Apple Inc. (Apple) has created relatively large value in the greatly competitive personal computer industry, through constant creation and the forging of a unique path with the largest players in the industry. It is ahead of its competitors by leaps and bounds, owing to its apt differenciation tactics which clearly revolve around the customer, focusing on quality, design elegance and superior customer service, further tapping on foreign sources to manufacture products. Apple may be on the top rung of the ladder as of now, but its competitors are not far below. The firm faces formidable challenges from these external sources, and the market itself is becoming increasingly commoditized, leading to intense competition among players within the industry, bringing prices down. The market may be at the brink of a possibly destructive price war.and therefore creating potentially destructive price wars.) Utilizing key resources and capabilities including industry-leading design teams, talented software and hardware engineers, backed by a sizeable research and development budget, which is responsible for a portfolio of thousands of patents, and under the strategically brilliant stewardship of CEO Steve Jobs, Apple has successfully innovated its way to a comfortable market position commanding premium prices. Unfortunately, Apple cannot afford to rest on its laurels. Lack of permancy in Apple's position steers it towards innovation, value creation for stakeholders, all in view of profit. Saturation of the market and lack of future growth prospects only means one thing: Apple has to keep a helicopter view and identify and penetrate new markets. (The position is not permanent and Apple must continually find new ways to maintain profits and create value for customers and shareholders. The maturing personal computer market is becoming saturated, leaving fewer new buyers and more replacement buyers. To continue to grow, Apple must also look to new and expanding markets as sources of revenue.)
Apple has established itself as a high- quality, exceptional designer and personalized service provider. These distinct characteristics broaden apple 's business strategy , which encompasses a wide audience, ranging from amateurs to professionals.
Apple outsources the basics of production to third-party original equipment manufacturers (OEMs) that can achieve cost savings through vast economies of scale Apple predominates in the areas of industrial design and user interface . Thus, its includes in-houseg elements of design to attract and retain users. Style, ergonomic design and simplicity are the winning triad that have paved the way to success for Apple by alluring customers. Its people centric approach has worked.Many flock to purchase Apple devices for they provide user friendly devices and personalized customer service. The above has created an excellent value proposition for Apple. Apple's products are slightly pricier, but in comparision to its offerings, quality tips the scale.(Apple excels in the areas of industrial design and user interface.they choose to focus on these areas to come up with a product that is both highly stylish and at once ergonomically natural and useable. Apple's user friendly creations and highly personalized one-on-one customer service create a one-of-a-kind value proposition that requires a price well above the average. Job orchestrates the entire company to achieve that harmony. Though manufacturing is outsourced, the key decisions such as designs are made in the Silicon Valley. It is in this aspect that the rivals are lacking in, for they outsource their designs as well, to outsource deisgn manufacturers. This intuitive tactic allows for cost efficient production via economies of scale. Though production cost is minimized, Apple focuses on continuously enhancing their product designs and customer care services. This qualifies the expensive nature of Apple products. While other companies outsourced to beautify their products, Jobs retained design experts
STRATEGIC ANALYSIS Porter's 5
Rivalry Between Competitors
Once an industry defined by few large companies and extremely expensive products, pursuing a specific group of people, the advent of the personal computer (PC) has caused an industry explosion which now includes dozens of manufacturers pursuing many millions of customers in the United States.
The PC is currently a commodity due to its common use in everyday life. This has led to the pursue of low and best cost provider strategies. Those at the lowest end compete on rock-bottom prices foregoing all but the most basic features. Those in the middle range including Dell, HP, and Lenovo compete for customers offering a range of options for varying prices. The similarity of their products due to industry standard setting also leads to price competition that drives down prices and squeeze margins. The desire of companies to buy large numbers of PCs for the lowest bid available also exercises considerable downward pressure on prices offered by these firms.
The nature of technological development also imposes increased competition on the members of the industry. The technology behind many key components of PCs continues to become more efficient with increased processing power and less energy consumption. 'Moore's Law' predicts that the number of transistors on a processing chip roughly doubles every eighteen to twenty-four months.1 While is more an estimate than a 'law' industry leaders like Intel, Inc. have kept this pace for decades. This perpetual innovation and development puts pressure on computer manufacturers to streamline production and refresh products at a pace largely unseen in business for centuries.
Suppliers have considerable leverage over the manufacturers of portable personal computers. While many industry standards like universal serial bus (USB) and wireless technology are open, manufacturers also rely on privately owned standards.
In addition, the relative concentration of suppliers for some inputs puts pressure on competitors. Within the personal computer industry, central processing units (CPUs) are sourced from a duopoly, Intel Corp. and Advanced Micro Devices, Inc. (AMD). Despite having two options, the semi-conductor market is dominated by Intel, with AMD licensing technology from Intel for use in production of their CPUs.4 Despite having compatible chip technologies; these two companies use proprietary chip designs that require different motherboard socket designs. Because of this incompatibility in design, for a PC manufacturer to switch suppliers of CPUs they must also switch to a new type of motherboard, which drives up switching costs. Despite this power the chip manufacturers hold, they are not present in the PC manufacturing business and therefore are reliant on PC manufacturers for a bulk of their business. This leads to discounts for bulk purchasing and exclusivity agreements, which alleviates some pressure from the dominant suppliers.
As in all industries buyers have the final say and exercise considerable influence over manufacturers. The variety of buyers with many, widely varying needs directly impacts PC makers who must adapt and react by offering broad product lines. The marked distinction between power users seeking the 'latest and greatest' and average users who need a product that is 'just good enough' poses an obstacle to manufacturers who want to tap as many customers as possible. Manufacturers are benefited by the wide acceptance and use of PCs which causes high demand for products. Proprietary systems and brand loyalty are also used to keep customers coming back. Highly compatible closed-systems are routinely used to keep customers within a circle of products provided by single companies.
Threat of Potential Entrants
There is a possible number of routes by which a new entrepreneur may take a shot at the portable personal computer market; however there are several hindrances that may prevent successful entrance. Currently in the market there are several well entrenched players that have substantial brand recognition and loyalty, like Dell, HP, Lenovo, and Apple. Developing a successful brand amongst the many others is indeed challenging. These players also dominate and keep costs down with economies of scale, which cannot easily be achieved by a new entrant without substantial capital investment. However, despite these obstacles there are still possibilities for entrance. New entrants may come from newly established 'lean' organizations which rely primarily on third-party original equipment manufacturers (OEMs) for production. Established OEMs often operating in Asia have already achieved economy of scale and can pass these savings onto new firms that practice 're- branding' as a market entrance plan. The increasing convergence of mobile devices resulting from the push of 'smart-phones' and 'netbooks' is bringing phone makers into the portable personal computer market. Nokia, a well established phone maker, has fired its first 'test shot' by planning to release a netbook of its own.5 Another mode of entrance is a result of forward vertical integration by OEMs. This trend has increased in popularity over the past decade, bringing companies like Acer, Inc. into direct competition with well-known industry giants. Formerly an unknown, by 2005 Acer had revenues of over $1 Billion in the United States, $8.17 Billion worldwide.6 Today Acer has over $16.5 Billion in revenues worldwide and oversees brands such as eMachines and Gateway.7
Threat of Substitutes
The consumer technology sector has grown exponentially over the past decades with the invention of alternatives to personal computers growing from PDAs and now feature-rich 'smart phones' The increase in technology in the average American living room. These developments result in the spread of consumer 'technology dollars' away from PCs. However, despite the spread it is unlikely that smart phones, like the iPhone or Blackberry, will significantly diminish the importance of PCs in the near future. This diversification of consumers' 'digital lifestyles' presents an opportunity for diversification of PC manufacturers, a step many are already taking.
Analysis and Conclusion
Despite the threats faced by firms operating in this industry, I would believe that the industry is still somewhat attractive overall. Many firms within the industry have thrived, but competition is very high, while suppliers and buyers have moderate influence over the competitors. There are several avenues by which new competitors may enter the market, but they face substantial hurdles in successfully establishing a viable brand. Finally the threat of substitutes is credible in some use- cases, but will not completely usurp personal computers in the foreseeable future.
Political/Legal Environment Potential FCC Internet Regulation - The debate over 'Net Neutrality' has entered the political arena, with bills being drafted in Congress and the FCC waiting in the wings to impose regulation if need be. Changing the way the Internet operates may de-incentivize new innovation which could reduce future value to be derived by Apple.24 New and innovative technologies are routinely iterated on by hardware companies who strive to offer the best methods of integration in their new products. Reducing this innovation may stifle new value creation for Apple.
Healthcare reform - The push for modernization of the American healthcare system in proposed reform legislation would provide government money for infrastructure development and implementation by care providers. Adaptability of Apple's key portables in innovative health-centric ways could provide new sources of revenue.
Economic Environment Recovering economy22 - Even though United States' economy has shown some improvement there are no signs of a full recovery any time soon.. This uncertainty keeps customers away from pricey investments like computers. Apple has priced their products exceptionally high which leave them at a disadvantage to less expensive competing products. However, when consumers begin to directly feel the improvement in the economy, their spending will increase. Apple is well positioned when this change happens. Consumers wanting to pamper themselves following the economic upturn may be attracted to Apple's premium portables, viewing them as luxury goods. Apple, known internationally for its quality, dependable machines, and excellent customer service may also be seen as presenting a better value than the competitors with fewer frills at lesser prices.
Increasing desire for on-the-go devices -
Consumers now want to be able to access the I nternet from anywhere at anytime and they want to be able to do so using high-speed wireless technologies. Smartphones, and other ultra-portable 'connected' devices, that allow users to carry access to the Internet wherever they go are fast-growing, in contrast to traditional personal computers. Apple and other manufacturers face a loss of relevance in the new technological landscape, driven by consumer preference. Again, Apple's substantial investment in research and development in highly popular devices like the iPhone and now the iPad place Apple at the forefront of this transition.
Greater concern for the environment - The production and shipment of Apple's devices are considerable sources of carbon emissions and pollution. Consumer concern for the environment has been growing rapidly over the years and this will cause Apple's practices to come under scrutiny. Apple has already made commitments to 'greener' manufacturing practices such as the usage of eco- friendly components, and packaging. Apple's concern for the environment can be used as a marketing tool to garner greater respect from customers especially those who concerned about the environment.
Technological Environment Device convergence - The future of ordinary personal computers is bleak due to increased device convergence. Apple's products laptops will be less important in users' daily use as their multi-function devices meet most of their needs. Apple is currently a leader in innovation and portable technology. This position gives Apple the advantage to also become a leader in convergence devices by improving on their current portable devices and mobile devices like the iTouch and iPhone.
Shortening product lifecycle - The lifecycles of electronic gadgets are getting shorter and shorter. This will increase the pressure to invent and pushout products so as to not miss out opportunities due to market entry time and losses on obsolete inventory. Apple has a lean manufacturing value chain which is adapted to rapid turnovers and can be leveraged to fight the threat of inventory obsolescence. Apple currently invests billions of dollars into their research and development department which will leverage Apple's position at the head of industry innovation, staying ahead of competitors in lifecycles shifts.
Developing Chinese economy - The Chinese economy is growing rapidly whereas the rest of the world is suffering from a shrinking economy. As the Chinese economy developes, wages will increase thus increasing the costs of production for Apple and its OEM partners. But the expansion of the Chinese economy will provide Apple with a larger customer base as the quality of life and the disposable income of the Chinese citizens will also increase.
Potential world-wide climate regulation - Copenhagen talks might be able to pressurize countries into imposing strict Carbon emission regulations. These regulations come in the form of caps and taxes which will cause Apple's financial burden to increase considerably as it will drive up Apple's production cost and shrink it's profit margin. Once again, Apple's proactiveness in implementing 'green' practices sets them apart from numerous competitors who might struggle under the burden of the regulation.
Demographic Environment Flattening of wages -- leveling affluence -
In recent years, the American middle class have been experiencing increasing costs across many indicators including, healthcare costs and the CPI, but wages never seem to increase. If Apple is unable to justify it's high price tags, the firm will lose potential customers to it's competitors. Despite this, Apple has directly benefited from the economic downturn. Unlike their cometitors, Apple continued to grow.
Trends and Opportunities
Companies all over the world are facing the chance of restricting carbon footprints regulation. Apple is able promote 'green' production to the electronics industry due to its unique position. At the same time, the firm is able to take full advantage of opportunities arising from the latest technological trends surrounding convergence devices and sociocultural preferences regarding a fully-integrated and mobile digital lifestyle.
General Environment Analysis
Regardless of Apple's vast resources and capabilities, numerous trends within the General Environment pose considerable threats to the current success of the firm. Only through proper planning and action will Apple be able to reduce these threats while leveraging core competencies to take full advantage of arising opportunities to create value for customers and shareholders. See Appendix A5 for accompanying template