stores are ache the resellers business and not all of them will endure. Considering that the companys resellers motionless account for further than 50% of its household sales, the company is opposite the risk of cannibalization and might intensely suffer. High Cash (CI#3): Why is Apple holding so much cash? Having too much cash in reserve might either mean that the company does not know yet how to allocate it or that they may have some risk concerns about future potential investment. Succession (CI#4): Apple is obviously one of the handful of companies where the fortunes are seen to be intricately tied to the person in charge. The star excellence and the thinker talents linked by professionals Jobs are certainly contributed to the success of the company. So the news of Jobs cancer surgery might lead to a succession problem and compromise the companys future. I. Current Situation A. Current Performance Apple achieved a solid performance for the first quarter of 2005 compared to the same quarter 2004 with strong net sales in the Americas segment (+77%) in Europe (+63%) and in Japan (+18%). The Americas segment represents approximately 47% of the companys total net sales. The increase in net sales in the Americas, Europe and Japan was primarily driven by increased demand of the iPod and the consumer-oriented iMAC (Apple Computer, Inc. (AAPL), 2006). Demand for the iBook products were especially high for the Americas, while peripherals and other hardware were more popular in Europe. The retail segments net sales grew to $561 million as compared to $273 million in the same period in 2004, this represents a remarkable 105% increase. B. Strategic Posture Mission Apple strives for continuous improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services (Environmental Health and Safety Policy Statement, 2006). Apples Guiding Principles Meet or exceed all applicable environmental, health and safety requirements. Where laws and regulations do not provide adequate controls, Apple will adopt their own standards to protect human health and the environment (Apple and the Environment). Support and promote sound scientific principles and fiscally responsible public policy that enhance environmental quality, health and safety. Advocate the adoption of prudent environmental, health and safety principles and practices by their contractors, vendors and suppliers (Environmental Health and Safety Policy Statement, 2006). Communicate environmental, health and safety policies and programs to Apple employees and stakeholders. Design, manage and operate our facilities to maximize safety, promote energy efficiency and protect the environment. Strive to create products that are safe in their intended use, conserve energy and materials and prevent pollution throughout the product life cycle including design, manufacture, use and end-of-life management (Environmental Health and Safety Policy Statement, 2006). Ensure that all employees are aware of their role and responsibility to fulfill and sustain Apples environmental, health and safety management systems and policy (Environmental Health and Safety Policy Statement, 2006). Strategy Trough the design and the development of its own operating system, hardware and many software application and technologies, Apple strives to bring to its customers compelling new products and solution with superior ease-of-use, seamless integration and innovative industrial design. Apple Currently Focus On: Increasing marketing and advertising investment in order to improve product and brand awareness. Vertical growth strategy: expand the retail segment by opening more retail stores. (CI#2) Market opportunities related to digital music distribution and consumer electronic devices, including iPod. Implement a cost leadership strategy to keep up with the competition and be more affordable for the educational segment. Continue to be the leader in innovation for new technology by implementing a product differentiation strategy(Apple pushes past Google as top brand, 2005). Policies "Employee diversity ": This policy is a key component and contribute to the success of the company. "We respect these differences and threat them as an additional value that we incorporate in the way we treat other and approach our customers." Therefore, Apple apply that each employee is fully responsible for understanding and following this policy. "Substance policy" II. Corporate Governance A. Board Of Directors The Board consists of 6 members, of which 5 are external directors: The Board of Apple is composed of a very diverse group of professionals who bring valuable expertise in the areas of technology, biotechnology, finance, turnaround strategies, retail business management, etc. The backgrounds and current "independent" positions of these members provide a wealth of knowledge and a variety of business perspectives for Apple. However the external activities of some of the members of the board might also be a source of conflict for the company. B. Management Style Despite the fact that the company claims to have a partnership management style, I personally believe that Steve Jobs is leading an entrepreneurial style and highly influence the company. (CI#4) External Environment Scan Societal Environment 1) Political-Legal Forces Different countries have different legislations and these in some ways restrict the companies or give opportunities to the company. NAFTA, European Union and other regional trade open doors to market in Europe, Asia, Latin America that offer enormous potential. Political uncertainties caused by terrorism activities are directly impacting the overall business of the company. 2) Socio-Cultural Forces The computer and internet usage is growing worldwide and is a good source of opportunities for the computer industry. Customers had become more experienced and computer literate. Education has become a primordial issue for the new generation, which is a key factor for the companys business. 3) Economic In the past year, the industry has been affected by the slow economic and that resulted in low consumer spending. However the current economy shows some sign of improvement, consumer spending and investment might increase as well. 4) Technology Technology is evolving at a rapid pace today and people appreciate more & more advances in their systems and are switching over to new information appliances. Internet availability and usage is growing and leads to good opportunities for the industry. The traditional desktop might become outdated by the entrance of new revolutionary products. Increasing demand for new technology in schools and professionals. B. Task Environment Threat of New Entrants: Medium to High - In the PC market any firm that discovers a new technology that is efficient in terms of price & performance is an immediate threat to the industry. However, Established standards, start-up costs and established brands names (Intel, Windows) are difficult to overcome for a new entrant. Threat of Substitute Products: High - The new forms of Information appliance like Digital TV / HDTV Digital set- top box & Internet screen phones are gaining increasing popularity this might hamper the growth of the PC industry as a whole. Bargaining Power Of Suppliers: High - Since the industry is highly dependent on component suppliers, a powerful supplier could exert pressure on the market, by supplying components at a higher price to increase his profits. Since Apple is working only with few selected suppliers, the company is running at a higher risk than the average. Bargaining Power Of Buyers: Low-Due to high number of other suppliers in the industry the customer has the options to take the cheapest and the best. Rivalry among competition: High-Competition among the giants is fierce, everyone aiming for a larger market share, intensive price cuts & changes. IV. Internal Environment Scan A. Corporate Structure Apple is organized along functional lines. Apple is structured primarily on a geographic basis. The companys reporting operating segment is comprised of: 1. The Americas 2. Europe, Middle East and Africa 3. Japan 4. Other: Asia-Pacific (Australia, Asia, and the subsidiary FileMaker, Inc.) B. Corporate Culture Commitment to innovation and product quality Dedication to hard work and education Commitment to diversity and to empowering employees Commitment to safety and conservation of the environment/energy Professionals Jobs has a huge impact in the companys culture. Since Jobs return in 1997, the company has reinvented itself with an array of different colors and styles of computers. The introduction of the Ipod and Itunes largely position the company as an innovative leader (What Top Execs Really Say About Apple., 2006). C. Corporate Resources 1.) Marketing Mix a.) Product Apple is committed to sell original, good looking products that have an easy-to-use interface. The company offers a range of personal computing products, related devices and peripherals, and various third party hardware-products. In addition, the company offers software products (Mac OS X), server software and related solution; professional application software; and consumer, education and business oriented application software(Apple Computer Inc AAPL.O (NASDAQ), 2006). Apple has been very innovative by finding new usages for its Macintosh computer, such as desktop publishing and strong graphics/animation capabilities. The Macintoshs functionality for managing multimedia files from cameras, DV recorder and MP3 devices has been very popular and successful(Apple Computer Inc AAPL.O (NASDAQ), 2006). The new introduction of Apples iPod and the iTune has revolutionize the digital music industry. b.) Place Apples operating segment are comprised of: U.S. South America Europe Japan Australia. Recently Apple chose to implement a vertical growth strategy and began expanding their own retail stores. (CI#2) The company also sells its product via third-parties dealers, or via internet through their own website or through the iTune online music stores (Apple Computer Inc AAPL.O (NASDAQ), 2006). C.) Promotion In 2003, Apple formed a strategic alliance with PepsiCo. The Pepsi iTune Music promotion calls for people to use the winning code found under the Pepsis bottle caps products to redeem songs from Apples iTunes Music Store (Pepsi Screws Up iPod Bottle Cap Promotion Again,2006). This promotion has already been successful for both companies and increased the awareness of the iTune presence in the market. In 2003, Apple also announced a marketing partnerships With America Online that are aimed at driving iTunes use deeply into the mainstream. Apple and America Online have agreed to put iTunes "buy this song" buttons next to every song thats listed in AOLs music service, which its 25 million subscribers can access. Clicking the button will automatically launch the iTunes music jukebox and begin downloading the song; billing will be handled through the customers existing arrangement with AOL (Pepsi Screws Up iPod Bottle Cap Promotion Again,2006). Apple has a joint venture with Hewlett Packard. Apple has produced an iPod for PC users and the success of this product was a good way for the company to capture non-MAC users. The company also drew on endorsements from music stars. U2 singer Bono, rap artist Dr. Dre and Rolling Stones singer Mick Jagger each gave a live endorsement of the iChat videoconferencing software (John Borland, 2003). Singer Sarah McLachlan also appeared live to sing several songs and to talk about how she used the iPod (John Borland, 2003). In 2005, Apple Computer has initiated a partnership with Wal-Mart that will soon see the iPod shuffle featured at Wal-Mart discount locations around the country (John Borland, 2003). d.) Price Apple price is know to be above average in the industry. The company is using a differentiation strategy and focuses more on innovation, and quality. This strategy is justifying their premium prices. Lately, however, their new technology and their high cash flow allowed them to lower their price and to offer more discount to certain markets such as the education market. (CI#3) This new pricing strategy may help Apple to better compete with the non-Mac user market but might cause some issue with the brand image/recognition. 2.) Finance The financial results for the fiscal 2004 fourth quarter ended September 25, 2004. For the year 2004, the Company reported net income of $276 million on revenue of $8.28 billion compared to net income of $69 million on revenue of $6.21 billion in 2003. Their net income has increased 400%! (Apple Reports Fourth Quarter Results, 2004) 3.) Research and Development Apple consider that R&D are critical for the activity of the company. Therefore, they are willing to increase investment in R&D to keep a sustainable competitive advantage in the industry. 4.) Operation and Logistics Apple heavily rely on third-parties in the manufacturing and logistics sector. In order to have more control over the quality of the buying experience, Apple has done continual effort to become vertically integrated during these two passed years. 5.) Human Resources Management (HRM) Apple has over 13,000 employees world wide. Apple believe that employees diversity is a key component for the company success. The company expects that all employee will respect the background or cultural differences of their peers. Apple offer great benefits to its employee such has competitive pay, and compensation, insurance coverage, bonuses, substantial product discount, stock purchase and saving/investment plan. The company offers all-level of position such as internship, part-time and entry-level for college student. 6.) Information Systems Apple has encountered a substantial success by introducing a new digital music device called iPod that can store 1,000 songs and copy a CD in 10 seconds. V. SWOT/TOWS ANALYSIS A. SWOT ANALYSIS Strengths & Weaknesses Strength 1. Ease of use 2. Established in the personal computer market 3. High Corporate reputation 4. Control over the product (manufacture both the computers themselves and also the operating systems which they run) 5. Leader in innovation and product differentiation 6. Employee diversity 7. Strategic Alliance (HP) 8. Joint venture with Pepsi 9. Strong Top management 10. Loyal customer base 11. Creative style Weakness 1. The ease of use has led to some image issues, with some business people regarding the Macintosh as a toy. 2. High inventory 3. Distribution problems 4. High prices 5. Declining share in educational market 6. Too many product lines Opportunities & Threats Opportunities 1. Internet 2. Growing industry 3. Creating new software markets and selling the hardware into these markets. 4. Demand for innovation 5. Employee benefit programs 6. Growing educational market Threats 1. Very intense competition among the industry 2. Price competition 3. loss of market share 4. Potential litigations 5. Budget deficits in education 6. Technological and prices discontinuity 7. Potential increase in supplys costs B. TOWS ANALYSIS SO1. Focusing on innovation and product differentiation will contribute to the customers satisfaction (S5, O3, O4) 2. The diversity of the employees and the employee benefit programs contribute to the high corporate reputation (S3, S6, O5) 3. Joint venture with Pepsi and strategic alliance with HP respond to the demand for music download. (S7, S8, O7) WO1. The growing educational market should increase Apples market share in this segment (W6, O6) 2. The growing industry should allow the company to decrease prices (W4, O2) ST1. The high corporate reputation might suffer from the potential litigations. (S3, T4)2. Strong management might overcome the potential litigations. (S9, T4) 3. Focus on innovation and product creative style might offset the low prices of competitors. (S11, T1, T2) 4. Innovation will depend on the technological -prices conditions and changes. (S5, T6) WT1. The image issues concerning the ease of use of the machine might contribute to the loss of share. (W1, T3) 2. The discontinuity in technology and prices might create some forecasting problems, which could result in excess or shortage of inventory. (W2, W3, T6) 3. Competition might take advantage of Apples high price. (W4, T1, T2) 4. Apples high price might lower the amount of educational contracts (W4, 5) 5. Not being IBM compatible might lead to loss in market share (W5, T3) 6. The broad product line might be endangered by the technology and prices discontinuity. (W7, T6) VI. Strategic Alternatives And Recommended Strategy A. Strategic Alternatives 1.) Turnaround The company could stop the expansion of their own retail segment in order to maintain a healthy relationship with its third-party distributor and avoid lawsuit. This strategy would also reduce the risks and costs tied to the stores investment. Apple could use its high cash to implement a product development strategy within the market segment they are currently serving. The company could also keep selling its products at a premium price in order to maintain the companys reputation as an upscale and innovative brand. PROS Improve relationship with resellers. (CI#2) Reduce risks The allocation of the high cash into a product development strategy might ultimately increase the revenue of the company(CI#3) CONS No control over the quality of the buying experience procured by the third-party distribution (CI#2) Potential loss of market share because of the premium selling price Broad product lines might lead to confusion and extra overhead costs. (CI#1) 2.) Vertical Growth The company could decide to do a forward integration, by expanding its own retail store. Apple could use its high cash to finance this investment. The stores are a critical way to leverage Apples brand and showcase newfangled digital wares to affluent consumers. PROS Total control over the quality of the buying experience (CI#2) High cash can support the investment for the retail segment (CI#3) Better brand awareness CONS Dissatisfaction of the resellers(CI#2) Potential loss of revenue due to cannibalization (CI#2) The high cash investment is risky, and might have been allocated in a more safety way. (CI#3) B. Recommended Strategy Pause and Proceed The last fiscal year has seen improvement for Apple. Profits have increased and the focus has been on innovation, especially in the music segment market. Using the high cash to implement a price strategy appears to be a good idea to compete with the non-Mac users. (CI#3) The brand image might slightly suffer from this strategy, therefore marketing incentive should be increased in order to sustain Apples reputation for high quality and innovative products. The retail segment growth should be implemented with a lot of caution. Apple needs to ease the pain of the resellers by coming up with programs to encourage these longtime partners to help it accomplish goals it cant achieve on its own. (CI#2) Apple should also primarily focus on the music segment market and the educational segment market in which they have good opportunities. This focus would allow Apple to be more competitive and profitable. (CI#1) VII. Implementation A. WHO? The top management should narrow their focus to two market segment. B. WHAT? Apples core competency should focus on the music segment market and the educational segment market in which they have good opportunities. (CI#1) C. HOW? The company has to invest more into these 2 segments and cut some product lines that are not very profitable to the company. D. WHO? As Steve Jobs initiated, the company should keep focusing on a price strategy E. WHAT? By lowering the prices, the company will be able to be more competitive and increase market share. F. HOW? The company can use its high cash to support discounted prices. (CI#3) G. WHO? The top management should decide to expand the retail store. H. WHAT? Improve the quality of the buying experience by having control over the salesperson and collaborate with the resellers. (CI#2) I. HOW? The company can use its high cash to invest in the retail store expansion. The company should also tightly work with the resellers by supporting them through programs and bonuses.(CI#2) (CI#3) J. When? During mid 2005. K. HOW MUCH? The Companys current strong financial condition and low debt-to-equity ratio will provide the means to accomplish these implementation initiatives in the short-term. In the long-term these measures will be well worth the cost in increased revenue and market share. L. WHO? The board of directors and the top management should prepare a succession plan. (CI#4) M. WHAT? The company has to deal with Steve Jobs eventual departure. N. HOW? Steve Jobs has to delegate some of his power to the top management and he should also implement some training programs. Tim Cook might be a good potential successor.(CI#4) P.WHEN? Right now. VIII. Maintenance And Control A. The companys strong financial position should allow the implementation of the strategies stated above. However the investment related to the retail segment growth is very costly and might be risky. Therefore, the company should: Increase gradually the opening of retail stores. B. The companys focal point on the music section market and the teaching segment market has to be firmly observed. Top management should assess on a weekly basis generally performance. (Revenue, Profit, ROI) Moreover the criticism forms ought to also be given to customers to preserve high-quality relationships and to spot market trend early. Work Cited Apple Computer, Inc. Q2 2006 Earnings Conference Call Transcript (AAPL) Posted on Apr 20th, 2006 with stocks Apple launches iTunes for Windows,By John Borland and Ina Fried Staff Writer, CNET News.com , 2003, http://news.com.com/2100-1041-5092414.html Environmental Health and Safety Policy Statement, 2006 http://209.85.129.104/search?q=cache:iX_lRlgHZCcJ:images.apple.com/environment/resources/pdf/EHS_policy2006.pdf+Apple+strives+for+continuous+improvement+in+our+environmental,+health+and+safety+management+systems+and+in+the+environmental+quality+of+our+products,+processes+and+services&hl=en&gl=pk&ct=clnk&cd=1&client=firefox-a Apple and the Environment, http://www.apple.com/environment/materials/ Apple pushes past Google as top brand, 2005 http://weblog.infoworld.com/techwatch/archives/2005_01.html What Top Execs Really Say About Apple.,Bruce Nussbaum , 2006 Apple Computer Inc AAPL.O (NASDAQ), 2006, http://stocks.us.reuters.com/stocks/fullDescription.asp?symbol=AAPL.O&WTmodLoc=NewsArt-C1-ArticlePage1 Pepsi Screws Up iPod Bottle Cap Promotion Again, 2006, http://www.adrants.com/2005/01/pepsi-screws-up-ipod-bottle-cap.php Apple Reports Fourth Quarter Results, 2004, Revenue Increases 37 Percent Year-Over-Year iPod Shipments Top 2 million. 10-Q for Quarterly Period Ended December 25, 2004 http://www.apple.com/investor/ Apple Governance http://www.apple.com/investor/ Apple Financial Analysis http://www.hoovers.com/ Diverse Articles on Apple http://www.businessweek.com Read More