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The level of completion that is posed by companies that compete directly with Apple is very high. The industries’ leading industries such as Samsung, HP, Google Inc., Amazon, and Apple engage in cut throat competition because of their highly innovative products with almost similar features. Samsung and Apple for instance have similar capabilities because the two companies can flex their financial muscle and undertake numerous investments at the same time thus making the competition among the top companies very high. All the companies that top in the technology industry spend a good percentage of their income on research and development thus enabling them to continuously engage in the production of high quality products and in turn continue to remain competitive. Consumers switching cost is another key factor that drives the competition to be very high in the industry. The cost of switching from Apple’s online stores to Amazon’s kindle is very low thus consumers can switch from one product to another without having to incur costs. On the same note, the wide of products that Apple as well as other companies in the industry produces makes it easy for the company to lose market in one of its products and gain market in the other depending on the level of competition at any given point in time. Competition that is posed by smaller innovative companies that are regionally based raises the level of competition in the industry as well.
As noted in the competitive rivalry section, there is high competition among the leading firms in the industry. Therefore the threat posed by substitutes is considerably high owing to the industry’s products as well as the high innovation in the industry. The industry’s products are highly substitutable owing to the numerous players in the industry. The industry has one of the highest
The threat posed by new entrants that are seeking to enter into the electronics and technology industry is very low. Apple is one of the companies that have established itself as the leader in the technology and electronic products. The company has advantage of large economies of scale –Apple is the largest company in terms of market capitation having raised more than $750 billion in the capital market, the large pool of resources enables the company to undertake costly investment or expand to new markets. Equally, the high cost of establishing an electronic or technology company in the US as well as in other leading markets internationally is a barrier that keeps off other company’s or even new companies from entering the market. Establishing a brand name in the technology industry is a painstaking process which is both costly and time consuming –for this reason some companies are kept off from entering the market for fear of not being able to compete with the industry’s best companies such as Apple and Samsung. High cost of production in the industry is another reason that keeps off potential companies from entering the industry. Ideally, Apple felt the heat of high production costs in the US market and it had to outsource its operations to China so that it can still remain competitive. Companies seeking to enter the industry must first establish their brand and then employ strategies that will see them compete with the industry’s best thus all the barriers mentioned lowers the threat posed by new entrants into the industry.
Unlike high bargaining power for buyers, suppliers have low bargaining power because they are many in the industry. Suppliers for electronics parts and raw materials for the company’s products are numerous in the market thus Apple can strike a favorable deal with suppliers. It is worth also noting that Apple is an important player in the electronics industry which means that it is being sought after by suppliers because of its large economies of scale and as well as market reputation. Additionally, Apple is free to choose one supplier from a pool of potential and competitive suppliers. The company has one of the efficient sourcing systems for its products parts. Manufacturers of computer accessories and software are highly competitive since they compete among themselves in terms of quality thus making it easy for companies such as Apple to negotiate and with new firms and still get quality product parts and accessories. On the same note, electronics industry is considered to be one of the most competitive in the world in terms of supplier alliances. The cost of dropping one supplier and then choosing another one is zero thus companies in the industry, including Apple, can choose to work with numerous suppliers depending on their terms thus the company is able to choose the best supplier in terms of cost. Suppliers do not have high bargaining power because they are many and they offer similar products of relatively high quality because they compete among themselves.
According to Porter’s Five Forces, substitute products that buyers can opt for instead of the company’s products are not products that directly compete with the company’s products rather any possible substitutes for them. Since the company’s key products are communication gadgets or electronics the rate of substitution is very high thus the bargaining power is very high as well. A good example of a substitute that can be used by buyers instead of the company’s IPhones is the landline. Although landline is not a direct substitute to IPhones because they do not have similar features, they serve the same purpose. Equally, products from its core competitor, Samsung, provide buyers with numerous substitutes that they opt for instead of buying Apple’s. Due to high level of substitution that characterizes the industry, it is clear that customers have high bargaining power in the industry because they have a wide range of substitutes. Customers have a wide range of products they can choose given that the industry has numerous substitutes thus applying the market forces, the likelihood that the buyers dictate pricing models for the firms is very high.
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