Globalization and its Impact on Apple Inc.

Introduction

Today the world has become a global village where each and every thing is interlinked.

The concept of global village or global merger is based on the grounds of globalization. Now the

question arises in one’s mind what is globalization? Much has been written by the academic

writers, analysts and economists on the concept of globalization and its impact on the economies,

business, cultures and people. Some of the opponents regard it a way of destroying the cultures

and societies while the proponents believe that globalization has increased the economic strength

of the countries. But today, the globalization is growing by leaps and bounds.

In our attempt to understand the concept of globalization and its impact on the business

world, the following study was conducted to understand this notion on a limited scale. This study

attempted to give understanding about the concept of globalization, its advantages and

disadvantages on the economies of the world especially on the business world. In order to carry

out this study, a multi-national corporation, Apple Inc., was selected. This study focused on the

operations of Apple Inc. and the impact of globalization on the company. All the related

information was obtained from the secondary data resources.

On the basis of the findings of the study, some of the recommendations were made that

can help the company to leverage its market position in the global scenario.

Globalization

Everyone has its own understanding about this concept. Their definitions and

understanding about the concept of globalization differs. The most unified definition of

globalization explains that it is a concept in which the different economies of the world

amalgamate or unify with each other by reducing the barriers like tariffs of international trade,

fee related to export and quotas on the imports. The globalization focuses on maximizing the

economic efficiencies of the countries that are related to the wealth, products, services,

manufacturing, supply chain, labor etc. by developing and fostering international relations,

understanding and competition. It specifies the processes and operations that can be utilized by

the economies, cultures and businesses with the help of different modes like communications,

supply chain activities, distribution networks etc.

According to Bhagwati (2004) the term globalization is very “ closely associated with the

term economic globalization: the integration of national economies into the international

economy through trade, foreign direct investment, capital flows, migration, the spread of

technology, and military presence’. While Sheila L. (2004) asserted that “globalization is

usually recognized as being driven by a combination of economic, technological, socio cultural,

political, and biological factors”.

It widely impacts the processes of a country that may relate to the political, social,

cultural, technological, environmental frameworks as well as the economy of a country. The

social and cultural system is widely affected by this concept as the amalgamation of other

cultures tends to change the culture of home countries (Conversi, 2009).

This mighty concept is not new to the people; it dates back to the early nineteen century.

From almost a millennium back, the people, and corporations as well are engaged in the process

of buying and selling the goods and services in the other countries or lands that are located at a

distance. Ahmed et al. (1993) explained that many studies measure these global activities on the

base of country size and by the growth of the company. Recently there is advancement in the

measurement methods that are based on econometrics and advanced computer technology. Over

the past decades, it is been said that the international trade has grown too far which is the direct

product of globalization.

The trade around the world has been noted to be increased around thirty folds since the

mid nineties (WTO, 2007). This resulted in increased benefits to the consumers around the globe

with respect to the selection of the products. The increased financial linkage with the countries

around the globe has increased the degree of diversification in the products and services offered

by the companies and the countries are able to cope with the idiosyncratic shocks. Thus there is

profound correlation between the level of risk sharing between the countries and the production

specialization process (Kalemli-Ozcan et al. 2003).

The tremendous increase of globalization has significant impact on the countries around

the globe and the people living there. It has transformed various businesses like Detroit’s Big

THREE or Bangalore to IT hub from small to large enterprises. It has played vital role in the

increased prosperity of the world since 1950’s which has now spread from United states and

Europe to the regions like China and India, which were considered formerly as poor countries

(Schifferes, 2007).

With the advent of globalization process, the world trade has increased much faster than

the overall growth of the world economy since 1955. The globalization has helped to reduce the

trade barriers like tariffs on the export of manufactured goods. The countries like Japan, Korea

and China have witnessed increase in their living standards due to international trade. Many

MNCs are outsourcing their manufacturing units overseas to enjoy cheaper labor cost and stay in

the competition. Recently, Apple, Multinational giant, has considered outsourcing its production

unites to the companies in Asia specially China and has become a virtual firm (Schifferes, 2007).

The globalization has not only changed the way of manufacturing to various

organizations but also it has revamped various service sector businesses. Many services related

jobs are under the continuous threat and fear of outsourcing as the global companies tends to

master costs by shifting their functions to the other countries (Nadvi, 1995; Parthasarathy, 2004).

The above discussion has briefly explained the meaning, the definition of globalization

and its impact on the world economies and trade specifically. The following discussion will

consider Apple Inc., a multinational company, in respect of globalization to study its impact on

the company at large.

Apple Inc.

Apple Inc. is an American based multinational company whose stocks are listed in the

New York Stock Exchange and NASDAQ (National Association of Securities Dealers

Automated Quotations) under the symbol AAPL. The company specializes in the design,

development and manufacturing of electronic equipments like computers, software and smart

phones. The hardware related product line of the company is well known to everyone; including

iphone, Macintosh and ipad and ipod respectively. While there are multiple range of software’s

offered by the company to its customers that ranges from operating system to the entertainment

and educational based software suits.

By the end of year 2010, the company had over three hundred retail stores (Spence, 2010)

in ten countries (Apple Inc., 2011) as well as an online store that offers its products to the

customers across the globe. According to Heft and Vance (2011) the company is now officially

listed as number one company that provides wide range of technology related products in the

world after surpassing Microsoft as well as one of the largest company in the world.

The company was established in 1976 and was incorporated in the early year of 1977

(Apple Inc., 2011). It was first established as Apple Computer Inc. but later on, by mutual

agreement, the company founders removed the world computer from its name in order to show

their expansion strategies in the other consumer electronic products and markets (Form 8-k SEC

Filing, 2007; Markoff, 2007). By the end of the year 2010, the company had over forty five

thousand employees working on full time basis and around three thousand employees

worldwide. It was noted that the company had earned the annual sales of around sixty seven

billion US dollars from its worldwide operations (Apple Inc., 2010).

The company has due to varying reasons like its business strategies, operational

philosophy, unique design and distinctive marketing campaign has achieved a distinct market

position and reputation in the global electronic industries. This unique market position is due to

its loyal and devoted customer base and its brand equity, especially in the markets of United

States (MacNN, 2006). The company is listed as one of the most admired companies in the

United States and in the World for four consecutive years (Fisher, 2008; Colvin, 2009; Fortune,

2010). It has also received lot of criticism from the people which is mainly related to its business

practices, relationship with supply chain partners and its impact on the environment (Musgrove,

2006; Gonsalves, 2008).

Apple and Globalization

Business Strategy

According to Michael Porter (1998), a firm can use two basic types of business strategies

to leverage its business by utilizing its strengths and combining them with the number of

available positions to market its products. These business strategies are cost leadership strategy

and differentiation strategy.

Apple is currently working on the differentiation strategy by putting unique elements in

the design and development of its products. The differentiation strategy is defined as a strategy

that aims to develop the products and or services that have unique characteristics that are well

liked by the customers and are valued by them. This strategy enhances the market position of the

companies with respect to their counterparts (Porter, 1998).

Apple Inc. strives hard to provide excellent usage experience to its customers by offering

innovative products in terms of hardware, software products as well as other offerings. The

company is using its ability to design unique products and operating systems etc. with its

integrated business units and design units. The success of the company in the global markets is

due to its extensive focus on the market research and development for the development of its

products and services. With reference to its business strategy, the company is in a continues

process to build and advance the robust platform that can enhance the listing of third party

content like mobile phone apps, games etc on its online stores or its iTunes store (Apple Inc.,

2010).

Moreover, the company strategies also involve the expansion of its distribution network

in order to improve its global reach by providing high quality products and services with after

sales services to their customers. Therefore, the company is positioned uniquely in the markets to

offer superior and integrated digital technologies and productivity solutions.

Markets and Distribution

The customer segments of the company are divided into various categories. The needs of

the main customers markets it caters are of small and medium businesses, education sectors,

large corporations, government departments and other related markets. In order to meet the needs

and wants of these consumer markets, the company is utilizing direct and indirect distribution

channels including online sales services, retail stores and direct sales force as well as third party

sellers, retailers etc. Using direct sales contacts with the customers is, believed by the company,

leveraging its product sales and has demonstrated as an advantage to the company over its

competitors. In order to maximize its sales and to make sure that the buyers are receiving high

quality experience, the company is in a process to expand and improve its existing channel

distribution network (Form 10-k SEC Filing, 2010).

Competition

The company faces aggressive competition from the other market players. According to

Hoover (2011) the top three competitors of Apple Inc. in United States are Fujitsu Technology

Solutions (Holding) B.V., International Business Machines Corporation and MediaNet Digital,

Inc. respectively. The needs of the markets it caters are highly competitive in nature due to the

ever changing and advancing technological environment and the rapid introduction of new

technology based products. The main competitors of the company are following cost leadership

strategies by reducing the prices of their products or by maintaining low profit margins to

maintain their market share.

There are various forces that can impact the business and profitability of Apple. These

factors may include the marketing mix – product, price, place, promotion strategies, product

performance, the quality and reliability of the product, innovative designs as well as the

availability of up to date software services. Currently, the management of the company is

focusing on the expansion of its business markets related to the smart phones and other media

and communication devices. Therefore, it is expected that the competition in these markets will

tend to increase for the company.

Moreover, some of the competitors of the company have number of resources which they

can utilize against the company to provide the product and service offerings related to Apple at

little or no margin and, worst for the company, can collaborate with one another to offer the

business and consumer products and services similar to Apple’s products at low price range

(Form 10-k SEC Filings, 2010).

Products and Services

Apple is currently using in house manufacturing system for the production of all of its

products. All the products like Mac, iphone, ipad and ipod etc. are designed, developed and

marketed via its main manufacturing hub which is located in the USA. But, as mentioned earlier,

the company is outsourcing the production of some of its product parts to the various

international and national supply chain partners; subcontractors. Some of the components of its

products, ipod, are outsourced to its subcontractor in Hong Kong from where it is sent to the

outsourced production plant of the company (Linden et al, 2007).

Some of these components are of high cost. While the other products like hard drive and

flash memory etc. are sent to the other companies or outsourcing companies like Toshiba in

Japan or Samsung in Korea. Large number of its components is of low cost. The metal

components of the products are made by the outsourcing unit in Taiwan called Foxconn and the

plastic components are products by the outsourcing units in Singapore (Brown, 1998, p.198).

Finally these parts are assembled in the China and then transported to its sales outlets across the

world (Kahney, 2008).

Source: Linden et al, 2008; Value Chain for Apple Ipod

The company offers various deals on the events like Christmas, Saint Peter’s day, black

Friday etc. these offers are then expanded on a global basis. For instance, the company offered a

customized deal on the black Friday event last year for its customer base in the United States.

This specific deal was expanded for the European countries. This event was in the mid of the

year in the United States while in the European countries it was in the November. This

globalized offering increased the sales of company products not only in the US markets but also

in the European markets (Smith, 2010).

Outsourcing Plants

It has built its integrated manufacturing and design facilities in the various countries for

example in California, Singapore etc. This global network allows the company to develop and

launch the products in its markets of America, Asia and Europe. It produces its products, for

example ipads, in the Shanghai, China which has given it a cost saving advantage and lead to the

increased profitability for the company (Chaffin, 2002). But on the other hand, this outsourcing

has increased the downsizing and unemployment rate in the home country (Rodriguez-Clare,

2011).

As these outsourcing plants contribute to the success of the company in the global

markets but these also have some issues linked with the manufacturing of its products. Some of

the outsourcing plants managed by the company are showing troubled situations for Apple. Early

this year, the company has released its supplier responsibility report in which it has specified the

unethical practices performed by its suppliers. One of its suppliers had employed over forty

minors at the outsourcing units. Moreover, the suicide cases at Foxcon plant and the waste

release issue at one of its “Wintek touch screen facility” has badly affected the company

operations and its global image. The global manufacturers like Apple, Dell etc. and various

others are vulnerable to the practices performed by its subcontractors. These unethical practices

are accounted on behalf of the company and therefore have created problems and hindrances for

the company in the global markets (Sherman, 2010, 2011).

The company was recently alleged for paying very low monthly wages (almost $50 per

month) for a 15 hour work shift. The company responded to these allegations that "Apple is

committed to ensuring that working conditions in our supply chain are safe, workers are treated

with respect and dignity, and manufacturing processes are environmentally responsible," said a

written statement from Apple spokesman Steve Dowling. "We are currently investigating the

allegations regarding working conditions in the iPod manufacturing plant in China. We do not

tolerate any violations of our supplier code of conduct" (The Mail, 2008).

Conclusion

The economy of the world has now become free from any boundary. All the countries are

now considered integrated with one another as one global market for carrying out various

activities like trade, relations, etc. At one side globalization is well appreciated and defended as a

harbinger of large numbers of opportunities for the countries and corporations while on the other

side anti globalization groups dislike this process that there are certain people who are not able to

take part in this process and therefore faces the negative impact of on their economies, lives and

businesses.

Every process or function has positive and negative impacts associated with it. If the

globalization has so many positive influences on the world economy and trade, it also has some

negative impacts on the social, cultural lives, and it has increased disparity within the people.

There are many critics that are continuously expressing their views against globalization. But the

point to be considered is that it gathers the information about the global markets and companies

to operate. On the basis of this information, the companies can excel in the markets by engaging

into strategic acquisitions, developing markets etc.

Recommendations

This study briefly discussed the impact of globalization on the world and on the Apple

Inc. the study findings showed that the company is doing pretty well in the global markets due

the integrated resources and operative capabilities that are outcome of globalization. On the basis

of these study findings, following recommendations are made for the Apple Inc. which can be

helpful for the company to improve its supply chain partnerships and associations:

1. Apple Inc. lags only in its outsourcing associations with the other companies at

different countries of the world. In order to improve the outsourcing practices

ethically, Apple can strictly ask its outsourcing partners to comply with the ethical

rules, and regulations.

2. It can hire the team of internal auditors to conduct surprise visits in these outsourcing

units to check out their operative practices.

3. The company can also enter into a contract with these outsourcing units that if they

found guilty, the company will immediately terminate the working contracts.

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