Management Development Institute

Gurgaon

Assignment on
Create a scenario for tablet as standalone product of consumer electronic industry with a
time horizon of 10 yrs. Visualize Apples position in it and advise what should Tim Cook do?

Course
Strategy Formulation and Implementation

Submitted to
Prof. Veeresh Sharma MBA Ph.D.
MDI, gurgaon.

Submitted by
Sarvesh Kumar V
Roll No: 38, Class: NMP28

30th May 2015

1

Create a scenario for tablet as standalone product of consumer electronic industry with
a time horizon of 10 yrs. Visualize Apples position in it and advise what should Tim
Cook do?
1. Introduction:

Global tablet sales market has grown tremendously between 2010 and 2013 in terms of
value and volume. Over the past two years i.e, 2013-15, growth has decelerated. Apple has
launched iPad on March 2, 2010. Since then it has taken First mover advantage till FY 2012
2nd Quarter in terms of Value and Volume. Google has released Android, an open source
which made other market players easy to create tablet.

Samsungs Tablet has become

potential competitor for iPad. It has taken significant amount of iPads tablet market share.
Emergent of other market players like ASUS, Lenovo also added to reduced market share of
iPad in Tablet Market. Open source Android, reduced manufacturing costs in Asian region
reduced the tablet prices which were built on Android. Customers attracted toward low prices
of Android tablets and android apps, covers almost all the functionalities provided by IPad.
Apple IPads Market share has been reduced from 60.3 in Q2 2012 to 28.1 in Q4 2014, as
shown in the Table 1. Its Net sales have posted negative growth of 5.31% in 2014 compared
to 2013 in value as shown in Table 2. And its net Volume also post negative growth of 4.30%
in 2014 compared to 2013 in volume as shown in Table 2. The global tablet sales market has
total revenues of $73,081.5m in 2014, representing a compound annual growth rate (CAGR)
of 59% between 2010 and 2014. Market consumption volume has increased with a CAGR of
91.2% between 2010 and 2014, to reach a total of 223.5 million tablets in 2014. Tough tablet
industry is moving towards saturated growth, the future of iPad is questionable. We will
analyse this in detail.
Table 1: Global market share held by tablet vendors from 2nd quarter 2011 to 4th
quarter 2014, Source: idc.com

Apple

Sam
sung

Q2 '11

61.5

Q3 '11
Q4 '11
Q1 '12
Q2 '12

Acer*

Ama
zon*

Barne
s&
Noble*

4.2

Pa
ndi
git
al*
-

3.8

1.1

4.5

2
3.1
3.3

1.6
2.7
1.3

1.4

15.9
3.6
4.8

4.6
1.5
1.6

Asus

Lenovo
*

7.3

2.6

59.7

6.5

51.7
58.1
60.3

7.3
11.3
7.6

LG
Elect
ronic
s
-

2.9

2.5
-

RC
A

Other
s
24.4
21.5
Incl
HP
14.4
19.7
19.7

in %
in %
in %
in %
in %

Q3 '12
Q4 '12
Q1 '13
Q2 '13
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Q4 '14

40.2
38.2
40.2
33
29.2
33.1
32.7
26.9
22.8
28.1

12.4
13
17.5
18.8
19.3
17.2
21.6
17.2
18.3
14.5

6.6
5.1
5.4
4.5
7.4
5.1
5.2
4.6
6.5
4

1.3
1.3
1.3
3.3
4.8
4.3
4.1
4.9
5.7
4.8

0.7
0.7
2.1
3.4
2.5
2
-

8.3
9.9
3.7
7.4
1.9
2.3

0.7
1.9
-

1.8
4.9
-

0.2
-

29.8
29.9
29.8
37
35
32.8
34.3
44.4
41.8
46.2

in %
in %
in %
in %
in %
in %
in %
in %
in %
in %

Table 2: IPad unit sales and net sales information for 2010,2011,2012,2013 and 2014
(dollars in millions and units in thousands), Source: Apple Financial Reports (FY12, FY
14)

Unit
sales
Net
sales $
Percent
age of
total
net
sales

201
0
7,45
8
4,95
8

%Cha
nge
NA
NA

7.6%

2011
32,3
94
20,3
58

%Cha
nge
334.35
310.61

18.81%

2012
58,3
10
30,9
45

%Cha
nge
80.00
52.00

20%

2013
71,0
33
31,9
80

%Cha
nge
21.82
3.34

2014
67,9
77
30,2
83

19%

%Chan
ge
-4.30
-5.31

17%

Table 3: Global tablet sales market value: $ billion, 201014, Source: Marketline

Table 4: Global tablet sales market volume: million tablets, 201014

2. General Environment analysis:

Based on population growth and economy growth apple should look forward to
China and India. Both the countries economic growth is expected to increase at

least 4.5% every year for next 10 years.

Advent of digital era & internet era added by electronics industry growth makes
customers to use luxury and necessary good based on the income levels. Electronic
goods like Mobile etc., became a basic need and affordable to all income levels in

India and China. Similar cases with most of the parts of the world.
Low Manufacturing cost in Asia Pacific region because of low wage rates

compared to other parts of the world with same competency.

Markets in America and Europe region are more of quality oriented and less of
price oriented. Markets in Asia-Pacific are more of price oriented.

3. Industry Environment analysis:

a. Threat of New Entrants:
i.
Although tablet market is dominated by large multinational companies (Apple,
Samsung, Lenovo), which have high brand name, best supply chain, significant
customer bases and better retail outlets, new entrants can enter into the market with
little effort. Table 1. Shows approx. 40% of the market share is captured by small
players. Eight large players occupying the rest, in which apple and Samsung has
ii.

huge shares.
Low manufacturing costs coupled with price centric customer attitude can help new

iii.

entrants.
New entrants need not required to do extensive research for manufacturing the

iv.
v.

tablet with existing functionalities.

Low manufacturing costs and outsourcing makes easy way to new entrants.
E-retail, online selling and less product differentiation from competitors helps new

vi.

entrants.
Emergence of low-cost chip manufactures, help new entrants to reduce costs.
4

All the above suggest threat of new entrants is high for tablet market, as entry barriers are
very low. If any new market player acquiring brand image will be threat to apple and
Samsung as it will take away part of their market share in units and value.
b. Power of suppliers
i.
Electronic Component manufactures and OS providers are major suppliers. Most of
the tablet components have less differentiation between different brands, leading
tablet market players to approach low cost manufacturing companies. There are a
lot of low cost manufacturing companies, which will reduce suppliers bargaining
ii.

power.
For some special components likes chips, suppliers are very limited. AMD, Intel,
Nvidia and Qualcomm are only chip providers for some leading marketing players,
which increases the bargaining power of suppliers. These four can charge

iii.

substantial license fees for using their products.

There are instances where small suppliers were loaded with large orders and
couldnt meet the demand. This will limit the production supply of tablets for the

iv.

respective companies.
Low cost manufacturing regions like Asia will help tablet market players. This also

v.

reduces the suppliers power as cost labour is low in those regions.

Apple has its own OS. Other market players who are using Android is open source
makes power of suppliers low. But apple has to invest its own resources for

vi.

upgrading its OS, but for other players, google will be doing it for them.
For specifically Apple iPad, network service providers didnt subsidize as they did
it for smartphone. Customers paid for internet or relied exclusively on Wi-Fi
network.
Considering all these points, supplier power is low for all except Apple. Suppliers
power for specialized components like chips is high. Apple has to work on its own
OS as well as bargain with service providers.

b. Power of buyers
i.
Most of the tablet market is forced by individual buyers. Enterprise segment buyers
ii.

are also increasing still they have less control on market.

Customer giving importance to functionalities than technical specifications like

iii.

screen size etc., and moving toward price sensitive.

Switching costs are easy as almost all market players are using Android apart from
Apple.
5

iv.

Paid in apps are transferable from one to another device of different companies of

v.

same OS. This increasing the power of Buyers.

Apple customers acquainted with iOS will not prefer other table products as all the
apple products iPhone, Mac and iPad runs on the same iOS. Also paid in apps are
not transferable as they are moving from iOS to android. All these provide buyers

vi.

not to leave Apple.

As mentioned in the Table5, tablet market is more centered in America and Europe.
With China, and India growing rapidly in economy and population, Apple can
increase its market share by subsidizing and coming with contracts with some
enterprises and educational institutions both in India and China.

Power of buyers is very high for players except apple. For Apple, customer are loyal and
want to stick with apple despite high price charges but this limits new customers to buy iPad
because of high prices and similar product functionalities available with same quality at low
cost. Increasing Customer base is more important for Apple to sustain.
Table 5: Global tablet sales market geography segmentation: $ billion, 2014. Source:
Marketline

c. Product substitutes
i.

Phablets, Smart Phones, PCs, Portable gaming Consoles and Low cost Smart TVs

ii.

are substitutes for Tablet Industry.

Phablets and Smart Phones pose potential threat to tablet industry as they fulfill all
the functionalities of tablet including ability to make and receive calls. Smart phone
are little back step for substitute because of screen size, but Phablets like Samsung

iii.

galaxy note series meet every functionality and technical specification.

Gaming Consoles also pose threat to tablet industry. They are limited in terms of
extra functionality.

iv.

PCs, right from the beginning, PCs and tablets are interchangeable substitutes. But
PCs doesnt offer easy to use while transport. However notebook PCs, meeting the
functionality of portable by being a PC.

As visible from the table 1 and table 4, which give global market share of different tablet
players and tablet sales market volume for 2010-14, tablets industrys growth is decelerated.
Tablets market volume has grown 283.5% in 2011, and reduced to 18.6% growth in 2014.
Analysts are predicting even much lower growth moving forward. When tablet is 1st
introduced other substitutes growth was decelerated. Now it depends on the market players
how innovative they will be in keeping tablet in distinguishing tablet from other substitute
products to keep tablet market sustainable.
d. Product Complements
i.
Apps (App store, Play store), Books (Book Store), Online Music (iTunes), Games,
ii.

Internet, Storage services (iCloud, Dropbox), Media are complementary products.

These complements will help tablet industry, however almost all the complements

iii.

are also available in the substitute products like Smart phones and Phablets.
Any advancement in the internet like 4G, free wifi outlets, important app
developments will complement tablet.

So Apple and other product manufactures should develop complimentary products which are
only specific to tablet and shouldnt be available for other substitutes, else the survival of
tablet is questionable with phablets and other smart phones doing the same job.

Table 6: Apple Inc. revenue breakdown for fiscal years 2011 and 2013 by product (yearend September) (%) Source: Apple Annual Reports

e. Intensity of rivalry
i.
Samsung, Asus, Lenovo, Acer, Amazon, Barnes & Noble, Pandigital, RCA and LG
Electronics are the competitors for Apple. Apart from this there are other small
ii.

players which all together have a market share of 46.2% by 4th quarter 2014.
Though rivalry is intense, apple mainly focuses on the elite group. It doesnt want
to dilute the Customer base. In US it has good market share in individual and
education sector as well. All the apple products are treated as elite group products
including iPad. Apple is capable of adapting to any changes in the market as they

iii.

have strong R&D team and high intellectual property.

Rivalry is intense because of the factors low manufacturing costs, easy entry to
small players and open source OS i.e., Android. But having easy entry doesnt mean
brand building; they have to provide better service which can also be outsourced.
So Anyone who have idea about industry and capital can bring competition in tablet

iv.

market.
Having mentioned above points, Samsung can only be treated as potential
competitor to Apple in the tablet market. Samsung has the brand name, capital and
intellectual asset to take over the apple in tablet market. Starting with Market share
of 7.3% in 2nd Quarter in 2011 it has captured the market share of apple, in 1st
quarter of 2014 its market share is 21.6% and reduced to 14.5% in 4th quarter of
2014.

v.

Other major market players making tablets based on Android pose a threat to both
apple and Samsung as they are providing low cost by using low cost manufactures,
low cost suppliers and free Android.
So we can say rivalry is intense.

4. Competitor Analysis:
a. Future Objectives:
i.

Innovation: Apple is known for innovation, which Samsung and every other
competitor are aware of. If Samsung has to capture apple market, it has to predict
apples innovations in advance. Apple secrecy while implementing innovation
projects is very high, giving access to few trusted employees. They developed so
many products in secrecy with restricted environment. So theft of intellectual
property is not possible, yet Samsung had infringed on five Apple patents related to
the iPhones design and functionality, a lawsuit filed and apple won. Apple always
ahead in predicting the customers future needs and providing them ahead of the
competitor. Apart from Samsung, google is also competitor to Apple as OS
developer of Android. Apple has to update its iOS on regular basis once in every 12

ii.

months as google is doing with similar frequency.

Increasing Intellectual property: Apple can analyses the Samsung and other large
competitor recruitment advertisements and can have knowledge of the competitors
intellectual assets. Also it can increase its own intellectual property to compete

iii.

accordingly.
Integration: As per the vision Samsung, it might be integrating telecom, TV, Energy,
Information and Health care. Apple is not successful in TV business. Apple has to
be skeptical what Samsung can offer through integration and what it can from

iv.

tablets.
Adaptable to Environment: Low cost producers will have advantage all the time,
even in stable and recession market, as customers base will improve. Apple should
make itself adaptable to future market. In Financial report also apple admitted that
if market fluctuation reduces sale volumes, it will reduce the profit margin as it is a
risk player.

b. Current Strategy:
Apple current strategy is to have high price, good quality, innovative and high
profit margins per unit sold. All the competitors are building products that are low
9

price, good quality, less innovative, adaptable and get fewer profit margins per Unit
sold. Apple is only for elite group and Samsung is for middleclass and elite group
as well. Apple doesnt want to dilute its customer base. Samsung wants to have
high market share through diluting.
c. Assumptions:
i.
Samsung cant know the innovations implemented by apple, till they are open to
ii.

market.
Samsung will not integrate any functionalities of its tablet with Samsung TVs, as its

iii.
iv.
v.

leading manufacturer for smart TVs as well.

There will be little market fluctuations.
There will not be huge price hikes in energy. Less US Dollar fluctuations.
Sovereign debt crisis, financial market volatility, and other negative factors in

i.
ii.

Europe will not be worsened.

Increasing Intellectual property will keep on developing and less attrition.
Customer will keep on buying electronic goods whenever and wherever
necessity/luxury is there.

d. Capabilities:
Apple competitors are capable of adapting to the apple innovations in short period
of time. Apple can still maintain its elite group customer base with its innovations
with its intellectual assets. Samsung and other players are also capable of
innovating new features to their tablets. It depends on how much frequency both
delivers their innovations into the market?
e. Response:
Apple can maintain its market share only if it meets the expectations of its
continuous innovations to the market as providing the same updates to the other old
customers. Its high price and high profit margin per unit can be detrimental to apple
if any market/environmental fluctuations happen. It should distinguish its iPad from
other substitutes with some specific features.
5. Suggestions/Conclusions to Tim Cook for next 10 years:
Based on the analysis, substitute products will have huge impact on Tablet market. If
iPad has to survive for next 10 years, it should be made distinguishable from its substitute
products. There is intense competition, but Apple can survive competition, as iPad is targeted
for elite group of customers with high prices along with innovative updates and
distinguishable iOS similar to iPhone and Mac. This will return high profit margin per unit.
Unlike competitors which have less profit margin per unit by low prices, Apple should also
10

plan for risk management if any fluctuations in external environment as they are playing high
risk role (as mentioned in financial report FY14), i.e., reduction in sales means reduction in
huge profits margins. iPad should keep on providing incentives like iTunes, iCloud etc., Tim
Cook should also maintain same work culture in the company as apple is having since long,
highly intellectual employees and huge investments in R&D for innovations. Though iPad
market is little questionable, Tim Cook can be confident of sustaining its market.
6. Sources:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

http://www.mdi.ac.in/elibrary/Online_Resources.html
www.marketline.com
http://www.statista.com
http://www.businessinsider.in/
https://www.idc.com/
https://en.wikipedia.org/
Apple financial reports from https://www.apple.com
Samsung Financial Reports from www.samsung.com
https://www.google.co.in/
www.forbes.com

Total Word Count:

Submitted Date and Time:

11