Research Paper on Managerial Economics: Analyzing Apple Co. for Sound Business Decisions

Introduction

Managerial economics involves the study of economic tools, theories, and strategies to solve business problems. This helps managers to make sound business decisions such as target growth, what to sell and to hire, and firing decisions. Understanding the operation of Apple Company requires one to analyze its historical and operational dimensions from every angle of an economic perspective. This requires one to analyze the firm's financial performance, sources of risks, inputs used, creation of new products, pricing decisions, profitability, competitive environment, non-price competitive strategies used, and past mistakes.

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Brief History

Apple Inc. is the second most valuable brand in the world. Apple Company is a unique firm in the personal entertainment sector, utilizing its marketing strategy for over three decades and becoming a brand every company would like to imitate in matters of innovation. Today, Apple Company designs develop and sells a wide array of products ranging from electronics and computer hardware and software. Additionally, Apple Inc. sells online services (Yoffie & Baldwin, 2015). In its computer hardware portfolio, Apple sells many products, including its line of iPhones, iPad computers, Apple TV media player, Apple smartwatches, among other products. On the other hand, the company's software portfolio is comprised of products such as iOS, iTunes media player, Safari web browser, among others.

Apple Inc. was founded by Steve Jobs and Steve Wozniak in 1976, selling personal computers. Within four years, the company had witnessed immense sales growth prompting the two to hire computer designers and develop a product line. The firm went public in 1980 and instantly became a hit (Library of Congress, 2019). Over the next years, Apple shipped new computers with innovative features; charging customers a premium price for its products. The high price of its products led to public backlash forcing the founders to resign. The evolution of the personal computer market saw Microsoft emerge and compete with Apple. Apple dipped in financial trouble in this decade, and 2000, Jobs became the CEO. His "think different" campaign revitalized the firm bringing it back to profitability. The company has since then realized financial success, which was boosted even further after shifting toward consumer electronics like iPhones. Today, the company is worth $309.5 billion.

Sources of Risk or Uncertainty in its Operations

Businesses are affected by economic factors in their day to day operations and Apple Inc. is no exception. Economic factors refer to all factors that affect the business from outside and they influence the behaviors of businesses and consumers, thereby affecting the operations of the company. These factors are usually beyond the control of a business, regardless of whether they are macro or micro. Numerous economic factors always pose a threat to Apple. These include inflation such as the period of economic recession witnessed in the USA around 2008, unemployment, high-interest rates, fluctuating exchange rate, low consumer confidence levels, and high tax rates. The competition also falls into this category because like the above factors, Apple would have no control over what other competitors conduct their business.

From the graph above, it is evident that Apple's success has taken decades. Among the above economic factors, competition and changes in technology are the greatest risks that have affected the company's operations. This, in particular, is highlighted in the revenues curve in the decade between 1990 and 2000. It is only in the early years of the 21st century that Apple starts to experience immense revenues increase. After the founding of Apple in 1976, the company operated as a monopoly until Microsoft ventured in the personal computer industry. Microsoft posed great competition to Apple driving it almost to bankruptcy (Yoffie & Baldwin, 2015). It was not until the appointment of Steve Jobs that saw the company be revived as a technology giant. Jobs had to take serious measure, including creating an innovative environment in the company. He also made a controversial decision by partnering with Microsoft, Apple's greatest rival. Competition, in this case, was as a result of not keeping up with competitors, notably Microsoft. As a result, Microsoft kept on making breakthroughs like Microsoft Office while apple was still relying on its old modeled personal computers.

Additionally, Apple's products were sold at a significantly high price than those of competitors and this made customers opt for rival products. With Jobs taking difficult decisions, the company made innovation progress like coming up with iMac at the end of the 21st century. Since then, Apple has picked up gradual revenue growth, making it one of the most successful firms in the world.

Government Regulations that have Affected Apple's Operations

Government regulations evolve with technology and this means that Apple and other technology-savvy companies have a hard time trying to keep up with these regulations because they are at the core. If you take a mobile device like iPhones, one will realize that Apple has to deal with strict government regulations. For example, these gadgets have privacy and location setting which users can set as they wish (Tan, 2013). Although most users do not know the essence and importance of such, the fact is that technology companies can exploit users by mining their data. They can then sell this data to big data companies. This information can then be interpreted and sold to companies to sell their products.

Government regulations govern Apple on most of its products and fields. For instance, it has to follow patent and copyright laws that vary in different countries and markets. A good example is that of Apple's lawsuits against Samsung and vice versa. Ten governments were involved in this case (Cusumano, 2013). As a technology company, it has to follow rules which relate to technological devices. Nevertheless, it has to keep up with others which arise when it produces a new line of products. For instance, for smartwatches, which until now have no comprehensive rues, Apple will have to deal with them when then in place at a later date.

Inputs Used by Apple Company

For any company that is involved in production activities, there are various factors of production which are involved in making the whole production process a success. For personal computers and other electronic gadgets to reach customers, the company has to order raw materials, assemble and design the product, and finally distribute to the customers. A quality and well-designed product command a considerable capital input. Like other companies based in first world countries, Apple outsources physical production to cut costs (Tan, 2013). It is for this reason that the company uses China as a low-cost workshop. It also outsources parts of its gadgets from companies like Samsung, Toshiba, among others. It requires substantial capital amounts for such accomplishments.Apple also uses a pool of labor to design, prototype and assemble, market, and sell the products. Labor is expensive in the USA and for this reason; the company uses external labor from Asia for manufacturing. Using external labor ensures that the company cuts costs, thereby maximizing its profits (Tan, 2013). Apart from labor and capital, Apple Company uses land and natural resources. It has to pay rent for its stateside facilities, including its retail stores. At the same time, it depends on natural resources like grass and therefore it is at the mercy of availability upon which shortage or lack of these resources would halt production.

Apple Inc. cannot do without the above inputs, which are crucial to successful production activities. Most of these inputs are outsourced from different sources which are located in different parts of the globe. It is true that with outsourcing, Apple has been able to reduce costs, but this comes at the cost of compromising on quality. It becomes hard for this company to ensure that there is quality control on Apple's products. Additionally, obtaining raw materials comes with the challenge of unavailability of these materials. For instance, in 2011, a huge earthquake hit Japan (Lohr, 2011). As a result, it caused serious physical damage to Toshiba and Mitsubishi, Apple's main suppliers of various computer and phone components. These companies were even shut down, which means that Apple's production activities were adversely affected. It is the case because when such unwanted events occur, Apple cannot receive supplies and products; therefore, it cannot take place.

New Products Introduced in Existing and Created Markets

Over the years, Apple has always focused on remaining innovative to create quality and value for money products. After the company was founded in 1976, Jobs and Wozniak built a computer circuit which they called Apple I and later released Apple II. Revenues increased slowly. The entrance of IBM in the personal computer market brought competition and Apple came up with Macintosh in 1984 to counter IBM (Yoffie & Baldwin, 2015). From the revenue graph, the introduction of this product in the market had little impact on revenue, mainly because the machine was slow and lacked compatible software. It is however notable that even at that time, Apple customers loved their machines, and for this reason, it was possible to sell to them at a premium price. However, with a limited line of products, its profits dipped in the last decade of the 20th century, as shown in the revenues graph.

The return of Steve Jobs as the company's CEO led to serious recoup following the introduction of iMac as a new product in1998 (Yoffie & Baldwin, 2015). This, however, was after Microsoft bailed Apple with $150 million a year before. However, it was after the company shifted towards digital hub that it realized immense revenue growth. This was initiated by founding iPod in 2001, iPhone in 2007 and iPad in 2010. At the same time, the company came up with iTunes in 2003. The launch of iTunes had a significant impact on iPod sales. Venturing into the smartphone industry by launching iPhones backed up by App Store also contributed to immense revenue growth as the company sold more than 6 million units of 1st generation iPhones. Since then, the company has been improving the iPhones across generations and in the recent past smartwatches.

Price of its Products and Demand Elasticity

For any company, pricing decisions are paramount for efficient business operation as it determines how consumers will respond to purchasing a product. Apple Company targets premium customers, which means that it charges significantly high amounts (Tan, 2013). The company keeps steady prices for its products. For instance, Apple produces a new model of iPhone after every six months and the price for a new iPhone model remains steady until a new model is released. Generally, the gadget will cost $500 or more. The company has moved all its operations abroad to areas where the cost of production is low. This helps the company to keep steady prices, raising the potential to make more profits. In general, the company does not reduce prices for its gadgets but increase them when there is inflation. To make such decisions, the company is guided by the price elasticity of demand decisions. It is the responsiveness of quality demanded to price changes. It is inelastic for Apple's case. Therefore it means that people will still purchase even if price increase and this is the case why it charges high prices for its products.