According to create 10K article of Apple Inc. in the year of 2009, there are several hazards exposed to Apple. Each one of these dangers could be concluded by international business risk management framework (Miller, 1992)
The environment level
On the surroundings level, Apple has encountered economic conditions risks and regulatory hazards.
Economic conditions could materially adversely influence Apple (Form 10k, 2009)
The uncertainty of current global economical environment poses a huge risk to company through consumers and business aspects. First of all, the bad global economic conditions could reduce the demand of company`s products and services, because of the lowered income and insufficient assurance, such as tighter credit insurance policy, increase of unemployment, negative financial media and depreciation of asset values. Secondly, demand could be likely to be materially different from Apple, therefore of the generally prices increase of goods and services sold outside the U. S. market to offset the building up effect of U. S. us dollars. Finally, other factors probably have an effect on company`s performance by increase of fuel prices, negative conditions in the real estate and mortgage market segments, increase of labor and professional medical costs, tighter usage of credit, and other macroeconomic factors that might influence consumer spending patterns.
1. 1. 2 Political & regulatory uncertainties
Unfavorable results of legal proceedings could materially adversely impact Apple. (Form 10k, 2009)
Laws and legislation in many countries related to mobile marketing communications and software security necessity usually change like the restrictions on production, manufacture, network service providers rights, circulation, software functions and use, which pose negative effect on company`s productions design and request experience. Moreover, these changes also create extra cost on the productions advertising because it escalates the related adjustment cost to gratify the necessity of local rules that's not contained in the original cost. Furthermore, a huge problem about regulatory uncertainties is the restriction and obstacles to enter into some markets. Although, this condition is increasing nowadays, it continues to be negative for company`s productions and services promotion in these countries, like the inefficient audit system of China decreases the promotion rate of company`s products and services. Finally, it is evident that the tax policy could directly affect Apple`s performance. Different countries have different duty rates, and even change in certain time, which raise the tax risk for Apple.
The industry level
In the industry level, there are three major dangers for Apple, including fresh material risk, market risk and competing risk.
Raw materials risk.
As an original design company, Apple must focus on the raw materials choice. Such as property, dimension, longevity, price of each components. Although most components are generally available from multiple resources, certain key components rely on the upstream manufacturers. Therefore, the industry vast shortages and significant product pricing fluctuations cause material negative effect on company`s performance. On the other hand, due to components are ordered from upstream manufacturers, the merchandise will be restricted by the raw material supply. For instance, an essential component of a certain product delays three months to be provided, the whole product plan will be negatively afflicted which is depended on company itself.
Although, the marketplace share of Apple is gratifying, especially in mobile communication devices, and portable digital music and video tutorial players markets, Apple still must confront two major dangers in market. Following the development global extension of Apple, the actions related to interest rate and forex increase at an incredible rate. Therefore, the uncertainty of interest and international poses a materials negative influence on company`s performance.
Firstly, interest risk. Because Apple is subjected to interest fluctuations in many advanced developed countries, Apple`s interest income and expense is most hypersensitive to fluctuation in interest levels of these countries. Therefore, these changes straight affect the eye earned on Apple`s cash, securities and costs related to foreign current hedges.
Secondly, foreign currency exchanges rate risk. Generally, Apple is a net recipient of currencies, since that time, as a result of changes in trade rates, the web sales and gross margins of Apple as expressed in U. S. us dollars would be negatively afflicted by these changes. In addition, Apple should change its products prices to local market when the exchange rate has altered, usually U. S. dollars is strengthen, which causes the negative effect on sales from local competition with lower prices. In the meantime, Apple`s contracts with financial institutes to protect Apple against exchange rate risk lead to raise the prohibitive economical cost of hedging particular exposures.
Apple is faced with aggressive competition in all areas of its business (Form 10k, 2009).
The major business including personal computer, music player, video player, mobile communication devices and related services are highly competitive. Each one of these markets exist powerful opponents and numerous SMEs. From products property to products outside, and from market share to after sales service, all opponents have targeted Apple. Therefore, in order to keep and expand advantages from other competition, Apple spares no work to spend greatly on R&D. Apple put in totaled $1. 3 billion, $1. 1 billion and $782 million in '09 2009, 2008 and 2007, respectively, on research and development which illustrates the huge competitive pressure to Apple. In other words, Apple`s future financial condition and operating email address details are substantially reliant on its ability to keep to develop and provide new impressive products and services in each of the marketplaces it competes in (Form 10k, 2009).
Global markets for personal computers, mobile communication devices, digital music and training video devices, and related peripherals and services are highly competitive and subject to rapid technical change. If Apple struggles to contend effectively in these market segments, its financial condition and operating results could be materially adversely affected (Form 10k, 2009).
The organization level
To Apple itself, there are three major hazards mentioned in the proper execution 10k of Apple, which are
International operation, credit risk, and inventory risk respectively.
1. 3. 1 International procedures risk
Apple derives a big and increasing portion of its revenue and cash flow from its international businesses (Form 10k, 2009). The different regulation and culture might raises the operate cost. In the mean time, anyone of the operations has probability to violate local polices and laws and regulations, which increase the threat of international operations management. Additionally, Apple`s financial condition and operating results also could be affected by dangers related to international activities. Such as for example changes in local economic, labor, political and exchanges rate situation. All these macro changes could affect Apple through its international functions.
1. 3. 2 Credit risk
Credit risk for Apple, targets the detention and even invalidation on credit purchase for Apple services. Online store is one of the main income strategies of Apple. Apple spent a whole lot of effort to sustain the web store`s advantages, and gain a great income from that. However, the main payment approach, credit pay, usually fails because of arbitrary or man-made reasons. Such as Loan company problems and specific, co-operate fraud. These credit hazards create significantly negative effect on Apple`s finance performance.
1. 3. 3 Inventory risk
Due to the huge sales around the world, the inventory risk has become more significant for Apple.
The phenomenon of products lack has been common, not only because of the demand forecasting, capacity of manufacturing, but also the inventory capability and efficiency. The huge demand for a certain product of Apple always could be offset during almost a year which present materially negative effects on Apple`s sales.
International business threat of management framework of Apple.
2. What other major dangers do you feel Apple is exposed to but have not been determined or complex on by Apple itself? How come Apple subjected to these dangers?
The Form 10K of Apple has showed several aspects of dangers, which is very comprehensive and appropriate. Apple has been confronting hazards from environmental, commercial and solid specific level. All these hazards are interrelated and interacted, somewhat. However, you may still find some aspects that Apple twelve-monthly survey neglected.
Firstly, the CEO of Apple is Steve Jobs, who is the ultimate pitchman of Apple has experienced health problem. Although Tim Cook did a congrats leading Apple in Careers absence, the influence ability of Apple possessed decreased at that time. Apple`s brand is over concentrated on Careers himself that might pose a real risk in Apple`s future. The marketing focused a great deal on his health when his lack happened at that moment, and many reporters and experts speculated Careers` health, which created negative influences on Apple. Therefore, because of Jobs back to work and success of IPAD`s publish, this problems ended. It really is foreseeable that Apple would suffer from huge deficits after Careers` leave especially there were no reasonable successors.
Secondly, the legal rights threat of Apple appears progressively more nowadays. Plagiarism and split have been accelerating this risk. A great many other companies started to imitate Apple`s products and ideas, and added more special functions independently products even with a lower price. These products have a strong lethal to customers. Alternatively, the situation of crack is also troubling Apple. Following development of split technique, many series of Apple`s products has been cracked, which means there are a huge profit deficits for Apple. This rights risk is related with competition and regulatory risk.
Finally, Apple is a company that focuses on customer experience, which really is a key value proposition of Apple. This proposition is ideal for Apple definitely. However, because of over self-assurance of brand itself and failed negotiation with other co-operate companies, Apple demonstrated estrangement to customers on some issues. For instance, renowned software company Adobe refused its software to Apple PC program that made the clients feel uncomfortable, because of Apple`s unco-operation with Adobe. Clearly, this hastily activity posed negative effects on Apple`s Computer sales.
3. How is Apple handling their risks? What are their explicit and implicit risk management strategies?
Clearly, the environmental risks cannot be been able by Apple, that are exogenous factors for Apple. Apple`s dangers management mainly focuses on industry and organization level.
For raw materials risk:
Apple uses some not common custom components to the others of products, and new products would expose custom components from only one source until Apple has evaluated. If there is a new technology, Apple just utilize this technology when it has become matured and developing capacity success to gratify Apple`s demand. Furthermore, in order to decrease the deficits of key aspect detention and even invalidation, Apple creates partnerships numerous powerful companies to supply alternative arrange for products if the analysis system fails the initial plan.
For market risk:
Apple provides a meaningful analysis of the interest risk related to Apple`s investment profile. With this evaluation approach, Apple lessens the risk of interest rate change. In the meantime, Apple creates a significant assessment of the forex risk related to certain of Apple`s forex to assess the actual effects of exchange rate change. Actually, these two assessment approaches work for market risks.
For competition risk:
Apple invested more income on R&D to be able to sustain advantages. In the meantime, Apple provides more customer experience through integration of its products. For example, connect with different products with software to share and control; enhance online customer experience through the abundant applications and contents. It is clear that Apple is commonly difficult to be imitated.
For international businesses risk:
Apple has used several professional financial tools to lessen this risk. Such as for example foreign currency frontward and option deals, to be able to hedge certain exposures to fluctuations in trade rates. Although this hedging result cannot offset the negative influence on Apple, it certainly works on a portion of the risk especially in the limited time.
For credit risk:
Apple has used a long-term resource agreement technique to reduce credit risk. This strategy could give a sustainable income warranty for Apple in an extended term. However, when there is a economical recession through the agreement period, it might pose materially negative effect on Apple`s performance.
For inventory risk:
Apple has used a member of family inventory record method to manage the deficits of inventory, including cancellation and transport, to provide more impact and efficient inventory syndication.
From the chance management list above, it is clear that methods for market, international functions and inventory dangers participate in the explicit strategies which provide certain tools to solve the problems and reduce the risks. On the other hand, strategies for recycleables, competition and credit dangers contain implicit ones.
Why do you think a particular project/undertaking/practice is an implicit management of a particular type of risk that Apple is facing? How could you assess Apple`s risk management strategies?
When the iPAD published at 2010, some Apple admirers ridiculed iPAD as a unproductive rock. From functions, the picture shows the tiny difference between iPAD and rock. For some supporters, Apple has been questioned as a result of unsatisfactory design of iPAD. Similar comparison and taunt is becoming popular across the world. Undeniable, some of these comment result from the opponents, Apple still makes a huge deal of iPAD.
This reputation risk or product risk has been resolved well in the past several months. Jobs uses its usual promotion strategy to advertise his product. This mighty self confidence and outstanding market strategy reduce the risk into minimum to steer clear of the mortality of iPAD. The strategy of Idol influence on products makes iPAD bright. This internal strategy typically helps the advertising of iPAD. Certainly, iPAD is definitely a good consuming device.
Apple`s strategies are always mighty. One important concern is the fantastic design and stimulating customer experience. The analysis to Apple`s strategies mainly focus on the customer experience and shareholder`s income. If both these two strategies make good performance, the merchandise will be in great demand across the world and catch the attention of more investment for lasting development of Apple.
(Source: http://www. projectnext. eu/mobile-game/stonevsipad. jpg)
What hazards is Apple not handling or not handling enough? Why? What exactly are the implications of this lack of focus on a specific risk or set of dangers? What risk management stratifies can you recommend to this company? How will these strategies help?
Price risk managing is not controlling enough by Apple. As stated above, many competition imitate Apple`s products despite having lower prices. Because of this phenomenon, a large amount of customers will choose choice products from other competition that would be a huge market for every company. For instance, in China, similar products of iphone, iPAD, ipod touch are popular, making a significantly negative influence on Apple`s profits. Due to the regulatory system of China, it is impossible that suppress each one of these similar products. However, Apple could design some products suited to China market segments with fashion appearance and low price. Like other multinational businesses printed certain products in China market have already made more gains and founded customer integrity which is very meaningful for the development of future.
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