Apple, Inc. is a multinational company that deals with creating personal computers and other consumer electronic products. Similarly, the company deals with networking solutions, software developments, services and third-party digital content and applications. The products that Apple, Inc. offers to the market include the iPad, the iPod, Macintosh line of computers and the iPhone (Apple, Inc., n.d.). The headquarters of Apple, Inc. is in Cupertino, California; however, the company sells its products globally through its branches. Apple, Inc. operates in an oligopoly market structure. An oligopoly market entails a few large firms dominating the market, and they behave interdependently. The products that will compete in the smartphone market are the iPhone 7 and iPhone 7 plus. Although the market is highly competitive, the company has managed to create high-value products. The product differentiation strategy and the company’s focus on providing quality, elegant and superior customer services give it an added advantage to compete in the smartphone market.
Customer and Competitors Analysis
On January 9, 2007, Apple, Inc. unveiled its first iPhone in the market and sold it to consumers on June 29, 2007 (Apple, Inc., n.d.). The company is known for selling expensive products to customers, but because of their high quality, the products have high consumer demand. The company has a strong brand that makes it retain existing customers and prevents entry by other firms. The power of consumers does not offer a threat to Apple, Inc. and the company can freely change the prices of its products because they are unique and differentiated. In addition, the company ensures that the price of the product do not discourage consumers or are not too affordable. Apple, Inc. introduced iPhone 7 and iPhone 7 Plus in the market, and they are available to customers since September 16, 2016 (Apple, Inc., n.d.).
Firms in oligopoly market behave interdependently; therefore, Apple, Inc. takes into account the pricing, output, quality and decisions made by closest rivals. The real competitors for Apple, Inc. are Microsoft Corporation and Samsung Group, which offer computer operating systems and mobile phones respectively. These companies offer, close substitutes hence they are a threat to the industry. The smartphone market has become commoditized to the extent where rival firms are pushing the prices down and creating price wars. Similarly, some competitors try to emulate Apple to obtain a higher market share, but the company uses its leading design teams, talented engineers, to invest resources in research and development programs. This makes Apple, Inc. a leader in terms of innovation and uniqueness in the market (Rosoff, 2015). The company has elevated its way to the top position in the smartphone market and commands premium prices. The graph below shows the total revenue of Apple’s iPhone compared to the competitor. The graph shows that recorded more revenue in the last quarter from selling iPhone compared to other tech companies (Rosoff, 2015).
Comparative Advantages and International Opportunities Analysis
Comparative advantage refers to the ability of a firm to produce its products at a lower opportunity cost compared to other rival firms (Deardorff, & Stern, 2011). The smartphone market is competitive, and the firms operating in this industry have a comparative advantage over others. Apple, Inc. takes advantage of the low production costs in China and other Asian countries to assemble their product. The comparative advantage in Asian countries promotes efficiency and reduces the cost of producing Apple’s products and services.
Second, has a competitive advantage over others due to its protected ecosystem and a strong brand that appeals the customers. The two factors make Apple, Inc. a global leader in the smartphone market. The company is the only one that runs iOS thus enabling it to retain customers within its ecosystem. With the increase in the sales of iPhones, the company continues to retain customers. Regarding the company’s strong brand, Apple, Inc. is among the few electronic brands that produce luxurious products. Therefore, due to the high-quality products Apple offers to the market, customers earn value for their money. The strong brand appeal makes the company sell the products at premium prices. The following graph shows the sales of iPhones from 2007 to 2016. The graph shows that the company’s sales have increased from 3.7 million in 2007 to 231.5 million in 2015 (Rosoff, 2016).
The new trade theory indicates that factors that determine the international pattern of trade include economies of scale and the network effect in primary industries (Reinert, Rajan, Glass & Davis, 2009). Moreover, the new trade theory implies that countries that produce similar products and services can continue to transact with each other. On the same note, each country has a way of producing goods and services at a lower cost thus exhibiting a comparative advantage over others. Similarly, countries specialize in producing particular goods and services making them develop trade interest in specific goods and services.
The need to increase efficiency and promote innovation forces most multinational corporations to change their operations to fit the new trade theories. The economies of scale enjoyed in developed countries boosts the ability of Apple, Inc. to expand its global trade. Being an early entrant in the smartphone market gives Apple an advantage over other firms. The firm has substantial economies of scale making it difficult for emerging firms to compete against them. Apple’s overseas manufacturing operations are breathtaking due to the flexibility, diligence, and availability of skilled labor.
Factors that will Affect Demand, Supply and Prices of the Product
First, the demand for iPhones is affected by the advertising and marketing techniques employed by Apple, Inc. Apple uses the principle of scarcity in its marketing campaign to attract more customers. A product with limited supply makes customers perceive it as more valuable than those that have an unlimited supply (Kurtz, & Boone, 2009). Therefore, higher spending on advertising and marketing will increase the sales of iPhones. Second, the income of the consumer will affect the demand for Apple products. For instance, iPhone 7 and iPhone 7 Plus are very expensive products; therefore, consumers with low income will not afford to buy such gadgets. Conversely, high-income consumers will afford the prices for iPhone. Third, the price of the product will determine whether consumers will buy them. The current prices for iPhone 7 and iPhone 7 Plus are $849 and $949 respectively. Although customers are used to paying premium prices for iPhones, a further increase in prices will decrease the demand for the product.
The cost of factors of production will affect the supply of Apple products. If the cost of raw materials, labor, input, and machinery increases, the production cost will increase leading to a decrease in profit margin (Kurtz, & Boone, 2009). However, due to the availability of cheap labor and efficiency in Asian countries, Apple can supply enough iPhone to the target markets. Second, the use of latest technology will increase the supply of iPhones. Apple, Inc. has skilled engineers and design teams that have knowledge on manufacturing high-tech products that appeal to customers.
Third, the supply of Apple products will be affected by government policies and taxes. The fiscal and industrial policies set by the government have a greater effect on the supply of a product. If the government changes its policies on the tax paid per unit sold, the supply of Apple product will fluctuate.
The following factors will affect the pricing of Apple products. First, the product life cycle will influence the price of iPhones. For instance, during the introductory stage of iPhone, the firm will charge lower prices to attract more customers and enter the new market. Second, the credit period offered by Apple, Inc. will affect the pricing of iPhones. A longer credit period means that the company will charge the customer a higher price while a lower credit period will result in lower prices (Kurtz, & Boone, 2009). Lastly, the company will consider market competition while fixing the prices of the product. Besides, being an oligopoly firm, the company will set the price depending on what the competitors offer.
Factors that will Affect Total Revenue
Price elasticity of demand explains what happens to the company’s total revenue when the effect of the price or quantity is stronger. If Apple, Inc. decides to increase the price of iPhones, the price effect of the total revenue is as follows. After a price increase, each unit of iPhone sold at a higher price will increase the total revenue. The quantity effect is that a price increase will lead to fewer units sold, that will then decrease the company’s total revenue (Mankiw, 2011). A newly launched iPhone has varied price elasticity depending on the markets they are sold. For instance, in the U.S. market, an iPhone has an inelastic demand because it is a luxurious product. Therefore, an increase in the price of an iPhone will raise the total revenue because the price for the product is affordable to consumers. Conversely, in the case of a country such as Cameroon, an iPhone has elastic demand. Therefore, an increase in the price will decrease the total revenue.
Second, change in supply affects the total revenue. In the situation when the cost structure of a business changes, the supply curve moves. For instance, the introduction of new technology lowers the cost of producing iPhones, and the supply curve will move to show that the company can produce more iPhones at the same price. The total revenue of the company will increase because; it can sell more iPhones at the same price as before. The 2015 report shows that Apple, Inc. has a revenue of $182,795 million (IndustryWeek, n.d.)
Factors that Influence Productivity
The factors that influence productivity in Apple, Inc. include the following. First, the availability of plant and equipment plays a critical role in increasing the productivity of iPhones. The company has enough equipment, capacity, and proper maintenance schedule. Similarly, Apple, Inc. pays attention to the utilization, costs, reduction of idle time, and modernization to increase productivity. Second, the human factors available in the company affect the productivity. Apple has employed enough workers with competence and skills to deliver a quality job. The company has an approximately 76,000 direct employees in the U.S (Apple, Inc., n.d.). The company provides employees with incentive as a motivation thus influencing productivity. Third, the use of innovative and latest technology influences productivity in Apple, Inc. largely. In addition, the high-tech technology helps the company to achieve improvements in quality control, material handling, and software development and communication system (Mankiw, 2011). Some of the technological factors the company considers include waste reduction, timely supply, repair, and maintenance.
Various Measures of Costs
Cost refers to an amount that the firm is willing to spend or pay to obtain something. The different measures of cost include fixed and variable costs, average and marginal costs, and opportunity cost (Mankiw, 2011). Fixed costs refer to costs that do not vary with the quantity and output that the firm produces. For instance, some of the fixed costs that Apple, Inc. will incur are rent, loan payments, and insurance premiums. Variable costs refer to cost that change when the firm alters the quantity of output it produces (Mankiw, 2011). Apple will incur variable costs such as the cost of raw materials, labor, and packing of iPhones.
With average costs, the firm incurs a cost of each unit of a product. The average cost that the company will incur includes the cost of producing each unit of iPhone. On the other hand, marginal cost measures the amount the total cost will increase due to an extra unit of production. Therefore, with marginal cost, the firm can know the amount it will spend to produce an additional unit of iPhone. The opportunity cost is what the firm gives up to get an item. Apple’s cost of production includes all the opportunity cost involved in making its products. For instance, the company will trade short-term profitability for long-term on the iPhone platform.
Externalities, Government Public Policy, and their Effect on Marginal Revenue and Marginal Cost
An externality exists when an activity of an agent or a group of agents affect the other party, without compensating for the cost or benefit affecting them. An externality is a market failure, and its existence in the industry reduces the marginal revenue of the affected firm. The externality can be in the form of consumption and production, and costs and benefits. Due to externalities, prices do not match the marginal costs and marginal revenue. Conversely, government policies affect the competitiveness of the market. The imposition of taxes, subsidies, and restriction by the government shapes the industry that Apple, Inc. operates.
Apple is an innovative and profitable company that many competitors admire. It has a strong market position due to producing high-quality products. However, the company should consider the legal and political factors that exist in the industry. The company outsources labor from different countries to reduce operating cost. Therefore, Apple, Inc. must find an alternative way to reduce risk since it purchases application processor from Samsung Corporation and this can result in a problem. Second, the company should minimize the involvement of other agencies in its operations. For instance, the company should not train external workers to the standard of private workers. This will help the company avoid suffering duplication of the original products. The company should focus on expanding the international market by developing public relations with the government of other nations. Expanding the international business will help Apple, Inc. to tap the resources found in other countries.
Apple, Inc. (n.d.). Retrieved October 08, 2016, from http://www.apple.com/about/
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Reinert, K. A., Rajan, R. S., Glass, A. J., & Davis, L. S. (2009). The Princeton encyclopedia of the world economy. Princeton: Princeton University Press.
Rosoff, M. (2016). The end of the iPhone’s amazing eight-year run. Retrieved October 08, 2016, from http://www.businessinsider.com/apple-iphone-sales-by-year-2016-4
Rosoff, M. (2015). REMINDER: Apple’s iPhone revenue is bigger than any other tech company’s total revenue. Retrieved October 08, 2016, from http://www.businessinsider.com/apple-iphone-revenue-vs-competitors-total-revenue-2015-9