International Business: The of Apple Incorporated - Case Study Example

INTERNATIOBNAL BUSINESS …………………….. College …………………………. ………….. TABLE OF CONTENTS International Business: The case of Apple Inc………………………… 3 International Business Environment of Apple Inc ……………........….. 4 SWOT analysis of Apple Inc …………………………………. 6 Internal Environment. ……………………………………. 7 External Environment …………………………………….. 8 PEST analysis of Apple Inc…………………………………. 9 International Strategies of Apple Inc …………………………………. 10 Innovative Design strategy …………………………………. 11 Brand Loyalty Strategy ……………………………………… 11 Apple’s own store strategy …………………………………. 12 Education Sales …………………………………………….. 13 Effectiveness of Apple’s Strategies …………………………………. 13 Evaluative Conclusion and Recommendations …………………… 14 Appendix ………………………………………………………….. 15 References ………………………………………………………… 16 Introduction Global marketing is perhaps one of the most significant factors in today’s business world since it has made tremendous changes in the way the business is carried out around the world. Globalization and international business have been central to the developments and radical changes in the recent years and it has deeply affected people, management processes, business and economy. A large number of companies went global to utilize marketing opportunities for the realization of their business potential by successfully establishing sustainable competitive advantages and better marketing position where as many firms have failed in their international expansion efforts as they didn’t heed the basic tenets ingrained in the critical business environments. In today’s increasingly competitive and international free market economy contexts, transnational exchanging of technology, infrastructure and demographic movement have become increasingly important (Johnson and Turner, 2003, p. 1). The ultimate outcome of this growing importance of international business is that a customer, no matter whether he lives in Europe, Asia, Africa or Australia, will be familiar with a large number of world-class brands like Apple, Cadbury, Coca-cola, Dell, Ford, HP, Nestle, Nokia, Toyota and so on. The effect of globalization is that new brands are seemingly born global, For this research paper, Apple Inc- specifically its Smartphone sector- has been chosen to conduct detailed analysis on the literature related to the international business and organizational factors. This research paper presents an analysis on internal and external environment of the chosen organization- Apple Inc and examines its strategies for international marketing in terms of effectiveness and usefulness for its international operation. International Business: The case of Apple Inc Apple inc, founded by Steve Jobs, Steve Wozniak and Ronald Wayne in the 1970s is one of the most internationally influential and highly successful companies of today. It is an American multinational company that designs, makes and markets PCs, portable music players, cell phones, software, computer peripheral and services. It markets through its own retailing, online stores and third party sellers (Sander and Slatter, 2009, p. 81, Linzmayer, 2004). Apple was the first mainstream marketer for personal computers and is still an important market player worldwide and it has become a niche player by setting the pace for ease of use, innovative design and customer loyalty. Apple’s story is that one off-hobby machines that a most talented electronic expert made for himself has eventually become the core of the global marketing of one of the most successful companies of all times (OGrady, 2008, p. 1) Most of high tech companies focused only on a particular line of product whereas Apple made it different that it manufactured personal computer, created an operating system that can run in it and designed various application and software programs that fits it, and more over discovered and established market for digital music players and Smartphone. Apple is not confined in a particular market; instead, it plays significant roles in various high competitive markets like PC, software, operating system, digital music player and Smartphone. With innovative design and product differentiation strategy, it has so far produced a number of various unique products including iMac, iLife, iTunes, iPad, iPod, iPhone and 3G iPhones. Apple is better known for its wise and visionary strategic thinking that has helped it overcome marketing and competitive issues. For instance, when it experienced significant financial loss of around $45 million in 2002, Apple’s visionary management took effective competitive strategies that could help it stay strong in the market. The strategic thinking of Apple’s management has always guided it to create a focal point for decision making to help it protect the organization from the ambiguous and uncertain situations (Walker, 2003, p. 4). Apple’s recent developments -iPhone and 3G iPhone- became some of the most discussed new technology outcomes of the recent generation throughout the world. Its strategies of ease of use, simplicity, efficiency and fun are the major factors that helped it make its Smart phones seem to be different species than that of its competitors (Newsweek, 2007) Tilmann (2010) reported that Apple’s share in the worldwide PC market is constantly increasing. It has become the fifth largest PC seller in the US market for the first quarter of 2010, shipping 1,398 milion Macs computer machines. Apple is the seventh largest cell phone marketer, holding 2.7% market share in the worldwide cell phone markets, having a 112.2% increase in mobile devise sales. Apple is the third largest Smartphone marketer in the world during the first quarter of 2010. (Gartner, 2010) Apple is going to release its iPhone OS and therefore it is expected that second quarter of 2010 will be a very important one for Apple (Gartner, 2010). Apple is spending huge on R&D in order to provide its customers with products and services, made up of latest technology and innovation, with supreme quality and reliability. Carson (2008) reported that more than 500 million subscribers were offered a legitimate iPhone deal in the beginning of 2008, with a target of big gains from its international marketing. The launch of iPhone had thus created a massive global footprint. Apple’s international marketing of iPhone has been first channeled through SingTel of Singapore, Bharti Airtel of India, Globe Telephones of Philippines and Optus of Australia, adding 100 million potential customers to its brand. International marketing has been highly significant for Apple in recent years. Its global sale of PCs and digital music players have contributed major share of its total revenues. For instance, Apple posted revenue of $9.6 billion and a net quarterly profit of $ 1.6 billion in the first quarter of 2008, showing a gross margin of 34.7% from the 31.2% figure of the year of gross profit. International sales accounted for 45% of its total revenues (O’Grady, 2008, 162). International Business Environment of Apple Inc This section of the research paper analyzes micro and macro environments of Apple’s international business. The SWOT analysis and PESTEL analysis are considered in this section to analyze international business environments both micro and macro levels. SWOT analysis of Apple Inc Analyzing both internal and external environments is vital in strategic planning because it can help management take decisive actions regarding resources allocation, measuring efficiency of operation and evaluating the productivity of employees. SWOT is a very useful technique for analyzing both micro and macro environments of a firm drawing together key strengths and weaknesses as presented internal (micro) analysis and opportunities and threats as presented external (macro) analysis (Beamish and Ashford, 2007, p. 42). Internal Environment: Strengths According to Datamonitor’s (2010) report, Apple’s total revenue has been increased to the highest record figure of $ 42,905 million in 2008 from 2007 total revenue of $24,578 million. This growth shows that its annual growth rate is 32.15% which is an outranking performance as compared to many other firms playing in the same market. Apple has very recently reported that its financial performance for the 2010 first quarter has been increased to $15.68 billion (Apple.com). When it comes to its focus on innovation, technology and R&D, it is obvious that its focus on R&D and its thrive on innovation has been a critical factor behind its success. Its R&D spending for 2009 only was accounted to be $1,333 million (Datamonitor, 2010). Apple is highly rewarded for its unique brand success and brand loyalty. Datamonitor (2010) reported that Apple’s brand image has been im porved to the 20th position in 2009 from the 24th position of 2008 and 35th position of 2007. With a number of unique names, Apple’s products like iTunes, iLife, iMac, iPad and iPhone are not attributable to any brand other than Apple. This brand image and loyalty remains to be its major strength in its international markets. Internal Analysis: Weaknesses Design and manufacturing defects are major risks that many high tech electronic companies often face from its corporate customers and end users. As Apple is dealing with innovative products and advanced technology, any defects in its products can adversely affect its international business. For instance, Apple faced risks of defects with Ultracompact USB in 2008 causing it to exchange every components for new redesigned adapters (Datamonitor, 2010). Similarly, patent infringement seems to another risk, as common for high tech and Multinationals. In 2007 alone, Apple had to spend huge amount only for defending more than 47 patent infringement cases (Datamonitor, 2010). External Environment: Opportunities When it comes to Apple’s international business, the main opportunity that it enjoys is its growing market-share Apple’s Smartphone. It is still expected to grow further in the years to come. Apple’s Smartphone market has been valued as 15% of the total mobile market of 2009. It is estimated that Apple’s Smartphone market is likely to account 35% of the worldwide mobile market in 2012. Apart from this, touch screen device has been a trend among customers that in turn will be another opportunity for Apple in its global marketing (Datamonitor, 2010) Apple’s mobile PC is another species that recently attracted greater number of customers. The market for mobile PCs also is expected to increase in the coming years. Apple’s mobile PCs sales have been found to be increased by 15% in 2009. Both Smartphone and mobile PCs give greater opportunities for Apple and therefore it can grab the slices of these emerging hot markets by further enhancing quality, diversity, technology, innovation and designs. External Environment: Threats Self reliance for components is always a positive point for a manufacturer especially when it goes global. As far as Apple’s case is concerned, it is depending on third party components like DRAM, NAND and flat panel displays, that in turn not only bring chances of causing cost disadvantages but also raises issues of liabilities and components defects (Datamonitor, 2010). The competition in the worldwide market for PCs, software, digital music players and cell-phones is extremely rigorous. Apple is playing in such an environment where large multinationals like HP, Dell, Acer, Microsoft, Nokia, Fujitsu, Sony Ericsson are major competitors and going head on head with them is extremely challenging. PEST analysis of Apple Inc A better organization is one, which easily gets accustomed with changing business contexts. Changing business environments can be evaluated and understood only if effective analysis can be carried out. PEST analysis is an invaluable tool for analyzing external (macro) environment of a firm including competitors, suppliers and customers. PEST analysis divides a firm’s overall environments in to four, political, economic, social and technological (Gregory, 2000, p. 49). Apple’s external environments are detailed below: Political Environment Shenkar and Luo (2004) emphasized that the political processes faced by an MNE, let it be compliance, evasion, negotiation, cooperation and coalition building, are more difficult and problematic than that in domestic operation. It is mainly because; the number of political constituencies including government, union, political parties and interested groups are multiplied in international business environments (p. 175). As far as Apple’s case is concerned, its marketing in countries like China, India and other Asian countries are more likely to be affected by any changes in political and government policies can have significant impact on its business. Economic Environment When Apple chooses a specific entry mode to enter in to a country, it has to consider a number of economic and other factors. Economic factors in other countries like financial strength, exchange rate fluctuations, Foreign direct investment and related policies and other economic variables can also have significant influence on Apple’s international business. The growth of Apple’s market share in Smartphone and other sectors shows that it has been less affected by the worst financial downturn of the recent years as compared to other firms. Social Environment The significance of social and cultural factors to a firm’s international business cannot be overestimated. Consumers worldwide tend to become more attracted to Smartphone and touch screen devices. Even though the general social factors are positive for Apple’s Smartphone market in other countries, various other social factors like attitude towards foreign products, cultural entities and social values can up to an extent create challenges on its business (Shenkar and Luo, 2004, p. 150). Technological Environment Apple’s relentless focus on technology and innovation is its major strength that helps it gain better competitive advantages. Apple’s technology is its another positive factor because people worldwide tends to embrace latest technology quicker. Apple is introducing its 4G iPhone which is now expected to gain good sales across other countries as well. International Strategies of Apple Inc This part of the research paper relates to the major international business strategies of Apple inc. Apple strategies Innovative product design, Brand loyalty, Own store strategy and education sales are detailed below. Its strategies like complete solution and Product differentiation are intentionally omitted because, the specified sector for the research is Apple’s Smartphone sector. Innovative Design strategy Apple’s products like iPod and iPhone became widely known for its excellence in innovative product design and development. Apple was not a technology follower until 1990s. Steve Jobs realized that ‘technology creation’ is critical to stay for long in a market and thence he made significant changes of Apple’s products lines after 1997 (Betz, 2002, p. 194- 195). This is how Apple has eventually become a technology creator and now created success stories of iPhone throughout its worldwide markets. When companies like HP and other players in hardware and software markets focused on lower costs and high volume sales, Apple focused on technology and product differentiation (Hoskisson, Hitt and Irelandl, 2008, p. 133). Apple’s international business is committed to bring high quality mobile communication, digital music players and video experience to its worldwide customers. Its business strategy is its effort to design and develop its own hardware products like iPhone with its own software, ease of use and innovative design being its major features (Apple Annual Report, 2009). Brand Loyalty Strategy ‘Apple’ brand is one of the strongest in today’s international market. A number of products like iPad, iPhone, iMac, iLife, iTunes and iDvd are clearly positioned in customers mind with ‘Apple’ brand. Its strategy to design and develop innovative products have been closely related with its ‘digital hub’ and thus to have gained a unique successful brand position among its customers. Apple’s brand personality is created with an emphasis on emotion, touching customers lifestyle, imagination, innovation, dream and aspiration (marketingminds.com). Apple’s brand is likely to change the lifestyle the people listen music, use mobile for communication and music needs etc (Cuneo, 2003). According to Keates and Clarkson (2003) Apple’s strong brand image and its loyalty only were the factors that saved Apple from being fully wiped out form the market when its managerial mistakes caused it to be closer to be bankrupted in 1990s (p. 43). When it comes to the brand positioning, Apple gains 50%. ADWEEK’s (2009) study concluded that some customers are found that they couldn’t live without Apple’s brand as it is highly inspiring to them. Readers brand choice was – 50% Apple, 26% Google and 4% Starbucks (Brand of the Decade, 2009). Apple’s own store strategy Apple has been creating its own stores for the international marketing of its products including its Smartphone. Apart from online selling and third part sales force, Apple has used own store as a strategy for enhancing better distribution and by facilitating its customers enjoy music and other products and services. Its own stores are friendly places where customers have easy access to play and experience new technologies (insidecrm.com). Apple opened 34 its own stores in 2005 for a total of 135 and dramatically its international business by opening stores in Canada, three stores in UK and in Japan as well (OGrady, 2008, p. 129). Its own store strategy helps it gain more customers, attract them towards its products and technologies, provide better direct services and collect more accurate information from its customers. Education Sales Apple’s another strategy for its international business was education sale by focusing on selling its products and services to schools and universities and thus to spread its technology to the new generations. Students by seeing Apple products at schools or colleges become highly attracted to using or owning one for them and this is how Apple has been using education sale strategy for its marketing (insidecrm.com). Effectiveness of Apple’s Strategies This section of the research paper uses Porter’s generic Strategy (given in the appendix) to determine the effectiveness and success of Apple’s international business, mainly focusing its Smartphone market. The attractiveness of the firm and its position in industry are major factors that determine effectiveness. Apple’s case shows that it has been able to boost its market share for Smartphone in recent years. According to Porter’s generic strategy, cost advantage and differentiation are two major factors that determine strength of a firm. Apple has remained far positive with its market shares and larger number of shipping, and when considering Smartphone market, the market share was highly impressive. Apple’s R&D is its main power that is a critical factor behind its differentiation; innovative design and technology focus strategies as well. Apart from its differentiation strategy, the major points to look at are 1) brand loyalty and 2) its iPhone buzz across the world. These both are major success factors of Apple Inc. Brand loyalty remains to be a strong advantage because it can help the company stay very strong in its international market. Similarly, the iPhone buzz throughout the world also has been a success factor that shows how far Apple has been gaining the international business and competitive advantages. Evaluative Conclusion and Recommendations Apart from the above-discussed Apple’s strategies, this part of the research paper recommends Customization facility and direct marketing as other two important strategies for Apple. Customers are different in tastes, requirements and lifestyles. They require different products at different features. A customer may require an iPhone with camera facility whereas the other may require it with additional inbuilt memory to store more songs. It goes like it. By facilitating customization, customers will be able to access Apple website, design their own products, select features for it, add specifications and finally order the goods. It will not only help increase the number of its customers, but also add more customer loyalty and satisfaction as well. Secondly, I would recommend that Direct marketing, by directly selling its products to the international customer, will be helpful to reduce middlemen costs and extra inventory handling too. It will help the company to make its products ultimately cheaper to the customers This research paper has highlighted the literature related to the Apple’s international business, mainly regarding it Smartphone sector. The paper has presented detailed analysis on the micro and macro analysis of Apple’s international business environment by using appropriate tools of SWOT and PEST analysis. The international business strategies of Apple are detailed in this paper, drawing the effectiveness of its strategies and operation. Appendix 1- SWOT analysis Analysis of internal environment (Micro) Strengths Weaknesses Outstanding financial performance Strong brand image and reputation R&D and innovation focus Patent infringement Product recalls Analysis of External Environment (Macro) Opportunities Threats Ongoing growth in the demand for mobile PCs Increased growth in smart-phone market share worldwide iPhone buzz Dependence on specific suppliers High Competition 2- Porter’s Generic Analysis Target Scope Advantage Low Cost Product Uniqueness Broad – Industry Wide Cost Leadership Strategy Differentiation Strategy (iMac, iPod, iMusic, iLife, iTune, iPhone- differentiation strategy) Narrow- Market Segment Focus Strategy (Low cost) Focus Strategy (Differentiation) References Apple.com, 2010, Apple Reports First Quarter Results, All-Time Highest Revenue and Profit, New Accounting Standards Adopted, Retrieved 27/07/10 from http://www.apple.com/pr/library/2010/01/25results.html Beamish K and Ashford R, 2007, Marketing planning, 2007-2008, Illustrated edition, Butterworth-Heinemann Betz F, 2002, Executive Strategy: Strategic Management and Information Technology, John Wiley and Sons "Brand of the Decade." 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