Environmental Analysis: A Case Study of Apple Inc.

Subject: Case Studies
Pages: 11
Words: 3032
Reading time:
13 min
Study level: Master

Introduction: Organisation, Sources, and Theoretical Approach

Apple is an American-based technology company with its headquarters in Cupertino, California. Steve Jobs and Steve Wozniak founded the company in the mid-seventies as a computer electronics business with a vision to change the way people view computers (Hansen, 2019). This focus has since morphed into a broader vision that not only encompasses computers but also other electronic gadgets. This development has prompted the company to branch into other sectors of the consumer electronics business and today, Apple manufactures products in various categories, including home appliances, tablets, televisions, cloud computing, and computers (Mas, 2018a). From this growth, Apple has evolved to be one of the world’s most recognizable and valuable brands.

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This study will analyze Apple’s external and internal environments using the PESTLE and SWOT analysis tools. The PESTLE analysis reviews the political, economic, social, technological, legal, and environmental forces affecting the business’s operations, as described by the Management Association, Information Resources (2020), while the SWOT analysis will be instrumental in analyzing its internal strengths, weaknesses, opportunities, and threats. The SWOT analysis will also be used to assess the company’s internal environment, while the PESTLE tool will be used to analyze its external environment. The goal of undertaking both reviews is to identify market opportunities from the external review and areas of improvement from the internal analysis.

The present study will include data from books, journals, and credible websites that have explained, analyzed or described Apple and aspects of its internal and external environments. The reliability of the contents obtained from websites was safeguarded by the credibility of their sources. In this regard, only content from trusted websites were used in the analysis and they included company documents, industry reports, expert reviews, and organizational analyses. The credibility of data contained in these pieces of information was also safeguarded by the exclusive use of books and journals, which are credible sources of academic data. The relevance of their content to the topic was improved by using updated materials that were published in the last five years (2016-2021).

Theoretical Exploration and Justification

As highlighted above, the PESTLE and SWOT analyses were used to analyze Apple’s external and internal environments, respectively. Both tools provide a hybrid outlook of Apple’s business environment from internal and external perspectives. They have been hailed as effective instruments for developing robust business plans, whether used one at a time or combined (French and Gordon, 2019). However, the combined approach is deemed more effective in developing a strategic business plan (French and Gordon, 2019). The use of the combined model created a hybrid outlook of factors affecting Apple’s current and future business prospects.

PESTLE Analysis

The PESTLE framework was selected for use in the present study because it contained data from the broad environmental context of Apple’s business operations. It is designed to anticipate changes that would occur in the business environment, thereby enabling firms to better respond to them (French and Gordon, 2019). This statement stems from studies demonstrating that companies, which understand their external environments are more likely to outwit competitors who do not understand forces impacting their businesses (Liu, Li and Su, 2019; Littlewood and Holt, 2018; Seo and Lee, 2019; Abere and Akinbobola, 2020). Therefore, the PESTLE analysis gives researchers a “big picture” understanding of issues affecting businesses based on how their operations fit into wider sociopolitical forces influencing markets and societies.

The justification for the combined use of the PESTLE and SWOT tools in the current investigation is rooted in studies that have shown their efficacy when used collectively (French and Gordon, 2019). For example, the PESTLE analysis complements the SWOT analysis because the latter interprets the findings of the former (Visconti, 2020). Stated differently, the PESTLE analysis provides a broader understanding of factors affecting businesses while the SWOT analysis helps researchers to understand organization-specific factors that best align with prevailing market dynamics.

SWOT Analysis

As explained above, the SWOT analysis will be used to interpret the findings of the PESTLE analysis. As a critical part of risk management, it is important to understand aspects of a business that could affect its future profitability and sustainability before financing (French and Gordon, 2019). The SWOT analysis provided the framework for undertaking such a study in the present investigation and was instrumental in understanding aspects of Apple’s operations that were externally and internally oriented. For example, the analysis of opportunities and threats was aimed at understanding aspects of the firm’s operations that are misaligned with forces outside of the business’s control. Similarly, the analysis of strengths and weaknesses was instrumental in understanding aspects of the business that were within the control of its managers.

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Environment Analysis

In this paper, the environmental analysis is done using the PESTLE and SWOT analyses as described below. To recap, the PESTLE analysis was useful in identifying external factors affecting Apple’s operations. Stated differently, these are issues beyond the control of the organization that affects its business (Perera, 2017). Comparatively, the SWOT analysis was used to understand factors that are within the organization’s control and that affect its performance. The PESTLE analysis highlighted below is limited to exploring five types of issues affecting Apple’s environment: political, economic, social, technological, legal, and environmental.

PESTLE Analysis

Political: Trade wars are some of the most disruptive forces for Apple because it has operations across different jurisdictions (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). Particularly, the trade war between the US and China is of concern to the company because some of its products are manufactured in China (Das, 2020; Zeng and Sparks, 2020). Therefore, the imposition of taxes in any one of the jurisdictions is likely to have an impact on the company’s sales and revenue because more than half of the company’s profits come from overseas operations (Mas, 2018b). Given that Apple has built a reputation as one of the biggest taxpayers in America, the country’s foreign policies on trade and economics are likely to affect its commercial performance (Das, 2020; Zeng and Sparks, 2020). Therefore, political forces play a critical role in influencing corporate performance.

Economic: Similar to most businesses operating in the information Communications Technology (ICT) industry, Apple is affected by economic forces influencing the global business environment. They include inflation rates, currency exchange fluctuations, wage policies, unemployment rates, and the likes (Visconti, 2020). Given that Apple is a premium technology brand, it stands to benefit from the growing middle class in many emerging economies around the world through the increased potential for market expansion (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). Its developed markets provide security of investment because they are relatively stable and home to consumers with high income.

The potential for growth lies in optimizing market growth opportunities in emerging economies around the world. Some of these economies are in the BRICS countries, including Brazil, Russia, India, China, and South Africa (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). The ongoing COVID-19 pandemic is also likely to exert negative pressure on consumers’ disposable income due to suppressed economic conditions. Therefore, Apple needs to be wary of its vulnerabilities given that it is a premium brand and such priced products are likely to suffer depressed sales during periods of economic depression. Furthermore, competitor activity, especially from traditional rivals, such as Samsung and Huawei, is likely to affect its market share and profitability (Lee et al., 2019). Collectively, these forces may impact the business’s economic performance.

Social: Apple is one of the most profitable organizations with about $270 billion in annual revenues (Weygandt, Kimmel and Kieso, 2019). Its loyal customers are the main reason for its stellar performance. However, they are mostly influenced by changing tastes, preferences, and attitudes, which are largely impacted by trends and culture. Given the centrality of Apple’s customers in maintaining its profitability, changing consumer tastes and preferences are likely to affect its performance. Additionally, the rise in the importance of smartphones to societies worldwide is likely to expand the market for smartphones, which is one of the most successful business segments for the company (Melumad, Inman and Pham, 2019). The rapid adoption of social media as one of the mainstream forms of communication and the rise in the number of young people wanting to take “selfies” and venture into emerging job opportunities, such as “Vlogging” and “blogging,” also provides an opportunity for Apple to improve its product functionalities to meet this demand (Simmonds et al., 2019). Therefore, a myriad of social forces could affect the firm’s future operations.

Technological: Apple is recognized globally as one of the leading brands in the technology industry. Therefore, technological forces influencing business operations are central to its existence. Developments in this sector, including the increased adoption of artificial intelligence (AI) technologies and cloud computing technologies, offer an opportunity for Apple to enhance its products by making it more competitive than its rivals (Patrick, 2021). Furthermore, the ability of companies to provide products with significant improvements in technological capability at low costs offers them an opportunity to tap into new markets that were previously inaccessible due to pricing limitations (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). Therefore, developments in technology provide an opportunity for Apple to increase its market share and outwit its competitors.

Legal: Companies with a global outreach need to be considerate of the legal environment affecting their business operations because their activities span across various countries (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). Changes in the regulatory environment, particularly concerning the management of customer data, are likely to affect the company’s operations (Mukul, Rao and Kundu, 2021). Notably, its cloud computing services are likely to be affected by such regulations because they may have to be forced to charge customers extra money to increase compliance or restrict access to certain types of data in pursuit of the same objective (Miola and Picciotto, 2021). Thus, the legal environment of a business affects its operations.

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Environmental: Concerns about the impact of businesses on the environment have affected multinational companies worldwide due to their role in contributing to climate change. As such, governments and environmental lobby groups around the world have pushed for increased accountability from businesses, especially those that have large-scale and global operations, such as Apple (Qejvanaj, 2021). This development has influenced the company’s product development processes by encouraging its staff to develop more energy-efficient and environmentally friendly products (Zhang et al., 2020). This trend has further led to the manufacture of products with longer battery life and the proper disposal of electronic waste (Qejvanaj, 2021). Therefore, the environmental objectives of governments, community organizations, and environmental groups have to be taken into account when analyzing the company’s business environment.

SWOT Analysis

This section of the analysis will evaluate Apple’s internal environment to understand how it fits with the above-mentioned factors informing the PESTLE analysis. The scope of this analysis is confined to understanding the company’s internal strengths, weaknesses, opportunities, and threats. These issues are subject to the firm’s internal control mechanisms and can be adjusted according to align with its external environment.

Strengths: One of Apple’s core strengths is its strong brand name, which is associated with quality and luxury (Apple Inc., 2021). As such, the company has built a premium-pricing brand, which has led to its recognition as one of the world’s most valuable brands (Apple Inc., 2021). Apple is also a disruptor in new technology development as was demonstrated through the introduction and success of its flagship products the iPhone and iPad. The company also has sufficient financial reserves that it can use to finance new operations or undertake rigorous marketing or product research activities. Most of its investors receive high dividends per share compared to industry standards with the latest company results showing that shareholders received $0.205 in dividends from its common stock and returns of up to $22 billion disbursed to shareholders during the first quarter of 2020 (Apple Inc., 2021). These figures demonstrate that the company enjoys sufficient levels of cash flow to meet its debt obligations and finance its future operations.

Weaknesses: Apple’s weaknesses undermine its ability to expand its market outreach and retain its customers. Some of the most significant weaknesses affecting the company’s operations include the high prices of its products, incompatibility of its products with other software, and a limited interest in marketing (Gale and Cengage Learning, 2017). These competencies are likely to affect the company’s ability to integrate with existing technology systems, thereby, isolating its customers from others who use alternative software. Its high prices could also exclude a significant portion of the existing market that cannot afford its products but would buy them if they had the money to do so. Apple’s over-reliance on its loyal customers as its main target market also exposes it to revenue vulnerabilities if this group of customers is unable to sustain demand for whatever reason.

Opportunities: Apple has significant opportunities for leveraging some of its internal competencies to exploit existing market opportunities for growth. For example, its smart wearable technology business has the potential of expanding the company’s software ecosystem by introducing an additional product to the existing list of gadgets that are already in use. For example, its Apple Smart Watch can be paired with the iPhone, thereby merging functionalities across product divisions (Leikauf et al., 2021). The increased adoption of cloud computing services in the market also portends great opportunities for the growth of the company’s iCloud services. It could be considered the new revenue driver because few companies provide such services (Patrick, 2021). The company’s growing interest in the automotive sector, especially in the area of electric vehicle development also provides new grounds for the firm to increase the scope of its business operations (Mims, 2021). This industry is currently dominated by novice companies, such as Tesla – Apple can match their capabilities, if not surpass them (Painter, 2021).

Threats: The ongoing global pandemic threatens Apple’s operations because its supply chain network is spread across the world. Already, the company has suffered significant disruptions because of border closures, restrictions on travel, and the adoption of social distancing policies (Apple Inc., 2021). It is unclear how long these measures will be in place or their effects on consumers. The unpredictability of these forces on business operations threatens the viability of some of the company’s key operations. The proliferation of counterfeit products is also hurting Apple’s business and if left unchecked could significantly affect the company’s future profitability, brand image, and market share. For example, although the company is known for producing high-quality products, counterfeits could produce inferior goods and dent the company’s image when sold to unsuspecting buyers. The difficulty of controlling for such risks makes it difficult for Apple to safeguard its gains especially in emerging markets (Cooper and Farooq, 2016; Miranda et al., 2021; Dwyer and Arifon, 2019). Table 1 below summarizes the four main forces of the SWOT analysis described above.

Table 1. Apple SWOT analysis (Source: Developed by Author).

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Strengths
  • High-quality products
  • Strong brand name
  • Huge financial resources
Weaknesses
  • Premium pricing
  • Incompatibility with other software
  • Limited interest in marketing
Opportunities
  • Cloud Computing
  • Automotive industry through electric vehicles
  • Smart wearable technologies
Threats
  • COVID-19 pandemic
  • The proliferation of counterfeit products

The above findings show four key areas that affect Apple’s operations in the technology space. The company has played a significant role in shaping the environment it operates. Particularly, the behavior of the competition on product development processes has been largely influenced by the company’s leadership in this area of research (Madanapalle, 2016; Lee et al., 2019). Therefore, while understanding how Apple can better align its processes to exploit emerging market growth opportunities, it is important to recognize that it has also played a significant role in shaping the contemporary business environment.

Evaluation of Apple’s Competitive Advantage

Based on the analysis of Apple’s external and internal environments, its quality leadership emerges as the main tool for gaining a competitive advantage over its rivals. This competency can be traced to the company’s main founder, Steve Jobs, whose exemplary leadership saw the company develop some of the most iconic products in the market that disrupted how people viewed consumer electronic gadgets (Hansen, 2019). The company still has the potential to develop such products as seen through the success of its latest iPhones, whose designs are being imitated by rivals across the market (Madanapalle, 2016; Lee et al., 2019).

Apple has an opportunity to leverage its quality leadership position to remain the dominant brand by continuing to develop innovative products. Its rivals have not been able to match this expertise because Apple’s way can exploit emerging market opportunities faster through its originality. Assuming that there is no shortfall of ideas, the company could use its huge financial reserves, alluded in the SWOT analysis, as one of its strengths, to finance research and development activities to come up with better and innovative products. This quality leadership trait has to be maintained across all business divisions to create uniformity in brand perception.

Discussion of Theoretical Limitations, Future Strategy for the Organisation, and Conclusions

The findings of this study have been developed using the PESTLE and SWOT analysis tools as the main theoretical frameworks for analyzing Apple’s business environment. The PESTLE analysis was instrumental in analyzing its external environment, while the SWOT analysis helped analyze factors relating to its internal environment. The PESTLE analysis gave insights into political, economic, social, technological, legal, and environmental forces affecting the business but these five frameworks of the review provided too much information that could cause “decision-paralysis.”

The SWOT analysis helped to simplify such data, thereby overcoming the weaknesses seen in the external environment analysis; however, it also had its data ambiguity weaknesses. In other words, there was an overlap of information across different segments of analysis, some of which could not be easily distinguished from one another. However, the hybrid technique of information review achieved using both techniques helped the researcher to use one theoretical model to countercheck the weaknesses of the other. Therefore, there were no concerns about the reliability and validity of the findings. Consequently, the findings highlighted in the investigation can be used to inform Apple’s market expansion and business growth strategies.

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