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Globalization and Apple's respond to the international Game

Term Paper 2010 27 Pages

Business economics - Economic Policy

Excerpt

List of Figures

Abbreviations

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Globalization and Apple’s respond to the international Game

Globalization is a defining word of our age and the way in which we live. It affects people, companies, their workforce and consumers. Globalization affects all aspects, not just of the corporate world, but transactional and cultural relationships generally. And as a consequence it affects how we live and how we interact, no matter where we live. This is background wherefore it has a great impact on our life and how we interact, no matter where we live. The study of transaction takes place in form of trade across national borders for the purpose of satisfying the needs of individuals and organizations.

According to Milton Friedman, “it’s now possible to produce a product anywhere by a business located anywhere, using resources from anywhere, to be sold anywhere”.

(Roosa, 2008, p.182)

During the decade of the early 20th century, large multinational corporations expanded their Global reach, while simultaneously focusing on a narrow range of core businesses, in which they sought to control if not necessary to own, as much as of the value chain as possible (Kristinsen & Zeitlin, 2005,p.1).

US distribution channels had silently moved over to imports that represented better value for money for the final customers. In fact, making the choice of living without Chinese manufactured products became nearly impossible (Paliwoda & Slater, 2009 p. 374).

The US computer and entertainment device manufacturer Apple, which was founded in 1974 by two young friends in a garage, is now “telling the world what they should love” (Binkenbäumer & Schultz, 2010, p.62). They internationalized from a local tiny company, located in a garage of Silicon Valley to a Global player distributing its products to the whole world. Their popular music player, the Ipod, is a striking Apple success story but the first thing worth noting is that Apple doesn’t “make” it. The CEO Steve Jobs led the overall design, but the pieces are manufactured by various Asian firms and get put together in China (Leonard, 2005, [online]).

This ongoing process, create increasing complex independencies of business activities through the world. Business firms sell their products in global markets, just as though each country market were a part of a single world market. The impetus of the process internationalization is initiated from many different motives.

According to Daniels et al. (2009, p.52), the impetus for Globalization is among other things the process of liberalization. Most governments have reduced their restriction because their citizens want a greater variety of goods.

Today consumers can effort to buy goods that were considered to be luxury in the past and therefore, citizens want the freedom to choose their product. This reason leads to changing political situations. In order to meet the needs of their citizens, governments are willing to support international trade by imports and for economic growth by exports. However the decision of liberalization increases the pressures of domestic companies to be me more efficient. Foreign competition can persuade companies to buy or sell abroad (Daniels et al., 2009, pp. 51-53).

Porter states “the competitive position of a firm in one country is significantly affected by its position in other countries” (Porter, cited in Roberts & Senturia, 1995, p. 4).

Globalization increased also cross national cooperation. Governments have come to realize that their own interests can be addressed through international agreements, treaties and consultation. A country pursues such policies with the purpose to gain advantages of cooperation. They are able to solve problems that one country cannot solve alone. Furthermore, they can deal with concerns that lie outside their territories (Daniels & Radebaugh, 2008, pp. 51-53).

The impetus of Globalization refers to a process which can be defined as the internationalization process. There are different levels of internationalization and therefore the company Apple can be classified in the patterns of internationalization. The author uses Figure 1 to elaborate Apple’s interaction on the global market, in order to implement the result in Figure 2, the Patterns of internationalization model.

All Apple products, as well as the Ipod, are developed, designed and market in house by Apple’s headquarter located in Cupertino USA, but simultaneously outsourced the remaining four hundred plus intermediate components to both domestic and international subcontractors.

The story of internationalization starts with the microchip that makes the “music player go”. It is subcontracted by another Silicon Valley company called Portalplayer which outsourced the microchip’s production to Taiwan. Even the operating Software is written by engineers in India which are cheaper than their American Colleagues. Together with the Ipods fabulous operating system which makes the product easy to use, the microchip is send to a warehouse located in Hong Kong until the component is delivered to Apple’s outsourced production plant (Linden et al, 2007).

A few of the Ipod components are high cost. The hard drive & flashmemory (function as temporary storage) are manufactured by Toshiba in Japan and Samsung in Korea. The majority of components are low cost. For instance the metal parts are made by Foxconn in Taiwan and the plastic components are produced in Singapore which developed from a low cost manufacturing platform to a higher-value added manufacturing centre (Brown, 1998, p.198). All components are assembled in the outsourced production plant in Shanghai. The transportation company Fed Ex delivers the finished Ipod to the worldwide 246 Apple stores and other electronic stores (Kahney, 2008, p.86).

The author will now determine Apple’s Patterns of Globalization by means of the elaborated supply chain. The Patterns of Globalization model facilitate the internationalization level through four axis which can be defined as Impetus for business, Internal/external handling of operations, Mode of operations and Geographic expansion. The axial point starts in the center with a domestic business and moves outward to high transactional activities.

According to the Impetus for business, Apple plays an active role in the internationalization process through FDI investment, outsourcing, subcontracting and exporting the same products worldwide.

Due to the fact that that the major parts of Apple’s production chain is outsourced, the red dot for handling internal & external operations can be set between own and others. In relation to moving the production plant to Shanghai and outsourcing as much as possible of the supply chain, the mode of operation can be definitely seen as overseas production.

As already said that Apple exports the same products to a worldwide consumer markets with similar needs, the company’s Geographic expansion can identified as operating in many dissimilar countries. Therefore the red dot is set on the outward circle.

The results of this model are crucial to identify the business’ Global Strategy. For defining a strategy, Multinational enterprises look for Growth opportunities, cost reductions, risk diversification within a context of satisfying the competing demands of Global integration and local responsiveness.

Referring to different stages of local responsiveness and Global integration, Daniels et al distinguishes between three different Global Strategies: Multidomestic enterprise, Multinational enterprise and Global enterprise (Daniels et al, 2009).

A Multidomestric enterprise enjoys the most local responsiveness and follows a strategy that acts fairly independent from headquarter. The company’s subsidiaries have the authority to interact in their own perspective in order to design and market products that directly satisfy local customers’ needs, legal-, political and economic environment. For instance, in the case that customers prefer deal directly with people, the company can build up a Sales force (Daniels et al, 2009, p. 474).

A strategy, concerning on a higher scale to the direction for global growth of the company’s headquarters is the Multinational enterprise Strategy. The products still reflect different country’s needs and environments. This strategy can be seen as a process of Global learning by which the company develops valuable skills. The strategy, which operates on the highest level of Global integration, is defined as a Global Strategy. It is characterized by acting in many dissimilar country for which the company response with standardized products. Thus companies, that adopt the Global strategy see the world as one market and assume there are no difference among countries with regard to consumer taste. According to results of the Patterns of Internationalization model, also Apple adopted the Global Strategy (Daniels et al, 2009, p. 476). They are delivering standardized products like the Ipod, through a focused distribution channel worldwide, and don’t response to different consumer needs. They assume a Global culture with the same needs despite interacting through countless borders. Global enterprises like Apple are pressured to configure their value chain. R&D, production and marketing activities are concentrated in the most favorable locations. The example of Apple shows that these locations don’t have to be arranged in the same country. “Making sure that this worldwide linking system works efficiently, is the responsibility at the centralized headquarter who standardize practices and processes” (Daniels et al.,2009, 477).

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Title: Globalization and Apple's respond to the international Game