Industry Analysis using Porters Five Forces model

Bargaining power of customers

The bargaining power of customers is low because there is no single individual or organization that can control the market. The products are bought in small pieces and there are no customers who buy in large quantities such that they can exert pressure upon the suppliers. In most cases customers buy single handsets and this does not provide them with the power to control the price of the products (Gurau 2007).

Bargaining power of suppliers

The bargaining power of suppliers is low because suppliers are many and they cannot regulate the price and quality of products supplied to the manufacturers of handsets.

Manufacturers have a wide range of choice to choose from for the supply of materials and products. This renders suppliers powerless in controlling the market (Gurau 2007).

Rivalry among competitors

There is intense rivalry among competitors in the market. Many companies have been licensed to sell their handset brands in the Chinese market. On the other hand, the grey market creates competition to the legitimate companies and this intensifies rivalry among the companies in the Chinese market (Lorat 2009).

Threat of substitute products

Threat of substitute products is low and the introduction of handsets phased out the traditional means of communication such as landline telephones, mails among others. Before the internet enabled phones were introduced into the market, the use of internet had become a major threat to the use of handsets. Today, handsets are used to communicate via the internet and therefore, internet is no longer a substitute to the use of handsets.

Threat of new entrants

Threat for new entrants is very high in the global markets. The Chinese government has issued many licenses to new companies and this has made it easy for new companies to enter the market. Both domestic and foreign investors have entered the Chinese market and this creates a major threat of new companies entering the market.

Macro-Environment Analysis (PESTLE Analysis)

Political factors

China is politically neutral and the political climate favours the mobile handset industry. Both domestic and foreign companies are allowed to compete equally in the market and there are no political hindrances. On the other hand, globalization has influenced the opening up of international markets and more products are being introduced into the market (Lorat 2009).

Economic factors

Since 1980s, the Chinese economy has experienced an influx of wireless communication and this has led to an increase in the number of companies selling handsets. International trade has also influenced the sale of mobile handset products in all countries of the world, hence creating a large market for the products (Lorat 2009).

Social factors

Consumer behaviour has changed in the global markets and people in the modern days are looking for products with advanced and innovative features. There is a high increase in the number of young people who are interested in products which are innovative. Youths look for fashion and taste rather than efficiency in the products they buy.

Technological factors

To support mobile technology, China imported equipments from other countries to enhance wireless communication. This technology has caused the massive entry of companies selling mobile handsets. Currently China is running the 4th generation (4G) technology and this is supported by a lot of subscribers in the market (Sunday Times 2010).

Legal factors

Loopholes in the Chinese laws have enabled Apple to penetrate the market by use of grey market. By the use of grey market, the company obtains excess profits from the sale of its products because no taxes and other expenses are incurred in the marketing of the products in the China market. In 1994, China Unicom was introduced into the Chinese market to prevent the monopoly of MPT and for the improvement of the quality of telecom services.

Core Competencies and Critical Success Factors

Companies in the mobile industry have used technology as a competitive strategy to enhance the manufacture of innovative products (Holston 2005). Apple Inc. is competent in manufacturing innovative products and this has been a competitive strategy the company has adopted to capture the demand of its products in the global markets. The critical success factors of the companies in the mobile industry are the improvement in production technologies. The Chinese market has been deregulated and many companies can penetrate the market. There is an increase in the number of communication companies which encourage many people to buy mobile handsets.

The Internal Environment for the Handset Market in China

Strengths & weaknesses of Apple's iPhone

Apple Inc has been able to penetrate the Chinese mobile handset market by use of grey market. This has been strength in that the company does not incur excess costs involved in the marketing of these products. Apple was able to unofficially launch the iPhone product before the official entry into the Chinese market (Jefferson n.d). This was strength because many people became aware about the existence of the product before they were legally accepted in the market. Apple has cutting edge strength in manufacturing innovative products by the use of modern technologies.

Value Analysis

The performance of iPhone is good compared to the cost that customers incur to buy the product. The brand is appealing to many people especially the young generation due to the innovative features embedded within the product. There are stylish features in the brand which make it acceptable to the youths. However, analysts have claimed that the price of iPhone is high compared to other smart phones in the Chinese market.

VRIO analysis

Value

Apple Inc has been able to exploit all opportunities in the market by using the large resource capacity of the company. The company has neutralized external threats from the competitors in the market.

Rarity

The management of Apple has been able to control all its resources compared to the scarce resources required in the manufacture of the iPhone handsets.

Imitability

The iPhone handsets can be imitated easily because some companies in the grey market have been able to come up with similar products. There are no extra costs required that can hinder other firms to manufacture similar products.

Organization

Apple is ready to exploit the resources in the market to obtain benefits from the expanding handset market. The management of the company has made adequate strategies to improve production of iPhone by establishing an organized system of production and marketing.

Key Problems & Challenges Facing the Apple's iPhone in China's Handset Market

Apple faces intense competition in the Chinese market because there are many companies offering the same product in the market. Products such as Nokia and Blackberry smart phones have been preferred by the business people and this diverts the demand of this class of consumers.

Key players in the handset market in China

By 1994, Nokia, Motorola and Ericsson had been the key players in the Chinese market and have dominated about 80 percent of the market. Philips, Siemens and Alcatel have dominated about 20 percent of the market. In the current market condition, local companies have entered the market and are creating a lot of competition. Companies manufacturing brands such as Ningbo Bird, Konka and TCL have entered the market and a lot of competition has been experienced. The grey market has also been a source of competition for example, the sale of the iPhone brands. The competitive advantage of these companies has resulted from the deregulation of the Chinese market hence allowing many companies to enter the market (Sull & Ruelas-Gossi 2010). The companies have adopted intense research and development to differentiate their products to fulfil the growing demand for mobile handsets.

Sources of Apple's iPhone’s competitive advantages in China’s market

The iPhone brand is innovative and has features which attract many young people. In addition, Apple Inc. managed to introduce iPhone brands to the Chinese market by the use of the grey market. The iPhone brand has been readily accepted in the Chinese market and despite intense competition from other brands like Nokia the market growth has been good.

Strategy Formulation

Strategic Choice

It is recommendable that Apple should reduce the price of the iPhone brand to attract more customers. It has been found out that the price for iPhones is very high and this has discouraged many people from buying these products. Applying a lower price for the iPhones will attract more customers because the law of demand states that when prices are reduced the demand tends to increase (M2presswire 2009).

Apple’s current business level strategy

Apple Inc has adopted product differentiation strategy as its business level strategy to market its products in the Chinese market. The company has diversified its product range to attract as many customers as possible. Apple started its operations by manufacturing and selling personal computers and later penetrated into the market of computer software. In the recent past the company has entered the market for smart phones to capture as many customers as possible. The products of the company are differentiated by the use of innovative technologies.

Apple’s current corporate level strategy

Apple’s corporate strategy involves diversification to attract as many customers as possible. Apple has a wide range of portfolio in which it accrues a lot of income. The company has diversified its operations into the areas of manufacturing and selling personal computers, computer software and smart phones. The company has plans to venture into the market of internet subscription. This strategy has made the company to survive in the global competitive markets and to overcome turbulent economic situations being experienced in the global markets.

Apple’s current functional level strategy

Apple Inc. has established a set of strategies to strengthen its functional resources. To create core competencies, Apple Inc. has coordinated its resources to achieve maximum output from its activities. The management of the company has a well laid down system of coordinating all the resources to reduce costs and improve efficiency. The company has used modern technologies to support the management of its resources (Cravens, Piercy & Baldauf, 2009).

International strategy

To penetrate into the Chinese market, Apple used the strategy of grey market to introduce the iPhone product before the official launch of the product. This strategy had an impact on the business of the company in that the iPhone was readily accepted by consumers in China after the official launch because the brands were well known to them (Sull & Ruelas-Gossi 2010).

How Apple could evaluate and control recommended strategy

To evaluate and control the low pricing strategy for the iPhone in China, the management of Apple Inc. should come up with a strategy of liaising with all stakeholders.

As such, the company will be able to identify strategies which are cost efficient and which will promote the profits made by the sale of the iPhones at reduced prices. Suppliers of the company should be regulated to reduce their power to hike prices for the materials they provide to the company. This strategy will reduce the production costs of the company and enhance profitability (Cooke 2001).

Balance score card framework

The pricing strategy has not been appealing to many customers in the market because the price for iPhone has been high. Compared to other brands in the market iPhone brand has been priced too high and this has reduced the demand for the product. However, the pricing strategy has been appealing to the shareholders of the company because the high price has generated more profits to the company. To excel in the sale of iPhone in the Chinese market, Apple must use internal processes such as reduced costs of production to ensure that the prices cover the costs involved in the production. This strategy will be appealing to both customers and shareholders because the reduction in costs will enable the management to reduce the price of iPhone hence attracting more customers and generate more income to the shareholders. The learning process of the customers in the market and growth of the iPhone in the market has been very fast and this has led to the fast adoption of the product (Sull & Ruelas-Gossi 2010).

Impact of Steve Job’s leadership on the culture and performance of the company Steve Job had been the president of the company for a long period of time and his leadership promoted the innovation of many products being manufactured by the company. Steve has introduced the culture of using modern technologies to manufacture differentiated products (Gollin 2008). The performance of Apple Inc has been excellent because Steve Jobs introduced the culture of leadership at all levels of the organization such that the employees of the organization are free to come up with innovative production methods (Reinhardt & Hamm 1999). This strategy has led to the introduction of better technologies at the company and improvement in performance of the products in the market.

Strategic changes recommendable to Apple Inc. Board of Directors

The CEO of the company should consider introducing the strategy of market discrimination as a strategy of pricing the iPhone brand. As such, the company should offer the product to different customers at different prices depending on their purchasing power. This strategy would improve performance of iPhone in markets with elastic demand to price. The products would be sold at a higher price to markets which have inelastic demand. This strategy is suitable because it would enable the company sell the iPhone to all markets depending on their response to prices. The strategy is feasible because there are different income classes in China which are separated by an invisible boundary. Market segmentation is acceptable because it is legally acceptable and customers respond differently to prices depending on their purchasing power (Savitz 2011).

How Apple Iphone’s current culture and structure will influence the implementation of the strategy recommended

The current culture and structure of Apple Inc. will help implement the market segmentation strategy because the company has a well laid down system of research and development. The R&D department has the capacity to come up with marketing strategies (M2presswire 2008) which would help separate customers according to their response to different prices for the iPhone. However, the culture of the company should be directed towards customer-oriented production and marketing. The company should come up with consumer friendly strategies to increase the demand for its products.

Opportunities for iPhone’s future growth

The use of internet has intensified in developing and developed countries. This provides more opportunities to Apple to provide products which support the use of internet at consumer-friendly prices. The innovation of technologies which promote cost reduction will help the company to reduce its costs of production. The future growth of Apple is predicted to be high because the company has a wealth of resources to support all kinds of innovations. The market for the iPhone brand is predicted to grow fast because the brand has innovative features such as web-browser which help the young generation exploit the changing environment in technology.

List of References

Cooke, F. L. (2001). Human resource strategy to improve organizational performance: a route for firms in Britain? International Journal of Management Reviews, vol 3, no.4, pp. 321-339.

Cravens, D. W., Piercy, N. F. and Baldauf, A. (2009). Management framework guiding strategic thinking in rapidly changing markets. Journal of Marketing Management, vol 25, no. 1-2, pp. 31-49.

Gollin, M. A. (2008). Driving innovation: intellectual property strategies for a dynamic world. Cambridge, UK: Cambridge University Press.

Gurau, C. (2007). Poter's generic strategies: a re-interpretation from a relationship marketing perspective. Marketing Review, vol. 7, no.4, pp. 369-383

Holston, D. (2005). The strategic designer: tools and techniques for managing the design process. Cincinnati, OH: HOW Books.

Interfax (2010). China Unicom launches first Wi-Fi enabled iPhone in mainland China. China IT Newswire, 9/08/2010, p. 6

Jefferson, G. (n.d.). Apple reports best earnings ever. USA Today. 1/26/2010, p. 3.

Lorat, N. (2009). Market audit and analysis. Germany, GRIN Verlag.

M2presswire (2008). Apple shipped 2.315 million iphones in the final quarter of 2007, expanding their market to select European countries. M2presswire, 04/04/2008, p. 1

M2presswire (2009). Key features and strategic implications of webOS, Windows Mobile 6.5, and iPhone OS 3.0 followng Apple's new iPhone OS iPhone OS 3.0. M2presswire, 9/05/2009, p. 8

Reinhardt, A. and Hamm, S. (1999). Can Steve Jobs keep his Mojo working? Businessweek, vol. 3640, p. 32

Savitz, E. (2011). Apple: iPad margins could be better than street expects. Forbes.Com, p. 4,