1

Table of Contents

1. Apple in China .....................................................................................................................2

1.1. Target Market and Products ..........................................................................................2

2. Analyzing Apples External Organization ............................................................................2

2.1.1. Apples PEST analysis ...........................................................................................2

2.2. Porters Diamond of National Advantage ......................................................................3

2.3. Porters Generic Strategy of Apple in China ..................................................................3

2.3.1. Scenario Analysis (Viewing Risk) ..........................................................................4

3. Analyzing Apples Internal Organization .............................................................................5

3.1. Apples RBV Analyses in China ...................................................................................5

4. Competitors Analysis ...........................................................................................................7

4.1. Competitors Objectives .................................................................................................7

4.2. Competitors Current Strategy ........................................................................................7

4.3. Competitors Assumption..............................................................................................8

4.4. Competitors Resources and Capabilities ........................................................................8

4.5. Apples SWOT Analysis Vs Key Competitors Strengths and Weakness ........................9

4.5.1. SAMSUNG Strength and Weakness .................................................................... 10

4.5.2. LENOVO strength and Weakness ........................................................................ 10

4.6. Competitors Response Profile and Conclusion ............................................................ 11

5. References ......................................................................................................................... 12

6. Appendices ........................................................................................................................ 13

2

1. Apple in China

Apple is committed to bringing the best personal computing experience to students, educators,

creative professionals and consumers around the world through its innovative hardware, software

and Internet offerings. The Apple, Inc. U.S. headquarters is located in Cupertino, California.

Apples goal is to provide customers with the best personal computing experience by offering

products with superior ease-of-use, seamless integration, and innovative industrial design and

a high quality sales and post-sales support experience.

1.1. Target Market and Products

Apples target market falls into these categories; home users, small and medium sized business,

education segment, younger generation and creative individuals aka Mac users. Apple is a luxury

brand and the company still ranks in the top five of the most coveted brands among Chinas

monied class, according to the latest Hurun Chinese Luxury Consumer Survey. Apple products

consist of; iPhone series, Macintosh, iPod series, iPad, iMac, Mac Mini and Apple TV.

(Appendix G: Apples product and prices in China)

2. Analyzing Apples External Organization

2.1.1. Apples PEST analysis

Political: China having a communistic government causes heavy restrictions in many areas

especially the Internet, the press, freedom of assembly, reproductive rights, and freedom of

religion. Companies such as Facebook and Google face strong restrictions in China. In contrast,

Apple mainly sells hardware, so it has not run into any censorship problems.

Economical: In the 4th quarter of 2012, Chinas GDP increased from $7298.10 billion to

$12.382 trillion indicating an increase by 7.9%. This is a favorable economy for Apple as the

economy continues to boom elevating high consumer spending, national income and

employment.

Social: Chinese consumers love electronic gadgets. Mobile phones are ubiquitous. Apple is

doing incredibly well because its products are so much more attractive and pricy. The iPhone

quickly become a status symbol product in Chinese social circles since its debut (J. Chiang,

2013)

3

Technological: In China, there is fast improvement in electronic technology which is becoming

a fast applied threshold in many industries. Apple is leading the position in electronic IT industry

which just matches the trend of electronic technology. Due to the pollution control policies in

China, Apple Redesigned their product to lighter weight packaging to reduce emission during

transportation. This shows its ethical consideration in green marketing.

2.2. Porters Diamond of National Advantage

Factor Conditions: China is one of the worlds largest growing economies for its skills and

technology, which provides more innovation for Apple. Chinas high skilled workforce creates

more advantages for Apple in the sense that rich amount of raw materials and cheap labor

through the use of sweatshop is well leveraged.

Demand Conditions: Apple being a Famous successful Company has caught the attention and

motivation of Chinese 1st class citizens and prestigious youths, thus sending the right signal and

increasing the demand of Apple products especially in smart phones and iPad industry. However,

Apple is pressured to reduce its price in other to meet the demand of second tier cities that may

not be able to afford Apple products. Its been argued that doing so would be detrimental to

Apples image but yet again it could pose as a competitive advantage over competitors.

Related and supporting Industries: Apple as a foreign company in China ensures that its supply

chain adapts to the needs of its niche market in a timely manner while justifying high prices for

quality innovative product.

Firm Strategy, Structure, and Rivalry: In China, major successful companies are often

centralized. When China joined World Trade Organization, many Chinese tariffs and other trade

barriers reduced, allowing other rivalry like Samsung to compete more strongly in China. In

China, management compensation is heavily based on annual bonus tied to group result. China

having a low individualism index, do not base much thoughts on individual motivation but

channel effort on innovative minded groups which Apple employs to attach prestige to its image.

Appendix D elaborates Apples Porters five forces in detail.

2.3. Porters Generic Strategy of Apple in China

Apple has always been using the differentiation leadership strategy. Differentiation is about

creating a unique value in a product and giving customers clear reasons to prefer the product

4

over other less differentiated products which they will be willing to pay a premium price. Using

this strategy, Apple tends to apply for specific and selected market segment and provide its

substantial price premium to its targeted market. Apple offers its niche members a product or

service customized to their tastes and requirements and are geared towards customers with the

ability to spend more. Apple does not rely on cost leadership strategy to compete. Their business

and brands are built on persuading customers to become brand loyal and paying a premium for

their products. Apple has managed to build substantial Value over the years in a strong

competitive PC and Smart phone industry by innovating and forging a part considerably different

from other big competitors in the industry. Apple's products is based on quality, design,

elegance, and superior customer service, while outsourcing actual manufacturing to trusted

Original Equipment Manufacturers (OEM) allows it to differentiate its products from those of its

competitors. Apples differentiation strategy has made it most attractive and seen as a prestigious

brand by the Chinese most elite customers. However there are risks that Apple needs to be aware

of which includes imitation and losing its distinctiveness and focus. This possibility of this risk

could be weighed in a scenario analysis.

2.3.1. Scenario Analysis (Viewing Risk)

The key analysis is whether Apple can remain distinct and focused in the Chinese Market.

Chinese Telcos look to Boost Margins with Cheaper Smart phones. These smart phones will be

provided by Chinese handset makers such as ZTE, Huawei, Lenovo, Coolpad, TCL and SED

(Trefis Team, 2012). Since a majority of Chinese still cannot afford to pay for the higher-end

smart phones, this strategy will reap huge dividends for these Chinese manufacturers. When

these phone manufactures releases the production of cheaper smart phones into the 3rd

tier cities

of over 300 million people, Apple marginal value may not be affected since the number of

middle class earners is estimated to grow 70% to 600 million by 2020 (K. Voigt, 2012).

According to an interview conducted by Shaun Rein (2012) in 15 cities, 5,000 Chinese

consumers trust foreign brands far more than they trust local domestic brands. (Appendix A:

Self-sketch of Apples Scenario Analysis and Future factors)

Nevertheless, the risk/rocky aspect comes to light since these Chinese manufacturers have

formed an alliance which will make it more difficult for Apple to single any one manufacturer

out for patent infringement. If Apple fails to hinder the growth of these manufacturers with

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lawsuits, it may be forced to lower the prices of its smart phones against its principals. Doing so

may tarnish the premium image of Apple and erode the love and loyalty of the Chinese

customers. As a result, the customers may no longer value the product's factors of differentiation

and may fall just like Nokia did.

Therefore from this scenario analysis, Apple can remain distinct and focused in China if it

continues to be innovative and maintain its premium price to satisfy the prestigious demand of

the Chinese customers.

3. Analyzing Apples Internal Organization

In other to analyze Apples internal organization in China, its required to scrutinize Apples

portfolio of resources and capabilities that are created from such resources.

3.1. Apples RBV Analyses in China

Apples Resources Capability

Tangible

Financial Resources Net sales of $156.50 billion in its 2012 annual report, up

from $108.24 billion in 2011

Heavy Investment in Research

& Development

Organizational

Resources

Outsourcing manufacturing processes to OEM partners in china

(Foxconn and Hon Hai precision

industry)

Global Mindset

Physical Resources

PC constructed of solid aluminum blocks and strong polycarbonate

plastics

Top retailer in in-store sales (8 stores)

Exceptional Design

Strong Market Presence

Technology Resources

Tailored hardware and software

Redesigned lighter weight packaging

Unique Brand image

A greener Apple

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Intangible

Human Resources

Teamwork is included in Apples organizational culture

Design teams, software development teams, and hardware

engineers

Offers a variety of attractive employee benefits to complement

direct wages.

Industrial Design Capability

Talented Software Programmers

Innovation

Apple Care Support website

Apple Care Protection Plan

Apple Care Helpdesk Support

Apple Care Professional Video Support

Apple Care Technician

Consistent Quality

Reputational Resources

Apple offers in-store one-on-one support to all customers and further warranty support

Good relationship with OEM partners

Outstanding Customer Service

Bearing in mind that capability is not a competitive advantage; using the Barney VRIN as a tool,

Appendix C indicates built core competences that will serve as a source of competitive

advantage for Apple over its competitors in China. Capabilities valuable, rare, costly to imitate

and non-substitutable are core competences. According to Michael A. Hitt., et al (2008),

Capabilities failing to satisfy the four criteria of sustainable competitive advantage are not core

competences, meaning that although every core competence is a capability, not every capability

is a core competence. Appendix C illustrates that Apple has strong sustainable advantage on

most of its capabilities despite high presence of substitutes. Understanding Apples internal

performance, Appendix C clarifies that Apples Talented Software Programmers falls on a

competitive parity due to the fact that in China, such talented skills are not rare within the

industry, and are not difficult to imitate. However Apple has continued to be ahead of the game

as they invest heavily in R&D, increasing innovation that is rare and costly to imitate.

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4. Competitors Analysis

Apple has a highly innovative product line that aims to offer a cutting edge and highly integrated

user experience. Since Apple has diverse product lines, it faces competition from both Mobile

and PC industries. In china, Apple has two major competitors: Samsung and Lenovo and in

other for Apple to formulate its business Strategy, it must consider the strategies of its main and

potential competitors. To do this, Michael Porters competitive analysis framework is used.

4.1. Competitors Objectives

It is important to understand what objectives a competitor has, as this will enable a company to

predict what the competitor will do in the future, and how their behavior can be altered (Michael

Porter, 1980). In other to stand out of about 100 Chinese smart phone companies, Lenovo

worked with Intel (INTC) to launch the K800, the first phone in the Chinese market to run on

Intels newest Atom chip, Lenovo plans to announce five new models in 2013. Lenovo is trying

to take advantage of its well-known PC brand to target smart phone customers in 2nd

and 3rd

tier

cities. And Lenovo plans on opening an additional 300 stores in China in 2013 to add to its 100

existing stores in China. Samsung is reportedly working to launch an entry-level smart phone in

the Galaxy series. According to SamMobile, Galaxy Star is expected to hit stores around mid-

April (Rohit KVN, 2013)

4.2. Competitors Current Strategy

Samsung spend billions of dollars on promotion strategy for advertising campaigns across North

America, Europe and Asia. They use celebrities such as Black-eye Ps to promote their products.

Their products are sold mostly online where customers can get free shipping. Lenovos strategy

is dynamic and keeps changing as the situation demands. They are flexible to the demand of the

Chinese customers. However, Lenovo struggled to get local consumers to buy its phones when

millions of Chinese were embracing the iPhone, Lenovo was still pushing basic handsets (Bruce

Einhorn, 2013). Lenovo has implemented an aggressive strategy to replace Samsung as the

Mainland China market's top smartphone manufacturer as they changed their one-size-fits-all

LePhone strategy and built a portfolio of 19 smart phones, ranging in price from $130 to $385.

That strategy helped Lenovo surpass Apple in 2012 and move into the No. 2 position behind

Samsung. Its mobile Internet business accounted for 8 percent of total revenue in the third

quarter of 2012, up from 3.6 percent a year earlier, and mobile revenue was 18 percent of China

8

sales. It has spent $793.5 million in Wuhan in order to build a plant that can produce 30 to 40

million phones per year (Bruce Einhorn, 2013). Lenovo cited their desire to take advantage of

increased sales due to the 2014 World Cup that will be hosted by Brazil and the 2016 Summer

Olympics and CCE's reputation for quality.

4.3. Competitors Assumption

Samsung and Lenovo along with major mobile companies assume that the era of basic phones

are over and such market deserted. In actuality, that assumption is somewhat false in the case of

rural areas populated with elderly customers who may find smartphone too complex and prefer a

basic phone. After Lenovo introduced their first smartphone named LePhone and failed, they

assumed smarter phones is what the market demands. This assumption places an opportunity

and threat if Apple decides to use its strong brand name to create a market for basic phones and

reduce price as seen in the scenario analyses. Honestly, the opportunity isnt worth taking. Apple

must remain innovative in the smartphone industry as they compete with the global mindset of

forward ever and backward never.

4.4. Competitors Resources and Capabilities

Financial Resources and Capabilities

Lenovo invested US$793 million in the construction of a mobile phone manufacturing and R&D

facility in Wuhan, China. Lenovos revenue as of 2012 amounted to US$29.57 billion. Samsung

Electronics amounted to revenue of US$185.30 billion in 2012. Lenovos operating income of

US$584 million grants them more advantage in R&D over Samsungs operating income of

US$267.65 million.

Physical Resources and Capabilities:

China as the worlds largest smartphone market remains the primary market in which Lenovo

Mobile operates and has expanded sales into Russia, Indonesia and India, with further expansion

intended. Samsung recognized for its superior-quality screen and excellent connectivity.

Samsung became the world's largest cell phone maker in 2012, with the sales of 45 million smart

phones in the first quarter.

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Technological Resource and Capabilities

Samsung has some of the best resources in semi-conductor products, highly skilled engineers and

designers, a much broader access to market around the world with lot more touch points to end

customers. Lenovo only manufactures phones that use the Android operating system from

Google. Numerous press reports indicated that Lenovo plans to release a phone based on

Microsoft's Windows 8.

Innovation Resource and Capabilities

Samsung Galaxy S adopts Google Android as the primary operating system. It also supports

other competing operating systems such as Symbian, Microsoft Windows Phone, Linux-based

LiMo, and Samsung's proprietary Bada.

Human Resources and Capabilities

Samsung Elecronics as at 2012 has a total number of 221,726 employees while Lenovo

employees accrue to a number of 27,000 employees. Apple has unique advantage through its

retail presence that Samsung lacks. Apple can carry out a lot without relying on carriers or other

retailers to make a significant impact through its marketing tactics unlike Samsung.

4.5. Apples SWOT Analysis Vs Key Competitors Strengths and Weakness

Apples Strength:

Leaders of innovative and high tech quality products like iPhone, iPad and iMac.

Globally recognized brand name and Large Marginal Value

Large segment of loyal customers to Apple culture.

Strong R & D department and Large Market Share in China

Unique product differentiation and Strong placement in Education segment

Apples Weakness:

Poor sales from iTunes store as Chinese are customarily unwilling to pay for intellectual

properties.

Without constant innovation to set itself apart from its competitors, Apples products may

appear overpriced in comparison to its Chinese rivals

Apples Opportunities

Penetration into more China cities as population increases

Growing market of green and energy efficient product

10

Building more retail stores in China and boom of China economy

Apples Threats

Highly dependent on consumer purchase

Highly competitive environment

Pressure of constant innovation

In China, imitation, Patent and copyright infringement remains high.

Pressure to reduce price

4.5.1. SAMSUNG Strength and Weakness

Samsungs Strength

Wide range of product portfolio which includes Mobile phones, Tablet, TV/Audio/Video,

Camera, Camcorder, home appliance, PCs, laptops, peripherals, printers

Well diversified and differentiated product line to meet changing customer needs.

Strongly going ethical given its Chinese suppliers two years to eliminate illegal work

practices.

High Market Share that continues to grow in the Chinese market and Strong brand name

Samsungs Weakness

Average prices of product is seen to be of low product in China

Not pro-active in introducing a new product and Not user friendly

Insufficient software or talent engineer to make their own

Heavily investing in the development of newer market and not focusing on any core

competencies.

4.5.2. LENOVO strength and Weakness

Lenovos Strength

Chinese owned company with wide range of product portfolio; PC, tablet, mobile phones,

workstations, servers, electronic storage devices, IT management software and smart

televisions.

Operates in more than 60 countries and sells its products in around 160 countries

The IBM name has helped Lenovo maintain its solid base with customers in the corporate

market

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Lenovos Weakness

Difficulty in expanding abroad

Brand name is not iconic

4.6. Competitors Response Profile and Conclusion

From the competitors objectives, strategies, assumption and resources obtained, Apple can see

that while its fighting over patent infringements with Samsung, a bigger potential competitor,

Lenovo aims to shoot. Apples strategies of differentiating have been imitated as Lenovo

strategizes on cost leadership and focus differentiation, offering a hybrid market positioning to

Chinese customers. Constant innovation is all Apple has now as a unique capability as both

offensive and defensive mechanism in entering new markets and competing with rivals. Apple

and Samsung have mutual threats in China as low cost competitors like Lenovo increases in the

smart phone industry. Looking at Apples pricing strategy in Appendix B; reducing the price to

compete with Lenovo (penetration pricing) is not an option as this would affect the way the

brand is perceived by the Chinese customers. The Chinese vendors are like a pack of wolves

snapping at Samsung and Apples heels, says IDCs Wong. With the resources available to

Samsung and Lenovo, Apple may be well assured that whatever strategy it pulls off in China can

be imitated. Hence, Apple can increase its cost of imitation into three features that all lead to the

robustness of strategic capability. This is illustrated in Appendix F as Complexity, Culture and

History, and Casual ambiguity (G. Johnson et al, 2005).

At the end on Q4 2012, Apple was displaced from number two to number six in the Chinese

smartphone market. However, Apple continues to stand strong despite strong competition in

China. In other for Apple to remain distinct, it has to invest more money from its cash cow into

innovation that is costly to imitate. In as much as this might become a challenge due to the

strategic alliance of many Chinese smartphone firms, Apple should continue to sue any company

that infringes its patent and copy right. Such injunction will pose a threat to current and potential

imitating competitors. The expansion of Apple stores in needed to capture economies of scale

into more cities in China. The competition wont get any easier in the smartphone industry that

in the long run, I predict that Apple and Samsung may decide on becoming Joint Ventures or

Strategic Alliance to survive. But till then, let the battle drums continue to roll.

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5. References

1. Bruce Einhorn, (2013). In Chinas smartphones; Lenovo gets busy. [Online] Available at:

http://www.businessweek.com/articles/2013-01-03/in-chinas-smartphone-market-lenovo-

gets-busy [Accessed on 22nd February, 2013]

2. G. Johnson et al, (2005). Exploring corporate strategy. 7th Edition. Pearson education

limited: Harlow

3. Jeongwen Chiang, (2013). Why China Loves Apple. [CNN Online] Available at:

http://www.realclearworld.com/2013/01/16/why_china_loves_apple_144300.html

[Accessed on 16th February, 2013]

4. Kevin Voigt, (2012). Apple, China, Foxconn and the Fabulist. [Online] Available at:

http://edition.cnn.com/2012/03/19/business/apple-china-foxconn-daisey [Accessed on

17th February, 2013]

5. Michael A. Hitt, R.Duane Ireland, Robert E. Hoskisson (2008) Strategic Management

Concept. Business, Accounting & Vocational: Textbooks & Study Guides. Cengage

Learning EMEA. London: UK

6. Michael E. Porter, (1980) Competitive Strategy: Techniques for Analyzing Industries and

Competitors. 1st Edition. New York: Free Press

7. Rohit KVN, (2013). Samsung planning to lunch Entry-level Smart phone Galaxy star at

MWC 2013 report. [Online] Available at:

http://www.ibtimes.co.in/articles/438132/20130222/samsung-galaxy-star-mobile-

technology-launch-february.htm [Accessed on 19th February, 2013]

8. Shaun Rein, (2012). What do Chinese Consumers want? Not Barbie. [Online] Available

at: http://edition.cnn.com/2012/11/21/business/china-consumers-barbie [Accessed on

20th February, 2013]

9. Trefis Team, (2012). Apple may need cheaper phones to compete in China. [Online]

Available at: http://www.forbes.com/sites/greatspeculations/2012/01/11/apple-may-need-

cheaper-phones-to-compete-in-china/ [Accessed on 17th February, 2013]

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6. Appendices

Appendix A: Free sketch of Apples Scenario Analysis and Future factors

High A B A: State of Chinese economy

C D B: Loyalty of Chinese consumers

C: Fair and Just competition

Potential

Impact D: Consistency in brand Price

Low

Low High

Uncertainty

Appendix B: Apples pricing strategy Vs Competitors

Low QUALITY High

Hig

h

P

RIC

E

Low

Pr

I

Economy

Skimming Premium

Penetration

14

Appendix C: Building Apples Core Competences in China

Capabilities Value Rare Costly to

Imitate

Non

substitutable

Competitive

consequences

Performance

implication

Heavy Investment in

Research & Development

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Global Mindset

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Exceptional Design

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Unique Brand image

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Strong Market Presence

Yes

Yes

Yes

No

Sustainable competitive

advantage

Above average returns

Industrial Design

Capability

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Consistent Quality

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Outstanding Customer

Service

Yes

Yes

Yes

No

Sustainable

competitive

advantage

Above average

returns

Talented Software

Programmers

Yes

No

No

No

Competitive Parity

Average

returns

A Greener Apple

Yes

Yes

Yes

No

Sustainable

competitive advantage

Above average

returns

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Appendix D: Apples Porter five forces

Appendix E: Self-Sketch of Apples BCG Matrix vs. Competitors Attractiveness

RIVALRY

AMONG

EXISTING FIRMS

SUPPLIERS

THREAT OF

SUBSTITUTES

BARGAINING

POWER OF BUYERS

THREATS OF

NEW ENTRANTS

Due to many competitor product substitutes

in China, theres high bargaining power of

consumers. Nevertheless, Apples unique

products and a loyal customer base reduce

the price sensitivity of the Chinese customers

at least to those that can afford it.

BUYERS

Apples strong present in the Smartphone

and PC industry in China is valuable, rare,

expensive to imitate. Potential entrants will

not only find difficulty in winning the market

share over, but also require a significant

investment of resources to compete with

Apple.

ENTRANTS

China known for high skills in the electronic

industry leaves Apple with the threat of many

substitutes ranging in quality and cheaper price.

Apples innovative

brand still presses

this threat to a

medium.

SUBSTITUTES

Samsung and Lenovo are Apples strong

Competitors in China. They each have strong

market presence. However, Apples products are

highly differentiated in terms of design and

functionalities as compared to its competitors

products. With continuous innovation, Apple will

sustain this competitive advantage.

COMPETITORS

The bargaining power of suppliers for hardware

products is low as the industry is highly saturated,

causing suppliers to be competitive in their pricing.

Apple adopts a differentiation strategy which requires

the firm to ensure that suppliers provide high-quality

components, driving up its supplier costs.

SUPPLIERS

Mar

ket

Gro

wth

High Relative Market Share Low

Apple

Smartphone

High

Low

Lenovo

Mobile

Samsung

16

Appendix F: Increasing Apples cost of imitation inspired by G, Johnson et al, (2005)

Appendix G: Apple products and Price in China

Series Type Price

Computer iMac, eMac, Mac mini, Power Mac, Xserve RAID, Mac

Pro, iBook , MacBook, MacBook Pro, MacBook air

3000 - 20000

Digital iPod, iPod mini, iPod nano, iPod Shuffle, Apple TV,

iPod classic, iPod touch, iPad

300 - 3000

Mobile iPhone, iPhone 3GS, iPhone 4, iPhone 4s. 2000 - 5000

Complexity

Innovating Smartphone with

features such as 4G,

backscatter X-ray, Fire &

water proof

Casual Ambiguity

Talented team should work

under oath of secrecy and

commitment

Culture & History

Improve slogan to Think

Different; Act different

Continue to pass down Steve

Jobs legacy and Vision

Robustness of

strategic

Capability