Apple's goal by the end of 2012

Written by Wei Yoong L.

Article based on:

<http://biz.thestar.com.my/news/story.asp?file=/2012/9/18/business/20120918080726&sec=business>

Nowadays, technology is widely seen in 21st centaury. The technology has change people’s life by making our lives more convenient and easy. Besides that, the technologies have save up people’s time to complete a task. Therefore, recently, Apple Inc has launched the iPhone5 smart phone to the world. According to Apple inc (September,2102), booked orders for over two million iPhone5 models in the first 24 hours and to sell 45.21 million iPhone in the end of this year. In order, Apple Inc to produce such a big bulk of iPhone5, there are many problem need to be overcome.

Apple Inc is not just producing one good, which is iPhone5. However, there are still producing others product example iPod touch, iPod Nano and also iPad. Hence, if Apple Inc would want to increase the production of iPhone5, the company would need to face a tradeoff. The reason the company will face a trade of is due to the limited resources and the working labor hours to produce the several of Apple’s product that called scarcity. The material used to produce in iPhone5 not only just focus in iPhones but also others, such as anodized 6000 series aluminum also apply in the MacBook pro, the ceramic glass on the white model and the pigmented glass on the black model of iPhones5 and also the processor and LCD screens also used to produce iPad as well. Besides that, the approximate labor for Apple Inc in China is about 200,000 workers to produce iPad, iPhone5 and other Apple’s produce. Therefore, with this limited resources and labors that Apple has eventually will face constraints and lead them to a tradeoff by giving up some of the quantity of other Apple’s product when the company would want to focus on iPhone5. Furthermore, this will bring effect to the company to hit the targeted number of iPhone5 sold by the end of the year. So, we can see the Production Possibilities Frontier (PPF) to see the best way to produce the maximum production in this scarcity.

The PPF will only focus on 2 goods (iPad and iPhone5) produce by the company and other quantity of all the other goods and services remain constant in the state of ceteri paribus. However, there is only 2 things are variable which is the iPad and iPhone5.

The curve below explains the PPF curve.

(Figure 1.1)

This curve explains that the company cannot produce more goods anything above the curve at point H due to the availability of resources and labor. Besides that, the company is attainable to produce anything below the curve, but they will not want to produce goods any quantity at the brown color region such as point G due to lack of efficiency of using resources and labors. Furthermore, the favorable quantity that the company would want to perform is quantity along the curve that is point A, B, C, D, E, F. Every quantity that the company produces along the curve shows the resources and labor are fully utilizes by no wasting it. However this curve shows a tradeoff when the company would want to produce more in a particular product. For example, when apple would want to produce more on iPhone5 form point C to point D. the number of iPhone will increase from 2.5 units to 3 units, but a decrease in iPad form 13 units to 10 units, so do the same on the other points on the curve. Thus, Apple Inc would need to find the most suitable point to create the maximum revenue and to hit the goal of iPhone5 sold in the end of the year.

To prevent Apple Inc to fall on point G for iPhone5, the company would need to be production efficiency. It can be achieve by producing goods at the lowest cost and highest output with utilizing the resource efficiently. Therefore, the company would need to find the cheapest LCD screens, ceramic glass and etc from the suppliers and it incur an opportunity cost by finding the materials. Furthermore, after finding the minimum cost of material, the company would need to produce the maximum number of Iphone5 by allocating resources efficiently. Once the company misallocates the resources wrongly the number of output decreases and will lead to a higher cost of production for the targeted number of iPhone5. However, there is a taste of change for the people to iPhone5. So, in order to maximize the profit for Apple Inc, the company would need to achieve allocative efficiency. Due to the change of trend, the company would need to allocate more resources on iPhone5 instated of iPad. If the company still would produce the same amount of iPhone5 and iPad, their total revenue in the end of the year will be reduce. This will happen is due to people the current change of trend having causes more people demand on iPhone5 and less demand on iPad. So, if the supply of iPhone5 is the same as iPad there will lead to a shortage of iPhone5 and surplus of iPad. The company could have reduce the supply of iPad and focus the resources on iPhone5 by boosting up the quantity to maximize their profit.

The price of the iPhone5 is control by the Apple Inc, when iPhone5 first launch, there is no competitor to compete with Apple Inc. Thus this shows that item is price inelastic. In the short run, there is still increase in demand of iPhone5 even thought the price are high. This is due to the change of trend and some people will buy cause of appreciate their social status in the society. On the other hand in the long run, the market structure will change into oligopoly. Apple have very little competitor in fact their major competitor is Samsungs. This shows the characteristic of small number of firm to compete. Eventually, Samsung will come out a similar product like iPhone5 to compete with Apple. Naturally, when there is competition will lead to a substitution of product and causes the iPhone5 from price inelastic to price elastic. So, at this time the price is vary and causes loss of some Apple Inc’s consumer and causes the demand to decrease. This will lead to a decrease in demand, and make Apple to come up and new idea and produce a new product.

In conclusion, Apple Inc will need to overcome most of the problem in the article in order to reach their goal by the end of this year. Therefore, I am very excited looking forward on the way of Apple Inc handles this problem in the coming time.

The Change in Market Structure in the Mobile Phone Market

Written by Kaiwen C.

Article is written based on information provided in this Link

“Success in business today requires real-time, mobile access to business opportunities”. In the 20th century, information is everything. Almost everyone, regardless of age would have a phone in their hands at any time. The mobile phone has a very huge market, and shown an interesting development over decades. Almost all new product starts with a monopoly. In a free market, the monopoly will break down into either an oligopoly with brands, or a perfectly competitive market. Now we will look into 3 mobile phone companies that have huge influences in the change in market structure of the mobile phone market. 

The mobile phone market is very concentrated ever since the beginning of the information era which started around the 90s. The leading mobile phone company was Nokia then, a mobile phone company originated from Finland. Nokia gained dominance for a long period of time until the evolution of normal mobile phones into smartphones which started around 2007. Smartphones became very popular after the introduction of iPhone by Apple. It monopolized the mobile phone market till the next leading substitute – Android that is installed into Samsung mobile phones recently. 

Nokia introduced the first mobile phone that’s using the GSM system on July 1st, 1991 – the second generation mobile phone. As the sole technology owner, Nokia was able to monopolize the whole mobile phone market for a significant period of time. During 1994, Nokia launched the model 2100, introducing the first ever mobile phone with their ring tone. With a target of 400, 000 units, Nokia was sold around 20 million units of the 2100 series, which is 5000% of their target. The demand for Nokia was much more than they targeted. 

After the monopoly broke down into oligopoly, Nokia was still able to maintain as the market leader. I believe Nokia’s success is due to they are able to provide affordable mobile phones to most of the public who are at the middle income group. In addition, by mass production, Nokia enjoyed the benefit of economies of scale, where the marginal cost of the product is highly reduced, which also allow them to sell their product at an acceptable price. Comparing Nokia to other competitors at that time, Nokia was able to provide their product at a lower price, and the quantity demanded for Nokia mobile phones increase. From this we can deduce that the price elasticity of demand for Nokia mobile phones is relatively elastic. In addition, I also believe that Nokia is trying to promote their phone as an income elastic normal good. A normal good will attract wider range of consumers from different income groups. Even people from the lower income group will buy the product when they can afford it as their income increases. 

Over years of development, mobile phones revolutionized into different specialized fields in order cope with the owner’s needs and preferences. Smartphone is one of the revolutionized forms of mobile phone. The first smartphone on market was Simon Personal Communicator in 1994. However, Apple was the first company to successfully incorporate its innovation into smartphones. The term smartphone only came popular after Apple introduces their first smartphone in 2007 – iPhone. I believe Apple’s biggest success was at their application section as they open up the development to everyone. Apple does not require much skilled labor and equipment to develop applications for their product. The usage of personal resources is low but the output is high, furthermore the application developed fits the consumer’s needs. Hence in their application development, Apple is allocatively efficient. 

                                                 

Unlike Nokia, Apple tries to create a premium brand image for their product. I believe this is the failure in iPhone. Apple thinks that they can at least monopolize the market for a period of time like how Nokia did. As time changes, technological factors improved, which hasten the process of imitation or creating substitutes. Nokia while monopolizing the market has already taken measures of mass production to provide mobile phones at a price even lower than oligopoly. However, Apple on another hand is seeking to sell the iPhone as a premium product, in other words a superior good. Where the demand increase by a large amount as income rises; in addition, the product is also scarce and high priced. To sum up, the income elasticity for iPhone is highly elastic for medium income group. 

Apple monopolized both the operating system and the product for smartphone using iOS and iPhone. It didn’t last long till the monopoly was infiltrated as technology factors hasten the process of creating substitutes as compared to Nokia’s time. On one hand, iOS faces Android, an operating system bought over and later on developed by Google. On the other hand, iPhone faces another strong competitor that long existed in the mobile phone market – Samsung. Instead of developing both the hardware and software like Apple did, Android and Samsung specialize in their respective field. Android is only focusing on developing the smart phone’s operating system where Samsung focuses on providing and manufacturing better hardware for the phone. This measure allows Samsung and Android to operate more efficiently than Apple. 

Even though at the beginning, the software and hardware are very far from iPhone’s technology, but the price offered by Samsung is lower than iPhone. This allows Samsung to be seen as a substitute for iPhone. Recently in the second quarter of 2012, both the software and the hardware of Android and Samsung were able to outperform Apple’s product. Samsung overtook Apple and was recognize as the market leader in the Smartphone market. In addition, Samsung also overtook Nokia as the market leader in the mobile phone market. Samsung now holds 21.6% of the total mobile phone market share, whereas Nokia only holds 19.9% of the mobile phone market share, and Apple only hold as little as 6.9% of the mobile phone market share. Samsung promotes its smartphone as a product in between a normal good and a superior good. The income elasticity of demand for Samsung smartphones are slightly more elastic compared to Nokia’s mobile phone. 

In conclusion, as technology goes, it is impossible to monopolize a market for too long. As the market breaks down from a monopoly into different market structures, the pricing of a product is crucial in regards to obtain bigger market shares. I believe Samsung is really successful in finding the equilibrium point to sell its product.