The+Apple+Economy

=Introduction = toc In this module we’ve set ourselves the goal of identifying and evaluating some of the novel and exciting ways in which businesses are changing in order to become and remain successful and profitable. Clearly these innovative practices by businesses are frequently introduced in response to larger changes in the economic and business environment. Thus, in order to make sense of these new trends in management – and to be able to evaluate meaningfully their effectiveness – we need to have an understanding of the most significant changes in the contemporary business environment. In this post I want to investigate this new business environment through a case study – Apple and its manufacturing and marketing of its iPhone. I sense that this single case study provides us with ample insights in the manner in which the modern business environment is now structured. Given these observations, I refer to this environment as the 'Apple economy.'

**Apple and The Manufacturing of the iPhone**

**The Company**

[|Apple] is, of course, well-known to all of you. Many of you will use Apple products – indeed, some of you will be using such a product to read or contribute to this wiki. Apple is a multinational business – based in California’s Silicon Valley – that organises the production and marketing of consumer electronic goods and software – in the main, the iPod, the iPhone, the iPad, Mac computers and their related software. It was founded in 1976 and since then has gone through several organisational and strategic changes. It currently has about 49,000 employees and assets worth $50bn. It achieved worldwide revenues of $28.57bn in the second quarter of 2011. During this period it sold 20.34m iPhones and 9.25m iPads. In the first quarter of 2013 Apple sold 47.79 million iPhones, Second quarter - 37.34 million and Third quarter - 31.24 million.

 Source

"**$412.6 billion:** Apple’s market cap after the closing bell. Shares fell 0.66 percent in trading Monday. Apple remains the world’s most valuable publicly traded company. The world's #2 company is Exxon Mobil, worth $405 billion." As at 11th June 2013. Source Where you can find 13 other facts about Apple.

Manufacturing
Whilst we might say that iPhone is manufactured by Apple, it is in fact made by about 30 firms from three different continents and by 10,000 plus people.

 The intellectual base – the brain – of Apple is its Californian headquarters, where its overall management, development work and marketing occurs. It is famed for its hardworking, yet casual and informal, work culture, perhaps best illustrated by Steve Jobs’ – Apple’s recently deceased co-founder and leader – penchant for walking barefoot and in cut-off jeans around Apple’s headquarters. It is here that Apple designs the products and their software – it’s where the creative knowledge work invested in Apple’s products takes place.


 * [[image:newtrendsinmanagement/iphone-5.jpg caption="iphone-5.jpg"]] ||

The process of manufacturing Apple’s products isn’t undertaken and managed directly by it, but is contracted out to other businesses operating on its behalf. For example, in the manufacturing of the iPhone these businesses are involved:


 * Intel – US – software
 * Samsung – Korea – the video processor chip
 * Cambridge Silicon Radio – UK – the bluethooth chip
 * Largan Precision – Taiwan – camera lens

The actual assembly of all of these components into Apple products takes place in China and several low wage economies in the Far East. Here there is no significant knowledge input from these organisations and their labour regimes are generally draconian and authoritarian.


 * [[image:newtrendsinmanagement/_48631527_009743582-1.jpg caption="Foxconn workers"]] ||

Foxconn – a Taiwanese company – is one of the largest companies that undertake assembly work for Apple. Much of this work takes place in its site in Southern China just outside Hong Kong. It is more of a city than a factory, providing work and living facilities for over 300,000 workers. It covers an area of 1.16 square miles and contains 15 separate factories. There has been controversy about the working conditions at this site. It has been reported that workers work 15 hours a day and are paid of a pittance of £27 per month. Overtime is compulsory and suicides due to overwork have been reported. Workers live in vast dormitories of 100 people and are subject to very high levels of security and strict labour discipline. They are forbidden to receive visitors from outside the complex.

<span style="font-family: Arial,Helvetica,sans-serif;">There have been many investigations into the working conditions of Apple/Foxconn staff. In this[| article]from __The Guardian__ the main results of these investigations are reported:


 * "Excessive overtime is routine, despite a legal limit of 36 hours a month. One payslip, seen by the //<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">Observer //, indicated that the worker had performed 98 hours of overtime in a month.
 * Workers attempting to meet the huge demand for the first <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">[|iPad] were sometimes pressured to take only one day off in 13.
 * In some factories badly performing workers are required to be publicly humiliated in front of colleagues.
 * Crowded workers' dormitories can sleep up to 24 and are subject to strict rules. One worker told the NGO investigators that he was forced to sign a "confession letter" after illicitly using a hairdryer. In the letter he wrote: "It is my fault. I will never blow my hair inside my room. I have done something wrong. I will never do it again."
 * In the wake of a spate of suicides at Foxconn factories last summer, workers were asked to sign a statement promising not to kill themselves and pledging to "treasure their lives"."

[Please see the link to the youtube video below which has an intimate look at how the iPad is assembled [] ]

=<span style="font-family: Arial,Helvetica,sans-serif; font-size: 16px;">The principal characteristics of the Apple economy =

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">If we assume that the manufacturing and marketing of Apple’s products provide helpful and significant insights into the organisation of the contemporary business environment, then what might we infer are the principal characteristics of this environment? I think there are six significant characteristics:

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">1. A global process
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">The manufacturing of Apple’s products is clearly a global process. They are designed in California, manufactured in China, components from the four corners of the world and sold in virtually every high street throughout the globe. It is a global brand, readily identified by millions.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> The contemporary business environment is also global in character. What businesses in the UK do is affected by decisions by business and financial institutions throughout the world. Despite a fall in 2010, the amount of trade between countries will no doubt continue to increase in the future.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">2. A highly complex process
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">The manufacturing of Apple’s products is also a highly complex process, involving many different organisations all connected in different ways through many networks, thereby sustaining many different flows of information, capital and things between them.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> It could be argued that this new level of complexity is an important feature of the contemporary business environment.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">3. The importance of knowledge or intangibles
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">The key factor in Apple’s remarkable and enduring capacity to produce such successful products is the knowledge it owns and controls and its ability to exploit it effectively and profitably. Thus, Apple’s most important resources are its patents and designs and the marketing and management skills of its employees, rather than just its physical plant and machinery.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> When seeking to characterise the contemporary business environment, many commentators have emphasized the importance of knowledge and its management. They refer to this environment as the ’knowledge economy,’ 'knowledge capitalism' and ‘cognitive capitalism.’

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">4. The importance of IT and internet
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">It is an obvious fact that Apple’s product development has been made possible through the massive changes and developments in information technology and the growth of the internet, which Apple have been able to exploit profitably.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> I’m sure that it must be obvious to all you that the growth in IT and the internet have had a profound impact in the manner in businesses operate today.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">5. A highly competitive and turbulent environment
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">Apple is operating in a fiercely competitive environment – it faces constant competition from other manufacturers producing similar products. Largely as a consequence of this hyper-competition, it is also an environment that is ever changing, where new products are constantly appearing in the market and consumers’ preferences are always shifting. The speed of this change – and the capacity of businesses to respond rapidly to it – is highly significant.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> Here are some figures that provide some indication of the scale of the competition and turbulence in the contemporary business environment. In 1965 IBM faced 2,500 competitors in all of its markets, yet by 1992 it had 50,000. Thus, the level of competition it faced changed dramatically during that period. In 1990 US products took on average 35.5 months to develop. By 1995 that figure had been reduced to 25 months. In the past it took 6 years to develop a new car, but now it takes only 2 years. These figures provide some indication of the speed of the changes that businesses need to address. In 1984 the world manufactured 88 billion chips, yet in 2004 it produced 400 billion chips. This suggests that IT is of critical importance to businesses.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 15px;">6. The new in the old
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">Some stages in the manufacturing of Apple’s products suggest something rather novel and innovative is taking place. This is true, it could be argued, of the importance of knowledge work involved in the design, marketing and management of these products. But other stages suggest something far more old-fashioned and anachronistic. The authoritarian and Tayloristic management practices governing the actual manufacturing of the products seem to date back to modes of work organisation employed in earlier eras. Thus, within the new we find the old.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;"> This is also an important characteristic of the contemporary business environment. Whilst in the developed world, many employees are engaged in creative knowledge work, in the developing world there are men and women employed in backbreaking physical work, in appalling conditions and for very little pay.

=Conclusion=

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">These are the principal characteristics of the contemporary business environment. What we want to explore in this module is how some businesses have been able to seize the opportunities offered by this environment and to operate successfully and profitably.

=<span style="font-family: Arial,Helvetica,sans-serif; font-size: 16px;">Questions =


 * 1) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">Can you think of other businesses that have the same organisational characteristics as Apple and are part of what I've referred to as the Apple economy?
 * 2) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">Where is the UK (or different regions of the UK) placed in this economy? Is it in the high paid knowledge work part of the economy, or the low paid manufacturing work part?
 * 3) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">When we use of our lovely Apple products, are we concerned (or should we be concerned) that they are assembled by workers with poor working conditions?
 * 4) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">What are the skills that managers and employees need to acquire in order to operate effectively the knowledge work part of the Apple economy?
 * 5) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">How should businesses be designed and run in order to operate successfully and profitably in the knowledge work part of the Apple economy?

=<span style="font-family: Arial,Helvetica,sans-serif; font-size: 16px;">Sources and References =

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">[|Apple's website]