A Blue Ocean Strategy was introduced by W. Chan Kim and Renee Mauborgne in 2005 and means that the companies should create the new market places that “make the competition irrelevant” (Kim & Mauborgne, 2005, p.4). In more detail, the companies usually compete within the boundaries of the market for the larger share of the existing demand. When there are too many competitors, it is much more difficult for a company to achieve its business objectives. Therefore the companies should take another approach that would be targeted at creating the demand and widening the existing markets by creating “the blue oceans” (Kim & Mauborgne, 2005, p.5). In the other words, the new products may be created in order to revitalize the mature industries.
The Blue Ocean Strategy has been applied by Apple for many years. When the competition in the computer industry became too fierce in the 1990s, Apple was able to overcome the consequences of the negative financial performance by introducing the new products such as Macintosh all-in-one computer, iPod, iPhone, iPad, and iTunes (Koo, 2012, p.11). These products were exceptional and made a revolution in the computer industry shifting the focus from the computers to the portable devices. As the result, Apple removed the word “Computers” from its official company name and could stay ahead of the competitors for a few years, because they spent some time to adjust to the business environment and produce their versions of the new products (Koo, 2012, p.2).
The strategy applied by Apple since 1997 when Steve Jobs became a new CEO of the company was extremely successful. The market share of the Apple computers shrunk down to 3% in 1997 and it seemed that the company did not have any chances to recover, but the new products created the new marketplaces in which the company was able to sell the products with a high profit margin and build up a strong brand that is recognized all over the world nowadays. What is more, Apple gave a boost to the mature consumer electronics industry (Schawbel, 2014).
The Five Forces Model was introduced by Michael Porter in 1979, but it is still relevant for the analysis of the level of the competition in the industry. If to apply it to the industry in which Apple operates one will see that the company was able to take advantage of the rapidly changing computer industry and it became the first U.S. company that has the market capitalization higher than $700 billion (Maverick, 2015).
Industry competition and the bargaining power of buyers have the largest impact on the Apple’s industry. On the contrary, the supplier power, the threat of substitutes and the threat of new entrants have a moderate or low influence. In terms of the competition, there are many strong companies including Google, Amazon, Samsung, and Hewlett-Packard that also invest large resources into R&D. Because the switching costs are low, Apple is always under pressure and must launch more innovative products that are difficult to imitate. In turn, the buyer power may have a large influence if to view the customers not as individuals, but as the collective force that expects Apple to stay as innovative as before. Apple has a very large number of the loyal customers and therefore the buyer power has a moderate influence on Apple and the industry in general.
The threat of new entrants is very low. It takes a lot of resources including time, money, and social capital in order to create a company in the consumer electronics and develop a strong brand that could compete against the giants such as Apple, Samsung, Google, etc. Nevertheless, the new companies still emerge especially in China and other Asian countries where the production costs are low. It is obvious that their impact on the industry will not be significant in the short-term. The supplier power also does not represent a threat to Apple, because Apple and many other companies mainly subcontracted production to the overseas companies. So Apple and its competitors may successfully negotiate the favorable terms and benefit from internationalization of the business. Finally, the threat of substitutes is the weakest force because of the digital revolution that is going on in the world nowadays. It is hard to imagine that there will be substitute products that will able to replace the electronic devices in the short term future.
References
Kim, C.W., Mauborgne, R. (2005). Blue Ocean Strategy. Harvard Business School Press.
Boston, MA. Print.
Koo, Y.O. (2012). How Apple’s Corporate Strategy Drove High Growth. Blue Ocean Institute.
Print.
Maverick, J. (2015). Analyzing Porter's Five Forces on Apple (AAPL). Investopedia. Retrieved
w-chan-kim-how-entrepreneurs-can-find-their-competitive-edge/#2bfd5511457d
Schawbel, D. (14 February 2014). W. Chan Kim: How Entrepreneurs Can Find Their Blue
Oceans. Forbes. Retrieved from http://www.forbes.com/sites/danschawbel/
2014/02/14/w-chan-kim-how-entrepreneurs-can-find-their-competitive-
edge/#2bfd5511457d
