Apple Case Study
Points to cover in answers: 1. Vision, Mission and objectives a) Describe Apple Inc’s Vision for its iPhone business in China. 10 Marks Answer should draw from Brand image slogans associated with Apple: Liberty regained; innovation, passion, hopes/dreams/aspirations/people power through technology (page 9) -really sleek, cool hardware, great software and a cool, hip image” (Clemons, 2007) -Many firsts in innovation: the mouse, digital music player (iPod), music store service (iTunes), communication/computing technology convergence (iPhone – computer on the street) – Time magazine invention of the year; innovation led company known for user friendly devices -Derives much from founder’s vision (still with the company)
The vision could be: To expand our international presence by providing the most advanced connectivity and gaining a share in the Chinese mobile phone market b) Provide a Mission Statement for Apple iPhone in China. 10 Marks Add specificity to the vision. Mission statement example: To enter the Chinese market with the iPhone, and to successfully compete with existing players and be number one in five years. 2. Core competencies What are Apple Inc’s strengths in terms of resources and core competencies in their home market? 10 Marks
Resources: technology/innovation capabilities, skills and creativity of employees, global company with financial strength. Draw from VRIN/VRIO model. Core competencies: in technical innovation, legendary user friendliness, new product development & previous market penetration success (1. 4 million iPhones sold in the first 4 months of launch in developed markets). Core competency should give access to a variety of markets through many end products. Apple’s core competency of innovation driven user-friendly high-technology product development opens a variety of markets (computers, personal music/ store, communication device/ mobile computing). . External environment, threats and Opportunities What are the opportunities and threats including the ‘grey market’ for Apple iPhone in China? 10 Marks Answers are not expected to give detailed PESTLE or Porter’s Five Forces analysis. They are expected to identify opportunities and threats by drawing from the following points: PESTLE Political: Mention/draw from- Mobile phone market rising rapidly (figure from Exhibit II here) after 1994 – 1997 restructuring/partial deregulation; duopoly of China Mobile (GSM) and China Unicom (CDMA) as mobile telecom service providers (2008: China Telecom added, also state-owned).
Fast growth of both subscriber base. In 1998, the government issued licences and encouraged domestic brands entry (both in GSM and CDMA). Government is a strong regulator of connectivity (affects iPhone) Technological: big technological changes with 3 different standards (T of PESTLE). Hardware supply grew: 80% with Nokia, Motorola and Ericsson, 20% with the rest including Philips, Alcatel, Siemens – all foreign. Economic: China growing rapidly. PORTER’S FIVE FORCES Threat of new entrant: Licences issued in 1998 when Ningho Bird, Konka, TCL entered, later Huawei, Lenovo, Amoi.
Developed local handsets cheaper, built distribution channels (New entrant threat still remains). Exhibit IV and V relevant for market share figures etc. Can happen again to the advantage of local companies. Rivalry: Above and foreign brands have widened product range; competition increased in all ranges. Buyer bargaining power: Large choice now; very price-conscious buyers so will switch away from smartphones, however also attracted to advanced features (a plus for iPhone).
Customers exist for all segments Supplier bargaining power: increasing for telecom operators as they are government backed, also China Mobile (not with iPhone) funding R&D for handset makers for product development and improve 3G service. Threat of substitutes: Low- landphone, email, etc – connectivity demand is increasing as seen from subscriber base rise. GREY MARKET – Two aspects: illegal/smuggled handsets sold (1. 5 million iPhones before official launch); and fake handsets made locally much cheaper – 145 million in 2009.
Companies cannot reduce prices to match fakes, but incur costs to combat this (with government? ). Accordingly, to elaborate on the following Threats: if grey market production of iPhone fakes started it would be very difficult to tackle. Opportunities: Apple’s product already has a demand and market is familiar with it. If Apple can tackle the smuggling it would gain substantially (more in Q 5) 4. Entry Strategies a) What international business strategies did Nokia, Motorola and Samsung use in China up until 2006? 10 Marks All companies mentioned adopted “global strategy” first.
Post 1994 the Chinese telecom industry changed and was progressively restructured encouraging local industry to develop (with foreign technology partnerships). 1996 to 2000 the global players Nokia, Motorola and Ericsson held 80% market share. However rising local competition (following 49 new licences to local companies) led to the foreign companies to change strategy in China to higher local responsiveness and to that extent multi-domestic in terms of market response (or transnational strategy), adopted product proliferation with product development for different market segments.
After China Mobile’s investment offer to several companies like Nokia, Samsung, Ericsson, LG these companies are now intensifying their multi-domestic strategy for China raising production there. On the differentiation strategy Nokia, Motorola and Samsung together claimed back 61. 4% market share in 2007. b) Describe Apple’s strategy to enter the China market 10 Marks For the iPhone Apple follows a ‘differentiation focus’ strategy worldwide including China. (In general Apple Inc follows this strategy for its products)
For Apple’s iPhone (foreign) initiative in China -they followed a pure global strategy with no local responsiveness so far; in fact worse as product priced way higher than in developed home market. Focus differentiation not working. -Warranty contracts unfavourable to buyer Strategy in China so far lacks direction and purpose. Initially Apple ignored China market, allowing grey market to develop. Delayed contracting with full service operators, missed the best, ie, China Mobile, and is not getting traction with China Unicom.
Apple has no strategy to tackle grey market so far, even though Chinese users got exposure to the iPhone through the grey market. 5. Recommended strategy Going forward recommend a strategy for Apple iPhone in China 20 Marks Elaborate on the following: -Product proliferation strategy needed, like bringing in cheaper products as other foreign brands have done. For this Apple needs to look at a strategy for mobile phones in China rather than just for a smartphone. Cost leadership for new lower end products and differentiation for iPhone. Above will change innovation ethos for different segments (product development and low-cost driven strategy for lower end and existing blue skies/technology innovation and differentiation strategy for higher end), may mean too much change including culture change at Apple – therefore may do collaboration/outsourcing for lower end products (will work if the question is changed to Apple Inc strategy rather than iPhone strategy in China) -Multi domestic strategy for China business, ie, move production to China for cost reduction etc -Draw from VRIN/VRIO chart (from Q2) for internal strengths/weaknesses matching with action above -Strengthen partnership with China Unicom; since it is non-exclusive, try partnering with others too, particularly with China Mobile (to get access to a large customer segment and also to get R&D and production assistance) -A suitability/acceptability/feasibility analysis for implementation – relating to VRIN/VRIO and to opportunities. -If a (focus) differentiation strategy is recommended to be continued (which keeps the company culture intact), the answer must specify how it will work when it is not working now.
It must also say if a sufficient niche market exists, how price differential with other countries can be minimised (thus also addressing grey market problem) and how service contract cost can be reduced, etc, for a highly differentiated iPhone. 6. Balanced score card Based on your recommendation above (QuestionFive) provide a Balanced Score Card with key performance Indicators relevant for Apple iPhone in China. 20 Marks Balanced Score Card points to be covered: Customer perspective: Objective – market penetration Measure – market share in China market Target – to set rapid increase target (eg, a 5 years target) Initiatives – a range of customer related actions from raising awareness on technology to price-points depending on segment targeted (so, relates to resetting price, getting new products/models, renegotiating service contract costs, etc).
Learning & growth perspective: Objective – Specific changes needed in iPhone; Measure – features to change relating to cost reduction; Target – dollar cost reduction with features offered (example); Initiatives – technology (re)development/outsourcing/marketing & selling changes. Internal business process perspective: Objective – around changes required internally in terms of new centre for product changes (in China/India? ) with resultant coordination measures/targets/initiatives. Managing the two resultant cultures in the company may be mentioned here. If outsourcing recommended then similar points around the outsourcing actions. Financial perspective:
Increasing shareholder value (as objective), return on equity (or other return ratio figure, ie, ROI, etc) as measure, a percentage increase as target, and initiatives that link in to the above actions in keeping with the recommended strategy. Some of the above like dollar cost reduction cannot be verified and only a demonstration of the idea is enough The above has taken a product proliferation basis for strategy recommendation in Q5. If the recommendation is for iPhone to continue a differentiation in China, the BSC points will change accordingly. Apple also has to renegotiate with operator China Unicom for drastically lowering warranty/service cost to customer, and also work hard on China Mobile collaboration possibility.
