Apple Company: Outer-Organisational Environment and Strategies

Introduction

Apple Inc. is the selected multinational enterprise, which specializes in technology and provides leadership in innovative product development. However, advancing technology, a declining global economy, and increasing industry rivalry has made the company face an uncertain future in its business activities. In the analysis of the external environment, the study focuses on the home country factors of Apple. Kim and Gray (2017) consider that there is a positive relationship between an organization’s home country experiences and its performance in the global market. Thus, the understanding of Apple’s host country’s external factors guides in the determination of the challenges that the company faces while striving to sustain its market share in the global economy. Besides, this analysis proceeds to evaluate the corporate and business level strategies and determine the weakness of each in positioning the company in the global market. Eventually, this analysis concludes by giving a summary of the findings and suggesting appropriate corporate and business level strategies essential for robust growth.

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Background

Apple Inc. is a multinational company that deals with the production of both hardware and software technology-based products, including tablets, digital players, and personal computers. The company’s innovative leadership in production and marketing strategies has significantly influenced its competitive success in the global market. Cui et al. (2016) and Mauerhoefer, Strese, and Brettel (2017) hold that a robust corporate strategy and business plan considerably influences the success of any company in the market. The company has adopted the vertical integration model as a corporate and differentiation strategy, which is integral to building a strong brand in the market.

Additionally, the company’s mission to lead a digital revolution and a strong vision to excel in transforming lives have essentially influenced its focus on developing unique products in the industry. In the smartphone business, the company leads its competitors in the market share. Apple dominance in the market is evident because it is at 19.2% followed by Samsung (18.4%), Huawei (10.2%), Xiaomi (7%), OPPO (6.8%), and others (38.6%) as shown in Figure 1 (International Data Corporation 2018). The expansion of organizations’ market share spurs global economic growth through the establishment of competitive rivalry and the development of high-quality products (Ogrean 2017). At the end of 2017, Apple had 501 retail outlets spread in 24 countries globally. It is important to explain that Apple’s product line has expanded from its initial assortment of Mac and iPod to include the iPhone, iPad, Apple TV, Apple Watch, and a range of other accessories. Therefore, I have selected Apple because it is a multinational company, which has carved a robust niche in the technology industry and gained great fame globally.

Market Share of Smartphone Companies.
Figure 1: Market Share of Smartphone Companies. (International Data Corporation 2018).

The Outer-Organisational Environment

Competitive Rivalry (High)

Apple experiences a high level of competitive rivalry because it competes with aggressive competitors and contends low switching costs in the United States. A high level of technological capacity influences the organization’s efforts in research and development of programs critical in the manufacture of high-quality products (Baden-Fuller & Haefliger 2013). The high-level of industrialization in the United States provides a good environment for continuous innovation and product invention. This industrial support increases the availability of alternative products in the market and gives consumers a variety of options. The intense rivalry has led to the withdrawal of other Apple products such as iPod Hi-Fi. Therefore, Apple faces stiff competition from rival firms such as HP, Microsoft, Google, and Hewlett-Packard in the United States.

Buyer Bargaining Power (High)

Apple Inc. faces a high bargaining power of buyers since consumers experience low switching costs in the industry. In business, switching costs have a considerable impact on the choices and preferences of consumers (Shirai 2017). Given that the cost associated with its quality products is high, the company can easily lose its customers to rival companies offering substitute products. The existence of affordable, superior, and versatile products from rival firms, such as Microsoft and Google in the United States, poses an expressively high threat to Apple’s market share. Since these rival products are compatible, consumers may find them more user-friendly than Apple products, and thus, switch their brand loyalty easily.

Supplier Bargaining Power (Low)

Manifestly, the bargaining power of Apple’s suppliers is weak. The availability of a high number of suppliers promotes flexible material sourcing within and reduces production-associated pressures in business (Wu 2017; Fei, Du, & Luo 2015). Apple manages a chain of suppliers spread in places like the United States, Japan, China, Brazil, and Taiwan. Despite relying on some of its rival firms such as Samsung for materials, the company has more options because of the extensive distribution of suppliers across the world. If a supplier wants to increase the price, the company would seek alternative suppliers in the competitive industry. However, since suppliers offer unique and highly differentiated materials, Apple utilizes limited sources such as NXP Semiconductors, and Avago Technologies, which cause a moderate bargaining power. On the other hand, to control the impact of this strategy, the company sources components that cover its needs for five months.

Threats of New Entrants (Low)

Apple experiences a low threat of new entrants for its research and development sector is consistent with the innovative capacity of making unique and high-quality products. Leadership in product features and differentiation from rivals has significantly reduced threats of new entrants on the company’s business activities. The economy of scale in production is a substantial entry barrier, which makes it difficult for new organizations to compete with established firms having a comparative advantage (Fang 2016). Since the global technology industry is saturated, new entrants find it hard to penetrate and establish their customer base.

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The Threat of Substitutes (Moderate)

The analysis of the external market shows that threat of substitutes is relatively moderate. Balachander et al. (2017) explain that most potential substitutes have limited capabilities in reducing market performance. In the United States market, the high-availability of substitutes imposes a moderate force on Apple products since people can easily access and use these products. Thus, many consumers would rather use Apple’s products because of their advanced features than switch to low functionality options such as a digital camera. However, the consistent innovative nature of the industry predicts a potential emergence of substitute products, resulting in the high threat of complementary products in the industry.

Suggested Corporate-Level Strategies

The company, due to the need to expand its market growth potential and retain its customer share, has introduced switching costs to the otherwise versatile industry by adopting the vertical integration strategy. According to Wheelen et al. (2016), the corporate approach takes into account the role of acquisition practices to influence an organization’s adaptation to the needs of the unpredictable business environment. Moreover, Dessler (2016) expounds that strategy involves the adoption of human management practices to play a central role in enhancing organizational flexibility and competitive position.

Apple’s ability to maintain control of production processes for all products through the vertical model has enabled the company to deliver superior products with enhanced user experience, which ties users to the company’s products. Since the company targets high-end user market segments, the adoption of the vertical integration strategy is necessary to ensure the production of high-quality products (Zhou & Wan 2016). Vertical integration creates economies of scope and reduces costs for the company by allowing the sharing of resources across multiple businesses. Furthermore, the sharing of resources allows the complementation of products, for instance, Macintosh and notebook, iTunes, and iPhones.

However, vertical integration limits the company’s versatile capacity, leading to the production of non-compatible products (Zhou & Wan 2016). Given the existence of intense competition from both domestic and global established rival firms, Apple must respond by investing heavily in patents, processes, and research, which cuts on the overall profitability. Moreover, due to the incompatibility between Apple’s products and other industry outputs caused by this approach, the company faces stiff competition from its rival firms whose product capabilities match. Given that these rival firms also collaborate in the production, their shared relationships promote market expansion and pose a significant threat to Apple.

Therefore, the joint business activities give rival companies adequate strength in research, production, and marketing, which threatens Apple’s future growth. The analysis of the external environment under Porter’s five forces shows that the industry’s rivalry and bargaining power of buyers are both high. Thus, because it is inevitable for Apple to enjoy its market position, it must respond appropriately by adopting a flexible strategy to enable it to build a corresponding competitive force without spending much capital (Cingoz & Akdogan 2013; Silva & Ferreira 2017). Apple corporate leaders should adopt the horizontal integration approach with other innovative competitors such as Google to create a strong compatible brand. The horizontal strategy is also effective in enhancing market penetration, and thus, it is suitable for expanding the company’s market share.

Proposed Business-Level Strategies

The objective of the Ansoff Matrix is to enable the company to expand its market growth (Table 1). The business-level strategy has four market outputs focusing on market penetration, development, diversification, and product development (Wheelen et al. 2016). Some of the objectives driven by Apple’s penetration strategy comprise an increase in the scale of repeat and new clients with the view of augmenting its dominance in the market. The strategy of diversification entails offering new products in new markets.

Table 1: Ansoff Matrix. (Wheelen et al. 2016).

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Existing products New products
Existing markets Market penetration Product development
New markets Market development Diversification

In Porter’s generic strategy, to enhance market growth, companies must adopt a product differentiation approach that facilitates the creation of unique products to gain a competitive edge. Semuel, Siagian, and Octavia (2017) argue that to beat its rivals, a company needs to apply the differentiation strategy in creating products perceived by consumers as unique and superior. Considering the two classifications of business-level strategies, Ansoff’s Matrix fails to provide a cutting edge in enhancing market leadership and sustainable market share. On the other hand, Porter’s differentiation strategy gives an organization the power to set itself apart as a market leader in innovation and customer-centered product development.

In its business strategy, Apple has emphasized product differentiation with its focus on high-end users. This strategy allows the company to charge a premium fee to its customers. By focusing on a narrow market segment, this business approach gives users the convenience to use a single company’s product together, such as iCloud and iTunes, and thus, creates high switching costs. Additionally, the adoption of this strategy boosts the ability of the company to come up with innovations that destabilize established rival firms’ market and enhance the introduction of new products in the market.

The economic factors that act as opportunities for future growth in the technology industry revolve around high-quality but low-cost products. Companies must exploit competitive strategies and innovative processes to meet the needs of the consumers in the declining global economy (Bayraktar et al. 2016). Therefore, corporate managers must pay attention to cost factors to avoid potential market displacements and losses emanating from a high level of competition in the industry.

Focused cost strategy is in line with the proposed horizontal corporate strategy, which facilitates cost-sharing between firms, improves research and product development, and enhances market penetration. Since the two levels of strategies easily fit into an organizational culture owing to their flexibility, the focused cost strategy is the most suitable for Apple to utilize in creating collaborative ventures important in maintaining market leadership and competitive position.

Conclusion

Apple Inc. has maintained its market leadership in the technology industry due to its innovative products and robust market strategy. As a corporate strategy, the company adopted the vertical integration strategy that enables it to control all activities and costs in the whole product lifecycle. The external analysis indicates the need to respond to the threat of competitive rivalry and the effect of the high bargaining power of buyers because of the availability of relatively cheap products and low switching costs. Therefore, Apple must review both its corporate and business strategies to reverse the declining global economy and increasing competition. Apple must adopt horizontal integration as a corporate level strategy and match it with the focused cost strategy. These two strategies would enable the company to utilize collaborative relationships and manage its costs while producing high-quality products.

Reference List

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