Assignment: Strategic Analysis of Apple MGMT 6910

Assignment: Strategic Analysis of Apple

Read the Article Apple Makes Plans to Move Production Out of China (in Blackboard, also atached), review assignment specifics below and prepare a report on the company

Background: Apples most successful product, iPhone (52% of total Apple revenues in 2021), is designed and sold by Apple. However, its components are made by many companies around the world and assembled by Taiwan-based Foxconn in their mainland China facilities. It is estimated that over 90% of iPhones are assembled by Foxconn, and a very small fraction are assembled in Vietnam and India. In the recent months, Apple has accelerated plans to shift some of its production outside China, telling suppliers to plan for assembling Apple products elsewhere in Asia, particularly India and Vietnam. Apple also seeks to reduce its dependence on Taiwanese assemblers like Foxconn. Thus, Apple will draw from a bigger pool of assemblers, even if those companies are themselves based in China. Two Chinese companies in line to get more Apple business are Luxshare and Wingtech.

There are these following key 3 learning objectives:

• Understanding how Geopolitical issues affect management decisions and operational strategies

• Learn international factors in making decisions regarding location(s) selections

• Understand product life cycle (PLC) and new product introduction (NPI) and strategy implications

This assignment is a semester long Situation Research, Analysis and Strategy Options discussion. You will prepare a Report as described below, with appropriate data, analysis and recommendations. Your submission will be in 2 parts:

• Part I due February 12 (Sections 1, 2 and 3)

• Part II due March 5 (ALL Sections with Part I with any revisions)

Assignment Instructions

You will need to follow these instructions completely; failure to do so will result in points deductions.

1. Apple is in several markets, smart phone, smart watch, computers, tablets, etc.; only discuss the iPhone business in this assignment.
2. Your Report will be submitted in Word format (not in pdf). Use TNR 12 font and 1.15 spacing.
3. Report Outline is provided below, and you must include all main topics in your Report with proper headings and sub-headings, as described below. You are encouraged to additional items. Your Report should have no more than shown # of Pages for each Section.
4. Main body of the Report must be in a narrative format and all figures, charts, exhibits must be included in the Appendix with proper references
5. Use MLA Style for all Work Cited.
6. You will receive comments on your Part I submission, and I expect you to make appropriate revisions when you submit the Final Report (Part II).
7. Your Final Report must be an effective reading, reflect sufficient attention to research data, analysis, and presentation. Must pay attention to structure and format of the Report.

Additional reading:

https://www.cnn.com/2022/12/09/tech/apple-china/index.html

https://www.nytimes.com/2022/09/06/technology/china-apple-iphone.html

https://www.lifewire.com/where-is-the-iphone-made-1999503

Report Outline

MGMT 6910 Strategy Formulation and Implementation

Manning School of Business

University of Massachusetts Lowell

Apple

Global Strategic Analysis

Student Name:

Date:

Executive Summary (One Page)

(Instructions: include key points from the Report and clear discussion of Options and Recommendations, with brief rationale)

Table of Content

Executive Summary (One Page) 5

1.0 Introduction and Context (One Page) 7

2.0 Apple (4 pages) 8

3.0 Smart Phone Industry and Analysis (3 pages) 9

4.0 Global Context 10

5.0 The Situation, Options and Recommendations (2 pages) 13

6.0 Learning Points (1 page) 14

(List and discuss your learning points from this assignment, relate to the class discussion) 14

Appendix. 15

Work Cited. 16

1.0 Introduction and Context (One Page)

(Discuss the company, smart phone industry and the Situation as described in the Article. Provide a Context. Do not write one long paragraph, break it up for an effective reading)

2.0 Apple (4 pages)

1. Business and Strategy

(Briefly describe Apples smart phone business and its Corporate and Business Strategy; research their website, annual reports and investors presentations

2. 2017-2021 Financials and Analysis (management ratios)

(Go to https://www.apple.com/ search for 2021 Annual Report under the Investors Relations. Get 5-year financial performance data (2017-2021) and calculate minimum 8 key Management Ratios (see Table 4.1 in textbook). Discuss briefly these ratios relating to their Strategy); break out and nalyze iPhone data as much as available

3 Value Chain Analysis

(Using Chapter 4 discussion of the Value Chain, describe key activities performed by the firm and their suppliers/contractors/licensors)

4. Competitive Advantages and Sustainability

(Using the Article, Items b and c above, and additional research, identify the firms Competitive Advantages, develop a Competitive Positioning Matrix, see Notes 3, discuss sustainability of these advantages, use either VRIN or VRIO framework)

3.0 Smart Phone Industry and Analysis (3 pages)

(Discuss briefly overall PESTEL and industry factors and trends).

1. PESTEL Analysis

(Identify key factors that will have an impact on the Industry; do research)

2. Industry size, trends

(Research and discuss Industry size, growth rate, profitability, life cycle, key drivers)

3. Competition

(How is the competition structured? Concentrated? Fragmented? Use Five Force Model to discuss the competitive intensity)

4.0 Global Context

There are 3 components to address locations selection: Locational Advantages; Institutional Distance and Cultural Distance

1. Understanding Locational Competitive Advantage

Chapter 7 in your text book has a good discussion on this topic and the use of Diamond Model. For this Report, you will address Factor and Demand Conditions for these countries: China; India; Vietnam and Mexico. Complete this Table for country, with data and discuss.

Country: ___________ (e.g. China, India, etc.)

2. Institutional Distance

(Understanding institutional distance, i.e. the difference in institutional context between countries, is critical for firms whose operations span national boundaries. Institutional distance impacts the relative attractiveness of country markets, risks, trade-offs among foreign market entry strategies, the management of subsidiaries abroad, and ultimately, firm performance.(Bae and Solamon 2010) Institutional distance isa measure of cross-country differences(Kostova & Zaheer, 1999) and refers to the extent of similarity or dissimilarity between the regulatory, cognitive, and normative institutions of two countries (Xu & Shenkar, 2002, p. 608). Similarities between countries can attract, facilitate and expand trade; dissimilarities can provide a challenge and a higher level of risk.

Several ways to assess institutional distances between different countries. For this assignment, you will research and find data about a few dimensions: (i) Governance Indicators;

(ii) Infrastructure ranking; (iii) Financial Institutions Index; and, (iv) Education system ranking

Governance Indicators: Following World Bank site will give you data regarding World Governance Indicators https://info.worldbank.org/governance/wgi/Home/Reports You can select all or a few relevant indicators and plot data for US, China, India, Vietnam and Mexico. Take the latest year data (e.g. 2020). These indicators are for

• Voice and Accountability.

• Political Stability and Absence of Violence/Terrorism.

• Government Effectiveness.

• Regulatory Quality.

• Rule of Law.

• Control of Corruption.

Note: you can use Governance Indicators and either compare each of the six areas or compute a composite index

Infrastructure ranking: Visit these sites for data regarding Infrastructure data (https://transformativeinfratracker.gihub.org/infratracker-data/);

Education system ranking (https://worldpopulationreview.com/country-rankings/education-rankings-by-country) ; and,

Financial Development Index (https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B&sId=1481126573525)

For all of the above you will collect data for US, China, India, Vietnam and Mexico. You can plot the above data in a bar chart or a radar chart; more importantly, discuss your observations. Read the meaning of such data from cited sources.

3. Cultural Differences Analysis

(Another critical factor in the international trade/business is an understanding of cultural differences. Go to https://geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/6d-model-of-national-culture/ Review 4 cultural dimensions (PDI, IDV, UAI, MASC) and discuss your observations regarding Cultural (also known as Psychic) Distance)between US, China, Vietnam and Mexico.)

5.0 The Situation, Options and Recommendations (2 pages)

1. The Situation

(Describe the Situation faced by Apple as discussed in the Article and your analysis in previous Sections. First list key points (no more than 6) such as Supply Chain, Productivity, Governmental Actions, etc. and then briefly discuss each.)

2.Apple Options

(Identify and briefly discuss 2 or 3 strategic options available to Apple). These Options must be mutually exclusive.

3.Recommendations

Evaluate these strategic options with pros and cons (use a table format) and recommend one.

6.0 Learning Points (1 page)

(List and discuss your learning points from this assignment, relate to the class discussion)

Apple Makes Plans to Move Production Out of China

The iPhone maker is looking to further diversify the supply chain that has powered its growth

ByYang Jie

Updated Dec. 3, 2022 12:34 pm ET

In recent weeks,AppleInc.AAPL-0.34?crease; red down pointing trianglehas accelerated plans to shift some of its production outside China, long the dominant country in the supply chain that built the worlds most valuable company, say people involved in the discussions. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led byFoxconn23540.95%increase; green up pointing triangleTechnology Group.

Turmoil at a place called iPhone City helped propel Apples shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones, according to market-research firm Counterpoint Research.

The Zhengzhou factory was convulsed in late November by violent protests. In videos posted online, workers upset about wages and Covid-19 restrictions could be seen throwing items and shouting Stand up for your rights! Riot police were present,the videos show.The location of one of the videos was verified by the news agency and video-verification service Storyful. The Wall Street Journal corroborated events shown in the videos with workers at the site.

Coming after a year of events that weakened Chinas status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business tied up in one place, according to analysts and people in the Apple supply chain.

In the past, people didnt pay attention to concentration risks, said Alan Yeung, a former U.S. executive for Foxconn. Free trade was the norm and things were very predictable. Now weve entered a new world.

iPhone Factory Protests: Foxconn Workers Clash With PolicePlay video: iPhone Factory Protests: Foxconn Workers Clash With Police

Footage shows police beating workers at Foxconns facility in Zhengzhou, China. The worlds biggest site making Apple smartphones had been under Covid-19 lockdowns in recent weeks. Screenshot: Associated Press

One response, say the people involved in Apples supply chain, is to draw from a bigger pool of assemblerseven if those companies are themselves based in China. Two Chinese companies that are in line to get more Apple business, they say, are Luxshare Precision Industry Co. andWingtech TechnologyCo.

On calls with investors earlier this year, Luxshare executives said some consumer-electronics clients, which they didnt name, were worried about Chinese supply-chain snafus caused by Covid-19 prevention measures, power shortages and other issues. They said these clients wanted Luxshare to help them do more work outside China.

The executives referred to what is known as new product introduction, or NPI, when Apple assigns teams to work with contractors in translating its product blueprints and prototypes into a detailed manufacturing plan.

It is the guts of what it takes to actually build hundreds of millions of gadgets, and an area where China, with its concentration of production engineers and suppliers, has excelled.

Apple has told its manufacturing partners that it wants them to start trying to do more of this work outside of China, according to people involved in the discussions. Unless places such as India and Vietnam can do NPI too, they will remain stuck playing second fiddle, say supply-chain specialists. However, the slowing global economy and slowing hiring at Apple have made it hard for the tech giant to allocate personnel for NPI work with new suppliers and new countries, said some of the people in the discussions.

Apple and China have spent decades tying themselves together in a relationship that, until now, has mostly been mutually beneficial. Change wont come overnight. Apple still puts out new iPhone models every year, alongside steady updates of its iPads, laptops and other products. It must keep flying the plane while replacing an engine.

Finding all the pieces to build at the scale Apple needs is not easy, said Kate Whitehead, a former Apple operations manager who now owns her own supply-chain consulting firm.

Yet the transition is under way, driven by two causes that are feeding on each other to threaten Chinas historic economic strength. Some Chinese youth are no longer eager to work for modest wages assembling electronics for the affluent. They are seething in part because of Beijings heavy-handed Covid-19 approach, itself a concern for Apple and many other Western companies. Three years after Covid-19 started circulating, China is still trying to crush outbreaks with measures such as quarantines, as many other countries have returned to prepandemic norms.

Zhengzhou, left, is home to a giant Foxconn facility known as iPhone City, where a worker is shown at right disinfecting equipment.SHANG JI/FUTURE PUBLISHING/GETTY IMAGES; VCG/GETTY IMAGES

Protests in Chinese cities over the past week, during which some demonstrators called for the ouster of PresidentXi Jinping, suggested criticism over Covid-19 restrictions could build into a larger movement against the government.

All this comes on top of more than five years of heightened U.S.-China military and economic tensions under the Trump and Biden administrations over Chinas rapidly expanding military footprint and U.S. tariffs on Chinese goods, among other disputes.

Apples longer-term goal is to ship 40% to 45% of iPhones from India, compared with a single-digit percentage currently, according to Ming-chi Kuo, an analyst at TF International Securities who follows the supply chain. Suppliers say Vietnam is expected to shoulder more of the manufacturing for other Apple products such as AirPods, smartwatches and laptops.

For now, consumers doing Christmas shopping are stuck with some of the longest wait timesfor high-end iPhones in the products 15-year history, stretching until after Christmas. Apple issued a rare midquarter warning in November that shipments of the Pro models would be hurt by Covid-19 restrictions at the Zhengzhou facility.

In November, as the worker protests in the facility grew, Apple issued a statement assuring it was on the ground looking to resolve the issue. We are reviewing the situation and working closely with Foxconn to ensure their employees concerns are addressed, a spokesman said at the time.

The risk of too much concentration in China has long been known to Apple executives, yet for years they did little to lessen it. China supplied a literate and diligent workforce, political stability and a huge local market for Apples products.

Taiwan-based Foxconn, under founderTerry Gou, became an essential link between Apple in California and the Chinese assembly plants where iPhones get put together. Foxconn managers share a language and cultural background with mainlandworkers.PegatronCorp., another Taiwan-based contractor, has played a smaller but similar role.

Apple is looking to manufacture more in Vietnam, where a facility of China-based Luxshare, an Apple supplier, is located.PHOTO:LINH PHAM/BLOOMBERG NEWS

And both the government in Beijing and local governments in places such as Henan province, home to the Zhengzhou plant, have enthusiastically supported Apples business, seeing it as an engine of jobs and growth.

Even now, when ever-harsher anti-American rhetoric flows each day from Beijing over issues such as Taiwan and human rights, that backing remains strong.

Peoples Daily, the mouthpiece of the Chinese Communist Party, hailed the Apple production site in a Nov. 20 video, saying it accounted directly or indirectly for more than a million local jobs. Foxconn shipped about $32 billion in products overseas from Zhengzhou in 2019, according to a Chinese government-linked think tank. All told, the Foxconn group accounted for 3.9% of Chinas exports in 2021, according to the company.

The governments timely assistancecontinuously provides a sense of certainty for multinational companies like Apple, as well as for the worlds supply chain, the Peoples Daily video said.

Yet such words ring hollow to many U.S. businesses in light of stringent anti-Covid measures by the government that have hampered production and roused worker unrest. A survey by the U.S.-China Business Council this year found American companies confidence in China has fallen to a record low, with about a quarter of respondents saying they have at least temporarily moved parts of their supply chain out of China over the past year.

To keep operating during government Covid-19 measures, the Zhengzhou factory is among those compelled to adopt a system in which workers stay on-site and contact with the outside world is limited to the bare minimum to keep the goods flowing. Foxconn has sealed smoking areas, switched off vending machines and closed dining halls in favor of carryout meals that workers bring back to their dormitories, often a half-hour walk away, workers said.

Many have escaped, jumping fences and walking along empty highways to get back to their hometowns. In November, the pandemic policies and pay disputes further fueled workers grievances. Some clashed with police at the site and left smashed glass doors.

Many of those abandoning the factory were young people who said on social media that they decided wages equivalent to $5 or less an hour werent enough to compensate for tedious production work, exacerbated by Covid-19 restrictions.

People protested throughout China this past week, left, against the countrys strict anti-Covid protocols. Beijing residents, right, waited in line to be tested for the disease.KEVIN FRAYER/GETTY IMAGES (2)

Its better for us to skate by at home than to be sucked dry by capitalists, one person who identified herself as a departed Foxconn worker posted on her social-media account after the protests.

Asked for comment, a Foxconn spokesman referred to earlier statements in which the company blamed a computer error for some of the pay issues raised by new hires. It said it guaranteed recruits would be paid what was promised in recruitment ads. The spokesman declined to comment further.

Chinas Covid-19 policy has been an absolute gut punch to Apples supply chain, said Wedbush Securities analystDaniel Ives. This last month in China has been the straw that broke the camels back for Apple in China.

Mr. Kuo, the supply-chain analyst, said iPhone shipments in the fourth quarter of this year were likely to reach around 70 million to 75 million units, which he said was around 10 million fewer than market projections before the Zhengzhou turmoil. The top-of-the-line iPhone 14 Pro and Pro Max models have been particularly hard-hit, he said.

Accounts vary about how many workers are missing from the Zhengzhou factory, with estimates ranging from the thousands to the tens of thousands. Mr. Kuo said it was running at about 20?pacity in November, a figure expected to improve to 30% to 40% in December. One positive sign came Wednesday, when the local government in Zhengzhou lifted lockdown restrictions.

One Foxconn manager said hundreds of workers were mobilized to move machinery and components by truck and plane nearly 1,000 miles from Zhengzhou in central China to Shenzhen in the south, where Foxconn has its other main factories in China. The Shenzhen factories have made up some, but not all, of the production gap.

Meanwhile, Foxconn is offering money to get workers to come back and stay for a while. One of its offers is a bonus of up to $1,800 for January to full-time workers in Zhengzhou who joined at the start of November or earlier. Those who wanted to quithave gotten $1,400.

India and Vietnam have their own challenges.

People in Beijing protested this past week against stringent anti-Covid measures.PHOTO:KEVIN FRAYER/GETTY IMAGES

Dan Panzica, a former Foxconn executive who now advises companies on supply-chain issues, said Vietnams manufacturing was growing quickly but was short of workers. The country has just under 100 million people, less than a 10th of Chinas population. It can handle 60,000-person manufacturing sites but not places such as Zhengzhou that reach into the hundreds of thousands, he said.

Theyre not doing high-end phones in India and Vietnam, said Mr. Panzica. No other places can do them.

India has a population nearly the size of Chinas but not the same level of governmental coordination. Apple has found it hard to navigate India because each state is run differently and regional governments saddle the company with obligations before letting it build products there.

India is the Wild West in terms of consistent rules and getting stuff in and out, said Mr. Panzica.

The U.S. embassies of India and Vietnam didnt respond to requests for comment.

Nonetheless, Apple is going to have to find multiple places to replace iPhone City, Mr. Panzica said. Theyre going to have to spread it around and make more villages instead of big cities.

Selina Cheng contributed to this article.

Write toYang Jie atjie.yang@wsj.comand Aaron Tilley ataaron.tilley@wsj.com