Discuss about the Contracts and Competition on Upstream Innovation.
Apple is one of the technology industry’s biggest contributor. It is a multinational company with headquarters in Cupertino, California in the United States. The company was founded in 1976 by Steve Jobs, Ronald Wayne and Steve Wozniak to develop personal computers. The company enjoyed significant revenue growth as it expanded its production. However, things took a different course later after 1980s, when it faced stiff competition from producers of computers featuring Microsoft windows operating system. Problems from power struggles between executives and the company diminished sales and the company performed even worse. Steve jobs resigned and started his own company. Further problems appeared as the market for personal computers increased, providing other low-priced products. However, the coming back of Steve Jobs in 1997 marked the beginning of a process to build new Apple’s status.
Currently, Apple specializes in designing, developing and sales of consumer digital electronics including computers, phones, smart watches and their software among others. The hardware products by apple include the popular iPhone, iPad tablet, Mac personal computers, iPod media player and Apple smart watch among others (Sanchirico, 2014). Its consumer software include IOS, Mac OS, iTunes and Safari web browser among others. Popular online services offered by Apple include the iTunes Stores, the iPhone app Store and Mac App Store.
Sourcing in the supply chain is fundamentally in the United States, China, Europe and other Asian countries (Farahani, et al, 2014). Manufacturing and assembly are mainly carried out in china because of low production cost. Warehousing process involves intermediate warehouses and central warehouse facility in California. Distribution is done through online stores, in retail stores, through direct sales, wholesalers, retailers, and through network carriers. Return path covers warranty return, trade in program and recycle programs.
The company purchases components and materials from various supplies and ships them to assembly plant in China. From assembly the products are shipped directly to consumers via UPS/Fedex and from apples online store. More products for other distribution channels that include retail stores and others are kept at EIK Grove in California where they are further shipped from. This is the central warehouse and also the call center of distribution function. Towards the end of a products life, consumers can send back the products to nearest apple stores for recycling facilities, products that require warranted maintenance pass through this path as well. In attempt of controlling and limiting inventory, apple has cut down component suppliers to 24 from 100 as a way of forcing companies to compete for apple’s business. Furthermore, the number of apple warehouses was reduced from 19 to 10 to limit overstocking. This also saw inventory reducing to only six days compared to a month that was allowed before. Apple’s supply chain was ranked the best by research firm known as Gartner, in 2012 as it was able to turn inventory after every 5 days (Wang & Shin, 2015).
Keeping inventory reasonably low is critical because of two fundamental reasons: one is that cost associated with big or large number of warehouses. Secondly, for technological products manufacturers such as Apple, keeping too many products in stock may be detrimental in the event of sudden twist of technology or following breakthrough announcements by competitors. Innovation could change things overnight and result to sudden decrease of value of products in inventory. Apple, by the fall of 2013 maintained dealings with 154 key suppliers. This facilitated better supplier relationships (Brownlee & Swan, 2017). It was reported from sources in Taiwan, where there is a key apple supply chain that apple has cut orders for iPhone 8 and iPhone 8 plus. The cut is expected to affect December and November orders. This announcement was followed by 3% drop in Apple sales. The reasons why iPhone 8 sales are low are cited to be due to customer’s reaction. The consumers don’t see enough difference of iPhone 8 from its predecessor to warrant the latter. It is also believed that customers are reluctant and holding off waiting for release of iPhone X (Brownlee & Swan, 2017).
Apples revenue have been on the decrease as the company started recording decrease in sales after 13 years of robust increase quarter after quarter and year after year. There are factors that have contributed to this decline and of which are important from the subject point of view. First the sales of iPhone started slowing down by the launch of iPhone 6S and this was unexpected. The uptake of 6S was low and in the process caused inevitable decline in sales of apples iPhone.
Although iPhone is a great phone featuring excellent features such as fast processor speeds, great camera, great web browsing capabilities and offering one of the best app stores, this greatness poses a situation where consumers don’t need an upgrade as often as the company launches new versions. The problem is made worse when apple releases late models with little improvements that make them not much different from their predecessors (Khan, Alam & Alam, 2015). Releases of ‘S’ models for example did not come with great improvements since it only changed some internal hardware, of which it did not impact much in terms of capabilities from consumers point of view. Apples software support ceases to be of much significance as it previously was, given the fact that people only retain their phones for an average of only two years.
Additional standard features in the S models have been obligated to become industry standards. Such features include the popular virtual assistant Siri for iPhone 4S and the Touch ID for iPhone 5S. These features are quickly replicated by other tech giants such as Google and Microsoft. Since the introduction of Touch ID by Apple, nearly every smartphone today comes with the finger scanner capability.
iPad has been selling sluggishly and has resulted in reduction from 12.6 million sales from 2015 to only 10.3 million in 2016 (Shiu, 2011). This proves that some of new apple products like 12.9-inch iPad Pro did not do enough to improve things. The sales of Mac declined from 4.6 million to 4 million. With the increase of sophisticated mobile devices that have brought the power of computing to consumers’ pockets, the need for pc have reduced greatly in the entire market. Initially, Apple and Macs were able to buckle the trend for sometimes but have failed to keep up increasing pressure. Apple has not brought up an improved version of MacBook Air, their most popular MacBook. Apple has not been able to effectively replace old products and their respective technologies.
Currency problems in the world have contributed to decline in revenue generated by apple. These currency issues have seen some serious repercussions like the momentarily closing of sales in Russia. Foreign exchange fluctuations in India made iPhone the most expensive when compared with its price elsewhere in the world. This reduced its sales as consumers turned to other affordable products with similar or close functionalities.
China, although is the second most important market for apples products after the US has seen constant decline in sales by 26 per cent. Apple’s smart watch which is the world’s most popular smart watch has become a billion dollar business. However, apple has not done enough to enhance its bottom line. The fact that the smart watch is dependent on iPhone hinders its sales to consumers of android smartphones. It imposes a barrier that prevents possible sales to people using smartphones powered by other operating systems.
Competition which is increasingly day in day out is also pointed out as one major course of decline apple sales (Raza, Bengtsson, & Kock, 2014). Mi Phone from Xiaomi for example sells at relatively low price when it compares with iPhone despite the fact that its features are more or less equivalent to those of iPhone. Samsung has constantly chased apple to success heights. The release of Samsung’s Galaxy S6 and S7 have proved to many consumers that Samsung is out of shadows and this has been closely attributed to change in iPhone business.
Heavy dependency on iPhone is one of the possible causes of the registered drop in revenue for Apple. IPhone, for the last couple of years, have accounted almost 70% of company’s top line. Stiff competition and market saturation have caused the slip in sales of iPhone as for the first time. This contributed greatly to company’s drop in revenue.
There are some certain things that customers are looking for in electronic products particularly when it comes to smartphones. Leaders and competitors in the technology field need to be well aware of such need and wants. These includes:
Customers are always looking forward to complete solutions to their problems. They want continuously improved products that complement and compete to achieve the expected performance. For this reason, customers need to be involved and to have control over processes so that they get products and solutions they want. While a brand may find aesthetics in production of slim devices, customers’ needs for example USB ports must be considered.
Customers may not be interested or able to buy every product from a reputable company. They therefore need that freedom of choice such that they can buy products of their choice at their convenience. From their perspective, a company should be able to provide them with low entry cost products as well as premium products. Customers mostly consider buying low entry cost product in their first purchase. This provides them with an opportunity to create a basis, through analysis of performance and reliability of products, so that they consider buying a more premium product in future.
Products that customers want are those that meet their requirements and which are as a result of extensive research and designs. Products that are robust and easy to use are born out of meticulous planning.
Consumers are looking for consistency in superiority of design and performance competence of products. They also want to get an idea of what they expect from a product before actual purchase. Consistency is a key attribute as it enables customers to quickly adapt to new hardware and software embedded in emerging technologies.
Although consistency with regard to architecture of a product is vital, consumers want a change in portfolio. A product must be able to offer different number of ways to enjoy different services it comes along with. To start a camera for example, must not always follow the conventional way of tapping its icon on device menu. Customers are always looking for better and improved ways of interacting with their devices.
Attractive devices and those appealing to the eye are as important as their functionality and capabilities, from customers’ point of view. This need should be factored in, thus enhancing attractiveness from packaging to aesthetics in design. Consumers are particularly sensitive to looks of expensive products. Consumers would not be interested in bad-looking product no matter how powerful features it houses are.
Apple experienced a problem to segregate its products from the rest of technological markets. This lead to creation of a store which exclusively devoted to apple products. This solved the problem and increased customers’ loyalty. In this space, new and old customers are encouraged by excellent services and support. However, some design considerations of Apple products seem to conflict with some end users’ requirements. The need for very thin laptops for example, compromises expansion and use of ports which are key requirements for today’s consumers.
Competition in smartphone industry has been very stiff in the recent years. Aggressive marketing strategies and competitive pricing has fueled this competition across geographies (Allen, 2014). A report by Gartner has revealed that global smartphone shipments increased by 9 per cent in the first quarter of 2017. Huawei, Vivo and Oppo have taken a big step in sealing the gap that formerly existed between leaders, iPhone and Samsung and the rest of brands in smartphone industry (Xia & Gan, 2017). They have since taken over and dominated a significant segment in the smartphone market. This meteoric rise has been catapulted by expanding phone market globally mostly in India, Vietnam, Indonesia among other regions. Chinese smartphone companies such as Xiaomi have also taken a significant share in smartphone market.
Big investments have bombarded the global market as companies expand their scope. Competitive pricing, incorporation of smart feature, adoption of faster 4G technology and aggressive marketing have enabled these brands to convenience consumers that their product are superior (Freudiger, 2015). High revolution cameras and smart user interface that comes with these phones have in a way overshadowed the glory of high end likes of Samsung and iPhone.
The dynamic smartphone market has experienced great change in terms of different strategies and approaches employed by different companies. Xiaomi recently opened its first Mi Home store making record sales in the first day. This strategy is commonly known and associated with tech giants, Apple and Samsung who use the opportunity to announce to the world market on their breakthroughs in coming up with more technologically advanced products (Farkas, 2014). Initially, Xiaomi would only make sales through flash sales and through online models. Oppo and Vivo as opposed to Xiaomi have grown following robust network of offline distribution. They are now also involved in deals with online retailers in attempt to tap from the online share. This leaves premium players like Apple in an awkward situation in this currently diversified technology market. It is has been found that replacement demands from loyal customers who replace iPhone 6 with iPhone 7, for instance, will remain to be drivers of sustainability to the big players. However, competitors will always have an advantage of tapping entry-level users who opt for inexpensive alternatives.
Apple has a number of advantages that make it competitive in the technology market. These advantages were cleverly crafted in the initial stages of making Apple great again, upon the return of Steve Jobs. Steve and his team decided to lay a benchmark through which varied designs of Apple products would be made and through which the company would be distinguished from the rest of the device manufacturers (Rothaermel, 2015). The competitive advantages comprise of:
Apple’s revenue is mainly based on selling of premium and high end devices which are combination of hardware and very user friendly software. Apple has been able to provide a robust and protected ecosystem of products. This makes their business most unique and valuable in the business world. The company is able to pull in more customers every time it launches a breakthrough product.
Apple’s brand enables the company to make sales of huge volumes of products to both existing and new customers. The brand value attached to apple products make the company achieve higher markups than most of its competitors. Although the replacement cycle of apple products may get longer over time, the relatively low number of consumers who switch to competitors ensures a predictable recurring revenue with every new product cycle.
Even though the hardware business contributes the lion’s share of cash flow at Apple, service segment of the company such as Apple music, iCloud and the App store, maintains good economics as it grows steadily. The services make the hardware business more competitive in the sense that customers do not stray over to look for related services. With the current over one billion active devices accessing its Appstore, Apple is able to grab revenue every time there are subscriptions. Services such as Apple music have attracted 17 million subscribers.
Look for ways to bridge the gap of affordability and consumers aspirations. This can be done by considering to manufacture locally and get rid of import duties which are reasonably high in some countries (Nakamura, 2015). This cut can be passed on as price benefits to customers. This does not only reward the loyal customers but also empowers them for frequent upgrades as opposed to the current natural cycle of consumer upgrade. This will be possible as a result of financial relieve from high priced apple products. Consequently, this action will reduce the chances of competitor brands capturing more of market share with their advantage of low priced products.
Improvement of the overall smartphone experience to create a leading gap is one of the great measure that can reduce threats of competition. Just as Steve Jobs saw great opportunities of improving mobile phone experience in 2004, the current Apple management should strive to always remain ahead even in the wake of smartphone bombardments in the current phone industry. Trends in apple phones, laptops, pc, music players and other Apple products should constantly update their hardware innovation as well as software sophistication to distinguish them from those of competitors.
In order to mitigate the dangers or rapidly increasing completion in technology market, it is necessary for Apple to make moves that will ensure that the company is better positioned even in the uncertainty of the future. It is therefore recommended that the company should;
Conclusion
Apple is still a leading company in the smartphone industry. This has been as a result of well laid strategies to design develop and sell its products. The company has created a strong marketing strategy for its products which have managed to turn to advantage almost every aspects of Apple’s products. Competent supply chain and excellent operation management have been key drivers of Apple’s success. The foundation laid down by Company’s legend, Steve Jobs have impacted advancements of Apple enabling it to take big control of smartphone market. However, Apples revenue have registered drops recently and this has been pointed out to be as a result of increased competition in information and technology market. What were previously considered as average companies, have risen to step up competition of production of premium devices. Technologies that were unique to Apple’s products are now available in almost every smartphone at a cheaper price. It has been found out that some of the reasons that caused a drop in revenue and sales of Apple products are as a result of consumers new market behavior. Since the small companies are able to quickly match customers need quickly and less costly, consumers in large markets such as Asia have been captured by competitors.
References
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