The paper presents detailed overview about the Apple Inc. analysis on the parameters set by Michael Porter. Apple Inc. is one of the known organizations that have earned its name among the technology services providers. iPads, iPods, iPhones and iMac are considered as breakthroughs and trusted worldwide. This report highlights how the forces mentioned in Porters model affect the company and its operations. It was analyzed that competitive threats are the major threats identified in the report. Moreover, the company must also be concerned with the bargaining power of suppliers so that potential threats can be avoided and company can overcome the challenges successfully.
Operational Overview of Apple Inc.
Apple Inc. is the company intends to design, produce, and market personal computers, cellular devices, and wide range of software applications, accessories, and networking alternatives. The company operates on basis of innovation and bring out best user experience. The company has ability to develop and design own operating systems along with hardware and software products so that unique and user-friendly products are delivered with the help of distribution channels. iPhone, iPad, Mac, watchOS, and tvOS are some of the company’s products currently available in the market and enjoying tremendous appreciation from the company.
Primary markets of Apple Inc. involves individual customers, SMEs, governmental institutes, and educational organizations. Most of the products are sold with the help of third parties, online stores, and company owned sales centers. All the newly introduced products are differentiated and innovative. The company intends to blend technology in the world in a manner so that it allows remarkable learning experience, new facilities, and smooth processes. To assure seamless processes, the company
Analysis of the Apple Porter’s Five Forces
Competition (Very High)
Threat of competition is very high for Apple Inc. because products and services are of competitive nature. The company is confronted with aggressive strategy in all business areas because there are frequent product introductions and intense technological advancements (Annual Report, 2018). As a result, it has increased capabilities of cellular devices, personal computers and the other handheld technologies. Apple Inc. has strong competitive threats because product differentiation is low and firms are highly aggressive. With the slight differences in price, customers can easily switch on to the competitive brands. Samsung, LG, and Huawei are competing against the company and it can be observed in their advertising, imitation and observable innovation.
Analysis
In technological industry that is specifically associated with handheld devices, user-friendly applications, and intense features, competition is very high. Those companies are identified to be successful that innovates and bring best experience for the users. For years Apple Inc. has secured leading position in the market but now as for the scores developed by Statistica (2018) it is identified that it is facing intense competition. The graph obtained from the score indicates the competitive nature of the industry for the last 9 years.
Figure 1 Global market share of industry, Source: Statista
It clearly indicates how Apple has maintained competitive position in the market over the years. Although the demand has seem to be fluctuating over the years yet it has secured sustainable position in the market. On the overall rating out of 5, this force holds 5 rank. Competition is identified to be the utmost force to address since the future of the companies rely on how effectively it addresses these challenges. Many companies have lost their position and vanished because they were not keeping up with the competitive challenges. So far, Apple Inc. is dealing with the threat successfully and it holds positive image in the minds of the customers.
Bargaining Powers of Suppliers (High)
According to the Apple Inc. annual report (2018), there are multiple suppliers of the components involved in design and development of sophisticated devices. Components used are obtained from sources that are providing their services to the other companies as well. Therefore industry wise shortages and fluctuations in prices can be observed. As a result operating results and finances are affected negativelypo Therefore bargaining power of the suppliers is also high.
Analysis
Although the company is identified to be engaged with several third party suppliers yet the agreement details keep on changing. It is not assured that contracts can be renewed on similar terms. Therefore there is an immense risk for the company regarding shortages in supplies or price fluctuations that have potential to affect the company and its financial conditions. In order to manage the force, the company have developed relations with outsourcing partners that facilitate when there are delayed shipments or any other constraint faced by timely supplies of products. On the scale of one to five, this force receives the score of 4.
Bargaining Powers of Customers (Moderate)
The bargaining power of customers is low because prices are pre-specified by the sellers in technology industry, yet buyers may influence pricing decisions of the company. The customers have the power to switch the brands and they may stop purchasing company’s products. Their sizes are relatively small, posing no or limited influence on company’s product related decisions.
Analysis
Switching the brand is not difficult, especially in cellular technology. Customers mostly prefer second hand products and seldom try new products directly from the companies. This decreases the overall value of the product yet the customers get the ability to try different brands. Most of the Apple users are identified to be loyal as they show repeat purchase behavior yet some of the customers have potential to compel the retailers to provide the products at lower prices. In this manner, the bargaining power of customers is relatively low. On the scale of one to five, this very force is assigned with the score of 3.
Threat of Substitute (Weak)
The threat of substitute products is weak because alterative to cellular phones and laptops have become obsolete. For example, instead of using the camera installed in the Apple’s products, people can use digital cameras, however such forces are not considered reliable while doing analysis. The traditional wire based phones are no longer in the market and most of the people prefer to be in contact with others with the help of phones. Apple phones are relatively reliable and the data is not lost unless the user switch on to the alternative products. In addition to this, due to lost data and several other issues arising in laptops, people are switching on to the reliable devices that are easy to carry and portable. In this manner, the demand for Apple’s products are increasing and substitutes are becoming rare. Thus this force is identified to be relatively weak.
Analysis
The industry is highly competitive and in this manner there is a room for competing products. As for the substitute, unless very lucrative alternative is presented to the customers, in the upcoming decade there is no room for the substitutes (Yang, Nam, & Kim, 2018). Electronic and services gadgets are although available in the market yet people rely on reliable applications, sources, mobile devices and personal computers. Operating systems are also very reliable and the users of the Apple are in peace of mind regarding data lost or recovery. Therefore threat of new entrants is relatively weak. The availability of no or limited substitute, their low performance, and propensity of buyer to purchase substitutes make it a weak force. Overall, on the scale of one to five, this force holds the rank of one.
Threat of New Entrants
Apple has low threat of new entrants because new competitors can enter the market anytime. Although the capital requirements are high yet the capacity is high. Some electronic gadget manufacturers can develop the capability to produce handheld devices and personal computers as well. There are immense efforts required for a new brand to create position in the minds of customers. Therefore propensity to these threats is relatively low. On the scale, this threat has been given a rank of two.
Analysis
It is important to mention that industry is highly saturated and the customers place the trust on the brands that are known for years. Apple, one of those credible names in the market holds superior position in the minds of customers relative to any new brand. In addition to this, starting up the cellular technology business holds sophisticated research and development systems, capital and mechanized systems so that new ideas can be transformed into realities (Mogensen, 2018). Therefore for a new entrant in the market, it is difficult to arrange for such resources. In addition to this, there is a possibility that electronic manufacturer may enter the market yet there is a need to assure credibility to the customers. Therefore the level of this force affecting the organization is relatively low.
Summary
Overall overview of the five forces identified by Michael Porter depicts that the company is known for years and is successfully managing the threats for years. For the last decade, the company has been successful in retaining successful position in market. Apple Inc. is developed with the aim of innovation and bringing the world together. The company’s years of success depicts its ability to outshine and deliver outstanding results. In the efforts to do so, the company has to deal with significant market forces. For example the competitive threats are very high and therefore appropriate strategies are needed to be adopted to deliver best results.
Out of the five forces, competitive threats holds unique importance and relatively higher rank. There are several competitors that are competing for the share in market and have developed unique position in the minds of the customers. Samsung, and android operating systems, wide range of applications, system software, and handheld gadgets are competing for the share in market and it is essential for the organization to consider their results. The users might become used-to competitive products and may not prefer Apple’s products. In this regard, continuous innovation, careful research and differentiating the products from the rest are the only way Apple Inc. can retain competitive position in the market.
Therefore competitive threat is the major force the company should be concerned about. Moreover, it was also identified that the suppliers also have significant impact on the financial success and operation ability of the company. Therefore Apple Inc. must also take care of the suppliers and view for all the available alternatives for getting component supplies.
According to the analysis, seeking global suppliers is the opportunity available with the company. In this world, conducting business has become easier as the desired products can easily be shipped to the destined locations. Instead of relying upon traditional suppliers, it is essential that the company should maintain superior position in the market and seek other available opportunities.
Threat, on the other hand is innovation from the competitors. As the users have ability to enjoy services from whatever companies they desire, they can switch on to the brands that offer more value for money. Therefore, competition is the major threat for Apple Inc.
References
Apple Inc. (2018) Annual Report. Retrieved from: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAP_2017.pdf
Mogensen, B. G. (2018). Managing Corporate Legitimacy Through CSR Reporting: A Qualitative Case Study of Apple Inc.’s Supplier Responsibility Reports (Master’s thesis).
Yang, S. H., Nam, C., & Kim, S. (2018). The effects of M&As within the mobile ecosystem on the rival’s shareholder value: The case of Google and Apple. Telecommunications Policy, 42(1), 15-23.