AL - U6 Apple Case Study

Question 1

HQ and R+D:

What is the name and location of Apple’s corporate headquarters and main research and development centre?

Answer 1

Apple Park is the corporate headquarters of Apple, which is located in Cupertino, California, USA. Apple also has its main research and development centre in Cupertino, where it develops its hardware and software products.

Question 2

HQ and R+D:

What are some of the reasons for Apple’s location in Cupertino, California, USA?

Answer 2

Some of the reasons are:

Proximity to Silicon Valley, which provides access to a skilled workforce, a network of suppliers and partners, and an innovation culture. Silicon Valley provides Apple with access to a large pool of skilled workforce, such as engineers, designers, programmers, etc., as well as a network of suppliers, partners, investors, universities, etc. Another reason is the innovation culture that prevails in Silicon Valley, which fosters creativity, risk-taking, collaboration, and learning among its inhabitants.

Tax incentives from California, such as a lower corporate income tax rate and various tax credits and exemptions for research and development activities. For example, California has a lower corporate income tax rate than the US average (8.84% vs. 21%) and provides various tax credits and exemptions for research and development activities.

Question 3

HQ and R+D:

What are some of the regions where Apple has secondary research and development centres, and what do they focus on?

Answer 3

China (Shanghai), which focuses on wireless technologies and artificial intelligence.

Germany (Munich), which focuses on power management chips.

Israel (Haifa), which focuses on camera sensors.

These centres focus on specific areas of expertise or products that are relevant to their local markets or environments.

Question 4

HQ and R+D:

What are some of the advantages of Apple’s location in Cupertino, California, USA?

Answer 4

It enhances Apple’s brand image and reputation as a leader in innovation and quality.

It allows Apple to maintain control and secrecy over its core products and technologies.

It enables Apple to collaborate and communicate effectively with its internal and external stakeholders.

Question 5

HQ and R+D:

What are some of the disadvantages of Apple’s location in Cupertino, California, USA?

Answer 5

It increases Apple’s operational costs, such as land, labour, energy, etc., which may affect its profit margin and competitiveness.

It exposes Apple to environmental impacts, such as greenhouse gas emissions, water consumption, waste generation, etc., which may harm its social responsibility and sustainability.

It subjects Apple to legal issues, such as antitrust investigations, patent disputes, privacy violations, etc., which may damage its reputation and performance.

Question 6

Manufacturing and Assembly (China):

What is the name of the process that Apple uses to outsource most of its manufacture and assembly to contract manufacturers in China, and what are some examples of these contract manufacturers?

Answer 6

The name of the process is outsourcing, which means that Apple does not own or operate any factories that produce its products, but relies on external companies to do so. Some examples of these contract manufacturers are Foxconn, which produces about 70% of Apple’s iPhones, and Pegatron, which produces about 30% of Apple’s iPhones.

Question 7

Manufacturing and Assembly (China):

What are some of the reasons for Apple’s outsourcing to China?

Answer 7

Some of the reasons are:

• Lower labour costs in China compared to the US or other countries. For example, the average hourly wage for a Chinese worker in 2020 was $3.6, while the average hourly wage for a US worker was $22.5.
• Economies of scale that China offers to Apple. For example, China has a large and well-developed manufacturing sector, with a high concentration of suppliers, infrastructure, logistics, etc., that can support Apple’s massive and complex production needs.
• Flexibility that China provides to Apple. For example, China has a large and flexible workforce, with a high degree of specialization, adaptability, and productivity. This allows Apple to adjust its production volume and variety according to the market demand and consumer preferences.
• Quality control that China ensures for Apple. For example, China has a high level of quality standards and regulations for its manufacturing industry, as well as a strong culture of quality management and improvement. This enables Apple to maintain its reputation for delivering high-quality products to its customers.

Question 8

Manufacturing and Assembly (China):

What are some of the benefits that Apple gains from from outsourcing to China?

Answer 8

• It reduces Apple’s capital expenditures and fixed costs, which increases its financial flexibility and profitability.
• It allows Apple to leverage China’s comparative advantage in manufacturing and assembly, which enhances its efficiency and competitiveness.
• It enables Apple to access China’s large and growing market, which is one of Apple’s most important and lucrative markets.

Question 9

Manufacturing and Assembly (China):

What are some of the regions where Apple has some manufacturing and assembly facilities, and what are the purposes or markets that they serve?

Answer 9

• Brazil (São Paulo), which produces iPhones for the Brazilian market, which has high import tariffs and local content requirements.
• India (Bengaluru), which produces iPhones for the Indian market, which is one of the fastest growing and largest smartphone markets in the world.
• Ireland (Cork), which produces Macs for the European market, which is one of Apple’s most important and profitable markets.

Question 10

Manufacturing and Assembly (China):

What are some of the disadvantages or challenges that Apple faces from its outsourcing to China, and what are some of the impacts that they have on its performance or reputation?

Answer 10

• Human rights violations, such as low wages, long working hours, unsafe working conditions, etc., that occur in some of its contract manufacturers’ factories. This may harm its ethical values and social responsibility.
• Supply chain risks, such as disruptions, delays, shortages, etc., that may affect its production and delivery.
• Trade disputes, such as tariffs, sanctions, bans, etc., that may arise between the US and China or other countries. This may damage its market access and competitiveness.

Question 11

Manufacturing and Assembly (India):

What is the name of the model that Apple is manufacturing in India for the first time, and where is it being assembled?

Answer 11

The name of the model is the iPhone 14, which is Apple’s flagship smartphone. It is being assembled at Foxconn’s factory in Sriperumbudur, near Chennai.

Question 12

Manufacturing and Assembly (India):

What are some of the reasons and benefits for Apple’s move to manufacture the iPhone 14 in India?

Answer 12

To reduce its reliance on China and diversify its production and supply chain. This is due to China’s Covid lockdowns and geopolitical tensions with the US.

To expand its presence and market share in India, which is the world’s second-biggest smartphone market. This is also supported by various tax incentives, market access, and talent pool in India.

Question 13

Manufacturing and Assembly (India):

What are some of the expected outcomes of Apple’s move to manufacture the iPhone 14 in India?

Answer 13

To create more than 10,000 jobs in India and save about 20% in import duties.

To shift 5% of global iPhone 14 production to India by late 2022, and 25% of all iPhones by 2025.

To bring some of its iPad production to India from China.

Question 14

Manufacturing and Assembly (China):

What are some of the other initiatives that Apple is taking to increase its sales and services in India?

Answer 14

To launch its first online store in India later this year, which will allow it to sell its products directly to consumers.

To open its first physical retail store in India by 2024, which will enhance its brand image and customer experience.

To develop a new artificial intelligence research hub in collaboration with the Indian Institute of Technology (IIT) Madras.

To promote its education and environmental initiatives in partnership with the Indian government.

Question 15

Manufacturing and Assembly (India):

What are some of the local partners that Apple is working with in India?

Answer 15

Wistron, Foxconn, Pegatron, and Tata Electronics, which are some of its suppliers and contract manufacturers in India.

Question 16

Raw material extraction:

What are some of the raw materials that Apple uses to produce its products?

Answer 16

Some of the raw materials that Apple uses are:
* Metals (gold, copper, aluminum, etc.)
* Minerals (rare earths, lithium, cobalt, etc.)
* Plastics (polyethylene terephthalate, polycarbonate, etc.)
* Glass (soda-lime glass, aluminosilicate glass, etc.)

Question 17

Raw material extraction:

Which countries does Apple source raw materials from?

Answer 17

• Peru (gold)
• Chile (copper)
• Mongolia (rare earth minerals)

Question 18

Raw material extraction:

What are some of the reasons and benefits for Apple’s sourcing of raw materials from various countries around the world?

Answer 18

Some of the reasons and benefits are:

• Availability of the raw materials in different regions. For example, rare earth minerals are scarce or unevenly distributed around the world.
• Diversity of the raw materials for creating diverse and innovative products and features. For example, aluminosilicate glass is stronger and more resistant to scratches and cracks than ordinary glass.
• Price of the raw materials for minimizing production costs and maximizing profit margin. For example, gold is a precious metal that has a high value and fluctuates according to market conditions.

Question 19

Raw material extraction:

What are some of the other regions where Apple could potentially source its raw materials, and what are some of the advantages that they have over the current sources?

Answer 19

• US (rare earth minerals), which could reduce Apple’s dependence on China and Mongolia.
• Australia (gold), which could lower Apple’s risk of disruption and delay.
• Canada (copper), which could improve Apple’s sustainability and responsibility.

Question 20

Raw material extraction:

What are some of the disadvantages or challenges that Apple faces from its sourcing of raw materials from various countries around the world?

Answer 20

• Environmental impacts, such as pollution, deforestation, land degradation, etc., that result from mining and extracting the raw materials.
• Social conflicts, such as human rights abuses, labour disputes, community protests, etc., that occur in some of the countries where it sources its raw materials.
• Geopolitical tensions, such as trade wars, sanctions, embargoes, etc., that may arise between the US and China or other countries.

Question 21

Raw material extraction:

What are some of the impacts on Apple’s performance or reputation of sourcing raw materials where they do?

Answer 21

• It may damage Apple’s ethical values and social responsibility.
• It may harm Apple’s market access and competitiveness.

Question 22

Retail:

How many retail outlets does Apple have worldwide as of May 2021, and which country has the most stores?

Answer 22

Apple has 511 retail outlets worldwide as of May 2021, according to a chart by Statista. The country with the most stores is the US, with 271 stores, followed by China (including Hong Kong and Macau) with 50 stores, and the UK with 38 stores.

Question 23

Retail:

What are some of the purposes and features of Apple’s retail outlets?

Answer 23

To sell Apple’s products and services directly to consumers.

To showcase Apple’s brand image and customer experience.

To offer various services and programs, such as advice, support, inspiration, education, and entertainment.

Question 24

Retail:

What are some of the factors that affect the location of Apple’s retail outlets?

Answer 24

Visibility and accessibility, which are enhanced by locating the stores in prime locations, such as shopping malls, city centres, or tourist attractions.

Market potential and demand, which are determined by the size and growth of the smartphone and technology markets in different regions.

Question 25

Retail:

What are some of the regions where Apple plans to expand its retail outlets by 2023?

Answer 25

China, which is one of Apple’s most important and lucrative markets, with 50 stores as of May 2021.

India, which is one of the fastest growing and largest smartphone markets in the world, with no stores as of May 2021.

Question 26

Retail:

What are some of the initiatives that Apple is taking to support its retail growth in new regions?

Answer 26

To launch its first online store in India later this year, which will allow it to sell its products directly to consumers.

To open its first physical retail store in India by 2024, which will enhance its brand image and customer experience.

To invest in local suppliers and partners, such as Wistron, Foxconn, Pegatron, and Tata Electronics, to support its production and supply chain.

To partner with the Indian Institute of Technology (IIT) Madras to develop a new artificial intelligence research hub.

To work with the Indian government to promote its education and environmental initiatives.

Question 27

Retail:

Why is Apple increasing it’s retail presence in India?

Answer 27

One reason is that India is one of the fastest growing and largest smartphone markets in the world, with more than 1.3 billion people and a low smartphone penetration rate of about 40%. Apple sees a huge potential for its products and services in India, especially among the young and affluent consumers who value quality and innovation.

Another reason is that India offers various incentives for Apple to expand its retail presence, such as tax breaks, market access, and talent pool. For example, India has reduced the corporate income tax rate from 30% to 22% for new manufacturing units.

India also has a large and skilled workforce, with more than 500 million internet users and 4.5 million software developers.

Question 28

Retail:

What challenges are Apple’s retail outlets facing in China despite a desire to expand there?

Answer 28

Apple’s iPhone sales have fallen in China due to the economic slowdown, the Covid restrictions, and the competition from local brands.

Apple’s market share in China dropped from 21.7% in the fourth quarter of 2022 to 17.9% in the first quarter of 2023.

Apple is facing political and legal challenges in China, such as the ban on government employees using iPhones, the antitrust investigations, and the data security regulations. According to The Wall Street Journal, China has barred government employees from using iPhones at work or even bringing them to the office.

Question 29

Raw material extraction:

Where does Apple source Coltan from and what is its use?

Answer 29

Apple sources its coltan from various countries around the world, such as Peru, Chile, Mongolia, and the Democratic Republic of Congo (DRC).

Coltan is a mineral that contains tantalum, which is a crucial ingredient in electronics manufacturing. Apple uses tantalum to make capacitors, which are devices that hold and release electrical charges in its products, such as iPhones, iPads, and Macs.

Question 30

Raw material extraction:

Where does Apple source Coltan from?

Answer 30

Peru

Peru, which is one of the largest producers of gold in the world. Gold is often found together with coltan in the same ore. Apple sources gold from Peru for its products and also for its conflict-free smelter program, which aims to ensure that its minerals do not finance or benefit armed groups in conflict regions.

Chile

Chile, which is one of the largest producers of copper in the world. Copper is also often found together with coltan in the same ore. Apple sources copper from Chile for its products and also for its renewable energy projects, such as solar farms and wind turbines.

Mongolia

Mongolia, which is one of the largest producers of rare earth minerals in the world. Rare earth minerals are essential for making magnets, speakers, cameras, and other components in Apple’s products. Apple sources rare earth minerals from Mongolia to reduce its dependence on China, which dominates the global supply of these minerals.

The DRC

The Democratic Republic of Congo (DRC), which is one of the richest sources of coltan in the world. However, the DRC is also a conflict-ridden country, where the illegal trade of coltan and other minerals helps fund armed groups that commit human rights abuses. Apple has been working to ensure that its coltan from the DRC is conflict-free, by participating in third-party audits, traceability programs, and local initiatives to support the miners and communities.