A Competitive Analysis of Apple Inc.

(Porter’s five forces framework)

Apple Inc. has achieved success as one of the most valuable companies and respected brands
in the world. Michael Porter five forces method of analysis (1979) is a strategic management
tool for evaluating the five forces affecting the business organization (Apple Inc.): customers,
suppliers, substitutes, new entrants, and competition which gives insights about what the
company does to ensure industry leadership as despite the negative effects of external factors in
the competitive landscape of the computer software and hardware, consumer electronics, and
online digital content distribution markets, which involve firms like Microsoft, Google, Amazon,
Wal-Mart, Samsung, Dell, Sony, and Lenovo  Established in 1976, Apple has succeeded to
become a dominant competitor in the industry under the leadership of Steve Jobs. Based on this
Five Forces analysis, the company addresses competition and the bargaining power of buyers,
which are among the most significant external factors impacting the business formulation and
influence.

Apple’s strategies are partly based on the need to address forces in the external business
environment. These forces can limit or reduce the firm’s market share, revenues, profitability,
and business development potential. This Five Forces analysis, based on Porter’s framework,
points to the following strengths or intensities of external factors in Apple Inc.’s industry
environment:

1. competitive rivalry or competition: Strong force

2. Bargaining power of buyers or customers: Strong force

3. Bargaining power of suppliers: Weak force

4. Threat of substitutes or substitution: Weak force

5. Threat of new entrants or new entry: Moderate force.

Considering the five forces, Apple must focus its attention on competitive rivalry and the
bargaining power of buyers. This external analysis supports the company’s current position of
continuous innovation because through rapid and continuous innovation, Apple effectively
addresses the five forces in its external environment, although much of the company’s effort is to
strengthen its position against competitors and to keep attracting customers to Apple products.
An applicable recommendation is to intensify research and development for innovation to
develop novel products that will complement the iPhone, the iPad, and other existing products.

Now looking into detail firstly with competitive rivalry or competition with apple. Apple faces
the strong force of competitive rivalry or competition, according to Porter’s Five Forces analysis
model it determines the intensity of the influence that competitors have on each other. In Apple’s
case, this influence is based on the following external factors: high aggressiveness of firms
(strong force), Low differentiation of products (strong force), Low switching cost (strong force).
However some companies such as Samsung and LG aggressively compete with Apple. Such
aggressiveness, observable in rapid innovation, aggressive advertising, and imitation, impose a
strong force in the industry environment. Moreover, in terms of product differentiation, available
products in the market are generally similar in fulfilling specific purposes. For example, many
popular apps are available for Android and iOS devices, and cloud storage services from
different companies are available to iOS users. In Porter’s Five Forces analysis model, this
condition creates a strong force by making it easy for customers to switch to other sellers or
providers. On the other hand, the low switching cost means that it is easy for customers to switch
from Apple to other brands, based on price, function, accessibility, network externalities, and
related concerns. The combination of these external factors in this part of the Five Forces
analysis leads to tough competitive rivalry that is among the most significant considerations in
Apple’s strategic management.

Secondly the bargaining power of buyers is strong in affecting Apple’s business. This component of
Porter’s Five Forces analysis model determines how buyers’ purchase decisions and related preferences
and perceptions impact businesses. In Apple Inc.’s case, buyers’ strong power is based on the following
external factors: Low switching cost (strong force), Small size of individual buyers (weak force),
High buyer information (strong force). It is easy for customers to change brands, thereby
making them powerful in compelling companies like Apple to ensure customer satisfaction. On
the other hand, each buyer’s purchase is small compared to the company’s total revenues.
Porter’s Five Forces framework indicates that this condition makes customers weak at the
individual level. However, the availability of detailed comparative information about competing
products’ features empowers buyers to shift from one provider to another. This external factor
enables buyers to exert a strong force on Apple and other brands. Thus, this part of the Five
Forces analysis shows that Apple must include the bargaining power of buyers or customers as
one of the most significant strategic variables in the business.

Thirdly Apple Inc. experiences the weak force of the bargaining power of suppliers. This
component of Porter’s Five Forces analysis model indicates the influence of suppliers in
imposing their demands on the company and its competitors. In Apple’s case, suppliers have a
weak bargaining power based on the following external factors:Moderate to high number of
suppliers (weak force), Moderate to high overall supply (weak force), High ratio of firm
concentration to supplier concentration (weak force). The global size of its supply chain allows
Apple Inc. to access many suppliers around the world. In Porter’s Five Forces analysis context,
the resulting high number of suppliers is an external factor that presents only a weak to moderate
force against the company. In relation, the moderate to high overall supply of inputs, such as
semiconductors, makes individual suppliers weak in imposing their demands on firms like
Apple. Also, the ratio of firm concentration to supplier concentration further limits suppliers’
power and influence in the industry. This external factor reflects the presence of a small number
of big companies like Apple and Samsung, in contrast to a larger number of medium-sized and
big suppliers. Thus, this part of the Five Forces analysis shows that the bargaining power of
suppliers is a minor issue in developing Apple Inc.’s strategies for supply chain management,
value chain effectiveness, innovation, and industry leadership.

Fourthly the competitive threat of substitution is weak in affecting Apple Inc.’s computing
technology, consumer electronics, and online services business. This component of Porter’s Five
Forces framework determines the strength of substitute products in attracting customers. In
Apple’s case, substitutes exert a weak force based on the following external factors: Moderate to
high availability of substitutes (moderate force), Low performance of substitutes (weak force),
and Low buyer propensity to substitute (weak force). Some substitutes to Apple products are
readily available in the market. For example, instead of using iPhones, people can use digital
cameras to take pictures, and landline telephones to make calls. In Porter’s Five Forces analysis
model, this external factor exerts a moderate force in the industry environment. However, these
substitutes have low performance because they have limited features. Many customers would
rather use Apple products based on convenience and advanced functions. This condition makes
substitution a weak force in impacting the company’s business. Also, buyers have a low
propensity to substitute. For instance, customers would rather use smartphones than go through
the hassle of buying and maintaining a digital camera, a cellular phone, and other devices. This
part of the Five Forces analysis shows that Apple does not need to prioritize the threat of
substitution, specifically in management decisions in business processes like marketing, market
positioning, and product design and development.

Fifthly Apple Inc. experiences the moderate force of the threat of new entrants. This
component of Porter’s Five Forces analysis model indicates the effect and possibility of new
competitors entering the market. In Apple’s case, new entrants exert a moderate force based on
the following external factors: High capital requirements (weak force), High cost of brand
development (weak force). Capacity of potential new entrants (strong force). Establishing a
business to compete against firms like Apple Inc. requires high capitalization. Also, it is
extremely costly to develop a strong brand to compete against large companies like Apple. These
external factors make new entrants weak. However, there are large firms with the financial
capacity to enter the market. For example, Google has already done so through products like
Nexus smartphones. Samsung also used to be a new entrant. These examples show that there are
large companies that have the potential to directly compete against Apple Inc. Thus, the overall
threat of new entry is moderate. This part of the Five Forces analysis shows that Apple must
maintain its competitive advantage through innovation and marketing to remain strong against
new entrants’ moderate competitive force.