Apple in China PDF
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Table of Contents
1. Apple in China .....................................................................................................................2
1.1. Target Market and Products ..........................................................................................2
2. Analyzing Apples External Organization ............................................................................2
2.1.1. Apples PEST analysis ...........................................................................................2
2.2. Porters Diamond of National Advantage ......................................................................3
2.3. Porters Generic Strategy of Apple in China ..................................................................3
2.3.1. Scenario Analysis (Viewing Risk) ..........................................................................4
3. Analyzing Apples Internal Organization .............................................................................5
3.1. Apples RBV Analyses in China ...................................................................................5
4. Competitors Analysis ...........................................................................................................7
4.1. Competitors Objectives .................................................................................................7
4.2. Competitors Current Strategy ........................................................................................7
4.3. Competitors Assumption..............................................................................................8
4.4. Competitors Resources and Capabilities ........................................................................8
4.5. Apples SWOT Analysis Vs Key Competitors Strengths and Weakness ........................9
4.5.1. SAMSUNG Strength and Weakness .................................................................... 10
4.5.2. LENOVO strength and Weakness ........................................................................ 10
4.6. Competitors Response Profile and Conclusion ............................................................ 11
5. References ......................................................................................................................... 12
6. Appendices ........................................................................................................................ 13
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1. Apple in China
Apple is committed to bringing the best personal computing experience to students, educators,
creative professionals and consumers around the world through its innovative hardware, software
and Internet offerings. The Apple, Inc. U.S. headquarters is located in Cupertino, California.
Apples goal is to provide customers with the best personal computing experience by offering
products with superior ease-of-use, seamless integration, and innovative industrial design and
a high quality sales and post-sales support experience.
1.1. Target Market and Products
Apples target market falls into these categories; home users, small and medium sized business,
education segment, younger generation and creative individuals aka Mac users. Apple is a luxury
brand and the company still ranks in the top five of the most coveted brands among Chinas
monied class, according to the latest Hurun Chinese Luxury Consumer Survey. Apple products
consist of; iPhone series, Macintosh, iPod series, iPad, iMac, Mac Mini and Apple TV.
(Appendix G: Apples product and prices in China)
2. Analyzing Apples External Organization
2.1.1. Apples PEST analysis
Political: China having a communistic government causes heavy restrictions in many areas
especially the Internet, the press, freedom of assembly, reproductive rights, and freedom of
religion. Companies such as Facebook and Google face strong restrictions in China. In contrast,
Apple mainly sells hardware, so it has not run into any censorship problems.
Economical: In the 4th quarter of 2012, Chinas GDP increased from $7298.10 billion to
$12.382 trillion indicating an increase by 7.9%. This is a favorable economy for Apple as the
economy continues to boom elevating high consumer spending, national income and
employment.
Social: Chinese consumers love electronic gadgets. Mobile phones are ubiquitous. Apple is
doing incredibly well because its products are so much more attractive and pricy. The iPhone
quickly become a status symbol product in Chinese social circles since its debut (J. Chiang,
2013)
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Technological: In China, there is fast improvement in electronic technology which is becoming
a fast applied threshold in many industries. Apple is leading the position in electronic IT industry
which just matches the trend of electronic technology. Due to the pollution control policies in
China, Apple Redesigned their product to lighter weight packaging to reduce emission during
transportation. This shows its ethical consideration in green marketing.
2.2. Porters Diamond of National Advantage
Factor Conditions: China is one of the worlds largest growing economies for its skills and
technology, which provides more innovation for Apple. Chinas high skilled workforce creates
more advantages for Apple in the sense that rich amount of raw materials and cheap labor
through the use of sweatshop is well leveraged.
Demand Conditions: Apple being a Famous successful Company has caught the attention and
motivation of Chinese 1st class citizens and prestigious youths, thus sending the right signal and
increasing the demand of Apple products especially in smart phones and iPad industry. However,
Apple is pressured to reduce its price in other to meet the demand of second tier cities that may
not be able to afford Apple products. Its been argued that doing so would be detrimental to
Apples image but yet again it could pose as a competitive advantage over competitors.
Related and supporting Industries: Apple as a foreign company in China ensures that its supply
chain adapts to the needs of its niche market in a timely manner while justifying high prices for
quality innovative product.
Firm Strategy, Structure, and Rivalry: In China, major successful companies are often
centralized. When China joined World Trade Organization, many Chinese tariffs and other trade
barriers reduced, allowing other rivalry like Samsung to compete more strongly in China. In
China, management compensation is heavily based on annual bonus tied to group result. China
having a low individualism index, do not base much thoughts on individual motivation but
channel effort on innovative minded groups which Apple employs to attach prestige to its image.
Appendix D elaborates Apples Porters five forces in detail.
2.3. Porters Generic Strategy of Apple in China
Apple has always been using the differentiation leadership strategy. Differentiation is about
creating a unique value in a product and giving customers clear reasons to prefer the product
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over other less differentiated products which they will be willing to pay a premium price. Using
this strategy, Apple tends to apply for specific and selected market segment and provide its
substantial price premium to its targeted market. Apple offers its niche members a product or
service customized to their tastes and requirements and are geared towards customers with the
ability to spend more. Apple does not rely on cost leadership strategy to compete. Their business
and brands are built on persuading customers to become brand loyal and paying a premium for
their products. Apple has managed to build substantial Value over the years in a strong
competitive PC and Smart phone industry by innovating and forging a part considerably different
from other big competitors in the industry. Apple's products is based on quality, design,
elegance, and superior customer service, while outsourcing actual manufacturing to trusted
Original Equipment Manufacturers (OEM) allows it to differentiate its products from those of its
competitors. Apples differentiation strategy has made it most attractive and seen as a prestigious
brand by the Chinese most elite customers. However there are risks that Apple needs to be aware
of which includes imitation and losing its distinctiveness and focus. This possibility of this risk
could be weighed in a scenario analysis.
2.3.1. Scenario Analysis (Viewing Risk)
The key analysis is whether Apple can remain distinct and focused in the Chinese Market.
Chinese Telcos look to Boost Margins with Cheaper Smart phones. These smart phones will be
provided by Chinese handset makers such as ZTE, Huawei, Lenovo, Coolpad, TCL and SED
(Trefis Team, 2012). Since a majority of Chinese still cannot afford to pay for the higher-end
smart phones, this strategy will reap huge dividends for these Chinese manufacturers. When
these phone manufactures releases the production of cheaper smart phones into the 3rd
tier cities
of over 300 million people, Apple marginal value may not be affected since the number of
middle class earners is estimated to grow 70% to 600 million by 2020 (K. Voigt, 2012).
According to an interview conducted by Shaun Rein (2012) in 15 cities, 5,000 Chinese
consumers trust foreign brands far more than they trust local domestic brands. (Appendix A:
Self-sketch of Apples Scenario Analysis and Future factors)
Nevertheless, the risk/rocky aspect comes to light since these Chinese manufacturers have
formed an alliance which will make it more difficult for Apple to single any one manufacturer
out for patent infringement. If Apple fails to hinder the growth of these manufacturers with
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lawsuits, it may be forced to lower the prices of its smart phones against its principals. Doing so
may tarnish the premium image of Apple and erode the love and loyalty of the Chinese
customers. As a result, the customers may no longer value the product's factors of differentiation
and may fall just like Nokia did.
Therefore from this scenario analysis, Apple can remain distinct and focused in China if it
continues to be innovative and maintain its premium price to satisfy the prestigious demand of
the Chinese customers.
3. Analyzing Apples Internal Organization
In other to analyze Apples internal organization in China, its required to scrutinize Apples
portfolio of resources and capabilities that are created from such resources.
3.1. Apples RBV Analyses in China
Apples Resources Capability
Tangible
Financial Resources Net sales of $156.50 billion in its 2012 annual report, up
from $108.24 billion in 2011
Heavy Investment in Research
& Development
Organizational
Resources
Outsourcing manufacturing processes to OEM partners in china
(Foxconn and Hon Hai precision
industry)
Global Mindset
Physical Resources
PC constructed of solid aluminum blocks and strong polycarbonate
plastics
Top retailer in in-store sales (8 stores)
Exceptional Design
Strong Market Presence
Technology Resources
Tailored hardware and software
Redesigned lighter weight packaging
Unique Brand image
A greener Apple
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Intangible
Human Resources
Teamwork is included in Apples organizational culture
Design teams, software development teams, and hardware
engineers
Offers a variety of attractive employee benefits to complement
direct wages.
Industrial Design Capability
Talented Software Programmers
Innovation
Apple Care Support website
Apple Care Protection Plan
Apple Care Helpdesk Support
Apple Care Professional Video Support
Apple Care Technician
Consistent Quality
Reputational Resources
Apple offers in-store one-on-one support to all customers and further warranty support
Good relationship with OEM partners
Outstanding Customer Service
Bearing in mind that capability is not a competitive advantage; using the Barney VRIN as a tool,
Appendix C indicates built core competences that will serve as a source of competitive
advantage for Apple over its competitors in China. Capabilities valuable, rare, costly to imitate
and non-substitutable are core competences. According to Michael A. Hitt., et al (2008),
Capabilities failing to satisfy the four criteria of sustainable competitive advantage are not core
competences, meaning that although every core competence is a capability, not every capability
is a core competence. Appendix C illustrates that Apple has strong sustainable advantage on
most of its capabilities despite high presence of substitutes. Understanding Apples internal
performance, Appendix C clarifies that Apples Talented Software Programmers falls on a
competitive parity due to the fact that in China, such talented skills are not rare within the
industry, and are not difficult to imitate. However Apple has continued to be ahead of the game
as they invest heavily in R&D, increasing innovation that is rare and costly to imitate.
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4. Competitors Analysis
Apple has a highly innovative product line that aims to offer a cutting edge and highly integrated
user experience. Since Apple has diverse product lines, it faces competition from both Mobile
and PC industries. In china, Apple has two major competitors: Samsung and Lenovo and in
other for Apple to formulate its business Strategy, it must consider the strategies of its main and
potential competitors. To do this, Michael Porters competitive analysis framework is used.
4.1. Competitors Objectives
It is important to understand what objectives a competitor has, as this will enable a company to
predict what the competitor will do in the future, and how their behavior can be altered (Michael
Porter, 1980). In other to stand out of about 100 Chinese smart phone companies, Lenovo
worked with Intel (INTC) to launch the K800, the first phone in the Chinese market to run on
Intels newest Atom chip, Lenovo plans to announce five new models in 2013. Lenovo is trying
to take advantage of its well-known PC brand to target smart phone customers in 2nd
and 3rd
tier
cities. And Lenovo plans on opening an additional 300 stores in China in 2013 to add to its 100
existing stores in China. Samsung is reportedly working to launch an entry-level smart phone in
the Galaxy series. According to SamMobile, Galaxy Star is expected to hit stores around mid-
April (Rohit KVN, 2013)
4.2. Competitors Current Strategy
Samsung spend billions of dollars on promotion strategy for advertising campaigns across North
America, Europe and Asia. They use celebrities such as Black-eye Ps to promote their products.
Their products are sold mostly online where customers can get free shipping. Lenovos strategy
is dynamic and keeps changing as the situation demands. They are flexible to the demand of the
Chinese customers. However, Lenovo struggled to get local consumers to buy its phones when
millions of Chinese were embracing the iPhone, Lenovo was still pushing basic handsets (Bruce
Einhorn, 2013). Lenovo has implemented an aggressive strategy to replace Samsung as the
Mainland China market's top smartphone manufacturer as they changed their one-size-fits-all
LePhone strategy and built a portfolio of 19 smart phones, ranging in price from $130 to $385.
That strategy helped Lenovo surpass Apple in 2012 and move into the No. 2 position behind
Samsung. Its mobile Internet business accounted for 8 percent of total revenue in the third
quarter of 2012, up from 3.6 percent a year earlier, and mobile revenue was 18 percent of China
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sales. It has spent $793.5 million in Wuhan in order to build a plant that can produce 30 to 40
million phones per year (Bruce Einhorn, 2013). Lenovo cited their desire to take advantage of
increased sales due to the 2014 World Cup that will be hosted by Brazil and the 2016 Summer
Olympics and CCE's reputation for quality.
4.3. Competitors Assumption
Samsung and Lenovo along with major mobile companies assume that the era of basic phones
are over and such market deserted. In actuality, that assumption is somewhat false in the case of
rural areas populated with elderly customers who may find smartphone too complex and prefer a
basic phone. After Lenovo introduced their first smartphone named LePhone and failed, they
assumed smarter phones is what the market demands. This assumption places an opportunity
and threat if Apple decides to use its strong brand name to create a market for basic phones and
reduce price as seen in the scenario analyses. Honestly, the opportunity isnt worth taking. Apple
must remain innovative in the smartphone industry as they compete with the global mindset of
forward ever and backward never.
4.4. Competitors Resources and Capabilities
Financial Resources and Capabilities
Lenovo invested US$793 million in the construction of a mobile phone manufacturing and R&D
facility in Wuhan, China. Lenovos revenue as of 2012 amounted to US$29.57 billion. Samsung
Electronics amounted to revenue of US$185.30 billion in 2012. Lenovos operating income of
US$584 million grants them more advantage in R&D over Samsungs operating income of
US$267.65 million.
Physical Resources and Capabilities:
China as the worlds largest smartphone market remains the primary market in which Lenovo
Mobile operates and has expanded sales into Russia, Indonesia and India, with further expansion
intended. Samsung recognized for its superior-quality screen and excellent connectivity.
Samsung became the world's largest cell phone maker in 2012, with the sales of 45 million smart
phones in the first quarter.
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Technological Resource and Capabilities
Samsung has some of the best resources in semi-conductor products, highly skilled engineers and
designers, a much broader access to market around the world with lot more touch points to end
customers. Lenovo only manufactures phones that use the Android operating system from
Google. Numerous press reports indicated that Lenovo plans to release a phone based on
Microsoft's Windows 8.
Innovation Resource and Capabilities
Samsung Galaxy S adopts Google Android as the primary operating system. It also supports
other competing operating systems such as Symbian, Microsoft Windows Phone, Linux-based
LiMo, and Samsung's proprietary Bada.
Human Resources and Capabilities
Samsung Elecronics as at 2012 has a total number of 221,726 employees while Lenovo
employees accrue to a number of 27,000 employees. Apple has unique advantage through its
retail presence that Samsung lacks. Apple can carry out a lot without relying on carriers or other
retailers to make a significant impact through its marketing tactics unlike Samsung.
4.5. Apples SWOT Analysis Vs Key Competitors Strengths and Weakness
Apples Strength:
Leaders of innovative and high tech quality products like iPhone, iPad and iMac.
Globally recognized brand name and Large Marginal Value
Large segment of loyal customers to Apple culture.
Strong R & D department and Large Market Share in China
Unique product differentiation and Strong placement in Education segment
Apples Weakness:
Poor sales from iTunes store as Chinese are customarily unwilling to pay for intellectual
properties.
Without constant innovation to set itself apart from its competitors, Apples products may
appear overpriced in comparison to its Chinese rivals
Apples Opportunities
Penetration into more China cities as population increases
Growing market of green and energy efficient product
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Building more retail stores in China and boom of China economy
Apples Threats
Highly dependent on consumer purchase
Highly competitive environment
Pressure of constant innovation
In China, imitation, Patent and copyright infringement remains high.
Pressure to reduce price
4.5.1. SAMSUNG Strength and Weakness
Samsungs Strength
Wide range of product portfolio which includes Mobile phones, Tablet, TV/Audio/Video,
Camera, Camcorder, home appliance, PCs, laptops, peripherals, printers
Well diversified and differentiated product line to meet changing customer needs.
Strongly going ethical given its Chinese suppliers two years to eliminate illegal work
practices.
High Market Share that continues to grow in the Chinese market and Strong brand name
Samsungs Weakness
Average prices of product is seen to be of low product in China
Not pro-active in introducing a new product and Not user friendly
Insufficient software or talent engineer to make their own
Heavily investing in the development of newer market and not focusing on any core
competencies.
4.5.2. LENOVO strength and Weakness
Lenovos Strength
Chinese owned company with wide range of product portfolio; PC, tablet, mobile phones,
workstations, servers, electronic storage devices, IT management software and smart
televisions.
Operates in more than 60 countries and sells its products in around 160 countries
The IBM name has helped Lenovo maintain its solid base with customers in the corporate
market
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Lenovos Weakness
Difficulty in expanding abroad
Brand name is not iconic
4.6. Competitors Response Profile and Conclusion
From the competitors objectives, strategies, assumption and resources obtained, Apple can see
that while its fighting over patent infringements with Samsung, a bigger potential competitor,
Lenovo aims to shoot. Apples strategies of differentiating have been imitated as Lenovo
strategizes on cost leadership and focus differentiation, offering a hybrid market positioning to
Chinese customers. Constant innovation is all Apple has now as a unique capability as both
offensive and defensive mechanism in entering new markets and competing with rivals. Apple
and Samsung have mutual threats in China as low cost competitors like Lenovo increases in the
smart phone industry. Looking at Apples pricing strategy in Appendix B; reducing the price to
compete with Lenovo (penetration pricing) is not an option as this would affect the way the
brand is perceived by the Chinese customers. The Chinese vendors are like a pack of wolves
snapping at Samsung and Apples heels, says IDCs Wong. With the resources available to
Samsung and Lenovo, Apple may be well assured that whatever strategy it pulls off in China can
be imitated. Hence, Apple can increase its cost of imitation into three features that all lead to the
robustness of strategic capability. This is illustrated in Appendix F as Complexity, Culture and
History, and Casual ambiguity (G. Johnson et al, 2005).
At the end on Q4 2012, Apple was displaced from number two to number six in the Chinese
smartphone market. However, Apple continues to stand strong despite strong competition in
China. In other for Apple to remain distinct, it has to invest more money from its cash cow into
innovation that is costly to imitate. In as much as this might become a challenge due to the
strategic alliance of many Chinese smartphone firms, Apple should continue to sue any company
that infringes its patent and copy right. Such injunction will pose a threat to current and potential
imitating competitors. The expansion of Apple stores in needed to capture economies of scale
into more cities in China. The competition wont get any easier in the smartphone industry that
in the long run, I predict that Apple and Samsung may decide on becoming Joint Ventures or
Strategic Alliance to survive. But till then, let the battle drums continue to roll.
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5. References
1. Bruce Einhorn, (2013). In Chinas smartphones; Lenovo gets busy. [Online] Available at:
http://www.businessweek.com/articles/2013-01-03/in-chinas-smartphone-market-lenovo-
gets-busy [Accessed on 22nd February, 2013]
2. G. Johnson et al, (2005). Exploring corporate strategy. 7th Edition. Pearson education
limited: Harlow
3. Jeongwen Chiang, (2013). Why China Loves Apple. [CNN Online] Available at:
http://www.realclearworld.com/2013/01/16/why_china_loves_apple_144300.html
[Accessed on 16th February, 2013]
4. Kevin Voigt, (2012). Apple, China, Foxconn and the Fabulist. [Online] Available at:
http://edition.cnn.com/2012/03/19/business/apple-china-foxconn-daisey [Accessed on
17th February, 2013]
5. Michael A. Hitt, R.Duane Ireland, Robert E. Hoskisson (2008) Strategic Management
Concept. Business, Accounting & Vocational: Textbooks & Study Guides. Cengage
Learning EMEA. London: UK
6. Michael E. Porter, (1980) Competitive Strategy: Techniques for Analyzing Industries and
Competitors. 1st Edition. New York: Free Press
7. Rohit KVN, (2013). Samsung planning to lunch Entry-level Smart phone Galaxy star at
MWC 2013 report. [Online] Available at:
http://www.ibtimes.co.in/articles/438132/20130222/samsung-galaxy-star-mobile-
technology-launch-february.htm [Accessed on 19th February, 2013]
8. Shaun Rein, (2012). What do Chinese Consumers want? Not Barbie. [Online] Available
at: http://edition.cnn.com/2012/11/21/business/china-consumers-barbie [Accessed on
20th February, 2013]
9. Trefis Team, (2012). Apple may need cheaper phones to compete in China. [Online]
Available at: http://www.forbes.com/sites/greatspeculations/2012/01/11/apple-may-need-
cheaper-phones-to-compete-in-china/ [Accessed on 17th February, 2013]
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6. Appendices
Appendix A: Free sketch of Apples Scenario Analysis and Future factors
High A B A: State of Chinese economy
C D B: Loyalty of Chinese consumers
C: Fair and Just competition
Potential
Impact D: Consistency in brand Price
Low
Low High
Uncertainty
Appendix B: Apples pricing strategy Vs Competitors
Low QUALITY High
Hig
h
P
RIC
E
Low
Pr
I
Economy
Skimming Premium
Penetration
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Appendix C: Building Apples Core Competences in China
Capabilities Value Rare Costly to
Imitate
Non
substitutable
Competitive
consequences
Performance
implication
Heavy Investment in
Research & Development
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Global Mindset
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Exceptional Design
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Unique Brand image
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Strong Market Presence
Yes
Yes
Yes
No
Sustainable competitive
advantage
Above average returns
Industrial Design
Capability
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Consistent Quality
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Outstanding Customer
Service
Yes
Yes
Yes
No
Sustainable
competitive
advantage
Above average
returns
Talented Software
Programmers
Yes
No
No
No
Competitive Parity
Average
returns
A Greener Apple
Yes
Yes
Yes
No
Sustainable
competitive advantage
Above average
returns
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Appendix D: Apples Porter five forces
Appendix E: Self-Sketch of Apples BCG Matrix vs. Competitors Attractiveness
RIVALRY
AMONG
EXISTING FIRMS
SUPPLIERS
THREAT OF
SUBSTITUTES
BARGAINING
POWER OF BUYERS
THREATS OF
NEW ENTRANTS
Due to many competitor product substitutes
in China, theres high bargaining power of
consumers. Nevertheless, Apples unique
products and a loyal customer base reduce
the price sensitivity of the Chinese customers
at least to those that can afford it.
BUYERS
Apples strong present in the Smartphone
and PC industry in China is valuable, rare,
expensive to imitate. Potential entrants will
not only find difficulty in winning the market
share over, but also require a significant
investment of resources to compete with
Apple.
ENTRANTS
China known for high skills in the electronic
industry leaves Apple with the threat of many
substitutes ranging in quality and cheaper price.
Apples innovative
brand still presses
this threat to a
medium.
SUBSTITUTES
Samsung and Lenovo are Apples strong
Competitors in China. They each have strong
market presence. However, Apples products are
highly differentiated in terms of design and
functionalities as compared to its competitors
products. With continuous innovation, Apple will
sustain this competitive advantage.
COMPETITORS
The bargaining power of suppliers for hardware
products is low as the industry is highly saturated,
causing suppliers to be competitive in their pricing.
Apple adopts a differentiation strategy which requires
the firm to ensure that suppliers provide high-quality
components, driving up its supplier costs.
SUPPLIERS
Mar
ket
Gro
wth
High Relative Market Share Low
Apple
Smartphone
High
Low
Lenovo
Mobile
Samsung
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Appendix F: Increasing Apples cost of imitation inspired by G, Johnson et al, (2005)
Appendix G: Apple products and Price in China
Series Type Price
Computer iMac, eMac, Mac mini, Power Mac, Xserve RAID, Mac
Pro, iBook , MacBook, MacBook Pro, MacBook air
3000 - 20000
Digital iPod, iPod mini, iPod nano, iPod Shuffle, Apple TV,
iPod classic, iPod touch, iPad
300 - 3000
Mobile iPhone, iPhone 3GS, iPhone 4, iPhone 4s. 2000 - 5000
Complexity
Innovating Smartphone with
features such as 4G,
backscatter X-ray, Fire &
water proof
Casual Ambiguity
Talented team should work
under oath of secrecy and
commitment
Culture & History
Improve slogan to Think
Different; Act different
Continue to pass down Steve
Jobs legacy and Vision
Robustness of
strategic
Capability
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