Apple

iPad in India

Alexander Green

Dr. John Francis

Seminar In World Business Environment MANAGEMENT 710 November 29, 2012

TABLE OF CONTENTS 4
4 5 5 7 9 10 12

APPLE IPAD IN INDIA

EXECUTIVE SUMMARY
WAS THERE A WAY OUT?

THE REPUBLIC OF INDIA TABLET PC INDUSTRY APPLE INCORPORATED STRATEGIC PLAN APPLE IPAD IN INDIA WORKS CITED

APPENDIX I COUNTRY ANALYSIS

COUNTRY BENEFIT/COST/RISK COUNTRY BENEFIT COUNTRY COST COUNTRY RISK CAGE DISTANCE FRAMEWORK CULTURAL DISTANCE ADMINISTRATIVE DISTANCE GEOGRAPHIC DISTANCE ECONOMIC DISTANCE HOFFSTEDE'S CULTURAL DIMENSIONS INDIA UNITED STATES

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14 14 15 16 17 17 18 19 20 21 21 22

APPENDIX II INDUSTRY ANALYSIS

STRATEGIC GROUP MAPPING DISPLAY SIZE BATTERY LIFE WEIGHT KEY SUCCESS FACTORS PRODUCT LIFE CYCLE PORTERS 5 FORCES PORTERS DIAMOND

23
23 23 24 25 26 27 28 29

 APPENDIX III FIRM ANALYSIS

SWOT PORTERS GENERIC STRATEGIES RESOURCE-BASED ANALYSIS TANGIBLE RESOURCES INTANGIBLE RESOURCES VALUE CHAIN ANALYSIS FINANCIAL RATIO ANALYSIS APPENDICES ENDNOTES

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30 31 32 32 33 34 35 36

EXECUTIVE SUMMARY

India offers a wealth of opportunities for business expansion. Though the country maintains a large gap between the wealthy and the impoverished, Indias middle class represents a growing consumer population expected to increase from about 5% of the population to 41% by 2025, an increase in middle class consumers from 50 million people to 583 million people.1 While India represents a vastly different culture from the U.S., Apple has significant experience dealing with such cultural dimensions as organizational collectivism, high power distance, and a moderate level of uncertainty avoidance through its foray into both China and Japan (see APPENDIX I, Exhibit 3.1).2,3 Apple has wrongly determined that India is an inconsequential market in the short-term.4 It is unrealistic, however, for Apple to believe that conquering the Indian market is a matter of waiting for several years until the countrys infrastructure is established and the demand for Tablet PCs is more clearly outlined. Apple must consider India in its long-term perspective by investing there in the short-term or else it will not retain the option to enter the market more fully at some indeterminate point down the line when it sees a more clear, complete picture of what the Indian market means in terms of financial potential and strategic opportunities. From a financial standpoint, India suits Apples long-term profitability goals because India does not require Apple to reach everyone; rather, if Apple can penetrate even a small portion of the Indian market and create consumer value there, it will be targeting millions of new consumers with an increasing amount of disposable income.5 From a strategic standpoint, Apples goal is to be among the industry leaders in the Tablet PC market in India. This requires expansion through organic, internal growth and a combination of offensive and defensive strategies. Moving into India more directly and completely not only enables Apple to take an offensive approach to gaining greater market share as it competes with Samsung and RIM in India, but also allows Apple to defend its market position in India by being present in the minds of competitors and consumers. As long as its competitors continue to expand6,7, Apple will not be able to defend itself from losing a foothold without a similarly comprehensive strategic investment in India. Apples plan in India needs to focus on three parts: bringing the Apple experience to India through its Apple Stores and high-quality retail environment, integrating iTunes use by Indian consumers with its overall brand image and market penetration, and establishing an Indian distribution network through warehousing with the potential for eventual expansion into product manufacturing.
1 2

Next big spenders: Indian middle class. Cultural Dimensions: China. 3 Cultural Dimensions: Japan 4 I love India but not its distribution network: Apple CEO 5 Interview with Jayanth Narayanan. 6 Samsung plans to expand retail footprint to over 1000 outlets 7 Blackberry-maker Research In Motion to expand footprint to 160 cities in India

WAS THERE A WAY OUT?

THE REPUBLIC OF INDIA

Historically, India has maintained a relationship with the United States that is traceable to its roots in the Commonwealth, the reach of the British Empire. Consequently, both India and the U.S. share English as a lingua franca and Indian commerce therefore maintains English as the language at its center. Despite Indias ties to the Soviet Union during the Cold War, India and the United States have never expressed open political hostility towards one another. Moreover, both nations have ascribed to many of the same key international political (UN) and economic (WTO, IMF) organizations, vital to the relationship between the two. In spite of its political foundation as a democratic republic, Indias real economic liberalization has only begun to take place over the past two decades. During this time, India has seen an increase in foreign direct investment and a steady rise in overall economic growth as it chases China to become the fastest growing nation in the world. Most recently, India has reduced the regulation that foreign companies may not invest more than 51% into a new venture and extended this allotment to allow for 100% investment by single-brand companies or ventures. Beyond its projected economic growth and strides towards increased political stability in the future, India is already the second most populous nation in the world.8 Simply by population numbers, an investment in Indias three most populous cities aloneMumbai9, New Delhi10, and Bangalore11with a sales return of 1% of citizens purchasing an iPad12, would result in revenue of $159,551,686.32. With projected growth continuing to increase in the next several years (see APPENDIX I, Exhibit 1.1), the sheer size, and therefore sales potential, of the Indian market provides a significant benefit to companies anchoring business there. In addition to this incredible quantity of consumers, firms looking to do business in India are finding an improving quality of consumer there as well. While many consumers are strictly concerned with price points, premium consumers are now emerging as well, wealthy individuals or those who earn salaries comparable to global pay scales.13 For them, money is not strictly a limit as they yearn for the best products available globally.14 Cutting-edge products and aspirational products drive these individuals and they are willing to pay a hefty premium. While this marketing segment is small, these consumers have the buying power.15 Apples branding position as a differentiated product that does not compete on price (see APPENDIX III, Exhibit 10) serves them well to offer premium, high-quality, well-designed products at a high price to these consumers. Another segment that will come to define the Tablet PC landscape in India over the coming years is the Value Customer: a typical working class consumer earning between US$10,000 and $50,000 annually and similar to an average North American consumer in mindset.16 This means
8 9

1,205,073,612 (July 2012) 12,478,447 (2011) 10 11,007,835 (2011) 11 8,425,970 (2011) 12 US$499.97 13 Interview with Jayanth Narayanan. 14 Ibid. 15 Ibid. 16 Interview with Jayanth Narayanan.

 6 17 that they have strong brand aspirations but will seek value by waiting for sales rather than being early adopters. The focus on value for money is very high, and they tend to research significantly and compare features and prices extensively before making a buying decision.18 New products and innovative technologies are worth aspiring to so long as they provide value.19 The costs of doing business in India remain high as inefficiencies in infrastructure and government bureaucracy creates greater operations expense (see APPENDIX I, Exhibit 1.2). Another large barrier to greater entry into India remains its poor infrastructure, primarily roads and electrical grids. The cost to overcome these is significant, but few companies maintain the financial resources to fund solutions to these issues (see APPENDIX III, Exhibit 13). Moreover, India offers businesses a significant amount of quality human resources and a financial system that is responsive to international business transactions. Both of these off-set some of the infrastructural costs of doing business in India. Looking at the overall risk situation in India, the fundamental issues are bureaucracy and political corruption (see APPENDIX I, Exhibit 1.3). Bureaucracy creates inefficiencies for businesses because the process of setting up and running a business can take long amounts of time. In this case, political corruption emerges as businesses aim to circumvent the regular way of doing business legally. For American companies, the Foreign Corrupt Practices Act, a federal statute, embodies Congressional intent to exercise jurisdiction where these companies engage in acts of bribery abroad. However, a vital exception exists to the statutes base provisions, stating the following: (b) Exception for routine governmental action Subsections (a) and (g) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.20 This statute allows for the use of so-called grease payments to alleviate bureaucratic delays for services to which a business is entitled a priori. While American companies may not engage in bribery to attain an illegal result, the ability to increase bureaucratic efficiency is exceptionally valuable to a company like Apple (abundant financial resources) in a country like India (high bureaucratic barriers).
17 18

Ibid. Ibid. 19 Ibid. 20 Foreign Corrupt Practices Act.

TABLET PC INDUSTRY

The Tablet PC industry is defined by a significant market size (nearly 63.6 million tablets sold globally in 2011) with a growth rate of 261.4% from the previous year.21 Rivalry within the industry is intense as competitors include some of the largest firms in the world. Additionally, the nature and the pace of technological change require constant innovation. Many of these firms incorporate forward integration into their distribution strategy and maintain control over their points of sale directly. Globally, flexibility in this regard has proven to be an advantage in markets where infrastructure is weak and these kinds of micro-managed distribution channels are costly to create.22 The design and development of Tablets is taxing from a capital standpoint because it is by its nature a high-tech industry and therefore requires significant investment in research and development inputs. For new entrants, these costs pose significant barriers to entry; for larger firms, these costs can pose barriers to exit as it can take significant resources to establish the capacity to manufacture Tablets. Going forward, the Tablet industry is expected to grow at an exponential rate. A study by Infinite Research suggests that 147.2 million units will be sold in 2015, a significant increase over the 16.1 sold in 2010 that represents a compound annual growth rate of 56%.23 As the industry moves through the growth phase and into maturity, consumer usage will continue to be more widespread: in India, this will reflect an expansion of Tablets into a product adopted by an increasingly sophisticated Indian middle class who has more disposable income and a youth demographic interested in mobile web technologies.24 Movement into maturity also means that fewer firms will continue to compete effectively as many are forced to exit the industry. Firms that do not sell well during the growth phase will not be able to realize the economies of scale and experiential value of the learning curve necessary to maintain market share and sustain competitive advantage as the Tablet market reaches maturity. From an institutional perspective, the Indian business environment has become increasingly more liberalized in recent years. The 2012 foreign direct investment reforms mean that firms like Apple, who add value to their supply chain by controlling the point-of-sale, can maintain this core competency in India. The trend towards reduced economic barriers in India and trade liberalization has been ongoing since the mid-1980s and while not progressing at an optimal rate, appears to be continuing steadily.25,26 Despite trailing behind in terms of market share, Apple is capable of handling the industrys competitive forces in an effective way (see APPENDIX II, Exhibit 7). Both buyers and sellers have little power when dealing with Apple. Sellers are eager to manufacture Apple products or provide component parts while buyers cannot individually affect price changes, be they consumers or authorized resellers. While several substitute products still threaten the market for Tablets, the majority of these, such as desktop computers and video game consoles, are at a later stage in their respective product life cycles than the Tablet. Therefore, the growth potential for Tablets will allow this emerging industry to edge out many of its competing substitutes going forward and even potentially overcome netbook computer sales by 2016.27
21

Gartner says Apple Will Have a Free Run in Tablet Market Holiday Season as Competitors Continue to Lag Why Isnt Apple Interest in India? 23 Worldwide Computer Tablet Market Forecast 24 Tablet Industry In India (2011-15) 25 Economic Survey of India 26 Starting a Business in India 27 Tablet Shipments To Overtake Notebooks in 2016, NPD Says
22

Regarding the threat of new entrants, the most well-established firms are handsomely financed, have strong brand awareness, and possess intellectual property rights over the key facets of their design and marketing processes. New entrants will be required to invest heavily in expensive research and development to create innovative products that do not replicate those already offered by the largest firms in the industry. The threat of new entrants into the Indian Tablet market is very real; the possibility of smaller firms attaining large shares of the market if big firms like Apple, Samsung, and Toshiba continue to invest heavily in India is not. Apples key competitor within the Indian Tablet PC market is Samsung because they both sell within the same price and quality range. Each of these companies has established distribution channels that run through web-based and brick-and-mortar authorized resellers, but Samsung also provides Tablet sales on its own e-store website.28 Further, Apple and Samsung are both vertically integrated to the same degree.29 As of late 2011, both competitors offered two tablets for Indian consumers to choose from which offer similar product features: high-definition touch screens, fast web browsing capabilities, interactive and customizable user-friendly home screens, accessory compatibility, remote connectivity, and media functions. Looking more broadly, all competitors within the Indian Tablet PC industryincluding Acer, Dell, HP, Motorola, RIM, Toshiba, and HTC center their rival positioning around three key success factors: performance, portability, and price (see APPENDIX II, Exhibit 5). In terms of performance (Disk Size, Resolution, Battery Life), Apples iPad does exceptionally well compared to its competitors and outpaces each of them when looking at an aggregated performance score comprising these three elements.30 Apple is, however, in the middle of the pack in terms of portability: Samsungs Galaxy Tab 7, Dells Streak, and Amazons Kindle Fire are all lighter than either of Apples iPads and offer a smaller display size.31 RIMs Blackberry Playbook leads the industry in terms of portability with a display size of 7 inches and a weight of just 400 ounces, only about 2/3 the weight of Apples iPads.32 From a pricing standpoint, these Tablets range from US$199 (Amazon Kindle Fire) to $US799 (Motorola XOOM).33 This is a diverse price range, and Apple falls almost exactly in the middle around US$500.34 While Apple does not typically compete on price, straddling the midrange with the pricing of its Tablets in India allows Apple to remain competitive with consumers that are price sensitive without the iPad losing its reputation or image as a high-quality, well-designed, cutting-edge product.35
28 29

Samsung Mobile Tablet India Apple vs. Samsung with a side of Sony: Vertical Integration Wars 30 Tablet PC Comparison. 31 Ibid. 32 Ibid. 33 Ibid. 34 Ibid. 35 How To Make Your Company More Like Apple

APPLE INCORPORATED

On a corporate level, Apple has decided to compete in high-tech consumer electronics and strives to compete in numerous markets in order to create availability to as many consumers as possible. While it has established a presence in India through the use of premium resellers, it should be more dynamically invested in the Indian market because of the incredible growth potential and market size. Though Apple may not value India in the interim, it will not be able to retain the option to become a major player in the Indian Tablet PC market at some point down the line if it does not take the market seriously today. A key component of Apples corporate level strategy is to diversify the consumer segments that it targets, something vital with such diverse Indian consumer segments.36 This does not necessarily have to defy Apples commitment to a narrow product line and come from differentiated product design, however. For Apple, differentiating means creating synergy between its iPad and iTunes, the worlds most widely used digital entertainment platform that is projected to become its own $32 billion business for Apple by 2015.37 iTunes is a great means to generate interest in Apples iPad from different demographics as entertainment is easily adaptable to local tastes and preferences. India already has its own digital iTunes Store, and this provides a forum for Apple to communicate the seamless integration of Indian entertainment with Apples broad digital media network. Within the Indian market, Apple needs to adopt a more offensive strategy at the business level in order to become a market leader. While Apple leads the Tablet PC industry in terms of global market share, its efforts in India thus far remain lackluster. Apple needs to capitalize on the Westernization of India38,39 and its own firm resources and capabilities (see APPENDIX III, Exhibit 11) by expanding its global brand and making a concrete attempt to lead the Indian Tablet market. Apple needs to leverage its brand equity40 and bring its high-quality products and customer service experience into an Indian market where consumers are becoming increasingly sophisticated as urban incomes are beginning to rise with the enlargement of the Indian middle class. Apple has a sustainable competitive advantage in terms of its technological resources (i.e. its capacities for organizational innovation and change) and capabilities (ability to finance research and development). Apple also maintains a competitive advantage in other intangible resources and capabilities including its reputation41the publics perception of Apple, how eagerly individuals would recommend Apple, and how likely they would be to invest in Appleand its human capital: everything from Apple store employee training to corporate leadership that drives employees to heightened levels of both excellence and efficiency. Apples competitive strategies with regards to its Tablet PCs in India therefore need to be founded on its ability to provide innovative products and an outstanding shopping experience at a competitive price. From a functional perspective, Apples primary focus needs to be on marketing its iPad in India so as to more effectively communicate value to the Indian consumer, a vital factor for penetrating India.42 The use of social media is one way that Apples functional strategy can manage
36 37

Indian consumer is extremely value conscious Apple's Forgotten $8 Billion Business: iTunes: 38 Indian Culture Includes Western Culture 39 Is India Still India? 40 The 20 Most Iconic Brand And Why They Work 41 Apples Reputation is the Best Among Top Brands 42 Indian consumer is extremely value conscious

 10 43 to establish awareness about the Apple brand and understanding about its products in a historically under-branded market. The fact that Indian consumers have felt a sense of being product-dumped by Apple as a second-rate product speaks to Indian consumers desire for continued product development; for Apple, this means incorporating innovation and product line extensions into its functional strategy in India. A final facet of Apples functional strategy pertains to its human capital and how it creates a competitive advantage: the in-store experience provided through Apples company-owned retail locations is vital for a product that is most effectively engaged through the relationship that Apple has with its consumers.

STRATEGIC PLAN

In order to avoid losing market share and to establish itself as a premier brand in India for both now and the future, Apple needs to expand more fully into India and commit to a physical presence there for the long-term. Apple Stores in India Without a retail presence in India, Apple is missing one of the key components of its value chain: customer service (see APPENDIX III, Exhibit 12). Apple should enter India by establishing Apple Store locations throughout Indias largest cities. Initially, Apple should open three stores: one in Mumbai, one in Delhi, and one in Bangalore. These are the three largest markets in India by population, and their dispersion around three of Indias key regions (West Coast, Northern Inland, and the South) will enable Apple to gain a foothold from which it can begin to establish its own distribution networks. Within two years of opening its doors in these three markets, Apple should then expand into Hyderabad, one of the wealthiest cities in India and its de-facto tech-hub, and Kolkatta, a large port city in the North-Eastern region of India. These two cities rank fifth and seventh, respectively, with regard to most populous cities in India and are also among the top five most valuable Indian markets in terms of wealth, level of consumption, and overall awareness.44 Apples retail entry into India should be done using a Greenfield foreign direct investment. While this poses the most significant amount of risk to Apple, it also offers the most control, something vital to the complete establishment of the Apple brand in India. Few companies have the financial resources to take-on this kind of project, but Apple is well-equipped because of its low debt and high cash flow. As a single-brand retailer, Apple will now be able to enter with a foreign direct investment of 100%, a September 2012 reform that nearly doubled the foreign allotment. Currently, Apple sells select non-Apple accessories in its Apple Stores, something that would cause its investment in India to become a multi-brand investment and would allow for up to 51% only. To strategically address this issue, Apple should investigate the possibility of partnering with local consumer electronics stores to set-up shop next door to Apple locations. Even bolder, to take the tactic a step further, Apple could rent out a portion of its actual Apple Stores dedicated to an independently contracted accessories retailer, similar to a mall kiosk. This way, Apple would still exert its customer service influence over the partner or independent contractor while being allowed to invest 100% in its retail locations without penalty.
43 44

Need To Have or Nice To Have: Indian Consumer Wants Both Indias top 10 towns.

The alternative approach for Apple would be to enter through acquisition; however, this would not suit Apple in India because they would end up paying a high price for a domestic consumer electronics chain selling diverse inventory that Apple will not retain in its own stores and numerous retail locations that are superfluous for Apples plan to enter through three Indian flagship stores and expand surgically from there. Apple does not require real estate in high quantity, but instead, in high quality. iTunes in India iTunes is the central link between all of Apples devices as far as digital entertainment media. It presents a huge opportunity in any Apple market because it is supremely standardizedconsumers all over the world want to be able to download songs by global pop artists (think Adele) and bands who have made a cross-cultural impact (think The Beatles)while also allowing for an exceptional amount of customization and tailoring to local tastes and preferences. iTunes is also the mechanism by which Apple takes it brand onto non-Apple computer operating platforms, allowing users to experience iTunes on their personal computers, engaging with the product and increasing their interest. When a purchase decision is stimulated through having worked with Apples iTunes, Apple then is able to sell iPads and iPhones, devices where iTunes does not cross operational borders (i.e. iTunes is not available on Samsung or RIMs tablets). iTunes holds 66.2% of global market share45 and must solidify itself as the market leader for digital media distribution in India in order to bolster its brand reputation there. Distribution in India One expensive cost incurred by Apple investing more fully in India is the transportation of its goods from warehouses in the U.S. to India. This cost could be reduced if Apple instead set-up a warehouse in India where they could keep products for the Indian market in order to more easily meet consumer demand as more iPads are sold in India. This would also allow Apple an opportunity to satisfy the requirement that at least 30% of the value of their sales must be sources from local firms. If Apple manages to set-up a warehouse and begins to construct its own Indian distribution network, this is certainly an operational process that would add value and allow Apple to source locally. Moreover, creating local jobs in India will permit Apple to curry favour with Indian consumers as Apple becomes a broader employer beyond just its retail stores. Further, Apple may be able to use this permanent physical occupation to investigate the possibility of moving some of its Chinese manufacturing operations to India, a nation where intellectual property rights are concretely protected.46 India is well-known for being a tech- savvy nation with a large pool of workers. Also, the average age of an Indian worker is 23, while Chinese workers average 35 years of age.47 Foxconn already has a facility in a Special Economic Zone in Chennai48, one of Indias wealthiest cities.49,50 Lastly, several Indian companies are in the same business as Foxconn and possess similar mass production capabilities, including Bharti, HCL Technologies, and Reliance Communications.51

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45 46

iTunes now holds 66% of digital music market Intellectual Property Rights 47 Hedging ChinaCould Apple Manufacture the iPad in India 48 Ibid. 49 Top 10 Wealthiest Cities in India 50 Top 10 Richest Cities of India 51 Hedging ChinaCould Apple Manufacture the iPad in India

Works Cited

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2 Foreign Corrupt Practices Act Reporter, Appendix A (2d ed.) Apple's Forgotten $8 Billion Business: iTunes, Business Insider (March 15, 2012): http://articles.businessinsider.com/2012-03-15/tech/31195494_1_itunes-ios-smart-phones Apple vs. Samsung with a side of Sony: Vertical Integration Wars, ZDNet (July 30, 2012): http://www.zdnet.com/apple-vs-samsung-with-a-side-of-sony-vertical-integration-wars- 7000001818/ Apples Reputation is the Best Among Top Brands, Wall St. Cheat Sheet (February 2012): http://wallstcheatsheet.com/breaking-news/apples-reputation-is-the-best-among-top- brands.html/ Blackberry-maker Research In Motion to expand footprint to 160 cities in India, The Economic Times (February 13, 2012): http://articles.economictimes.indiatimes.com/2012- 02-13/news/31055152_1_blackberry-smartphones-blackberry-curve-blackberry-style Cultural Dimensions, China. Geert Hofstede: http://geert-hofstede.com/china.html Cultural Dimensions, Japan. Geert Hofstede: http://geert-hofstede.com/japan.html Cultural Dimensions, India. Geert Hofstede: http://geert-hofstede.com/india.html Economic Survey of India, Organisation For Economic Co-Operation and Development (October 2007): http://www.oecd.org/economy/surveys/39452196.pdf Gartner says Apple Will Have a Free Run in Tablet Market Holiday Season as Competitors Continue to Lag, Gartner Report: http://www.gartner.com/it/page.jsp?id=1800514 Hedging ChinaCould Apple Manufacture the iPad in India, China Briefing (February 17, 2012): http://www.china-briefing.com/news/2012/02/17/hedging-china-could-apple- manufacture-the-ipad-in-india.html How To Make Your Company More Like Apple, Technorati (April 18, 2012): http://technorati.com/business/article/how-to-make-your-company-more/ I love India but not its distribution network: Apple CEO, Daily News & Analysis (July 25, 2012): http://www.dnaindia.com/india/report_i-love-india-but-not-its-distribution- network-apple-ceo_1719714 Indian consumer is extremely value conscious: Lutz Kothe, Volkswagen Passenger Cars, The Economic Times: http://articles.economictimes.indiatimes.com/2011-07- 20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars Indian Culture Includes Western Culture, India First-Hand (September 22, 2010): http://indiafirsthand.com/2010/09/22/indian-culture-includes-western-culture/

Is India Still India?, Mr. Sikhnet (September 1, 2009): http://www.mrsikhnet.com/2009/09/01/is-india-still-india/ Indias top 10 towns, India Today (March 15, 2004): http://indiatoday.intoday.in/story/top-10-wealthiest-most-aware-highest-consumption-towns-in-india/1/196479.html Intellectual Property Rights, Indian Embassy: http://www.indianembassy.org/intellectual-property-rights.php Interview with Jayanth Narayanan, Human Resources Outsourcing Entrepreneur & Founder of JLN Ventures (November 28, 2012). iTunes now holds 66% of digital music market, BGR (December 17, 2010): http://bgr.com/2010/12/17/itunes-now-holds-66-of-digital-music-market/ Need To Have or Nice To Have: Indian Consumer Wants Both, VCCircle (March 16, 2011): http://eventsblog.vccircle.com/?p=88 Next big spenders: Indian middle class, McKinsey Global Institute (May 19, 2007): http://www.mckinsey.com/Insights/MGI/In_the_news/Next_big_spenders_Indian_middle_class Samsung Mobile Tablet India, Samsung: http://www.samsung.com/in/consumer/mobile-phone/mobile-phone/tablet Samsung plans to expand retail footprint to over 1000 outlets, Business Standard (August 31, 2012): http://www.business-standard.com/india/news/samsung-plans-to-expand- retail-footprint-to-over-1000-outlets/184948/on Starting a Business in India, Startup Overseas: http://www.startupoverseas.co.uk/starting-a-business-in-india Tablet Industry In India (2011-15), Market Research (June 7, 2012): http://www.marketresearch.com/IS-Advisors-v3900/Tablet-India-7011064/ Tablet PC Comparison: www.tabletpccomparison.net Tablet Shipments To Overtake Notebooks in 2016, NPD Says, BGR (July 3, 2012): http://bgr.com/2012/07/03/tablet-shipments-estimate-top-notebooks-2016/ The 20 Most Iconic Brand And Why They Work, Creative Bloq (November 5, 2012): http://www.creativebloq.com/branding/most-iconic-brands-11121149 Top 10 Richest Cities of India, PRLog (February 21, 2011): http://www.prlog.org/11316228-top-10-richest-cities-of-india.html Top 10 Wealthiest Cities in India, Trak (August 19, 2009): http://trak.in/tags/business/2009/08/19/top-10-wealthiest-cities-india/ Why Isnt Apple Interest in India?, Your Story (October 5, 2012): http://yourstory.in/2012/10/why-isnt-apple-interested-in-india/ Worldwide Computer Tablet Market Forecast, Infinite Research: http://www.infiniteresearch.net/files/Infinite%20Research%20- %20Worldwide%20Tablet%20Market%20Forecast%20Brochure.pdf

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Exhibit 1.1 Country Benefit, India

Market Size/Sales Potential
The Tablet PC market in India is one of the fastest growing markets around the globe and is expected to surpass US$800M by 2016. With its introduction in July 2010 in India, the market has witnessed huge growth in terms of demand, shipments and emergence of various players, national & international, in the industry. The figures and the growth rate indicate that the Tablet PC market is still a niche market in India and has huge potential in the coming years.

Ease & Compatibility of Operations Resource Availability Price Levels & Elasticity

From a Business Operations perspective, US firms are able to easily attract talent - the best employers in India are considered to be the Multi- National Companies, which typically offer better salaries, 5 day work-weeks with 8-9 hour work-days, and have a better culture. So the US firm 1 should be able to attract reasonably good talent easily to set-up and manage their operations.

India's major mineral resources include Coal (fourth-largest reserves in the world), Iron ore, Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas, Diamonds, Petroleum, Limestone and Thorium. The Price Levels and elasticity tend to stay constant in India longer than in the US. Consumers are comfortable waiting for a year to buy a 2 product at a lower price level than pay a big premium to buy the product during launch. An annual salary of $10,000 is considered OK in India. 95% of the Indian population makes less than $5,000 per year. So the target segment for products like Apple will only be 2-3% of the total population. Inflation in India is very high - 7%+ per annum typically. So this also plays a big role 3 in the actual spending power of the consumers.

Income Levels & Elasticity

Income Inequalities

Inequality in earnings has doubled in India over the last two decades, making it the worst performer on this count of all emerging economies. The top 10% of wage earners now make 12 times more than the bottom 10%, up from a ratio of six in the 1990s. Moreover, wages are not smoothly spread out even through the middle of the distribution. The top 10% of earners make almost five times more than the median 10%, but this median 10% makes just 0.4 times more than the bottom 10%.

Substitutability of Products

While Tablet PCs have become an emergent industry globally, their treatment in India as not only an emerging product, but also a niche product, means that there is a higher loyalty to substitute products in India until the popularity of Tablet PCs increases. Substitute products range from other computing devices (i.e. laptops and desktops) and video game consoles to personal entertainment devices and mobile phones (i.e. smartphones). World Trade Organization The consumer in India is extremely value conscious; they are now well travelled and educated and therefore are aware of what is available in 4 the western world. They want the latest, most modern technology without having to pay a heavy price for it.

Existence of Trading Blocs Taste & Other Cultural Factors

Exhibit 1.2 Country Cost, India

Labour Cost
Low, but gradually increasing.
5,6

15

Utility Costs Tax Rates Real Estate Costs

Utility costs throughout India vary greatly. In Mumbai, for example, the average monthly cost for basic utilities (electricity, gas, water, garbage) for a 278.8 square foot apartment run at about US$36.99, with cost ranging in the 7 city from US$25.11 to US$80.70. As of May 2012, the average size of an Apple store is about 8,400 square feet , so without factoring in additional costs added to commercial real estate in addition to residential real estate in Mumbai, average monthly utility costs for a single Apple store in this city would cost US$63,312.25 Corporate Tax: The main corporate tax rate is around 42%. Up to 30% of income is taxable for domestic companies are taxable, in addition to a 10% surcharge and a 2% fee. For foreign companies, 40% of income is taxable, with a 8 2.5% surcharge and 2% education fee. High (Urban) / Low (Rural) Most foreign companies will be required to bring their own investment into India - the government has been aggressively promoting investments into the country and offers tax benefits, incentives etc. The other approach foreign companies have taken is to rope in a local JV partner who owns 50% of the entity and also invests 50% in the business. E.g. Honda Cars India is a JV with the Shriram Group. Honda Two Wheelers was a JV with the Hero Group when they set it up - Honda bought the local partner's stake last year. Having a local partner makes it easier for the foreign company to establish and start the operations in India. Apple in India is represented through Reliance Digital - Reliance is one of the largest business groups in India and the promoter, Mukesh Ambani, is 9 among the 100 richest individuals in the world.

Available Capital Costs

Transportation Costs

High (Commercial)

Other Input Costs

High

Supply Costs

Logistics is a nightmare and also very expensive in India. Flipkart (www.flipkart.com) - the largest consumer shopping site in India, has its own distribution network. Fuel costs are higher in India than in the US (a liter of Petrol costs $1.5 in India today). In addition, each state has their own Tax structure - so shipping products between states is not very seamless. India is still on a VAT structure and not a GST structure. This means that if a product is manufactured in a state, and sold to a consumer in another state, Tax is applicable in both states. This increases the 10 cost of the product.

16

Exhibit 1.3 Country Risk, India

Political disagreements have a direct effect on Indian efforts to create a more attractive business environment. These are furthered by state-level electoral considerations that complicate the majority government's task in getting reform bills passed. The government's inability to implement its reform agenda could become a serious liability between now and the next election as India needs economic reforms in order to encourage foreign direct investment to help the country reach its goals for economic growth. Because of an increasingly doubtful legislative position, the Indian government is likely to display a fair amount of caution when approaching some necessary, but politically sensitive, reforms. Nonetheless, the fact that India has weathered the global economic crisis in far better shape than the much more open economies in East Asia has reinforced popular sentiment that measured reform is best.11 Indias restrictions on foreign equity ownership are greater than the average of the BRIC nations (Brazil, Russian Federation, India, and China). India imposes restrictions on foreign equity ownership in many sectors, and in particular in the service industries. Sectors such as railway freight transportation and forestry are dominated by public monopolies and are closed to foreign equity participation. With the exception of certain activities specified by law, foreign ownership in the agriculture sector is also not allowed. Nonetheless, compared to many developing nations, the Indian government has been relatively limited in its decision to nationalize many companies. Indian nationalization has centered primarily on Indian banks. However, the government as also nationalized an airline (Air India, 1953) and the country's coal industry and oil companies (1973). The Indian government also nationalized 106 insurance companies into four larger ones in 1972. Applying a political stability index measuring the dynamic between the quality of a country's government and the threats that can compromise and undermine stability, India ranks at 8 on a scale of 1 to 10, with 10 marking the highest level of political stability.12 High monetary risk. India's fiscal policies and the use of a non-reserve currency limit the liquidity of capital within India. Further, India's inflation rate through 2011 was 8.87% compared to 3.34% in the U.S. at the end of 2011. Lastly, India's balance of payments improved in late 2011 following a record-high, the monthly deficit falling to US$13.6B from USS$19.6B in October 2011. This has been made fairly seamless by the Reserve Bank of India (www.rbi.gov.in) - the equivalent of the federal reserve in the US. This is typically not considered a risk today for foreign companies.13 Investing and Setting up businesses in India for US companies is not extremely straightforward - there are several country level and state level regulations and norms to be met. But given the number of US companies already present in India, there are several law firms/accounting firms that offer specialized services for foreign companies looking to enter India. At this time, I would say that if a US firm wants to establish operations in India, the legal and statutory requirements could be easily taken care of.14

Systemic

Control

Political Turmoil

Monetary

Transfer

Operational

CAGE Distance Framework

17

Exhibit 2.1 Cultural Distance Language: The official languages of the Republic of India are Standard Hindi (spoken by about 41% of the population) and English.15 Ethnic & Social Networks: Due to India's sub-optimal legal structures, which may be unable to enforce a contract between two parties (such as repayment of a loan or honoring a business transaction), Indian business transactions often rely on personal and family contacts, or characteristics they consider trustworthy to substitute for missing governance and contractual enforcement, especially in situations where people must make a risky business deal where one party could easily default. There is a common perception that individuals that come from like backgrounds can easily establish business relationships or even get access to finance through the their community network. In the presence of Indias weak institutions, people may be using ethnic stereotypes to try to minimize their risk during business transactions. Similarly, when two parties from the same ethnicity interact during a business transaction, a higher level of trust may be established.16 Religion: India is comprised of primarily of Hindus (80%) with additional Indians pursuing Islam (14%), Christianity (2%), Sikhism (2%), Buddhism (1%) and Jainism (1%). Americans are primarily Protestant (56%) but also pursue Roman Catholicism (28%), No Religion (10%), Other Religions (4%) and Judaism (2%).17 Social Norms: Whereas the U.S. is a primarily low-context culture, India is a more high-context culture. This is a culture, therefore, in which communication relies a lot on the underlying unspoken context, which is as important as the words used. This comes through in a non-confrontational business style, even amidst negotiations. Indians also place a great deal of emphasis on hierarchy (a product of the Hindu) Caste System, which leads to a continued focus on family and a collectivist identity rather than individualism and directness. Business relationships are built on trust and mutual respect and are consequently more long- term focused.18

Exhibit 2.2 Administrative Distance

Historical Ties: Both nations are tied to a Commonwealth heritage during the British Empire through British imperialism. Each nation therefore derives the foundation of its political, legal, and economic systems from this British root, which was a democratic, common law, and free market society. Political & Monetary Associations: Both India and the U.S. share some form or another of association within each of various international organizations, both political and monetary. The most important of these are the IMF, the UN, and the WTO. The IMF serves to stabilize exchange rates and oversee the ongoing construction of the worlds global payment system. The UN creates cooperation in such areas of international relations as international law, international security, economic development, social progress, human rights, and the achievement of world peace. The WTO exists to liberalize trade across international borders.19 Several other international organizations where both nations hold membership are also important, specifically for Apples purposes. The Bank for International Settlements (BIS) fosters monetary and financial cooperation and serves as a bank for central banks while the Multilateral Investment Guarantee Agency (MIGA) is an international financial institution which offers political risk insurance guarantees. The International Organization for Standardization promulgates worldwide proprietary, industrial, and commercial standards while the Organization for Economic Cooperation and Development helps governments to take on economic, social, and governance challenges that arise within a more globalized economy. The World Customs Organization (WCO) attempts to standardize customs policies across global boundaries, important for Apple when exporting its iPads into India. Lastly, and one of the most important conventions for Apple, is the World Intellectual Property Organization, aimed to encourage creative activity, to promote the protection of intellectual property throughout the world.20 Political Hostility: During the Cold War, India developed a fairly close relationship with the Soviet Union and Indias relatively cooperative strategic and military relations with the Soviet Union and strong socialist policies had a distinctly adverse impact on its relations with the U.S. After the dissolution of the Soviet Union, however, India began to review its foreign policy in a unipolar world, and took steps to develop closer ties with the European Union and the United States, in furtherance of its national interests. Today, India and the US share an extensive cultural, strategic, military, and economic relationship.21,22 Institutional Fortitude: While India has made several "'formidable achievements' in fostering democracy, growth and cultural dynamism,'" these accomplishments "are nullified by its structural weaknesses, widespread corruption, poor leadership, extreme social divisions, religious extremism and internal security threats." Essentially, India has the foundation of a strong democratic political system, derived through British influence, which is becoming increasingly liberalized economically. However, poor administrative execution and inefficiencies at every level of political organization lead to circumvention of institutions, ranging from evading taxes to businesses bribing their way through red tape and dire bureaucratic inefficiency.23

18

19

Exhibit 2.3 Geographic Distance

Physical Remoteness: India's capital, New Delhi, is 12,055 kilometers (7,492 miles) from Washington, D.C., the capital of the United States, representing a significant level of physical remoteness. Common Land Border: India shares borders with Bangladesh, China, Pakistan, Nepal, Myanmar, and Bhutan. The United States shares land borders with both Canada and Mexico. There is therefore a lack of a common border between the two nations.

Sea & River Access: Mumbai/Bombay, the most populous city in India, is located along India's Western Coast and is accessible via the Arabian Sea, a sizeable body of water that is connected to the Indian Ocean. New Delhi, the nation's capital, is located in the North and inland from the bodies of water surrounding India. However, the Ganges River (and its tributary the Yamuna) allow for river access into greater New Delhi. Transportation & Communication: In terms of transportation, India has developed airways, railways and roadways. India has well developed air connectivity. Flights from all parts of the world arrive and depart as there are large numbers of domestic as well as international airports in the country. Railways are the most important modes of transportation in India. It is the cheapest and the most convenient form of transportation in India. Almost all parts of the country are well connected by the railway network. Another common form of transportation in India is the roadway. Roads connect almost all parts of the country. Buses, cars and other road transports ply regularly and efficiently on the roads of India. Traveling by roads is less expensive. Communication is widely developed in India. Telephone service, electronic mail, cellular phones, Internet, voice mail, letters, courier services and many others constitute the modes of communication. Climate: The climate in India varies from tropical monsoon in the South to temperate in the North. The average daily temperature in January in India is 14.10C (57.38F) as compared to -0.70C (30.74F) in the United States. The average daily temperature in July in India is 32.00C (89.60F) as compared to 24.20C (75.56F) in the United States in July.

20

Exhibit 2.4 Economic Distance

Consumer Incomes: Indias per capita income in 2011 was US $1,066.14 while its per capita purchasing power parity (PPP) was US $3,187.27. Conversely, the U.S. per capita income in 2011 was US $46,662.88.24 Natural Resources: India relies primarily on coal (domestic) and oil (foreign import) for its increasing energy demands. Throughout India, minerals of various kinds are mined for various purposes, including iron ore, natural gas, diamonds, and petroleum. With a significant amount of rainfall each year, India also has vast expanses of arable land throughout the country.

Financial Resources: In 2011, Indias inflation rate was 11.27% while the interest rate was right at 4%. Additionally, total deposits in Indias commercial banks have risen from less than Rs 5000 crores to upwards of Rs 1,200,000 crores since 1969 (representing 280-fold growth in three decades). Gold reserves held by private citizens have grown commensurately and may roughly equal total investment in Indian stock markets. In addition, Indias foreign exchange reserves have risen dramatically from $1 billion to $110 billion during the past 13 years.25 Human Resources: India's large, skilled workforce makes it a popular choice for international companies seeking to outsource work, and there also has been a manufacturing boom in recent years driven by the efficient use of technology.26 Infrastructure: The Indian infrastructure system suffers from a lack of maintenance and government and utility investment, particularly in the electric industry. The Indian power sector is more inefficient than similar sectors in Mexico, Brazil, Indonesia, South Africa, China, and Singapore. Poor governance is involved as well, and [t]his ranges from corruption and venalitywhen politicians encourage power theft or diversion of power to their constituenciesto pandering politics in which politicians provide cheap or free power to farmers and other groups in exchange for support. There are also problems of power lost naturally in the process of transmission and distribution or when laws against theft are not enforced. Further, many Indian infrastructure firms have struggled recently and as business slows, so do infrastructure improvements. There is a high level of centralization amongst infrastructure firms in India, which means that individual firms are more closely tied to government policy and political governance. However, in light of these struggles, the Indian government is planning to invest heavily in its infrastructure over the next several years, with the new Minister of Road Transport and Highways indicating that the government will accelerate its building program. Regarding its power shortages, the Indian government has targeted capacity addition in power generation as a key objective.27,28 Information & Knowledge: India is a $1 trillion economy that nevertheless struggles with a very high poverty rate and very low access to knowledge for almost seventy percent of its population that lives in rural areas. However, in 2005, Indian Parliament passed the Right To Information Act which states the following: An Act to provide for setting out the practical regime of right to information for citizens to secure access to information under the control of public authorities, in order to promote transparency and accountability in the working of every public authority, the constitution of a Central Information Commission and State Information Commissions and for matters connected therewith or incidental thereto. While not an overnight solution, this kind of direction provides the foundation for India to develop a more sophisticated framework for creating more informed citizens and more reasonable stance on knowledge management.29

21

Exhibit 3.1 Hoffstede's Cultural Dimensions, India30

Power Distance
India scores high on this dimension, 77, indicating an appreciation for hierarchy and a Top Down Structure in society and Organizations. If one were to encapsulate the Indian attitude, one could use the following words and phrases: dependent on the boss or the powerholder for direction, acceptance of un- equal rights between the power- privileged and those who are lesser down in the pecking order, immediate superiors accessible but one layer above less so, paternalistic leader, management directs, gives reason / meaning to ones work life and rewards in exchange for loyalty from employees. Real Power is centralized even though it may not appear to be and managers count on the obedience of their team members. Employees expect to be directed clearly as to their functions and what is expected of them. Control is familiar, even a psychological security, and attitude towards managers are formal even if one is on first name basis. Communication is top down and directive in its style and often feedback that is negative is never offered up the ladder.

Individualism / Collectivism
India, with a score of 48 is a society with clear collectivistic traits. This means that there is a high preference for belonging to a larger social framework in which individuals are expected to act in accordance to the greater good of ones defined in- group(s). In such situations, the actions of the individual are influenced by various concepts such as the opinion of ones family, extended family, neighbours, work group and other such wider social networks that one has some affiliation toward. For a collectivist, to be rejected by ones peers or to be thought lowly of by ones extended and immediate in- groups, leaves him or her rudderless and with a sense of intense emptiness. The employer/employee relationship is one of expectations based on expectations Loyalty by the employee and almost familial protection by the Employer. Hiring and promotion decisions are often made based on relationships that are the key to everything in a Collectivist society.

Masculinity / Femininity
India scores 56 on this dimension and is thus considered a masculine society. Even though it is mildly above the mid range in score, India is actually very masculine in terms of visual display of success and power. The designer brand label, the flash and bling that goes with advertising ones success, is widely practiced. However, India is also a spiritual country with millions of deities and various religious philosophies. It is also an ancient country with one of the longest surviving cultures that gives it ample lessons in the value of humility and abstinence. This often reigns in people from indulging in Masculine displays to the extent that they might be naturally inclined to. In more Masculine countries the focus is on success and achievements, validated by material gains. Work is the center of ones life and visible symbols of success in the work place are very important.

Uncertainty Avoidance
India scores 40 on this dimension and thus has a medium low preference for avoiding uncertainty. In India there is acceptance of imperfection; nothing has to be perfect nor has to go exactly as planned. India is traditionally a patient country where tolerance for the unexpected is high; even welcomed as a break from monotony. People generally do not feel driven and compelled to take action-initiatives and comfortably settle into established rolls and routines without questioning. Rules are often in place just to be circumvented and one relies on innovative methods to bypass the system. A word used often is adjust and means a wide range of things, from turning a blind eye to rules being flouted to finding a unique and inventive solution to a seemingly insurmountable problem. It is this attitude that is both the cause of misery as well as the most empowering aspect of the country. There is a saying that nothing is impossible in India, so long as one knows how to adjust.

Long-Term Orientation
The Indians score 61, making it a long term, pragmatic culture. In India the concept of karma dominates religious and philosophical thought. Time is not linear, and thus not as important as to western societies that typically score low on this dimension. Countries like India have a great tolerance for religious views from all over the world Hinduism is often considered a philosophy more than even a religion; an amalgamation of ideas, views, practices and esoteric beliefs. In India there is an acceptance that there are many truths and often depends on the seeker. Societies that have a high score on Long Term Orientation, typically forgive lack of punctuality, a changing game plan based on changing reality and a general comfort with discovering the fated path as one goes along rather than playing to an exact plan.

22

Exhibit 3.2 Hoffstede's Cultural Dimensions, United States31

Power Distance
The United States score low on this dimension (40), which underscores the American premise of liberty and justice for all. This is also evidenced by the focus on equal rights in all aspects of American society and government. Within American organizations, hierarchy is established for convenience, superiors are always accessible and managers rely on individual employees and teams for their expertise. Both managers and employees expect to be consulted and information is shared frequently. At the same time, communication is informal, direct and participative.

Individualism / Collectivism
The United States, with a score of 91 on this dimension, is a highly individualistic culture. This translates into a loosely knit society in which the expectation is that people look after themselves and their immediate families. There is also a high degree of geographical mobility in the United States and most Americans are accustomed to doing business with, or interacting, with strangers. Consequently, Americans are not shy about approaching their prospective counterparts in order to obtain or seek information. In the business world, employees are expected to be self-reliant and display initiative. Also, within the exchange-based world of work, hiring and promotion decisions are based on merit or evidence of what one has done or can do.

Masculinity / Femininity
The United States score 62 on this dimension and is considered a masculine society. Behavior in school, work, and play are based on the shared values that people should strive to be the best they can be and that the winner takes all. As a result, Americans will tend to display and talk freely about their successes and achievements in life, here again, another basis for hiring and promotion decisions in the workplace. Typically, Americans live to work so that they can earn monetary rewards and attain higher status based on how good one can be. Conflicts are resolved at the individual level and the goal is to win.

Uncertainty Avoidance
The US scores 46 on this dimension and therefore, American society is what one would describe as uncertainty accepting. Consequently, there is a larger degree of acceptance for new ideas, innovative products and a willingness to try something new or different, whether it pertains to technology, business practices, or foodstuffs. Americans tend to be more tolerant of ideas or opinions from anyone and allow the freedom of expression. At the same time, Americans do not require a lot of rules and are less emotionally expressive than higher-scoring cultures.

Long-Term Orientation
The United States scores 29 on this dimension and is a short-term oriented culture. As a result, it is a culture focused on traditions and fulfilling social obligations. Given this perspective, American businesses measure their performance on a short- term basis, with profit and loss statements being issued on a quarterly basis. This also drives individuals to strive for quick results within the work place. There is also a need to have the absolute truth in all matters.

23

Exhibit 4.1 Strategic Group Map: Display Size

$1,000.00

$900.00

$800.00

$700.00 Acer Iconia Tab A500 $600.00 Price ($US) Amazon Kindle Fire Apple iPad Apple iPad 2 $500.00 Blackberry Playbook Dell Streak 7 $400.00 Motorola XOOM Samsung Galaxy Tab 10.1 $300.00 Samsung Galaxy Tab 7 Toshiba Thrive $200.00

$100.00

$0 2 4 6 Display Size (Inches) 8 10 12

24

Exhibit 4.2 Strategic Group Map: Battery Life

$1,000.00

$900.00

$800.00

$700.00 Acer Iconia Tab A500 $600.00 Price ($US) Amazon Kindle Fire Apple iPad Apple iPad 2 $500.00 Blackberry Playbook Dell Streak 7 $400.00 Motorola XOOM Samsung Galaxy Tab 10.1 $300.00 Samsung Galaxy Tab 7 Toshiba Thrive $200.00

$100.00

$0 2 4 6 Battery Life (Hours) 8 10 12

25

Exhibit 4.3 Strategic Group Map: Weight

$1,000.00

$900.00

$800.00

$700.00

Acer Iconia Tab A500 Amazon Kindle Fire Apple iPad Apple iPad 2

$600.00 Price ($US)

$500.00

Blackberry Playbook Dell Streak 7

$400.00

Motorola XOOM Samsung Galaxy Tab 10.1

$300.00

Samsung Galaxy Tab 7 Toshiba Thrive

$200.00

$100.00

$0 100 200 300 400 500 600 700 800 900 Weight (Grams)

26

Exhibit 5 Key Success Factors, Tablet PCs

Key Success Factor

Performance Portability Price

Sum of Weights

Weight 50% 30% 20% 100%

Apple 9 4.50 5 1.50

Samsung 7 3.50 6 1.80 3 0.60

RIM 6 3.00 9 2.70

Acer 4 2.00 4 1.20

Strength Rating
Key Success Factor

3 0.60 6.60 Amazon 2 1.00 8 2.40 9 1.80

5.90
Dell

6 1.20

6.90

4 0.80

4.00

Performance Portability Price

Sum of Weights

Weight 50% 30% 20% 100%

Motorola 6 3.00 4 1.20 1 0.20

Toshiba 5 2.50 3 0.90

3 1.50 7 2.10 8 1.60

Strength Rating

5.20

5.20

4.40

5 1.00

4.40

Exhibit 6 Product Life Cycle, Tablet PCs in India

Factor

27

Growth Rate

Although far behind China in consumption, India has the second-highest penetration of tablet PCs globally, with 10 percent of respondents owning one. Future growth for tablet PCs in India also looks strong with 10% of Indian respondents planning to purchase a tablet PC this year. As Tablet PCs in India move beyond the Introduction stage and more fully into the Growth stage, this growth rate will continue to expand as it becomes exceedingly large. Globally, 63.6 million tablets were projected to be sold globally in 2011 representing a 261.4% increase from the 17.6 million units sold in 2010. The Indian market is therefore lagging but steadily catching up to the global growth rate. When Apple released its first iPad in India in January 2011, Dell has already released its Streak 7 Tablet (October 2012) and Samsung had already released its Galaxy Tablet 7 (November 2010). At this point, Apple had few large Tablet PC competitors in India as the market was still in the Introduction stage. However, by the end of 2011, RIM, Motorola, and Toshiba had all released Tablet PCs into the Indian market. Moreover, Acer, HTC, Cisco, and Amazon are large companies entering the Tablet PC market. Lastly, Apple's iPad must also contend with smaller firms' products in India such as the iBall Slide, the Reliance 3G Tablet, S Mobility's Mi-720, the Mercury mTab and the Beetel Magiq. There are currently 3 key segments emerging in India: Premium Customers, Value Customers, and Price Point Value Customers. The competition herein is increasingly intense. When Apple first released its iPad in India, the competition was fair less intense. However, over the past 3 years, there has been an exponential increase in Tablet PC competition within the Indian market as new products have been released and consumers begin to adopt Tablet PCs more consistently. While the Indian Tablet PC market shifts from the Introduction stage to the Growth stage, the emphasis on product design remains high. Indian consumers want 3G access and products that perform well while retaining a high degree of portability. In the Tablet PC market, competitors need to begin placing more of an emphasis on process design as they move into the Growth phase, where process design will make more of an impact on rival positioning and how companies are able to achieve economies of scale, speed-up their learning curves, and maintain efficient operations. Having put in the research and development to create its iPad, Apple's focus, and the focus of its competitors, is to increase sales and communicate value to Indian consumers by marketing its iPad widely and effectively. While Indian consumers have become increasingly aware of Apple and its iPad, there is a need now to stimulate consumer demand in India as Apple attempts to grow its Tablet PC business there. The transition from Introduction to Growth means that Apple must impart to Indian consumers a sense of need and desire for its iPad products where consumers are already aware of what the product is and that it is available to them.

Competitors

Segments Intensity of Competition Emphasis on Product Design Emphasis on Process Design Major Functional Area(s) of Concern Overall Objective

28

Bargaining Power Of Suppliers = LOW

SUPPLIERS
Suppliers in the consumer electronics industry (and the Tablet PC market) are fairly weak because there is a concentration of purchasers (large tech companies) and there is a credible backwards integration threat from the main industry competitors. Suppliers have higher switching costs than the companies in the industry. Companies like Apple command such large portions of the worldwide market for certain key components that suppliers are eager to be a part of Apple's supply chain. Further, the fact that these companies buy from suppliers in such large and consistent quantities means that Apple and its competitors exercise a significant measure of leverage over suppliers. Apple has a distinct ability to exercise influence over its suppliers and therefore, supplier bargaining power is low.

Exhibit 7 Porter's 5 Forces, Apple Inc.

POTENTIAL ENTRANTS
The Tablet PC market offers high returns and therefore, creates industry attractiveness. There is the possibility of new entrants entering the Tablet PC market as tablet models offered in India is expected to increase from 27 models offered by 10 vendors to 90 models offered by 35 vendors. However, the leading firms in this industry capitalize on the possession of intellectual property rights and high brand equity, two crucial barriers to entry. Essentially, there is a threat of consumer electronics companies developing successful Tablet PC offerings through the use of pre-existing distribution channels, R&D capabilities, brand loyalty, and technological know-how. Though the threat of entirely new entrants who are not already competing with Apple succeeding in the Indian Tablet PC market may be law, the fact that the market is poised for rapid saturation means that there is at least a moderate threat of new entrants in the industry.

BUYERS
Buyers in the consumer electronics industry (and the Tablet PC market as an emergent sub-industry) have little buying power, primarily because end users purchase the products directly and therefore, most buyers are merely regular consumers who make limited, personal purchases. As end users, these buyers are not connected to a further part of the supply chain. From an RFM standpoint, a Tablet PC buyer will not often make an additional purchase shortly after making a first purchase, purchases do not happen frequently compared to most regular purchases (such as groceries or clothing), and though each product may be a significant cost to the consumer, individual sales are not impactful when compared to these companies' total revenues. Tablet PC buyers are fragmented (numerous and different) and no individual buyer has any influence on the product or the price. Ultimately, Tablet PC customers have a very limited ability to put firms under pressure, resulting in low buyer power.

INDUSTRY COMPETITORS

Threat Of New Entrants = MEDIUM

There are several large firms in the Tablet PC market. Here, Apple is competing with some of the largest companies in the consumer electronics industry (Samsung, RIM, Toshiba, HP) as well as some of the world's largest emerging companies overall (Google, Amazon). Sustainable competitive advantage herein hinges on constant innovation and an ever- evolving technological landscape.

Industry Competitiveness = HIGH

SUBSTITUTES

Bargaining Power Of Buyers = LOW

From a computing standpoint, substitutes for Tablet PCs include ultrabook computers, laptop computers and desktop computers. Further, from a mobile computing standpoint, many smartphones, including Apple's own iPhone, possess a level of computing performance comparable to most of the Tablet PCs currently on the market. Lastly, from an entertainment standpoint, Tablet PCs compete with wellestablished video game platforms (such as Microsoft's XBox and Sony's Playstation), mobile gaming platforms (such as Nintendo's DS), and mobile entertainment devices (such as portable DVD players). While Tablet PCs represent an emerging market and cutting-edge technology, technological advances and improved performance continue in these substitute products as well. Consumers hesitate to adopt Tablet PCs because, although they provide a combination of features from these substitute products, they also represent one more (often costly) piece of technology for consumers who increasingly already possess a laptop computer, a smartphone, etcetera. There are, therefore, a significant number of threatening substitutes available.

Threat Of Substitutes = HIGH


Government The government is both a catalyst and a challenger, aimed to encourage companies to raise their performance, stimulate early demand for advanced products, and focus on specializing factor creating and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations. For Apple and the American consumer electronics industry, strict commercial laws governing monopolies, financial reporting, product standards, and so on mean that, having operated within a very consumer-centric legal environment, Apple can go abroad and maintain a distinct competitive advantage in serving consumer needs and maintaining outstanding quality standards.

29

Exhibit 8 Porter's Diamond Model, Apple Inc.

DOMESTIC DEMAND CONDITIONS In the consumer electronics and Tablet PC industries, consumers are exceedingly demanding. Consequently, these demanding consumers in the American economy increase the pressure facing firms to constantly improve their competitiveness via innovative products through high quality, high performance, and reasonable prices. Because sophisticated buyers exist in Apple's home market and force Apple to innovate quickly in an attempt to advance for rapidly than its competitors, domestic demand conditions can help Apple and its domestic competitors develop a competitive advantage abroad. Apple's extensive experience understanding the needs and desires of American consumers, often very sophisticated users of technology, enables the company to carry a heightened sense of consumer preferences globally.

FIRM STRATEGY, STRUCTURE, AND RIVALRY The way Apple has been created, the way that it sets ongoing goals, and the way that it continues to be managed are each important for its success. Because the world is dominated by dynamic conditions, however, the presence of intense rivalry and direct competition in its domestic market impels the company to work for increases in productivity and innovation. When these are achieved, competitiveness is upgraded.

COUNTRY FACTOR ENDOWMENTS Basic factor endowments include human resources and access to raw materials. Apple, as an American company, however, benefits through the employment of skilled labour, the large generation of capital, and the ability to make use of America's high-quality infrastructure. By operating with these specialized factors of production, Apple increases its competitiveness. Similarly, as its domestic industry rivals employ these as well, they combine to create a more competitive industry which can translate into competitive advantages for these companies in an international setting.

RELATED AND SUPPORTING INDUSTRIES For many firms, the presence of related and supporting industries is of critical importance to the growth of that particular industry. National competitive strengths tend to be associated with "clusters" of industries. For Apple, its location within the American Silicon Valley techno-cluster allows for its close association with other high-tech industries that include individual computer software and semi-conductor firms.

Chance
Chance events are occurrences that are outside of a firm's control. They have influence over competitive advantage because they create discontinuities in which some firms improve their competitive positions while others are harmed.

30

Exhibit 9 SWOT Analysis, Apple Inc.32

Well Diversified Product Mix Robust Research & Development Operational Efficiency

Strengths

Dependence on Network Providers Unresolved Legal Proceedings Limited iPhone/Mobile Phone Variants

Weaknesses

Opportunities
Innovative Products & Designs Scope in Retail Segment Emerging Markets Providing Ladder for Growth

Threats
Intense Competition Absence of Multiple Distribution Network Theft of Digital Content

31

Exhibit 10 Porter's Generic Strategies, Apple Inc.

Differentiation Overall Cost Leadership

Competitive Advantage
Uniqueness Perceived by Customer Low Cost Position

Strategic Target

Industrywide

Particular Segment

Focus (Unique)

Focus (Low Cost)

Apples overall, generic strategy centers on differentiated positioning within the consumer electronics industry. There is a uniqueness to Apple products that derives from its ability to effectively create an experience for its customers through engagement with its products, both goods and services. Apple does not appeal to customers who are particularly conscious about price points and deals on products. Apple uses its differentiated strategy to balance an industrywide approach to marketing and product positioning with an exclusive brand identity and a commitment to innovation that motivates consumers to pay a premium price for Apples products.

Exhibit 11.1 Resource-Based Analysis, Apple Inc.

Tangible Resources & Capabilities
Apple has continued growth rates in sales, earnings per share, and net profit margin. Apple is able to finance its operations through its retained earnings. By the end of December 2011, Apple was the second largest corporation in the world with a market capitalization of US $376,410,600,000. Apple does not issue bonds, does not issue preferred stock, and does not borrow money. Apple thereby manages to run its company without any debt. They do, however, issue common stock, one way that Apple raises external capital. Foxconn in China manufactures Apples products. This allows Apple the advantage of maintaining low labour costs. Apple's offices are located in Cupertino, California, right in the heart of the Silicon Valley and one of the premier concentrations of high-tech firms globally. Apple's equipment is sourced from nations around the globe. For example, the iPhone includes parts from the U.S., Taiwan, Japan, Korea, Germany, and the U.K. Most of the high-tech equipment utilized in manufacturing Apple's products comes from firms in Asia. As of November 2012, Apple has 394 retail store locations in 14 countries. In terms of raw materials, Apple's work with Foxconn provides them with access to several rare Earth metals that are mined exclusively in China and used to manufacture its iPads. Foxconn is responsible for shipping finished products to warehouses in the U.S. and elsewhere. Using its own independent retail stores, Apple also possesses ultimate control over the point-of-sale customer experience. Apple possesses the most powerful portfolio of patents in the consumer electronics industry (566 as of 2010). Apple also possesses 186 trademarks and has recently been successful in enforcing several copyright infringement claims against Samsung, one of its largest competitors in the mobile electronics industry. Lastly, Apple possesses a wealth of trade secrets surrounding its design processes, its manufacturing techniques, and its forthcoming product innovations. At Apple, employees are specialists who are not exposed to functions outside their area of expertise, creating a highly-specialized environment. Store inventory selection is done by CEO Tim Cook because of his background in supply chain management. Apple has developed an extremely efficient and effective supply chain management system that was ranked as the world's best from 2007- 2010. The company's manufacturing, procurement and logistics enables it to execute massive product launches without having to maintain large, profit-sapping inventories; Apple's profit margins have been 40 percent compared with 1020 percent for most other hardware companies in 2011.

32 Substitutable Competitive Advantage

Valuable

Rare

Inimitable

Financial

Yes

Yes

Yes

Yes

Temporary / Sustainable Competitive Advantage

Physical

Yes

Yes

No

No

Temporary Competitive Advantage

Technological

Yes

Yes

Yes

Yes

Sustainable Competitive Advantage

Organizational

Yes

Yes

No

No

Temporary Competitive Advantage

Exhibit 11.2 Resource-Based Analysis, Apple Inc.

Intangible Resources & Capabilities
Steve Jobs, the iconic former CEO of Apple, defined his career as a leader who both understood what appealed to customers and was committed to acting decisively. Jobs figured out trajectories of new opportunities and would then conceive and execute not only differentiated products that yield high margin and high brand recognition, but also business models that will exploit them most profitably. Through great insight and brilliant execution, Jobs has driven Apple to become one of the most innovative and well-respected brands ever. Apple is a corporation and a brand constructed on the notion that the customer experience is first and foremost and one must work backwards to the technology that supports that focus. Apple's culture centers on providing a high-quality customer experience and this translates into the performance of its products and the excellence of its employees. Apple has cultivated an exceedingly valuable wealth of human capital through its training and its leadership, and this translates into a level of consumer-centrism which allows Apple to maintain its position in the consumer electronic computer manufacturing industry. From September 2011 to December 2011 alone, Apple spent $758M on research and development. While Apple typically invests less money into its R&D than many of its competitors, the company has a history of using its R&D investments efficiently and maintaining a competitive edge on its competition in terms of innovation and the evolution of new product features. Apple has carved out for itself the ability to be recognized as a progressive company that remains innovative amidst commitment to certain core business ideals: maintaining a minimalist, tight product line, placing user- friendliness at the center of its product features, maintaining high-quality products, etc. The balance between these core principles and Apples ongoing commitment to constant innovation has provided the company with a competitive advantage going forward. Apple has focused on creating high-quality products and though they have a reputation for costing consumers a premium price, Apple products are not known for being poorly designed and cheaply constructed. Apple products are also capable of solid durability, both in terms of damage and usage. Lastly, Apple products are known to be reliable in their performance, giving rise to the famous Steve Jobs tagline: "It Just works." Apple often finishes with high rankings on lists of "The Most Attractive Employers," but has also run into some issues with its outsourced manufacturing labour, especially in China. While key suppliers Foxconn and Inventec have undergone significant remedial measures to improve the working conditions of its employees, Apple's reputation as a good employer has certainly suffered because of issues with foreign work conditions throughout its supply chain. Apple reports its environmental footprint comprehensively. Apple is also a partner of the Product RED Campaign, a project aimed at preventing the spread of childhood HIV.

33 Competitive Advantage

Valuable Rare Inimitable Substitutable

Human

Yes

Yes

Yes

Yes

Sustainable Competitive Advantage

Innovation

Yes

Yes

Yes

Yes

Sustainable Competitive Advantage

Reputational

Yes

Yes

Yes

Yes

Sustainable Competitive Advantage

34

Exhibit 12 Value Chain Analysis, Apple Inc.

New Product Idea Generation (R&D)

Technological Application & Product Design (R&D)

Product Creation / Funding Distribution

Sales & Marketing Customer Service

New Products: Apple invests an increasingly significant amount of its internal capital to R&D each year and the primary source of value in its operations comes through its ability to generate new and cutting-edge product ideas. Product Design: Once Apple formulates an idea for a new product, their R&D capabilities also serve to help them implement these ideas in ways that meet high quality standards and enable Apple to maintain its reputation as a reliable and innovative brand. Creation: Apple's outsourced manufacturing processes add value but enabling Apple to gain access to unique resources abroad, cheaper labour costs, and smaller manufacturers that have come to specialize in creating Apple's products in an excellent way.

Distribution: Apple has established retail store locations in countries all over the globe and these add the most value to its distribution channels, enabling Apple to maintain control over the point-of-sale shopping experience, promote its products locally, and be selective about where its products are sold.

Sales & Marketing: Apple's marketing campaigns center on the consumer experiences and how individuals engage with their products. Apple's sales and marketing teams, therefore, do an exceptional job of communicating value to Apple customers.

Customer Service: Through its retail locations, Apple Care plans, and online customer service forums, Apple is dedicated to providing ongoing help to its customers and continues to add value to the product experience well after the product is initially sold to the end user.

Exhibit 13 Financial Ratio Analysis, Apple Inc.

Short-Term Solvency/Liquidity Ratios
Current Assets Current Liabilities Current Ratio Current Assets - Inventory Current Liabilities Quick Ratio Cash Current Liabilities Cash Ratio $44,988,000,000 $27,970,000,000 1.6084 $44,212,000,000 $27,970,000,000 1.5807 $9,815,000,000 $27,970,000,000 0.3509

33

35

Long-Term Solvency/Financial Leverage Ratios

Total Assets - Total Equity Total Assets Total Debt Ratio Total Debt Total Equity Debt-Equity Ratio Total Assets Total Equity Equity Multiplier $39,756,000,000 $116,371,000,000 0.3416 $39,756,000,000 $76,615,000,000 0.5189 $116,371,000,000 $76,615,000,000 1.5189

Market Value Ratios

Price Per Share Earnings Per Share Price-Earnings Ratio Market Value Per Share Book Value Per Share Market-To-Book Ratio $404.3034 $7.0535 57.34751773 $404.3036 82.4537 4.903577926

Asset Utilization/Turnover Ratios

Cost of Goods Sold Inventory Inventory Turnover 365 Days Inventory Turnover Days' Sales in Inventory Sales Accounts Receivable Receivables Turnover 365 Days Receivables Turnover Days' Sales Turnover Sales Total Assets Total Asset Turnover Total Assets Sales Capital Intensity $64,431,000,000 $776,000,000 70.53 365 70.53 5.1751 $108,249,000,000.00 $10,792,522,432.70 10.03 365 10.03 36.3908

36

Profitability Ratios
Net Income Sales Profit Margin $25,922,000,000 $108,249,000,000 0.2395 $25,922,000,000 $116,371,000,000 0.2228 $25,922,000,000 $76,615,000,000 0.3383 0.239466415 0.930205979 1.518906219 0.3383

Net Income Total Assets Return On Assets (ROA) Net Income Total Equity Return on Equity (ROE) Profit Margin Sales/Assets Assets/Equity ROE

$108,249,000,000 $116,371,000,000 0.9302 $116,371,000,000 $108,249,000,000 1.0750

Appendices Endnotes
1 2

37

Interview with Jayanth Narayanan, Human Resources Outsourcing Entrepreneur & Founder of JLN Ventures (November 28, 2012). Ibid. 3 Ibid. 4 http://articles.economictimes.indiatimes.com/2011-07-20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars 5 http://www.independent.co.uk/news/business/analysis-and-features/rising-costs-are-making-indian-labour-less-attractive-2309557.html 6 http://www.just-auto.com/analysis/indias-rising-manufacturing-labour-costs-overtake-china_id106790.aspx 7 http://www.tuaw.com/2012/05/08/apple-retail-stores-still-crowded-at-8400-average-square-feet/ 8 http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true 9 Interview with Jayanth Narayanan, Human Resources Outsourcing Entrepreneur & Founder of JLN Ventures (November 28, 2012). 10 Ibid. 11 India: Country Report, July 2011. The PRS Group, Inc. : http://web.ebscohost.com.libproxy.sdsu.edu/ehost/pdfviewer/pdfviewer?sid=d724a6e5-000c-4cb5-9402- 724d1ba32cfa%40sessionmgr14&vid=2&hid=18 12 http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true 13 Interview with Jayanth Narayanan, Human Resources Outsourcing Entrepreneur & Founder of JLN Ventures (November 28, 2012). 14 Ibid. 15 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html 16 http://www.povertyactionlab.org/evaluation/importance-ethnic-networks-business-transactions-india 17 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html 18 http://www.kwintessential.co.uk/resources/global-etiquette/india-country-profile.html 19 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html 20 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html 21 http://www.fas.org/sgp/crs/row/RL34161.pdf 22 http://www.comw.org/pda/0603india.html 23 http://defenceforumindia.com/forum/defence-strategic-issues/32902-india-may-never-superpower-london-school-economics.html 24 http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/weorept.aspx?sy=2007&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=56&pr1.y=7&c=534%2C111 &s=NGDPDPC%2CPPPPC&grp=0&a= 25 http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=data&vcountry=78&disc=9&tableid=1 26 http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=MAOVR 27 http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/indias-infrastructure-woes-in-two-graphs/ 28 http://www.economist.com/node/21559941 29 http://asiafoundation.org/in-asia/2011/09/28/right-to-information-in-india-an-effective-tool-to-tackle-corruption/ 30 http://geert-hofstede.com/india.html 31 http://geert-hofstede.com/unitedstates.html 32 http://callisto.ggsrv.com.libproxy.sdsu.edu/imgsrv/FastFetch/UBER1/300559_GDTC27353FSA 33 Mergent Online: http://www.mergentonline.com /companyfinancials.php?pagetype=asreported&compnumber=12161&period=Annuals&dataarea=ALL&range=3&currency=AsRep&scale=AsRep&Submit=Refresh 34 Yahoo! Finance: September 23, 2011 35 NASDAQ: September 24, 2011 36 Yahoo! Finance: September 23, 2011 37 NASDAQ: September 24, 2011