Apple Inc. Business Policy Formulation

The goal of this study was to determine for Apple Inc. the optimal course of action after examining the data and projections related to its domestic and international operations. 39% of the company's total revenue comes from the domestic market, while 61% comes from the international market. According to the report, there is a considerable demand for Apple products, and in the first quarter of 2016, smartphones alone accounted for 15.3% of the global market share. This is anticipated to expand given consumer income growth and their strong fondness for luxury. Apple can therefore enter this industry by creating better products for customers. This can be done by embracing innovation and minimizing operation costs to ensure maximum benefits for the organization. In addition, the global environment is hostile so the company should have a strategy development team in place to aid in countering turbulent business environment.

Introduction

Apple Inc. (Apple) is a technology company that “designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third party digital content and applications.” The company operates in the US, Europe, and Asia while its products are consumed globally (Apple Inc. SWOT Analysis, 2016). Apple Inc. is headquartered in Cupertino, California and for the FY ended September 2015, the company had a total of 110,000 employees. In the same financial year, it reported $233,715 million in revenues, which was a 27.9% increase from the FY2014 (United States Securities and Exchange Commission, 2014).

According to Zylla-Woellner (2013), in the FY 2013, the U.S., which is Apple’s domestic market accounted for 39% of the company’s total revenues while the international market generated the remaining 61%. A significant number of the company’s hardware products are manufactured in Asia (China). The firm also does the final assembly of some of its products in its manufacturing facility in Europe (Ireland). Campbel (2017) asserts that Apple prefers outsourcing the manufacture of its products to the overseas countries due to the low costs of operations. For that reason, most of the company’s $256 billion assets are based overseas (Pijl, 2015). Since the company sells its products in foreign countries and obtains manufacturing components from foreign suppliers, the margin on sales of the company’s products is adversely affected by fluctuations in the foreign currency and international trade regulations, for instance, tariffs, and antidumping penalties.

Furthermore, the United States Securities and Exchange Commission (2014) report avers that the company is controlled by laws and regulations and the economic environment that influence its domestic and international operations. The areas affected include “labor, advertising, consumer protection, intellectual property ownership and infringement, tax, import and export requirements, foreign exchange controls and cash repatriation restrictions, data privacy requirements, health, safety, and environment.” Compliance with laws is expensive and inconsistent in different countries thereby increasing the cost of doing business. Thus, the firm’s products may appear less attractive to the customers, delay or impede the introduction of their introduction in the respective countries and this hampers the company’s growth prospects.

Foreign currency fluctuations also affect Apple’s foreign operations. The rates, which relate to the U.S dollar, determine the revenues and operating expenses globally. Weak currencies against the U.S dollar affect the organization’s sales and earnings hence the firm has to rise the international pricing to recover the expenses. This eventually lowers the demand for the company’s products. Apple Inc. hedges against foreign currency fluctuations risk through foreign currency forward and option contracts. Additionally, Apple’s domestic and foreign operation means that it has investments at home and overseas. Thus, it is exposed to credit risk and market fluctuations of the investment portfolio. “Liquidity, credit deterioration, financial results, economic risk, political risk, and sovereign risk,” are some of the factors that may affect the company’s investments (United States Securities and Exchange Commission, 2014).

Strategies and Tactics Affected by Technology

Apple’s three major strategies are high quality products, pricing, marketing, and operational strategies. Product strategy has defined the company since they are unique. The former Apple CEO once said “A lot of times, people do not know what they want until you show it to them.” Using this thought he delivered new and better products to the consumers and holistically changed the smartphone, computer software and hardware, and the personal music industry (Fadei, 2016).  Apple creates proprietary, which command high prices. The firm equates value with price and consumers have appreciated their products. Furthermore, the company outsources manufacturing to countries such as China and Ireland to reduce the cost of operation.

Apple uses customer-centered innovation and experience as the main tactics for achieving its strategies. The organization has consistently aligned its products with customer needs and this has proved profitable (Apple Inc. SWOT Analysis, 2016). Technology has played a key role in ensuring that the company attains its strategic objectives. Steve Jobs came back into the company when it was only manufacturing software, hardware, and operating systems. However, through technology, the company was able to digitize the music industry by developing the iPod and transforming the music industry through iTunes. The company also embraces technology in its R&D development facilities. Researchers can accomplish a lot using machines and this has maintained the pace of new product innovations and developments. In addition, the company has significantly reduced the costs of labor besides producing in states with low labor costs. Therefore, technology has been helpful to the firm in maximizing profits as well as to the customer, in ensuring they get quality products (Jin, 2017).

Forecasting Supply and Demand from Domestic and International Operations

Consumers are constantly embracing luxury due to the rising household disposable incomes. Furthermore, the global smartphone industry is expected to grow with shipments projected to reach $1,862.3 million by 2019 from $1,429.8 million in 2015. Apple is one of the leading companies in the industry with approximately 15.3% market share in first quarter of 2016 (Apple Inc. SWOT Analysis, 2016). Therefore, Apple is poised to benefit immensely from the growing end market. In addition, the smart wearable devices market has also depicted strong growth opportunity with global shipments expected to reach $237 million by 2020. The same applies to the wristband and watch shipments, which are expected to reach $123 million by 2019. There also a rising demand for Apple products in the enterprise industry in the last 5 years. For instance, the growing adoption of the “bring your own device (BYOD)” initiative has increased the company’s revenues. Companies are using smartphones, laptops and wireless networks to save on building dedicated networks. The BOYD is expected to grow from $106.5 billion in 2015 to $360 billion in 2020 (Apple Inc. SWOT Analysis, 2016).

To ensure adequate supply, Apple is keen to benefit from the opportunities through constant innovation. The firm introduced the Apple Watch Hermes in September 2015, a new Apple Watch and also the WatchOS 2. Furthermore, the use of iPhones and iPads is rising in the business world with companies opening up their mobility strategies to allow for choice and this is benefiting Apple. The firm partnered with IBM to launch business applications designed to bring IBM’s bid data and analytics capabilities to iPhone and iPad (Apple Inc. SWOT Analysis, 2016).

Effects of Globalization on Apple’s International Business Operations

Apple’s forms of international business operations include exports and imports and setting up manufacturing plants in foreign countries. This means that the company conducts large scale cross-border business operations that are prone to international restrictions, intense competition, and economic challenges (Zakaria, 2011). Two decades ago, globalization attracted the attention of top company executives, governments, academicians and since then, there has been increased research on its effect on international business operations. Globalization presents opportunities and challenges to Apple Inc. Thus, the top management needs to consider the globalized business surrounding when making international strategic decisions and in making managing international business operations (Wild & Wild, 2014).

Apple operates in different countries so it is exposed to forces of demand and supply, international competition, changes in demography, and the political environment. This means that the company is not protected from such elements the way it is in the local environment. The company has to deal with hostilities and threats by adjusting and changing and converting opportunities into strategies that strengthen it for it to stay relevant and deal with challenges more effectively. Furthermore, globalization has led to a rise in competition, which is directly linked to product price, cost, target market, quality, and quick production by firms. Apple has responded by enhancing innovation and lowering production costs to create quality products, make profits, and enhance its market share (Wild & Wild, 2014).

Through globalization, Apple Inc. has enhanced its supply chain from sourcing to the final consumer. The company is able to access high quality raw materials at favorable prices, which has significantly lowered the costs of operation. Currently, Apple can access cheap labor in other countries through outsourcing, since the same type of labor is expensive in the home country. Thus, this also contributes to low operational costs (Wild & Wild, 2014).

Comparative Advantage and the Gains from Trade

According to this principle, countries have distinct costs of production. States take advantage of these differences to gain from trade. International trade is about the mutual gains between two trading entities (Carbaugh, 2015). Apple is one of the global companies that have grown to profitability by embracing this technique. For instance, one of Apple’s reputable products, the iPhone is not manufactured in the US. Considering the comparative advantages and the possible gains, the company outsourced the manufacture and assembly of the product to foreign firms (Jin, 2017).

According to Zylla-Woellner (2013), China has the comparative advantage since it has a smaller opportunity cost of manufacturing the components and this includes the skillset. The Chinese-based Taiwanese Company Foxconn Corporation does the assembling. Interestingly, Samsung, one of Apple’s greatest competitors, supplies approximately 26% of the parts that make the iPhone. Therefore, Samsung is Apple’s largest supplier and competitor. Since Samsung is the leading electronics supplier globally, Apple lets it make the best raw materials for its iPhone product. So, Apple concentrates on its strength of making high quality products that are easy to use.

Samsung supplies cheap, high quality raw materials whilst Foxconn supplies cheap-skilled labor, then Apple gains from the trade. Apple is able to produce high quality products and low costs, which are sold at high prices and this leads to profitability or gains. Apple only focuses on the marketing and distribution of the product to ensure it reaches the end-user on time. Although Apple has faced immense cross-border challenges such as currency fluctuations and laws and regulations that affect its operations, the company has achieved its growth prospects through this strategy (Zylla-Woellner, 2013).

Recommendations and Conclusions

The future economic conditions are favorable for the company. This is due to the increased disposable incomes among consumers and the high affinity for luxurious items. Apple products are associated with prestige so there is room for growth. However, government trade policies are subject to change. The president wants the company to shift its manufacturing plants to the U.S to create jobs for the citizens but this might raise the cost of operations if the CEO accepts this proposal. Moreover, if the president accepts to reduce taxes paid by these corporations, then Apple stands to gain.

The study outlined various opportunities that Apple can explore to enhance its overall profitability. To tap these opportunities, the company should invest in R&D systems designed to enhance innovation. Through constant innovation, the company will create more unique and high quality brands that will not be affected even in a recession. However, premium pricing is unfavorable to the firm since it limits growth in emerging markets. Competitors can use pricing as a tool to gain a bigger market share especially in the emerging markets, which become imperative as the smartphone market in the advanced nations attains maturity. Emerging markets are highly price sensitive and competing with low priced Android products will be a challenge.

Recommendations

Invest in technology to enhance customer-centered innovation and experience. It also reduces operational costs hence there is room to penetrate emerging markets with fair prices once the markets in developed nations are saturated.

The corporation to develop more innovative and unique products to meet the rising domestic and international demand.

The company to have a strategy development team in place to advice the management on ways of exploring opportunities and develop solid strategies for the company

The firm should diversify its manufacturing plants to diversify risk. Overreliance on one Assembly Company is too risky. However, this should be done in states where the costs of labor are cheap for operation costs to remain low.

References

Apple Inc. SWOT Analysis. (2016). Apple Inc. SWOT Analysis, 1-9.

Campbel., M.(2017). Apple to create $1B 'advanced manufacturing fund' in US. AppleInsider. Retrieved on July 20, 2017from http://appleinsider.com/articles/17/05/03/apple-to-create-1b-advanced-manufacturing-fund-in-us.

Carbaugh, R. (2015). International economics. Boston, MA: Cengage Learning.

Fadei, R. (2016). Apple iPhone Marketing Analysis (1st ed.). Retrieved on July 21, 2017from from https://www.academia.edu/4103079/Apple_Marketing_Analysis_Report_Apple_iPhone_Case_Study?auto=download.

Jin, D. Y. (2017). Smartland Korea: Mobile Communication, Culture, and Society. University of Michigan Press.

Pijl, K. (2015). Handbook of the international political economy of production. Cheltenham: Edward Elgar Publishing.

United States Securities and Exchange Commission. (2014). Apple Inc. Annual Report for the Fiscal Year Ended September 28, 2014. Retrieved on July 21, 2017 from http://investor.apple.com/secfiling.cfm?filingid=1193125-13-416534, July 21st 2017

Wild, J. & Wild, K. (2014). International Business The Challenges of Globalization + 2014 Mymanagementlab With Pearson Etext Access Card Package. City: Pearson College Div.

Zakaria, F 2011, 'Innovate Better', Time, vol. 177, no. 24, pp. 30-32.

Zylla-Woellner, J. (2013). Corporate strategy for Apple Inc. company. Grin Verlag Ohg.