Strategic Issues for Apple in China

Introduction
Apple Inc. is a company that has established itself as one of the telecommunication leaders in China. The company however faces fierce competition from other leaders such as Samsung and Lenovo. Through external and internal analysis of the company, one identifies several strategic issues that affect the company’s performance. This paper will analyse these strategic issues and come up with a solution to the issues.
PEST Analysis
(P)olitical
China, having a communistic form of government means that there are heavy
restriction in areas like the internet, their press, reproductive rights,
freedom of assembly, and the freedom of religion as well. Internet companies
like Google and Facebook have faced a lot of restriction (Apple, 2016). This hands apple a
comparative advantage over these companies since Apple mainly deals with
hardware.
(E)conomical
The Chinese economy is a favourable one to Apple since it continues to boom and hence elevating the national income, consumer spending and employment. In fact, in the first quarter of 2012, China’s GDP increased from 7.2981 trillion dollars to 12.382 trillion dollars indicating a 7.9% increase (Bajarin, 2014).
(S)ocial
Mobile phones are ubiquitous and Apple is doing incredibly well in china
since their gadgets are attractive and pricy. This could be supported by the
fact that the Chinese people love electronic gadgets (Chiang, 2013). The IPhone is a
status symbol in social circles in china.
(T)echnological
Many industries are making fast improvements in China and other parts of
the world and this is especially more vivid in the electronics industry where Apple
is making significant strides. Apple has shown its ethical consideration in
green marketing (Darlin, 2006). In fact, they
changed their packaging to a lighter weight product to reduce emission during
transportation.
Porter’s generic strategy for Apple in China
Differentiation is about creating a product that is unique in its own
way and hence creating a unique value that makes the consumers prefer it to
other products that are less differentiated and they will be willing to pay a
premium price for it (Akan, et al., 2006). Apple has always
used product differentiation leadership. Apple does not rely on cost leadership
strategy to compete, they persuade their customers to become loyal to the brand
and charge them a premium for it (Miller, 1988) (Porter, 1980). Apples products are
based on quality, design, stylishness and greater customer service, while
outsourcing actual manufacturing to trusted Original Equipment Manufacturers
(OEM) allows Apple to differentiate its products from its competitors (Pretorius, 2008).

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Apple’s internal organization
SWOT analysis
(S)trengths
Apple is a worldwide brand that has been the leaders of innovative and
high tech products like the iPhone, the iPad, iPod and the MacBook (Forbes, 2016). They a well-known
globally and has a large marginal value. Apple also has a large segment of
customers loyal to the Apple culture. They also have a strong R&D
department and a large market share in China (Rein, 2012). Finally, they have
a unique product differentiation and a strong placement in education segment.
(W)eaknesses
One of the weaknesses that Apple is faced with include the fact that
they have experienced very poor sales from iTunes store based on a known fact
that the Chinese are customarily unwilling to pay for intellectual property (Einhorn, 2013). Another weakness
with Apple is that without constant innovation to set itself apart from its
competitors, their gadgets just appear to be overpriced.
(O)pportunities
One of the opportunities for Apple is market penetration into the
Chinese cities as their population increases in urban China. Another is that
there is growing demand for green and energy sufficient products and apple has
taken the green route by reducing the weight of their products and packaging to
reduce emissions during their transportation (Lin, et al., 2012). The booming Chinese
economy provides an opportunity for Apple to open more retail stores since a
growing economy reflects into employment, a higher national income and hence a
higher individual spending which means business for Apple.
(T)hreats
Apple is highly dependent on consumer purchase, which means that in the
event of low or no sales, losses are experienced. The opposite is also true.
The other threat is the fact that the industry that Apple operates in is highly
competitive with new entrants coming in with new or differentiated products
every often (Hitt, et al., 2008). There is also the
pressure of constant innovation. Without innovation, companies become
irrelevant very fast in this industry (Chang, 2010). In the Chinese
market, imitation patent and copyrights infringement remain an imminent threat
to any player in this industry. The other threat is that having many
competitors in this industry means that there is a constant pressure to reduce
the price. The table below shows the price ranges of Apple products which are
higher compared to those of local products.
Fig 1. Prices of Apple products in China. (Voigt, K., 2012.).
Michael Porter’s five forces
The Porter’s five forces of competitive position analysis provides a
ground for assessment and evaluation of the competitive situation and strength
of a business organization (Miller, 1986) (Porter, 1985).
Rivalry among existing competitors
In China, Samsung and Lenovo are Apples biggest competitors. Even though
Apples products are highly differentiated in terms of design and functionalities
from the competitors’ products, the two competitors have a strong presence in
the market (Apple, 2016). This competitive
advantage that Apple enjoys can only be sustained by constant innovation.
The threat of new entrants
The presence that Apple has in smartphone and personal computers industry
in China is valuable, rare and very expensive to imitate. A potential entrant
in this market would require to not only have significant resources, but also
be very innovative to win a market share over.
The threat of substitutes
China is well known for her shrewdness in the electronics industry. The
players in this industry are creative and have diverse products in terms of
quality and price as well. This therefore means that there are various
substitutes for every market niche (Georgieva, 2016). Apple still manages
to press on and maintain these threats to a medium. Their products are high
quality and pry and are targeted at the growing Chinese middle class and young
adults.
The bargaining power of the suppliers
There is competitive pricing among the suppliers of hardware since the
market is highly saturated. This therefore means that the suppliers have low
bargaining power (Yoffie & Kim, 2010). Apple employs a
differentiation strategy that requires that the firm to ensure that the
suppliers provide very high quality components hence driving the supplier cost
up.
The bargaining power of the buyers.
There is a high bargaining power of the consumers in China. This comes
from the fact that there are very many competitors and substitute in that
market. However, Apples brand of unique and highly differentiated products
insulates or protects Apple from the price sensitivity (Bajarin, 2014). Apple also enjoys a
very large segment of loyal customers in China, who remain so regardless of the
competitor’s prices or products.
Fig 2. Apple’s porter’s five forces
Strategic options that would solve Apple’s issues in China
There are different strategies that apple could adopt in order to deal
with the different issues it faces in the Chinese market. The Ansoff matrix is
a strategic planning tool that provides some strategies that Apple can adopt to
solve their strategic issues in China (Ansoff, 1957). The matrix is made
up of four strategies, two of which are applicable to Apple Inc. The two
strategies that could be applied on Apple China include market penetration and
product development.
Market penetration
The market penetration strategy is a strategy that is usually used by organizations to develop the offerings that the company provides to its customers in their existing market. To do this, the company usually seeks to increase their market share in their current market segments (Ansoff, 1957). To increase the market share, companies sell more of their products and services to their current customers as well as find new customers within their existing market. A company seeking to use market penetration can increase their present sales in the existing market by using aggressive distribution and promotion (Aaltonen & Ikävalko, 2002). The aggressive distribution and promotion can be done by decreasing the product prices, merging with a rival in the current market, increasing promotion and distribution support, and refining the existing products. 
Apple Inc. in China is being faced with the problem of local
competitors. These local competitors are a threat to Apple since they sell their
products at a lower price. To support local industries, the Chinese government
usually imposes great importation tariffs on foreign companies operating in
China while being lenient on the local companies (Bradford & Duncan, 2000). This way the local
companies are usually able to provide their prices at a cheap price. For
instance, Lenovo is a luxury brand in China which offers competition to Apple
Inc. since they are in the same category of luxury brands (Helal, 2015). However, the price
of a Lenovo phone that has the same features as those of an iPhone may not
match since Lenovo sells its products at a cheaper price. Apple can implement a
strategy that involves decreasing its prices to try and compete with the Lenovo
Company in China (Chang, 2010). To ensure they have
reduced their prices without getting any losses, Apple may lay off some of its
workers and adopt outsourcing as strategy to cut the costs. After cutting these
costs, the company can manage reducing the prices of its products without
suffering great losses (Team, 2012).
The market penetration strategy through price decrease is advantageous
to Apple Inc. since the company will have the ability to compete with local
competitors such as Lenovo based on prices and this way they will be able to
improve their market share. However, the strategy is also disadvantageous in
some way. First, the local companies in China are usually known for their great
imitation (Voigt, 2012). This is a problem
that has been affecting Apple greatly. By reducing the prices of its products,
Apple will not be able to produce high quality and innovative products that
cannot be imitated by other companies (Chang, 2010). Therefore they will
suffer this problem more and therefore they may end up losing the market share,
they were aiming at increasing.  
The second strategy that could be used in helping apple solve the strategic issues it faces in China is the product development strategy (Ansoff, 1957). The product development strategy is where an organization chooses to create new services and products in an existing market with the aim of achieving growth. The strategy involves increasing the range of products available in the current market (Allio, 2005). Achieving the increase in product range can be achieved through greater investment in research and development, acquiring the rights to produce another person’s work, joint development with ownership of a different firm that can access the company’s distribution brands or channels and buying in product and branding it.
Apple has faced great problems in the Chinese market from local
companies imitating their products and therefore lowering their market share in
addition to destroying their reputation of selling quality products. To solve
this problem in addition to the problem of competitors, the company can adopt
the product development strategy. There are different ways through which they
can adopt the strategy. The most appropriate approach to adopting this approach
is investing more on research and development (Alexander, 1985). These qualities may
be so complicated for the Chinese companies to imitate and therefore the
company will have solved the problem. In addition the company could continue
investing in Research and development in order to keep up with the changing
technology. This will help them avoid the risk of product obsolescence and
remain a leader in the technological world (Bajarin, 2014). An example of a
situation that investment in research and development would have been helpful
is when they were creating the iPhone and iPads (Heracleous, 2013). With greater
investment in research and development, the company would have realized that
the two are incompatible with the flash technology which is a technology that
has become so popular to the consumers. The lack of great research when
developing these products will affect the company since people choose to go for
products that are compatible with the flash technology (Sadler, 2003). This will therefore
affect the sales potential of the iPads.
This strategy is advantageous for the company since it will help with
the problem of imitation and competitors that affects the company. The strategy
helps the company gain a competitive advantage by producing products that are
innovative and that or of higher quality. This way the company gains a greater
market share. However, the strategy has a problem in that it does not provide a
solution to the price competition problem (Johnson, 2005). Investing more on
research and development may lead a company into selling their products at a
high price since they are of quality and they have used greater resources.
Therefore the company will find it hard competing with the competitors in terms
of price of products.
Considering the two strategies that can be applied by Apple Inc., the
product development strategy is better off and should be the one implemented.
Although the market penetration may be great in solving the price competition
problem, the company may end up losing their market share due to imitations
from other local companies (Ireland, et al., 2011). The product
development strategy on the other hand is appropriate since it offers a company
competitive advantage considering it increases the quality of products (Johnson, et al., 2011). In addition, the
strategy will help Apple Inc. in China solve the problem of imitation by local
companies. Through research and development, Apple will come up with products
that are hard to imitate. This way the company will be able to increase their
market share since the people will not go for the cheap imitated products as
they will not be available (KVN, 2013).
Fig 3. Strategies to increase Apples competitive advantage in China (Rein, S., 2012)
Implementation of the product development strategy to Apple Inc.
For the whole process of strategy formulation to work, there has to be
strategy implementation. In a research conducted by Mintzberg (1994), most of
the strategies that companies formulate are usually not implemented. According
to the study, almost half of the organizations do not usually conduct strategy
implementation (Thompson, 2001). These organizations
fail to carry out strategy implementation despite the clear importance that
exists with this particular area. The potential value of a strategic plan
cannot be realized and captured if a company does not carry out sufficient
planning and implementation (Atkinson, 2006). For the
effectiveness of the product development strategy planned to be effective, it
needs to be implemented. The implementation of the plan needs to be done
sufficiently to ensure the real value of the plan is realized and captured.
The first step that should be used in the implementation of the strategy is identifying the activities that will be carried out in the process of implementation (Bryson & Bromiley, 1993). One of the activities that will be involved in the implementation of the strategy is educating the shareholders and the employees on the need of the new strategy. In order for a strategy to be successful, the employees need to understand why there are changes in the strategy (Johnson, 2011). The other activity that would be important in the implementation of the apple strategy is creating a team that will handle Research and development. Although Apple may already have a department that handles research and development, there may be need that more human resources are allocated to the department since the company will allocate more capital in the department to ensure its efficiency (Brenes, et al., 2008). The new human resources to the department may also need to be educated on how to carry out activities in the department.
Apple is a company that mainly focuses on the culture of differentiation. Therefore with the implementation of the new strategy may need a change in the culture. It is important to ensure that the culture of the company is shaped to fit the needs of the strategy (Kono, 1994). A corporate culture that supports the strategy usually leads the organization into working hard towards the achievement of the strategy objectives.
One important thing that should be considered during the implementation
of a strategy is that there is need for a rewards or incentives that should be
directly linked to the strategy and the strategy’s objective (Okumus, 2003). Various studies
have proved that people tend to work harder towards the accomplishment of a
strategy when there are rewards or incentives linked to the strategy. For
instance, in the implementation of the apple strategy, people can be offered
incentives based on the innovative ideas that they may come up with after
conducting extensive research. This will create constructive competition among
the employees in the research and development department.
The implementation of the product development strategy in China should
not take more than three months. Delay in the implementation of the strategy
may be a problem since the company continues to lose market share. Every
activity in the implementation process should have a certain timeline to ensure
great approximation of the timeline. For instance, the training of the new
recruits in the research and development department should take two weeks and
the monitoring of the implementation should take three weeks.
For the monitoring process, the suitability criteria can be used to
monitor the implemented strategy. This criterion will be used to evaluate
whether the product development strategy implemented by Apple Inc. in China
addresses the main opportunities and issues that the company faces.
There are however problems that may occur during the implementation of
the product development strategy by Apple in China. One of the problems that
may occur is resistance to change. People may be accustomed to the culture of
innovation that may be resistant to change to the new culture. There may also
be the problem of implementation going beyond the set timeline. The timeline
will just be approximated and during implementation certain problems may arise
that may cause the timeline to extend.
Conclusion
Apple Inc. is a company that has established itself as one of the
telecommunication leaders in China. However there are strategic issues that
exist preventing the company from achieving its full market potential. Through
different internal and external analysis of the company, it is easy to identify
this issues and come up with a strategy that solves them.
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