Apple - External Environment Analysis

The company’s analysts try to gain a complete picture of the competition present in the industry so that they can easily calculate the strength, weakness, position, etc. Some companies analyze the financial statement but some adopt Porter’s Five Forces Model. Apple adopted Porter’s model as they felt that it is as an effective way to analyze the position of the company.

Apple from the perspective of five forces-

The company had gone through the phase of ups and downs in 1976. But through its new range of Macintosh computers and operating systems like iPad, iPod, iPhones, and other products, Apple Inc’ has obtained great success. In 2014, the company had achieved a remarkable honor of being the first company in the U.S that has attained a market share of more than $700 billion. They have achieved the substantial brand loyalty due to their innovative and dynamic contribution towards the company. The Apple products are the most unique and attractive one. This attracts many people and they all want to become Apple user. This company is enjoying a great success due to the quality of products they provide to their customers. The development of product and strategy formulation is very effective in Apple Inc’

The five force model given by Porter help the industry to analyze the competition and to identify the bargaining power of the buyers present in the market.  These two forces are the strongest force that creates impact on profit level of Apple. The other three forces are the bargaining power of suppliers, the threat of new entrants and the substitute products. They are not the major force that can create impact. They contribute a minor part in the Porter’s five forces model.

Industry competition

There are several companies that compete directly or indirectly with Apple. The competitors of Apple who directly or indirectly influence the demand of its products are Samsung Electronics Company Ltd., Hewlett-Packard Company, Google, Amazon, etc. The market share and reputation of such companies is as high as Apple. They also have a research and development and marketing department that is as significant as Apple. Hence, they give a perfect competition to Apple. The biggest advantage of Apple is the low switching cost of its product that acts as a competitive advantage for the company. It provides users a sense of relief when they ditch Apple products for some other brands or products. The major issue with this company is the continuous development and up gradation in its products to maintain the uniqueness that acts as a strength and a threat too.

Bargaining power of buyers-

Bargaining power of buyers is of two types. The first one is an individual power to bargain for the product and the other one is a collective power of the buyers that influence the organization. The individual power to bargain is not as effective as the collective bargaining power of buyers because a loss due to one single customer does not affect the entire industry and it is negligible. The strong force that works against the Apple is the major bargaining done by the collective users in the market place. To cope up with such elements, Apple frequently invests a major amount from its capital on research and development. It helps to manufacture new and unique products to maintain the market share. Recently, they had launched the Apple watches and Apple pay that are very unique products. It also helps to win from the competition present in industry. In this way, Apple is termed as a very successful company as they easily maintain the competition and established a larger group of users of their products in comparison to any other smart phone company.

Threat of new entrants-

The New entrants to the market place are the major threat to the Apple industry as they directly affect the market share of the company.  The two major factors of threat are-

• The high cost of capital which is invested in the company
• The additional capital to maintain the brand name in the market.
• The amount spends on Research and development department.

• Every new entrant who enters into the market has to face competition that already exists. This acts as an advantage to Apple. Yet, Apple cannot enjoy such advantage for a longer period of time. It may be possible that in future a Chinese company enters into the market of computing and smartphones with a strong financial and technical background that can eventually challenge Apple products. Nonetheless, it is necessary for Apple to continue with the strengthening of its position through uniqueness to give great competition to its potential new entrants.

Bargaining power of suppliers-

It is a weak force among all the forces that could affect Apple’s position in the market. It is termed as a weak force because there are ample numbers of suppliers that can supply high amount of required products to Apple. The company has an advantage to choose from a large group of suppliers for the other parts that is required to manufacture Apple products. It is not an obstacle to the Apple manufacturers to switch from one supplier to another as the switching cost is very low. The company is enjoying the power due to the large number of suppliers. The suppliers also benefit as Apple is a company who give bulk orders for the component part of the production. Hence, the bargaining power of supplier is not a major threat to Apple

Substitute goods-

Porter analyzed that the substitute goods are not the products that can directly give competition but can become possible substitute to the product. Concerning the case of iPhone, the possible substitute is landline phone. But we can’t say that a landline phone can give a perfect competition to iphone due to its inconvenience and old features. All the substitutes that are available in market have a limited amount of ability to give competition to an iPhone. There by, we can say that this force is also not an effective force

From the above study, we can assume that how Porter’s five forces model helped Apple in the strategic management and in achieving their desired goals.

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