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4.0 Introduction, background and Rationale
This assignment will analyse how Apple Inc. (hereinafter referred as Apple) relates its competences to its environment, the impact of social, environmental, ethical and corporate governance factors that are currently affecting Apple and how effectively Apple is managing these factors in order to achieve its corporate objectives.
Steve Jobs and Steve Wozniak officially launched Apple Computer on April 01, 1976, Woz as a serious engineer and Jobs as the brash idea man and it is their initiation that brought the Apple that the electronic lovers in the world are proud of today.
Today Apple with its highly innovative and fancy designed products became a market leader for technology. Apple's devices are powerful, intuitive and beautifully designed. Apart from being strong in the US market, Apple has a strong presence in the United Kingdom, China, Australia, Japan, Germany, Italy and Canada.
Apple's range of products varies from the simplest products to the most luxurious ones, including desktop computers, personal computers, Mac laptops, iPads, and OS X operating systems. Apart from these Apple designs and sells portable media players. Starting from the: iPod touch, iPod classic, iPod nano, iPod shuffle, and Product (RED)-type of iPod.
The iPhone is another outstanding product which has been introduced to the market by Apple including iPhone, iPhone 3G (the third generation iPhone), iPhone 3GS and the latest version iPhone 4.
Moreover, Apple provides media player applications such as iTunes, Quick Time, Quick TimeGuide, Quick Time Player and Quick Time Pro, ILife, and iWork.
Also the company sells Apple TV and other accessories including Magic Mouse, keyboards and Cinema Displays. Further, iPad which is launched in the market recently is one of the most advanced Apple products.
With the above product line Apple is focusing to satisfy personal consumer demands with its innovation and thinking differently strategies as critical key factors and its target segments mainly consist of professionals, students, corporate users and entrepreneurs
This assignment is purely based on secondary data collected from internet, internal reports, books, journals and news publications in the media.
6.0 Environmental Analysis and strategies
6.1 SWOT Analysis
In order to find out Apple's position and define the strategy SWOT Analysis could be used as a strategic tool to find out where the business currently is and where it could be tomorrow focusing on the strengths, minimizing threats and taking the maximum advantages of opportunities. Apple could also use this tool to have a better understanding of the competitive environment which can ultimately give the insights Apple need to craft a successful competitive position in the vulnerable market.
Technical savvy - Apple's strategy to integrate Microsoft products and Intel processors is a clear indication that Apple's willingness to enhance its customer base and also the technical expertise present in the entrepreneurial culture of Apple is very complex and difficult for competitors to imitate.
Innovative Technology -Apple's well developed Research and Development Department enjoys competitive advantage in the increasingly global market place by providing high quality and innovative products to its customers and most of Apple's products made the complex technology easy to use and are customer friendly.
Robust financial performance - Though the technology market is becoming increasingly complex and competitive Apple's financial performance remained robust and it has built trust and gained investors' confidence. Apple reported quarterly revenue of $35.0 billion and quarterly net profit of $ 8.8 billion for the third quarter ended June 30, 2012 which is an increase of $ 6.5 billion revenue and $1.01 billion net profit compared to the same quarter last year (Apple Hot News 2012).
Strong brand image - Apple maintains strongest brand loyalty in the technology market. Its designs are fabulous, devices are unbeatable in quality, both hardware and software is easy to use. Such brand loyalty provides an edge over competitors and is very time-consuming for competitors to imitate.
Challenging market share -Apple's strong presence in the U.S. market is becoming more challenging. With the PC market saturation Apple would not be able to survive in the U.S. market without burning cash more quickly than it used to do.
China is world's largest and Apples second biggest market. In China Apple has been losing ground to its rival Samsung in smartphones (Apple's CEO in China mission 2012).
Social Network -With the application "Ping" Apple tried to enter in to the social network but Apple's other social tools like iTunes, Game Center and social gaming services aren't very successful. It could have made "Ping" more useful by plugging it into non-music iTunes media, like apps and video also it should have integrated Facebook or any other social networks into its product line as some competitors have done.
Steve Jobs -Jobs was always a charismatic visionary leader and a master architect of Apple design. He had a remarkable prescience for predicting what consumers wanted. In his absence his innovative vision and rigorous standard was painfully felt by Apple's stakeholders. Therefore, Apple's policy solely to rely on Jobs was not a healthy long term strategy for sustaining its success.
Smartphone market - Apple through its innovative products can explore the fast growing smartphone and tablet markets to boost its revenues.
Consumer electronics - Apple has successfully introduced iTunes for iPods and have further expanded the market by introducing iTunes to mobile devices and podcasts. Apple can explore. Developing new technologies and forming profitable strategic alliances can increase Apple's market share.
PC market - With the introduction of Intel-based processors the PCs dominated by Windows has been replaces by iMacs. With the improvements and increase in the efficiency of the operating system. Apple can produce desktop applications to become a dominant player in the computing market.
Patent risks - Today in the global market where technology can literally change at the speed of thought. In the history Apple is involved in several legal actions even from smaller companies and today the battle with the Samsung still remain unresolved. These lawsuits and patent infringement remain as a high risk and is inevitable in the future.
Intense competition - The market in which Apple operates is a highly competitive and a rapidly evolving technology industry. Apple is facing heavy competition from Samsung and at the same time Google Anroid OS is becoming more popular in the smartphone industry. In order to avoid the cutthroat competition and remain as a key player in the market Apple need to pursue product differentiation and save cost from economies of scope
6.2 PEST Analysis
A PEST is a clear framework to understand the macro environment, strategic position and direction for operations (Kotler, 1998). PEST is a strategic tool to analyze the market condition before entering to a new market or before starting business operations in a new country. It also helps to adapt the new environment more quickly and effectively ensuring that the company's performance is aligned positively with the powerful forces of change that are affecting business environment (Kotler, 1998)
Political /Legal analysis:
As most of the Apple's revenue comes from outside America, bad international relations, act of terrorism or wars might affect Apple's business badly. Likewise most of its hardware and software components and products are produced from outside United States and conflicts between these states may have awful outcomes for Apple.
Apple nearly destroyed its business from the unfavorable lawsuit against Microsoft in late 1980s. Rather than competing, it litigated and lost the battle and finally its market share dwindled.
Therefore, patents are no longer considered as a system to protect businesses.
The global financial crisis and economic depression might have a huge impact on Apple. With the rise in inflation, change in consumer's disposable income and increase in unemployment rate may lead consumers to spend less on luxury products like Apple.
However, depreciation of U.S. dollar has not endangered Apple economically as its foreign currency position is well maintained. In fact depreciation of U.S. Dollars helped Apple to increase its revenue in the international market.
Today technology plays a vital role in the way we do business and interact with people worldwide. Along with globalization technological devices, personal computers, mobile phones and internet is becoming an integral part of everyday life. Apple is globally recognized as King of technology not because of its heavy usage, but quality and stylish design.
Music industry is another big social influence, which has become a virtual world and cyberspace has evolved. Apple with its iTunes as the biggest virtual media store is far beyond its competitors. All though most governments punish web piracy it still remains as a threat in the fast growing technology industry. Apple's image portrays a modern life style with its fabulous designs and brand loyalty. Therefore social influence has a positive impact on Apple.
With technology innovations as fast as light both computer and mobile phones are facing heavy competition in the market and the lifecycle of the products are becoming shorter.
As per CHINADAILY Apple's smartphone share in the China market has fallen to 7.5 percent from 10.4 percent in July-September. Apple's position as the largest smart phone vendor in the fourth quarter of 2011 slipped to 5th place in the China market. (Apple's iPhone loses China market, CHINADAILY, 2012).
Apple with its huge investment on Research and Product Development remained as the key player in the market, regarding innovative products. Even though this allows competitors to follow its works, Apple's innovation is well paid through brand loyalty.
In order to avoid losing cases like Samsung, decisions to be made prohibiting the copying and falsification of Apple products by programming highly-advanced protection codes into the software.
7.0 Corporate governance and its importance in the global market
Corporate governance involves the relationships between the management and the board and oversees the conduct of businesses and safeguards the rights and interests of all stakeholders, especially the shareholders. It determines whom the organisation is there to serve and how the purposes and priorities should be decided. It also addresses the need to separate ownership and management control of organisations.
The separation of ownership and management control and the increasing tendency to make the organisation more visibly accountable to a wider range of shareholders made today's corporate governance more complex. Critics argue that compliance with corporate governance adds more red tape to the running of a business, with the result that it required to spend more and more time complying with regulatory matters to the detriment of its profit-making activities. On the other hand it is believed that compliance with social responsibility increases the shareholder wealth and the performance of the company.
Corporate governance regulates the activity of the executives who control the resources and activities of the organization and also controls the actions of the stakeholders that possess legitimate relationships with the firm (Pfeffer and Salancik, 1978).
Moreover, the relative merits of different corporate governance system are still debatable. It is believed that Anglo-American system is a much more efficient and is an advanced system of corporate governance with a stronger security markets and transparency (Hansmann and Kraakman 2001).
However, there is a huge difference in the evolution of different systems and how it is practised. Unlike European and Asian models Anglo-American model emphasizes more on the interests of shareholders. It consists of a single-tired Board of Directors dominated by non-executive directors. In U.S. the public and the government's role is a much more supervisory role in the overall corporate governance system.
7.1 Impact of social, environmental, ethical, legal and governance issues on Apple and how Apple is framing these issues in its strategy and operation
Apple's Board of Directors ensures that the long-term interests of the shareholders are being protected and oversees the competency of the senior management and the ethical operation on a daily basis. The Board of Directors are expected to take a more proactive, focused approach, set standards, and maintains the high ethics that Apple is committed in all the business dealings (Investor Relation Report 2012).
(Investor Relation Report 2012) further states that the Board has adopted various committees like the Audit and finance Committee, Compensation Committee and Nominating and Corporate Governance Committee. The governance and framework of Apple is structured in such a way that a more effective decision-making, monitoring and control can be established in both compliance and performance.
However there has been intense criticism on Apple's corporate governance including Apple's previous reliance on autonomous reporting practice, its ability to manage its broader corporate image, its low level of transparency, and working condition of the supply chain. Until recently, Apple did allow third party audits and did not disclose the names of its suppliers.
In addition to that, although the transition from Jobs to Cook was a smooth and efficient succession plan it was shrouded in a veil of secrecy.
Furthermore, in the global battle on Friday August 24, 2012, Apple sued Samsung for patent infringement and Samsung counter sued Apple in Tokyo. Apple might have done it to protect innovation but the opinion and perception of the public may differ. For giant companies the legal victory may be considered as a zero sum game but its reputation can be badly affected. Although Apple is very aggressive to protect its technology, the ethical issue associated with this is whether Apple's claims on these law suits are legitimate, is it pursuing companies that really infringed on its patents or is Apple trying to create a bad image of its competitors to become the most dominant player in the market.
Therefore, it's high time for Apple not only incorporate good governance and ethical statements but also to act more strategically open and ethical in doing business.
Manufacturing Transportation Product use Recycling Facilities
(Environment Report 2012)
According to the facility report about Apple, since 2006 it has been putting every effort to minimize greenhouse gas by reducing energy, minimizing consumption of water and waste production. Furthermore Apple is trying to communicate environmental, health and safety policy and programs to its employees and stakeholders (Environment Report 2012).
Apple in its Progress report committed to drive the highest standards for social responsibility throughout its supply base. Furthermore it stated that its suppliers are provided safe working conditions, treated with dignity and respect, and is using environmentally responsible manufacturing processes wherever Apple products are made (Supplier Responsibility Report 2012).
However, during Apple's current Chief Executive's visit to China in March 2012, a group of activists from Hong Kong published an open letter demanding that Apple to ensure that its suppliers provide a decent working conditions to its employees. Grievances of Students and scholars cited by employees working for Apple's suppliers include "poverty wages" and forced excessive working hours. They described themselves treated as machines that perform the same task repeatedly for thousands of times in a day (Apple's CEO's mission to clear up problems, REUTERS 2012)
Even though Apple claims about its progressive code of conduct, media recently reported that Apple's suppliers are reducing the production cost by finding alternatives to replace the expensive chemicals and forcing their employees to work longer because of the small margin of profit allowed by Apple. If this continues and Apple cannot establish strategic ways to engage with stakeholders or failure to address risks appropriately it cannot survive in the long run.
Therefore, it is expected that Apple to lead and excel all aspects of social responsibility and strive hard from inside, promoting trust and openness with integrity.
Apple, via its corporate strategies has taken rigorous actions to address the deficiencies in its supply chain. "Going deep into our supply chain, we are now monitoring compliance for over 700,000 workers. In July, 97 per cent of worker weeks were compliant with the 60-hour maximum work week specified in our code; this represents continued improvement from the 96 per cent that was reported in June." (Supplier Responsibility Report, 2012)
Apple's current CEO's interest to develop a new vision focused more on CSR would be a great opportunity for Apple to make a difference from that of Jobs era and promote a corporate image of integrity.
8.0 Conclusions and Recommendations
Since Jobs era Apple is committed to convert the complex technology easy to use and all its customers in the globe understand the meaning of technology. It also strives to make its customers masters of the products and need to ensure that its employees understand its vision and is directed to achieve it. To move forward and achieve these objectives, Apple ensured that the right marketing tool is used, both financial and operational structures are in place to support it and most importantly it has the ability to implement the strategies to remain successfully competitive in the market.
Apple need to make a huge investment on research and development and should hold a significant number of patents and copyrights. Most of the Apple's products are expensive compared to its competitors who use a much more aggressive pricing strategy. In future if Apple cannot develop and sell differentiated new products at a competitive cost and cannot control patent infringement (i.e. like Samsung did recently), Apple's competitive advantage and financial condition could be adversely affected and its relentless effort to return back to number one in the market will diminish.
While doing this research I was able to understand how a global Company like Apple can function and have different strategies in this competitive environment. I also discovered the challenges Apple is facing to remain competitive and also its ability to stimulate customer demand by introducing innovative products in a timely manner.
Apple need to understand that its corporate governance obligation is not restricted to economic and financial matters but also includes social and environmental matters that need to be addressed soon. Furthermore, to remain in a successful competitive position Apple should strengthen its relations between employees, manager and the directing board and should promptly address the corporate governance and ethical issues under laying it.