Course Name:

Course Code:
Session: Spring 2022

Submission Date
/03/2022

Submission By
Binoy Kanti Paul
ID: 2020-3-91-019

Submitted To
,
East West University
 Outsourcing and Vertical Integration at Apple
After a through exploration of the assigned reading, immense knowledge has been generated with
respect to Apple’s utilization of the outsourcing strategy to enhance its global positioning in the
electronic sector .This assignment a brief discussion of the apparent concept in the case study.
SWOT Analysis
Strengths: The Company controls the lion share of the electronics’ industry. Apple’s vertical
integration and outsourcing strategies are instrumental in its cost-effective global expansion .Not
to mention the fact that China is best placed to meet the company’s demands with regards to
economic of scale and cutting edge tech.
Weakness: Overreliance on the aforementioned business approaches in the Chinese market places
the company at a vulnerable position in the wake of intrinsic market challenges such as poor
intellectual property policies and quality uncertainties. Note that the lack of investment in the
American workforce threatens its brand superiority in the US.
Opportunities: Inasmuch as offshoring in the Chinese market threatens Apple’s brand in the US ,
the option ushers the company into the highly impenetrable market .This sentiment the follows
the conventional fact that expansion into China in an inherent challenge in international business .
Furthermore the vertical integration approach allows the company to control a major section of
the Chinese electronics market.
Threat: China’s poor intellectual property laws challenges Apple’s innovative model. Perhaps,
such a factor explains the emergence of its ever expanding Chinese rival - in Smartphone
manufacturing- Xiomi
Problem Identifications in the Case
When going through the assigned reading, one cannot help but notice the problems faced by the
American workforce as well as Apple’s competitors, especially Microsoft. As far as the US labor
forced is concern, outsourcing from China creates an income gap especially since technology
sectors offer opportunities to the larger section of the country’s middle class citizenry. On the
other hand Microsoft is left on a tight rope as its dominant counterpart possesses immense
contractual connections and experience in the Chinese electronic market.
Case Discussion Responses
Q1. What are the advantages and disadvantages to Apple of outsourcing its production to
factories in China?
Advantages that Apple are getting through outsourcing the assembly of the iPhone to foreign
countries, and particularly China, are given below:
The first thing that they are benefiting from is cheap labor. They are getting more labor workforce
than the USA at the same or less price in China. Therefore, the total cost of production in China is
significantly less compared to the USA.
Moreover, China has plenty of technical experts. Thus, Apple is getting benefitted economically
and technically. Also, China's overall supply chain facilities are suitable for a company like Apple,
as the raw materials needed to produce products of Apple can be found very quickly in China.
Therefore, it is helping them to be very much responsive toward customer demand. Thus, they can
manage the supply chain efficiently, and they can manage more specialization in manufacturing,
which helps them to enhance the quality of their products every year.
Disadvantages that Apple might face while outsourcing the assembly of the iPhone to foreign
countries, and particularly China, are given below:
Apple has its whole supply chain located in China. Therefore, they are heavily dependent on China
for its product manufacturing. So, a recent situation like the pandemic can disrupt their business.
In cases like this, they won't be able to meet their customer demand. Therefore, it may cause them
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to lose their customers and who may switch to other brands, which can be costly for Apple to
retain them later.

• Being a highly innovative company, Apple relies on a third-party company in China to produce
its products. Thus, as a potential risk, if this company sells information related to its upcoming
product to the competitors, then Apple might face a significant loss and lose its core competitive
advantage.
• Several Apple subcontractors in China have been targeted for their poor working conditions. If
these issues are highlighted on a large scale, there is a risk that Apple might face situations like
consumers boycotting their products as they do not focus on the employee working condition.
Therefore, Apple should monitor their operations in China and create a situation where the
manufacturers will maintain some rules and regulations regarding employee working conditions.
It will reduce the risk of losing the company image.
Q2. What factors influence the choice of countries to which a firm might outsource its
production?
Factors that influence the choice of countries to which a firm might outsource its production;
supply chain, qualified employees, standardized production facilities and investing in superior
technology or scale.
Apple mainly outsources its production due to its ability to control the production which was not
easy to do in US. They could easily get the required changes to be in production within a short
period of time which gave them flexibility. They are able to get the engineers and workers
required to start production and meet the demand within a short period of time.
Also the supply chain integration was another factor they had to keep in mind. The required parts
could be accessed easily within a short period of time.
Q3. Is there anything that might cause Apple to eventually shift production back to the United
States?
A major consideration that may compel company A to move back production/assembly to its
home country is when the advantages enjoyed by outsourcing to country C are reduced or lost,
and these become available in the home country.
Production in China gave Apple a lot of flexibility in production and lead time along with easy
access to components which could be accessed easily. If USA could provide such facility within the
cost structure than Apple might think of shifting the production facility to US.
Also apart from this various geopolitical and ethical issue might force Apple to shift the production
facility in US.
Q4. Why Apple is more vertically integrated than many other computer makers?
Apple is more vertically integrated than other computer makers because of its decision to produce
its own hardware and software. Apple controls all the major critical parts of the chain used to
make and sell products. Apple's vertical integration has given the company its competitive
advantage; the company has more control of its value chain, its component costs, owning chip
manufacturers, manufacturing and operating in a closed ecosystem of proprietary retail stores.
Q5. What factors will help or impede Microsoft in matching the advantages Apple gains from
its vertical integration strategies?
Superior quality, lower product cost, and updated technology will impede Microsoft in matching
the advantages of Apple gains from its vertical integration strategies.
Apple follows vertical integration where as Microsoft follow horizontal integration. Apple
production try to keep the competitive advantages by being more personalize to the customer
giving them the superior feeling. They invest heavily on development of new technology and
keeping the competitive advantages. Also strict maintenance of quality with huge production
capacity helps them in maintaining the peak position in the market.