Apple Inc. Entry into Foreign Markets: Germany

1 Apple Inc. Entry into Foreign Markets: Germany Paper Outline Executive summary I. Introduction II. The industry today (Porter’s forces on Apple) III. Increase of innovations in the industry IV. Foreign Market Servicing Strategy V. A SWOT analysis of Apple Inc A. Strengths B. Weaknesses C. Opportunities D. Threats VI. Mode of entry into the German market: The OLI paradigm (Dunning’s Eclectic Paradigm) A. Ownership Specific Advantages of Apple Inc. B. Location specific considerations C. Labor costs VII. A PEST Analysis A. Political environment of Germany B. Economic environment in Germany C. Social Germany D. Technology VIII. Internalization

2 IX. Conclusion

Executive Summary Entry into foreign markets strategies need to be carefully considered. Several firms that have ventured to exploit such markets in various industries have failed to make their expected impact mainly owing to poor research and poor entry strategies. This is notwithstanding the fact that the market still remains. The computer industry is an oligopolistic one but one which firms establish a presence so strongly that entry of a competitor has to be a very calculated move. More seasoned computer firms like HP, Dell and Intel have established their presence in several places across the globe. This however does not mean that other firms are not making it in such a market.

Apple Inc. came into the market when such computer giants were already globally known.

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3 In fact, Apple came to be globally known with the coming of the Mac and lately due to the introduction of iPod and iPad. In its effort to globalise operations and its business, Apple considers several countries that it could strategically enter to expand its market share. This research paper focuses on its consideration to enter the German market. The industry is first addressed before focusing on a SWOT analysis of Apple to assess its position in the market. The German choice is then analysed in a PEST analysis to find its suitability as a market and the best mode of entry. In the conclusion, it is found that Germany is an excellent choice of business for Apple Inc, and the best entry mode being exportation.

Apple Inc, Entry into Foreign Markets: Germany Introduction Apple Computer, Inc is a computer technology firm that has its headquarters in Cupertino, California. It manufactures and sells products, mainly personal computers, portable medial players, software and accessories for computer hardware. It also provides support for these. Some of its most widely known products are the Macintosh PCs, the Mac OS, iPod and also the iTune music store. For the consumer and education segments of the market, Apple has the Mac mini, MacBook and iMac while the high end consumers prefer the MacBook and the Power Mac. The largest sales share for Apple comes from sale of computers although the music gadgets are on an increasing demand especially with the iPod popularity (Mesa n.d).

4 CSR Apple CSR is much stipulated in its CSR policy. Much of it is contained in two documents namely the Ethics and code of conduct for Apple and the Apple Supplier Code of Conduct; the former deals with corporate governance, environment, health and safety while the latter deals with working conditions of suppliers (van Dijk & Schipper 2007).

On the environment, Apple CSR policy has the following: 

Wastewater and solid waste emissions – it directs that these be treated as stipulated by the applicable laws. Apple here relies on the contents of the EICC.

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Air emissions – these are also treated as stipulated by EICC

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Apple also manages resource reduction and hazardous substances.

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In addition to this it is the policy of Apple to comply with environmental, health and safety regulations as applicable within the jurisdictions in which they set business in.

They also strive to anticipate future requirements that relate to all these areas and adopt corporate standards that will be considerate of these.

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The policy goes beyond health and environment and addresses areas of support activities like accounting, ensuring there is transparency in reporting, compliance with ILO standards and research that supports humanity’s well being.

Other than those stipulated in the CSR policy, Apple, Inc participates in activities that are

emerging and are of concern to humanity. For instance, Apple participates in collaborative initiatives that involve companies, activists and investors in an effort to address freedom of expression, climate change and others. It also channels part of its sales to HIV/AIDS research.

The Industry Today (Porter’s Forces on Apple)

5 Porter described a competitive environment of any firm as involving five forces. These constitute of threats of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and rivalry among competing firms in the industry (Zeithaml 2000) The threat of new entrants in the industry in which Apple Inc operates is fairly high due to low barriers on entry. This is mainly because the internet has substantially lowered capital intensity that may be required to operate in a successful manner. This mainly affects the music portion of Apple.

The bargaining power of customers is now very high. Even though the computer industry is an oligopoly, the competitors have established global presence giving customers a wide variety of choices to make. In the music gadget industry, there is a whole range of suppliers to choose from. It is easy to change suppliers without an additional cost. Having a major label thus no longer has the power it used to (Bergstrom 2000).

Threat of substitute products is fairly high for computer accessories and computers themselves. It is even higher for music gadgets.

There is rivalry for market share especially with established firms like Microsoft, oracle, HP, Sony, Dell and others. Much power is now held by the buyer as a result of all these variables. Due to this, cutthroat competition in terms of price wars makes the cost of computing low and the demand for computers high. Despite the fact that PCs go for so much money it is almost ironical to say that companies make very small profit margins. The PC and systems market experiences rapid price fluctuations which are bad for vendors but good for consumers.

The vendor is usually in an effort to dump the product the fastest possible to reduce possible losses.

Increase of innovations in the industry

6 Technology is being invented and innovations being developed everyday. Any firm that produces technological goods cannot remain comfortable with any of its products (Dussart 2001). With much research therefore continuing to dominate the industry, firms must remain on their toes trying to remain competitive since consumers will always look for the latest technology that addresses their needs better. For instance the iPod has replaced many other portable music gadgets due to its ability to carry lots of music. The rate at which such music gadgets have kept changing means that even the iPod is faced with imminent replacement by more up-to-date technology. It is not long since we talked of the Walkman introduced by Sony as up-to-date, yet it looks outdated today. Product lifecycles are now short and there is need to carefully study the market before venturing into it.

Foreign Market Servicing Strategy A SWOT analysis of Apple Inc. Apple is an established firm in the computer industry but more vibrant in the United States. Its presence worldwide relies on the brand name created in the US and its impact in other developed countries has more to do with the iPad and the iPod with a global presence of other PC brands like Intel, Dell and also several OS giants (Applied Computer Research, Inc. 2010.).

Strengths 

Worldwide, Apple Inc is considered the strongest IT corporation

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It is listed in NASDAQ securities exchange and has a record of over $60 million.

Literally, it is US’s flag carrier and most successful company.

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Its innovation pace is able to beat or compete healthily with most technology firms.

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Germany is a great consumer of PCs. Often, it beats its projection, an indication that there is high demand for these products

7 Weaknesses 

Apple has not been a global brand for a long time and its presence overseas is still young.

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Its expansion overseas has been targeting countries with low labor costs and that have been relying on imports for computer parts. An example is China.

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Apple has been much about people heading it. The demise of the former CEO is still being eyed as having an impact on its aggressive innovations.

Opportunities 

Germany is tech savvy and will have a good taste for very innovative products

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The economic ability of Germany enables much of its population to have a great purchasing power.

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The continuing demand for smart phones and PCs will be fulfilled by Apple products presence.

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Its strong and good reputation will give it a strong entry and allow it to compete strongly with other established producers (ITMarket Intelligence.com n.d).

Threats 

The presence of strong competitors like Intel, Dell and others means that its entry strategy must be a careful one.

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Most of Apple accessories and software are not compatible with other systems and this means it will have to create its own beginning (Applied Computer Research, Inc. 2008)

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HP and Dell Products are already cheaper in prices as compared to Apple products. This means that success in the consumer market and in the education sector that is much reliant on price rather than strength will be difficult to penetrate.

8 Mode of Entry into the German Market: The OLI Paradigm (Dunning’s Eclectic Paradigm) Ownership Specific Advantages of Apple Inc. The Apple brand was discovered and developed in the United States in 1976. The progress of this brand has taken its own line of development as evidenced by the discovery of the iSeries (iPod, iPad, iTunes). In specific terms, Apple has developed its own brand using its own technology (Sabi 1988). Despite the fact that much development and innovations have come as a result of much competition and drastic changes in the industry, all the knowhow has been internally developed. The result is a unique product that has earned the favor of the American consumer, and now the global consumer. With these facts into consideration, Apple would like to protect its technology and the best option of entry mode into such a developed market as Germany is to export. The option is cheaper, convenient and safe for such a market. This is because with the fast rate of innovations in such a developed country, it would be very easy to be rendered obsolete with the coming of a new technology (Griffin & Pustay 2009).

Location specific considerations Labor costs Germany is a developed country. Much of its population consists of individuals over forty years of age. Likewise, the greatest proportion of its labour supply is absorbed into the market upon completion of the requisite training. As such, labor costs are high and any firm entering such a market must put this into consideration (Hans-Joachim 1990). The PC manufacturing industry with its innovations and manual tasks is to a large extent labor intensive and will therefore need to recruit several highly qualified staff for its new station.

A PEST Analysis

9 Political environment of Germany Germany is one of the most politically stable countries. Despite the fact that imports are regulated in many sectors to protect their own, the technology sector enjoys much of free trade characteristics (Economy Watch 2010). Perhaps this is because it is one of the fastest changing areas of the economy and that needs to be at its peak. International relations between Germany and other countries remain good even though it takes some political hard lines on some issues.

German leadership is keen to take positions that will not negatively impact on trade and has several credible trade agreements with different countries. Any company that is seeking to enter into meaningful business in any jurisdiction must carefully address its political scenario (Griffin & Pustay 2009). Germany being a politically stable country and that does not impose several barriers for entry would be an appropriate one for Apple Inc. to establish its presence.

Economic environment in Germany Germany is a vibrant economy. The 21st century has seen progressive economic improvements in Germany in terms of its GDP and Per Capita.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

GDP

2062.

2113.

2143.

2163.

2210.

2242.

2325.

2428.

2498.

2409.

Percentag

5 2.5

2 2.5

2 1.4

8 1.0

9 2.2

2 1.4

1 3.7

2 4.4

5 2.8

1 -3.5

e change Source: Economy Watch (2010) The average economic growth rate in the year 2011 was slightly over 2.3%. Germany has an excellent infrastructure and a self reliant energy sector. These are ample to support investments that may require lots of energy. Statistics show that 8 out of 10 residents of

10 Germany use the internet. This could be interpreted as 8 or more out of 10 residents use computers or smart phones. This is an indication of a huge market for these devices in Germany.

With a vibrant economy, Germany enjoys high purchasing power among its residents.

Germany’s currency also is relatively stable in terms of fluctuations (Economy Watch 2010).

Social Germany Due to high connectivity, Germany is a participant of a global modern culture (Griffin & Pustay 2009). There are hardly any limiting cultural boundaries that could act as a barrier to investment. Historically, Germany was known to take positions that agitated most of the western world. This could be seen in the positions it took during the famous world wars. It is today a multicultural nation that embraces much of the world changes. The current call for a global village seems to have Germany online as it is now common to see Germans studying overseas.

Germany today is seen to open doors wider for international companies to operate in it. The central location of Germany in Europe is a key advantage as it gives an opening to penetration of surrounding markets (Economy Watch 2010).

Technology Germany is among the most tech savvy countries. However, it is far way to go if compared to those that are rated highest like Japan and USA. A report by BITCOM indicates that it could take Germany thirty years to reach where US is in terms of computer technology. This is an indication of dire need for computers (Bergstrom 2000). Germany is however rated as the third after US and Japan as a market for internet. In the report by BITCOM, it indicated that at a rate of 1.5 million computers per year, it would take 30 years to correct the situation. This is information that a firm that is keen to selling computers can use to find a market in Germany. In 2008 for instance, Germany saw a 17.4% growth in the PC market. Companies like HP perform

11 better than Germany’s own Medion, which comes third in terms of sales volume. This is an indication that Germans do not favor their own but rather go for value proposition (Federal Ministry of Education and Research 2007).

Internalization Germany being a vast market for computers needs to be exploited. Apple is left with few options in the mode of entry since the high cost of entry in relation to low profit margins, high capital costs and also labor costs rule out physical presence (Bergstrom 2000). Apple Inc can therefore exploit other strategies that allow it to exploit the market at a relatively cheaper cost.

It is highly recommended that Apple exports its products to Germany due to the following reasons: 

Economic stability and stability of currency that favors international trade.

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High cost of labor does not favor physical presence in Germany.

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A vast market for computers makes business sense.

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The high competition from established competitors like HP and Medion may hinder profitability in the years of introduction.

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Apple is already a well known Brand whose name could sell in its physical absentia.

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The ownership specific advantages encourage exportation as the best entry strategy (Griffin & Pustay 2009).

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The computer market is a volatile one with the current levels of innovation that could render a well developed technology obsolete within a very short duration.

Conclusion Germany is a strategic market for Apple Inc. It has proved to be a receptive market that considers value proposition than “buy home grow home” factors. It is a market that needs

12 millions of computers according to the survey by BITCOM. In effect Apple Inc. should consider a market share and a huge one if its entry strategies are right. Apple Inc is donned with a unique strength of being a brand of choice in the U.S where the market is already very competitive. This makes its entry in a less competitive market easier. It can exploit the dire need for computers in Germany through exportation. In order to save cost of shipment, Apple Inc. can do its assembly or manufacturing in a country where resources are cheaper like China and India and then export to Germany which is geographically closer to these countries than the U.S. Due to cost and competition factors, physical presence in Germany may not be economically viable for the company to establish a manufacturing plant there. This could lead to unprecedented losses or slow capital recovery. It is highly recommended that Apple enters the German computer market through exportation. It can establish a regional office for the purposes of customer service and support.

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13 Dussart, C., 2001. Transformative power of e-business over consumer brands. European Management Journal 19(6), 629-637.

Economy Watch, 2010. Germany economy. [online] Available at: http://www.economywatch.com/world_economy/germany/ [Accessed 5 January 2011] Federal Ministry of Education and Research, 2007. Germany's technological performance. [online] Available at: http://www.bmbf.de/en/1869.php [Accessed 5 January 2012] Griffin, R., & Pustay, M., 2009. International Business, (6th Ed). Upper Saddle River, NJ: Pearson Prentice Hall: Hans-Joachim, B., 1990. The German Economy in the Twentieth Century. New York, NY: Routledge.

ITMarket Intelligence.com, n.d. ITMarketIntelligence.com. [online] Available at http://www.itmarketintelligence.com/ [Accessed 6 January 2011] Mesa, A. F., n.d. Apple history timeline. [online] Available at: http://applemuseum.bott.org/sections/history.html [Accessed 6 January 2011] Sabi, M., 1988. An application of the theory of foreign direct investment to multinational banking in LDCs. Journal of International Business Studies 19, (Fall), 433-448. van Dijk, M., Schipper, I., 2007. Apple, CSR company profile. Center for Research on Multinational Corporations (SOMO).

Zeithaml, V., 2000. Consumer perceptions of price, quality, and value: a means-end model and synthesis of evidence. Journal of Marketing 53, 2-22.