apple ipad in india
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TABLEOFCONTENTS
APPLEIPADININDIA 4
EXECUTIVESUMMARY 4
WASTHEREAWAYOUT? 5
THEREPUBLICOFINDIA 5
TABLETPCINDUSTRY 7
APPLEINCORPORATED 9
STRATEGICPLAN 10
APPLEIPADININDIAWORKSCITED 12
APPENDIXICOUNTRYANALYSIS 14
COUNTRYBENEFIT/COST/RISK 14
COUNTRYBENEFIT 14
COUNTRYCOST 15
COUNTRYRISK 16
CAGEDISTANCEFRAMEWORK 17
CULTURALDISTANCE 17
ADMINISTRATIVEDISTANCE 18
GEOGRAPHICDISTANCE 19
ECONOMICDISTANCE 20
HOFFSTEDE'SCULTURALDIMENSIONS 21
INDIA 21
UNITEDSTATES 22
APPENDIXIIINDUSTRYANALYSIS 23
STRATEGICGROUPMAPPING 23
DISPLAYSIZE 23
BATTERYLIFE 24
WEIGHT 25
KEYSUCCESSFACTORS 26
PRODUCTLIFECYCLE 27
PORTERS5FORCES 28
PORTERSDIAMOND 29
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APPENDIXIIIFIRMANALYSIS 30
SWOT 30
PORTERSGENERICSTRATEGIES 31
RESOURCE-BASEDANALYSIS 32
TANGIBLERESOURCES 32
INTANGIBLERESOURCES 33VALUECHAINANALYSIS 34
FINANCIALRATIOANALYSIS 35
APPENDICESENDNOTES 36
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EXECUTIVESUMMARY
Indiaoffersawealthofopportunitiesforbusinessexpansion.Thoughthecountrymaintainsalargegapbetweenthewealthyandthe
impoverished,Indiasmiddleclassrepresentsagrowingconsumerpopulationexpectedtoincreasefromabout5%ofthepopulationto41%by
2025,anincreaseinmiddleclassconsumersfrom50millionpeopleto583millionpeople.1WhileIndiarepresentsavastlydifferentculturefrom
theU.S.,Applehassignificantexperiencedealingwithsuchculturaldimensionsasorganizationalcollectivism,highpowerdistance,andamoderatelevelofuncertaintyavoidancethroughitsforayintobothChinaandJapan(seeAPPENDIXI,Exhibit3.1).2,3
ApplehaswronglydeterminedthatIndiaisaninconsequentialmarketintheshort-term.4Itisunrealistic,however,forAppletobelieve
thatconqueringtheIndianmarketisamatterofwaitingforseveralyearsuntilthecountrysinfrastructureisestablishedandthedemandfor
TabletPCsismoreclearlyoutlined.ApplemustconsiderIndiainitslong-termperspectivebyinvestingthereintheshort-termorelseitwillnot
retaintheoptiontoenterthemarketmorefullyatsomeindeterminatepointdownthelinewhenitseesamoreclear,completepictureofwhat
theIndianmarketmeansintermsoffinancialpotentialandstrategicopportunities.
Fromafinancialstandpoint,IndiasuitsAppleslong-termprofitabilitygoalsbecauseIndiadoesnotrequireAppletoreacheveryone;rather,
ifApplecanpenetrateevenasmallportionoftheIndianmarketandcreateconsumervaluethere,itwillbetargetingmillionsofnewconsumers
withanincreasingamountofdisposableincome.5
Fromastrategicstandpoint,ApplesgoalistobeamongtheindustryleadersintheTabletPCmarketinIndia.Thisrequiresexpansion
throughorganic,internalgrowthandacombinationofoffensiveanddefensivestrategies.MovingintoIndiamoredirectlyandcompletelynotonly
enablesAppletotakeanoffensiveapproachtogaininggreatermarketshareasitcompeteswithSamsungandRIMinIndia,butalsoallowsApple
todefenditsmarketpositioninIndiabybeingpresentinthemindsofcompetitorsandconsumers.Aslongasitscompetitorscontinueto
expand6,7,ApplewillnotbeabletodefenditselffromlosingafootholdwithoutasimilarlycomprehensivestrategicinvestmentinIndia.
ApplesplaninIndianeedstofocusonthreeparts:bringingtheAppleexperiencetoIndiathroughitsAppleStoresandhigh-qualityretail
environment,integratingiTunesusebyIndianconsumerswithitsoverallbrandimageandmarketpenetration,andestablishinganIndian
distributionnetworkthroughwarehousingwiththepotentialforeventualexpansionintoproductmanufacturing.
1Nextbigspenders:Indianmiddleclass.
2CulturalDimensions:China.
3CulturalDimensions:Japan
4IloveIndiabutnotitsdistributionnetwork:AppleCEO
5
InterviewwithJayanthNarayanan.6Samsungplanstoexpandretailfootprinttoover1000outlets
7Blackberry-makerResearchInMotiontoexpandfootprintto160citiesinIndia
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WASTHEREAWAYOUT?
THEREPUBLICOFINDIA
Historically,IndiahasmaintainedarelationshipwiththeUnitedStatesthatistraceabletoitsrootsintheCommonwealth,thereachofthe
BritishEmpire.Consequently,bothIndiaandtheU.S.shareEnglishasalinguafrancaandIndiancommercethereforemaintainsEnglishasthelanguageatitscenter.DespiteIndiastiestotheSovietUnionduringtheColdWar,IndiaandtheUnitedStateshaveneverexpressedopenpolitical
hostilitytowardsoneanother.Moreover,bothnationshaveascribedtomanyofthesamekeyinternationalpolitical(UN)andeconomic(WTO,
IMF)organizations,vitaltotherelationshipbetweenthetwo.
Inspiteofitspoliticalfoundationasademocraticrepublic,Indiasrealeconomicliberalizationhasonlybeguntotakeplaceoverthepast
twodecades.Duringthistime,Indiahasseenanincreaseinforeigndirectinvestmentandasteadyriseinoveralleconomicgrowthasitchases
Chinatobecomethefastestgrowingnationintheworld.Mostrecently,Indiahasreducedtheregulationthatforeigncompaniesmaynotinvest
morethan51%intoanewventureandextendedthisallotmenttoallowfor100%investmentbysingle-brandcompaniesorventures.
Beyonditsprojectedeconomicgrowthandstridestowardsincreasedpoliticalstabilityinthefuture,Indiaisalreadythesecondmost
populousnationintheworld.
8
Simplybypopulationnumbers,aninvestmentinIndiasthreemostpopulouscitiesaloneMumbai
9
,NewDelhi
10
,andBangalore11withasalesreturnof1%ofcitizenspurchasinganiPad12,wouldresultinrevenueof$159,551,686.32.Withprojectedgrowth
continuingtoincreaseinthenextseveralyears(seeAPPENDIXI,Exhibit1.1),thesheersize,andthereforesalespotential,oftheIndianmarket
providesasignificantbenefittocompaniesanchoringbusinessthere.
Inadditiontothisincrediblequantityofconsumers,firmslookingtodobusinessinIndiaarefindinganimprovingqualityofconsumerthere
aswell.Whilemanyconsumersarestrictlyconcernedwithpricepoints,premiumconsumersarenowemergingaswell,wealthyindividualsor
thosewhoearnsalariescomparabletoglobalpayscales.13Forthem,moneyisnotstrictlyalimitastheyyearnforthebestproductsavailable
globally.14Cutting-edgeproductsandaspirationalproductsdrivetheseindividualsandtheyarewillingtopayaheftypremium.Whilethis
marketingsegmentissmall,theseconsumershavethebuyingpower.15Applesbrandingpositionasadifferentiatedproductthatdoesnot
competeonprice(seeAPPENDIXIII,Exhibit10)servesthemwelltoofferpremium,high-quality,well-designedproductsatahighpricetothese
consumers. AnothersegmentthatwillcometodefinetheTabletPClandscapeinIndiaoverthecomingyearsistheValueCustomer:atypicalworking
classconsumerearningbetweenUS$10,000and$50,000annuallyandsimilartoanaverageNorthAmericanconsumerinmindset.16Thismeans
81,205,073,612(July2012)
912,478,447(2011)
1011,007,835(2011)
118,425,970(2011)
12US$499.97
13InterviewwithJayanthNarayanan.
14
Ibid.15Ibid.
16InterviewwithJayanthNarayanan.
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thattheyhavestrongbrandaspirationsbutwillseekvaluebywaitingforsalesratherthanbeingearlyadopters.17Thefocusonvalueformoneyis
veryhigh,andtheytendtoresearchsignificantlyandcomparefeaturesandpricesextensivelybeforemakingabuyingdecision.18Newproducts
andinnovativetechnologiesareworthaspiringtosolongastheyprovidevalue.19
ThecostsofdoingbusinessinIndiaremainhighasinefficienciesininfrastructureandgovernmentbureaucracycreatesgreateroperations
expense(seeAPPENDIXI,Exhibit1.2).AnotherlargebarriertogreaterentryintoIndiaremainsitspoorinfrastructure,primarilyroadsand
electricalgrids.Thecosttoovercometheseissignificant,butfewcompaniesmaintainthefinancialresourcestofundsolutionstotheseissues(see
APPENDIXIII,Exhibit13).Moreover,Indiaoffersbusinessesasignificantamountofqualityhumanresourcesandafinancialsystemthatis
responsivetointernationalbusinesstransactions.Bothoftheseoff-setsomeoftheinfrastructuralcostsofdoingbusinessinIndia.
LookingattheoverallrisksituationinIndia,thefundamentalissuesarebureaucracyandpoliticalcorruption(seeAPPENDIXI,Exhibit1.3).
Bureaucracycreatesinefficienciesforbusinessesbecausetheprocessofsettingupandrunningabusinesscantakelongamountsoftime.Inthis
case,politicalcorruptionemergesasbusinessesaimtocircumventtheregularwayofdoingbusinesslegally.ForAmericancompanies,theForeign
CorruptPracticesAct,afederalstatute,embodiesCongressionalintenttoexercisejurisdictionwherethesecompaniesengageinactsofbribery
abroad.However,avitalexceptionexiststothestatutesbaseprovisions,statingthefollowing:
(b)Exceptionforroutinegovernmentalaction
Subsections(a)and(g)ofthissectionshallnotapplytoanyfacilitatingorexpeditingpaymenttoaforeignofficial,politicalparty,orpartyofficialthepurposeofwhichistoexpediteortosecuretheperformanceofaroutinegovernmentalactionbyaforeignofficial,political
party,orpartyofficial.20
Thisstatuteallowsfortheuseofso-calledgreasepaymentstoalleviatebureaucraticdelaysforservicestowhichabusinessisentitledapriori.
WhileAmericancompaniesmaynotengageinbriberytoattainanillegalresult,theabilitytoincreasebureaucraticefficiencyisexceptionally
valuabletoacompanylikeApple(abundantfinancialresources)inacountrylikeIndia(highbureaucraticbarriers).
17Ibid.
18
Ibid.19Ibid.
20ForeignCorruptPracticesAct.
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TABLETPCINDUSTRY
TheTabletPCindustryisdefinedbyasignificantmarketsize(nearly63.6milliontabletssoldgloballyin2011)withagrowthrateof261.4%
fromthepreviousyear.21Rivalrywithintheindustryisintenseascompetitorsincludesomeofthelargestfirmsintheworld.Additionally,the
natureandthepaceoftechnologicalchangerequireconstantinnovation.
Manyofthesefirmsincorporateforwardintegrationintotheirdistributionstrategyandmaintaincontrolovertheirpointsofsaledirectly.Globally,flexibilityinthisregardhasproventobeanadvantageinmarketswhereinfrastructureisweakandthesekindsofmicro-managed
distributionchannelsarecostlytocreate.22ThedesignanddevelopmentofTabletsistaxingfromacapitalstandpointbecauseitisbyitsnaturea
high-techindustryandthereforerequiressignificantinvestmentinresearchanddevelopmentinputs.Fornewentrants,thesecostspose
significantbarrierstoentry;forlargerfirms,thesecostscanposebarrierstoexitasitcantakesignificantresourcestoestablishthecapacityto
manufactureTablets.
Goingforward,theTabletindustryisexpectedtogrowatanexponentialrate.AstudybyInfiniteResearchsuggeststhat147.2millionunits
willbesoldin2015,asignificantincreaseoverthe16.1soldin2010thatrepresentsacompoundannualgrowthrateof56%.23Astheindustry
movesthroughthegrowthphaseandintomaturity,consumerusagewillcontinuetobemorewidespread:inIndia,thiswillreflectanexpansionof
TabletsintoaproductadoptedbyanincreasinglysophisticatedIndianmiddleclasswhohasmoredisposableincomeandayouthdemographic
interestedinmobilewebtechnologies.24Movementintomaturityalsomeansthatfewerfirmswillcontinuetocompeteeffectivelyasmanyareforcedtoexittheindustry.Firms
thatdonotsellwellduringthegrowthphasewillnotbeabletorealizetheeconomiesofscaleandexperientialvalueofthelearningcurve
necessarytomaintainmarketshareandsustaincompetitiveadvantageastheTabletmarketreachesmaturity.
Fromaninstitutionalperspective,theIndianbusinessenvironmenthasbecomeincreasinglymoreliberalizedinrecentyears.The2012
foreigndirectinvestmentreformsmeanthatfirmslikeApple,whoaddvaluetotheirsupplychainbycontrollingthepoint-of-sale,canmaintain
thiscorecompetencyinIndia.ThetrendtowardsreducedeconomicbarriersinIndiaandtradeliberalizationhasbeenongoingsincethemid-1980s
andwhilenotprogressingatanoptimalrate,appearstobecontinuingsteadily.25,26
Despitetrailingbehindintermsofmarketshare,Appleiscapableofhandlingtheindustryscompetitiveforcesinaneffectiveway(see
APPENDIXII,Exhibit7).BothbuyersandsellershavelittlepowerwhendealingwithApple.SellersareeagertomanufactureAppleproductsorprovidecomponentpartswhilebuyerscannotindividuallyaffectpricechanges,betheyconsumersorauthorizedresellers.
WhileseveralsubstituteproductsstillthreatenthemarketforTablets,themajorityofthese,suchasdesktopcomputersandvideogame
consoles,areatalaterstageintheirrespectiveproductlifecyclesthantheTablet.Therefore,thegrowthpotentialforTabletswillallowthis
emergingindustrytoedgeoutmanyofitscompetingsubstitutesgoingforwardandevenpotentiallyovercomenetbookcomputersalesby2016.27
21GartnersaysAppleWillHaveaFreeRuninTabletMarketHolidaySeasonasCompetitorsContinuetoLag
22WhyIsntAppleInterestinIndia?
23WorldwideComputerTabletMarketForecast
24TabletIndustryInIndia(2011-15)
25
EconomicSurveyofIndia 26StartingaBusinessinIndia
27TabletShipmentsToOvertakeNotebooksin2016,NPDSays
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Regardingthethreatofnewentrants,themostwell-establishedfirmsarehandsomelyfinanced,havestrongbrandawareness,and
possessintellectualpropertyrightsoverthekeyfacetsoftheirdesignandmarketingprocesses.Newentrantswillberequiredtoinvestheavilyin
expensiveresearchanddevelopmenttocreateinnovativeproductsthatdonotreplicatethosealreadyofferedbythelargestfirmsintheindustry.
ThethreatofnewentrantsintotheIndianTabletmarketisveryreal;thepossibilityofsmallerfirmsattaininglargesharesofthemarketifbigfirms
likeApple,Samsung,andToshibacontinuetoinvestheavilyinIndiaisnot.
AppleskeycompetitorwithintheIndianTabletPCmarketisSamsungbecausetheybothsellwithinthesamepriceandqualityrange.Each
ofthesecompanieshasestablisheddistributionchannelsthatrunthroughweb-basedandbrick-and-mortarauthorizedresellers,butSamsungalso
providesTabletsalesonitsowne-storewebsite.28Further,AppleandSamsungarebothverticallyintegratedtothesamedegree.29Asoflate
2011,bothcompetitorsofferedtwotabletsforIndianconsumerstochoosefromwhichoffersimilarproductfeatures:high-definitiontouch
screens,fastwebbrowsingcapabilities,interactiveandcustomizableuser-friendlyhomescreens,accessorycompatibility,remoteconnectivity,
andmediafunctions.
Lookingmorebroadly,allcompetitorswithintheIndianTabletPCindustryincludingAcer,Dell,HP,Motorola,RIM,Toshiba,andHTC
centertheirrivalpositioningaroundthreekeysuccessfactors:performance,portability,andprice(seeAPPENDIXII,Exhibit5).Intermsof
performance(DiskSize,Resolution,BatteryLife),ApplesiPaddoesexceptionallywellcomparedtoitscompetitorsandoutpaceseachofthem
whenlookingatanaggregatedperformancescorecomprisingthesethreeelements.30Appleis,however,inthemiddleofthepackintermsof
portability:SamsungsGalaxyTab7,DellsStreak,andAmazonsKindleFirearealllighterthaneitherofApplesiPadsandofferasmallerdisplaysize.31RIMsBlackberryPlaybookleadstheindustryintermsofportabilitywithadisplaysizeof7inchesandaweightofjust400ounces,only
about2/3theweightofApplesiPads.32
Fromapricingstandpoint,theseTabletsrangefromUS$199(AmazonKindleFire)to$US799(MotorolaXOOM).33Thisisadiverseprice
range,andApplefallsalmostexactlyinthemiddlearoundUS$500.34WhileAppledoesnottypicallycompeteonprice,straddlingthemidrange
withthepricingofitsTabletsinIndiaallowsAppletoremaincompetitivewithconsumersthatarepricesensitivewithouttheiPadlosingits
reputationorimageasahigh-quality,well-designed,cutting-edgeproduct.35
28SamsungMobileTabletIndia
29Applevs.Samsungwithasideof Sony:VerticalIntegration Wars
30TabletPCComparison.
31Ibid.
32Ibid.
33
Ibid.34Ibid.
35HowToMakeYourCompanyMoreLikeApple
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APPLEINCORPORATED
Onacorporatelevel,Applehasdecidedtocompeteinhigh-techconsumerelectronicsandstrivestocompeteinnumerousmarketsin
ordertocreateavailabilitytoasmanyconsumersaspossible.WhileithasestablishedapresenceinIndiathroughtheuseofpremiumresellers,
itshouldbemoredynamicallyinvestedintheIndianmarketbecauseoftheincrediblegrowthpotentialandmarketsize.ThoughApplemaynot
valueIndiaintheinterim,itwillnotbeabletoretaintheoptiontobecomeamajorplayerintheIndianTabletPCmarketatsomepointdownthelineifitdoesnottakethemarketseriouslytoday.
AkeycomponentofApplescorporatelevelstrategyistodiversifytheconsumersegmentsthatittargets,somethingvitalwithsuchdiverse
Indianconsumersegments.36ThisdoesnotnecessarilyhavetodefyApplescommitmenttoanarrowproductlineandcomefromdifferentiated
productdesign,however.ForApple,differentiatingmeanscreatingsynergybetweenitsiPadandiTunes,theworldsmostwidelyuseddigital
entertainmentplatformthatisprojectedtobecomeitsown$32billionbusinessforAppleby2015.37iTunesisagreatmeanstogenerateinterest
inApplesiPadfromdifferentdemographicsasentertainmentiseasilyadaptabletolocaltastesandpreferences.Indiaalreadyhasitsowndigital
iTunesStore,andthisprovidesaforumforAppletocommunicatetheseamlessintegrationofIndianentertainmentwithApplesbroaddigital
medianetwork.
WithintheIndianmarket,Appleneedstoadoptamoreoffensivestrategyatthebusinesslevelinordertobecomeamarketleader.While
AppleleadstheTabletPCindustryintermsofglobalmarketshare,itseffortsinIndiathusfarremainlackluster.AppleneedstocapitalizeontheWesternizationofIndia38,39anditsownfirmresourcesandcapabilities(seeAPPENDIXIII,Exhibit11)byexpandingitsglobalbrandandmakinga
concreteattempttoleadtheIndianTabletmarket.Appleneedstoleverageitsbrandequity40andbringitshigh-qualityproductsandcustomer
serviceexperienceintoanIndianmarketwhereconsumersarebecomingincreasinglysophisticatedasurbanincomesarebeginningtorisewith
theenlargementoftheIndianmiddleclass.Applehasasustainablecompetitiveadvantageintermsofitstechnologicalresources(i.e.itscapacities
fororganizationalinnovationandchange)andcapabilities(abilitytofinanceresearchanddevelopment).Applealsomaintainsacompetitive
advantageinotherintangibleresourcesandcapabilitiesincludingitsreputation41thepublicsperceptionofApple,howeagerlyindividualswould
recommendApple,andhowlikelytheywouldbetoinvestinAppleanditshumancapital:everythingfromApplestoreemployeetrainingto
corporateleadershipthatdrivesemployeestoheightenedlevelsofbothexcellenceandefficiency.Applescompetitivestrategieswithregardsto
itsTabletPCsinIndiathereforeneedtobefoundedonitsabilitytoprovideinnovativeproductsandanoutstandingshoppingexperienceatacompetitiveprice.
Fromafunctionalperspective,ApplesprimaryfocusneedstobeonmarketingitsiPadinIndiasoastomoreeffectivelycommunicate
valuetotheIndianconsumer,avitalfactorforpenetratingIndia.42TheuseofsocialmediaisonewaythatApplesfunctionalstrategycanmanage
36Indianconsumerisextremelyvalueconscious
37Apple'sForgotten$8BillionBusiness:iTunes:
38IndianCultureIncludesWesternCulture
39IsIndiaStillIndia?
40
The20MostIconicBrandAndWhyTheyWork41ApplesReputationistheBestAmongTopBrands
42Indianconsumerisextremelyvalueconscious
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toestablishawarenessabouttheApplebrandandunderstandingaboutitsproductsinahistoricallyunder-brandedmarket.43Thefactthat
Indianconsumershavefeltasenseofbeingproduct-dumpedbyAppleasasecond-rateproductspeakstoIndianconsumersdesirefor
continuedproductdevelopment;forApple,thismeansincorporatinginnovationandproductlineextensionsintoitsfunctionalstrategyinIndia.
AfinalfacetofApplesfunctionalstrategypertainstoitshumancapitalandhowitcreatesacompetitiveadvantage:thein-storeexperience
providedthroughApplescompany-ownedretaillocationsisvitalforaproductthatismosteffectivelyengagedthroughtherelationshipthatApple
haswithitsconsumers.
STRATEGICPLAN
InordertoavoidlosingmarketshareandtoestablishitselfasapremierbrandinIndiaforbothnowandthefuture,Appleneedstoexpand
morefullyintoIndiaandcommittoaphysicalpresencethereforthelong-term.
AppleStoresinIndia
WithoutaretailpresenceinIndia,Appleismissingoneofthekeycomponentsofitsvaluechain:customerservice(seeAPPENDIXIII,
Exhibit12).AppleshouldenterIndiabyestablishingAppleStorelocationsthroughoutIndiaslargestcities.Initially,Appleshouldopenthreestores:oneinMumbai,oneinDelhi,andoneinBangalore.ThesearethethreelargestmarketsinIndiabypopulation,andtheirdispersionaround
threeofIndiaskeyregions(WestCoast,NorthernInland,andtheSouth)willenableAppletogainafootholdfromwhichitcanbegintoestablish
itsowndistributionnetworks.Withintwoyearsofopeningitsdoorsinthesethreemarkets,AppleshouldthenexpandintoHyderabad,oneofthe
wealthiestcitiesinIndiaanditsde-factotech-hub,andKolkatta,alargeportcityintheNorth-EasternregionofIndia.Thesetwocitiesrankfifth
andseventh,respectively,withregardtomostpopulouscitiesinIndiaandarealsoamongthetopfivemostvaluableIndianmarketsintermsof
wealth,levelofconsumption,andoverallawareness.44
ApplesretailentryintoIndiashouldbedoneusingaGreenfieldforeigndirectinvestment.Whilethisposesthemostsignificantamountof
risktoApple,italsooffersthemostcontrol,somethingvitaltothecompleteestablishmentoftheApplebrandinIndia.Fewcompanieshavethe
financialresourcestotake-onthiskindofproject,butAppleiswell-equippedbecauseofitslowdebtandhighcashflow.Asasingle-brandretailer,Applewillnowbeabletoenterwithaforeigndirectinvestmentof100%,aSeptember2012reformthatnearlydoubledtheforeignallotment.
Currently,Applesellsselectnon-AppleaccessoriesinitsAppleStores,somethingthatwouldcauseitsinvestmentinIndiatobecomea
multi-brandinvestmentandwouldallowforupto51%only.Tostrategicallyaddressthisissue,Appleshouldinvestigatethepossibilityof
partneringwithlocalconsumerelectronicsstorestoset-upshopnextdoortoApplelocations.Evenbolder,totakethetacticastepfurther,Apple
couldrentoutaportionofitsactualAppleStoresdedicatedtoanindependentlycontractedaccessoriesretailer,similartoamallkiosk.Thisway,
Applewouldstillexertitscustomerserviceinfluenceoverthepartnerorindependentcontractorwhilebeingallowedtoinvest100%initsretail
locationswithoutpenalty.
43NeedToHaveorNiceToHave:IndianConsumerWantsBoth
44Indiastop10towns.
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ThealternativeapproachforApplewouldbetoenterthroughacquisition;however,thiswouldnotsuitAppleinIndiabecausethey
wouldenduppayingahighpriceforadomesticconsumerelectronicschainsellingdiverseinventorythatApplewillnotretaininitsownstores
andnumerousretaillocationsthataresuperfluousforApplesplantoenterthroughthreeIndianflagshipstoresandexpandsurgicallyfromthere.
Appledoesnotrequirerealestateinhighquantity,butinstead,inhighquality.
iTunesinIndia
iTunesisthecentrallinkbetweenallofApplesdevicesasfarasdigitalentertainmentmedia.ItpresentsahugeopportunityinanyApple
marketbecauseitissupremelystandardizedconsumersallovertheworldwanttobeabletodownloadsongsbyglobalpopartists(thinkAdele)
andbandswhohavemadeacross-culturalimpact(thinkTheBeatles)whilealsoallowingforanexceptionalamountofcustomizationand
tailoringtolocaltastesandpreferences.iTunesisalsothemechanismbywhichAppletakesitbrandontonon-Applecomputeroperating
platforms,allowinguserstoexperienceiTunesontheirpersonalcomputers,engagingwiththeproductandincreasingtheirinterest.Whena
purchasedecisionisstimulatedthroughhavingworkedwithApplesiTunes,ApplethenisabletoselliPadsandiPhones,deviceswhereiTunes
doesnotcrossoperationalborders(i.e.iTunesisnotavailableonSamsungorRIMstablets).iTunesholds66.2%ofglobalmarketshare45andmust
solidifyitselfasthemarketleaderfordigitalmediadistributioninIndiainordertobolsteritsbrandreputationthere.
DistributioninIndia
OneexpensivecostincurredbyAppleinvestingmorefullyinIndiaisthetransportationofitsgoodsfromwarehousesintheU.S.toIndia.ThiscostcouldbereducedifAppleinsteadset-upawarehouseinIndiawheretheycouldkeepproductsfortheIndianmarketinordertomore
easilymeetconsumerdemandasmoreiPadsaresoldinIndia.ThiswouldalsoallowAppleanopportunitytosatisfytherequirementthatatleast
30%ofthevalueoftheirsalesmustbesourcesfromlocalfirms.IfApplemanagestoset-upawarehouseandbeginstoconstructitsownIndian
distributionnetwork,thisiscertainlyanoperationalprocessthatwouldaddvalueandallowAppletosourcelocally.Moreover,creatinglocaljobs
inIndiawillpermitAppletocurryfavourwithIndianconsumersasApplebecomesabroaderemployerbeyondjustitsretailstores.
Further,ApplemaybeabletousethispermanentphysicaloccupationtoinvestigatethepossibilityofmovingsomeofitsChinese
manufacturingoperationstoIndia,anationwhereintellectualpropertyrightsareconcretelyprotected.46Indiaiswell-knownforbeingatech-
savvynationwithalargepoolofworkers.Also,theaverageageofanIndianworkeris23,whileChineseworkersaverage35yearsofage.47
FoxconnalreadyhasafacilityinaSpecialEconomicZoneinChennai48,oneofIndiaswealthiestcities.49,50Lastly,severalIndiancompaniesarein
thesamebusinessasFoxconnandpossesssimilarmassproductioncapabilities,includingBharti,HCLTechnologies,andReliance
Communications.51
45iTunesnowholds66%ofdigitalmusicmarket
46IntellectualPropertyRights
47HedgingChinaCouldAppleManufacturetheiPadinIndia
48Ibid.
49
Top10WealthiestCitiesinIndia 50Top10RichestCitiesofIndia
51HedgingChinaCouldAppleManufacturetheiPadinIndia
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2ForeignCorruptPracticesActReporter,AppendixA(2ded.)
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Applevs.SamsungwithasideofSony:VerticalIntegrationWars,ZDNet(July30,2012):http://www.zdnet.com/apple-vs-samsung-with-a-side-of-sony-vertical-integration-wars-
7000001818/
ApplesReputationistheBestAmongTopBrands,WallSt.CheatSheet(February2012):http://wallstcheatsheet.com/breaking-news/apples-reputation-is-the-best-among-top-
brands.html/
Blackberry-makerResearchInMotiontoexpandfootprintto160citiesinIndia ,TheEconomicTimes(February13,2012):http://articles.economictimes.indiatimes.com/2012-02-13/news/31055152_1_blackberry-smartphones-blackberry-curve-blackberry-style
CulturalDimensions,China. GeertHofstede:http://geert-hofstede.com/china.html
CulturalDimensions,Japan. GeertHofstede:http://geert-hofstede.com/japan.html
CulturalDimensions,India. GeertHofstede:http://geert-hofstede.com/india.html
EconomicSurveyofIndia ,OrganisationForEconomicCo-OperationandDevelopment(October2007): http://www.oecd.org/economy/surveys/39452196.pdf
GartnersaysAppleWillHaveaFreeRuninTabletMarketHolidaySeasonasCompetitorsContinuetoLag ,GartnerReport:http://www.gartner.com/it/page.jsp?id=1800514
HedgingChinaCouldAppleManufacturetheiPadinIndia ,ChinaBriefing(February17,2012):http://www.china-briefing.com/news/2012/02/17/hedging-china-could-apple-
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IloveIndiabutnotitsdistributionnetwork:AppleCEO ,DailyNews&Analysis(July25,2012):http://www.dnaindia.com/india/report_i-love-india-but-not-its-distribution-
network-apple-ceo_1719714
Indianconsumerisextremelyvalueconscious:LutzKothe,VolkswagenPassengerCars ,TheEconomicTimes:http://articles.economictimes.indiatimes.com/2011-07-
20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars
IndianCultureIncludesWesternCulture ,IndiaFirst-Hand(September22,2010):http://indiafirsthand.com/2010/09/22/indian-culture-includes-western-culture/
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Exhibit1.1CountryBenefit,India
MarketSize/SalesPotential
TheTabletPCmarketinIndiaisoneofthefastestgrowingmarketsaroundtheglobeandisexpectedtosurpassUS$800Mby2016.Withits
introductioninJuly2010inIndia,themarkethaswitnessedhugegrowthintermsofdemand,shipmentsandemergenceofvariousplayers,
national&international,intheindustry.ThefiguresandthegrowthrateindicatethattheTabletPCmarketisstillanichemarketinIndiaand
hashugepotentialinthecomingyears.
Ease&Compatibilityof
Operations
FromaBusinessOperationsperspective,USfirmsareabletoeasilyattracttalent-thebestemployersinIndiaareconsideredtobetheMulti-
NationalCompanies,whichtypicallyofferbettersalaries,5daywork-weekswith8-9hourwork-days,andhaveabetterculture.SotheUSfirm
shouldbeabletoattractreasonablygoodtalenteasilytoset-upandmanagetheiroperations.1
ResourceAvailabilityIndia'smajormineralresourcesincludeCoal(fourth-largestreservesintheworld),Ironore,Manganese,Mica,Bauxite,Titaniumore,Chromite,
Naturalgas,Diamonds,Petroleum,LimestoneandThorium.
PriceLevels&ElasticityThePriceLevelsandelasticitytendtostayconstantinIndialongerthanintheUS.Consumersarecomfortablewaitingforayeartobuya
productatalowerpricelevelthanpayabigpremiumtobuytheproductduringlaunch.2
IncomeLevels&ElasticityAnannualsalaryof$10,000isconsideredOKinIndia.95%oftheIndianpopulationmakeslessthan$5,000peryear.Sothetargetsegmentfor
productslikeApplewillonlybe2-3%ofthetotalpopulation.InflationinIndiaisveryhigh-7%+perannumtypically.Sothisalsoplaysabigrole
intheactualspendingpoweroftheconsumers.3
IncomeInequalities
InequalityinearningshasdoubledinIndiaoverthelasttwodecades,makingittheworstperformeronthiscountofallemergingeconomies.
Thetop10%ofwageearnersnowmake12timesmorethanthebottom10%,upfromaratioofsixinthe1990s.Moreover,wagesarenot
smoothlyspreadouteventhroughthemiddleofthedistribution.Thetop10%ofearnersmakealmostfivetimesmorethanthemedian10%,
butthismedian10%makesjust0.4timesmorethanthebottom10%.
SubstitutabilityofProducts
WhileTabletPCshavebecomeanemergentindustryglobally,theirtreatmentinIndiaasnotonlyanemergingproduct,butalsoaniche
product,meansthatthereisahigherloyaltytosubstituteproductsinIndiauntilthepopularityofTabletPCsincreases.Substituteproducts
rangefromothercomputingdevices(i.e.laptopsanddesktops)andvideogameconsolestopersonalentertainmentdevicesandmobilephones
(i.e.smartphones).
ExistenceofTradingBlocs WorldTradeOrganization
Taste&OtherCulturalFactorsTheconsumerinIndiaisextremelyvalueconscious;theyarenowwelltravelledandeducatedandthereforeareawareofwhatisavailablein
thewesternworld.Theywantthelatest,mostmoderntechnologywithouthavingtopayaheavypriceforit.4
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Exhibit1.2CountryCost,India
LabourCost Low,butgraduallyincreasing.5,6
UtilityCosts
UtilitycoststhroughoutIndiavarygreatly.InMumbai,forexample,theaveragemonthlycostforbasicutilities
(electricity,gas,water,garbage)fora278.8squarefootapartmentrunataboutUS$36.99,withcostranginginthe
cityfromUS$25.11toUS$80.70.AsofMay2012,theaveragesizeofanApplestoreisabout8,400squarefeet7,so
withoutfactoringinadditionalcostsaddedtocommercialrealestateinadditiontoresidentialrealestatein
Mumbai,averagemonthlyutilitycostsforasingleApplestoreinthiscitywouldcostUS$63,312.25
TaxRatesCorporateTax:Themaincorporatetaxrateisaround42%.Upto30%ofincomeistaxablefordomesticcompanies
aretaxable,inadditiontoa10%surchargeanda2%fee.Forforeigncompanies,40%ofincomeistaxable,witha
2.5%surchargeand2%educationfee.8
RealEstateCosts High(Urban)/Low(Rural)
AvailableCapitalCosts
MostforeigncompanieswillberequiredtobringtheirowninvestmentintoIndia-thegovernmenthasbeen
aggressivelypromotinginvestmentsintothecountryandofferstaxbenefits,incentivesetc.TheotherapproachforeigncompanieshavetakenistoropeinalocalJVpartnerwhoowns50%oftheentityandalsoinvests50%in
thebusiness.E.g.HondaCarsIndiaisaJVwiththeShriramGroup.HondaTwoWheelerswasaJVwiththeHero
Groupwhentheysetitup-Hondaboughtthelocalpartner'sstakelastyear.Havingalocalpartnermakesiteasier
fortheforeigncompanytoestablishandstarttheoperationsinIndia.AppleinIndiaisrepresentedthrough
RelianceDigital-RelianceisoneofthelargestbusinessgroupsinIndiaandthepromoter,MukeshAmbani,is
amongthe100richestindividualsintheworld.9
TransportationCosts High(Commercial)
OtherInputCosts High
SupplyCosts
LogisticsisanightmareandalsoveryexpensiveinIndia.Flipkart(www.flipkart.com)-thelargestconsumer
shoppingsiteinIndia,hasitsowndistributionnetwork.FuelcostsarehigherinIndiathanintheUS(aliterofPetrol
costs$1.5inIndiatoday).Inaddition,eachstatehastheirownTaxstructure-soshippingproductsbetweenstates
isnotveryseamless.IndiaisstillonaVATstructureandnotaGSTstructure.Thismeansthatifaproductis
manufacturedinastate,andsoldtoaconsumerinanotherstate,Taxisapplicableinbothstates.Thisincreasesthe
costoftheproduct.10
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Exhibit1.3CountryRisk,India
Systemic
PoliticaldisagreementshaveadirecteffectonIndianeffortstocreateamoreattractivebusinessenvironment.Theseare
furtheredbystate-levelelectoralconsiderationsthatcomplicatethemajoritygovernment'staskingettingreformbills
passed.Thegovernment'sinabilitytoimplementitsreformagendacouldbecomeaseriousliabilitybetweennowandthe
nextelectionasIndianeedseconomicreformsinordertoencourageforeigndirectinvestmenttohelpthecountryreachits
goalsforeconomicgrowth.Becauseofanincreasinglydoubtfullegislativeposition,theIndiangovernmentislikelytodisplayafairamountofcautionwhenapproachingsomenecessary,butpoliticallysensitive,reforms.Nonetheless,thefact
thatIndiahasweatheredtheglobaleconomiccrisisinfarbettershapethanthemuchmoreopeneconomiesinEastAsia
hasreinforcedpopularsentimentthatmeasuredreformisbest.11
Control
IndiasrestrictionsonforeignequityownershiparegreaterthantheaverageoftheBRICnations(Brazil,RussianFederation,
India,andChina).Indiaimposesrestrictionsonforeignequityownershipinmanysectors,andinparticularintheservice
industries.Sectorssuchasrailwayfreighttransportationandforestryaredominatedbypublicmonopoliesandareclosed
toforeignequityparticipation.Withtheexceptionofcertainactivitiesspecifiedbylaw,foreignownershipintheagriculture
sectorisalsonotallowed.Nonetheless,comparedtomanydevelopingnations,theIndiangovernmenthasbeenrelatively
limitedinitsdecisiontonationalizemanycompanies.IndiannationalizationhascenteredprimarilyonIndianbanks.
However,thegovernmentasalsonationalizedanairline(AirIndia,1953)andthecountry'scoalindustryandoilcompanies
(1973).TheIndiangovernmentalsonationalized106insurancecompaniesintofourlargeronesin1972.
PoliticalTurmoil
Applyingapoliticalstabilityindexmeasuringthedynamicbetweenthequalityofacountry'sgovernmentandthethreats
thatcancompromiseandunderminestability,Indiaranksat8onascaleof1to10,with10markingthehighestlevelof
politicalstability.12
Monetary
Highmonetaryrisk.India'sfiscalpoliciesandtheuseofanon-reservecurrencylimittheliquidityofcapitalwithinIndia.
Further,India'sinflationratethrough2011was8.87%comparedto3.34%intheU.S.attheendof2011.Lastly,India's
balanceofpaymentsimprovedinlate2011followingarecord-high,themonthlydeficitfallingtoUS$13.6BfromUSS$19.6B
inOctober2011.
Transfer ThishasbeenmadefairlyseamlessbytheReserveBankofIndia(www.rbi.gov.in)-theequivalentofthefederalreserveintheUS.Thisistypicallynotconsideredarisktodayforforeigncompanies.13
Operational
InvestingandSettingupbusinessesinIndiaforUScompaniesisnotextremelystraightforward-thereareseveralcountry
levelandstatelevelregulationsandnormstobemet.ButgiventhenumberofUScompaniesalreadypresentinIndia,
thereareseverallawfirms/accountingfirmsthatofferspecializedservicesforforeigncompanieslookingtoenterIndia.At
thistime,IwouldsaythatifaUSfirmwantstoestablishoperationsinIndia,thelegalandstatutoryrequirementscouldbe
easilytakencareof.14
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CAGEDistanceFramework
Exhibit2.1CulturalDistanceLanguage:TheofficiallanguagesoftheRepublicofIndiaareStandardHindi(spokenbyabout41%ofthe
population)andEnglish.15
Ethnic&SocialNetworks:DuetoIndia'ssub-optimallegalstructures,whichmaybeunabletoenforcea
contractbetweentwoparties(suchasrepaymentofaloanorhonoringabusinesstransaction),Indian
businesstransactionsoftenrelyonpersonalandfamilycontacts,orcharacteristicstheyconsidertrustworthy
tosubstituteformissinggovernanceandcontractualenforcement,especiallyinsituationswherepeople
mustmakeariskybusinessdealwhereonepartycouldeasilydefault.Thereisacommonperceptionthat
individualsthatcomefromlikebackgroundscaneasilyestablishbusinessrelationshipsorevengetaccessto
financethroughthetheircommunitynetwork.InthepresenceofIndiasweakinstitutions,peoplemaybeusingethnicstereotypestotrytominimizetheirriskduringbusinesstransactions.Similarly,whentwo
partiesfromthesameethnicityinteractduringabusinesstransaction,ahigherleveloftrustmaybe
established.16
Religion:IndiaiscomprisedofprimarilyofHindus(80%)withadditionalIndianspursuingIslam(14%),
Christianity(2%),Sikhism(2%),Buddhism(1%)andJainism(1%).AmericansareprimarilyProtestant(56%)
butalsopursueRomanCatholicism(28%),NoReligion(10%),OtherReligions(4%)andJudaism(2%).17
SocialNorms:WhereastheU.S.isaprimarilylow-contextculture,Indiaisamorehigh-contextculture.Thisisaculture,therefore,inwhichcommunicationreliesalotontheunderlyingunspokencontext,whichisas
importantasthewordsused.Thiscomesthroughinanon-confrontationalbusinessstyle,evenamidst
negotiations.Indiansalsoplaceagreatdealofemphasisonhierarchy(aproductoftheHindu)CasteSystem,
whichleadstoacontinuedfocusonfamilyandacollectivistidentityratherthanindividualismand
directness.Businessrelationshipsarebuiltontrustandmutualrespectandareconsequentlymorelong-
termfocused.18
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Exhibit2.2AdministrativeDistanceHistoricalTies:BothnationsaretiedtoaCommonwealthheritageduringtheBritishEmpirethroughBritishimperialism.
Eachnationthereforederivesthefoundationofitspolitical,legal,andeconomicsystemsfromthisBritishroot,whichwasa
democratic,commonlaw,andfreemarketsociety.
Political&MonetaryAssociations:BothIndiaandtheU.S.sharesomeformoranotherofassociationwithineachofvarious
internationalorganizations,bothpoliticalandmonetary.ThemostimportantofthesearetheIMF,theUN,andtheWTO.TheIMFservestostabilizeexchangeratesandoverseetheongoingconstructionoftheworldsglobalpaymentsystem.The
UNcreatescooperationinsuchareasofinternationalrelationsasinternationallaw,internationalsecurity,economic
development,socialprogress,humanrights,andtheachievementofworldpeace.TheWTOexiststoliberalizetradeacross
internationalborders.19
Severalotherinternationalorganizationswherebothnationsholdmembershiparealsoimportant,specificallyforApples
purposes.TheBankforInternationalSettlements(BIS)fostersmonetaryandfinancialcooperationandservesasabankfor
centralbankswhiletheMultilateralInvestmentGuaranteeAgency(MIGA)isaninternationalfinancialinstitutionwhich
offerspoliticalriskinsuranceguarantees.TheInternationalOrganizationforStandardizationpromulgatesworldwideproprietary,industrial,andcommercialstandardswhiletheOrganizationforEconomicCooperationandDevelopmenthelps
governmentstotakeoneconomic,social,andgovernancechallengesthatarisewithinamoreglobalizedeconomy.The
WorldCustomsOrganization(WCO)attemptstostandardizecustomspoliciesacrossglobalboundaries,importantforApple
whenexportingitsiPadsintoIndia.Lastly,andoneofthemostimportantconventionsforApple,istheWorldIntellectual
PropertyOrganization,aimedtoencouragecreativeactivity,topromotetheprotectionofintellectualpropertythroughout
theworld.20
PoliticalHostility:DuringtheColdWar,IndiadevelopedafairlycloserelationshipwiththeSovietUnionandIndias
relativelycooperativestrategicandmilitaryrelationswiththeSovietUnionandstrongsocialistpolicieshadadistinctly
adverseimpactonitsrelationswiththeU.S.AfterthedissolutionoftheSovietUnion,however,Indiabegantoreviewitsforeignpolicyinaunipolarworld,andtookstepstodevelopclosertieswiththeEuropeanUnionandtheUnitedStates,in
furtheranceofitsnationalinterests.Today,IndiaandtheUSshareanextensivecultural,strategic,military,andeconomic
relationship.21,22
InstitutionalFortitude:WhileIndiahasmadeseveral"'formidableachievements'infosteringdemocracy,growthandcultural
dynamism,'"theseaccomplishments"arenullifiedbyitsstructuralweaknesses,widespreadcorruption,poorleadership,extreme
socialdivisions,religiousextremismandinternalsecuritythreats."Essentially,Indiahasthefoundationofastrongdemocratic
politicalsystem,derivedthroughBritishinfluence,whichisbecomingincreasinglyliberalizedeconomically.However,poor
administrativeexecutionandinefficienciesateverylevelofpoliticalorganizationleadtocircumventionofinstitutions,ranging
fromevadingtaxestobusinessesbribingtheirwaythroughredtapeanddirebureaucraticinefficiency.23
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Exhibit2.3GeographicDistancePhysicalRemoteness:India'scapital,NewDelhi,is12,055kilometers(7,492miles)fromWashington,D.C.,thecapitalof
theUnitedStates,representingasignificantlevelofphysicalremoteness.
CommonLandBorder:IndiasharesborderswithBangladesh,China,Pakistan,Nepal,Myanmar,andBhutan.TheUnited
StatesshareslandborderswithbothCanadaandMexico.Thereisthereforealackofacommonborderbetweenthetwonations.
Sea&RiverAccess:Mumbai/Bombay,themostpopulouscityinIndia,islocatedalongIndia'sWesternCoastandis
accessibleviatheArabianSea,asizeablebodyofwaterthatisconnectedtotheIndianOcean.NewDelhi,thenation's
capital,islocatedintheNorthandinlandfromthebodiesofwatersurroundingIndia.However,theGangesRiver(andits
tributarytheYamuna)allowforriveraccessintogreaterNewDelhi.
Transportation&Communication:Intermsoftransportation,Indiahasdevelopedairways,railwaysandroadways.India
haswelldevelopedairconnectivity.Flightsfromallpartsoftheworldarriveanddepartastherearelargenumbersof
domesticaswellasinternationalairportsinthecountry.RailwaysarethemostimportantmodesoftransportationinIndia.
ItisthecheapestandthemostconvenientformoftransportationinIndia.Almostallpartsofthecountryarewell
connectedbytherailwaynetwork.AnothercommonformoftransportationinIndiaistheroadway.Roadsconnectalmost
allpartsofthecountry.Buses,carsandotherroadtransportsplyregularlyandefficientlyontheroadsofIndia.Traveling
byroadsislessexpensive.CommunicationiswidelydevelopedinIndia.Telephoneservice,electronicmail,cellularphones,
Internet,voicemail,letters,courierservicesandmanyothersconstitutethemodesofcommunication.
Climate:TheclimateinIndiavariesfromtropicalmonsoonintheSouthtotemperateintheNorth.Theaveragedaily
temperatureinJanuaryinIndiais14.10C(57.38F)ascomparedto-0.70C(30.74F)intheUnitedStates.Theaverage
dailytemperatureinJulyinIndiais32.00C(89.60F)ascomparedto24.20C(75.56F)intheUnitedStatesinJuly.
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Exhibit2.4EconomicDistanceConsumerIncomes:Indiaspercapitaincomein2011wasUS$1,066.14whileitspercapitapurchasingpowerparity(PPP)wasUS$3,187.27.
Conversely,theU.S.percapitaincomein2011wasUS$46,662.88.24
NaturalResources:Indiareliesprimarilyoncoal(domestic)andoil(foreignimport)foritsincreasingenergydemands.ThroughoutIndia,
mineralsofvariouskindsareminedforvariouspurposes,includingironore,naturalgas,diamonds,andpetroleum.Withasignificantamount
ofrainfalleachyear,Indiaalsohasvastexpansesofarablelandthroughoutthecountry.
FinancialResources:In2011,Indiasinflationratewas11.27%whiletheinterestratewasrightat4%.Additionally,totaldepositsinIndias
commercialbankshaverisenfromlessthanRs5000crorestoupwardsofRs1,200,000croressince1969(representing280-foldgrowthin
threedecades).GoldreservesheldbyprivatecitizenshavegrowncommensuratelyandmayroughlyequaltotalinvestmentinIndianstock
markets.Inaddition,Indiasforeignexchangereserveshaverisendramaticallyfrom$1billionto$110billionduringthepast13years.25
HumanResources:India'slarge,skilledworkforcemakesitapopularchoiceforinternationalcompaniesseekingtooutsourcework,andthere
alsohasbeenamanufacturingboominrecentyearsdrivenbytheefficientuseoftechnology.26
Infrastructure:TheIndianinfrastructuresystemsuffersfromalackofmaintenanceandgovernmentandutilityinvestment,particularlyinthe
electricindustry.TheIndianpowersectorismoreinefficientthansimilarsectorsinMexico,Brazil,Indonesia,SouthAfrica,China,and
Singapore.Poorgovernanceisinvolvedaswell,and[t]hisrangesfromcorruptionandvenalitywhenpoliticiansencouragepowertheftor
diversionofpowertotheirconstituenciestopanderingpoliticsinwhichpoliticiansprovidecheaporfreepowertofarmersandothergroups
inexchangeforsupport.Therearealsoproblemsofpowerlostnaturallyintheprocessoftransmissionanddistributionorwhenlawsagainst
theftarenotenforced.Further,manyIndianinfrastructurefirmshavestruggledrecentlyandasbusinessslows,sodoinfrastructure
improvements.ThereisahighlevelofcentralizationamongstinfrastructurefirmsinIndia,whichmeansthatindividualfirmsaremoreclosely
tiedtogovernmentpolicyandpoliticalgovernance.However,inlightofthesestruggles,theIndiangovernmentisplanningtoinvestheavilyinitsinfrastructureoverthenextseveralyears,withthenewMinisterofRoadTransportandHighwaysindicatingthatthegovernmentwill
accelerateitsbuildingprogram.Regardingitspowershortages,theIndiangovernmenthastargetedcapacityadditioninpowergenerationasa
keyobjective.27,28
Information&Knowledge:Indiaisa$1trillioneconomythatneverthelessstruggleswithaveryhighpovertyrateandverylowaccessto
knowledgeforalmostseventypercentofitspopulationthatlivesinruralareas.However,in2005,IndianParliamentpassedtheRightTo
InformationActwhichstatesthefollowing:AnActtoprovideforsettingoutthepracticalregimeofrighttoinformationforcitizenstosecure
accesstoinformationunderthecontrolofpublicauthorities,inordertopromotetransparencyandaccountabilityintheworkingofevery
publicauthority,theconstitutionofaCentralInformationCommissionandStateInformationCommissionsandformattersconnected
therewithorincidentalthereto.Whilenotanovernightsolution,thiskindofdirectionprovidesthefoundationforIndiatodevelopamoresophisticatedframeworkforcreatingmoreinformedcitizensandmorereasonablestanceonknowledgemanagement.29
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Exhibit3.1Hoffstede'sCulturalDimensions,India30
PowerDistanceIndividualism/
Collectivism
Masculinity/
FemininityUncertaintyAvoidance
Long-Term
OrientationIndiascoreshighonthis
dimension,77,indicatinganappreciationforhierarchyanda
TopDownStructureinsociety
andOrganizations.Ifonewereto
encapsulatetheIndianattitude,
onecouldusethefollowing
wordsandphrases:dependent
onthebossorthepowerholder
fordirection,acceptanceofun-
equalrightsbetweenthepower-
privilegedandthosewhoare
lesserdowninthepeckingorder,
immediatesuperiorsaccessible
butonelayerabovelessso,
paternalisticleader,
managementdirects,gives
reason/meaningtooneswork
lifeandrewardsinexchangefor
loyaltyfromemployees.Real
Poweriscentralizedeventhough
itmaynotappeartobeand
managerscountonthe
obedienceoftheirteam
members.Employeesexpecttobedirectedclearlyastotheir
functionsandwhatisexpected
ofthem.Controlisfamiliar,even
apsychologicalsecurity,and
attitudetowardsmanagersare
formalevenifoneisonfirst
namebasis.Communicationis
topdownanddirectiveinits
styleandoftenfeedbackthatis
negativeisneverofferedupthe
ladder.
India,withascoreof48isa
societywithclearcollectivistictraits.Thismeansthatthereisa
highpreferenceforbelongingto
alargersocialframeworkin
whichindividualsareexpected
toactinaccordancetothe
greatergoodofonesdefinedin-
group(s).Insuchsituations,the
actionsoftheindividualare
influencedbyvariousconcepts
suchastheopinionofones
family,extendedfamily,
neighbours,workgroupand
othersuchwidersocialnetworks
thatonehassomeaffiliation
toward.Foracollectivist,tobe
rejectedbyonespeersortobe
thoughtlowlyofbyones
extendedandimmediatein-
groups,leaveshimorher
rudderlessandwithasenseof
intenseemptiness.The
employer/employeerelationship
isoneofexpectationsbasedonexpectationsLoyaltybythe
employeeandalmostfamilial
protectionbytheEmployer.
Hiringandpromotiondecisions
areoftenmadebasedon
relationshipsthatarethekeyto
everythinginaCollectivist
society.
Indiascores56onthis
dimensionandisthusconsideredamasculinesociety.
Eventhoughitismildlyabove
themidrangeinscore,Indiais
actuallyverymasculineinterms
ofvisualdisplayofsuccessand
power.Thedesignerbrandlabel,
theflashandblingthatgoes
withadvertisingonessuccess,is
widelypracticed.However,India
isalsoaspiritualcountrywith
millionsofdeitiesandvarious
religiousphilosophies.Itisalso
anancientcountrywithoneof
thelongestsurvivingcultures
thatgivesitamplelessonsinthe
valueofhumilityandabstinence.
Thisoftenreignsinpeoplefrom
indulginginMasculinedisplays
totheextentthattheymightbe
naturallyinclinedto.Inmore
Masculinecountriesthefocusis
onsuccessandachievements,
validatedbymaterialgains.Workisthecenterofoneslife
andvisiblesymbolsofsuccessin
theworkplacearevery
important.
Indiascores40onthisdimension
andthushasamediumlowpreferenceforavoiding
uncertainty.InIndiathereis
acceptanceofimperfection;
nothinghastobeperfectnorhas
togoexactlyasplanned.Indiais
traditionallyapatientcountry
wheretoleranceforthe
unexpectedishigh;even
welcomedasabreakfrom
monotony.Peoplegenerallydonot
feeldrivenandcompelledtotake
action-initiativesandcomfortably
settleintoestablishedrollsand
routineswithoutquestioning.
Rulesareofteninplacejusttobe
circumventedandonerelieson
innovativemethodstobypassthe
system.Awordusedoftenis
adjustandmeansawiderange
ofthings,fromturningablindeye
torulesbeingfloutedtofindinga
uniqueandinventivesolutiontoa
seeminglyinsurmountableproblem.Itisthisattitudethatis
boththecauseofmiseryaswellas
themostempoweringaspectof
thecountry.Thereisasayingthat
nothingisimpossibleinIndia,so
longasoneknowshowtoadjust.
TheIndiansscore61,
makingitalongterm,pragmaticculture.InIndia
theconceptofkarma
dominatesreligiousand
philosophicalthought.Time
isnotlinear,andthusnotas
importantastowestern
societiesthattypicallyscore
lowonthisdimension.
CountrieslikeIndiahavea
greattoleranceforreligious
viewsfromalloverthe
worldHinduismisoften
consideredaphilosophy
morethanevenareligion;
anamalgamationofideas,
views,practicesandesoteric
beliefs.InIndiathereisan
acceptancethatthereare
manytruthsandoften
dependsontheseeker.
Societiesthathaveahigh
scoreonLongTerm
Orientation,typicallyforgivelackofpunctuality,a
changinggameplanbased
onchangingrealityanda
generalcomfortwith
discoveringthefatedpath
asonegoesalongrather
thanplayingtoanexact
plan.
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Exhibit3.2Hoffstede'sCulturalDimensions,UnitedStates31
PowerDistanceIndividualism/
Collectivism
Masculinity/
FemininityUncertaintyAvoidance
Long-Term
OrientationTheUnitedStatesscore
lowonthisdimension
(40),whichunderscorestheAmericanpremiseof
libertyandjusticefor
all.Thisisalso
evidencedbythefocus
onequalrightsinall
aspectsofAmerican
societyandgovernment.
WithinAmerican
organizations,hierarchyisestablishedfor
convenience,superiors
arealwaysaccessibleand
managersrelyon
individualemployeesand
teamsfortheirexpertise.
Bothmanagersand
employeesexpecttobe
consultedand
informationissharedfrequently.Atthesame
time,communicationis
informal,directand
participative.
TheUnitedStates,witha
scoreof91onthisdimension,
isahighlyindividualisticculture.Thistranslatesintoa
looselyknitsocietyinwhich
theexpectationisthatpeople
lookafterthemselvesand
theirimmediatefamilies.
Thereisalsoahighdegreeof
geographicalmobilityinthe
UnitedStatesandmost
Americansareaccustomedtodoingbusinesswith,or
interacting,withstrangers.
Consequently,Americansare
notshyaboutapproaching
theirprospectivecounterparts
inordertoobtainorseek
information.Inthebusiness
world,employeesare
expectedtobeself-reliantand
displayinitiative.Also,withintheexchange-basedworldof
work,hiringandpromotion
decisionsarebasedonmerit
orevidenceofwhatonehas
doneorcando.
TheUnitedStatesscore62
onthisdimensionandis
consideredamasculinesociety.Behaviorinschool,
work,andplayarebasedon
thesharedvaluesthat
peopleshouldstrivetobe
thebesttheycanbeand
thatthewinnertakesall.
Asaresult,Americanswill
tendtodisplayandtalk
freelyabouttheirsuccessesand
achievementsinlife,here
again,anotherbasisfor
hiringandpromotion
decisionsintheworkplace.
Typically,Americansliveto
worksothattheycanearn
monetaryrewardsand
attainhigherstatusbased
onhowgoodonecanbe.Conflictsareresolvedatthe
individuallevelandthegoal
istowin.
TheUSscores46onthis
dimensionandtherefore,
Americansocietyiswhatonewoulddescribeas
uncertaintyaccepting.
Consequently,thereisa
largerdegreeof
acceptancefornewideas,
innovativeproductsanda
willingnesstotry
somethingnewor
different,whetheritpertainstotechnology,
businesspractices,or
foodstuffs.Americans
tendtobemoretolerant
ofideasoropinionsfrom
anyoneandallowthe
freedomofexpression.At
thesametime,Americans
donotrequirealotof
rulesandarelessemotionallyexpressive
thanhigher-scoring
cultures.
TheUnitedStatesscores
29onthisdimensionand
isashort-termorientedculture.Asaresult,itisa
culturefocusedon
traditionsandfulfilling
socialobligations.Given
thisperspective,
Americanbusinesses
measuretheir
performanceonashort-
termbasis,withprofitandlossstatements
beingissuedona
quarterlybasis.Thisalso
drivesindividualsto
striveforquickresults
withintheworkplace.
Thereisalsoaneedto
havetheabsolute
truthinallmatters.
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23
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
$1,000.00
0 2 4 6 8 10 12
Price(
$US)
Display Size (Inches)
Exhibit 4.1 Strategic Group Map: Display Size
Acer Iconia Tab A500
Amazon Kindle Fire
Apple iPadApple iPad 2
Blackberry Playbook
Dell Streak 7
Motorola XOOM
Samsung Galaxy Tab 10.1
Samsung Galaxy Tab 7
Toshiba Thrive
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24
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
$1,000.00
0 2 4 6 8 10 12
Price(
$US)
Battery Life (Hours)
Exhibit 4.2 Strategic Group Map: Battery Life
Acer Iconia Tab A500
Amazon Kindle Fire
Apple iPad
Apple iPad 2
Blackberry Playbook
Dell Streak 7
Motorola XOOM
Samsung Galaxy Tab 10.1
Samsung Galaxy Tab 7
Toshiba Thrive
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25
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
$1,000.00
0 100 200 300 400 500 600 700 800 900
Price(
$US
)
Weight (Grams)
Exhibit 4.3 Strategic Group Map: Weight
Acer Iconia Tab A500
Amazon Kindle Fire
Apple iPad
Apple iPad 2
Blackberry Playbook
Dell Streak 7
Motorola XOOM
Samsung Galaxy Tab 10.1
Samsung Galaxy Tab 7
Toshiba Thrive
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26
Exhibit5KeySuccessFactors,TabletPCs
KeySuccessFactor Weight Apple Samsung RIM Acer
Performance 50% 9 4.50 7 3.50 6 3.00 4 2.00
Portability 30% 5 1.50 6 1.80 9 2.70 4 1.20
Price 20% 3 0.60 3 0.60 6 1.20 4 0.80
SumofWeights 100%
StrengthRating 6.60 5.90 6.90 4.00
KeySuccessFactor Weight Amazon Dell Motorola Toshiba
Performance 50% 2 1.00 3 1.50 6 3.00 5 2.50Portability 30% 8 2.40 7 2.10 4 1.20 3 0.90
Price 20% 9 1.80 8 1.60 1 0.20 5 1.00
SumofWeights 100%
StrengthRating 5.20 5.20 4.40 4.40
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27Exhibit6ProductLifeCycle,TabletPCsinIndia
Factor
GrowthRate
AlthoughfarbehindChinainconsumption,Indiahasthesecond-highestpenetrationoftabletPCsglobally,with10percentof
respondentsowningone.FuturegrowthfortabletPCsinIndiaalsolooksstrongwith10%ofIndianrespondentsplanningto
purchaseatabletPCthisyear.AsTabletPCsinIndiamovebeyondtheIntroductionstageandmorefullyintotheGrowthstage,this
growthratewillcontinuetoexpandasitbecomesexceedinglylarge.Globally,63.6milliontabletswereprojectedtobesoldglobally
in2011representinga261.4%increasefromthe17.6millionunitssoldin2010.TheIndianmarketisthereforelaggingbutsteadily
catchinguptotheglobalgrowthrate.
Competitors
WhenApplereleaseditsfirstiPadinIndiainJanuary2011,DellhasalreadyreleaseditsStreak7Tablet(October2012)andSamsung
hadalreadyreleaseditsGalaxyTablet7(November2010).Atthispoint,ApplehadfewlargeTabletPCcompetitorsinIndiaasthe
marketwasstillintheIntroductionstage.However,bytheendof2011,RIM,Motorola,andToshibahadallreleasedTabletPCsinto
theIndianmarket.Moreover,Acer,HTC,Cisco,andAmazonarelargecompaniesenteringtheTabletPCmarket.Lastly,Apple'siPad
mustalsocontendwithsmallerfirms'productsinIndiasuchastheiBallSlide,theReliance3GTablet,SMobility'sMi-720,the
MercurymTabandtheBeetelMagiq.
Segments Therearecurrently3keysegmentsemerginginIndia:PremiumCustomers,ValueCustomers,andPricePointValueCustomers.
Intensityof
Competition
Thecompetitionhereinisincreasinglyintense.WhenApplefirstreleaseditsiPadinIndia,thecompetitionwasfairlessintense.
However,overthepast3years,therehasbeenanexponentialincreaseinTabletPCcompetitionwithintheIndianmarketasnew
productshavebeenreleasedandconsumersbegintoadoptTabletPCsmoreconsistently.
Emphasison
ProductDesign
WhiletheIndianTabletPCmarketshiftsfromtheIntroductionstagetotheGrowthstage,theemphasisonproductdesignremains
high.Indianconsumerswant3Gaccessandproductsthatperformwellwhileretainingahighdegreeofportability.
Emphasison
ProcessDesign
IntheTabletPCmarket,competitorsneedtobeginplacingmoreofanemphasisonprocessdesignastheymoveintotheGrowth
phase,whereprocessdesignwillmakemoreofanimpactonrivalpositioningandhowcompaniesareabletoachieveeconomiesofscale,speed-uptheirlearningcurves,andmaintainefficientoperations.
MajorFunctional
Area(s)of
Concern
HavingputintheresearchanddevelopmenttocreateitsiPad,Apple'sfocus,andthefocusofitscompetitors,istoincreasesales
andcommunicatevaluetoIndianconsumersbymarketingitsiPadwidelyandeffectively.
OverallObjective
WhileIndianconsumershavebecomeincreasinglyawareofAppleanditsiPad,thereisaneednowtostimulateconsumerdemand
inIndiaasAppleattemptstogrowitsTabletPCbusinessthere.ThetransitionfromIntroductiontoGrowthmeansthatApplemust
imparttoIndianconsumersasenseofneedanddesireforitsiPadproductswhereconsumersarealreadyawareofwhattheproduct
isandthatitisavailabletothem.
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28
IndustryCompetitiveness
=HIGH
INDUSTRYCOMPETITORSThereareseverallargefirmsintheTabletPCmarket.Here,Appleiscompetingwithsomeof
thelargestcompaniesintheconsumerelectronicsindustry(Samsung,RIM,Toshiba,HP)aswellassomeoftheworld'slargest
emergingcompaniesoverall(Google,Amazon).Sustainablecompetitiveadvantagehereinhingesonconstantinnovationandanever-
evolvingtechnologicallandscape.
POTENTIALENTRANTSTheTabletPCmarketoffershighreturnsandtherefore,createsindustryattractiveness.ThereisthepossibilityofnewentrantsenteringtheTabletPCmarketastabletmodelsofferedinIndiais
expectedtoincreasefrom27modelsofferedby10vendorsto90modelsofferedby35vendors.However,theleadingfirmsinthisindustrycapitalizeonthepossessionofintellectualpropertyrightsandhighbrandequity,twocrucialbarrierstoentry.Essentially,thereisathreatof
consumerelectronicscompaniesdevelopingsuccessfulTabletPCofferingsthroughtheuseofpre-existingdistributionchannels,R&Dcapabilities,brandloyalty,andtechnologicalknow-how.
ThoughthethreatofentirelynewentrantswhoarenotalreadycompetingwithApplesucceedingintheIndianTabletPCmarketmaybelaw,thefactthatthemarketispoisedfor
rapidsaturationmeansthatthereisatleastamoderatethreatofnewentrantsintheindustry.
BUYERS
Buyersintheconsumerelectronics
industry(andtheTabletPCmarket
asanemergentsub-industry)have
littlebuyingpower,primarily
becauseenduserspurchasethe
productsdirectlyandtherefore,mostbuyersaremerelyregular
consumerswhomakelimited,
personalpurchases.Asendusers,
thesebuyersarenotconnectedto
afurtherpartofthesupplychain.
FromanRFMstandpoint,aTablet
PCbuyerwillnotoftenmakean
additionalpurchaseshortlyafter
makingafirstpurchase,purchases
donothappenfrequently
comparedtomostregular
purchases(suchasgroceriesor
clothing),andthougheachproduct
maybeasignificantcosttothe
consumer,individualsalesarenot
impactfulwhencomparedtothese
companies'totalrevenues.Tablet
PCbuyersarefragmented
(numerousanddifferent)andno
individualbuyerhasanyinfluence
ontheproductortheprice.
Ultimately,TabletPCcustomers
haveaverylimitedabilitytoput
firmsunderpressure,resultingin
lowbuyerpower.
SUPPLIERSSuppliersintheconsumerelectronics
industry(andtheTabletPCmarket)are
fairlyweakbecausethereisa
concentrationofpurchasers(largetech
companies)andthereisacredible
backwardsintegrationthreatfromthe
mainindustrycompetitors.Suppliers
havehigherswitchingcoststhanthe
companiesintheindustry.Companies
likeApplecommandsuchlarge
portionsoftheworldwidemarketfor
certainkeycomponentsthatsuppliers
areeagertobeapartofApple'ssupply
chain.Further,thefactthatthese
companiesbuyfromsuppliersinsuch
largeandconsistentquantitiesmeans
thatAppleanditscompetitorsexercise
asignificantmeasureofleverageover
suppliers.Applehasadistinctabilityto
exerciseinfluenceoveritssuppliers
andtherefore,supplierbargaining
powerislow.
ThreatOfSubstitutes=HIGH
BargainingPower
OfBuyers=
LOW
ThreatOfNewEntrants=MEDIUM
BargainingPowerOf Suppliers = LOW
SUBSTITUTES
From a computing standpoint, substitutes for Tablet PCs include ultrabook computers, laptop computers and desktop computers. Further,from a mobile computing standpoint, many smartphones, including Apple's own iPhone, possess a level of computing performancecomparable to most of the Tablet PCs currently on the market. Lastly, from an entertainment standpoint, Tablet PCs compete with well-established video game platforms (such as Microsoft's XBox and Sony's Playstation), mobile gaming platforms (such as Nintendo's DS), andmobile entertainment devices (such as portable DVD players). While Tablet PCs represent an emerging market and cutting-edge technology,technological advances and improved performance continue in these substitute products as well. Consumers hesitate to adopt Tablet PCsbecause, although they provide a combination of features from these substitute products, they also represent one more (often costly) pieceof technology for consumers who increasingly already possess a laptop computer, a smartphone, etcetera. There are, therefore, a significantnumber of threatening substitutes available.
Exhibit7Porter's5Forces,AppleInc.
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29
ChanceChance events are
occurrences that are outside ofa firm's control. They haveinfluence over competitiveadvantage because they
create discontinuities in whichsome firms improve their
competitive positions whileothers are harmed.
Government
Thegovernmentisbothacatalystanda
challenger,aimedtoencouragecompaniesto
raisetheirperformance,stimulateearly
demandforadvancedproducts,andfocuson
specializingfactorcreatingandtostimulate
localrivalrybylimitingdirectcooperationand
enforcinganti-trustregulations.ForAppleandtheAmericanconsumerelectronicsindustry,
strictcommerciallawsgoverningmonopolies,
financialreporting,productstandards,andso
onmeanthat,havingoperatedwithinavery
consumer-centriclegalenvironment,Applecan
goabroadandmaintainadistinctcompetitive
advantageinservingconsumerneedsand
maintainingoutstandingqualitystandards.
FIRMSTRATEGY,STRUCTURE,ANDRIVALRY
ThewayApplehasbeencreated,thewaythatitsetsongoinggoals,andthe
waythatitcontinuestobemanagedareeachimportantforitssuccess.
Becausetheworldisdominatedbydynamicconditions,however,the
presenceofintenserivalryanddirectcompetitioninitsdomesticmarket
impelsthecompanytoworkforincreasesinproductivityandinnovation.
Whentheseareachieved,competitivenessisupgraded.
DOMESTICDEMANDCONDITIONS
IntheconsumerelectronicsandTabletPCindustries,consumersareexceedingly
demanding.Consequently,thesedemandingconsumersintheAmericaneconomyincreasethepressurefacingfirmstoconstantlyimprovetheircompetitivenessviainnovativeproductsthroughhighquality,highperformance,andreasonableprices.BecausesophisticatedbuyersexistinApple'shomemarketandforceAppletoinnovatequicklyinanattempttoadvanceforrapidlythanitscompetitors,domesticdemandconditionscanhelpAppleanditsdomesticcompetitorsdevelopacompetitiveadvantageabroad.Apple'sextensiveexperienceunderstandingtheneedsanddesiresofAmericanconsumers,oftenverysophisticatedusersoftechnology,enablesthecompanytocarryaheightenedsenseof
consumerpreferencesglobally.COUNTRYFACTORENDOWMENTS
Basicfactorendowmentsincludehumanresourcesandaccesstorawmaterials.Apple,asanAmericancompany,however,benefitsthroughtheemploymentofskilledlabour,thelargegenerationofcapital,andtheabilitytomakeuseofAmerica'shigh-qualityinfrastructure.Byoperatingwiththesespecializedfactorsofproduction,Appleincreasesitscompetitiveness.Similarly,asitsdomesticindustryrivalsemploytheseaswell,theycombinetocreateamorecompetitiveindustrywhichcantranslateintocompetitive
advantagesforthesecompaniesinaninternationalsetting.
RELATEDANDSUPPORTINGINDUSTRIES
Formanyfirms,thepresenceofrelatedandsupportingindustriesisofcritical
importancetothegrowthofthatparticularindustry.Nationalcompetitive
strengthstendtobeassociatedwith"clusters"ofindustries.ForApple,its
locationwithintheAmericanSiliconValleytechno-clusterallowsforitsclose
associationwithotherhigh-techindustriesthatincludeindividualcomputer
softwareandsemi-conductorfirms.
Exhibit8Porter'sDiamondModel,AppleInc.
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30
Exhibit9SWOTAnalysis,AppleInc.32
Strengths WeaknessesWellDiversifiedProductMix DependenceonNetworkProviders
RobustResearch&Development UnresolvedLegalProceedings
OperationalEfficiency
LimitediPhone/MobilePhoneVariants
Opportunities ThreatsInnovativeProducts&Designs IntenseCompetition
ScopeinRetailSegment
AbsenceofMultipleDistributionNetwork
EmergingMarketsProvidingLadderforGrowth TheftofDigitalContent
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Exhibit10Porter'sGenericStrategies,AppleInc.
CompetitiveAdvantage
UniquenessPerceivedbyCustomer LowCostPosition
Strategic
Target Industrywide
Differentiation
OverallCostLeadership
ParticularSegment Focus(Unique) Focus(LowCost)
Applesoverall,genericstrategycentersondifferentiatedpositioningwithintheconsumerelectronics
industry.ThereisauniquenesstoAppleproductsthatderivesfromitsabilitytoeffectivelycreatean
experienceforitscustomersthroughengagementwithitsproducts,bothgoodsandservices.Appledoes
notappealtocustomerswhoareparticularlyconsciousaboutpricepointsanddealsonproducts.Apple
usesitsdifferentiatedstrategytobalanceanindustrywideapproachtomarketingandproductpositioning
withanexclusivebrandidentityandacommitmenttoinnovationthatmotivatesconsumerstopaya
premiumpriceforApplesproducts.
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32
Exhibit11.1Resource-BasedAnalysis,AppleInc.
TangibleResources&Capabilities Valuable Rare Inimitable SubstitutableCompetitive
Advantage
Financial
Applehascontinuedgrowthratesinsales,earningspershare,andnet
profitmargin.Appleisabletofinanceitsoperationsthroughits
retainedearnings.BytheendofDecember2011,Applewasthesecond
largestcorporationintheworldwithamarketcapitalizationofUS
$376,410,600,000. Yes Yes Yes Yes
Temporary/
SustainableCompetitive
AdvantageAppledoesnotissuebonds,doesnotissuepreferredstock,anddoes
notborrowmoney.Appletherebymanagestorunitscompanywithout
anydebt.Theydo,however,issuecommonstock,onewaythatApple
raisesexternalcapital.
Physical
FoxconninChinamanufacturesApplesproducts.ThisallowsApplethe
advantageofmaintaininglowlabourcosts.Apple'sofficesarelocated
inCupertino,California,rightintheheartoftheSiliconValleyandone
ofthepremierconcentrationsofhigh-techfirmsglobally.Apple's
equipmentissourcedfromnationsaroundtheglobe.Forexample,the
iPhoneincludespartsfromtheU.S.,Taiwan,Japan,Korea,Germany,
andtheU.K.Mostofthehigh-techequipmentutilizedinmanufacturing
Apple'sproductscomesfromfirmsinAsia.AsofNovember2012,Applehas394retailstorelocationsin14countries. Yes Yes No No
Temporary
CompetitiveAdvantage
Intermsofrawmaterials,Apple'sworkwithFoxconnprovidesthem
withaccesstoseveralrareEarthmetalsthatareminedexclusivelyin
ChinaandusedtomanufactureitsiPads.Foxconnisresponsiblefor
shippingfinishedproductstowarehousesintheU.S.andelsewhere.
Usingitsownindependentretailstores,Applealsopossessesultimate
controloverthepoint-of-salecustomerexperience.
Technological
Applepossessesthemostpowerfulportfolioofpatentsinthe
consumerelectronicsindustry(566asof2010).Applealsopossesses
186trademarksandhasrecentlybeensuccessfulinenforcingseveral
copyrightinfringementclaimsagainstSamsung,oneofitslargest
competitorsinthemobileelectronicsindustry.Lastly,Applepossessesa
wealthoftradesecretssurroundingitsdesignprocesses,itsmanufacturingtechniques,anditsforthcomingproductinnovations.
Yes Yes Yes Yes
Sustainable
Competitive
Advantage
Organizational
AtApple,employeesarespecialistswhoarenotexposedtofunctions
outsidetheirareaofexpertise,creatingahighly-specialized
environment.StoreinventoryselectionisdonebyCEOTimCook
becauseofhisbackgroundinsupplychainmanagement.
Yes Yes No No
Temporary
Competitive
Advantage
Applehasdevelopedanextremelyefficientandeffectivesupplychain
managementsystemthatwasrankedastheworld'sbestfrom2007-
2010.Thecompany'smanufacturing,procurementandlogisticsenables
ittoexecutemassiveproductlauncheswithouthavingtomaintain
large,profit-sappinginventories;Apple'sprofitmarginshavebeen40
percentcomparedwith1020percentformostotherhardware
companiesin2011.
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33Exhibit11.2Resource-BasedAnalysis,AppleInc.
IntangibleResources&Capabilities Valuable Rare Inimitable SubstitutableCompetitive
Advantage
Human
SteveJobs,theiconicformerCEOofApple,definedhiscareerasaleaderwho
bothunderstoodwhatappealedtocustomersandwascommittedtoacting
decisively.Jobsfiguredouttrajectoriesofnewopportunitiesandwouldthen
conceiveandexecutenotonlydifferentiatedproductsthatyieldhighmargin
andhighbrandrecognition,butalsobusinessmodelsthatwillexploitthemmostprofitably.Throughgreatinsightandbrilliantexecution,Jobshasdriven
Appletobecomeoneofthemostinnovativeandwell-respectedbrandsever.
Yes Yes Yes Yes
Sustainable
Competitive
Advantage
Appleisacorporationandabrandconstructedonthenotionthatthe
customerexperienceisfirstandforemostandonemustworkbackwardsto
thetechnologythatsupportsthatfocus.Apple'sculturecentersonproviding
ahigh-qualitycustomerexperienceandthistranslatesintotheperformance
ofitsproductsandtheexcellenceofitsemployees.Applehascultivatedan
exceedinglyvaluablewealthofhumancapitalthroughitstrainingandits
leadership,andthistranslatesintoalevelofconsumer-centrismwhichallows
Appletomaintainitspositionintheconsumerelectroniccomputer
manufacturingindustry.
Innovation
FromSeptember2011toDecember2011alone,Applespent$758Monresearchanddevelopment.WhileAppletypicallyinvestslessmoneyintoits
R&Dthanmanyofitscompetitors,thecompanyhasahistoryofusingitsR&D
investmentsefficientlyandmaintainingacompetitiveedgeonitscompetition
intermsofinnovationandtheevolutionofnewproductfeatures.
Yes Yes Yes Yes
Sustainable
Competitive
Advantage
Applehascarvedoutforitselftheabilitytoberecognizedasaprogressive
companythatremainsinnovativeamidstcommitmenttocertaincore
businessideals:maintainingaminimalist,tightproductline,placinguser-
friendlinessatthecenterofitsproductfeatures,maintaininghigh-quality
products,etc.ThebalancebetweenthesecoreprinciplesandApplesongoing
commitmenttoconstantinnovationhasprovidedthecompanywitha
competitiveadvantagegoingforward.
Reputational
Applehasfocusedoncreatinghigh-qualityproductsandthoughtheyhavea
reputationforcostingconsumersapremiumprice,Appleproductsarenotknownforbeingpoorlydesignedandcheaplyconstructed.Appleproductsare
alsocapableofsoliddurability,bothintermsofdamageandusage.Lastly,
Appleproductsareknowntobereliableintheirperformance,givingriseto
thefamousSteveJobstagline:"ItJustworks."
Yes Yes Yes Yes
Sustainable
Competitive
Advantage
Appleoftenfinisheswithhighrankingsonlistsof"TheMostAttractive
Employers,"buthasalsorunintosomeissueswithitsoutsourced
manufacturinglabour,especiallyinChina.WhilekeysuppliersFoxconnand
Inventechaveundergonesignificantremedialmeasurestoimprovethe
workingconditionsofitsemployees,Apple'sreputationasagoodemployer
hascertainlysufferedbecauseofissueswithforeignworkconditions
throughoutitssupplychain.
Applereportsitsenvironmentalfootprintcomprehensively.Appleisalsoa
partneroftheProductREDCampaign,aprojectaimedatpreventingthe
spreadofchildhoodHIV.
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34
NewProducts:AppleinvestsanincreasinglysignificantamountofitsinternalcapitaltoR&D
eachyearandtheprimarysourceofvalueinits
operationscomesthroughitsabilityto
generatenewandcutting-edgeproductideas.
ProductDesign:OnceAppleformulatesanideaforanewproduct,theirR&Dcapabilitiesalso
servetohelpthemimplementtheseideasin
waysthatmeethighqualitystandardsand
enableAppletomaintainitsreputationasa
reliableandinnovativebrand.
Creation:Apple'soutsourcedmanufacturingprocessesaddvaluebutenablingAppletogain
accesstouniqueresourcesabroad,cheaper
labourcosts,andsmallermanufacturersthat
havecometospecializeincreatingApple's
productsinanexcellentway.
Distribution:Applehasestablishedretailstore
locationsincountriesallovertheglobeand
theseaddthemostvaluetoitsdistribution
channels,enablingAppletomaintaincontrol
overthepoint-of-saleshoppingexperience,
promoteitsproductslocally,andbeselective
aboutwhereitsproductsaresold.
Sales&Marketing:Apple'smarketing
campaignscenterontheconsumer
experiencesandhowindividualsengagewith
theirproducts.Apple'ssalesandmarketing
teams,therefore,doanexceptionaljobof
communicatingvaluetoApplecustomers.
CustomerService:Throughitsretaillocations,
AppleCareplans,andonlinecustomerservice
forums,Appleisdedicatedtoproviding
ongoinghelptoitscustomersandcontinuesto
addvaluetotheproductexperiencewellafter
theproductisinitiallysoldtotheenduser.
CustomerService
Sales&Marketing
Distribution
ProductCreation/
FundingTechnological
Application&
Product
Design(R&D)
NewProductIdea
Generation(R&D)
Exhibit12ValueChainAnalysis,AppleInc.
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35
Exhibit13FinancialRatioAnalysis,AppleInc.33
Short-TermSolvency/LiquidityRatios
Long-TermSolvency/FinancialLeverageRatios
CurrentAssets $44,988,000,000
TotalAssets-TotalEquity $39,756,000,000
CurrentLiabilities $27,970,000,000
TotalAssets $116,371,000,000
CurrentRatio 1.6084
TotalDebtRatio 0.3416
CurrentAssets-Inventory $44,212,000,000
TotalDebt $39,756,000,000
CurrentLiabilities $27,970,000,000
TotalEquity $76,615,000,000
QuickRatio 1.5807
Debt-EquityRatio 0.5189
Cash $9,815,000,000
TotalAssets $116,371,000,000
CurrentLiabilities $27,970,000,000
TotalEquity $76,615,000,000
CashRatio 0.3509
EquityMultiplier 1.5189
MarketValueRatios
PricePerShare $404.3034
EarningsPerShare $7.0535
Price-EarningsRatio 57.34751773
MarketValuePerShare $404.3036
BookValuePerShare 82.4537
Market-To-BookRatio 4.903577926
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36
AssetUtilization/TurnoverRatios
CostofGoodsSold $64,431,000,000
Inventory $776,000,000
InventoryTurnover 70.53
365Days 365
InventoryTurnover 70.53
Days'Salesin
Inventory 5.1751
Sales
$108,249,000,000.00
AccountsReceivable $10,792,522,432.70
ReceivablesTurnover 10.03
365Days 365
ReceivablesTurnover 10.03
Days'SalesTurnover 36.3908
Sales $108,249,000,000
TotalAssets $116,371,000,000
TotalAssetTurnover 0.9302
TotalAssets $116,371,000,000
Sales $108,249,000,000
CapitalIntensity 1.0750
ProfitabilityRatios
NetIncome $25,922,000,000
Sales $108,249,000,000
ProfitMargin 0.2395
NetIncome $25,922,000,000
TotalAssets $116,371,000,000
ReturnOnAssets
(ROA) 0.2228
NetIncome $25,922,000,000
TotalEquity $76,615,000,000
ReturnonEquity
(ROE) 0.3383
ProfitMargin 0.239466415
Sales/Assets 0.930205979
Assets/Equity 1.518906219
ROE 0.3383
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37
AppendicesEndnotes1InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).
2Ibid.
3Ibid.
4http://articles.economictimes.indiatimes.com/2011-07-20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars
5http://www.independent.co.uk/news/business/analysis-and-features/rising-costs-are-making-indian-labour-less-attractive-2309557.html
6http://www.just-auto.com/analysis/indias-rising-manufacturing-labour-costs-overtake-china_id106790.aspx7http://www.tuaw.com/2012/05/08/apple-retail-stores-still-crowded-at-8400-average-square-feet/
8http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true
9InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).
10Ibid.
11India:CountryReport,July2011.ThePRSGroup,Inc.:http://web.ebscohost.com.libproxy.sdsu.edu/ehost/pdfviewer/pdfviewer?sid=d724a6e5-000c-4cb5-9402-
724d1ba32cfa%40sessionmgr14&vid=2&hid=1812http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true
13InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).
14Ibid.
15https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
16
http://www.povertyactionlab.org/evaluation/importance-ethnic-networks-business-transactions-india17https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
18http://www.kwintessential.co.uk/resources/global-etiquette/india-country-profile.html
19https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
20https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
21http://www.fas.org/sgp/crs/row/RL34161.pdf
22http://www.comw.org/pda/0603india.html
23http://defenceforumindia.com/forum/defence-strategic-issues/32902-india-may-never-superpower-london-school-economics.html
24http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/weorept.aspx?sy=2007&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=56&pr1.y=7&c=534%2C111
&s=NGDPDPC%2CPPPPC&grp=0&a=25http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=data&vcountry=78&disc=9&tableid=1
26http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=MAOVR
27http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/indias-infrastructure-woes-in-two-graphs/28http://www.economist.com/node/21559941
29http://asiafoundation.org/in-asia/2011/09/28/right-to-information-in-india-an-effective-tool-to-tackle-corruption/
30http://geert-hofstede.com/india.html
31http://geert-hofstede.com/unitedstates.html
32http://callisto.ggsrv.com.libproxy.sdsu.edu/imgsrv/FastFetch/UBER1/300559_GDTC27353FSA
33MergentOnline:
http://www.mergentonline.com
/companyfinancials.php?pagetype=asreported&compnumber=12161&period=Annuals&dataarea=ALL&range=3¤cy=AsRep&scale=AsRep&Submit=Refresh34Yahoo!Finance:September23,2011
35NASDAQ:September24,2011
36Yahoo!Finance:September23,201137NASDAQ:September24,2011
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