Strategic Analysis of Apple

In today’s rapidly changing business world, the pressure on a business to take up a proactive approach has increased due to factors such as globalization, rapid technological advancement and changing needs of customers (Mazzero et al., 2015). Businesses which have emerged as market leaders are devising their strategies in accordance to the customer needs and environmental changes. Strategy is defined as setting the future direction or goals of an organization and allocating the resources for the attainment of those goals (Proctor, 2014). The strategic planning process involves taking up a systematic approach in devising goals and strategies. Furthermore, the process of strategic management involves identifying the opportunities in market and experimenting in order to develop a competitive advantage in the longer run (Hill et al., 2014). The businesses that have outperformed; have been successful in recognizing the opportunities present in the market before their rivals could do. Apple is one such business that has achieved phenomenal success due to its preemptive approach (Rawlinson, 2017). Over the years, Apple has successfully developed a very strong brand name and highly loyal customer base and has been ranked as one of the world’s “most valuable brand” (“The World’s Most Valuable Brands List,” 2018). Therefore, the purpose of this report is to carry out a strategic analysis of Apple and to make strategic recommendations for its future direction. The report will firstly give a brief overview of Apple Inc. and will then carry out the external and internal analysis of the company. The report will then move to identification of Apple’s sustainable competitive advantage and will then give recommendations based on analysis.

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Strategic Analysis of Apple Inc.

Apple Inc. – Introduction

It is necessary to understand the brief background of the company, in order to conduct its strategic analysis. Apple Inc. was founded in 1976, by Steve Jobs, Steve Wozniak, and Ronald Wayne as “Apple Computer Inc.” for developing and selling computers (Weinberger, 2018). The Apple computers were successful in achieving high number of sales in the market, and in 1980 the company went public. As the demand for personal computers grew, Apple computers being high priced, lost market share to low priced personal computers, predominantly to ones that had Microsoft Windows as their operating system. However, the company attained new level of success after Steve Job became the CEO in 1997 (Weinberger, 2018). Under the leadership of Steve Jobs, company was successful in rebranding its status. In 2001, Apple opened its first store and also acquired various companies. The acquisitions were done to build an assortment of software and altering some hardware that were used in Apple computers. In 2007, the company was renamed as “Apple Inc.” and iPhone was launched which achieved substantial success. However, in 2011 Tim Cook took the role of CEO due to deteriorating health conditions of Steve Jobs (“Apple History — Apple Museum,” 2015).

In the fourth quarter of 2018, Apple has been able to generate revenue worth $93 billion (“Apple Reports Fourth Quarter Results,” 2018). In terms of revenue, Apple is world’s largest IT business and is ranked as third largest mobile business in phone manufacturing (Salinas, 2018). Currently, it has a workforce comprising of 123,000 permanent employees (Cina, 2018)and has approx. 504 retail outlets across 24 countries of the world (Fignas, 2018).

Environmental Analysis of Apple Inc.

In order to carry out strategic analysis of Apple Inc., its internal and external environments need to be studied. So, in this section, Porter five forces analysis and PEST analysis of Apple have been done whereas for internal analysis of the company SWOT analysis will be conducted.

PEST Analysis of Apple

PEST is an abbreviation for Political, Economic, Social and Technological factors that could affect a business (Shabanova, et al., 2015). In context of Apple, since it is a global company therefore is affected not just by political situation in the home country but also the political scenario of other countries where it is operating. The factors such as political stability, taxation and tariffs affect the business operations of Apple Inc. Apple faced high taxation due to high disposable cash in its bank account worth $34.7 billion in 2015 (Hoxie, 2018). Due to high disposable income, it faces a constant pressure to pay higher taxation, particularly in US, where the unequal income distribution is one of the major issues (Hoxie, 2018). Furthermore, the components used in Apple products are manufactured across the world. China, however, has been a prime location for the manufacturing of its various parts as well as for assembling. Therefore, it is highly impacted by political stability in China. Furthermore, the USA – China relationship could also influence the operations of Apple Inc. The hostility and breaking economic ties with China would lead to increased cost of manufacturing for Apple as, Apple benefits from low-cost manufacturing in China (Yueh, 2018). Furthermore, there is a growing anti-America sentiment in China as well which could lead to reduced sales for Apple products (Yang, 2018).


The economic factors such as cost of labor in China, purchasing power of people around the world, and dollar value impact the operations of Apple Inc. The increase in the value of dollar can also impact the sales of its high-end products particularly in developing countries (Wong, 2012), which is one of key factors influencing the strategic analysis of Apple. The operations of Apple Inc. are also impacted by social factors. The biggest backlash Apple could face is due to its unethical practices; Apple faces severe criticism in regard to its labor practices such as child labor, overtime as well as working conditions in its Chinese factories. Apple has recently launched an investigation to inquire about these charges (Cuthbertson, 2017). Furthermore, Apple faces pressure from its customers and activists to carry out corporate social responsibility (CSR) and to invest in green activities. Though the company has taken green initiatives, however, it still lags behind its competitors such as IBM, HP, Dell who all made to the list of “Newsweek’s 100 Green Businesses” till 2010 (Hayoun, 2017). In the year 2006, Apple was targeted by Greenpeace in a customer campaign. Apple Inc. is also criticized for maintaining a policy of secrecy. For instance, the critical condition and illness of Steve Jobs was kept as a secret till Tim Cook took over (Bobrow-Strain, 2012). The technological factors that impact Apple include the sophistication of ability of its competitors such as Google and Samsung to replicate the features of Apple products. Google replicated the idea of Apple Pay with its Android pay in less than a year’s time. Furthermore, with the increased use of tablets and smartphones, the demand for Apple’s personal computers will decline. Moreover, the increase in cybercrimes has made Apple vulnerable to security and data theft which is the key strength of its products (Savvides and Orellana, 2018). 

Figure 1: PEST Analysis of Apple

Porter Five Forces Analysis of Apple

Porter five force model is used to assess the attractiveness of an industry. The first force that affects the business operating in a particular sector is the degree of competition (Dobbs, 2014). In context of Apple, there are numerous established players in the market as a result this force is high for Apple. Apple inc. faces direct competition from Google, Inc., Samsung Electronics Co., HP Company and Amazon, Inc. Moreover, all the players in the industry have their focus on innovation and invest heavily in R&D (Mourdoukoutas, 2011). The second force that impacts a business is bargaining power of buyers. In context of Apple Inc., the low switching cost for buyers due to variety of available options is significant. A customer can easily switch to other brands such as from iPad to Kindle without investing substantially (Savvides and Orellana, 2018). The third force of Porter’s model that affects the industry attractiveness is the bargaining power of suppliers. This force is comparatively, a weaker force in context of Apple Inc. Since, Apple chooses suppliers for its parts from the pool of suppliers from all the parts of the world which implies that Apple has an upper hand over its suppliers (“Apple and Procurement,” 2018). In addition, the switching cost related to changing a supplier is low for Apple.

The fourth force of the Porter Five Forces Model is the threat of substitutes, which includes all the products that could be indirect competition to a business (Dobbs, 2014). In context, of Apple the probable substitute for a mobile phone could be a land line. This force is low for Apple as the substitute products are lower in technology and offer less convenience. The last force in Porter Five Force Model is the threat of a new entrant. This is relatively low because of high capital required for setting up a business and high marketing expenditure required for reaching out to the customers. In addition, the cost associated with R&D is very high which is essential for the survival of businesses in this industry. Also, the industry has many strong brands like Apple, Samsung Google etc. therefore it is extremely difficult for a new entrant to gain foothold in the industry (Mourdoukoutas, 2011). Therefore, it should be noticed in the strategic analysis of Apple, that it is influenced by low threat of substitute products, strong rivalry, low bargaining power of suppliers, high bargaining power of buyers, low barriers to entry.

Figure 2: Porter Five Forces for Apple Inc.

SWOT Analysis

SWOT Analysis is a strategic marketing tool, which is used by businesses to carry out internal analysis. It allows businesses to identify the internal strengths and weaknesses of a business, as well as the opportunities and threats present in external environment, for formulation of effective business strategies (Shabanova et al., 2015). In context of Apple Inc., the biggest strength of the business is its strong brand name, high quality products, extensive product line, focus on innovation and global presence.  Moreover, the financial health and sales are also the key strengths of Apple. In a press release by Apple, it reported a quarterly income worth $62.9 billion which is 20% higher than the revenue of last year and a 41% increase in earnings per share. The global sales of Apple also rose by 61%. Furthermore, the company has been successful in generating an operating cash flow amounted to $19.5 and distributed dividends of $23 billion to its shareholders (“Apple Reports Fourth Quarter Results,” 2018). In addition, Apple also maintains a strong hold on its distribution channel in order to maintain the strategy of exclusivity. The weaknesses are the internal insufficiencies faced by a business (Shabanova et al., 2015). In context of Apple, the limited size of its distribution network is also one of its weaknesses. Since, Apple maintains an image of exclusivity therefore company selects and choose the authorized dealers with careful evaluation. This also restricts the availability of Apple products to reach wider audience. In addition, the company faces criticism over the unethical labor practices and lack of focus on CSR (Hayoun, 2017).

The opportunities present in external environment for Apple include opening retail stores in new markets. Furthermore, Apple can also increase its number of stores in the countries where it already has its stores. The emerging markets such as Oman, India, Pakistan, Malaysia, etc. have great potential of profit and Apple does not have any retail store in these countries. Furthermore, it can also invest in the R&D related to designing products with artificial intelligence which is an emerging technological trend. The strategic analysis of Apple shows that its biggest threat is the high degree of competition (Savvides and Orellana, 2018). Another grave threat faced by Apple is that of imitation of its products. China is the biggest seller of fake apple product which has remained as one of the biggest challenges faced by Apple Inc (Wong, 2012).

Figure 3: SWOT Analysis of Apple Inc.

Apple’s Sustainable Competitive Advantage

According to Porter, a business that outperforms other players in the industry in terms of profitability is considered to have a competitive advantage. In order to gain a competitive edge, businesses strive to attain a sustainable competitive advantage. A business can achieve a sustainable competitive advantage through either having a cost advantage or through differentiation (Riasi, 2015).  Apple has a differentiation strategy which is when a business is successful in delivering features and benefits that are better than its competitors (Belton, 2017). Apple uses strategy of differentiation and focuses on innovation to create superior value for its customers. The sustainable advantage of Apple Inc. is primarily due to its strong brand name and Apple’s enclosed ecosystem.

Figure 4: Apple’s Sustainable Competitive Advantage

Apple has an enclosed system which refers to the fact that all Apple devices are run only by its own operating systems such as iOS and macOS. This implies that a customer has to keep buying iOS devices if he or she wishes to stay within the ecosystem of Apple (Worstall, 2012). On the other hand, Android users can switch to various smartphones such as Samsung, Huawei, HTC etc. as they can all be synced with their Google accounts across devices having Android operating system (Villas-Boas, 2016). Moreover, the prices of Android devices also fall primarily because of two factors. Firstly, Android is an open-source operating system which could be used by any company for developing their smartphones. Secondly, companies like Qualcomm are facilitating small companies to launch low priced smart phones. Due to this, premium brands of Android Smartphones such as Samsung and HTC are losing their market share (Tibken, 2018). On the other hand, the prices of iPhones do not fluctuate because of Apple’s strategy of enclosed ecosystem. Furthermore, it is more difficult to develop Android apps as they are required to be tested on large number of hardware devices as compared to the iOS apps. Samsung has also tried to duplicate the Apple’s strategy of protected ecosystem with its OS Tizen. However, it has not attained much of acceptance by the customers (Tibken, 2017).

Another factor that has led to the attainment of sustainable competitive advantage for Apple is customer loyalty and its strong brand name. The premium pricing strategy used by Apple has also worked in its favor as it has resulted in customers to place the Apple products higher than other brands in their minds (Mourdoukoutas, 2011). Apple products are known for their high quality and aesthetic designs. Therefore, the customers feel pride in owning an Apple product. Apple has a strong focus on innovation and R&D; the company is known for its innovative and unique products (Rogowsky, 2017). Furthermore, Apple has a diverse product line and is offering products such as Mac, iPhone, iPod, iPad, HomePod, Apple Watch, Apple TV, Apple Energy and Operating systems for its devices. The innovative approach of Apple to provide its customers with high quality and unique products has resulted in creating a strong brand image (Rogowsky, 2017). This has enabled Apple to sustain its success over the period of time. So, the strategic analysis of Apple reveals that its innovative policies favor the company over its competitors.

Recommendations

After carrying out a detailed strategic analysis of Apple, following recommendations are proposed for strengthening the company’s position in the market:

  • It is recommended that Apple invests in the CSR activities. At present, it faces criticism from the environmentalists and customers of not investing enough in CSR and green activities. As a result, Apple will be able to build an image of a brand that cares about the community and is concerned with the environment. This will require Apple to allocate financial resources to the cause; which is not significant for a business with the financial health as that of Apple.
  • Apple Inc. is also criticized by activists for its labor practices in China, therefore, it is also recommended that it should take up a transparent approach in addressing and resolving these issues as these are negatively impacting the image of the brand.
  • Apple has a very high dependence on China; on the other hand, US-China relations have become hostile. This is one of the biggest challenges faced by Apple. Therefore, it is recommended that Apple should relocate its assembling and manufacturing points from China to some other low-cost country. However, this has to be done gradually as it would bring a financial crunch for Apple initially but will be beneficial in the longer run.
  • Apple can open its stores in emerging and developing economies as they have great profit potential like India, Pakistan, Russia, Iran, Malaysia etc. It can open more stores in countries like Turkey where it has only two stores (“Apple Retail Store – Store List,” 2018). This will require capital however Apple has enough disposable income to invest in such expansion strategies (Salinas, 2018).
  • It is also recommended that Apple should maintain its focus on innovation and should keep on investing in R&D. Apple should work on future technological trends such as artificial intelligence in order to stay ahead of its customers.
  • It is also recommended, that the company increases its distribution partnership with more distributors; as currently it has very limited distributors across the globe. As, Apple maintains a strategy of exclusivity so finding partners with right capabilities could be costly and time consuming but will benefit as it will increase the reach.
    strategic Analysis report

Conclusion

The purpose of this paper was to carry out an in-depth strategic analysis of Apple to propose strategic recommendations. Apple is one of the most successful companies of the world. The success of Apple is due to its innovative approach in developing unique and high-quality products for its customers. Apple has been able to achieve a sustainable competitive advantage because of its strong brand name and the closed ecosystem. However, the hostile US-China relation has increased the political risk for Apple. Furthermore, the forces such as, degree of competition and bargaining power of buyers is high for Apple. Moreover, Apple can expand to new markets and can open new stores in existing locations to increase its profitability and global presence.

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Appendix

 

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