PEST Analysis of Apple Company - Case Study Example

Apple Introduction Macro environment can be referred to as the condition that prevails within an entire economy, instead of in a particular region or sector. It includes current trends in inflation, GDP, spending, employment, fiscal and monetary policy. Macro environment is very closely associated with the normal business cycle that continues to function in a particular economy. A sector or company operating in a particular macro environment will always be influenced by several macro environmental factors which in turn will affect its performance in some way or the other. However, the effect will depend largely depend upon the extent to which the company’s performance is dependent on the overall economy’s health (Badu, 2002). PEST analysis is a tool in the field of marketing principles that is used by companies in order to do an in-depth analysis of the environment that they are operating in and henceforth plan to launch new product, project or service. PEST is a mnemonic that stands for Political, Economic, Social and Technological. It enables a company to gain a holistic value about the external environment and develop strategies in accordance with the factor that prevails in such an environment (Housing Industry Association, 2011). 1. PESTEL Analysis of Apple, Inc. Political factors Supply and manufacturing of vital components is done mostly from countries having a different political scenario. Manufacturing, logistics or procurement in these countries may be interrupted due to political issues (Apple Inc., 2012; Fadaei, 2014). Economic Factors Apple’s retail performance is severely affected by the worldwide recession. Instability in the global economic condition induces restrictions over the company’s ability to obtain components from suppliers. Risks of shortage in supplies and increased component prices. Forecasted slump due to highly priced products. Weakening of the US dollar may hamper the gross margin of the company (Apple Inc., 2012; Omer, 2012). Social factors The company stores personally identifiable information of customer, business partner and employees. Exposed to malevolent attacks that are done to get access to personally identifiable information. These attacks may tarnish Apple’s significantly enhanced brand reputation (Apple Inc., 2012; Makhijani, 2012). Technological factors Research and Development expense of Apple is increasing gradually. The R&D expense increased from $1.8 billion in 2010 to $2.4 billion in 2011 and subsequently to $3.4 billion in 2012 (Apple Inc., 2012). The constantly rising R&D expense may deplete the profit margin of the company considerably (Grin, 2014; Apple Inc., 2012). Environmental factors Apple products are highly compatible with numerous third-party services and business applications. The company has always manufactured products by keeping in mind the safety of the environment. Considerable amount of effort is put to manufacture products that are safe and sound and does not affect the environment (Makhijani, 2012; Grin, 2014). Legal Factors Apple’s operations are affected by both domestic and international laws. The laws affect the company in areas of labor, digital content, advertising, consumer protection, promotions, foreign exchange, import and export. The legal factors within the company’s external environment are influenced by political factors (Grin, 2014; Omer, 2012). Conclusion This study has enabled the researcher to gain a valuable insight about various factors that influence the performance of one of the most reputed companies in the contemporary business environment; Apple Inc. The macro environment analysis has revealed that Apple Inc has been able to adopt efficient strategies which have been formulated in accordance with the factors that exist in the external environment. This is precisely the reason behind the company’s immense success over the last few years (Omer, 2012). The company has been able to adopt efficient strategies while gaining entry into countries with relatively stringent political environments such as India and China and has proven to be largely successful. The company has tied up with number of mobile phone network operators in order to gain a larger customer base by offering them with contract plan that will make it comparatively easier for customers to own an Apple product (iPhone). As a recommendation, it can be suggested that Apple needs to increase its physical presence in these countries y establishing more number of brick and mortar stores in order to grab attention of a wider customer base and increase their brand awareness. 2. ANSOFF matrix analysis Introduction Igor Ansoff designed the Ansoff matrix which categorizes and explains several developmental strategies for an organization. The matrix is utilized by organizations that have a growth specific target and a strategy of specialization. This serves as a guidance tool that crosses products and markets for an organization and enables them to make strategic decisions (Luxinnovation, 2008). Figure 2: Ansoff matrix analysis of Apple Inc. (Source: McDonald, Ward and Smith, 2007) Market Penetration Apple introduced a broad range of products as well as services so as to increase its market and attract target customers into becoming potential customers. The company introduced App store and iTunes as complementary services for the products. Products and services are very user friendly and easy to use (Comaford, 2007; Grin, 2014). Product development Apple, Inc developed innovative products such as iPad, iCloud. This introduced technologically enhanced operating system such as the iOS. Apple was also able to grab the attention of consumers away from Windows XP (Makhijani, 2012; Fadaei, 2014). Market Development Apple continued to tap emerging markets in such as India and Brazil. This provided the company with a huge base of customers. The differentiation strategy adopted by the company enabled them to gain significant competitive advantage (eCornell, 2013; Comaford, 2007). Diversification Apple diversified its product base from Macintosh personal computers to digital hub dimension (iPod). Thereafter the iPhone was launched in 2007 and subsequently the iPad in 2010. The company needs to lower down the prices of its products to serve the mass market instead of the niche segment (Makhijani, 2012, Grin, 2014). Conclusion The Ansoff matrix analysis also enabled the researcher to develop a critical understanding of the strategies that the company has been adopting over the last few years in terms of market penetration, product development, market development and diversification. The company is known for its innovative product design, attribute and creativity and that is what they have demonstrated by offering their customers with distinguished products in the form of iPod, iPhone, iPad, Macbooks and personal computers integrated with a very beautiful and efficient operating system. That is how they have been able to satisfy the needs and demands of their customers (eCornell, 2013). Apple has proven to be a largely distinguished company by offering its customers with unique products that have inimitable attributes. Apart from the superior quality products, features such as cloud computing has really been a revolution in the field of technology enabling customers to access their information saved remotely. Even after such developments Apple has not been able to increase its market share in the emerging countries perhaps because their products are highly priced. Thus the company should look to reduce the price of their products in order to be able to make them affordable for their customers. This in turn will increase their revenue and henceforth their profit margin. 3. Importance of value chain from the perspective of Apple Inc. Value chain is a vital business principle, which when taken into account can enhance an organization’s likelihood of generating profits (Schreiner, 2014). The value chain concept was first introduced by Michael Porter which is a path that is followed by a particular service or product from the time it is introduced into the business till the time it exists (Bidgoli, 2010). While progressing along the value chain, the product or service should gain substantial value and allow the organization to realize profit by the time it is delivered to the end customer (Wiedemann, 2013). Primary activities Apple is responsible for all the designs that are implemented in their product. The company takes control of all the designs. This is crucial precisely because this is their unique selling proposition and is the company greatest asset. The company’s customer value proposition is that they want to produce superior quality products and provide their customers with world class product usability experience. Their objectives and services are so customer centric that once Steve Jobs called for a full production overhaul of its segment of iPhone just because he identified that the final prototype may get some scratches. The hardware is designed in a small facility located in North Carolina with 100 employees. Sales and distribution is primarily managed by Apple. This is because they want to provide their customers with a top quality buying experience when they visit their outlets or buy products over the internet. In addition, following such a strategy enables the company to be in the front line and thus helps the company analysts to have an understanding the sentiment of the customers as well as the shift in trends in the market (Jagannath, 2014; Moore, 2012). Support Activities Apple does not procure resources/materials for the products themselves. Semi-conductors are purchased from Samsung and some other companies based in Taiwan and Germany, memory is procured from companies based in Japan and Korea, chipsets from Europe, circuitry and display panels from Taiwan and Korea and some rare metals are procured from Asia and Africa. The underlying reason behind Apple not managing the procurement process themselves is because the uncertainty associated with the involvement of external suppliers is far less particularly due to the advancements made in the field of information technology. In addition, the assets that are required will not be very asset specific, in which case the investment is going to be considerably huge. However, in either case no one differentiates the company on the basis of internal components. The company is valued particularly because of exclusive and inimitable design and usability of services. The distribution of the product is mainly done through international, local and third party dealers. Apple sells its products mostly through its exclusive showrooms situated in all major places in the world. In addition to that the products are also sold through mobile network service products through contracts and these are different means by which the products are delivered to the end users (Omer, 2012; Fadaei, 2014). Conclusion The substantial profits generated by the company over the last two years can be largely attributed to the value chain process. The mechanism followed by the company is highly efficient which has enabled them to reduce the cost of the supply chain and thus realize greater benefits. In addition to that Apple Inc has been able to meet the rising demands of their customers by doing timely delivery of their products through an efficient value chain management strategy. The effective value chain management strategy adopted by the organization it to go through the process of manufacturing to delivery very swiftly (Scott Moore, 2012). The fact that Apple’s products are highly priced is particularly because of the fact that their value chain process that involves the supply chain, manufacturing process and the delivery process is very costly. That is why the company is compelled to price its products slightly higher in order realize the margin. This in turn is depleting their customer base especially in the emerging countries where the purchasing power of people is relatively lesser than that of the developed countries. Thus the company should strive to bring down the cost of the value chain process by eliminating any intermediary supply chain companies. The company can also implement cost efficient strategies such as outsourcing their resources from countries where manufacturing cost is relatively lower. This will enable Apple to bring down the cost of its value chain process and thus they will be able to lower the price of their products and persuade more number of customers to buy their products. Reference List Apple Inc., 2012. Form 10-K. [pdf] Apple Inc. Available at: [Accessed 24 April 2014]. Badu, E. E., 2002. Macroenvironmental Analysis for Strategic Management: Stakeholders’ View of Ghana’s University Libraries. [pdf] Saur. Available at: [Accessed 7 May 2014]. Bidgoli, H., 2010. 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