Apple Inc. International Analysis

Apple Inc., or most popularly known as Apple, is a technology company known best for developing innovated devices. Their most prominent products are Mac computers, iPods, iPhones, and iPads. The company initially focused on computers, but paved the road for success when they invented the portable MP3 player iPod which later developed into iPhone mobile devices. According to a study conducted by Kantar WorldpanelComTech, Apple sold 43.9 percent of all smart phones sold in the US in the last quarter of 2017 (Segan, 2018). Their mobile device sales have shown continued growth in the US as well as more than 25 other countries Apple products are sold in. Large contributing factors to this company's success are the simple yet innovated design of their products, their ability to retain customers, and their global presence.

According to Johnson and Turner (2003), today's increasing global competition and international free market economy contexts, transactional exchanging of technology, infrastructure, and demographic movement have become increasingly important. The important reason for having business or company globally is for customers no matter where they live be it in Europe, Asia, and so on will be able to identify world-class products or brands like Apple.

This paper will address the international analysis of a business with a focus on the advantages and disadvantages of conducting business globally with Apple as the company of focus. The company's history and international structure will be reviewed, their international advantages and disadvantages analyzed, as well as a quantitative analysis to compare how Apple's product sales vary in countries around the world.

Literature Review

Company History

Originally named Apple Computers, Inc., Apple was founded on April 1, 1976 by Steve jobs and Steve Wozniak. The business started out in Jobs' garage and went public in 1980 with sales of $117 million. The most well-known of the original founders of Apple is Steve Jobs. In fact, four years after his death, in 2015, a self-titled movie about his life was released grossing over $35 million worldwide (IMDb, 2015). As a teenager Steve Jobs traveled to India and from this point forward he was always interested in how he could develop a business internationally. He never planned to have a business that was not focused on international markets (Economic Times, 2011). Due to the popularity of competitor Microsoft, Apple suffered from 1990 to 1997, but was able to revamp the company by creating a Mac version of the Microsoft operating system (The Library of Congress, 2015).

In 2001, Apple opened its first two retail stores in Virginia and California with their famous Genius Bar which provides customers with product troubleshooting and support. 2001 through 2005 Apple was primarily focused on their famous product line of MP3 players, iPods. In 2007, Apple released the first generation of Apple TV which gave customers an alternative to cable and satellite television. The arguably most important release for Apple was also in 2007 when they released the first generation of their mobile phones, iPhone. Since 2007 Apple has released popular products such as the iPad, a larger version of the iPod, multiple versions of MacBook laptops, as well as iPhones (Colt, 2014).

International Structure

In November, 2003, Apple opened its first retail store location outside of the United States located in Tokyo, Japan. Apple currently has over 500 retail stores within 25 countries (Apple Inc., 2018, Apple Retail Store - Store List). In 2010, Apple was ready for the global launch of iPad, international sales and net income were high. In the second quarter alone, iPhone sales more than doubled overall, with sales in Asia Asia-Pacific region surging to an astonishing 474% year-over-year. Apples success was not surprising as the company had figured out that how to adapt or recreate their message to fit specific target markets (Ray, 2010).

The international structure for Apple Inc. is somewhat complex. The United States is the Country of Incorporation and tax residence. However, there are three subsidiaries that are incorporated in Ireland, but have no country of tax residence: Apple Operations International, Apple Operations Europe, and Apple Sales International (New York Times, 2013). This structure has received some criticism over the years due to claims that their international structures enable the company to avoid taxes.

According to a report by a Congressional panel, Apple has avoided billions in taxes through the use of international subsidiaries. Apple has subsidiaries in Ireland where the units contract with manufacturers to assemble Apple products, sell the products to other subsidiaries for distribution, and return profits up the chain of companies in the form of dividends. But some of these subsidiaries do not have a stated tax residence and pay no taxes at all (New York Times, 2013).

Even among all the criticisms, Apple is the largest tech company in the world and continues to expand and grow its market and customer base (Stoller, 2017). In 2012 Apple's strategy was to expand their market share in China, India and developing countries (Meyer, 2012). And they have done just that and continue with plans to enter more emerging markets around the world by making a $44 million investment in a research and development center in Indonesia (Business Insider Intelligence, 2016).

In the third quarter of 2016, Apple reported iPhone sales were decreasing in the US and Greater China while sales in Latin American, India and South Asia were seeing growth (Business Insider Intelligence, 2016). Even with declining sales in China, the company invested half a billion dollars in R & D in China and will soon have multiple R & D Centers there (Evans, 2017). Apple continues to grow and expand its international presence as they recently opened their first store in Bangkok, Thailand, (Apple Inc., 2018, Apple opens first store in Thailand Saturday).

International Advantages and Disadvantages

According to International Relation (2018), international business encompasses all commercial activities that take place to promote the transfer of goods, services, resources, people, ideas, and technologies across national boundaries. While international business can be beneficial, it also has its negative impact on the company if not handled or managed properly.

Apple revenue breakdown by geographic segment: 6.6% from Rest of Asia Pacific, 7.7% from Japan, 19.5% from Greater China, 24.0% from Europe and 42.1% from Americas (Craft, 2018). This means that the global business locations of apple contribute more profit for the company. In the third quarter of 2018, the company posted quarterly revenue of $53.3 billion. This is an increase of 17 percent from the previous year quarter, and quarterly earnings per diluted share of $2.34, up 40 percent. International sales accounted for 60 percent of the quarter's revenue of Apple (Apple Inc., 2018, Apple Reports Third Quarter Results).

Apple has taken advantages of international business to maximize their profit because of cheap labor and cost of production in China. In this quest Apple took the advantage of marketing its phone through international mediums which are SingTel of Singapore, Bharti Airtel of India, globe Telephone Philippines and Optus of Australia. These companies which are based internationally helped Apple add 100 million potential customers to its brand in 2008 (UK Essays, 2013).

Apple Inc. has contributed positively to globalization and has changed the ways business and cell phone manufacturing are done, but they have also been of disadvantage. According to the Daily Caller (2017), Apple Inc. has made significant concessions to China over the years, contributing to the suppression of human rights and internet freedom, they have yielded to the Chinese government severally given into their demands even while knowing the government engages in unethical business conducts.

According to Reuter (2018), Mac shipments in the December 2008 quarter grew 16 percent internationally and a mere 2 percent in the United States. Mac sales made up more than 40 percent of Apple's revenue in fiscal 2008. Apple's online store is popular, but their Mac's global retail presence is not up to their competitors who trade with 12,000 points of sale. Top PC maker Hewlett-Packard Co has 80,000 outlets, while No. 2 Dell Inc. has 24,000. Apple, which has more than 250 stores in 10 countries, plans to open 25 new ones in fiscal 2009, with about half being international. About 46.7 million people visited its stores in the December quarter. This means that apple has the smallest retail stores in the international market. This is of disadvantage as they might not compete strongly with their existing competitors.

Apple was created to make high quality products, even though there are bonds to be defects in making products the reverse is now the case. According to Elpais (2013), the word sorry was never part of Apple's lexicon, but now it is used routinely. International competitors have pushed apple into a price war as they try to beat other competitor by making different product a situation the company was not used to.

Apple Inc. marketing internationally might be affected by political changes. This can be done by government policies which can have an adverse effect on the entire business. Currency exchanges rates can be of adverse effect also to the company because when the dollar falls, it affects the repatriation of currency to the United States. This in turn makes Apple lose a lot of money which is a huge disadvantage to the company's revenue and earnings. According to the Primetime Essay (2018), international competitiveness refers to the ability of a business being able to provide goods and service that offer a better value than its overseas rivals. Apple Inc. looking at their success over the years has demonstrated reliability, after the selling 150 million iPod in 2008 alongside many other achievements including iPhone.

The aim of any global company is understanding culture and its differences, as such Apple has stores all around the world. Apple stores create insane loyalty and attachment because the local staff uses a personalized approach to communicate with customers; Even the type of building matches the culture. For example, the Paris Apple Store is housed in a Haussmann-type building that is ideally suited to Parisians' tastes in architecture (Brand Quarterly, 2017).

Quantitative Analysis

Apple has a large international reach which allows them to pull in resources from all over the world in order to keep their costs low and maximize their revenue. Being able to reach so many different parts of the world allows the company to be cost efficient by purchasing supplies and materials from companies all over the world. Although all of the design and development of Apple products is done in the United States, most of the materials come from other companies and other countries. According to Minasians (2017) the assembly of Apple's devices is for the most part done in China. However, that doesn't mean that all of the products are produced in China. Some parts come from Qualcomm in the United States, Sony in Japan, Samsung in South Korea, TSMC in Taiwan, Bosch in Germany, and many other places. This outsourcing to other countries allows the company to have more power over its suppliers through competition. Outsourcing of the materials allows for the company to reduce costs and also to bring in the best materials possible for their products which makes them more desirable for their consumers. Having the international capabilities that Apple does also means that they can sell in large quantities in both the United States and across the world. This brings in large revenue streams and broad exposure for the Apple brand. Of course this type of market dominance will eventually attract competition from outside firms. The chart below shows iPhone sales in millions from the four largest markets in which it is currently sold.

Graph from Dunn, J. (2017, March 20). Here's how Apple's iPhone sales break down by region.Business Insider. Retrieved from https://www.businessinsider.com/apple-iphone-sales-region-china-chart-2017-3

Here in the United States, Apple's iPhone sales have flattened out due in large part to development and growth of competitor smartphones such as the Samsung Galaxy. In China you can see that the sale of iPhones has decreased fairly dramatically because of the increasing competition there. Sales from local phone brands, such as Vivo and Oppo, have begun to fight for and take over large parts of market share in the Chinese economy.

Apple has been steadily raising the prices of their products, especially the iPhone, over the years while demand has changed very little. Essentially what this means is that Apple has been playing with the price elasticity of their products. The company has done well to build one of the strongest and most well-known brand names in the world. The corporation has realized that many customers not only want an advanced phone or computer but they also want the apple logo that appears on the back of every product. This logo has become known as the logo of an industry leader and a brand that everyone wants because everyone else has it. Although there were some big changes between the iPhone 8 and iPhone X, it surprised a few when the price of the phone jumped from $700 to $1,000. This was a significant price change and yet the iPhone continues to fly off the shelves. This is because the price elasticity of the iPhone is relatively inelastic. The graph below helps to visualize the relationship between iPhone's growing prices and slightly diminishing demand.

Graph from Archanco, E. (2017, March 30). The Price Elasticity of the iPhone Demand. Retrieved from https://thetechnalyzer.com/price-elasticity-of-the-iphone-demand/

Archanco (2017) describes the iPhone as almost being a necessity good because of its great design, advanced software, and because of the way Apple products work together. This inelasticity means that consumers are willing to pay more, or a premium, for the Apple products. Price seems to have very little to no negative effect on iPhone sales. If you look at sales data from Apple's annual 10-K report (Apple Inc., 2018, 2018 Form 10-K) you can see that sales actually increased over the past three periods. The iPhone sales in 2016, 2017, and 2018 were 211.8 million, 216.8 million, and 217.7 million units respectively. This helps to show the relative inelasticity because from 2016 to 2018 the price of the iPhone has seen significant increases and yet sales continue to rise.

Summary

Apple's long range of products and catering to international markets has led them to become and remain globally competitive. While their company history had a rocky start, they were able to create a technological empire through the creation of their operating system. The construction of Apple's retail stores internationally has also aided to their global success. Through this they have built an international structure which supports the increasing revenue.

Apple has faced criticism on their international taxes and the unethical business practices in China, such as the use of cheap labor, the cost of production, and evident suppression of rights, but they have continued to retain loyal customers globally. This is evident in their most recent reports of 60% revenue coming from international markets. Possibly this is due to the company's utilization of international marketing mediums or their inherent investments into growth opportunities through research and development.

Analyzing the sales and demand of the iPhone helped to learn that since the prices are increasing and sales continue to increase as well, the demand seems to be inelastic. This can be of an advantage to Apple because their product sales are no longer so determinate on price. This could lead to even more earnings which Apple could use to invest more into research and development where eventually they will be able to anticipate their customer needs.

There are many areas for further research not presented within this paper. It could be beneficial to learn what exactly is contributing to the inelasticity of the iPhones. Is it Apple's investments into research and development, their brand loyalty, or a combination of both? Also, Apple's brand loyalty seems to be of something never seen before. They have been able to obtain and retain customers for such a long period of time. How are they able to do so? Are there other methods they are using that are not discussed within this paper? Overall, it is evident that Apple, Inc. has established a global presence that does not seem to be down turning any time soon.

References

Apple Inc. (2018). 2018 Form 10-K. Retrieved from https://investor.apple.com/investor-relations/financial-information/default.aspx

Apple Inc. (2018, November 18). Apple opens first store in Thailand Saturday. Retrieved from https://www.apple.com/newsroom/2018/11/apple-opens-first-store-in-thailand-saturday/

Apple Inc. (2018, November 05). Apple Reports Third Quarter Results. Retrieved from https://www.apple.com/newsroom/2018/07/apple-reports-third-quarter-results/

Apple Inc. (2018). Apple Retail Store - Store List. Retrieved from https://www.apple.com/retail/storelist/

Archanco, E. (2017, March 30). The Price Elasticity of the iPhone Demand. Retrieved from https://thetechnalyzer.com/price-elasticity-of-the-iphone-demand/

Brand Quarterly(2017): Apple's One-Size-Fits-All Approach. Retrieved from https://www.brandquarterly.com/globalization-apples-one-size-fits-approach

Business Insider Intelligence. (2016, December 21). Apple is focusing more on emerging markets. Retrieved from https://www.businessinsider.com/apple-focuses-more-on-emerging-markets-2016-12

Colt, S. (2014, August 18). Here's How Apple's Products Have Evolved Over The Years. Retrieved from https://www.businessinsider.com/heres-how-apples-products-have-evolved-over-the-years-2014-8

Craft (2018): Apple. Retrieved from https://craft.co/apple.

Cite this page