Table of Contents

1 Introduction 1
2 Industry Analysis 1
2.1 Market Definition 2
2.2 Porters Five Forces Analysis 2
2.2.1 Internal Rivalry 3
2.2.2 Entry 4
2.2.3 Substitutes and Complements 5
2.2.4 Supplier Power 5
2.2.5 Buyer Power 5
3 Firm Analysis 6
3.1 Background of Apple Inc. 6
3.2 The strategies of Apple Inc. 6
3.3 Value Chain Analyses of the Apples Strategies 7
3.3.1 Inbound and Outbound Logistics 7
3.3.2 Product Operations 7
3.3.3 Marketing and Sales 7
3.3.4 Services 8
4. Conclusion 8

Reference List 9


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1. Introduction
The levels of competition in any markets are constantly increasing. There are several new
businesses trying to enter the market every day. Hence, to ensure that a business will continue to
exist, it is necessary for the firm to formulate sound strategies. According to Porter (1996),
strategy is the creation of a unique and valuable position, involving a different set of activities.
A good strategy can differentiate a company against its competitors and therefore, establish a
competitive advantage which is very crucial for the success of the business.
This report analyzes the strategies employed by Apple Inc. specifically on its mobile
devices product lines. Apple Inc. is a multinational corporation that manufactures and sells
computer hardware and software, and mobile devices. In the past few years, the Apples
accomplishments in the mobile devices industry have been increasing significantly. However,
the advent of the Android Operating System threatens the status of the iPhone Operating System
as the premiere market share holder of the mobile devices industry.
The first section of this report examines the nature of the mobile devices industry using
Porter's Five Forces of Competitive Position Analysis. Afterwards, the remaining section of this
report discusses the background of Apple Inc., and evaluates the effectiveness of the strategies of
Apple Inc. with the value chain analysis.
2. Industry Analysis
The goal of industry analysis is to determine the industry growth and economic potential
of the industry. Therefore, the business is interested to know whether a particular industry would
be a profitable venture. To conduct an industry analysis, the first step is to identify the products
or services of the industry and their channel of distribution (Harrison & John, 2009). This will
help the firm to further understand the nature of its target market.
The business should also designate a time horizon for the analysis of the industry by
determining the business cycle of the industry (Porter, 2008). Since the technology of the mobile
devices is changing at a rapid pace, the reasonable time horizon for the market analysis would be
five years. This does not only consider the upgrade cycle of smartphones and other mobile
devices which occur once a year on average, but also take into account the average replacement
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cycle of mobile phones by the users. For instance, a research conducted by Recon Analytics
shows that Americans replace their mobile phones on the average of 21.7 months. In
comparison, the Finns dispose of their mobile phones every 74.5 months and in less developed
countries; many people used their mobile phones for eight to nine years (Phone Arena, 2011). As
for the life cycle of the industry, it reached the maturity stage. This means that almost all the
potential consumers have already become the users of the industrys products (Harrison & John,
2009). To further increase growth rate and profitability, the companies in the industry should
find new and innovative ways to attract more customers.
Porters five forces of Competitive Analysis is a very good way to evaluate an industry.
2.1 Market Definition
The mobile phone industry is comprised of cellular phones and smartphones
manufacturers, distributors and sellers. Its product market includes mobile phones, smartphones
and tablets. However, smartphones and tablets manufacturers source in profits also include
mobile applications and online music (e.g. iTunes by Apple Inc.). It is one of the fastest growing
industries due to the increasing popularity of smartphones and tablets.
The geographic scope of mobile phone market is worldwide especially to the market
leaders. They have several branches distribution channels around the world. Apple, Samsung and
other mobile phone companies also sell their products on the web to reach more consumers.
2.2 Porters Five Forces Analysis
The Porters five forces model is used for analyzing the forces of competition that defines
the market. These five forces are the factors that shape competition within a particular market.
The model assesses the risks that a may face if it enters a market. Then it examines the internal
rivalry among the competitors. It also determines whether the suppliers and buyers in the
industry have enough bargaining power to dictate the market price. Lastly, the model identifies
any substitutes and complementary products within the industry (Hill & Jones, 2010).


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2.2.1 Internal Rivalry
The advent of smartphones has revolutionized the mobile phone technology with
emphasis on mobile internet connectivity and more superior hardware and software performance.
When Apple Inc. first introduced the iPhone to the public, the popularity of touch screen phones
has skyrocketed since then (Neal, 2014). Consequently, Apple Inc. has gained the largest market
share in the mobile phone industry and ousting Nokia as market leader.
However, when Samsung released its Galaxy series product line that run Googles
Android Operating System in 2009, Samsung and other mobile devices that runs Android OS has
been gaining more market shares little by little (Ha, 2009). On the other hand, the market share
of Apple on the mobile phone industry has experienced a relative decline due to the increasing
number of Android phone users. The high demand for Samsung Galaxy handsets was the most
contributing factor for the decline of the sales of iOS. Based on the research of Strategy
Analytics, the estimated profit of Apple Inc. from the sales of iPhones in the second quarter of
2013 is $ 3.2 billion, a 33% decline from the previous years profit of $4.6 billion (Garside,
2013). The increase of low end smartphones from Samsung, HTC, LG and other Chinese
companies have also caused the popularity of iPhones to fall. Moreover, the research also
indicates that the market share of Apple Inc. has fallen to 14% on 2013 from 14% three years
prior (Garside, 2013).
The growth rate of the mobile phone market is relatively high despite that there are
already many mobile phone users. Mobile phones have become a necessity because of the higher
demand of mobile internet and more importantly, mobile communication. In the second quarter
of 2013, the growth rate of the mobile phones industry increased by 6%, in comparison to the
previous year, i.e. the second quarter of 2012. This is primarily due to the 432.1 million mobile
phones shipped worldwide in contrast with 407.7 million mobile units shipped on the first half of
2012 and 428.7 million mobile phones shipped at the beginning of 2013 (IDC, 2013).
In terms of product differentiation, Android phones and tablets manufactured by
Samsung, LG and other companies have similar interfaces and functionality. The only prominent
difference is the hardware such as the core processors and RAM and device-specific features like
the S Pen feature of Samsung Galaxy Note Series where users can write and draw on their
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smartphones using a stylus pen. Nokias windows mobile, Apples iOS and other mobile phones
have different operating systems and hardware, but the core functionalities of all the mobile
phones are generally similar. It only differs on the variety of functions and available apps for a
particular OS.
The switching cost from one product to another depends upon model of the mobile
phone. It is also not difficult for a user to switch to other mobile phone. There are several shops
that offer mobile phone swap services. Most postpaid contracts nowadays have duration of two
years, and after the end of the contract, a user could replace his mobile phone with a newer
model.
Finally, the prices in the mobile phone industry decrease in a relatively rapid manner
depending whether there are new models available in the market. Most mobile phones prices
would start to decrease in two to three months and continuously decrease as time goes by, since
like any other technology, a mobile phone model can quickly become obsolete if there is a newer
model available.
2.2.2 Entry
Since the market for mobile phones is on maturity stage, it would be very challenging for
a new business to enter the competition unless if the new entrant can develop an innovative
product that can surpass to current mobile phone technology. For instance, when Apple
introduced iPhone in 2007, many traditional mobile phone users have switch to iPhone because
of its convenience.
The economies of scale are also very high in this industry because there are a vast
number of users of mobile phone. It is also difficult to convince the users to replace their mobile
phones with new products since the brand loyalty of current leading mobile phone companies.
The best distribution channels for mobile devices are not easily accessible. Many well-known
retailers would prefer popular mobile phone models like iPhone and Galaxy.
There is also a threat of lawsuits from the incumbent companies. In the past few years,
Samsung and Apple have a series of lawsuits to each other for ripping off patented mobile phone
designs and technology. On March 2014, Apple sued Samsung once again for $2 billion. Apple
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demanded Samsung to pay $40 per mobile units for infringing five of its patents in their mobile
devices sold in the US in 2010 to 2012 (Theguardian, 2014).
2.2.3 Substitutes and Complements
The main substitutes in the mobile phone industry include mobile phones sold by
competing companies. Usually, the substitutes would be from the top and most popular
companies such as Apple, Samsung, LG and HTC. Nonetheless, cheaper mobile phones
produced by Samsung, LG and other companies can also be considered substitute. Furthermore,
the market of smartphones in China is also growing fast locally, which can be a threat of
substitute as well since the market in China is very large.
2.2.4 Supplier Power
The main suppliers of mobile phone industry consist of labor (developers, programmers,
administrative and manual workers) and raw material (plastics, LCD, electronic components and
solders). There are a large number of suppliers in the mobile industry. Hence, their power is
somewhat limited. Some examples of raw material suppliers in the mobile phone industry are
Wintek Corp., a LCD components supplier and Vishay Intertechnology, a supplier of electrical
components (EMIS, n.d.; Vishay Intertechnology, n.d.).
The most power supplier in the mobile phone industry is the labor force. Labor unions
have proven time after time that labor unions hold a substantial power. An organization-wide
labor strike can interrupt the production process of a company which would result in significant
loss of profit.
2.2.5 Buyer Power
Generally, the buyers in the mobile phone industry have a limited power since the buyers
purchased individually most of the time. Thus, they dont have the capability to dictate the prices
in the market. In other words, a large percentage of buyers in the mobile phone market are price
takers (Hill & Jones, 2010). In addition, there are a huge number of buyers in the market, so
there will not be shortage of buyers anytime.
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However, many of the mobile devices are distributed to retailers not directly associated
with the mobile phone companies. These retailers, especially the larger ones, can potentially hold
a substantial power over the mobile phone companies. Some of the largest mobile phone retailers
include VerizonWireless, Wal-Mart and T-Mobile (Onbile Group, 2012)
3. Firm Analysis
3.1 Background of Apple Inc.
Apple Inc. is a multinational corporation that develops, manufacture and sells computer
software and hardware, consumer electronics (mobile devices, Apple TV and Mac products) and
digital distribution (iTunes, iCloud and App Store) (Reuters, n.d.). The geographic area served
by the company is worldwide which comprise of retail store in 14 countries and online stores in
39 countries. In 2013, Apple reported a profit of $170.9 billion, a 9.2% increase from the
previous year (Apple Investor Relations, 2014).
3.2 The strategies of Apple Inc.
Several critics have pointed out that the iPhones and iPads of Apple are too expensive
especially to the consumers from developing countries. Although Apple has already released
iPhone 5c, a lower-priced version of iPhone, to reach lower income class customers, it is quite
expensive. In Russia, it is $160 less than the top end iPhone 5S, which would be about $800 --
approximately the average income of the countrys workers (Khrennikov, 2013). Therefore, in
order for Apple to compete with Samsung in the mobile market, its first strategy is to produce
cheaper versions of iPhones to target a more diverse market.
Secondly, Apple should set higher incentives and rewards to those who perform well.
This will further motivate the employees to do better at work. Apple Inc. mainly relies on the
creativity of its employees in the developing of new ideas. Thus, a highly motivated workforce
would be beneficial to the organization as a whole.



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3.3 Value Chain Analyses of the Apples Strategies
3.3.1 Inbound and Outbound Logistics
Manufacturing lower-end iPhones will increase the volume of production. This means
that the collection, storage and distribution of inputs internally should be done more efficiently.
The key in this case is a good relationship with the companys suppliers in order for the system
to work smoothly (Harrison & John, 2009).
Outbound logistics involves delivering the products to the customers (Harrison & John,
2009). Its functions are similar to the inbound logistics but it is done externally. It would be
recommended that Apple should choose a reliable logistics company even if the products being
delivered are the low end product to ensure that the purchased product will be received on time.
3.3.2 Product Operations
The production operations should be improved because of higher expected level of
production in the future. To create value in this activity, the operation systems should function
efficiently. Apple can increase its production capacities by opening more factories or outsource
the production to third parties.
3.3.3 Marketing and Sales
Apple can serve a larger market for producing cheaper mobile devices. |So the company
should adjust its marketing campaigns to suit the new targeted demographic. Even for lower end
mobile units, the company should make the greatest effort to market the products just like how it
marketed its flagship products in the past.
In addition, Apple has been known to be highly creative in their marketing campaigns.
Therefore, the trend should continue in the future for the company to continue to prosper.
Rewarding the marketers and sellers who did great can further enhance their motivation to do
better. This in turn, would eventually increase the sales of the company.


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3.3.4 Services
These include activities that maintain the value of the purchased products by the
consumers (Harrison & John, 2009). These include aftersales services such as warranty and
technical support. The increased volume of products can be a big challenge to the company since
there will be more customers who would require its services. The most effective solution for this
problem is to add more employees that deal with aftersales services to facilitate the rendering of
services to the customers.
4. Conclusion
A business should be able to differentiate itself from a huge number of similar
businesses. Therefore, a strategy should be created to set the business apart from its competitors.
Moreover, formulating and implementing effective strategy is critical for the survival and
success of any businesses to todays fiercely competitive market.
The mobile phone industry is a highly competitive market and its business cycle is
relatively quick because of the rapid changes in technology. In the industry analysis, this report
utilized the Porters five forces analysis. It showed that the mobile phone industry has a fast
growth rate.
The last section of the report analyzed the strategies of Apple Inc. based on the value
chain analysis to determine the soundness of the strategies. It identified two strategies to
compete with Samsung and regain Apples market shares in the future. These strategies are
manufacturing cheaper mobile devices and giving higher rewards to employees.






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