Nowadays many businesses go global and have interests in more than one country. Globalization gives access to new markets and business opportunities; it expands world trade, by moving raw materials, finished products, and services from one country to another in the global economy. However, there are also some challenges of working across national and cultural borders.
Apple Inc. A Short Company Overview
One of the brands well recognized for its global marketing initiatives is Apple Inc. It is a multinational corporation which designs, manufactures, and markets software, hardware, and other consumer electronic products. Established on April 1st, 1976 by Steve Jobs, Steve Wosniak, and Ronald Wayne, the company soon ignited a personal computer revolution. However, in 1987-1997 the company experienced a great decline with a continuous slide of its market share and stock prices.
Decision to pursue a global marketing strategy helped Apple to retain its profitability and gain more than tenfold market share growth in 2003-2006. The company has built overseas presence with 394 retail stores in 14 countries, and its products being available around the world (Apple Retail Stores List). Currently, Apple Inc. is the world’s second largest IT company by revenue with total net sales reaching $156,508 billion in 2012 fiscal year. Apple is the world’s most powerful brand which has been resting at the top of Fortune magazine list of the world’s most admired companies since 2008.
Apple’s Global Marketing Strategy
Apple entered the market as the US based company which designs and manufactures unique IT products. However, soon American market became saturated with similar products. In addition, Apple faced an increased competition from big rivals like Samsung and Google who offered more reasonable prices for their products. In order to survive in a highly competitive business world and sustain high profitability, Apple took global initiatives.
The company has been advertising its products as being made in America up to the late 1990s. However, after taking outsourcing initiatives in 2000, it does almost no domestic manufacturing now. Considering the fact that Apple’s products are assembled mostly in China from materials acquired from more than 200 suppliers, the concept of country of origin of Apple’s products has gradually become obsolete. Such strategy fostered greater brand recognition of Apple’s products. The primary goal of such strategy, however, was to take advantage of the international wage gaps by outsourcing products to countries which can produce them at the lowest manufacturing and labor costs.
In addition, Apple implements its global initiatives by exporting goods and services to foreign countries. This strategy is aimed at gaining greater profit potential by entering new fast growing markets. Given tough marketing conditions, the only way to sustain profitable growth for the company is to increase its international market presence. Apple sells its products worldwide through retail stores, online stores, and direct sales force. Exporting goods and services to foreign countries fostered a stronger global market presence and helped the company to generate great income. For example, Apple’s international sales in the fourth quarter of 2012 fiscal year accounted for 60 percent of the total revenue (Apple Press Info).
3.2. Subsidiaries, Acquisitions, and Other Direct Investment Strategies
Last, but not the least, Apple pursues its global strategy by making acquisitions, purchasing stakes, making divestments to other companies, and creating subsidiaries. Thus, it has created international distribution subsidiaries in low-tax countries like Ireland, the Netherlands, Luxembourg and the British Virgin Islands, the major of which are Braeburn Capital, Inc. in Nevada, Apple Sales International and Apple Operations International in Ireland. Such direct investment strategy enables the company to reduce its global taxes by billions of dollars annually (Duhigg, Kocieniewski).
In addition, Apple established a manufacturing subsidiary in China which operates as a separate business from Apple’s headquarters. After considering the profit potential and positive effects for local economy, namely job creation, the World Bank and the Asian Development Bank financed this global venture (Zboch). It was a smart strategy to shift Apple’s production to China and operate it on a decentralized level. First, the company created rights of ownership and gained control over operations in the foreign country without great risks for its capital. Furthermore, such expansion provided excellent opportunities for profit rate growth and fostered stronger relations between the two countries.
Apple’s Global Business Environment
In order to expand business to another country with success, several factors need to be taken into consideration. Global managers must be ready to respond to unique challenges in business environments different from those they are used to. These include political stability, legal and political systems, trade opportunities and barriers, and regional economic conditions.
3.1.Legal and Political Systems
Apple outsourced most of its production to China which is assumed to be one of the most successful markets in the world. Although the country is at a moderately low risk of terrorist attack and political unrest, there are several threats of entering the China market (Zboch). These include tight governmental control over businesses in China, differences in legal systems, risk of intellectual property theft, cultural and language differences, etc.
Legal difficulties for Apple’s management include incorporation practices and business ownership; negotiating and implementing contracts with foreign parties; handling foreign exchange. In addition, China does not adhere to the same environmental and safety regulations as the United States which puts another challenge for global management. Like other Asian countries, China lacks environmental control. For instance, one of the Apple supplier’s plants was closed down in October 2011 due to significant environmental concerns. However, the greatest challenge for Apple is lax intellectual property protection in China. Rights and patents to various products in China are difficult to receive because of intellectual property conflicts. Moreover, the company can lose profits when their products or designs are copied and sold as imitations abroad (Zboch).
3.2. Economic Challenges
The county has had a booming economy for much of recorded history, which makes it an ideal place to expand a business. However, its economic activities are heavily regulated by both local and central government. Lack of policy coordination is the major economic and regulatory risk for conducting business in China. As a result, difficulties arise when dealing with exports and trading internally between Chinese provinces. Another significant challenge is overcoming the higher costs associated with importing parts and paying taxes both locally and abroad. Therefore, Apple outsourced the entire production process for the iPhone to China with the aim to maintain low costs (Zboch).
Ethical Challenges for International Businesses
Expanding business to a foreign country involves several risks including cultural, political, currency and other factors. Unacceptable ethic practices pose even greater threat to a global business while they can cause a substantial damage to the company’s brand and products. Therefore businesses should consider the risks of cooperating with low cost suppliers and take efforts to deal with them proactively. Nevertheless, a separate company is not capable of changing the social order while it is the area of governmental enforcement. As a result, global businesses like Apple often encounter ethic challenges when entering foreign markets.
Reasonably, community expects that business will live up to the laws and the highest ethical standards, and will function as a contributing member of a society (Sanford). Apple realizes these high expectations of its stakeholders and tries to meet them. The company is committed to ensure safe working conditions, human rights protection, and environmentally responsible manufacturing processes in its supply chain.
Apple’s driving hard bargain with its suppliers is often forcing its suppliers to “cut ethical corners” (Denning). Suppliers fail to abide by responsible business practices defined in Apple’s Code of Conduct. Thus, newspapers often report about frequent instances of labor and human right violations associated with Apple’s unethical business practices.
Sweatshops are the great concern facing Apple’s manufacturing in China. Facility audits reported over-working practices in its China based factories with some employees working more than 72 hours more than 6 consecutive days (Duhigg, Barboza). Additionally, instances of unfair remuneration policy, namely incidents of overcharging of agency recruitment fees to employees, corruption, delayed wages, deductions from wages, have been discovered in Apple’s facilities. Facility audits also reported about violations in terms of involuntary and underage labor (Duhigg, Barboza).
Then, the incident of improper disposal of hazardous waste and falsification of records related to underage labor and working hours were found in Apple’s facilities. What is more, safety violations at 2 facilities, Foxconn’s Chengdu factory and the Ri-Teng factory in Shanghai, resulted in explosions which took the lives of four employees and injured 77 others (Duhigg, Barboza). Foxconn’s Longhua factory has seen five suicide attempts and a death of a staff-member who killed himself after losing an iPhone prototype and being beaten by security staff (Duhigg, Barboza).
Companies Strengths & Weaknesses
Commitment to sustainable development appears to be the strongest and most responsible business practice of the company. Apple’s management demonstrates stewardship in protecting the natural environment and preserving its resources for the future. The company identifies the environmental impacts of its activities and continuously improves its environmental performance.
The company is working at reducing its environmental footprint by establishing recycling programs, using alternative sources of energy, avoiding usage of toxic substances, reducing the use hazardous substances, cutting down on wastewater, air emissions, and solid waste. In addition, Apple works with environmentally conscious materials which can be recycled after their use (Apple and the Environment). Apple also encourages environmental awareness of its suppliers and employees by means of its green initiative. As a result, Electronic Product Environmental Assessment Tool (EPEAT), a global registry for “greener electronics”, witnesses that Apple is environmentally responsible while its products may be easily disassembled and recycled.
Undoubtedly, Apple is a remarkable global company with enormous turnout, environmentally responsible and innovative design of its products. Yet, the question arises how can such an extraordinary company be missing action in so many respects on corporate social responsibility?
Apple’s CEO Tim Cook claimed that the company is the most proactive in the industry in terms of improving working conditions (Simon). However, widespread and deeply rooted deplorable conditions of Apple’s factories in China extensively described in a series of articles in the New York Times showed how little Apple has actually done so far. Moreover, they witness Apple’s consistent lack of responsiveness and transparency (Duhigg, Barboza).
Recommendation for Business Improvement
What Apple should do is to take systemic managerial approach and turn corporate responsibility into its competitive strength (Denning). The company should introduce severe penalties for those suppliers who do not comply with the law and regulations of Supplier Code of Conduct. For instance, Apple should call for legal actions and terminate relationships with companies not abiding by the Code of Conduct which would raise the risk for non-compliance unacceptably high.
The company should think its priorities over. Although Apple provides wonderful goods to millions of people, it should not be done by cutting ethical corners and behaving irresponsibly. It seems fairly reasonable that having quarterly revenue of $36.0 billion (Apple Press Info) Apple could fix this problem with ease by investing in safety and responsibility code enforcement. Unless the Code of Conduct is enforced in all Apple’s facilities, it would be nothing more than a window-dressing for its pretentious yet poor business practices. Finally, Apple should put aside its “don’t ask, don’t tell” practices and provide relevant data to its stakeholders. Accountability will give people an opportunity to judge about how responsible its business practices are and ultimately serve a long term purpose by providing loyal customer base.