The influence of business environment (Micro and Macro) on success of companies: A case of Apple Inc.

Author: Iloka Benneth Chiemelie
Published: 30th August 2015

INTRODUCTION

The concept of strategic management has become an increasing interest in the modern business settings. The increase in interest has been linked to the subsequent increase in globalization and internationalization of firms that now mean that firms must seek to carefully position themselves in any new market they intend to penetrate in order to ensure that sales is sustainable. It is this issue of sustainability as viewed by numerous literatures (Thompson, 1967; Westley and Mintzberg, 1989; Whittington, 1993; Mintzberg et al., 1998; Hamel and Prahalad, 1995; Camillus, 1996; Hamel, 1996; Kouzmin et al., 1997; Mainwaring, 1997; Kouzmin and Jarman, 1999; Parker, 2002) that have led to the increase in internationalization of business.

Corporations now understand that they don’t need to rely only on their home market in order to be sustainable, and increasing presence in other markets will increase sustainability because failure in a specific market can be mitigated with a subsequent success in another market. However, this idea has escalated the competitive sphere in modern businesses and corporations now have to fight out in order to reach their desired financial positions.

On that ground, this paper is designed to conduct an analysis of Apple Inc.’s business environment by looking into the influence of its macro- and micro-environment on continued success. As such, the paper will present such discussion based on models like PESTLE, Porter’s five forces and SWOT analysis.

COMPANY BACKGROUND

Apple Inc. is a corporation founded in California in 1977. The company designs, manufactures and markets computers, mobile communication devices and portable digital music and video players (Nasdaq, 2012). The company is also in the production of numerous software, services, peripherals, and networking solutions (Nasdaq, 2012).

Apple products are made available to the global market through the company’s online store, direct sales forces, wholesalers, retailers, and value-added reseller. The company’s most common products are Macintosh® (Mac), iPhone® and iPod®. Its primary markets are the Americas, Europe and Japan; with headquarter in Cupertino, California and employing over 15,000 staffs.

2.1 HISTORY

The Apple Computer was incorporated in 1997. It was co-founded by Steven Wozniak and marketed by Steven Jobs. They introduced the first Apple I computer in 1976. The Apple I was a failure but Apple II launched in 1980 was successful. The company offered its IPO in the year 1980.

In the early eighties, competition from the PC market and internal difficulties led to critical management changes. By 1983, Apple encountered danger with the entry of IBM into the PC market, and the failure of its Apple III version computer. Apple introduced its first mouse driven computer, the Macintosh in 1984.

By 1990 the market was flooded with cheap PC clones and Microsoft had launched Windows 3.0. In 1994, the company launched the PowerPC chip based PowerMac. This new chip allowed Macs to compete with the speed of Intel’s PC processors.

Apple still had problems though and in 1995, the company had a $1 billion order backlog. These problems were compounded by the launch of Windows 95. The company’s performance nosedived in 1995-96 when it lost $68 million.

In 1996, Apple acquired NeXT and NeXT’s operating system, Rhapsody, became Apple’s next-generation operating system. By 1997, Apple had lost hundreds of millions of dollars. Steven Jobs, the original co-founder returned as interim Chief Executive Officer. Under his leadership, Apple reorganized to concentrate on its more profitable competencies. Apple divested its unsuccessful spin offs, including Newton. Soon after Steven Jobs returned, an agreement was made with Microsoft, and was subsequently followed with the appearance of MS Office on Mac PCs. During 2001, the company acquired PowerSchool, one of the leading providers of web-based student information systems for K-12 schools and school districts. Also in 2001, the company acquired Spruce Technologies, a privately held company involved in developing and marketing DVD authoring products.

In the following year, Apple, Ericsson and Sun Microsystems formed an alliance to create a standard format for delivering multimedia content to wireless devices, such as smart phones and PDAs. The alliance combined Apple’s QuickTime video creation software, Sun’s content distribution software and hardware, and Ericsson’s mobile infrastructure and services expertise.

Apple pursued a number of acquisitions during 2002. The company acquired Prismo Graphics, Silicon Grail and certain assets of Zayante, and also acquired the German Apple Computer, Inc. based specialist music software manufacturer, Emagic, which became a wholly owned division of Apple. Additionally, in the second quarter of 2002, the company acquired certain assets of Nothing Real, a privately held company engaged in the development of high performance tools designed for the digital image creation market. Apple launched its iTunes music store, an online store for downloading music tracks and albums in 2003. In the following year, the company signed licensing agreements with three of the largest European independent music labels, Beggars Group, Sanctuary Records Group and V2, adding tens of thousands of additional independent tracks from leading artists to the iTunes music store in the UK, France and Germany. In the same year, Apple introduced its fourth generation iPod portable digital music player.

In June 2005, the company made agreement to use Intel microprocessors in its Macintosh computers. Later in the year, the company collaborated with Acura, Audi, Honda and Volkswagen to deliver iPod with their car stereos for 2006 model lines and also introduced mobile phone with iTunes in collaboration with Motorola and Cingular Wireless.

Macro environment: PESTLE

Political factors – the innovation laid down by the company had positive backups from the government of the US as it was in line with the country’s dream productivity scheme. Additionally, the allies from advanced world such as the UK, Australia and Japan also welcomed the innovation. China was not to be left out as the company moved quickly to open a brand of its production segment in the Chinese market in order to increase penetration in order parts of the Asian world. The main reason why Apple was welcomed across the globe by governments of these countries is due to the high influence it had on employability.

Economic factors – the increase in penetration of the Apple brand coupled with the high demand and consumer loyalty influenced the economic performance of the company positively. As of 2007, the company has well established itself in the major markets that include the USA, Japan, China, Australia and Europe, and their innovative business idea developed a whole new sense of feeling with regard to PC, which influence the demand for their products positively. Basically, the case noted that the demand for computers was on the high in the 2000s and this was as a result of subsequent surge for increase performance in both the corporate and government levels. Apple was quick to react to this new trend by bringing in the Macintosh, which went on to become a standalone system and the computer giant started developing its own software through numerous acquisitions.

Socio-cultural factors – the social factors comprised of a growing trend towards a more efficient and easy to use computer system that is better than the IBM features. Apple was quick to respond to this immediately the call arose and this increase the social preference of Apple as an innovative brand that understand the importance of meeting customers’ needs. The positioning of Apple also played significant role as demonstrated in the case because people viewed it as a brand that can be used to display social status.

Technological factors – the technologies adopted by the brand also influenced growth positively because it comprised of high-end technological solutions that helped provide the needs and demands of customers with respect to PC and computer systems. Following numerous successful partnerships with other tech-giants such as Microsoft and IBM, Apple went on to establish its own software and designed the Macintosh to be able to standalone and support word processing capabilities. This totally differentiated the brand from others as it also features some of the most innovative design tools.

Legal factors – while other brands where quick to imitate Apple, the legal environment surround businesses in markets where the company maintained existence were very much organized and planned out. This allowed for the maintenance of a brand that is bridged out from direct imitation as Apple proceeded to patent its products such as the Iphone, Ipod, Mac and so on.

Environmental factors – the environmental factor also played significant role in the business growth of Apple. With the shift being made towards a high level of adoption and penetration of online transaction, Apple was quick to develop a website where customers can directly make orders for their products. This reduced problems of reach for the markets where they don’t have distributors and as such increase the performance positively with a positive increase in online demand. However, increase in competition means that success if not guaranteed because numerous new entrants have entered the market and they are capable of delivering similar products with the same functionality like Apple products.

From the above analysis, a number of factors have been presented in relation to how they influenced the business, and the overall understanding is that the macro environment is very profitable for Apple Inc. however; there is a need to understand that increased competition now means that Apple Inc. will now have to maintain its innovative spheres to survive. 

Porter’s five forces

Porter (2008) presented a model for analyzing the external influence of business environment on the success of a business and the model points to the understanding that must be gained by the company with respect to its supply network, consumers, and competition in the industry. In terms of the case, findings from the case study can be represented with respect to the model in the form below.

Threats of new entrants – from the case study, it was noted that the threat of new entrants is always there. This is because the resources needed to produce computer components are always there and the coupling of a computer system is increasingly becoming easier because of the advanced in technology. This can also be reflected in the number of new entrants that have entered the tablet PC and phone markets such as the CSL of Malaysia, CRU of China and Novo of Nigeria. As such, it can be concluded that threat of new entrants is very high with respect to the PC market where Apple operates in.

Threat of substitute products – since the threat of new entrants is high, it should be expected that the threat of substitute products should also be high. The case noted an increase in the number of substitutes as other PC companies have shifted their manufacturing gear towards the production of PC tablets and other innovative ideas that where pioneered by the Apple brand. Something that is very significant with respect to threat of substitute products is that consumers are not only given numerous choices to choose from, but these choices actually come at lower price as compared with the Apple brand.

Consumers bargaining power – with numerous choices given to the consumers as a result of numerous companies that are entering the market, their bargaining power is relatively raised and Apple will have to be very much worried about that. This is because these new brand are making their products available at a relatively lower price with the same features as that of the Apple products.

Suppliers bargaining power – the case noted that since the earlier days of Apple and the subsequent partnership with IBM that followed afterwards, the brand has been able to maintain quality supply network through a subsequent increase in the opportunities they provide for these suppliers through sustainable demand for their raw materials. However, with new entrants potentially entering the already congested PC market, it should be expected that the bargaining power of suppliers will be raised because they will have numerous choices to make with respect to companies to supply for; of which this decision will be greatly influenced by the benefit that will be made from such partnership.

Industry rivalry – with the market already congested with top brand such as Samsung, LG, Lenovo, IBM, Nokia, Siemens and Motorola, as well as new entrants in the years that followed 2008 such as Google, CRU, CSL, and so on. It can be seen that competition in this case is very high.

From the above analysis, the business environment doesn’t provide the right room for sustainable business in Apple Inc. and this is because the company is operating in a market that has high competition. Additionally, the pricing strategy and positioning means a lot of damage to the potential for growth as Apple products are priced very high in line with their positioning approach that is geared towards putting the brand in the mind of customers as high social value. However, the competitors (especially those from the Asian region) have targeted this positioning by providing customers with the same value of innovative computer experience at a lower price. This is definitely influencing the market performance of Apple and as such a review of its pricing strategy is needed in order to ensure that the brand is well positioned for continued and sustainable growth.

SWOT ANALYSIS

With a review of the business environment presented above, the shift of focus is now redirected towards understanding the potential opportunities and threats that face the company in the business environment and they are as analyzed below with reference to the case

INTERNAL FACTORS

Strengths:

Innovation – over the years, Apple has been successful in innovation numerous software and hardware that have helped transform the computer industry. This factor has been behind the company’s growth because they always bring in new innovative systems that are not in the market and lake in huge market shares before new entrants emerge.

Experienced management team – through their innovative approach to business, Apple has gained high experience in the management of business innovation and potential crisis that might arise from such. This is also behind their increased business growth.

Weaknesses:

Focus on advanced markets – from the above case, it was noted that Apple has precisely focused on customers from advanced economies and this limits their understanding of how to manage business in developing and underdeveloped economies.

High price – their products are priced relatively higher than that off their competitors and this is a weakness because it limits their potential of increasing market shares because consumers are more likely to purchase lower priced brands.

Opportunities

Management – the managerial expertise gained by the company with respect to management of new innovative goods creates the right opportunity for business expansion as they can easily see off competition through product innovation.

Financial capabilities – Apple has gained huge financial profit over the years through an increased in customer loyalty and repurchases. As such, they are in the best position to continue research geared towards adopting innovation as means of competitiveness.

Threats

Competitors –the PC and mobile telecommunication market is very much filed with well established brands that can compete with Apple in all fronts and this is a very big threat because it reduced the chances of the company to acquire higher market shares. Additionally, their competing brands are priced lower and this increased chances of customers substituting these brands for Apple.

Potential new entrants – it was made known in the cases that the chances of new entrants are very much possible. This is because of the readily availability of natural resources needed for production and the relative ease at which new systems can be developed because of increase in technological advancement. As such, this is high threat to the apple brand because

The above SWOT analysis presents both positive and negative aspects of the business environment for Apple, and it can be concluded that if not for the high price, Apple is well positioned to sustain profitability. As such, the focus should be on how to reverse the pricing strategy in order to attract new customers. However, this might affect the company’s chances of retaining their pioneering activities because huge investment is needed in research and development of new innovative products.

VIRIO FRAMEWORK IN APPLE Inc.

VIRIO ANALYSIS OF APPLE Inc’s RESOURCES
Valuable?	Rare?	Costly to Imitate?	Organized Properly?	Competitive Implications	Economic Implications
Yes	Partly	Yes	Yes	Temporal Advantage	Just Above Normal

From the above analysis, it can be seen that Apple is only able to maintain temporally competitive advantage because their competitors will eventually match their productive quality by imitating their technologies and as such infuse high competition against them through lower prices because they didn’t invest in the research and testing phase of the product as Apple did. On that account, they are only able to maintain economic profit that is just above the normal range.

CONCLUSION

This paper has been successful in presenting the analysis of strategic management in Apple Inc., by highlighting a number of strategies adopted by the company in this aspect. However, issues exist with respect to the understanding of how Apple will be able to maintain sustainable competition and profit by offering lower prices. This is because while the brand prices its products and services relatively high, its competitors’ price their own products lower and this raises the issue of unbeneficial price competition for Apple. As such, it is recommended that Apple should address this issue in order to ensure sustainable business growth through increased price competition and revenue generation.