Pestel/PESTLE/PEST analysis of Apple
Apple is the world’s most valuable brand according to the Forbes’ 2016 ranking. However, things seem to have started changing. Apple’s brand value has plummeted as the laptop and PC market is experiencing a decline globally. The tech giant released Apple watch with the hope that it would be a success like its Iphone. Things were destined to go the other way and Apple Watch fell short of being a success. This Pestel Analysis of Apple Inc explains the various forces in Apple’s Macro Environment that are affecting its business.
Apple has dealt in a narrow range of products traditionally. During the recent years, it tried to expand its business by adding new products and services like Apple Watch and Apple Pay. Prior to that, Apple was known for its Iphone, Ipads, Ipod, Mac, Itunes and laptops mainly. In the recent years, while the market for laptops and PCs has declined, the number of Apple competitors sharply crept up. This has continued to affect Apple’s sales and market size. With a revenue of $233 billion in 2015, Apple had become the first American company with market value over $700 billion.
Apple’s products are highly popular because of their innovative features and attractive designs. However, there are other factors too that can affect the popularity and sales of its products. These factors have been analysed in the PESTEL analysis below:
Political challenges will continue to haunt Apple, especially with EU bent on taming the tech giants.
August, 2016. EU declared that Apple owed $14.5 billion in back taxes to Ireland. Apple’s tax dispute with EU could also be a threat to US-EU relationships. However, Apple feels that it is being targeted unfairly. Ireland on the other hand is feeling that the EU regulators are interfering with its sovereignty.
Apple is the largest taxpayer in the world and such political issues are bound to affect its revenue. EU has kept targeting the big technology companies including Google, Amazon and Apple. This could mean a bigger tax burden and less profits for the tech giant.
Apart from it, there are other political factors that can affect Apple’s business in global markets. Political unrest can disrupt both supply chains and sales.
Apple has shifted a very large part of its manufacturing to China. Its supply chain is quite complex and spread virtually all over the world. Still, China is a major player down its supply chain.
Labor and raw material costs are lower in China which makes it an attractive location for production. However, with Trump government in America, things might change drastically. Trump had vowed to slap higher tariffs on China which could force brands like Apple to shift their production base to US. In case Trump acts the way he decided, Apple would be forced to pay for the two nations’ political differences. In case China decides to apply stricter labor laws and raises the minimum wages, production costs could still grow for Apple.
Apple has been eyeing Indian market for its I-phone sales, since it is the third biggest smartphone market in the world. However, there are challenges and the Indian government and bureaucracy do not seem highly inclined to favor premium brands like Apple. Instead of allowing import of cellphones, the Indian government is known to have pressed Apple to set up production units there. However, India is a fast growing and lucrative market. Given Apple can overcome the political and bureaucratic hurdles, it can find success in the Indian market too.
Political issues are there all around the globe. Wherever, there is a government, there is bound to be politics and the effects are bound to be felt by the economy and the businesses. From time to time, one or the other political problem rocks the business environment. This shows the importance of political factors in the context of business and particularly in case of global brands like Apple.
Economic factors are of major importance for any business whether its market is local, regional, national or international. In the context of global business this importance grows for there are several economies whose performance jointly affects the brands’ revenue and profits.
This is also the case with Apple. The importance of Asian markets has grown and China and India both have emerged as potential markets for the Western brands.
Better economic performance of the global economy means higher purchasing power of the consumers which in turn means better sales.
In case of Apple, its products are known for their premium prices which means they are not meant for the lower end market. It is also the main reason that Apple has not been able to penetrate the Indian market deep which is currently ruled by brands like Samsung.
Except in the developed world, consumers are still price sensitive. This is an important factor that affects Apple’s sales.
China could increase the labor costs (wages) in future which might mean a rise in product ion costs and loss of profits.
Increased competition has also affected Apple and it has lost a considerable market share to brands like Lenovo in Laptop and PC sales.
Dollar has grown stronger since the recession which means further loss of profits for Apple internationally.
The importance of the social factors can be understood from the fact that anti US sentiments in various markets affect the sales and profits of the US brands in the short and the long term both. Apart from it, changing preferences and tastes also affect sales of particular products.
Lifestyle factors are also importantly related to the sales of premium products. In the Eastern nations, lifestyle factors affect people’s choice of smartphones. Several of the Apple features do not suit the average Asian buyer.
Demographic and urbanization trends in China and India can prove favorable for the brand.
The economic growth rate in Africa has accelerated but the popularity of Apple products in these areas is low. In most areas Apple products are still unheard of.
In the Asian markets too, customers are more price conscious. It is why in PC sales, Apple lost its market share to brands like Lenovo and HP which have set more competitive prices.
Overall, Apple products are more compatible with the lifestyles of consumers in the developed world.
Apple is a tech giant and so it is bound to be affected by technological changes. The past decade has seen rapid technological changes which have greatly altered the market dynamics.
The rise in the number of competitors which are providing matching technological value at lower prices has also greatly affected Apple’s profits and revenue. While Lenovo and HP maintained their market position in PC industry, Apple lost significantly. The reasons are both technological and economical.
Growth in mobile technology can drive sales of I-phones but hurts Mac sales.
Google has entered the smartphone business with Nexus and Pixel. These products are also a threat to sales of I-phones.
In the Asian markets, Samsung and Google are more popular because they provide similar features at much lower prices.
Local competitors have brought competing products and services that can provide the same advantages at lower costs.
Overall, several Apple competitors have risen in the past few years whose products are more appealing to the customers in the developing world.
However, in recent years (2019 onwards), as Apple released new technologies and new Iphone and Mac models, the company has seen an explosion in sales.
It is also generating higher revenues from the sales of services.
The company has continued to grow its investment in research and development to grow its competitive edge and expand market share.
Most of the greenhouse effect that Apple creates comes from its manufacturing processes.
Rest of the waste is generated during use and disposal. E-waste can be highly dangerous if not recycled properly. The reason is that it contains harmful chemicals like lead and arsenic.
Ewaste if not properly disposed of can lead to environmental pollution. Governments around the world are now increasingly focused on controlling the environmental impact of businesses.
Apple has focused on the creation of renewable energy to offset its environmental impact.
In 2015, 93% of the energy used by Apple came from renewable sources. Its Singapore facilities are powered by a 32 megawatt solar project and in China Apple is planning to add 170 megawatts of solar energy to its capability.
Overtime, Apple has also focused on reducing toxins from its products. It has already taken mercury and arsenic out of the screens and lead out of the solders used in manufacturing.
Focus on environmental issues also affects brand image and popularity in global markets.
Laws and regulations are a major challenge before any business. Compliance is absolutely essential or you lose a large part of your profits as fines.
Not just product related laws or taxes, there are labor and environmental laws too that require attention.
Intellectual property laws and patent related regulations can also be a challenge for the major tech players. Apple faced a design related patent challenge from one small start up in 2016.
Sources also state that Apple has entered murky waters with its Apple Pay. This could bring Apple into a new zone of bitter financial regulations.
Apple has plans of further diversification into new areas. This could bring additional compliance related burden for the tech brand.
Based on this analysis it seems both political and economic factors have hit the tech giant hard. However, given Apple can make changes to its pricing scheme, it could again gain robust sales. However, it does not seem possible since it can dilute Apple’s brand value. Still, Apple could increase its participation in the Asian markets using its excellent R&D capabilities. It has already focused on addressing the environmental challenge. However, competition may continue to bother it in the coming years.