The Internal and External Analysis of a Firm - Case Study Example

The Internal and External Analysis of a Firm Table of contents 1. Environmental Influence 2 2. Porter’s five forces 3 3. Future implications of the competitive forces. 4 4. Threats and Opportunities 4 5. Strengths and Weakness 5 6. Resources and Capabilities 6 7. Value Chain Analysis 7 Conclusion 8 References 9 Introduction The internal and external analysis of a firm allows the mangers to have a clear insight of the influencing factors on the business operations, thereby allowing them to devise the corporate strategies accordingly to ensure sustainable growth and competitive advantage (Kotler and Keller, 2011). This paper discusses about the internal and external environment of Apple iPhone and its operations in the Smartphone industry. It includes the impact of the business market environment on the company, along with the presence of the competitive forces. The paper also discusses how the company deals with the environmental impacts and how they have influenced the business of the company. 1. Environmental Influence The environmental influence has been discussed in this section by PEST analysis Political: Apple operates in more than a hundred countries (Apple, 2015). As a result, the political relationship between the home country and the host countries influence the business activities of Apple. The political structure is responsible for the international trade taxes and other regulations. Moreover, the company outsources its manufacturing operations in other countries particularly in China (Moyer, 2012). As a result, the company needs to abide by the work regulations and worker rights of the host country. Economic: The global economic structure influences the success of the business operation of a firm. The economic condition affects the affordability of the consumers, which is reflected in the sales volume of the company. The weak economic condition of 2012 had negatively influenced the sale of iPhone. It had also decreased the stock price of the company by 3.8% as well as reduced the profitability of the company (Reuters, 2012). Social: The social structure impacts the purchasing behaviour of the consumers. The rapid integration of technology in the daily life of the consumers has led to increased preference of the iPhones. The innovative feature of the iPhone has attracted a huge customer base. Moreover, the rise of the hectic life style of the customers has increased the popularity of the iPhone and its usability to make life easier by better connectivity and activity organizing applications. Technological: The global technological advancement has allowed Apple to incorporate innovative features in the iPhones. This as a result, has increased the value addition of the product thereby attracting a large customer base. Adding innovative features to newly launched iPhones has allowed Apple to achieve competitive advantage over its rivals. Among these environmental factors the two most important ones are the Social and Technological influences. The social acceptance acts as a major determinant of the increased popularity of iPhone which has pushed Apple to the number one position in terms of brand valuation (Forbes, 2014). Moreover, the rapid growth of the internet usage in society has also led to the popularity of iPhone as it allows customers to easily connect with their friends and family. The iPhone is best known for its technological innovation, which has only been possible because of the global technological advancement. Thus it can be rightly stated that social and technological factors are the most important ones for Apple. 2. Porter’s five forces The porter’s five forces analyses the competitive forces present in the industry. Buyer’s power: The mobile network operators and the retailers are the two types of buyers for the mobile manufacturing companies. The network carrier companies are fewer in number and they strengthen their position by bidding for the contracts with the major market players like Apple. However, the financial strength and size of the phone manufacturing companies have overshadowed the bargaining power of the carrier companies. The major retailers control the distribution of the products, but due to high consumer demand, they are bound to stock the popular handsets. Moreover, companies like Apple operates though their own retail store. Therefore the overall power of buyers is moderate (Marketline, 2014b). Supplier Power: The phone manufacturing companies are relatively bigger than the supplier companies. As a result, it allows mobile companies to exert a certain level of influence over the suppliers, thereby reducing their control over the supply chain. However, there are certain equipments like integrated circuits which can only be produced by certain suppliers only. The market players are also dependent on the suppliers for quality of supplied parts and raw materials. Thus the overall power of suppliers is moderate. Threat of new entrants: The Smartphone industry has grown in a rapid pace over the past five years. This has made the industry quite attractive for the new entrants. New brands like Xiaomi, Oppo, etc has gained significant popularity in the mobile phone market (Arthur, 2014). However, the presence of established players with strong brand image has increased the barrier to entry for the new entrant, thereby making it difficult for them to achieve consumer preference. The overall thereat of new entrant is assessed to be moderate. Threat of substitutes: Fixed land lines can be considered as a direct substitute for the mobile phones. However, the rapid evolution of the smartphones has added more features like faster internet access, usability of mobile application, etc. Therefore the usability of a smart phone cannot be substituted by any other product. The overall power of substitutes is quite low. Rivalry among existing firms: The mobile phone industry is characterized by the presence of severe competition among the existing player and also among the new entrants. Companies like Samsung, Apple, Motorola, etc seek out for new ways to gain higher market share and engage in severe competition in the market. The companies try to attract new customer base by introducing innovative technologies. Thus the overall rivalry among firms is high. Among the five forces, mentioned above, the most important ones for Apple are the rivalry among existing firms and threat of new entrants. Apple holds the second position in the mobile phone industry, just after Samsung. Apple tries to gain customer preference by value addition in their products; this is usually achieved by adding feature which is supposed to make the lives of the consumers easier. Apple had also waged a patent war against Samsung in order to weaken their status and brand image. Although it has affected both the companies, but it suggests that Apple is a severely aggressive market player. The new entrants in the mobile phone industry like Xiaomi, Oppo, Lenovo, etc has gained a significant level of market share, which can prove to be a concern for Apple in the near future. The company has addressed this issue by positioning its products in the niche market where the new entrants cannot exert any influence, as most of them operates in the mid range segment. 3. Future implications of the competitive forces. In the near future Apple can gain higher competitive advantage by increasing its product line. Apple can introduce the second iteration of the low priced iPhone along side of the next version of iPhone. This will attract the budget conscious customers who cannot afford an iPhone. The company should avoid using plastic as to build its body as there has been certain negative remark from the customers. Moreover, it will degrade the brand image of the company which is best known for its premium quality hardware. Therefore, a low priced iPhone with a premium build quality can act as a competitive advantage for Apple. Although owing to the extremely strong brand equity of Apple, the threat of new entrant is almost irrelevant. However, in the near future the company can choose to add more value to the user experience, which cannot be matched by the new entrants as their products mostly offer standardized experience. 4. Threats and Opportunities Threats Apple operates in a highly competitive market place, and faces threats from established players like Samsung. The industry is also characterized by rapid technological advancement and frequent introduction of innovative products by rivals. Thus competition has shifted on the ground of innovation and patenting of future technologies. As a result, Apple needs to constantly focus on research and development to introduce innovative features and new ways of value addition for the consumers. Apple’s iPhone is premium priced which can act as threat in the emerging markets, that prefer affordable products. This as a result can lead to low consumer preference and lower sales volume. The most serious threat for Apple is the level of competition in the market place and in order to gain a competitive advantage, the company needs to constantly introduce new product innovation for the customers. Moreover, the company can go for strategic acquisition in order to strengthen its position in the technology market. Apple can also leverage the purchase of newly developed patents from third party companies to stay ahead of the competition. Opportunities The mobile phone market is growing at a rapid pace which has opened potential opportunities for the company. Moreover, the customers are getting increasingly dependent on technological usage to get along with their daily life. This can be a potential opportunity to cater to the technological needs of the consumers. The introduction of Apple pay and Health kit has huge opportunities in the future. The Apple pay can revolutionize the retail transaction and make payment hassle free and more secure. Moreover, the growing health concerns among the general public will also popularize the Heath kit (Apple, 2015a). Apple can further delve into the health monitoring systems and add more value to the customers by enabling them to stay healthy and making daily life easier. 5. Strengths and Weakness Strengths Apple holds the number one position in terms of brand valuation, and its products create the highest aspiration among the customers. This acts as the greatest strength for the company and it also acts as a competitive advantage against the rivals. The company follows both horizontal and vertical integration to achieve a formidable competitive advantage. The large popularity of the iOS and its seamless usability has attracted a lot of customers. The company can strengthen its competitive advantage by improving the user experience of its operating system. Moreover, Apple can also leverage its financial position and brand image to increase its product line diversity (Marketline, 2014a). As a result it will increase its customer base and the customer preference. Weakness Currently Apple is dependent on a very small product portfolio, which limits its business operations. This also gives the rival companies an opportunity to gain customer preference by offering multiple product portfolios. Moreover, it is highly dependent on the markets of the developed countries owing to its premium priced products. This also limits the company’s ability to target a broader customer base. This weakness can be overcome by new market development and increasing its product line up. The low priced variants should be targeted at the emerging markets in the developing countries (Marketline, 2014a). 6. Resources and Capabilities Resources Competencies Threshold Capabilities Threshold Resources Threshold competencies Capabilities for Competitive advantages Unique Resources Core Competencies Source: (Johnson and Whittington, 2011) Threshold resources: These are resources required to meet the minimum requirement of consumers. In case of Apple, the threshold resources are manufacturing plants and financial strengths to launch new mobile handset in the global market with standard usability as well as consumer awareness. Threshold competencies: These are activities required to meet the minimum requirement of consumers. For Apple, these are the basic consumer service and research and development to develop new features. Unique Resources: These are resources required to gain competitive advantage, which are almost inimitable. Apple holds top of the line manufacturing plants run by skilled workers. The number position in terms of brand valuation acts as a powerful competitive advantage to gain consumer preferences. Core competencies: These are activities and processes required to achieve competitive advantage. Apple focuses on offering the highest level of value addition to the consumers by product innovation and high quality service offering. The company constantly invests in research and development to develop innovative technologies and gain first mover advantage. 7. Value Chain Analysis Firm Infrastructure Robust infrastructure that supports product innovation and high volume production Human Resources Skilled employees who generates new ideas of product development and marketing strategies Technological Advancement Apple is considered as the epitome of technological advancement. Apple’s iPhone houses the latest innovative features Procurement Apple procures it raw materials and component parts from suppliers with reputation of high quality assurance Inbound Logistics Operations Outbound Logistics Marketing Service The raw materials and components are transported from several supplier locations to assembly plants The component parts are assembled to finished iPhones by skilled workers using advanced equipments and automated assembly lines The finished products are then transported to several distributors and retail stores The marketing activities include aggressive campaigning and promotional activities to create consumer awareness Apple focuses on offering the best quality consumer service and customer relationships. Source: (Created by Author) Conclusion The internal and external analysis of Apple suggests that the company holds a sufficiently strong position in the Smartphone industry. Although the company holds the second position in the market nest to Samsung, but it has created a strong brand equity and consumer preference. The internal environment of Apple suggests that it has the necessary financial and infrastructural strengths to ensure sustainability and future growth. Apple also makes sure that its competitive advantages owing to its brand image and product innovation lasts for a long term period. In order to achieve that, Apple constantly works on consumer value creating and a high level of brand appeal, which leads to higher consumer preference. The external environmental studies have shown that change in social trends has positively impacted the popularity of iPhone. The rise of internet usage and increasing dependency on technology has enabled Apple to efficiently cater to the customer’s growing needs. References Apple. (2015). Choose your country or region. Retrieved from https://www.apple.com/choose-your-country/ Apple, (2015a). HealthKit. Retrieved from https://developer.apple.com/healthkit/ Arthur, C. (2014). The Chinese technology companies poised to dominate the world. Retrieved from http://www.theguardian.com/world/2014/jun/03/chinese-technology-companies-huawei-dominate-world Forbes, (2014). The World’s Most Valuable Brands. Retrieved from http://www.forbes.com/powerful-brands/ Johnson, G & Whittington, R., (2011). Exploring Strategy. (9th ed.). New York: Pearson Education Limited. Kotler, P. & Keller, K.L. (2011). Marketing Management. (14th ed.) New Jersey: Prentice Hall Marketline. (2014a). Apple Inc. London: Market Line. Retrieved from www.marketline.com Marketline, (2014b). Global Mobile Phones. London: Market Line. Retrieved from at: www.marketline.com Moyer, E. (2012). A tale of Apple, the iPhone, and overseas manufacturing. Retrieved from http://www.cnet.com/news/a-tale-of-apple-the-iphone-and-overseas-manufacturing/ Reuters. (2012). Apple share price drop seen as buying opportunity as iPhone 5 looms. 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