Jobs truly believed that there was a separate market for small personal computers, and with a well-defined vision and user friendly product, Apple went public in 1980 and became the most successful initial public offering since Ford Motor Company which catapulted Apple to reach the Fortune 500 quicker than any corporation in previous history. This started to collapse as internal rapid development and strong outside rivalry from IBM and Microsoft throughout the 1980s nearly shoved Apple into economic failure by the mid-1990s.
To stay above water, Apple was forced to revolutionize their PC product output and develop into the disjointed digital music industry only to flower into the industry leader, ready to carry on its influence on digital media through a varied set of distribution avenues. Over the last ten years, Apple has been blazing an amazingly smart business warpath that has left the industry on fire. Apple now invents, designs, produces, and markets personal computers with their very own distinctive applications and a line of iPods with associated iTunes software.
Compelled to acquire a cutting-edge dissemination plan to compete with bigger businesses, Apple now markets its products globally through its retail and online stores, producing yearly incomes of over $21 billion. Now that Apple and Windows 7 are compatible, which means Apple’s gate is open to long time PC loyalist; equaling a consumer base that is limitless. This additional elasticity in Apple’s business strategy shows its aspiration to conquer Dell, HP and Microsoft, done with a exceptional and groundbreaking mixture of digital media and personal computer creations. 2. Company History
Before there was Apple Inc. , there were two young high school friends, Steven Jobs and Steven Wozniak. These two young geniuses were extremely interested in technology and electronics, and they used this passion to find employment. Jobs worked for Atari, and Wozniak worked for Hewlett-Packard. In April of 1976, in a garage with just $1,300, the two Stevens came together to form a dynamic duo. With Wozniak’s flair for computer design, and Jobs ability to look further into the future, they both created the Apple computer. Now branding began to emerge as Ronald Wayne became a 3rd founder of Apple Inc. ince was responsible for creating the company’s first logo which he later resigned because he believed that the company would pose a financial risk. The new logo was created by Ron Janov designs. The company’s first president was Mike Scott. The company was not taken seriously until 1977 when the company came out with the Apple II, which was the “first personal computer to come in a plastic case and include color graphics,” at this point Apple Inc. became incorporated. The company continued to improve with the introduction of Apple III. In 1983, Apple Inc. ecame the fastest growing company in history, and at this time John Sculley became president and CEO. In 1985, Wozniak left Apple Inc. , and in 1997 Jobs returned officially to Apple as the CEO. Apple was the first personal computer company to have $1 billion dollars in sales. Apple Inc. which was formerly known, as Apple Computer Inc. is a multinational, Fortune 500 Corporation, that generates billions annually. In the personal computer industry, Apple has been consistent in manufacturing above average products that have remained on top in this respective industry.
Apple Inc. is chiefly responsible for the enormous growth of the personal computer industry in the 20th century. 2. 1 Background Apple is known for creating great innovative products that keep their competitors wondering what they will do next. Apple computers revolutionized the way home computers were viewed. With so many products, revenue comes from many different areas. As time has gone on, Apple Inc. has increased the number of products they introduce into the market, that have revolutionized the expectation of consumers about their electronics. Apple Inc. aunched iTunes in 2003, the iPod in 2004, and the iPhone in 2007. Apple Inc. also entered into agreement with car companies to enable iPod accessibility into some of their vehicles. The MacBook Air and Pro, iPod Touch and Nano, were all introduced into the market, and the following year the 17-inch MacBook Pro was added to the mix. The company had opened a total of 247 stores with 205 of those in the United States. Apple Inc. was name “Most Admired Company” in the United States, by Fortune Magazine in 2008, and the most admired company in the world in 2008, 2009, and 2010.
Apple has now become an important factor in the music industry because of iTunes. The chart below shows how each product contributes to the revenue of Apple Inc. Source: Gregg Keizer Computer world. October 26, 2012 2. 2 Purpose of this study This study was done to gain full knowledge of the External analysis of Apple Inc. , as a company. The key points focused on in this paper include: The general environmental analysis, which includes but are not limited to: the demographic, economic, technological, and global segments.
A full analysis of the industry, which includes the description, the dominant economic factors, information on the market size, and growth rate. This study will also use the five force analysis, to answer all the questions the firm has to know, in order to have a successful competitive advantage in this particular industry. The paper also answers the following questions: Who are the competitors? What are their strategies? What are the key success factors? 3. 1 General Analysis The general analysis is the process that examines the macro-environment of an industry.
There are factors of the macro-environment that could affect the progress of a company if they are not taken into consideration in the planning by management. The macro-environment factors include: political factors, economic factors, social factors, and technology factors. These are the factors that would guide management’s judgment regarding the company’s long-term direction, objectives, strategy, and business model (Gamble, Thompson, & Peteraf, 2011, p. 38). The graph below shows the microenvironments of the personal computer Industry that will be analyzed in this paper.
Figure 1: Macro-Environment Source: http://beckmann-bio. com/files/dictionnaire/pest_analysis. html 3. 1. 1 Demographics The demographic segment includes the population of the personal computer industry, the users in the market, their age group, education level, income level, gender, and race. According to the census a report conducted to show households with computers consist of; 57% of15-24 year old had a PC in the home, 25-34 showed 69%, 35-44 showed 73%, and 35% of 65 years and older had a computer in their home.
In respect to race the census showed that 64% of white households had computers, 45% of blacks had computers, and 45% of Hispanics had computers in their home. On the education level, 28% of households who had less than a high school education had a computer (Day, Janus, & Davis, 2005). High income households were more likely to have a computer in the home. Among family households with incomes of $100,000 or more, 95% had at least one computer in the home, and among family households with incomes below $25,000, 41% had computer (Day, Janus, & Davis, 2005).
Apple’s Computer demographic entails of an average household income for adult Mac computers of $98,560 compared with $74,452 for a PC owner. (Mattioli, 2012) Apple’s consumers are those 35 years and older, and the younger age groups are form 18-34 years old. (Keizer, 2012) Out of a survey conducted of 388,315 users, Mac users were 22% more likely than PC users to be between the ages of 18 & 34 (Arvidson). The graph below shows the demographics of ages of PC users and Mac users. Figure 2: Demographics of Ages of PC users and Mac users
Source: www. brandindex. gov 3. 1. 2 Economic Segment Economic factors relates to the economic development in the personal computer industry. Global economic circumstances can affect the growth and success of the personal computer industry, The PC industry had experienced a decline in revenues in 2008 and 2009, but shipments grew by 13. 6% during 2010, and this was credited to businesses being forced to replace computers, and demands in accelerated developed countries (Gamble, Thompson, & Peteraf, 2011, pp. 354-356).
With the recession of 2008 there has been a decline in PC sales, in a recent study by Gartner, mobile PC shipments grew 4% while desk based PC shipments declined 12. 8% in the second quarter of 2012 (Gartner, 2012). The economy has shown positive growth and recovery from the recession of 2008. According to the Treasury Department, since the middle of 2009 to early 2012 there has been a modest pace of economic growth. Real Gross Domestic Products (GDP) has increased at an annual rate of 1. 9% in the first quarter of 2012 (United States Treasury Department, 2012).
Some factors that are slowing down the economic growth include: financial difficulties in Europe, uncertainty about the U. S. Federal budget policy, credit availability that is extensively linked to the pre-crisis norms of many households and small business (United States Treasury Department, 2012). These factors have caused consumers and businesses to postpone spending. Real personal consumption expenditures (PCE) have increased 1. 6 % in 2011 and 2. 5% in the first quarter of 2012, real disposable are still compromise by the weak labor market.
With the increase in PCE the economy can get better, the pc industry would have to keep up with the changes and be innovative. The Personal Computer industry is very tight and competitive, and includes many manufactures. The total PC sales between April 2011 and March 2012, with desktop computers, notebooks, and netbooks combined, were 10. 8 million units, registering a growth of 16% over the last fiscal year. The sales of desktops stood at 6. 7 million units registering a growth of 11%. Notebooks recorded a consumption of 3. million units, growing 26% over the last year (News, 2012). All this growth occurred even when in early 2011 there were shortage issues with hard drives due to the earthquake Japan. According to Gartner, a research company, “consumer spending on PC’s has been stalled by the ongoing economic uncertainty”, Company’s like HP showed a -13% growth in shipments while Acer had a 15% growth. Hopefully, as technology changes and demands are met; there will be growth in the PC industry as the economy gets better.
As the economy was slowing down, Apple reported their first quarter earnings, higher than analyst had expected, for a three month period that ended December 27, 2008 (Kratzit, 2009). Being that computer productions are in a global market, the foreign currency exchange rates can also cause economic constraints, “weakening of foreign currencies relative to the U. S. dollar will adversely affect the U. S. dollar value of the industries foreign currency-denominated sales and earnings (Dedrick & Kremer, 2002).
The computer industry is comprised of hardware and software, various types of peripheral equipment (Dedrick & Kremer, 2002) ”. In the PC industry, Apple is known as being very strong in the market compared to other PC manufactures, showing quarterly growths with shipments climbing 4. 3% to 1. 91 million units in the second half of 2012, compared to HP sliding shipments of 12. 7% to 3. 98 million units, Dell down 9. 5% to 3. 46 million units (Epstein, 2012). These reports are an indication of Apple doing well despite the downward economic affects.
Being that Apple generates business outside the United States, and generally raises prices on goods and services sold, the strength of the dollar in other countries can be a factor that could an adversely affect demands for the company’s products. (Apple, 2011) The graph below would illustrate the changes in GDP. Figure 3: Changes in GDP Source: www. whitehouse. gov 3. 1. 3 Political/Legal Segment Government policies, political decisions, and legal actions against a company can have an adverse bearing on its substance, if certain rules and regulations are not observed properly.
Deviations in government policy can be a contributing factor in the way the PC industry evolves. The PC industry is governed by laws and regulations that could affect their domestic and international operations. In the United States the government is regulating its dumping law, which according to the U. S. trade law occurs “when a company charges a lower price for a product in an export market than in its home market, or when a foreign company sells products for less than the cost of production, plus a larger profit (Bovard, 2001).
The U. S. government has been imposing punitive tariffs on foreign nations for alleged unfair trade practices. In 1986 the “Semiconductor arrangement signed with Japan made it an official act of trade war if a foreign government does not force private foreign companies to rapidly increase their purchases of American products” (Bovard, 2001). Political events like war, terrorism, geopolitical uncertainties, public health issues, and other business interruptions can affect the company strongly (Apple, 2011) 3. 1. 4. Socio-Cultural Segment
Social and cultural factors that can sway the purchasing behaviors of consumers include: education level, income level, preferences, culture, and geographic location. Social factors are defined as “the facts and experiences that influence individuals’ personality, attitudes and lifestyle” (Business Dictionary). When PC’s were first industrialized, they were not reasonable for everyone to own, so it was not too many households that had PC’s. This all changed in the late 1990’s with the introduction of internet, and when prices of PCs began to decrease, more Americans were able afford a PC (Day, Janus, ;amp; Davis, 2005).
In China PC’s were used in companies because they were considered as devices for work, with the social developments of the country, PC began to enter into individual home (Cui, 2009). The internet has also been a driving force for the wide spread us of the PC’s in homes. As the computer productions expanded in the 1980’s there were concerns about the effect on the environment due to the chemicals and toxins that were being used to produce computers. The Environment Protection Agency (EPA) has laws in place to protect the public from unlawful disposal of these materials that can cause health issues (EPA. ov). The disposal of these toxins and chemicals can cause health problems, and this could be a social issue. 3. 1. 5 Technological segment The technological growth of any organization has an immense influence in the dynamics and success of a company. In the last ten years, we’ve seen how the use of technology has influenced our day to day activities as a society. With the introduction of new innovative products such as iPhone’s, Galaxy S III, iPad, Smart TVs, and even LG internet ready refrigerators, businesses have somehow found a way to continuously improve their products.
The technology in the computer industry has evolved tremendously since the early periods of personal computers being introduced to the world (Bresnahan ;amp; Malerba, 1997). “The computer industry has been characterized by rapid and sustainable technical change, continuous product innovation punctuated by a few major breakthroughs, creation of new uses for computers, and new markets and coexistence between established actors and new entrepreneurial firms (Bresnahan ;amp; Malerba, 1997).
In analyzing the technological segment, the four components that influence technological segments are: product innovations, applications of knowledge, focus of private and government supported R;amp;D expenditures, and new communication technologies. (Dedrick ;amp; Kremer, 2002) Product innovations focuses on how an organization maintain its competitive edge, understanding that product innovation is a continual part of its business strategy is key to that organization overall success (Bresnahan ;amp; Malerba, 1997). Let’s take the current two biggest competitors in the technology industry, Apple and Samsung for example.
Both companies recognized that to continue being the market leader in their respected industry they have to constantly reinvent themselves, and somehow stay true to their business values (Gamble, Thompson, ;amp; Peteraf, 2011, p. 363). In order for the PC industry to understand its market position, Applications of knowledge plays a big role. This segment has a lot to do with the trend of the consumers’ wants and needs. Businesses should focus on creating products that the consumers are interested in based on information gathered.
Knowledge is the key source of competitive advantage in the PC industry (Dedrick ;amp; Kremer, 2002). 3. 1. 6 Global Segment The PC industry is operated on a global capacity. When IBM first started their business, all of their computer parts and components were built in-house. However, in an effort to market the PC, IBM began to outsource productions of its processors to contracted companies in the United States. As the years passed, countries like Taiwan, Singapore, Mexico, and China began to materialize as significant contributors in the PC industry by manufacturing parts and components.
By the act of manufacturing parts needed to build personal computers, these countries were able to increase their global economic share of hardware production from 8. 2% in 1990 to 23. 9 % in 2000 (Dedrick ;amp; Kremer, 2002). As of 2011, final assembly of hardware products for Apple are being conducted at the company’s manufacturing facility in Ireland. Apple currently has operation facilities in Cork, Ireland, United States, Europe, Japan, and Asia-Pacific retail stores. The company operates retail stores in 11 countries (Apple, 2011). In 2011 the United States accounted for 25. % of the global PC market value, Europe accounted for 28. 8%, Asia-Pacific accounted for 28. 4% and the rest of the world accounted for 17. 4% (PCs in the United States, 2012). Doing business on an international level, like Apple, HP, Acer, and Toshiba do, means these firms have to be incompliance with U. S and foreign laws and regulations. These laws include: import and export requirements, anti-corruption laws, tax laws, foreign exchange, data privacy laws, environmental laws, labor laws, and anti-completive regulations (Bresnahan ;amp; Malerba, 1997).
The computer industry can be affected financiallly due to economic and labor conditions, political instabilities, changes in the value of the U. S. dollars, foreign currencies tariffs, and anti-dumping penalties (Dedrick ;amp; Kremer, 2002). 3. 1. 7 Summary of General Environment Analysis In order for a company to be in tune with their strategic plans, they have to make sure that external factors which can harm the company are considered. These include: economic conditions, political/legal actions, social factors, technology factors, and global factors.
All factors must be reviewed, and the company should make plans in order to rectify any issues that might arise. Economic factors like the recession of 2008 had a great impact on the growth and success of the computer industry, being that productions and manufacturing of computers depends greatly on worldwide economic conditions. Currently, the economy is getting better; consumer spending would help in rehabilitating the PC industry as new technologies are introduced. Political influences and legal actions against the industry can have an adverse impact on the growth of the industry.
Regulations are in place to help with the environment protection. There are tariffs in place in order to do business on a global market. The industry has to stay educated, and be in compliance with the rules and regulations that govern them, because if sanctions or lawsuits are brought up against the industry, there could be an adverse effect on the growth of the industry. Social and cultural factors can influence the purchasing powers of consumers. the use of computers has evolved from use with businesses only, to household use.
With the introduction of social media and wireless services, and innovations that have made mobile devices into computers, personal computers are becoming a necessity for everyone in the world. Technology is the backbone to the growth of the computer industry not only in the U. S, but on a global spectrum. As new innovative products are introduced society will continuously embrace the technological segment discussed in this analysis. 3. 1. 8 Driving Forces Driving forces have the “biggest influence in reshaping the industry landscape and altering competitive conditions” (Gamble, Thompson, ;amp; Peteraf, 2011, p. 54).
Some common driving forces are: changes in an industry’s long-term growth, increasing globalization, emerging new internet capabilities and applications, changes in who buys the products and how they use it, product innovation, technological change and manufacturing process innovation, marketing innovation, entry or exit of major firms, diffusion of technical know-how across more companies and more countries, changes in cost and efficiency, growing buyer preferences for differentiated products instead of a standardized commodity product, regulatory influence and government policy changes, and changing societal concerns, attitudes and lifestyles (Gamble, Thompson, ;amp; Peteraf, 2011, pp. 54-57). In this analysis we would examine the four driving forces that are the major underlying cause of change in the PC industry. These four forces are: Increasing Globalization Product Innovation Technology change and manufacturing process innovation
Growing buyer preferences for differentiated products instead of a standardized commodity products Increasing Globalization Product Innovation Technology change and manufacturing process innovation Growing buyer preferences for differentiated products instead of a standardized commodity products Increasing globalization is one of the driving forces in the PC industry that companies find as beneficial to the production of equipment’s (Gamble, Thompson, ;amp; Peteraf, 2011, pp. 54-55). The PC industry depend on other countries like Europe, and Asia Pacific for the manufacturing of computer components, production of PC’s have expanded to other regions like China and Taiwan in manufactures looking for low production cost (Research, 2012).
The next driving force in the PC industry is product innovation, “Technological advancements in recent years have seen a significant increase in the threat of substitutes within the PC market in the form of smartphones, other handheld devices and next generation games consoles” (Research, 2012). The change agents in the PC industry are the new innovations such as smartphones that enable us to access infinite applications within our phones, take amazing pictures and access emails and even edit documents all within the fingertips of our hands (Bresnahan ;amp; Malerba, 1997). In the past computer systems were mostly stationary and lack internet capabilities.
With the introduction of internet access and tablet devices we are not able to perform all computing task from virtually anywhere without being tied down to a stationary (Bresnahan ;amp; Malerba, 1997). The next driving force in the Personal computer industry is Technology change and manufacturing process innovation. An advance in PC technology has altered the way PC’s are made. For instance the operating system that was generally used in the manufacturing of PC’s was windows operating systems, but now with the OS systems being used by Apple and Android the PC manufactures have varieties of operating systems to work with. This is allowing the industry to build better and more improve products (Research, 2012). The last driving force to examine is growing buyer preference for differentiated products instead of a commodity product.
In the PC industry there are some product differentiations in terms of technical description, but as far as style and processor speeds these are limited to buyers because most manufactures use the same features (Research, 2012). 3. 2 Industry Analysis The personal computer (PC) industry has evolved drastically since computers were introduced globally to the population. The market definition for the personal computer (PC) industry is, “The personal computers (PCs) market consists of the sale of both desktop and mobile PCs. A desktop PC is a personal computer in a form intended for regular use at a single location. Mobile PCs represent portable personal computers including laptops, notebooks, and netbooks, but does not include tablet PCs” this is according to the Market Line Industry Profile 2012.
The PC industry will continue to experience a rate of growth in demand as more and more people depend on computers not only to run businesses, but also as an essential tool that is also used on a personal basis. Table 1 Personal Computer Demand by Market in million dollars units illustrates a study conducted by The Freedonia Group in 2011. In addition to illustrating the increase of the demand of the personal computers, it also breaks down the demand by the usage of the personal computer in the commercial market and the usage in the home market. The personal computer demand difference in annual growth from 2005 to 2010 was 2. 3%; whereas it is forecasted that the personal computer demand from 2010 to 2015 will rise by 1. 1%, placing the annual growth rate in 2015 at 3. 4%.
The home market in the personal computer industry shows the highest annual growth rate of 4. 1% between the years 2005 to 2010. However, it is forecasted that this annual growth rate will decrease to 3. 2% by the year 2015. 3. 2. 1 Description of the Industry The personal computer industry is comprised of the sale of desktop computers and mobile personal computers. However, it is the mobile PC market that has experienced an astounding growth within the last decade. In the year 2011, “Mobile PC is the largest segment of the PCs market in the United States, accounting for 65. 3% of the market’s total volume. The Desktop PC segment accounts for the remaining 34. 7% of the market” (PCs in the United States, p. 10).
The market volume of mobile PCs surpassed the market volume of desktop PCs by over 30% in the year 2011 and it will most likely continue to dominate the market. 3. 2. 2. Industry Dominant Economic Features There are several economic characteristics that must be considered in identifying an industry’s dominant economic features. Gamble and Thompson (2011), explain that, “Getting a handle on an industry’s distinguishing economic features not only provides a broad overview of attractiveness of the industry, but also promotes understanding of the kinds of strategic moves that industry members are likely to employ” (p. 42). Therefore, a thorough evaluation of an industry’s economic characteristics is an important step to the assessment of a company’s industry and its competitive environment.
Table 2 Industry’s Dominant Economic Characteristics, includes a list of all economic characteristics that should be considered to identify an industry’s dominant economic features. Table 2: Industry’s Dominant Economic Characteristics| What to Consider in Identifying an Industry’s Dominant Economic Features| | 1. Market size and growth rate| 2. Number of Rivals| 3. Scope of competitive rivalry| 4. Number of buyers| 5. Degree of product differentiation| 6. Product innovation| 7. Demand-supply conditions 8. Pace of technological change 9. Vertical integration 10. Economies of scale 11. Learning and experience curve effects| Source: Gamble and Thompson, 2011
The PC industry’s primary dominant economic characteristics are: market size and growth rate, number of rivals, and pace of technological change. 3. 2. 3. Market Size The United States PC industry continuously experiences a fluctuating market value. The U. S. market value declined from the year 2008 to 2009 substantially, but then recovered in the year 2010. However, the U. S. market value experienced another even higher decline from the year 2010 to 2011. The United States PCs market shrank by 14. 2% in 2011 to reach a value of $40,919. 9 million (MarketLine, 2012). Figure 1 illustrates the U. S. PCs market value in millions and its fluctuating performance from the year 2007 through 2011.
The PCs industry market value shows a substantial decline in the year 2011 not only in the United States, but also worldwide. Datamonitor’s (2012) research indicates that, “The global PCs market shrank by 9. 6% in 2011 to reach a value of $160,737. 7 million. ” The PCs market volume also shows a decline in the US market in the last few years. Since the year 2009 the market volume has declined, with the highest decline occurring from the year 2010 to 2011. MarketLine’s (2012) research states that the US market volume, “…shrank by 5. 2% in 2011 to reach a volume of 71. 7 million units. ” Figure 2 illustrates the United States PC market volume in million units from the year 2007 to the year 2011.
Figure 1 and Figure 2 illustrate that the PC industry in the United States has been unstable when it comes to market value and market volume from 2007 through 2011. Market value shows a decline from 2008 to 2009, while market volume shows an increase from 2008 to 2009. Market value and volume also had opposite effects from 2009 to 2010; while market value shows a decline market volume shows an increase. However, both market value and market volume shows a substantial decline from 2010 to 2011. The PCs industry market volume has also declined globally, “The global PCs market shrank by 0. 6% in 2011 to reach a volume of 295. 8 million units” (Datamonitor, 2012). 3. 2. 4. Market Growth Rate
The PC industry’s market growth rate from the years 2010 through 2011, as shown on Figures 1 and 2, substantially declined in 2011 in both market value and market volume. To get a better idea of the future growth rate of the PC Industry, a forecast has been created for the years 2011 through 2016. The market value forecast and the market volume forecast for these years are illustrated in Table 3 and 4 respectively. The market value forecast for the PC industry is not very promising, as it shows a negative percentage growth for each year. MarketLine’s industry profile (2012) explains, “In 2016, the United States PCs market is forecast to have a value of $27,992. 3 million, a decrease of 31. 6% since 2011” (PC Industry in the United States).
However, the market volume forecast shows a continuously positive growth rate which results in a compound annual growth rate of 5%. The PC industry profile further explains that the market volume forecast will have the following behavior, “In 2016, the United States PCs market is forecast to have a volume of 91. 6 million units, an increase of 27. 7% in 2011” (MarketLine (2012) Table 3: United States PCs market value forecast: $ million, 2011-2016 Table 4: United States PCs market volume forecast: $ million, 2011-2016 3. 2. 5. Industry Trends The PC industry is affected by trends influenced by the economy, consumer demand, manufacturing overseas, lower pricing, and the pace of technological change.
All of these factors have impacted the PC industry in the past and will continue of impacting it in the future. The economy has an impact on consumer demand, just as overseas manufacturing has an impact on the declining pricing. The Freedonia Focus on Personal Computers (2011) report explains that, “When the economy has favorable prospects, business profits and personal consumption expenditures are usually high, and, as a result, corporations and private consumers tend to spend more on additional information technology equipment or upgrades to outdated equipment” (p. 11). This statement was proven accurate during the recession that was experienced during 2008 and 2009.
Freedonia’s (2011) research explains: PC demand decelerated in 2007, as another recession that began in December of that year resulted in greatly reduced disposable incomes at the consumer level and delays or cancellations of PC orders at the large-scale corporate level. As a result, PC demand decelerated sharply in 2008 and ultimately declined in 2009; as the economy started to recover in 2010, demand for PCs also rose (p. 2). Therefore, evidently the economy is an important factor that influences the PC industry as it drives consumer demand. The U. S. PC industry is also known for having moved its manufacturing to other countries abroad. By continuing to follow this trend, the PC industry has been able to lower its prices.
Peter E. Carlson from the National Center of Education and the Economy (2006) explains, “By being the first to move production overseas, US firms were able to drive down prices and increase their share of the market at the expense of the Japanese, who were slower to take advantage of the lower-cost labor in nearby countries” (p. 2). Additionally, The Freedonia Focus on Personal Computers (2011) report also supports that this trend will continue in the future by stating, “The US will remain a net importer of PCs through 2015, as a majority of suppliers have relocated production facilities to lower-cost areas such as the Asia/Pacific region” (p. 12).
The trend of being able to offer low prices will continue to benefit the PC industry as long as it continues on having the capability of manufacturing overseas to keep its costs at a low advantage. A trend that the PC industry experiences without a doubt is the continuous change in technology. Changes in technology will continue to be a trend in the PC industry, and it must continuously be studied. The introduction of smartphones, which have many of the same operations that a personal computer can perform, has negatively affected the industry. Datamonitor’s Global-PCs (2012) report indicates that, “Technological advancements in recent years have seen a significant increase in the threat of substitutes within the PC market in the form of smartphones, other handheld devices and next generation games consoles.
The PCs market saw a reverse in fortunes by suffering decline in 2011 both in terms of value and volumes of PCs sold” (p. 3). Therefore, technological changes must be closely watched by all competitors in the PC industry in order to stay ahead of such changes. 3. 2. 6. Five Forces Analysis Michael Porter’s Five Forces model delivers tactical instruments in the battle of competitive advantage for all industries. These five key components are imperative to any examination that is seeking to comprehend the competitive environment a firm is engaged in or is attempting to enter. * Threat of New Entrants * Power of Suppliers * Power of Buyers * Power of Substitutes * Intensity of Rivalry
All elements of Porter’s Five Forces Model will be evaluated to comprehend the general strategies, market provocations, and how competitive advantage is increased, retained, and organized within the computer/cell phone industry. 3. 2. 6. 1. Threat of New Entrants The threat of new entrants is low in the Computer/cell phone industry. This is chiefly due to the high capital requirement for entry. The capital required to enter and actually compete with the big names in the computer industry are ridiculous. Taking into account that HP spent 3. 9 billion on research and development last year alone makes a person think twice about embarking in the industry. New components and ideas are always being developed by the large companies, which few can compete. Furthermore, the brand name products distributed by Apple, Dell and HP are household names.
Nevertheless, if a person is technologically savvy, and creates new language or some sort of new innovation they could sell the idea to the large companies. This would be the most probable situation when attempting to create a profit within the PC business. In Apple’s case some entry barriers for new companies could be brand loyalty, and large startup costs, yet because Apple’s computers are highly priced there could also be an opening for computer companies that market towards customers with a lower price range. Apple commands such a large portion of the global market for a key component it creates enormous barriers to entry for potential competitors.
Competitors can obtain the component in limited quantities but at a higher price, therefore placing them at a cost disadvantage. The industry is enormously capital-intensive. Firms requires huge amount of funds to achieve economies of scope; there is greater risk leading to the failure to gain positive returns quickly. It takes years for potentially new companies to be able to get out of the red. For this reason, capital requirement is a deterrent to new entrants in the computer/cell phone industry. New entrants frequently bring additional capacity to an industry. Barriers to entry include economies of scale and capital requirements. If high barriers to entry exist, then the threat of new entrants is diminished.
Other barriers to entry include switching cost, access to distribution and product differentiation. Even though the number of computer/cell phone makers has been decreasing, there is still significant threat of new entrants. These new entrant most likely will be existing rivals that have consolidated and or merged. This results in a new bigger entity and tougher rival. In addition, consolidation by foreign computer/cell phone makers will also bring more competitors to the United States. 3. 2. 6. 2. Power of Suppliers Porter’s third force is the Bargaining Power of Suppliers, or the ability of a firm to negotiate good terms is directly linked to the number of firms a company relies on.
Apple has a high bargaining power over their suppliers, because they are able to outsource much of their manufacturing, and since Apple has over the years followed integration both horizontally and vertically, they can produce some of their own supplies, which has allowed Apple a great advantage in the competitive market and as a result emerged as a formidable competitor. To truly see why this is such a strong “Force” for Apple let’s start with the iPod and iPhone. Most iPod’s except for the “Classic,” rely on flash memory instead of a hard drive for storage (MJFERN 2011). The benefits of flash memory are reliability, form factor, and energy consumption. Realizing the significant benefits of flash memory for portable media devices, Apple formed long-term relationships with Samsung, Intel, and Micron, and by mid-2007 commanded about 25% of worldwide flash production (Spartanski 2008). Now in the 2012 version, a comparable situation develops for the iPad and the tablet market.
It turns out that Apple has secured about 60% of global touch panel capacity, with a focus on 10-inch displays. Some have speculated that this has forced some competitors to initially focus on devices with 7-inch screens, such as Samsung with its Galaxy Tab (MJFERN 2011). Apple is commanding a gigantic portion of the worldwide supply of this key component for a product, and Apple is buying these components in such large quantities, so it can exercise major influence over suppliers. This influence allows Apple to exchange favorable terms and pricing. 3. 2. 6. 3. Power of Buyers Bargaining power of buyers is the next force in which a firm is reliant on customers.
There is a very high demand currently for Apples products, and what gives them a great advantage is that customers see them as a unique product, where the alternates just do not compare. The power of buyers is low in the computer/cell phone industry with regards to Apple. 3. 2. 6. 4. Power of Substitutes Last but not least is the force of the threat of substitutes. These are products that are not competitors, but could satisfy a deliberately corresponding part for the consumer. The great thing about Apple is that they have already considered these substitutes and have branched out their company to support substitutes such as the iPad and iPhone. Substitutes are products or services that are able to perform the function of the original product or service at a considerable price reduction.
The threat of substitute products is high in the computer/cell phone industry for the same reason the buyer power is high. For the same basic grade of computer/cell phone, there is no difference between company A’s product and company B’s product; buyer can substitute suppliers easily with little or no costs. For this reason, the threat of substitutes is high. When analyzing the Computer/cellphone market it is evident that there is a range of products that one can choose from. 3. 2. 6. 5. Intensity of Rivalry The rivalry among existing firms is high within the computer/cell phone industry. The competition within the PC industry is extraordinarily cutthroat. The top companies consist of Dell, HP, Apple, Gateway and Sony.
Currently, there exists an excess supply of domestic and global computer/cell phone manufacturers within the industry. Price wars with dramatic reductions in prices between global versus domestic computer/cell phone companies have been the norm. High demand historically within the computer/cell phone industry has been the norm for the last decade. Since computer/cell phone is a specific, complex commodity product, most computer/cell phone firms have developed their own core competency specialty product to try and differentiate themselves from one another. There are a large amount of firms and with new computer/cell phone firms are continually cutting costs and reducing prices.
Rivalry among existing competitors is, in many industries, one of the principal determinants of growth and success for firms in the industry. Robust companies in the industry are increasing market share and gaining economies of scale when possible by constantly buying up marginal producers. Firms that can keep cost down, developed new computer/cell phone technology, and have significant financial resources will be the only survivors in the industry. For these reasons, the rivalry intensity is high in the computer/cell phone industry. 3. 2. 7. Summary of Industry Analysis Apple’s financial success as a company hinges in part on commercializing differentiated products (MJFERN 2011).
Another pivotal role in Apple’s success is the firm’s approach to managing Michael Porter’s Five Forces model. Apple’s power over the worldwide market in regards to these forces has significantly lowered Apple’s cost structure and has produced noteworthy barriers to entry for competitors. This produces considerably greater margins and market share for Apple. The U. S. computer/cell phone industry is vital to both economic competitiveness and national security of the country. The five-force analysis indicates a quite favorable overall domestic market as the threat of substitute products, the power of suppliers and buyers, and the industry rivalry are low.
As always, no matter what the industry, in order to identify critical success factors that determine the competitive advantage in the market, Michael Porter’s Five Forces model has to be used and applied. The overall market is favorable only to those firms that have the resources to develop new computer/cell phone, make acquisitions, and keep cost low. 3. 3. Competition Analysis 3. 3. 1. Industry Competitors As Apple Inc. continues to grow as a company, there are a lot of competitors but no one comes close to accomplishing what Apple has. A few of Apple Inc. ’s direct competitors include; Google Inc. , RIMM (Research in Motion Limited), PC (Personal computers), and Microsoft. Apple Inc. continues to do better than its competitors in every aspect by introducing better products and better software. Apple Inc. as a competitive advantage in the computer industry, phone industry and other electronic industry because they provide valuable services to their customers that are hard to imitate and rare to find. Apple keeps this competitive advantage by making sure their products and services evolve with technology, hence the IPod and IPad series. Apple computers include the MacBook pro, MacBook air, IMac, Mac mini and the regular Mac books. They are in competition with a lot of respectable computer brands such as Sony and HP. Sony has now created a laptop that looks exactly like Apple’s MacBook computer called the Sony VAIO SZ which weighs slightly less than the MacBook.
Dell can be said to be a competitor but one of the weakest, and they are only considered competitors because they provide computers for businesses and school. A disadvantage DELL has is that they do not make products outside of PC’S and their accessories. Microsoft makes long lasting products but their products are not as technologically evolved as other products and their operating system is compatible with everything. Microsoft is now in direct competition with Apple with the introduction of their new Windows 8 and RT tablets to stores on the 26th of October 2012 and the company is also expected to release the “Windows phone 8. ” (La Times October 27th 2012: Salvador Rodriguez.
A direct comparison between Apple computer and Microsoft Corporation between 1999 – 2009 shows how Apple Inc. has been able to surpass Microsoft in the industry. Source: Gurufocus May 27th 2010 The image below shows a direct comparison between Apple Inc. and its competitors (Yahoo Finance) Source: Yahoo Finance A competitor for Apple Inc. in recent times is the corporation of Samsung. Apple moved to sue Samsung for violating their patents for the iPhone and iPad and was awarded $1. 05 billion dollars in damages (NY times September 2012). The loss of Samsung in this lawsuit portrayed the company as a copycat therefore making them untrustworthy.
According to James Song a monitor of Samsung for KDB Daewoo Securities in Soul “A copycat or not, what Samsung has done with its smartphones was a brilliant move. ” (NY times September 2012). In the smartphone market, Samsung is Apple’s biggest competitor. “Apple has reached new heights in unit sales and revenues, but what is really remarkable about their profitability and revenue is its numbers which generates them. ” (Marketing trend 2012). Below is a diagram that shows the competition in the smartphone industry and their projected future unit share (%) Source: Gartner, company data, Credit Suisse estimates. 3. 3. 2. Rivals Anticipated Strategic Moves Apples main products which are; Digital music devices, computer software, consumer electronics (I pad, I phone, apple televisions e. c) and personal computers, are all products that have highly competitive rivals. The intense competitive nature of this market is in part due to the rapid growth of technology. Considering the nature of this fast paced industry, apple has to anticipate the competitive moves of its rivals. A major competitive move that is common to apple rivals is the drastic cutting of prices. This is especially common in the personal computer industry, where companies using other operating systems can reduce the specifications of their products in order to lower the overall price. This competitive move allows apples competitors to appeal to low-end consumers. This in turn puts some pressure on apples margins.
Apple rivals also compete by frequently releasing new products and rapidly evolving their technological advancement in order to keep up with the fast paced tech world. To have an edge, rival companies need to focus on their pricing, and introduce new advanced products that are easy to use into the market periodically. In the Mobile phone industry, Apple has formidable rivals such as Samsung and HTC. These rivals have their own competitive strategies that keep them relevant in the phone market. For instance, Samsung came up with a chain of smart phones called the Galaxy S. this smartphone has vied with the I-phone since its first release, by constantly adopting a new technology and advancing its product each year.
However, in 2012, Samsung new smart phone release (the galaxy SIII) was strikingly similar to a couple of design features in the I-phone. This led to a legal patent infringement feud between the two mobile phone giants. Apple came out on top of this patent war, however many in the tech industry expect a retaliation from Samsung and HTC who currently own the patent for the LTE (Long-term evolution) technology which Apple intends to use in its new release. An anticipated competitive move in this specific case is for Samsung and HTC to take legal action if Apple infringes their patents. There is always the threat of new entrants like in any other industry.
There are already so many mobile phone companies like Motorola who has been a leader in the mobile phone industry for many years, but Apple has been able to surpass everyone in the industry till date. Companies like blackberry who have fallen drastically in the mobile phone industry have started making products that rival Apple Inc. ’s products like the Playbook tablet, which is similar to the IPad. Blackberry has strategically placed the playbook for sale at an affordable price, where the IPad 16GB cost $499. 00 and the PlayBook 2. 0 cost only $199. 00. A great advantage the PlayBook has over the IPad 2 is that it can use Wi-Fi sharing to move files from a computer to the PlayBook and vice versa.
Due to the success of the Blackberry and iPhone, there is a greater chance that there can be new entrants that will come out with advanced software and an excellent selling point. The blackberry’s main attraction is the ability to instant message, receive emails, get applications for social networks and also surf the web. In 2012, BlackBerry announced that it was coming out with a new device and a picture of the device was released. Samsung has also put on the market its new phone the Samsung galaxy S3 and some consumers have claimed that it is better than the iPhone 4s and the new iPhone 5 that was just revealed in October 2012. Some of the features of the galaxy include its bigger screen, a bigger random access memory (RAM), and a front facing camera that makes for higher quality video, recording, and chat.
Samsung’s main strategy “was to build something similar to another company’s product but to make it better faster and at lower cost” which they have managed to do so far. 3. 3. 3. Summary of Competitive Analysis Digimind (Web intelligence for your business) The diagram above shows the companies in competition and their products. From our knowledge of Apple Inc. , we have seen that with Apple the advantage they have over their competitors is their loyal customers, their great customer service and their marketing and brand management. Samsung’s advantage over Apple is the ability to offer similar quality product at cheaper prices. In the month of October 2012, Microsoft has unveiled products that will be in direct completion with Apple and Samsung’s top products.
It is clear that the competition in the industry is very steep, and it has motivated Apple Inc. to research and manufacture new innovation that will allow the company at the top of its game. 3. 3. 4. Key Success Factors Innovation is the main factor, which Apple has used to gain great success over the years. With the leadership of Steve Jobs, Apple has always made it point to push the envelope in the design and engineering of their products. The company tends to amaze its loyal customer base year after year with new modifications to its products. The company continuously re-invents itself to introduce new product categories and avoid price competition in maturing product markets.
Recognizing emerging trends and taking advantage of early market penetration has been fundamental to Apple’s revolutionary success in its industry. (Www. macworld. com). Another Key success factor for Apple is its marketing and brand management. Apple has done a great job of having its brand image connect to the core values and lifestyle aspects of people (Guardian newspaper UK). Its brand image is so distinct that its customers have a strong sense of devotion to the brand thereby creating a niche audience for the company. This well planned and carefully executed marketing strategy creates a great reputation for brand development, which gains customers.
Apples strategic alliances and marketing partnerships with other companies is also another reason why it surpasses its competition. To gain a productive edge in its industry, Apple has partnered with Phillips, AT;amp;T, Motorola and Sony in the past. These alliances ensure that Apple steadily increases its customer base, and appeal to a wider range of consumers. Apple partnered more recently with Clear well in order to jointly develop Clear well’s E-Discovery platform for the Apple IPad. E-Discovery is used by enterprises and legal entities to obtain documents and information in a “legally defensible” manner. These collaborations are a key factor to apples success (Houston Chronicles. , successful strategic alliances by Je; Czaja,).
Apples product design, ease of use and high quality format also ensure the company’s success. The company’s product design is strongly rooted in the philosophy that aesthetics really matter. The designer Jonathan Ives is credited with created breakthrough Apple product designs that have great aesthetic appeal. This attention to detail when it comes to design has been a really good selling point for apple. The company’s sleek designs often convey a sense that Apple’s products are of higher quality than their competitors. Another key success factor for Apple Inc. is that it is a recognized name in the industry and all over the world. With the creation of iTunes, the music industry transformed significantly.
As opposed to going to stores to get albums, now customers can go on iTunes and buy complete albums or singles as they come out. ITunes does not only focus on American music, Music from all over the world can be purchased on it. (Time magazine: Lev Grossman/Cupertino). According to Time magazine, “Apple only makes products if Apple can do it better. ” Apple see’s products that have been made, they go back and add their own touch to it to make it different and a whole lot better and then they introduce it to the market. For example, the tablet was not invented by Apple, it was improved by Apple; same as the MP3 player. Jonathan Ive a designer for Apple has said recently, “Our goals are very simple- to design and make better products.
If we can’t make something that is better, we won’t do it. ” We have seen Apple adapt this method in all of their products. (Time magazine: Tim Bajarin May 07,2012). One of the most important factors responsible for Apple Inc. ’s success is also their ability to offer great customer service. In 2010, Apple ranked third in Bloomberg business weeks “fourth annual customer service rankings. ” Many have called Apple Inc. ’s customer service a secret weapon worldwide. According to a leaked employee-training manual obtained by the website “Gizmodo” called “Genius training student workbook”. The employees that work at the genius bar only use this workbook. The Apple Inc. s employees cannot use negative words when dealing with their customers they are warned against using such words as “crash, bug, problem,” instead they are to be replaced by words like “issue, condition or situation. ” The manual also states that “ our goal is not just to sell iPhones and iPad: We deepen and restore relationships, we enrich their lives. ” (The Telegraph United Kingdom: Lucy Kinder 29TH August 20120). It is very important for any company to practice have good relationships with their customers, especially when dealing with gadgets like the ones apple provides. The customers need to know they can trust the employee they are speaking to. According to Time magazine more than “50% of people buying Apple products are new to Apple. Another key strategy that has helped Apple maintain its success in the mobile phone industry is that it has just one phone the iPhone. Compared to other companies like Nokia, blackberry, Samsung and Motorola, Apple has just the iPhone. Customers do not have to decide on what body style they prefer. The iPhone you purchase today will be the same iPhone you purchase three years down the line and the only difference will be with the operating system. While some see this as a disadvantage, research shows the reverse is the case. It makes it easier to purchase, as customers already know how good Apple products are. Above is a diagram that shows the key success factors of Apple Inc. By Jeanette Odetola. References Arvidson, E. (n. d. . Target Audience for Mac or Apple Computers. Retrieved October 10, 2012, from EHow Tech: http://www. ehow. com/info_8737092_target-audience-mac-apple-computers. html Apple. (2011, September 24). Apple Inc Form 10-K Annual Report. Retrieved October 6, 2012, from Edgaronline: www. edgar-online. com Apple Inc. SWOT Analysis. (2012). Apple Computer, Inc. SWOT Analysis, 1-9. Apple and Industry Forces | Bargaining power of suppliers and buyers. (n. d. ). FernStrategy, Inc. | Strategy Development for Computing & Media Firms. Retrieved October 20, 2012, from http://fernstrategy. com/2011/02/17/apple-and-industry-forces/ Bovard, J. (2001). U. S.
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