1. Apple Store
The growing computing industry has elevated the competition between computer manufacturers. This situation gets intense as mobile technologies such as smartphones, PDA (personal digital assistance), and Table PC could be considered as products substitute to desktop/laptop PC as consumers turn out to have specific needs that could be fulfilled by using the mobile gadgets.
As the competition between computers manufacturers continue rising, the situation causes the declining profitability as they are forced to quickly sell their products at low margin. However, some leading computer manufacturers do not get immersed in this situation as they know the future of computing industry is not only on the sales of hardware but also on attracting them into buying the software and peripherals through the manufacturers’ websites.
One famous computer manufacturer that already takes benefits of selling products (computers, notebooks, accessories, and software) through their website is Apple Inc. the company online shop –www. http://store.apple.com/us- provides many products and accessories that customer could shop. Interestingly, Apple Stores continue displaying the incredible growth in terms of new applicant and growth compared to other stores developed by competitors like Windows, BlackBerry, Android, etc.
Concerning the Apple Store, this paper discusses the analysis of Apple Store expansion into new market in Brazil. The discussion includes the business environment analysis, the recommended market entry strategy. Prior to the discussion, this paper will also elaborate the corporate background of Apple, its management team that highlights how they manage Apple to be the fastest growing company and get rid of being second-brand image after IBM-compatible computers, and discussion how the company becomes successful.
1.1. Apple History
The history of Apple starts from the garage of Steve Jobs, who at that time works for Atari, a famous game console. He teams up with Steve Wozniak who in the same period works for Hewlett-Packard. Immediately, in April 1976, they introduce the first Apple I computer and named the company, Apple Computers (Low End Mac, 2010; Bellis, 2010).
The existence of Apple in early birth of the company is not significant as the industry at that time is dominated by IBM-compatible products. However, thirty years later, Apple grows to be a company that perceived to be the most innovative in the world. Many product lines are the proofs of this perception.
According to Apple corporate website, the fast development of Apple is due to their significant improvement of their internal-business process. This further favors Apple Inc to produce better product quality that satisfies customers. Once the customers are being satisfied with the company products and services, than the financial performance such as revenue, profits, and net income will automatically increase.
In terms of customer perspective who demands an exit from Windows-based application, the features that Apple’s products are considered a nice way out as Apple offers a better graphic in more attractive designs. From Apple perspective, this development refers to creative capabilities. Since its inception, the company generated most of the ‘actual revolutions’ in the U.S. computer industry. Apple I, Mac I, the Powerbook notebook and the PDA was all products generated from Apple’s original work.
1.2. Management Team
The success of Apple cannot be separated from the collaboration of top executives. There are 11 executives at Apple that team up to bring Apple becoming the leading computer company in the world.
a) Steve Jobs (CEO). He is the co-founder of Apple in 1976 and still lead Apple to keep producing revolutionary products like iPhone, iPod, and the latest iPad, the attractive devices for those who need browse Internet and digital media device. Steve also becomes the co-founder of Pixar Animation Studios, which is the leading animation studios with several box-office animation like Finding Nemo, Cars, Toy Story etc (Apple Inc, 2010 – profile)
b) Tim Cook (Chief Operating Officer). He is responsible for managing the Apple’s worldwide operation. He also serves as the leader of Apple’s Macintosh division and supplier relationship that ensure that Apple’s products always in high demand in marketplace.
c) Scott Forstall (Senior Vice President, iPhone Software). The success of Apple cannot be separated from the success of iPhone as innovative gadgets in the mobile industry. It is Forstall’s responsibilities to produce innovative software for iPhone to continue growing the iPhone sales.
d) Jonathan Ive (Senior Vice President, Industrial Design). One feature that differentiates Apple from other computer manufacturer is the product design. It is what Ive does to bring Apple to produce quality design in every product that Apple introduces.
e) Ron Johnson (Senior Vice President of Retail). Under his initiatives, the growth of Apple can be achieved as the company already opens over 200 stores worldwide.
f) Bob Mansfield (Senior Vice President, Mac Hardware Engineering). He is responsible for managing the Mac product lines
g) Peter Oppenheimer (Senior Vice President and Chief Financial Officer). He is responsible to manage Apple’s financial condition including internal audit and information systems
h) Mark Papermaster (Senior Vice President, Devices Hardware Engineering). He leads the fast-growing Apple’s product line, iPod and iPhone engineering teams
i) Philip W. Schiller (Senior Vice President of Worldwide Product Marketing). He is responsible for marketing their products, increase the relationship with customers, and improve brand image of Apple as leading innovator.
j) Bertrand Serlet (Senior Vice President of Software Engineering). He manage engineering teams for producing powerful software for Apple’s product lines
k) Bruce Sewell (Senior Vice President and General Counsel). He is the one who support Apple in terms of legal matters, managing the intellectual property, and government affairs.
(Apple Inc, 2010 – profiles)
1.3. Apple Profitability
The development of Apple and its innovative products has put to company to experience massive growth within the past decade. The company’s products always invite many fans to become the first people who buy any Apple’s product worldwide. This condition contributes to the company’s profitability. Figure 1 shows Apple’s profitability from 1995 until 2008 where the company experiences the slide in mid 1990s but continue stronger afterwards.
Figure 1 Apple’s Profitability
Source: Myslewski, 2008
1.4. Why the Apple Company is successful?
The success of Apple is the result of continual improvement in their operation and product design. The coming of iPod in early 21st century become the answer of Apple performance rebound after for years Apple products are associated with non-compatible for many users that get used to using Windows-based products. However, with clear focus on giving the industry’s best design, graphic features, and performance has improved the customers’ perception and increase investors’ confidences. Within the past five years, the stocks of Apple continue increase significantly to reach around $250 per shares nowadays.
Figure 2 Apple’s 5-year stocks performance
The success of Apple is also the result of massive development on retail sectors where Apple. With vast retail stores worldwide along with marketing programs that improve the Apple’s brand has positioned the company to grow fast in this century. Another aspect that contributes to the success of Apple is their creative and innovative products. As shown in the figure 3, the rising of Apple’s stock is associated with Apple continual innovation.
Figure 3 Apple Stock Development and its related innovation
Source: Zjawinski, 2007
1.5. Porter’s Five Forces
Apple Inc. is one of leading computer manufacturers in the world. History of Apple’s founder is related to the history of amazing discoveries in computer technology. One of its most valuable innovations is the introduction of Macintosh (MAC) personal computer. This invention represents the first type of computers that let people to point and click icons as an interface, instead of typing codes from a command prompt just like offered in its competing IBM-compatible computer at that time.
In the mid 90’s on the other hand, the company was having a bad period. Internally, the organization is facing leadership problems and externally, the competition has been no less them cutthroat for Apple’s computer products. With new leadership however, comes the new idea of expanding into the communications industry, producing handheld devices and other technological accessories for daily communication needs. IPod was the single product that brought Apple back into the map of global high-tech industry.
From Porter’s Five Forces perspective, the decision to expand to the communications industry can be analyzed as follows:
Competition was intense. Microsoft Windows operating systems, Intel microprocessors and the Offices software have taken away most of the market share with its user-friendliness. There was no room to grow unless the company generated another groundbreaking innovation like the MAC. That innovation was however generated in the communication industry, through the creation of iPod, iPhone, and the latest, iPad.
· Supplier Power and Buyer Power
Well -developed understanding of the importance of high-tech instruments generated more suppliers to choose from. Thus, supplier power is not as influential as the buyer power, which has been considered to be very much more influential than in the 80’s. For a new innovation in technology, customers are not willing to pay the sky-rocketed prices anymore. Economics of the new technological devices are crucial and expanding to the cheaper technological communications market addresses that concern.
· Barriers of Entry and Threat of Substitutes
The barriers of entry into the computer technology is still high, but the barriers into the technological communications industry is comparatively lower which allow Apple to expand into the industry quite easily. On the other hand, along with the enhanced number of new substitutes for Apple’s expensive computer products, it is imperative that Apple come with new strategies for cash flow. The communications technology was considered as a good option to address that concern (Dean, 2006).
In the realms of operating system-based business that support many gadgets, Apple’s operating system faces many challenges. In addition to Windows, many manufacturers of mobile devices also use their own operating system such as BlackBerry, Palm, and also Android from Google (Search-Internet Marketing. (2010).
Figure 4 shows that although Apple faces many challengers, they still record to be the preferred devices. Its Apple stores appear to be the stores that offer thousands of applications that customers can purchase. It leads the industry as competitors like BlackBerry and the recent Android only have less than 20,000 applications.
(a) Store Size
(b) Store Growth
Store Size and Growth of Apple (Search-Internet Marketing, 2010)
2. Rationale for the country choice: Brazil
2.1. Internet users
The selection of Brazil as the target country for Apple stores is based on several factors. One of them the computer market that shows increasing figure.
Recession Spending Survey
Figure 5 shows that although computer and its related contents are those depending on economic situation, still market for Apple in Brazil present large opportunities as the country’s internet users grow to be the largest in the South America (see figure 6). This situation suggests that the demand for computer and its peripheral also high in this market.
Internet users at Brazil
2.2. Economy and Governmental Supports
The economy of Brazil also provides interesting facts that would encourage Apple Stores to expand into this market as they continue improving though the unfavorable global economy due to the subprime mortgage crisis in 2007-2008. According to National Treasury of Brazil at the Public Debt Strategic Planning Department (COGEP) (2008), during the economic turmoil in 2007-2008, Brazil GDP still grows due to the contribution of stronger Agriculture, Industry, and Services, which grows 7.0%, 5.5%, and 5.1%, respectively (National Treasury of Brazil at the Public Debt Strategic Planning Department (COGEP), 2008).
Brazil GDP Growths 1998-2008
Source: National Treasury of Brazil at the Public Debt Strategic Planning Department (COGEP), 2008
2.3. Foreign Direct Investment
By definition, country risk refers to potentially adverse impact of a country’s environment on multinational company cash flows (Madura 476). In similar tone, Holt and Wigginton (77) defines country risk as uncertainty associated with government continuity, regional politics that can affect the country, in effective legal and regulatory systems, currency instability or lack of convertibility and home-host country relation. Concerning the foreign direct investment, Brazil is always positioned in the top five countries. In 2010, Brazil is still positioned in fourth place, suggesting they present attractive situation for foreign investors.
Top 20 Countries in term of FDI Confidence Index 2010
In short, country risk analysis is performance assessment regarding the uncertainty of a particular country in order to know about business environment in that country. In addition to using several macro and micro factors of country risk rating such as checklist approach, Delphi technique, and inspection Visits (Madura 485), Apple Stores can assess the country risk by analyzing the FDI index as shown in Figure 8 in which Brazil is placed in top-ten destination countries for foreign investment.
3. Entry market mode, and propose a strategy for defending the subsidiary from foreign government intervention
Economic situation of Brazil that presents favorable situation for foreign investors give opportunities for Apple Store to enter this market. However, there should be appropriate market entry strategy to support the company’s expansion. In general, there are many ways of entering a foreign market; each has its own economic and legal implications. Some entry strategies that multinational companies usually take are joint venture and foreign direct investment.
Joint venture is a type of foreign market penetration strategy has a considerably large investment risk but this method consists of an opportunity to learn and create a greater presence in the targeted markets. Companies prefer to perform this type of market entry strategy when dealing with countries whose government put considerable restrictions on foreign ownership. The join ventures can be done with local Brazilian companies that already have strong presences in the Brazil (Quick MBA, 2007). In case of Apple Stores, the company may carry out initial entry method by partnering with local retailers such as Pao de Agucar, which is the Brazilian’s second largest retail group. Read also under what circumstances should a company’s management team give serious consideration
4. Propose a particular method of financing the foreign operations of the firm
4.1. Financial Statistics
According to Apple SEC filings, the company’s revenue in 2007-2008 experience growth in every product. The major increase occurs in iPhone that grows over 1000%. Figure 9 shows the detailed revenue by products of Apple. In addition, in fiscal year 2010, Apple record tremendous revenue of $51.12 billion and net income $10.9 billion.
4.2. How Much Did It Cost Apple Store to establish stores in Brazil?
This question is raised by the team member in order to know how much Apple Store should invest when opening new store in the lucrative market of Brazil. After careful consideration of Apple Retail Stores previous opening in Mexico, we find that the stores require about 33,000 square-feet (Allen, 2010). Therefore, the assumption of Apple retail stores will be as following:
· Iguatemi mall (Sao Paolo). The annual rental costs in the high-profile shopping center is as much as $129-per-square-foot
Based on the costs of rental space in the Iguatemi mall, below is the financial plan for establishing one Apple Retail Store in Brazil. The first plan is taking US$4.257 million ($129 per square-feet * 33,000 square feet) from Apple retained earnings to cover the first year’s rental costs for 33,000 square-feet
5. Impact of establishing a foreign subsidiary on the firm’s international business strategy and overall market value (if possible)
Other risks in conducting international expansion are cultural issues. This factor then accumulates into becoming customers’ preferences. According to various studies in the field, culture is often an underestimated factor in managing corporate businesses. These studies also revealed that those companies that failed to place culture as an important business consideration often find themselves in a disappointing circumstance. Business investments that cost millions of US dollars could go down the drain due to such failure.
For instances, the Brazilian customers consider the quality of product as the most important factor when deciding to buy merchandises. The following factors are price, customer service, store cleanliness, and store location. The situation suggests that Apple Stores should not position themselves as “Everyday Low Price”, for instances, since it does not ring the customers’ hearts as long as the company has not addresses the most preferred issue, the quality.
Today, however, realizing the global environment we are living in, companies are becoming increasingly cultural sensitive. There are various examples of corporations that hired people from various backgrounds and discover a synergy within their cooperation.
In terms of Apple Stores, in order to cope with cultural issues, the computer manufacturer should pay attention the cultural adjustment such as the use of advertisement media by employing local talents/celebrities using the Apple’s products. In addition, unlike American consumers that watch TV often, when targeting Brazilian for selling iPod, iPhone etc, Apple Stores had better to advertise over the radio since Brazilian housewives listen to the radio more often than watching television.
Allen, Gary. (2010). Apple retail stores bound for Brazil, Mexico City. Retrieved May 30, 2010 from http://www.appleinsider.com/articles/07/12/07/apple_retail_stores_bound_for_brazil_mexico_city.html
Apple Inc. (2010). Executive Profiles. Retrieved May 30, 2010 from http://www.marketwatch.com/investing/stock/AAPL http://www.apple.com/pr/bios/
Ball, Donald A. et al. (2002). International Business the Challenge of Global Competition. McGraw Hill
Bellis, Mary. (2010). The History of Apple Computers. Retrieved May 30, 2010 from http://inventors.about.com/od/cstartinventions/a/Apple_Computers.htm
Dean, Katie. (2006). Apple’s iPhone in Tune. Retrieved May 31, 2010 from www.Thestreet.com
Grandy, Leslie. (2010). Should Apple Let Amazon Sell the iPad? Retrieved May 30, 2010 from http://technorati.com/technology/article/should-apple-let-amazon-sell-the/
Low End Mac. (2010). Apple Timeline, 1976-80. Retrieved May 30, 2010 from http://lowendmac.com/time/index.shtml
Market Watch. (2010). Apple Inc. Retrieved May 30, 2010 from http://www.marketwatch.com/investing/stock/AAPL
Myslewski, Rik. (2008). 25 years of Macintosh – the Apple Computer report card. Retrieved May 30, 2010 from http://www.theregister.co.uk/2008/11/18/apple_25_year_report_card/page3.html
National Treasury of Brazil at the Public Debt Strategic Planning Department (COGEP). (2008). What Are the Impacts of the Current Financial Crisis On the Brazilian Economy? . Retrieved May 30, 2010 from http://www.roubini.com/latam-monitor/254640/what_are_the_impacts_of_the_current_financial_crisis_on_the_brazilian_economy
Quick MBA. (2007). Foreign Market Entry Modes. Retrieved May 30, 2010 from http://www.quickmba.com/strategy/global/marketentry/
Search-Internet Marketing. (2010). Store Size and Growth: Look Out for Android! Retrieved May 30, 2010 from http://www.search-internetmarketing.com/tag/open-source-operating-system/
Zjawinski, Sonia. (2007). How the IPod Affects Apple’s Stock. Retrieved May 30, 2010 from http://www.wired.com/underwire/2007/09/how-the-ipod-af/
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