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BIRMINGHAM CITY BUSINESS SCHOOL

POSTGRADUATE DEGREES

Name:

Student ID:

Module Title: International Operations Management (September 2013 Cohort)

Module Code:

Seminar Lecturer:Mr. Tony Birch

Assignment: Apple

Submission Date: Friday 11h April 2014


Introduction

Apple is an American multinational corporation which has revolutionised the world of


technology through its innovative hardware and software solutions. It is recognised for its
hardware products such as the iPad, iPhone and has gradually moved towards retail and
online stores. It is one of the largest companies globally and is identified to be the most
valued brand in the world worth $104.3 billion, increased by 20% from 2012 (Forbes.com,
2013).

The Apple Corporation was founded in 1976 and since then has been leading the way that
influences other companies to innovate their products. Apple has sold a record 47.8 million
iPhones and 22.9 million iPads in 2013 (Apple.com, 2014). This shows the importance of
production at thriving organisations such as Apple when the demand of technology is high.
Therefore the rapid pace of technology has influenced the way goods are produced. But this
has also affected where and how work should be performed.

It is essential for Apple to be very innovative and competitive in order to be the market
leader, which requiresfast rate of production to meet customer demand successfully. This is
done by the use of effective strategic operations management. Operations management is
seen to be the principal success factor in managing a firm’s sustainable value (Soyka, 2012).

Globalisation

Globalisation is a key factor in every economy. There is strong integration between different
countries where different processes are undertaken. There are many reasons as to why
companies decide to go global, such ashaving a small domestic market, unfavourable
government policies in home country, high demand of the product in foreign market(Porter,
2007). Apple took advantage by recognising its potential through globalisation and
implemented strategies to expand internationally, which developed a successful chain of
stores around the world.

Apple has shown the importance of going global as its figures illustrate the importance of
overseas sales for its products such as the iPhone (Refer to figure 1). In 2010 Apple’s
growth in Europe and Asia was crucial as it received 58% revenue from outside of America
(theatlantic.com, 2012). France, U.K. and Japan were seen as Apple’s fastest growing
markets with international sales being 61% of profits (techcrunch.com, 2013).

Figure 1:
Expansion to international countries allows companies such as Apple to take an ‘efficiency
seeking’ approach where they expand internationally to take advantage of low labour and
production costs in foreign countries (See appendix 1).

The main reason for Apple to use global strategy(Gong, 2013)is to market their products to
consumers all over the world to expand sales, profits and acquire new markets (Refer to
figure 2). This allows Apple to reduce dependence on their local and national economies. In
addition, a benefit to consumers is the reduction in international shipping charges by buying
products from local sources.

Figure 2:

Obtaining resources is another key factor in expanding globally. Many developing countries
have access to raw materials and land for manufacturing, which organisations such as Apple
aim to target. Globalisation has allowed Apple to globally source materials and achieve cost
advantages. This is also an advantage for developing countries as they do not have the
expertise or resources needed to use raw materials to improve their economies of scale;
therefore they welcome multinational companies such as Apple to grow their economies.

There have been a number of controversies over using foreign suppliers as this reduces
growth in home countries. Apple uses thousands of employees to assembleproducts, who
are paid approximately $18 a day which is much less than the allowance permitted by the
American labour laws (appleinsider.com, 2012). This would result in the average labour
costs of an iPhone to range from $65 to $100 (nbc33tv.com, 2012). The unbearable working
hours to correct issues on the iPhone would be considered as tough working conditions in
American society (money.cnn.com 2012).
Standardisation approach

Global standardization allows companies to develop a set of agreed international standards


which can be used for global operations and marketing. This allows companies to sell the
same brand globally and represent a clear corporate identity (sirius.utwente.nl, 2014). This
has permitted Apple to enhance its image worldwide and reach out to wider cultures to
create a recognisable brand.

In terms of Apple, there is minimal to no changes in their products as they are all precisely
standardized throughout international market. The only adaptation to Apple products is the
power source due to the different power voltagesrequired in different countries
(techwell.com, 2013). In addition, same packaging, distribution methods and the way in
which products are sold, are the main source of perception created around the world.
Language can also be a variable factor dependent on the intended country; however, strong
brand awareness will eliminate the confusion caused through language barriers, with added
value of being able to change language settings to user convenience.

However, there are limitations to global standardisation, as the market needs to


varydepending on economic factors. In the case of Apple, these can be seen as
luxuryproducts inweak economies, whereas in the affluent parts of the world, they are seen
as social reliance. However, Apple has successfully communicated its unique selling point
globally, therefore causing a lack of misinterpretation, as often customers will use the
products for the same reason. This strategy is cost effective, as it takes advantage of
economies of scale.

Geocentric Approach

Multinational companies have dominated the changes in the global economy as they have
been responsible for 40% of world manufacturing, which includes 70% of computers (Bartlett
&Ghoshal, 2000 in Golan and Johnson et al., 2010).

Communication has become the key to globalisation,where interactions and alliances take
place instantly. With half of the world’s trade relying on large multinational companies
(stwr.org, 2014), the progress in information technology over the years has made it possible
for an international business operation to achieve greater integration through constant flow
of communication within companies located around the world (Golan and Johnson et al.,
2010).

A model created by Howard Perlmutter (1969), has allowed companies to develop a general
strategic profile in terms of international business strategy. It contains three elements;
Ethnocentrism, Polycentrism and Geocentrism. In order to be cost effective and to increase
benefits in the firm, it is essential for organisations to understand its specific focus to expand
and grow (Porter, 1986).

Apple takes on a geocentric approach or ‘world oriented’, where they act completely
independent of geography and do not regard nationality but rather adopts a global
perspective. However, they will take into consideration some local issues and cultures to
adapt as appropriate. Therefore, people are acquired from all over the world to ensure the
best person is allocated for the job. This has enabled Apple to develop both global
differentiation and global integration to become a successful integrated company and be
able to offer products through differentiation.

Global Supply Chain

Supply Chain is the network of all the different companies including resources, handling,
technology and distribution required for the assembly of a product. This involves the steps
taken to create this product, such as the delivery of raw materials from the supplier to the
manufacturer and through its eventual delivery to the end user (seniorerp.ro, 2013).Global
supply chain management is directly linked to the rise of globalisation, where the movement
of materials, finances and information from the manufacturer to the wholesaler is based on a
global scale.

Gartner, an IT research firm has ranked Apple’s Supply chain as the best supply chain in the
word for the past 5 years (Refer to figure 3) (gartner.com 2013).

Figure 3:

Global Supply Chain is a crucial process for Apple to have an enhanced supply chain where
it integrates the management of supply and demand within companies, as it results in lower
costs for the company. Supply chain consists of 3 main flows; product flow, information flow
and the finance flow and additionally after sale customer services where returns are
evaluated (industryweek.com, 2012)(Refer to Figure 4).

Figure 4:
Apple has over 200 suppliers (Refer to figure 5) with whom they have developed strong
relationships which have helped them process high number of operations in order to
successfully supply to the demand of existing and new products (Apple.com, 2014).

Apple took initiative to manage their supply chain and the suppliers within it, by establishing
a list of expectations for suppliers to create exclusive agreements in exchange for a
compliance of high volume.

Apple has been able to use their capital to their advantage by placing high volume pre
orders to its suppliers which essentially prevents competitors from gaining access to the
same manufacturing resources. This was presented by Steve Jobs in 1997, when he took
initiative to spend $50 million to buy the available air freight space to transport their new
iMacs ready for Christmas sales. This affected their rivals, Compaq. In 2001, with the
release of the new iPod, this method was undertaken to ensure swift delivery of the product
to the customer (businessweek.com, 2011).

With the high demand of Apple products, it is essential to ensure continuity of supply.
Therefore in order to meet the demand of the new iPhone 5, Foxconn had delegated some
of its production to its subsidiary firm, ‘Foxconn International Holdings’, in order to help
maintain the flow of demand. (computerworld.com, 2012).

However, even with methods to ensure high productivity of their products, Apple was unable
to meet demand for their iPhone 5s. Reports show that sales could have potentially been
higher if not for ‘supply constraints’ (macdailynews.com, 2012).

Figure 5:

Ethics in the supply chain and suppliers


A majority of Apple’s suppliers are located in Asia, with reports indicating more than 600 to
be based in Asia with 331 suppliers located in China (See appendix 2) (www.chinafile.com,
2013).

Tim Cook, Apple’s CEO has confirmed the assembly of Apple’s new Mac products to be
produced in America; however the interactive map (see appendix 2) shows the lack of
suppliers based in the States. This brings various challenges to the company as an
assembly line based in America cannot generate the high number of workers run by
Foxconn in their assembly-line. In addition, due to harsh laws in the US concerning human
rights, last minute alterations cannot be made due to rules regarding working hours in the
workforce whereas employees in China are on call 24 hours a day (usanfranonline.com,
2014). For example, the factory in China required 8,000 workers to work on a 12 hour shift to
make alterations to the iPhone(nytimes.com, 2012).

‘’Our Supplier Code of Conduct was already one of the toughest in the electronics industry,
but we’ve made it even stronger......Our efforts span the entire range of our supply chain —
from the manufacturers of tiny components to the facilities that assemble our final products.’’
(apple.com, 2014)

Apple boasts about their supplier code of conduct, and ensures safety for their employees
(see appendix 3). However, these products are manufactured in remote facilities, Foxconn
being the most known facility, which has 230,000 employees, who work unsociable hours
with many working six days a week (nytimes.com, 2012).

Even with measures put into place to ensure ethical conduct, there have been cases which
show the lack of control. Apple states that it uses ‘conflict free minerals’ to produce their
electronics; however Steve Jobs stated that it is not always easy to keep a track of their
supply chain (9treehugger.com, 2010).

Vertical Integration

Apple uses a vertical integrated approach during production. It controls a high number of
elements in production from research and development to manufacturing, including chip
manufacturing, a service company and finally proprietary retail stores where the end product
reaches its consumers. This enables Apple to produce highly advanced technology through
maintaining tight control over their hardware and software (mobilemarketer.com, 2012).

A great example of Apple’s integration was shown though the introduction of the third
generation iPad in 2012. This new piece of technology includes 4G connectivity, high
definition display and a faster processor (knowledge.wharton.upenn.edu, 2012). The
creation of the iPad has shown a strong vertical integration strategy as the chip needed to
power up the iPad is now designed and produced by Apple, whereas previously it was
manufactured by other companies such as Intel (appleinsider.com, 2013). Vertical
integration creates more competition amongst chip suppliers and allows Apple to have more
control of the value chain and more importantly, component costs (techland.time.com, 2011).
Integration does not benefit all organisations, as companies such as Sony are unable to
make businesses come together. A great disadvantage of immediate integration is the slow
process of growth as they are unable to balance both their hardware and software
(knowledge.wharton.upenn.edu, 2012).
Outsourcing

Outsourcing refers to obtaining goods or components from a supply source which is located
outside of the home country, therefore when a supply source is located abroad it is known as
offshore process (Andreff, 2014).

As mentioned previously, Apple takes on an efficiency seeking approach to outsourcing. FDI


aims to locate assembly points in low middle income countries to take advantage of their low
costs and improve efficiency for their organisation. FDI and offshore outsourcing is seen to
have the same objectives in using international subsidiaries in low labour cost countries, to
produce semi finished products for organisations (Andreff, 2014).

One of the main reasons for Apple to outsource is due to the high cost of labour in America
which is eliminated through using suppliers from foreign countries. Therefore, skilled
employees imitate the basic operations required to produce goods at a low cost. Apple uses
this internationalisation strategy as an advantage (asymco.com, 2013). In addition, it is seen
as an advantage for Apple to outsource in a country where there is less tax paid, therefore
maximising profits as there are minimal legal regulations.

Apple has outsourced its manufacturing to foreign countries to produce its goods such as the
iPod and iPhone using quality materials. Apple relies on China where the appropriate skills
needed for the assembly of goods are available (Refer to appendix 4). It is important for
Apple to implement a strategy to monitor their production, as poor quality or maintenance
can cause problems to Apple’s high reputation.

Reports suggest that majority of the iPhone is actually made in America, such as design,
software development and other factors such as marketing, while the assembly of the phone
takes place in China (Forbes.com, 2012).

Foxconnvs.Pegatron

Foxconn is the world’s largest electronic manufacturer which receives 70% of its revenue
through production of the iPhone and iPads (zdnet.com, 2013).

There has been competition growing between the two suppliers,Foxconn and Pegatron. The
rivalry was developed when Pegatron began production on iPad Minis and iPhones,
therefore causing the dominant supplier, Foxconn to struggle. They have recently
manufactured faulty iPhones which has caused Apple to keep their suppliers competitive
rather than relying on a sole supplier (zdnet.com, 2013).

Pegatron offers a better deal for Apple through lower costs; however this does not impact
the supplier as this attracts more orders which increases profit overtime. This was portrayed
through their announcement of increasing its employees by 40%, which proves as worthy
competition for Foxconn (zdnet.com, 2013). By playing two suppliers against each other,
Apple can be less dependent on Foxconn for its manufacturing.

Apple’s Corporate Responsibility


Corporate social responsibility (CSR) is concerned with the ways in which National and
International companies take responsibility for the influence of their actions on the
environment, consumers, employees, communities, stakeholders and all other members of
the public (Zerke, 2006 – Pg 31).

Companies are required to answer two important elements of their actions. Firstly the quality
of their management in terms of people and processes, as well as the quality of their impact
on society in various areas. These actions can be defined in various ways. In a publication
‘’Making Good Business Sense’’ By Lord Holme and Richard Watts (2000), stated

‘’Corporate Social Responsibility is the continuing commitment by business to behave


ethically and contribute to economic development while improving the quality of life in the
workforce and their families as well as of the local community and society at large’’ (Pg 8).

Whilst in Ghana ‘’CSR is about capacity building for sustainable livelihoods. It respects
cultural differences and finds the business opportunities in building the skills of employees,
the community and the government’’ (Pg 9).

This shows the difference in perception within organisations depending on the different
societies across the world.

Business strategy

Corporate social responsibility is seen as an important business strategy. According to


Hewlett Packard, Consumers want to buy products from a reliable supplier with a good
reputation for quality products and services, therefore the company’s community wants to be
confident that the business operates in socially and environmentally responsible manner.
Suppliers want to form business partnerships with companies they can rely on, which
therefore increases sales and potential customers (www.4hp.com, 2006). Employees want
to work for companies they respect and that values their contribution, and NGO’s
increasingly want to work together with companies seeking feasible solutions and
innovations in areas of common concern. To remain competitive, companies need to be able
to adapt to these new demands from the market and the society in which they operate.

‘’All over the world, we’re expanding opportunities for workers and ensuring that they’re
treated with respect and dignity.’’
(Apple.com, 2014)

Social contract theory relates to an organisation having mutual agreement with the society in
terms of how employees should be treated. Apple’s CSR report states improvements made
towards making a better working environment for its employees (www.syntao.com,2014).
This was presented to the world as Apple joined Fair Labour Association in 2012, and made
small changes to working hours and health and safety measures were undertaken
(apple.com, 2014).

However, there have been no improvements due to the severe cases that have been
reported in regards to the safety and treatment of employees. Apple has come under
scrutiny over the past few years in regards to issues relating to the workplace environment at
Apple’s supplier operated by Foxconn.
An article in the New York Times, exposed the poor working conditions, which forced
employees to work 24 hour shifts, live in dorms filled to capacity, exposed them to harmful
toxins which severely damaged their health and placed them in filthy facilities. The facility
which is operated by Foxconn, has clearly violated the supplier code of conduct which has
been allegedly set by Apple to ensure ethical behaviour.

Apple states they have no legal liability for what happens with their suppliers as it is owned
by separate manufacturers, therefore showing Apple’s decision to be legally correct rather
than considering moral conduct (catholic.org, 2012).

In order to demonstrate some ethical sensitivity to its suppliers, Apple has contacted the
‘Fair Labour Association’ to inspect working conditions at Foxconn, where reports showed an
improvement via reduced working hours (Apple.com, 2012). In 2013, Pegatron was also
under scrutiny when an investigation of their work conditions found child labour cases and
forced overtime (Armitage, 2013).They found around 10,000 children aged 16 and over
working in conditions that were seen to be appalling with wages not being paid sufficiently
(Sherman,2014).

Similarly, in 2011 nearly 137 employees were affected by the toxic chemical ‘n-hexane’,
which was used to clean the components during assembly. This chemical was immediately
removed;however employees sustained ill health (English.peopledaily.com.cn, 2014).

Apple has tried to show their charitable side to the public through donations. Steve Jobs was
not seen as a charitable man, as he was known not to give funds away. However it was
reported that Jobs donated to charity without going public due to his shy personality
(news.com.au, 2013), however new CEO Tim Cook, is seen to be very public in regards to
his charitable donations as according to the Verge he donated $100 million to several
organisations (theverge.com, 2012). However, this motion took place days after the working
conditions in China was released to the public, therefore can be seen as a stunt to sway the
public towards Apple’s positive factors (cnet.com,2012).

Sustainability

Being sustainable involves using methods or processes that do not completely use up or
destroy natural resources. The first step towards sustainability is to make sure current
operations are undertaken in a manner that is environment friendly.

“At Apple, we take responsibility for minimizing the environmental impact of our operations
and products, and our suppliers must take responsibility for their operations as well.”
(Apple.com, 2013).

This statement, taken from Apple’s Supplier Responsibility progress report is an evidence of
Apple’s awareness towards the environment and how they want to play their part in
providing environmentally sound products. But this was not always the case as Apple was
under scrutiny by environmental groups such as Greenpeace who were calling to address
the large volume of toxic waste that was generated by their disposable products (Lipman,
2011). In addition, Apple hesitated to share its list of suppliers and lack of reporting and
goals for emission reduction. Around this time was when then Apple CEO, Steve Jobs
revealed Apple’s plans to become Greener, but this was not inclusive of sharing information
on the company’s supply chain although that aspect formed the biggest chunk of Apple’s
international operation. Various allegations have been made against the company in respect
with environmental issues especially against the manufacturing plants that produce most of
its products. China being the largest manufacturer of Apple’s products uses cheap labour,
and the manufacturing units at one time paid little or no heed to environmental issues which
are a direct reflection of Apple’s approach towards sustainability.

Back in 2011, China’s leading anti pollution groups drew up a report on 29 Information
Technology firms on the basis of their transparency. Apple fared at the bottom of this report.

"Behind their stylish image, Apple products have a side many do not know about – pollution
and poison. This side is hidden deep within the company's secretive supply chain,"
stated by the Green Choice Initiative (The guardian, 2011).

This statement is very contradictory to the statement made by the company two years later
in its supplier responsibility report, but the fact is that it took reports like the one that was
drawn by the Green Choice initiative which accused Apple of using hazardous materials and
also causing metal contamination in its plants. As far as manufacturing of products was
concerned, Apple used brominated flame retardants (BFRs), Poly Vinyl Chlorides (PVCs),
Mercury and many other harmful toxins which only raised further doubts over their efforts
towards sustainability (Davies, 2011). Apple lost to Google in comparison over sustainability
back in 2011 (Lipman, 2011) and also lost the sustainability faceoff against Microsoft
(Schwartz, 2012).

But in spite of all the allegations and protests against Apple in regards with its approach
towards sustainability and other environmental issues, Apple has emerged as an
environmental leader.

“Apple is committed to pursuing energy-efficient growth by increasing our renewable energy


participation to match the growing needs of our data center—through our own projects as
well as partnerships with utilities and renewable energy providers,”
the company stated (Apple, 2012)

Just a few months after all the concerns rose over Apple’s efforts towards sustainability, On
President’s day holiday in 2012, Apple released an update that included its plans to build the
largest private solar array and fuel farm in the world to power its huge data centre in North
Carolina (Woody, 2012).

Apple has taken huge steps in ensuring that its operations have a minimal impact upon the
environment in all aspects such as manufacturing, transportation, recycling and product use.
In terms of manufacturing, the company has completely elimination BFRs, PVCs, mercury
and many other harmful toxins from their products (Apple.com, 2014). Most of their products
are now designed in a way that they are thinner and smaller, using lesser materials along
the way. As far as transportation is concerned, packaging of their products is constantly
becoming smaller which consequently ensures that a larger volume of products are
transported in turn reducing fuel used by planes and ships that transport their
products.Recycling is another major aspect in terms of Apple increasing its efforts towards
sustainability. They now attempt to use recyclable materials in their products and packaging
wherever it is possible. For example, the Mac book Pro uses battery that can be recharged
up to 1000 times, resulting in production of less waste than other laptops (Apple.com, 2009).
Apple has also stopped shipping e-waste to other countries for disposal. Apple uses facilities
that are now powered by 100% renewable energy (Moloney, 2012). Offering commuting
facilities such as biodiesel commuter coaches is another method that indicates Apple’s belief
in this cause (Moloney, 2012). Energy Star qualified products use less energy and help
protect the environment (Energystar, 2014). Apple products exceed the specifications cited
by Energy Star ratings. This is done by incorporating energy saving features in all its
products.

Apple uses revolutionary designs and highly recyclable materials in order to reduce waste
once its products reach the end of life. Apple also participates in many product return and
recycling products in almost all the regions where its products are sold. The products are
normally processed in the region in which they are collected (Apple.com, 2013). Apple has
number of programs where its products like the iPad, Mac books, iPhones and iPods can be
returned by the consumers in order to be recycled and if the products have any monetary
value, then Apple gift cards are given to the consumers in the form of compensation
(Apple.com, 2014). This method motivates their customers to return the products once they
reach the end of life in order to be recycled.

There has been no proper evidence that suggests Apple has a policy of planned
obsolescence (Mims, 2013). Although built in obsolescence is in the nature of technological
evolution. There have been reports where customers have often wondered if there was a
deliberate built in obsolescence in Apple products as in the case of Catherine Rampell at
New York Times who wrote a piece on how she found her iPhone 4 had become sluggish in
terms of battery life around the time the new operating software iOS7 was updated
(Sherman, 2013). When tech analysts were called, the only explanation given by Apple was
that the new operating that was being pushed to existing customers was making their older
products unbearably slow (Worstall, 2013). This lack of proper explanation could make one
wonder if the problems were the result of planned obsolescence.
Appendix 1:

Source: http://bookshop.blackwell.co.uk/extracts/9780199297771_baylis.pdf
Appendix 2:

Source: https://www.chinafile.com/who-supplies-apple-it-s-not-just-china-interactive-map
Appendix 3:

Source: https://www.apple.com/supplier-
responsibility/pdf/Apple_Supplier_Code_of_Conduct.pdf
Appendix 4:

Source: http://www.entrepreneur.com/article/228315
Appendix 5: source: http://www.apple.com/supplier-responsibility/

Supplier code of conduct:

Safe work environment:


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