Apple’s Strategic Analysis

Introduction

This strategic analysis of Apple Incorporation aims to study different aspects of its strategic management practices. Apple is a US multinational company that deals with consumer electronics, online services and computer software. Currently, it is the world’s largest technology company by revenue and has frequently been the world’s most valuable company (Gaponenko & Glenn, 2020). Founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne, Apple is currently run by CEO Tim Cook, who rose to the company’s helm in 2011. Despite its considerable success, Apple must conduct its operations in an increasingly highly competitive environment. As such, it presents an interesting case study on which to perform a strategic analysis considering the numerous strategic factors that determine the success, or failure, of such a typical high-tech company. This report explores various strategic aspects of the company’s practices, basing on an investigation into its industrial representation in the microenvironment, a PESTEL analysis of its macroenvironment, and a Porter’s Five Forces analysis of its industrial structure and competitive structure. Analysing all these factors will help to create a better understanding of the industrial environment within which Apple operates, especially in the UK context.

Industrial representation

An overview of the global technology industry

A mere few decades after the first mobile phones came on the market, almost every developing and developed country is experiencing mobile phone penetration rates of at least 90% (Kumar, 2020). Mobile phones, in addition to similar high-tech devices, have become almost indispensable and are now pervasive, with consumers across the world integrating them into their daily lives. The introduction of 4G and 5G networks has been at the forefront in driving current mobile uptake trends. As the speeds offered by these networks continue to catch up with Wi-Fi, people are increasingly choosing mobile phones as their preferred means of accessing the internet (Gaponenko & Glenn, 2020). 4G and 5G have also led to the uptake of other mobile-related wearables, such as smartwatches and fit bands, among consumers. Today, it is estimated that the number of smartphones has grown to 3 billion users globally.

The scalability of mobile technology is also a major factor promoting the development of the global mobile technology industry. Penney et al. (2018) opined that thanks to advances in mobile technology, apps can easily be conceived holistically, enabling various forms of integration that offer significant utility for both individuals and businesses. For example, through mobile apps, it is possible to connect data services, whether on the cloud or on business premises (Chen et al., 2019). Beyond this, the mobile sphere has also been penetrated by artificial intelligence, with many mobile devices now integrating virtual assistants such as Siri, Alexa, Google Assistant and Cortana (Khanna, 2018). These artificial intelligence platforms can be installed on mobile devices to take advantage of other applications, such as face and voice recognition, to facilitate hands-free use and enhance the user experience.

Mobile technology industry in the UK

The UK is currently considered the largest mobile commerce market globally, and it is growing rapidly, with significant expansion planned in the future (Gjorgievska, 2021). From paying bills to shopping, marketing and boosting sales, existing statistics evidence a boom in the UK’s mobile technology market. However, as per data from Mintel (2021), there was a sharp drop (9.7%) in the UK’s mobile technology market value in 2020, which is attributable to the COVID-19 pandemic. The lockdowns and closure of retail stores meant that people tended to limit their spending on expensive devices like mobile phones. On the other hand, the limited possibility for physical interaction in the UK caused smartphones to take on a more important role in connecting people.

One of the most important factors considered by UK consumers when purchasing mobile phones is price, with 42% of smartphone owners paying less than £250 upfront for their phone purchases in 2020. Similarly, as per Mintel (2021), 52% of those who paid more than £550 for their mobile phones reported that their next mobile device purchase would be cheaper due to the financial pressures associated with the pandemic. Today, one of the biggest threats to the UK’s mobile technology market is the emergence of so-called SIM-only deals. These deals have evolved to become the preferred way of paying for mobile phones in the UK, and with the proliferation of replaceable SIMS, the UK population is more likely to keep their old phones, retarding market growth.

Competitors

There are several market players in the mobile device industry, and for international brands like Apple, the competition is growing stiffer. Generally, Apple competes with several other smartphone manufacturers, both globally and in the UK. Reports by StatCounter (2021) indicate that Apple’s global market share currently stands at 26.91%. making it second to Samsung (29.14%) but ahead of Xiaomi (10.02%), Huawei (9.83%), and Oppo (5.02%).

However, Apple has the leading market share in the US (61.07%), followed by Samsung, which controls 24.12% of the market share. Nonetheless, Apple’s other major competitors include Google, Motorola and LG. Apple also has the largest mobile device market share in the UK (50.85%), followed by its closest competitors Huawei and Samsung.

With respect to the long-standing competition between Apple and Samsung since the era of Steve Jobs, it is worth bearing in mind that Samsung was once Apple’s supplier – until Steve Jobs declared war on Samsung’s Android operating system (Cain, 2020). Since then, Samsung has been relentlessly putting up stiff competition against Apple, producing extremely high-performance hardware at a pace that Apple seems to be struggling to meet.

Apple’s customers

The UK’s iPhone purchase statistics are considerable. With the 51.15% penetration rate of iOS within the UK’s mobile device market, it is estimated that nearly 7.1 million iPhones were purchased in the UK in 2019 (Aashind, 2021), meaning that an estimated 19,452 iPhones were purchased every day in the UK during that period. Some of the top Apple brands in 2020 were the iPhone 11, although the most popular iPhone brand in the UK during the first quarter of 2021 was the iPhone 12. Nonetheless, reports by Cain (2020) also indicate that in 2018, at least half of the UK’s households had an iPhone. Apple also sold 44% more iPhones in 2021 than it did in 2020 (Aashind, 2021). This was amid data from Aashind (2021) that indicated that by December 2020, Apple’s market share had surpassed that of Android phones.

Macroenvironmental analysis

Apple produces a variety of electronic devices, including mobile phones, tablets and smartwatches. The company has adopted a unique business model wherein it develops and designs its own software and offers its own-brand operating software for all its electronic products (Holst, 2021). To provide further insight into Apple’s macroenvironment, the following section conducts a PESTEL analysis to effectively evaluate the external environment within which Apple operates, covering the political, economic, social, technological and legal factors.

Political factors

One of the political factors facing Apple is its heavy dependence on low manufacturing costs in China. Specifically, the social unrest and political risks in China has the potential to interrupt the company’s production schedule or cause an increase in its costs of manufacturing (Owen, 2019). At the same time, as per Owen (2019), there has been a political push for the company to reduce its Chinese manufacturing activities and migrate some of those to the USA as a means of boosting American manufacturing. If this political agitation persists, the company is at risk of incurring high costs and experiencing the disruption associated with the shift of manufacturing location.

Meanwhile, Apple’s continual dependence on China for manufacturing exposes it to the vulnerabilities of China’s political instability. According to StatCounter (2021a), Apple risks becoming the target of the growing anti-Americanism and nationalism in China, which could have a significant impact on its market share. Furthermore, should China become a threat to other countries, such as Japan or the US, Apple’s operations in China could pose a significant political risk (StatCounter, 2021b).

Economic factors

One of the major economic factors affecting Apple’s operations is the increased labour costs in China (Holst, 2021). According to Owen (2019), the Chinese labour industry has seen a growing demand for increased minimum wage and other employment benefits – changes that might render China a less cheap manufacturing destination. This implies that companies that heavily rely on China for low-cost manufacturing, such as Apple, will no longer have the cost advantage.

Reports have also emerged of the plateauing income of the middle class in developed countries like the UK and the US (StatCounter 2021a). This stagnation could shrink the company’s potential markets for consumer goods, such as mobile phones manufactured by Apple. More importantly, the increasingly growing strong US dollar (Holst, 2021) has a significant impact on the exchange rate, making it more expensive for Apple to conduct business in other markets like the UK, China and Europe.

Social factors

Owen (2019) predicts that consumer spending will grow in new places like Africa. As consumers in these markets are relatively less familiar with Apple products, this threatens Apple’s potential for expansion and increased market share. Similar remarks were made by StatCounter (2021a), which observed that consumers in those markets are younger than in established markets such as the UK and the US and thus lack the emotional attachment to Apple products, hindering Apple’s ability to drive sales.

Ethical concerns have also been raised concerning Apple’s manufacturing in China. According to Holst (2021), this could limit the brand’s appeal to socially conscious customers in the UK and other parts of the world. Also, as per Holst (2021), Apple’s association with China could tarnish its positive appeal to consumers in other areas, such as North America and Europe, especially should tension arise between them and China.

Technological factors

Apple’s competitors have demonstrated the ease with which they can produce the same products as Apple. For instance, barely one year after Apple launched Apple Pay, Android Pay was launched by Google (StatCounter, 2021a). This implies that from a technological standpoint, Apple’s legacy products are no longer unique. Furthermore, as per StatCounter (2021b), Apple’s operating system, iOS, limits various applications to smartphone users, affecting its ability to draw in more market share. More importantly, Holst (2021) opined that the increasingly successful cybercriminals have made Apple’s systems less secure and more vulnerable, taking away one of its strongest competitive advantages, namely its reputation for safety and security.

Environmental factors

One of the most significant environmental issues facing Apple is how to dispose of used devices. According to Holst (2021), the disposal cost is high, especially for devices containing lithium batteries. Apple could be forced to cover this cost due to the potential environmental impact of those devices ending up in landfills.

Legal factors

Several issues have arisen over pollution and the other environmentally harmful impacts of Apple’s manufacturing facilities in China (Owen, 2019). According to StatCounter (2021a), these concerns have tightened regulation and increased the costs of manufacturing. On the same note, China’s efforts to limit its use of fossil fuels and reduce its emission of greenhouse gases have had a significant impact on Apple’s manufacturing costs in China (StatCounter, 2021b).

Industrial structural analysis

To give a considered industrial structural analysis for Apple, Porter’s Five Forces analysis is conducted in the following sections.

Competition or competitive rivalry

Apple faces strong competition from other players in the industry. This component of the Five Forces analysis evaluates the intensity of the influence that the competitors have on each other. In the case of Apple, this influence is based on the competitors’ aggressiveness, low product differentiation and low switching costs. Competitors like LG and Samsung are aggressively competing with Apple through aggressive advertising, imitation and rapid innovation, and this creates a strong force in the industry (Owen, 2019). For example, both the Android and iOS operating systems have many popular apps and cloud storage services offered by different companies. Based on Porter’s Five forces model, this condition makes it easier for customers to switch from Apple to other brands due to the factors of accessibility, network externalities, function and price.

Customer bargaining power

This component of the analysis evaluates buyers’ purchase preferences and behaviour and how these affect businesses. Customer or buyer bargaining power strongly affects Apple’s business. In most cases, as per StatCounter (2021b), buyers’ bargaining power is often is based on high buyer information, the small size of individual buyers and low switching costs. In Apple’s case, the availability of social media platforms means that consumers have access to adequate comparative information about Apple’s competitors’ products, empowering them to shift from one brand to another (Owen, 2019). This external factor exerts a strong force on Apple and other market players, requiring Apple to incorporate buyer bargaining power in its strategic focus.

Supplier bargaining power

Supplier bargaining power refers to the extent to which supplier demands on the company influence the company and its competitors. As per Cain (2020), Apple has weak supplier bargaining power based on its moderate to high number of suppliers, moderate to high overall inputs and supplies, and high ratio of firm to supplier concentration.

Apple has access to numerous suppliers worldwide. Such a high number of suppliers exerts a weak to moderate force on the company. Also, the high overall inputs and supplies, such as semiconductors, weaken the force that the supplier can exert on the company. Generally, some big companies, such as Samsung and Apple, depend on many suppliers, causing the suppliers’ bargaining power to weaken further (Owen, 2019). Thus, suppliers’ bargaining power is likely to be a minor issue in Apple’s supply management strategy.

Threat of substitutes

This component of Porter’s Five Forces analysis evaluates the threat of consumers being attracted to substitute products. Generally, Apple faces a weak threat of substitute products because some substitutes are already readily available on the market. For instance, consumers can use digital cameras or landline telephones to take pictures and make calls, respectively, instead of using an iPhone. Therefore, this external factor exerts moderate pressure on Apple’s environment. However, StatCounter (2021b) observed that many customers would prefer to use Apple products because of their advanced features and convenience. This implies that the substitute products exert a weaker force on Apple. On the same note, Cain (2020) observed that Apple buyers are less likely to substitute Apple products. For example, customers prefer smartphones to old-fashioned cameras. As such, Apple need not consider substitutes as a strategic component of its business processes including market positioning, marketing, and product development.

The threat of new entrants

The entrants component evaluates the possibility and effects of new competitors entering the market. In this case, Apple experiences a moderate threat of new entrants because establishing a new business that competes with Apple requires high capitalization, thereby weakening new entrants. However, some large companies have already entered Apple’s market, including Google through its Nexus smartphone. Samsung has also proven to be a new entrant.

As such, some large companies can potentially compete directly with Apple, making the overall threat of new entry moderate. Consequently, Apple must maintain its competitive advantage through marketing and innovation to remain strong against the new entrants.

Nature of competitive structures

The mobile smartphone industry is considered monopolistic because it has many sellers and buyers, with both groups understanding that all the elements of monopoly are absent. Also, the market prices are beyond the control of individual buyers and sellers (Holst, 2021). However, in the UK, Apple is in an oligopoly market because the market is shared by a small number of producers and sellers (Owen, 2019).

The future industrial environmental trend

Apple’s industry is currently facing a future in terms of the manufacturing infrastructure wherein products are widely deployed, with industrial technology evolving into what StatCounter (2021a) terms Industry 4.0 – where systems are connected to mobile solutions and virtual reality. In the mobile technology world of the future, remote working will apply not only to people but also to machines. As a result, technology companies are looking at a future in which smart, connected industrial infrastructure is inevitable. Some analysts also refer to this as the Fourth Industrial Revolution. As per StatCounter (2021b), companies that can innovate faster and offer new products that have the ability to integrate with industrial equipment, smart warehousing, and smart farms are likely to reap more benefits than those that fail to do so.

Apple’s mission, vision and values

For a better understanding of Apple’s strategy and stakeholders, it is vital to have a clear definition of the company’s mission, vision and values. According to Leuthesser and Kholi (2015), these statements summarise what the business stands for, its priorities and strategies for meeting its priorities, and its core practices.

Mission

Apple’s mission statement reads: “To bring the best personal computing products and support to students, educators, designers, scientists, engineers, businesspersons and consumers in over 140 countries around the world” (Suranga, 2017). This mission statement has guided several of the strategic directions that the company has taken lately. For instance, the mission states that the organization focuses on computing products, which entails smartphones and computers in addition to other goods and services within the computing space. Hence, Apple also sells software, cloud storage services and digital content distribution (Laird-Magee et al., 2015). Moreover, the mission statement indicates that the company targets almost everyone; this has shaped Apple’s venture into products that meet the preferences and needs of its various consumers.

Vision

Apple’s company vision is: “To make the best products on earth and to leave the world better than we found it”. This corporate vision aligns with the company’s corporate social responsibility strategy, which emphasises environmental conservation, sustainability and a reduced ecological impact (Hefti & Levie, 2015). Furthermore, the vision of producing the “best products” is evident in the company’s global leadership in its product development and design. Moreover, Leuthesser and Kholi (2015) observe that Apple’s goal to have the best products challenges it to continue investing in novel innovation and vertical integration, which has seen it achieve a stable business leadership in the software, online services and computer technology industries.

Values

Apple’s values statement encompasses a variety of aspects that aim to ensure the wellbeing of every stakeholder. For instance, the company believes in making great products while maintaining simplicity over complexity (Pace, 2017). Furthermore, as per Suranga (2017), Apple believes that it is better to say no to many projects to enable them to focus on the few that are the most meaningful. More importantly, the company believes that teamwork and collaboration provide the strength to achieve high-level innovations that others cannot achieve.

Apple’s current performance

On 28 October 2021, the company announced that it had registered a fourth-quarter revenue of $83.4 billion, representing a 29% increase in revenue year-over-year (Leswing, 2021). This revenue jump is attributable to the introduction of powerful Macs and iPhones, which redefined performance and inspired customers to confidently make new connections (Kumar, 2020). The company further announced that it had set new revenue records across all its product categories and geographic segments despite the continued uncertainty in the macroenvironment.

Apple’s recent financial performance is coupled with increased customer loyalty, sales performance and a stronger business ecosystem, which have led to a record-breaking increase in the active installed base of devices (Gaponenko & Glenn, 2020). Indeed, according to Gaponenko and Glenn (2020), this year-over-year increase in revenue saw Apple return up to $24 billion to shareholders as dividends and steered it close to the goal of achieving a net cash-neutral position. Furthermore, the company declared a cash dividend of $0.22 per share on all common stocks payable 11 November 2021.

The way forward

In the wake of disruptive markets, Apple needs to be strategic with its business processes and activities moving forward. Failure to consider the risks and opportunities facing its technology might prove to be costly and could even dilute the already achieved financial milestones. One of the most significant risks that Apple must tactfully manage is the effects of the COVID-19 pandemic on the firm’s operations, stock price, financial position, and overall business activities (Penney et al., 2018). This correlates with the global economic conditions, which have been characterised by changing consumer purchasing decisions (Chen et al., 2019). This implies that the company must adapt to the new consumer behaviour through product differentiation and marketing initiatives.

Technological advancements and the changing business environment also imply that Apple must begin to evaluate its ability to compete in the market. According to Chen et al. (2019), the global mobile phone, computer and smart devices market is highly competitive. As such, Apple must explore its ability to address the frequent transitions and introductions of products and services. Moving forward, Apple must increase the pace at which it develops and introduces innovations in a timely and competitive manner to give it a stronger competitive advantage against rivals.

The company is also facing the threat of a shift in its product mix, increased costs of components (e.g. chips), increased costs of developing, designing, manufacturing and delivering products to customers, and price competition (Khanna, 2018). Furthermore, Apple is facing the threat of the increased introduction of products and services with higher cost structures by competitors and catching up might reduce the company’s gross margins (Gjorgievska, 2021). Related to this is the risk of the company’s dependence on its distributors, such as cellular network carriers and other resellers, who have been susceptible to business disruption due to the COVID-19 pandemic and the resultant economic downturn and changes in consumer behaviour (Khanna, 2018). Therefore, Apple needs to reimagine its production lines to maintain its gross margin. Beyond this, the company must address the overdependence on third-party distribution lines by creating innovative ways of ensuring that its products reach the market.

Apple’s stakeholders

Internal stakeholders

Apple’s main internal stakeholders are its executives, shareholders, employees and directors. According to Holst (2021), the company’s top executives include the CEO, vice president, senior vice president and chief operating officer. As per Owen (2019) and StatCounter (2021a), Apple’s success is largely attributed to its former and current leadership, namely Steve Jobs and Tim Cook. Meanwhile, Apple’s employees are also considered to play an important role in the company’s success. For instance, as per StatCounter (2021b), Apple is renowned among technology companies for the aesthetic design of its products, highlighting the role that Apple designers play in its success. According to StatCounter (2021b), the company is very secretive about its design, and its design engineers work under strict conditions of confidentiality.

Apple is owned by both institutional and individual shareholders, with some of its top institutional shareholders including Berkshire Hathaway, BlackRock and Vanguard Group (Nellis, 2018). It is also worth mentioning that some of Apple’s most prominent individual shareholders are some of its current and former employees, which is in line with the Sustainable Development Goal number 8 of Decent Work and Economic Growth, which bestows responsibility over government and corporations to ensure their employees’ welfare is guaranteed through decent work compensation and economic well-being (Owen, 2019).

External stakeholders

Apple’s main external stakeholders include the government, suppliers, pressure groups, and customers. However, as mentioned earlier, the company has several large competitors, including Huawei, Samsung, Oppo and Xiaomi (Nellis, 2018). Furthermore, Apple faces competition from other personal computer manufacturers, such as Lenovo, Dell, Asus and HP Inc., and the company works with many suppliers from Taiwan, South Korea, Japan and China (Dong et al., 2019). While the company has made good progress in protecting its suppliers, some have been found guilty of violating environmental and labour laws (Cliffe, 2020).

Apple’s stakeholder engagement strategy

Apple primarily communicates with its stakeholders through its corporate website (www.apple.com), where it provides a substantial amount of information for public use. Some of the most common forms of information on the website include production updates for customers, career opportunities for applicants, corporate information for investors, and other relevant information for employees (Holst, 2021). Apple also engages in advertising campaigns through online and offline channels.

Conclusion

Apple’s latest financial performance is on an upward trend, which is a positive sign for the company and its stakeholders. While the company’s business may not be at its full potential due to the pandemic, there is a chance for growth and recovery thanks to its effective business strategies. Meanwhile, Apple possesses the necessary resources and personnel to steer its business to the next level. Through innovation, Apple can maintain its mission, vision and core values to have a greater impact on the global technology industry.

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