1.0 Introduction

This report will analyse about the future prospect of Apple Inc. (“Apple”), so to arrive at a conclusion if to invest in the company. For that, these issues will be investigated: nature of Apple and the industry, performance of the company, and the competitive pressures.

2.0 Nature of Company and Industry

Apple is operating in the consumer electronic industry - a very competitive industry; as there are many powerful and reputable competitors such as: Apple, Google, Samsung, Microsoft, Huawei, Microsoft, Sony and so on. Indeed and often, some of the giants even lose out competitiveness and decline within such a competitive industry, such as: Motorola, Nokia, Research in Motion and Sharp (Ammisetti, 2012). Then, there are also emerging competitors such as Xiaomi and Lenovo, of which suddenly take the market by surprise despite intensely competitive business environment (Einhorn, 2013).

In such a competitive business environment, it is observed that the industry players that failed to adjust accordingly, based on the changes of technological or business environment, will get phased out very fast (Ammisetti, 2012). From time to time, a market leader will get replaced by other existing or emerging industry player – through the creative destruction phenomenon (Moy & Terregrossa, 2009). Aside from that, the competition between industry players may even escalate to legal ‘games’, such to sue the competitors as a way to bring down another competitor (Wu, 2013).

Nevertheless, the consumer electronics industry is an industry that is expected to growth moderately in the long run, given that people nowadays are living in the digitisation era. However, it is worthy to mention that growth within this market is expected to come from the growth of the emerging countries, as the growth rate in the developed and established countries are stagnating.

There are some distinctive characteristics pertaining to this industry that worth mentioning. For instance, product life cycle is getting shorter due to shorter time taken for product development and commercialisation and the importance of innovation in affecting the landscape of the industry (Olson & Sharma, 2008). Then, new sub-industries are emerging within the consumer electronics industry, from time to time. For instance, the rise of smartphone industry, had effectively replaced the mobile phone industry. Then, the tablet computers are also fast to replace the popularity of both desktop computers, and laptop computers (Gobble, 2012).

In short, the entire industry is very challenging and dynamic, which often also unpredictable. Sustainable competitive advantage is hard to come by, and yet industry players that capable of innovate can become the market leader in a new sub-industry (i.e., it can be lucrative). With that, the next section will proceed to analyse the performance of Apple.

3.0 Performance of Company

To thrive in the highly dynamic and competitive consumer electronics industry, can be very challenging. Some of the criteria required of for achieving competitive advantage in such an industry, include the following: being lean, always innovative, add value for consumers, and be aggressive (Cheng & Shiu, 2008). Then, other important element for business success in such an industry may include the following as well: leadership effectiveness, being efficient, and having streamlined process management (Yeung, Cheng & Kee-Hung, 2005).

Indeed, Apple is a successful and respectable company in the industry. The sources of profitability and competitive advantage of Apple include the following:

• Paying attentions to customer preferences and user experiences (Murugesan, 2011), such as through user-oriented innovation (Gobble, 2012). Through paying attentions to what the customers really want (which sometimes, even when customers do not know what they truly want), Apple has been able to grab the loyalty and attentions form consumers.
• A strong focus on quality, on both the ‘art’ and the ‘science’ aspect (Gobble, 2012). It always aims to offer the game-changing and sexiest piece of personal technology to consumers (Coffin, 2007; Dubberly, 2012), which that also resulted in a lot of intellectual properties for the firm.
• Aside from that, Apple has also been trying to keep itself lean (Lashinsky, Lev-Ram & Kimes, 2008), by focusing on its core competency, which is on technology, design and marketing, but not on production activities.
• Differentiation is key source of competitive advantage of Apple (Mickalowski, Mickelson & Keltgen, 2008).
• Product innovation in the right direction, i.e., new products offered seemed always able to offer relative advantages, lower complexity, and yet higher trialability for the consumers (Ho & Wu, 2011).
• Apple is excellent in planning and master media build-up as well, in order to leverage on anticipation of people (Mickalowski, Mickelson & Keltgen, 2008), so to lure people to purchase the products whenever the products are out to the market (Moy & Terregrossa, 2009).
• Apple has been focusing on build a lifestyle brand (Tariq, Ishrat & Khan, 2011).
• Apple builds a strong organisation culture that focus on collaboration between best talents in the industry, of which everyone focus and being motivated to make great products (Maccoby, 2012).

From the points discussed above, it can be observed that enviable performance of Apple is due to a variety of factors, of which these different factors, such as excellent culture, customer orientation, radical innovation, being lean and marketing savvy, acted in a mutually supportive and internally consistent manner to support the performance of Apple. In a way, that indicates that remarkable performance can only be achieved when a multiple factors are ready (i.e., available), which is definitely very challenging (for management to shape these factors towards contributing to better firm performance). Besides, that also suggests that investigation from multiple dimensions is required, in order to better understand about the performance of a firm. The success of Apple is not something due to a single or two factors. Rather, it is about how the ability of the management to manage different dimension of the business, ranging from operation, to marketing, technologies, human resources management and even on research and development strategically, that contributed to Apple’s performance, on these areas: better customer loyalty, greater employee commitment, retention and loyalty, financial performance and also not to forget its enviable competitive advantage in the highly competitive consumer electronic industry. Indeed, the more remarkable performance is when Apple has been able to creating, disrupting, or reinventing at least six different sub-industries (i.e., the Apple II computer; Macintosh; laser printers; OS X; iLife; iPod; iPad; and iPhone) in the consumer electronic industry.

4.0 Competitive Pressures

To better analyse the various competitive pressures or forces that can affect the positioning of a company, the infamous Porter Five Forces Framework will be employed. Through such model, the main uncertainties in the economic environment that might affect Apple’s future profitability will be examined and discussed.

4.1 Rivalries among existing competitors

Overall, it is widely noted that the consumer electronics industry is a $240 billion global industry with several highly competitive global players such as: Apple, Google, Samsung, Microsoft, Huawei, Microsoft, Sony, Motorola, Nokia, Research in Motion, Sharp and so on.

Due to the increasing competition within the industry players, some phenomenon can be observed. For example: shortened product lifecycles, unprecedented degree of change spurred by the increasing complexity of end products, higher competitive intensity, and shorter time to commoditization (Olson & Sharma, 2008). Indeed, there are also occasion of legal fights between competitors, such as one between Apple and Samsung (Breen, 2013).

Overall, it can be conclude that the competitive pressures from the existing competitors are very high. In the past, Apple has been able to stay competitive through its intellectual properties, outstanding capability in innovation and its effective leadership process within the organisation.

4.2 Bargaining power of buyers

Due to the intensifying competition in the consumer electronics industry, the consumers actually have many choices (Wu, 2011), which also means that the customers actually have relatively high bargaining power against the sellers, such as Apple, Samsung, and so on (Nair & Leng, 2012). It is however also noticed that it is valid to argued that when a customer is loyal to the products by Apple, they may not willing to switch to the products offered by competitors. However, that is only small portion of the consumers in the marketplace (Indeed, there are also loyal customers towards the Samsung brand as well). Indeed, within the emerging countries, it is also noted that majority of the consumers may be quite costs conscious, which would likely to prefer the competitors that offer good quality products at relatively lower prices (He & Chen, 2005). Then, there is a growing awareness among consumers on the importance of buying from socially responsible companies or brands (Ki-Hoon & Ji-Whan, 2009). In a way, the consumers do have moderately high bargaining power. This is a competitive pressure that works against the industry players such as Apple. To overcome such pressures, it is indeed crucial to focus on branding. This is because it is through branding and differentiation that a company such as Apple able to build loyal customers, to overcome the high bargaining power of consumers.

4.3 Bargaining power of suppliers

Overall, many of the industry players within the consumer electronics industry are huge and broad in scale and scope, of which that make these industry players do have high bargaining power against the smaller suppliers. In other words, it is valid to mention that the supplier power is typically low (Nair & Leng, 2012). Nevertheless, as the business environment is becoming more competitive, it is crucial to collaborate closely with the suppliers, rather than to pressure the suppliers (through the use of higher bargaining power available to the electronic consumer firms, such as Apple). This is because collaboration is critical to the effectiveness, efficiencies and agility of the supply chain (Sodhi, 2005; Helo, 2004). Nevertheless, purely from this dimension, it is valid to argue that a company such as Apple does possess high bargaining power against the suppliers.

4.4 Threats of new entrants

The threats of new entrants in the industry is very high, especially in the recent events when it can be observed that new entrants or players from China, such as Lenovo, Huawei and recently Xiaomi had successfully take the market by surprise, despite intensely competitive business environment (Chen, Chen & Wu, 2011; Einhorn, 2013; Larson & Stone, 2014). Given that the new smartphone player such as Xiaomi can even take over market shares of Samsung in all of a sudden, it is actually accurate to assert that the threats of new entrants can be very high. This will be a huge pressure to companies such as Apple, especially when the new competitors come from emerging countries – with significant costs advantages.

4.5 Threats of substitute products

As discussed earlier, the entire industry landscape of the consumer electronics industry is shaped and constantly re-shaped by disruptive innovation (through the creative destruction phenomenon). As such the substitute threat is high (Nair & Leng, 2012), and worse, how and when the substitute can emerge is hardly predictable. This is another factor that must be considered, when analysing the relevant competitive pressures that can affect the performance of consumer electronics firm such as Apple.

4.6 Critical Evaluation

Based on Porter Five Forces Analysis, this industry is very competitive. A critical thinking would had known that competition is scary in the industry, as the big giants come and go very fast, such as how Nokia, a once respectable company, suddenly lose out entirely – after unable to cope with the changes in the business environment. It is crucial to note that the tricky part is not about the ‘natural’ changes in business environment, but it is more about how competitors, being very aggressive, try to shape the business landscape via innovation. In such a situation, it would be hard for any company to sustain its competitive advantage in the long run, given that other competitors are also competent and willing to take risk to win over the race. Then, given that the bargaining power of buyer, threats of new entrants and threats of substitute is high; it would be valid to summarise that the consumer electronic industry is indeed a very challenging industry to operate within.

5.0 Conclusion

In the final part of this report, a conclusion will be made; in the context of if Apple is a viable investment target, upon the in-depth analysis and discussion presented in various sections above. First of all, it is discussed that the nature of consumer electronic industry is very competitive and dynamic. Innovation is crucial for business success. Then, a review of the performance of Apple found that some of the factors that had contributed to the success of Apple include: excellent culture, customer orientation, radical innovation, being lean and marketing savvy (of which they acted in a mutually supportive and internally consistent manner to contribute to Apple’s performance). Then, via the use of Porter Five Forces analysis, it is understood that the business environment is very competitive, of which that several gigantic firms are competing with each other on a global scale. It is noted that due to the increasing competition, product life cycles had shortened, the end product become more complex, and worse, the consumers are benefiting from such a situation – with a high bargaining power (i.e., many choices to choose from). It is indeed very hard to thrive in such a situation. It would be valid to argue that the business environment, is not working in a favourable way for Apple. Competition, as a curse, would eat into profitability of Apple very fast – should the company is unable to cope with such competition effectively.

Nevertheless, upon critical evaluation on the situation, it is however possible to cope with the competitive pressures (arguably, effectively) – through radical innovation. This is never an easy route, but based on the past records of Apple, it is somewhat noticed that Apple does possess some inner competencies to pursue radical innovation continuously – even at the expenses of self-cannibalisation (i.e., even when the new product innovation cannibalise its existing products). In other words, more sustainable profitability or competitive advantage can only be achieved by constant and recurring product innovation – when a firm able to create new sub-industry (i.e., also often known as the blue ocean) within the broad consumer electronic industry. Following such argument, it is indeed possible for Apple to continue its profitability, given that the company is having a track record of doing so (i.e., purely from this factor or thinking, it is indeed feasible to argue that Apple is a viable investment target).

However, there are many factors that will determine or affect if Apple able to continuously innovate for sustainable competitive advantage, maintain its leadership position in the industry or profitability. One very critical issue is about the leadership factor. For that, it is undeniable that many of the successes of Apple are due to its previous leader or founder, namely Steve Jobs. It is through the leadership of distinctive market insights of Steve Jobs that Apple able to turnaround and achieves great success – at the point when the company was failing (or at the edge of bankruptcy). In other words, Steve Jobs is actually an essential contributor of business success for Apple. However, given that Steve Jobs had passed away in the recent year, the leadership factor that contributed to the strengths and competency of Apple had virtually evaporated. This can be seen that under the leadership of Tim Cook, product innovation is no longer radical, and those innovations can only be classified as merely incremental innovation (at best). If such trend persists, it would be reasonable to expect that Apple will soon lost its competitiveness, when any one of the competitors able to innovate radically and re-shape the landscape of consumer electronic industry.

However, it would be prudent to also acknowledge that given the fact that Apple is currently maintaining its leadership position, and possess significant competitive edge due to its intellectual properties, the fall of Apple will not be easy. This is because Apple had over the years, built up the brand and loyal customers, which will be crucial factor that can continue in contributing to the performance of Apple.

Overall, it is hard to predict if Apple will be able to sustain its competitive advantage. The future is truly unpredictable, and the affirmative conclusion cannot be made easily (or perhaps, it is impossible to do so). However, based on some historical hints, it is possible to draw some conclusion. For that, it is noticed that there are contradicting (i.e., both positive and negative) signs if Apple can remain competitive (or maintain its leadership position). From the positive side, Apple is likely to stay profitable as the company has a good track records, valuable resources and highly valuable intellectual property that would be critical in protecting the competitive edge of the firm into the future. However, the business environment is very challenging. Not only is the rivalry among existing competitors are intense, the threats of new entrants are also very high. Worse, it is apparent that Apple had lost its ability to engage in radical innovation, which is crucial to shape and re-shape the consumer electronics industry. As such, with such insights, it is relevant to argue that despite possessing highly valuable resources within the organisation, Apple may not be able to sustain its position in the long run (albeit the company will likely to do relatively well in the short term). This is because the dynamic and competitive business environment, will almost guarantee that new disruptive technologies and the forces of creative destruction will continue to affect every industry players in the consumer electronic industry. As such, it arrives at the conclusion that it is not prudent to invest in Apple, given that from recent performance of the company, it had lost its once-admirable competencies to re-shape the industry landscape via radical innovation. The future for the company will hence be very turbulent – and any rational investors would better inject capital into companies that possess more durable competitive advantage (albeit, possibly at lower rate of returns).

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