Strategic Management Report: Apple Inc.'s Challenges in China

This report provides a comprehensive strategic analysis of Apple Inc.'s challenges in the Chinese market. It begins with an introduction outlining the scope of the study, focusing on the economic issues faced by Apple in China, including declining iPhone sales and the impact of the US-China trade war. Task 1 identifies the key issues, such as economic weakness and fewer iPhone upgrades. Task 2 delves into internal and external environmental analyses, including SWOT and PESTLE, examining Apple's strengths, weaknesses, opportunities, and threats, as well as the political, economic, social, technological, environmental, and legal factors affecting its operations in China. The report also explores the impact of these issues on the organization and Apple's approach to market positioning. Task 3 discusses the decisions and choices made by Apple to mitigate the current issues, while Task 4 offers recommendations and their associated advantages. The report concludes with a summary of the findings and references used throughout the analysis.

Strategic Management

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Task 2...............................................................................................................................................3
Internal and external environmental analysis..............................................................................3
SWOT..........................................................................................................................................3
PESTLE.......................................................................................................................................3
Impact of issue on the organization.............................................................................................3
Organizational approach to the positioning in the marketplace..................................................3
Task 3...............................................................................................................................................3
Decision and choices taken to mitigate the current issue............................................................3
Task 4...............................................................................................................................................3
Recommendations and its associated advantages........................................................................3
Conclusion.......................................................................................................................................3
References........................................................................................................................................4

INTRODUCTION
Apple Inc is an international technology company based in America with headquarter in
Cupertino, California. The company is engaged in designing, developing and selling consumer
electronics and computer software along with providing online solutions (Apple, 2019). The
present study is based on the critical analysis and evaluation of the economic issues faced by
Apple Inc in the emerging country that is China. The study will consider the in-depth analysis of
the underlying issues and their impact on the organization. The study will also undertake internal
and external environmental analysis including SWOT and Pestle Of Apple Inc in the Chinese
market. The study will also cover discussion and choices taken by the company to mitigate these
current issues. Based on the analysis, the study will draw appropriate recommendations that will
be advantageous to the company to resolve this issue.
TASK 1
Issue
The CEO of Apple (Tim Cook) revealed two major problems, particularly which resulted in the
sudden move namely:
 Issue 1: Economic weakness in the emerging market that creates an unexpected impact
on Apple Issue 2: Fewer upgrades on iPhone that the corporation failed to anticipate.
There is a steady rise in the price of the newest and strongest Apple product, i.e. iPhone every
year with some models topping at $1,000. Consequently, it has been noted by Bernstein
Research’s Toni Sacconaghi (market analyst) that Apple did not completely attribute to the
slowdown of its sales of iPhone due to the high price tags of smartphones (VANIAN , 2019).
Therefore, there is significant decline share price of the company.

Figure 1: Decline in Apple Share prices and operating margin due to Chinese markets
The big issue is the slowdown of the Chinese economy, and further the issue is intensified by the
trade was among China and America. Majority of the disappointment can be attributed to the
slowing of the Chinese economy. It is stated that over 100% of its revenue of company declined
from the last year could be featured due to the lower demand in China for iPhones, Macs and

iPads. In addition to this, the US-China trade put further pressure on the already slowed Chinese
economy, leading lower store and online traffic.
Figure 2: Reducing Chinese economy and future forecast by IMF
It has been acknowledged by Sacconaghi, that a valuable proportion of the weakness of China is
micro driven, implying that there are some circumstances which are far away from the control of
Apple. However, it has been noted that Apple tends to have lost material share in China,
regardless of its launch of new products, and in China Apple has also struggled a lot before,
underscoring the uncertainty and lower retention of Chinese customers (Cheung and et al., 2015).
To be sure, Apple has faced various strict Chinese competitions such as Xiaomi and Huawei that
are at present selling comparatively cheap smartphones that are getting rapid popularity in the
Chinese market.

Figure 3: Increasing competitors of Apple in Chinese market
In short, the problem of Apple in China is not merely a steady Chinese economy. As, the
shipments of smartphones is also have been reducing for at least 6 quarters in China. Further,
with the higher rate of smartphone penetration, there is saturation in the market, in regards with
the Apple; the products of the company are priced too higher for the bulk of the Chinese market
wherein there is stiff competition (Huang, 2017). Ultimately, in a market, where users are
making constant upgradation in the phone, Apple has not done a good job in the introduction of
new and innovative products. Thus, the net outcomes have been a significant market share loss in
the largest market for smartphones in the world.
TASK 2
Internal and external environmental analysis
SWOT
SWOT analysis of Apple in China
Strength Products of apple have strong brand recognition in the world. In comparison with
its competitors, it facilitates more innovative and advanced technologies.

Complete product mix options are provided to Apple’s customers (Khan, Alam
and Alam, 2015). In the global industry, it helps the company in catering to
different customers segments. Employees in companies are well skilled and
talented, and it’s a major point of success. There is a huge network within the
dealers associated with Apple which helps in providing the effective services and
facilities and apart from this dealing with the competitive challenges worldwide.
Weakness In the technology industry, a business model can be easily imitated by
competitors in the industry. Apple’s consumers oriented services are direct
towards the competitors through which they are gaining an advantage. Further, It
has been measured in the case study in China that there is very low loyalty
among the suppliers.
Opportunities As there is a low inflation rate in the market that brings more stability, which
facilitates credit in a lesser interest rate for the consumers of Apple, however this
also increase the consumption of Apple products. Currently preferences of the
customers are constantly changing. Customers are motivated by growing disposal
incomes, by considering information regarding the technology is provided to
them by media which drive them to try new product (Castro, 2016). Technical
advances and innovation are helping to speed up the industrial productivity, as of
which customers are using huge range of products and services. This provide
potential market to Apple to considerably innovate within nearby products.
Threats Competitors are the biggest treat in the business industry as they are catching up
with the product development and company is dealing with the rigid challenges
from global to local competitors. The development plan of the Apple Apple’s is
affected by the business relations between china and US. Moreover it directs
towards the trade war that can obstruct the potential of Apple Apple's to get
bigger operations in China (Gardere, Sharir and Maman, 2018). Company can
face a shortage of skilled human resource challenges in upcoming phase because
of providing high turnover to workers and more and more dependence on the
innovative solutions.

Figure 4: Summary Swot analysis
PESTLE
Political factor
As Apple is the strongest US technological corporation, therefore, it had earned a great amount
of profit. In the US there is higher corporate taxation which can create political issues of inequity
in income. Further, due to political or social issues in China, the production cost can be
disturbed which directly affect imports of China in the US. Politically Apple is highly affected in
terms of trade policies and unstable and risky government policies such as increasing tariffs in
the developed nations (Chu, 2017).
Economic factors
Labour cost is continually increasing in China as of which cost-benefit on the product and
services has been reduced. Income of the middle-class people is stable because of which
potential market reduced to get high end customers with Apple products market. It is important

for the company to focus on the high economic growth rates of various Asian countries that
assist in rising profit throughout sales in the foreign markets.
Social factors
Apple Company is greatly affected by the social factors; therefore it is essential to know
customers demand and behaviours. Sociocultural factors are most important for the distant and
microenvironment of the corporation. As clients are increasing day by day, and the use of mobile
is also increasing in the same terms; therefore it is important to consider choices and socio-
cultural dimensions (Omer, 2019).
Technological factors
Present techniques and modifications can influence the situation of the company. Technical
factors such as understanding of new technology, cloud computing trends and developing apps
market influence the Apple Company effectively. Opportunities are offered by Apple with the
provision of cloud-friendly apps and instruments. As it is popular in technologies which help
them provide the advantage of technological advancement in the business environment.
Environmental factors
In Apple, opportunities are offered by the environmental as well as ecological factors which
highly influence the business. Recycling procedures have been initiated by Apple to develop
sustainability in the business and get the opportunity to tackle it (Cardoso, 2017). Presently
major focus of the company is to track correctly by improvising the ecological factors.
Legal factors
The company is developing new opportunities for the growth in the products by concentrating on
enhancing the features and increasing privacy of the customers. Severe steps are taken by the
administration in striking the strict telecommunication regulation which reduces the utilization of
the products of Apple potentially and great emphasis is put on the privacy protection and the
regulatory observance of the products.

Impact of the issue on the organization
The impact of the economic issues in the emerging markets have turned out to be considerably
greater than the company has anticipated. While the company projects some challenges in core
emerging markets, but they failed to predict the magnitude of economic deceleration, especially
in Greater China (Khan, Alam and Alam, 2015). The stock of Apple dropped by 7.5% in
Wednesday’s after hour trading, and came to .8% in pre-market trading on Thursday, to $144 per
share. Further, this reduction outpaced a 1.6% drop in futures for the Nasdaq 100 index. Apple
supplier’s stock, which had been already, experienced headwinds among reports the corporate,
had cut the orders of iPhone, taking another hit in the Asia trading on Thursday (HARDY,
2019). The economy of China started to slow down in the 2nd half of 2018. The GDP growth by
the government at the time of September quarter was the 2nd lowest in the past 25 years. The
economic environment of China has been affected by increasing trade tension.
It has been stated by Apple that it expects sales of approaching $84 billion in the quarter of
December against the Wall Street consensus of $91.3 billion. China has been blamed by Cook as
the major driver for decreasing sales guidance. The country has produced 18% of the sales of the
company in the September quarter (Davies , 2019). The economic environment in China has
also been dramatically impacted by increasing trade tensions. The shares of the company have
already reduced approx 30% from the October end as considerations attributed about weak
demand for the models of iPhone launched last fall, among various smartphone suppliers
warning. One of the major problems of Apple is that its smartphones are positioned at the higher
market end in context with price, and this is particularly challenging in China wherein customers
have different and lower perspectives for costs as compared to the US customers (Kshetri, 2017).
An organizational approach to the positioning in the marketplace
Apple has held itself in a complicated position in China, a key market for sales and wherein it
manufactures innovative products in huge quantity and then sale globally. It is acknowledged
that five years ago, the company chased the market of China by providing cheap, inferior specs
with a colourful device, i.e. iPhone 5C. At present, its cheapest device is as good as the higher
end offerings and is turning the China product by providing dual nano-SIMs and thriving the in
the most costly models on the market (Summers, 2016). Certainly, Apple has come a long way in
interpreting the Chinese customer’s expectations and needs. However, Apple has stayed firm on

its premium pricing strategy within China regardless of the risk of weak and slowed down
economy. The business strategy of iPhone maker has concentrated more on the tightly locked
ecosystem of devices and services, which are best for mature markets, but they don’t reap the
best in China, due to more fragmentation in the market and domestic rivalry provide innovative
services at low prices. It is all about brand loyalty and recognition of Apple worldwide, which
has helped in positioning itself in the Chinese market but the company has lagged itself down by
its high pricing (Drewniak and Karaszewski, 2016).
Justification for selection of analytical and its integration
Internal (SWOT) and external (PESTLE) analysis shows micro and macro environment of China
and its impact of business. Therefore these tools are suitable for economic analysis. PESTLE
shows economic factors while SWOT link these factors to weakness and opportunities associated
with the business. This assist in analyzing current situation and deriving suitable
recommendations for business.
TASK 3
Decision and choices are taken to mitigate the current issue
It is held by the company that they cannot make changes in the macro-economic conditions, but
they are in pursuit of undertaking and fostering other initiatives to make improvement in results.
One of the initiatives is to make it simple to trade in a phone in the Apple stores, over time
financing the purchase and getting assistance in transferring the data from the existing to new
phones. Further, this will be beneficial for the economy and customers, as their existing phone
will act as a subsidy for their new phone, while being great for developers and can help in
growing the installed base (Heisler, 2019).
In the letter of CEO, Apple possesses $130 billion in net cash, and it aims to continue to
contributions to make reduction that cash balance to net zero, which the corporation has so far
attained through increasing dividends and share buybacks. It is anticipated that the company is
rising share buybacks on the weakness to return capital to shareholders at discounted rates
(Grimes and Sun, 2016). On Wednesday Apple, took the unusual step of cutting the sales

forecast quarterly, with the CEO (Tim Cook) blaming the slowed down sales of iPhone in China,
whose economy has been reduced by uncertainty approx U.S.-China trade relations.
In an open letter to investors, the CEO attempted to reduce the shortfall, implies that Apple had
forecasted only “slight revenue growth” from the last year of $88.3bn. It has been held that
Apple is considering making it more convenient for customers to trade in their smartphone and
other parts of the business of the firm, inclusive of services stayed as strong (Condon, 2019).
Meanwhile, the installed Apple base of active devices targeted a new all-time higher increasing
by over 100 million units in one year. It has been expected by the company to report new all-
time records meant for earning per share in the Q1. Moreover, besides the current issues and
challenges in China, there is a bright future of Apple there. The IOS community within China is
one of the most innovative and creative in the world; the products of Apple enjoy a powerful
recognition there, with higher engagement level and experience. Similarly, Apple decided to
work on the same, and make their services and devices and upgrades of iPhone upgrades more
affordable and effortless (Clarke and Boersma, 2017).
On the other hand, the economic weakness in some emerging markets for the company has
played a major part as same as the solid US dollar and its effect on global pricing. Still, the
company is conducting something to drive sales in China, by reducing the prices of 2017 and
2018 models in a similar country. The company has to consider price adjustments as the strength
of Apple is in its resilience, team creativity and talent and doing everything with passion.
A good market research plan thereby aids in improvising the revenue of company by targeting
right customers, assessing the competition increasing a company’s revenue by targeting the right
customers at the right time and helps in optimizing brand strategy and positioning. Thus,
strategic marketing helps in making informed decisions and reduces the uncertainty risk in
overall business decisions. By this, Apple would be able to visualize business idea
responsiveness before to market launch, preventing possible risks and clarifying expectations
held from the decision.
Strategic management analysis will help the company in improving its overall performance; at
the same time, it will impact the choices and decisions of the company. With proper strategic
management, the company would be able to form competitive strategies and commence better