Apple Computer Expands to South Korea

Apple Computer
Dennis Adams
MBA6500S10113SP
Davis Frost
February 9, 2013

Apple Computer

The purpose of the report is to provide background on Apple Computer as it relates to their international business operations expansion into South Korea. It will examine the current Apple structure and evaluate its business. A discussion of the South Korean market is also included.

Company Background

Apple Inc. designs, manufactures and markets mobile communication devices, computers, portable music players, and a variety of related software. The company sells its products worldwide through its retail stores, online stores, and direct sales force. Major products and their percent of company sales is as follows: iPhone 50%, iPad 11.9%, iPod .08%, Mac computer 10.9%, icloud .04%, and Apple TV .03%.1 Apple products tend to be priced at the higher end of the electronic spectrum.
According to former CEO Steve Jobs the companies core value is not about making technology or “making boxes for people to get their jobs done” rather he said, “ We believe people with passion can change the world for the better… and that those people who are crazy enough to think they can change the world, are the ones who actually do it.” 2 It has evolved that the marketing goal of the company is less about a quantitative dollar amount, and more about the next WOW element. They are in part selling an image.
The company operates mainly out of California and employs 32,000 employees and has annual revenue of 165 billion U.S. dollars, placing it as the second largest corporation in the world. Providing an impressive ROE of 38.4%, and an EPS of $44.09 per share over the last 12 months. The stock is currently trading at approximately $475.00 per share, off the 52 week high of $705.00 in September 2012, and up from the recent low of $435.00 in January 2012. Thomson Reuters research reports indicates that Apple’s average score is “relatively in line with the market” at 6, while its direct peers average out to 5.5, and the sector as a whole scores a 4.3 average. It is worthy of noting that six months ago the score was a 10, and three months ago it was an 8.
The Core Competencies

The company’s strengths are “Apple” is arguably one of the five most identifiable brand names in the world. Their iTunes music store accounts for 82% of all legally downloaded music.3 They possess large amounts of available cash for investing in future priorities. The have experienced strong financial performance, and have a great focus on research and development.
It weaknesses are that it products are clone able, with complete disregard to patent infringements by those choice to steal them. They have experienced some limited level of product recall. Also, Apple is under much pressure to increase the price of its music download from the music industry, which would cut into profits.
Their opportunities going forward are the increasing demand for smartphones. The increasing sales of the ipad and ipad mini tablet will surpass home computer sales for the first time in 2013. The company has yet to fully tap the off site data storage market. With their iCloud product they are positioned to do so. AppleTV is yet another dimension in the rough stage awaiting further development. Should an Apple merge or buyout a company like Netflix, TNT films, or Hula, a huge new profit center could emerge.
Apple is threatened by intense competition, mainly by Samsung. An uncertain global economic condition could affect demand. PC and personal digital music device sale are on the decline. Dependence on specific suppliers can be trouble some if they limit supply and increase costs.4
Apple ‘s Computer business strategy has evolved to a Global Standardization Strategy. It is one that does not customize the product to suit local needs and desires. It utilizes a global supply chain to decrease cost, and then uses that cost advantage to support aggressive downward pricing in the world market.

Expansion to South Korea

On Friday December 7, 2012 Apple made the iPhone 5 available in South Korea, and a additional 50 countries opened up two weeks later (notably China and Brazil). It will be interesting to evaluate the success of the iPhone in the home country of their main rival Samsung. It is widely believed in South Korea that Apple has an inferior product as is evidenced by Samsung holding on to 70% of the phone market. According to a local newspaper, iPhone sales have fallen short of company expectations and are declining primarily due to the smaller screen size and fewer features than the Samsung Galaxy.5 One must question how bias a local newspaper would be when reporting on a foreign companies product roll out versus the home countries pride product.
In analyzing why Apple would roll out in South Korea it displayed a growing economy joining the World Trade Organization in 1995, becoming the worlds 20th largest economy. The tariff structure is comparatively moderate with a average of 12.1% which is about average in the world. The United States is already their second largest trading partner at 56 million dollars in trade followed by the European Union at 55 million dollars. The disposable income of the average citizen is increasing, and the country has a conservative invest and save mentality. The countries unemployment is a low 3.8%. It has bounced back from the world economic dip of 2009 in only 3 quarters. The US-South Korea Free Trade Agreement that went into effect in March of 2012 will assist in increasing trade in the future.6

Ongoing Concerns

Ongoing concerns for Apple in this market are the lawsuits filed by rival Samsung in both South Korean court and US courts. Even if they are without substance, they are time consuming and costly to defend. Also, the three major telecommunication companies in South Korea are under investigation for making discriminatory subsidies in the industry to assist the local smartphone enterprises.7 Who would want an iPhone if they could not afford the phone service? China is South Koreas largest trade partner by nearly 3 times the amount of the US trade. China makes many of the IPhone components, and as such has cloned, copied, or stole much of the technology. It would not be surprising if a Chinese product entered the smartphone market and was able to grab a large market share because of their low production costs.

Closing Thoughts

The amount of product introductions hitting the market requires that Apple continue pursuing more innovative products and operating systems in a shorter time. Lack of new features will reduce customer demand even more than it is affected by the downward economy. It is difficult, if not impossible to maintain large company growth percent rates as a company gets bigger and bigger. A 5% growth of a 100 million is 5 million, but a 5% increase of 165 billion is $8.25 billion. When one considers the competitive nature of the market there is just not enough worldwide sales to satisfy stock holds, fund managers, and analysis demands for profit. This is why we have seen Apples stock rating go from 10 to 6 in the last six months. The only way Apple can continue to expand its revenue is to tap in to new profit centers, like off site data storage and portable TV programing.

References

1 E*TRADE Financial
2 www.presentationzen.com
3 www.marketingteacher.com
4 www.yousigma.com
5 Brightwire, Naeil News
6 CIA World Fact book
7 Brightwire, Naeil News

References: 1 E*TRADE Financial 2 www.presentationzen.com 3 www.marketingteacher.com 4 www.yousigma.com 5 Brightwire, Naeil News 6 CIA World Fact book 7 Brightwire, Naeil News