Michael Porter's five forces framework

Porter Five Forces Analysis of Apple Inc.

Apple (NASDAQ: AAPL) has one of the most efficient value chains in the high technology industry, which has earned the company a market capitalization rate of $575 and over a 100% increase in iPad (183% yr.-over-yr.) and 142% yr.-over-yr. growth of iPhone sales (Apple, Investor Relations, 2012). Apple is setting revenue and profit records this financial quarter, helped by the exceptional control over collaboration and supply chain costs (Apple, Investor Relations, 2011). Apple, in the context of strategic management as defined by Dr. Porter of Harvard Business School, has been able to create a highly effective balance of supplier coordination and customer demand management, keeping their entire value chain synchronized in the process (Porter, 2008).

Applying the Five Forces Model to Apple Inc.,

The Five Forces Model provides an excellent framework to analyze the success and challenges of Apple., Inc. Their ability to keep the bargaining power of suppliers and buyers coordinated to their overall value chain has helped the company become a disruptive force in smartphones, tablet PCs and MP3 players. The pace and depth of innovation Apple is capable of as a result of this value chain synchronization also ensure the substitute products and potential new market entrants face a challenging time in entering their markets. Apple is vulnerable however to their suppliers, the quality of their assembly and contract manufacturing being done predominantly in Asia, and the costs of transportation and shipping, all risks mentioned in their filings with the Securities and Exchange Commission (Apple Investor Relations, 2012).

Starting with the Bargaining Power of Suppliers, Apple is often at a disadvantage with this specific factor of the Five Forces Model. The suppliers can and often do dictate which components will be shipped when, in addition to defining cannibalization strategies of components used in other manufacturer's smartphones (Apple Investor Relations, 2012). Apple relies on a very high level of secrecy on their product designs as a result, in addition to requiring rapid, high quality turn-around from suppliers as well.

The Bargaining Power of Buyers is also an area that Apple has significant control over, as it has built up one of the most loyal and cost-insensitive customer bases there are in technology. Customers willingly pay over $500 for new iPads and will wait in line for days to buy them (Apple Investor Relations, 2012).

The next factor of New Market Entrants is an area of much activity globally today, as Asian contract manufacturers seek out opportunities to create iPad and iPhone clones (Apple Investor Relations, 2012). The new market entrants from Microsoft/Nokia alliance and the onslaught of Google Android-powered devices will also change the market landscape over the long-term as well.