External Business Environment of Apple Inc - Report Example

Apple Inc. of the of the Number Contents Macro Analysis 3 PESTEL 3 Micro Analysis 5 Stakeholder Analysis 5 Competitor Analysis 7 Suppliers 8 Intermediaries 9 Consumers 10 Internal Analysis 11 Finance 11 Production 12 Marketing 12 Personnel 12 Research & Development 13 7P’s Analysis 13 Strengths 15 Weaknesses 15 References 17 Macro Analysis The commercial affairs of a company significantly depend on matters relating to external business environment. The report will focus on business of the popular multinational computer hardware and software company, Apple Inc. The following context of the paper will explain external business environment of the company through PESTLE analysis model. PESTEL Political Apple Inc. is a multinational company and hence, its business is subjected to political regulations of numerous nations. In modern days, political authorities of emerging developing nations like, China, has relaxed the extensive preferential policies towards foreign companies like, Apple Inc., for protecting their own domestic firms. The government of China has introduced new taxes against foreign companies under the Foreign Enterprise Income Tax law PRC. Many raw materials and intermediate products of the company are outsourced from foreign countries in such as, Cork, Korea and Ireland (Grin, 2014). The political wars, bureaucracies and corruption in these nations negatively influence Apple Inc’s business. Moreover, political relationship of U.S. with other nations externally affects welfare of the company. Economical The company operates in various nations of the world, which is why it is subjected to several currency and exchange rate risks. Since the global financial in 2008, economic conditions in developed and developing nations have notably changed. Recession in the western nations as in Portugal, Italy and Greece has lowered the domestic demand for Apple Inc’s products. The aggregate economic productivity, in terms of gross domestic product (GDP), is now found to be high in emerging markets like, Brazil and China (Goldstein & Pusterla, 2010). The employment opportunities and per capita income level of individuals living in these economies have increased. Such factors have stimulated discretionary spending powers of these consumers and enhanced demand for comfort products. Hence, Apple Inc. can grasp the booming market demand by increasing scale and scope of its business in these nations. Social Since emergence of globalization, technological knowhow of most economies has increased. Individuals in the contemporary era are considered to be part of the Virtual world, using modern technological gadgets in order to improve their living standards. Apple Inc. is considered to be a pioneer of technology in this Virtual world (Sauvant, 2005). So, the current cultural and social aspects stimulate and provide stability to the business. Some products of Apple Inc. such as, iPhone, iPad and iPod, are considered to be the trendiest luxurious electronic gadgets (Apple Inc., 2014b). These products are largely preferred by the youth and are often treated as status symbol items in the social environment. In addition, global population is annually increasing at a rate of 1.7%. Thus, global demand for Apple Inc’s products is also growing with time (Grin, 2014). Technological Innovation of new technologies has triggered growth for the computer hardware and software electronics industry (Bigler, 2001). However, it should be noted that preferences of individuals in the market significantly changes with new technological advancements. So, companies like, Apple Inc, need to incur large investments for research and development (R&D) purposes. This ensures that products are compatible with latest technical developments. The R&D investment of Apple Inc in 2010 was $1.8 billion, which increased to $2.4 billion in 2011 and finally, accounted to $3.4 billion in 2012 (Apple Inc., 2014b). Senior analysts of the company has claimed that constant rise in R&D investments has lowered the profit margin. In order to avoid piracy of its technical inventions in the market, the company requires investing large sums of money in legal formalities in the form of patents and copyrights (Grin, 2014). Legal Apple follows all legal regulations of its domestic and international markets. The legal aspects in each market are largely linked with political matters. The legal frameworks in U.S., as set by Federal Legislative Mandates for Electronics Recovery and the State Mandatory Electronics Recovery Programs, ensure that any electronic goods manufactured by companies like, Apple, are not hazardous to the environment and people (EPA, 2014). At the same time, the legal authority in U.S. provides additional incentives to companies that manufacture electronic goods with the help of recycled materials. It is claimed by Consumers Electronic Association (CEA) that households and companies of U.S. must foster the practices of “ecycling” for lowering pollution created by disposal of electronic goods (EPA, 2014). Environmental Individuals and government authorities of most nations around the world are growing increasingly conscious about protecting and preserving the ecological balance. The brand value and market powers of multinational companies are highly dependent on corporate social responsibility related activities. Popular multinational companies like, Apple, operate on the basis of Triple Bottom Line principle (Madsen, Neergaard, & Ulhøi, 2008). Under this norm, the company tries to conduct commercial activities in ways through which aspects relating to people, planet and profit can be improved. So, the company manufactures greener electronic products in order to reduce pollution in the environment. Micro Analysis Stakeholder Analysis The stakeholders are a group of individuals and entities in the external business world, who impacts the business or are influenced by activities of a company. Overtime, the value that a company offers to its stakeholders has significantly increased. Figure 1: Stakeholders of Apple (Source: World Press, 2014) The above figure shows different stakeholders of Apple, but power allotted to them is not equal. Figure 2: Stakeholder Map Low Level of Interest High Level of Interest Low Power Business Support Communities Non Governmental Institutes Suppliers Competitors High Power Consumers Employees Shareholders (Source: Author’s Creation) The above stakeholders map shows the primary stakeholders of Apple. They are segregated in terms of power (to influence Apple’s business decisions) and interests (towards activities of the company). Hence, from the map, it can be stated that commercial decisions of Apple Inc. should be customized according to tastes and preferences of consumers. The company should be aware of activities of its suppliers and potential market rivals. Competitor Analysis Apple Inc. conducts its business operations in the high technology, microcomputer and smart phone industries. The business environment of Apple is highly competitive in nature. Samsung Electronics Co., Microsoft Corporation, Lenovo Group Limited and Dell Inc. are few of the potential competitors of Apple. The personal computer (PC) of Apple, MAC was once popular in the market, but its share at present has declined. This is because of growing popularity of companies such as, IBM, Sony and Microsoft. In addition, products of Apple Inc. often loses market share because of being priced higher than the competitive price levels. The product substitution effect in the fast moving IT consumers market is high and popularity of MAC, iPod and iPad in the global market is declining. Furthermore, it is also found that most individuals download music from free online sites. This has negatively affected sales of Apple’s i-Tunes in the global market. Figure 3: Competitors Map Apple (Source: Zhang, 2013) The above figure shows the competitors map of Apple. It shows that the company claims to manufacture high priced products of superior quality. Suppliers Apple Inc. is a giant multinational company, which manufactures various types of hardware and software electronic products. The company has more than 200 popular multinational companies as suppliers. As of 2014, the most prominent suppliers of Apple are 3M Co., AAC Technologies Holding Inc, AKM Semiconductor Inc., Alps Electric Co. Ltd., Delta Group, Intel Corp, Panasonic Corp. and Sony Corp (Apple Inc., 2014a). Nearly 97% raw materials of the company are outsourced from its suppliers. The company also conducts training and knowledge building sessions for certain small suppliers. Figure 4: Rising Supplier Training Participation (Source: Apple, 2014) The above graph shows the increasing number of supplier training sessions conducted by Apple from 2007 to 2013. Apple Supplier EHS Academy conducts an 18 month training program for its product suppliers (Apple, 2014). So, from the above analysis, it can be stated that bargaining powers of Apple’s suppliers are generally low. Intermediaries The raw materials and semi-finished products of the company are procured from suppliers. So, suppliers of Apple Inc. are its business intermediaries. Nonetheless, even distributors of the company are considered as business intermediaries (Schreiner, 2014). The company does not directly deal with its customers; instead, distributors conduct the trading transactions with consumers. Figure 5: Apple Distribution Channel (Source: Authors Creation) The company uses third party distribution strategy in business. Giant retailing firms, like, WalMart and Tesco, sell Apple Inc’s products (Schreiner, 2014). Figure 6: Apple Products Distribution (Source: Paczkowski, 2014) The above chart shows that most products of Apple Inc. are sold from its own franchised retailing outlets, despite implementing the third market distribution strategy. In 2012, it was found that $4.1 billion revenue was generated from 373 retail outlets of Apple around the world (Paczkowski, 2014). Consumers The company primarily aims to conduct business-to-consumer trading activities. The most potential buyers are young students as well as creative and commercial professionals. The students prefer products of the company because they are fashionable, popular, functional and rich, in terms of multimedia features. The academic professionals prefer Apple’s products owing to a commendable operating system and logical as well as practical features. The creative professionals claim that the products are highly fashionable and unique. Loyal customers of the company states that high prices of the products are worthy, considering the superior quality. The company provides special financing options to these loyal customers (Ferri, Deakins & Whittam, 2009). The company allows these customers to make deferred payments. Internal Analysis Finance The gross revenue of Apple has consistently improved with time. In 2013, revenue of the company had increased by 9.2%, from USD 156508 million to USD 170910 million (Apple Inc., 2014b). However, though revenue has been on the rise, yet Apple’s aggregate income in 2013 has declined by 10.9% (Apple Inc., 2014b). Figure 7: Rising Revenue and Falling Income of Apple (Source: Author’s Creation) The above graph shows that company revenue has increased, but income has slightly declined from 2012 (2) to 2013 (3). This proves that cost of operations of Apple is rising over time. This is probably due to increasing expenditure in R&D investments. The research expenses of the company have augmented by 7.8% from 2012 to 2013. Although this lowers profit of the company, organisational competency is being enhanced (Benninga, 2008). The equity position of the company has improved by 5% from 2012 to 2013. The inventory turnover ratio and cash ratio of Apple Inc. has also bettered from 2012 to 2013 (Apple Inc., 2014b). Production The manufacturing activity of Apple Inc. starts from procurement of raw materials. The company’s manpower and technological costs are often less than costs of procurement of supply. Since the company manufactures products in large scale, it experiences economies of scale in production. Apple employs superior technologies and machines in order to manufacture products. Company’s capital investment in 2013 was approximately US$ 4.7 billion. Even so, the company has declared that in 2014, capital manufacturing investments would increase to US $ 11 billion (Apple Inc., 2014b). It owns superior laser and mining machines for creating uniquely designed products. The manpower of the organization is highly skilled and robotics experts are hired to manage intricate matters related to production process (Schreiner, 2014). Marketing Apple Inc. applies unconventional marketing strategies in business. The recession from 2008 had significantly affected business prosperity of most companies in U.S. and Europe. Nevertheless, Apple could succeed in increasing revenue even in such catastrophic circumstances with its unique marketing activities. The company constantly upgrades quality and features of its products, which helps in enhancing utility of consumers. It also provides special gift card and deferred payment facilities to loyal consumers. The brand is advertised through television, visual merchandising and different sources of internet media (Clark & Mathur, 2011). The company ignores words of the critics and instead tries to improve external appearance of the product line and justify high product prices to customers. The company marketing experts communicate in local languages with customers, a way in which Apple tries to learn from previous business experiences and enhance brand value in the market (Fadaei, 2014). Personnel The company was founded in 1976 by Steve Jobs, Ronald Wayne and Steve Woznaik (Apple Inc., 2014b). Over time, the company has appeared to achieve this position in the market only through superior leadership skills of Steve Jobs. Creative and innovative practices were encouraged by him since inception of Apple Inc. Since scale and scope of operations of the company is vast, it recruits almost 80000 individuals worldwide (Apple Inc., 2014b). Current chairman of the company is Arthur D. Levinson and CEO is Tim Cook (Apple Inc., 2014b). Research & Development The research and development related activities of the company have increased over time. Figure 8: Increasing R&D Investments of Apple (Source: Hughes, 2013) The company has raised its invention and research investments at a rate of 32% in 2013, as shown in the above figure. The company in 2014 has declared to manufacture a smart wrist watch, named iWatch (Williams, 2014). This company desires to do so for gaining competitive advantage over its rival, Samsung Electronics. Apple’s latest smart phone, iPhone 5, has gained high popularity in the market since 2013. Therefore, key success factor of the company is its superior technological innovation (Gummesson, 2010). 7P’s Analysis Product The personal computer of the company is known as MAC. From 1998 to 2008, Apple has launched several types of MAC models. These are MacBook Air, MacBook Pro, Mac Mini, iMac and Mac Pro (Apple Inc., 2014b). In 2010, the company launched its first tablet named iPad. Its first music device, iPod, was launched in 2001 and is launched through several models such as, iPod Shuffle, iPod Nano, iPod Touch and iPod Classic. The first smart phone, iPhone, was introduced by Apple in 2007. Apple Television was also placed in the market that very year. Operating systems such as, OS X and OS X Mavericks have also been created by Apple (Apple Inc., 2014b). Price The company sells its numerous products at dissimilar prices. Apple implements premium pricing strategy in business (Makhijani, 2012). The products of Apple are expensive than most of its market rivals. However, high prices of the technological gadgets manufactured are justified with unique quality and design. Potential consumers of the company purchase the products for unique quality. Hence, products of Apple are often treated as status symbol goods in the market. The law of demand is not applicable for these products. The demand for goods increases with rise in price. Place The headquarters of the company is located in Cupertino, California, U.S. Over time, Apple Inc. has expanded business branches in most of the major world economies. In 2014, it is claimed by some researchers that the company is planning to open a new business subsidiary in Tokyo, Japan. Apple Inc. primarily aims to extend business in booming economies of the world such as, India, China, Russia, Brazil and South Africa (Apple Inc., 2014b). Promotion The company promotes its brand primarily through “word of mouth promotional strategy” (Fadaei, 2014). By implementing this strategy, the company tries to convince buyers of superior quality of its products. However, over time, extent of competition in the electronics hardware and software companies has significantly increased. At present, Apple invests considerably in promotional activities in the form of television and internet advertisements. Process The company sets high prices for products because of unique and high quality features. It is found that procurement cost of raw materials of the company is very high. Nonetheless, Apple invests massive amount of money in research and new technological investment purposes. The capital investments are also high and the manufacturing process is modern. Apple does not believe in compromising on quality (Wiedemann, 2013). Physical Evidence Apple iPods, iPads and iPhones uphold both intrinsic and extrinsic worth. Designs of the products are rare and non-imitable. The quality of graphics, sound and display of technical gadgets manufactured are better compared to other similar products in the market. The company logo enhances its brand value in the industry, helping to attract loyal groups of customers (Fadaei, 2014). People The products of the company are primarily purchased by upper middle income and rich income group consumers. However, if the income demographic factor is ignored, products of the company are preferred by consumers of all age groups. People use products of Apple because of its unique quality and appearance (Fadaei, 2014). Strengths Apple Inc. enjoys a high brand value in the market along with a wide base of loyal customers worldwide. The products are manufactured with the latest technologies and are considered to be status symbol items. The growing market demands in emerging nations are prospective business opportunities of the company. Since the company is increasing its research and technical invention expenses; its competency in the industry is also on the rise. Latest technologies implemented in production process allow these products to be highly differentiated in the competitive industry. The marketing activities of the organization are highly superior and unconventional in nature. The company’s entrepreneurs and employees are adequately skilled and trained. The prosperous growth of the organization would not be feasible without the essence of its productive and skilful workforce. The firm enjoys high brand value and long experience in the competitive industry (Grover & Malhotra, 2003). Weaknesses The company operates in a market that is highly competitive in nature. Its business is subjected to several risks, uncertainties and currency fluctuations. The company’s profit margin is falling due to the requirement of high R&D investments. Furthermore, the company manufactures expensive products of good quality. In the current recessionary environment, these expensive products are becoming less popular among consumers (Esty & Winston, 2006). Increasing expenses for research and development is restricting Apple’s gross income, despite increasing revenue value. The company should try to expand its business and revenue to a greater extent in order to diminish negative impact caused due to increasing research cost in the long run (Jagannath, 2014). References Apple Inc. (2014a). Supplier List 2014. Apple Inc. Retrieved from https://www.apple.com/supplier-responsibility/pdf/Apple_Supplier_List_2014.pdf. Apple Inc. (2014b). Apple. Retrieved from http://www.apple.com/. Apple. (2014). Supplier Responsibility. Retrieved from https://www.apple.com/supplier-responsibility/. Benninga, S. (2008). Financial Modelling (Third Edition). Massachusetts: Massachusetts Institute of Technology. Bigler, W. R. (2001). The New Science of Strategy Execution: How Incumbents Become Fast, Sleek Wealth Creators. 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