The organization chosen for consideration in this paper is Apple Inc., which ranks among the best companies around the world. The company’s competitive environment will be analyzed using Porter’s 5 Forces to provide a clear picture of the factors that affect productivity. According to Calanog (2019), Porter’s five forces give an overview of the strategies put in place to maintain the company’s leadership position. The paragraphs below discuss how the Porter’s five forces shape Apple Inc.’s competitive environment.
Rivalry of Existing Players
Apple Inc. is currently facing stiff competition from other players, especially from Google, Microsoft, and Samsung. Rivalry, as a factor of the five force model, highlights how competitors influence Apple’s operations. For instance, the company continues to experience competitor’s influence through a low level of product differentiation and high switching cost (Liu, 2021). More specifically, Apple is facing stiff competition from Samsung and LG through high aggressiveness in innovation, imitation, and advertisement. Additionally, product differentiation has reduced drastically over the years due to the availability of similar items in the market that meet customer needs. Also, low switching cost continues to be a major challenge because people can easily shift to other options such as Android. Such decisions are based on iOS cost, network externalities, and functionality.
Threats from Substitute Products
Apple currently faces weak threats from substitute products due to recent technological advancements and the availability of online services. Calanog (2019) cited several reasons why substitute products pose a weak threat to the company. They include: “low performance of alternative products, low level of buyer propensity and limited substitutes available in the market” (p. 15). While consumers can opt to use alternative products in the industry, most of them are of low quality.
Threats of New Entrants
Apple is increasingly facing a controlled level of competition from start-ups due to the financial cost needed to develop new brands. In fact, establishing a new business requires more resources in order to compete with well-established leaders such as Sony. Similarly, such businesses encounter a lot of challenges when it comes to brand development; it is extremely expensive, especially since they will be required to compete with giants such as Apple. However, other firms such as Google have the capacity and the capital needed to enter the market. For instance, Google managed to penetrate the market with the introduction of Nexus, which was followed by Samsung’s smartphones.
Bargaining Power of Suppliers
Apple has a complex chain of suppliers, the majority of which are located in the U.S, China, Taiwan, Japan, and Mexico. A large number of suppliers is the main reason why Apple’s bargaining power is weak. Calanog (2019) also cited medium to high level supply where the products are developed by multiple groups as another contributing factor to limited bargaining power. While the switching costs for suppliers might be low, they are less likely to stop working with the company because of high profit margins. Overall, the company has a strong position against its suppliers which is influenced by weak bargaining power.
Bargaining Power of Buyers
This component of Porter’s 5 Forces plays a critical role in determining consumer’s purchasing power and decision-making, which affects Apple’s operations. The company has a strong purchasing power of buyers because of its low switching cost coupled with a small customer base. Similarly, the buyers are highly informed, thus, making it easy for them to switch brands; this makes it difficult for Apple to meet their demands.
Competitive Advantage
Apple Inc. is one of the most valuable brands around the globe. Its success stems from its ability to rely on its strengths to eschew weaknesses and threats while exploiting new opportunities. Therefore, Apple Inc.’s competitive advantage revolves around the capability to introduce new profitable products, such as innovative lines of mobile devices to complement existing ones. Additionally, the company’s marketing mix, as observed by Kryscynski et al. (2021), “involves a premium pricing strategy, which brings high profit margin” (p. 381). This factor, in itself, gives Apple Inc. a competitive advantage, even when the sales volume remains low, especially for MacBook laptops. Similarly, the generic competitive strategy plays an important role of ensuring the business remains updated on the latest technologies.
The company also has a competitive advantage when it comes to expanding its distribution network. With technological advancements shaping the industry, Apple Inc. can easily modify its distribution strategy. A modified distribution network will facilitate quick and easy access to more customers in the global market. Similarly, Apple, unlike its competitors, has a higher opportunity of increasing its sales for mobile phones through aggressive marketing.
Overall, Apple Inc’s competitive environment can be analysed through the lenses of Porter’s 5 forces. As evidenced above, the company is currently facing stiff competition from other players such as Google and Samsung. Other forces such as threats from substitute products are critical to its competitive environment. However, despite the company facing some challenges in line with Porter’s five forces, it continues to have a competitive advantage over other players. For instance, Apple Inc. has the capability of introducing new profitable products, such as new lines of mobile devices.
References
Calanog, M. (2019). Can it prosper without Steve Jobs? (Doctoral dissertation, Apple, Inc).
Kryscynski, D., Coff, R., & Campbell, B. (2021). Charting a path between firm‐specific incentives and human capital‐based competitive advantage. Strategic Management Journal, 42(2), 386-412.
Liu, Z. (2021). Analysis of Apple Inc.’s Innovation Dilemma From the Perspective of Leadership. In 6th Annual International Conference on Social Science and Contemporary Humanity Development (SSCHD 2020) (pp. 551-554). Atlantis Press.