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TABLEOFCONTENTS

APPLEIPADININDIA 4

EXECUTIVESUMMARY 4

WASTHEREAWAYOUT? 5

THEREPUBLICOFINDIA 5

TABLETPCINDUSTRY 7

APPLEINCORPORATED 9

STRATEGICPLAN 10

APPLEIPADININDIAWORKSCITED 12

APPENDIXICOUNTRYANALYSIS 14

COUNTRYBENEFIT/COST/RISK 14

COUNTRYBENEFIT 14

COUNTRYCOST 15

COUNTRYRISK 16

CAGEDISTANCEFRAMEWORK 17

CULTURALDISTANCE 17

ADMINISTRATIVEDISTANCE 18

GEOGRAPHICDISTANCE 19

ECONOMICDISTANCE 20

HOFFSTEDE'SCULTURALDIMENSIONS 21

INDIA 21

UNITEDSTATES 22

APPENDIXIIINDUSTRYANALYSIS 23

STRATEGICGROUPMAPPING 23

DISPLAYSIZE 23

BATTERYLIFE 24

WEIGHT 25

KEYSUCCESSFACTORS 26

PRODUCTLIFECYCLE 27

PORTERS5FORCES 28

PORTERSDIAMOND 29


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APPENDIXIIIFIRMANALYSIS 30

SWOT 30

PORTERSGENERICSTRATEGIES 31

RESOURCE-BASEDANALYSIS 32

TANGIBLERESOURCES 32

INTANGIBLERESOURCES 33VALUECHAINANALYSIS 34

FINANCIALRATIOANALYSIS 35

APPENDICESENDNOTES 36


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EXECUTIVESUMMARY

Indiaoffersawealthofopportunitiesforbusinessexpansion.Thoughthecountrymaintainsalargegapbetweenthewealthyandthe

impoverished,Indiasmiddleclassrepresentsagrowingconsumerpopulationexpectedtoincreasefromabout5%ofthepopulationto41%by

2025,anincreaseinmiddleclassconsumersfrom50millionpeopleto583millionpeople.1WhileIndiarepresentsavastlydifferentculturefrom

theU.S.,Applehassignificantexperiencedealingwithsuchculturaldimensionsasorganizationalcollectivism,highpowerdistance,andamoderatelevelofuncertaintyavoidancethroughitsforayintobothChinaandJapan(seeAPPENDIXI,Exhibit3.1).2,3

ApplehaswronglydeterminedthatIndiaisaninconsequentialmarketintheshort-term.4Itisunrealistic,however,forAppletobelieve

thatconqueringtheIndianmarketisamatterofwaitingforseveralyearsuntilthecountrysinfrastructureisestablishedandthedemandfor

TabletPCsismoreclearlyoutlined.ApplemustconsiderIndiainitslong-termperspectivebyinvestingthereintheshort-termorelseitwillnot

retaintheoptiontoenterthemarketmorefullyatsomeindeterminatepointdownthelinewhenitseesamoreclear,completepictureofwhat

theIndianmarketmeansintermsoffinancialpotentialandstrategicopportunities.

Fromafinancialstandpoint,IndiasuitsAppleslong-termprofitabilitygoalsbecauseIndiadoesnotrequireAppletoreacheveryone;rather,

ifApplecanpenetrateevenasmallportionoftheIndianmarketandcreateconsumervaluethere,itwillbetargetingmillionsofnewconsumers

withanincreasingamountofdisposableincome.5

Fromastrategicstandpoint,ApplesgoalistobeamongtheindustryleadersintheTabletPCmarketinIndia.Thisrequiresexpansion

throughorganic,internalgrowthandacombinationofoffensiveanddefensivestrategies.MovingintoIndiamoredirectlyandcompletelynotonly

enablesAppletotakeanoffensiveapproachtogaininggreatermarketshareasitcompeteswithSamsungandRIMinIndia,butalsoallowsApple

todefenditsmarketpositioninIndiabybeingpresentinthemindsofcompetitorsandconsumers.Aslongasitscompetitorscontinueto

expand6,7,ApplewillnotbeabletodefenditselffromlosingafootholdwithoutasimilarlycomprehensivestrategicinvestmentinIndia.

ApplesplaninIndianeedstofocusonthreeparts:bringingtheAppleexperiencetoIndiathroughitsAppleStoresandhigh-qualityretail

environment,integratingiTunesusebyIndianconsumerswithitsoverallbrandimageandmarketpenetration,andestablishinganIndian

distributionnetworkthroughwarehousingwiththepotentialforeventualexpansionintoproductmanufacturing.

1Nextbigspenders:Indianmiddleclass.

2CulturalDimensions:China.

3CulturalDimensions:Japan

4IloveIndiabutnotitsdistributionnetwork:AppleCEO

5

InterviewwithJayanthNarayanan.6Samsungplanstoexpandretailfootprinttoover1000outlets

7Blackberry-makerResearchInMotiontoexpandfootprintto160citiesinIndia


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WASTHEREAWAYOUT?

THEREPUBLICOFINDIA

Historically,IndiahasmaintainedarelationshipwiththeUnitedStatesthatistraceabletoitsrootsintheCommonwealth,thereachofthe

BritishEmpire.Consequently,bothIndiaandtheU.S.shareEnglishasalinguafrancaandIndiancommercethereforemaintainsEnglishasthelanguageatitscenter.DespiteIndiastiestotheSovietUnionduringtheColdWar,IndiaandtheUnitedStateshaveneverexpressedopenpolitical

hostilitytowardsoneanother.Moreover,bothnationshaveascribedtomanyofthesamekeyinternationalpolitical(UN)andeconomic(WTO,

IMF)organizations,vitaltotherelationshipbetweenthetwo.

Inspiteofitspoliticalfoundationasademocraticrepublic,Indiasrealeconomicliberalizationhasonlybeguntotakeplaceoverthepast

twodecades.Duringthistime,Indiahasseenanincreaseinforeigndirectinvestmentandasteadyriseinoveralleconomicgrowthasitchases

Chinatobecomethefastestgrowingnationintheworld.Mostrecently,Indiahasreducedtheregulationthatforeigncompaniesmaynotinvest

morethan51%intoanewventureandextendedthisallotmenttoallowfor100%investmentbysingle-brandcompaniesorventures.

Beyonditsprojectedeconomicgrowthandstridestowardsincreasedpoliticalstabilityinthefuture,Indiaisalreadythesecondmost

populousnationintheworld.

8

Simplybypopulationnumbers,aninvestmentinIndiasthreemostpopulouscitiesaloneMumbai

9

,NewDelhi

10

,andBangalore11withasalesreturnof1%ofcitizenspurchasinganiPad12,wouldresultinrevenueof$159,551,686.32.Withprojectedgrowth

continuingtoincreaseinthenextseveralyears(seeAPPENDIXI,Exhibit1.1),thesheersize,andthereforesalespotential,oftheIndianmarket

providesasignificantbenefittocompaniesanchoringbusinessthere.

Inadditiontothisincrediblequantityofconsumers,firmslookingtodobusinessinIndiaarefindinganimprovingqualityofconsumerthere

aswell.Whilemanyconsumersarestrictlyconcernedwithpricepoints,premiumconsumersarenowemergingaswell,wealthyindividualsor

thosewhoearnsalariescomparabletoglobalpayscales.13Forthem,moneyisnotstrictlyalimitastheyyearnforthebestproductsavailable

globally.14Cutting-edgeproductsandaspirationalproductsdrivetheseindividualsandtheyarewillingtopayaheftypremium.Whilethis

marketingsegmentissmall,theseconsumershavethebuyingpower.15Applesbrandingpositionasadifferentiatedproductthatdoesnot

competeonprice(seeAPPENDIXIII,Exhibit10)servesthemwelltoofferpremium,high-quality,well-designedproductsatahighpricetothese

consumers. AnothersegmentthatwillcometodefinetheTabletPClandscapeinIndiaoverthecomingyearsistheValueCustomer:atypicalworking

classconsumerearningbetweenUS$10,000and$50,000annuallyandsimilartoanaverageNorthAmericanconsumerinmindset.16Thismeans

81,205,073,612(July2012)

912,478,447(2011)

1011,007,835(2011)

118,425,970(2011)

12US$499.97

13InterviewwithJayanthNarayanan.

14

Ibid.15Ibid.

16InterviewwithJayanthNarayanan.


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thattheyhavestrongbrandaspirationsbutwillseekvaluebywaitingforsalesratherthanbeingearlyadopters.17Thefocusonvalueformoneyis

veryhigh,andtheytendtoresearchsignificantlyandcomparefeaturesandpricesextensivelybeforemakingabuyingdecision.18Newproducts

andinnovativetechnologiesareworthaspiringtosolongastheyprovidevalue.19

ThecostsofdoingbusinessinIndiaremainhighasinefficienciesininfrastructureandgovernmentbureaucracycreatesgreateroperations

expense(seeAPPENDIXI,Exhibit1.2).AnotherlargebarriertogreaterentryintoIndiaremainsitspoorinfrastructure,primarilyroadsand

electricalgrids.Thecosttoovercometheseissignificant,butfewcompaniesmaintainthefinancialresourcestofundsolutionstotheseissues(see

APPENDIXIII,Exhibit13).Moreover,Indiaoffersbusinessesasignificantamountofqualityhumanresourcesandafinancialsystemthatis

responsivetointernationalbusinesstransactions.Bothoftheseoff-setsomeoftheinfrastructuralcostsofdoingbusinessinIndia.

LookingattheoverallrisksituationinIndia,thefundamentalissuesarebureaucracyandpoliticalcorruption(seeAPPENDIXI,Exhibit1.3).

Bureaucracycreatesinefficienciesforbusinessesbecausetheprocessofsettingupandrunningabusinesscantakelongamountsoftime.Inthis

case,politicalcorruptionemergesasbusinessesaimtocircumventtheregularwayofdoingbusinesslegally.ForAmericancompanies,theForeign

CorruptPracticesAct,afederalstatute,embodiesCongressionalintenttoexercisejurisdictionwherethesecompaniesengageinactsofbribery

abroad.However,avitalexceptionexiststothestatutesbaseprovisions,statingthefollowing:

(b)Exceptionforroutinegovernmentalaction

Subsections(a)and(g)ofthissectionshallnotapplytoanyfacilitatingorexpeditingpaymenttoaforeignofficial,politicalparty,orpartyofficialthepurposeofwhichistoexpediteortosecuretheperformanceofaroutinegovernmentalactionbyaforeignofficial,political

party,orpartyofficial.20

Thisstatuteallowsfortheuseofso-calledgreasepaymentstoalleviatebureaucraticdelaysforservicestowhichabusinessisentitledapriori.

WhileAmericancompaniesmaynotengageinbriberytoattainanillegalresult,theabilitytoincreasebureaucraticefficiencyisexceptionally

valuabletoacompanylikeApple(abundantfinancialresources)inacountrylikeIndia(highbureaucraticbarriers).

17Ibid.

18

Ibid.19Ibid.

20ForeignCorruptPracticesAct.


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TABLETPCINDUSTRY

TheTabletPCindustryisdefinedbyasignificantmarketsize(nearly63.6milliontabletssoldgloballyin2011)withagrowthrateof261.4%

fromthepreviousyear.21Rivalrywithintheindustryisintenseascompetitorsincludesomeofthelargestfirmsintheworld.Additionally,the

natureandthepaceoftechnologicalchangerequireconstantinnovation.

Manyofthesefirmsincorporateforwardintegrationintotheirdistributionstrategyandmaintaincontrolovertheirpointsofsaledirectly.Globally,flexibilityinthisregardhasproventobeanadvantageinmarketswhereinfrastructureisweakandthesekindsofmicro-managed

distributionchannelsarecostlytocreate.22ThedesignanddevelopmentofTabletsistaxingfromacapitalstandpointbecauseitisbyitsnaturea

high-techindustryandthereforerequiressignificantinvestmentinresearchanddevelopmentinputs.Fornewentrants,thesecostspose

significantbarrierstoentry;forlargerfirms,thesecostscanposebarrierstoexitasitcantakesignificantresourcestoestablishthecapacityto

manufactureTablets.

Goingforward,theTabletindustryisexpectedtogrowatanexponentialrate.AstudybyInfiniteResearchsuggeststhat147.2millionunits

willbesoldin2015,asignificantincreaseoverthe16.1soldin2010thatrepresentsacompoundannualgrowthrateof56%.23Astheindustry

movesthroughthegrowthphaseandintomaturity,consumerusagewillcontinuetobemorewidespread:inIndia,thiswillreflectanexpansionof

TabletsintoaproductadoptedbyanincreasinglysophisticatedIndianmiddleclasswhohasmoredisposableincomeandayouthdemographic

interestedinmobilewebtechnologies.24Movementintomaturityalsomeansthatfewerfirmswillcontinuetocompeteeffectivelyasmanyareforcedtoexittheindustry.Firms

thatdonotsellwellduringthegrowthphasewillnotbeabletorealizetheeconomiesofscaleandexperientialvalueofthelearningcurve

necessarytomaintainmarketshareandsustaincompetitiveadvantageastheTabletmarketreachesmaturity.

Fromaninstitutionalperspective,theIndianbusinessenvironmenthasbecomeincreasinglymoreliberalizedinrecentyears.The2012

foreigndirectinvestmentreformsmeanthatfirmslikeApple,whoaddvaluetotheirsupplychainbycontrollingthepoint-of-sale,canmaintain

thiscorecompetencyinIndia.ThetrendtowardsreducedeconomicbarriersinIndiaandtradeliberalizationhasbeenongoingsincethemid-1980s

andwhilenotprogressingatanoptimalrate,appearstobecontinuingsteadily.25,26

Despitetrailingbehindintermsofmarketshare,Appleiscapableofhandlingtheindustryscompetitiveforcesinaneffectiveway(see

APPENDIXII,Exhibit7).BothbuyersandsellershavelittlepowerwhendealingwithApple.SellersareeagertomanufactureAppleproductsorprovidecomponentpartswhilebuyerscannotindividuallyaffectpricechanges,betheyconsumersorauthorizedresellers.

WhileseveralsubstituteproductsstillthreatenthemarketforTablets,themajorityofthese,suchasdesktopcomputersandvideogame

consoles,areatalaterstageintheirrespectiveproductlifecyclesthantheTablet.Therefore,thegrowthpotentialforTabletswillallowthis

emergingindustrytoedgeoutmanyofitscompetingsubstitutesgoingforwardandevenpotentiallyovercomenetbookcomputersalesby2016.27

21GartnersaysAppleWillHaveaFreeRuninTabletMarketHolidaySeasonasCompetitorsContinuetoLag

22WhyIsntAppleInterestinIndia?

23WorldwideComputerTabletMarketForecast

24TabletIndustryInIndia(2011-15)

25

EconomicSurveyofIndia 26StartingaBusinessinIndia

27TabletShipmentsToOvertakeNotebooksin2016,NPDSays


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Regardingthethreatofnewentrants,themostwell-establishedfirmsarehandsomelyfinanced,havestrongbrandawareness,and

possessintellectualpropertyrightsoverthekeyfacetsoftheirdesignandmarketingprocesses.Newentrantswillberequiredtoinvestheavilyin

expensiveresearchanddevelopmenttocreateinnovativeproductsthatdonotreplicatethosealreadyofferedbythelargestfirmsintheindustry.

ThethreatofnewentrantsintotheIndianTabletmarketisveryreal;thepossibilityofsmallerfirmsattaininglargesharesofthemarketifbigfirms

likeApple,Samsung,andToshibacontinuetoinvestheavilyinIndiaisnot.

AppleskeycompetitorwithintheIndianTabletPCmarketisSamsungbecausetheybothsellwithinthesamepriceandqualityrange.Each

ofthesecompanieshasestablisheddistributionchannelsthatrunthroughweb-basedandbrick-and-mortarauthorizedresellers,butSamsungalso

providesTabletsalesonitsowne-storewebsite.28Further,AppleandSamsungarebothverticallyintegratedtothesamedegree.29Asoflate

2011,bothcompetitorsofferedtwotabletsforIndianconsumerstochoosefromwhichoffersimilarproductfeatures:high-definitiontouch

screens,fastwebbrowsingcapabilities,interactiveandcustomizableuser-friendlyhomescreens,accessorycompatibility,remoteconnectivity,

andmediafunctions.

Lookingmorebroadly,allcompetitorswithintheIndianTabletPCindustryincludingAcer,Dell,HP,Motorola,RIM,Toshiba,andHTC

centertheirrivalpositioningaroundthreekeysuccessfactors:performance,portability,andprice(seeAPPENDIXII,Exhibit5).Intermsof

performance(DiskSize,Resolution,BatteryLife),ApplesiPaddoesexceptionallywellcomparedtoitscompetitorsandoutpaceseachofthem

whenlookingatanaggregatedperformancescorecomprisingthesethreeelements.30Appleis,however,inthemiddleofthepackintermsof

portability:SamsungsGalaxyTab7,DellsStreak,andAmazonsKindleFirearealllighterthaneitherofApplesiPadsandofferasmallerdisplaysize.31RIMsBlackberryPlaybookleadstheindustryintermsofportabilitywithadisplaysizeof7inchesandaweightofjust400ounces,only

about2/3theweightofApplesiPads.32

Fromapricingstandpoint,theseTabletsrangefromUS$199(AmazonKindleFire)to$US799(MotorolaXOOM).33Thisisadiverseprice

range,andApplefallsalmostexactlyinthemiddlearoundUS$500.34WhileAppledoesnottypicallycompeteonprice,straddlingthemidrange

withthepricingofitsTabletsinIndiaallowsAppletoremaincompetitivewithconsumersthatarepricesensitivewithouttheiPadlosingits

reputationorimageasahigh-quality,well-designed,cutting-edgeproduct.35

28SamsungMobileTabletIndia

29Applevs.Samsungwithasideof Sony:VerticalIntegration Wars

30TabletPCComparison.

31Ibid.

32Ibid.

33

Ibid.34Ibid.

35HowToMakeYourCompanyMoreLikeApple


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APPLEINCORPORATED

Onacorporatelevel,Applehasdecidedtocompeteinhigh-techconsumerelectronicsandstrivestocompeteinnumerousmarketsin

ordertocreateavailabilitytoasmanyconsumersaspossible.WhileithasestablishedapresenceinIndiathroughtheuseofpremiumresellers,

itshouldbemoredynamicallyinvestedintheIndianmarketbecauseoftheincrediblegrowthpotentialandmarketsize.ThoughApplemaynot

valueIndiaintheinterim,itwillnotbeabletoretaintheoptiontobecomeamajorplayerintheIndianTabletPCmarketatsomepointdownthelineifitdoesnottakethemarketseriouslytoday.

AkeycomponentofApplescorporatelevelstrategyistodiversifytheconsumersegmentsthatittargets,somethingvitalwithsuchdiverse

Indianconsumersegments.36ThisdoesnotnecessarilyhavetodefyApplescommitmenttoanarrowproductlineandcomefromdifferentiated

productdesign,however.ForApple,differentiatingmeanscreatingsynergybetweenitsiPadandiTunes,theworldsmostwidelyuseddigital

entertainmentplatformthatisprojectedtobecomeitsown$32billionbusinessforAppleby2015.37iTunesisagreatmeanstogenerateinterest

inApplesiPadfromdifferentdemographicsasentertainmentiseasilyadaptabletolocaltastesandpreferences.Indiaalreadyhasitsowndigital

iTunesStore,andthisprovidesaforumforAppletocommunicatetheseamlessintegrationofIndianentertainmentwithApplesbroaddigital

medianetwork.

WithintheIndianmarket,Appleneedstoadoptamoreoffensivestrategyatthebusinesslevelinordertobecomeamarketleader.While

AppleleadstheTabletPCindustryintermsofglobalmarketshare,itseffortsinIndiathusfarremainlackluster.AppleneedstocapitalizeontheWesternizationofIndia38,39anditsownfirmresourcesandcapabilities(seeAPPENDIXIII,Exhibit11)byexpandingitsglobalbrandandmakinga

concreteattempttoleadtheIndianTabletmarket.Appleneedstoleverageitsbrandequity40andbringitshigh-qualityproductsandcustomer

serviceexperienceintoanIndianmarketwhereconsumersarebecomingincreasinglysophisticatedasurbanincomesarebeginningtorisewith

theenlargementoftheIndianmiddleclass.Applehasasustainablecompetitiveadvantageintermsofitstechnologicalresources(i.e.itscapacities

fororganizationalinnovationandchange)andcapabilities(abilitytofinanceresearchanddevelopment).Applealsomaintainsacompetitive

advantageinotherintangibleresourcesandcapabilitiesincludingitsreputation41thepublicsperceptionofApple,howeagerlyindividualswould

recommendApple,andhowlikelytheywouldbetoinvestinAppleanditshumancapital:everythingfromApplestoreemployeetrainingto

corporateleadershipthatdrivesemployeestoheightenedlevelsofbothexcellenceandefficiency.Applescompetitivestrategieswithregardsto

itsTabletPCsinIndiathereforeneedtobefoundedonitsabilitytoprovideinnovativeproductsandanoutstandingshoppingexperienceatacompetitiveprice.

Fromafunctionalperspective,ApplesprimaryfocusneedstobeonmarketingitsiPadinIndiasoastomoreeffectivelycommunicate

valuetotheIndianconsumer,avitalfactorforpenetratingIndia.42TheuseofsocialmediaisonewaythatApplesfunctionalstrategycanmanage

36Indianconsumerisextremelyvalueconscious

37Apple'sForgotten$8BillionBusiness:iTunes:

38IndianCultureIncludesWesternCulture

39IsIndiaStillIndia?

40

The20MostIconicBrandAndWhyTheyWork41ApplesReputationistheBestAmongTopBrands

42Indianconsumerisextremelyvalueconscious


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toestablishawarenessabouttheApplebrandandunderstandingaboutitsproductsinahistoricallyunder-brandedmarket.43Thefactthat

Indianconsumershavefeltasenseofbeingproduct-dumpedbyAppleasasecond-rateproductspeakstoIndianconsumersdesirefor

continuedproductdevelopment;forApple,thismeansincorporatinginnovationandproductlineextensionsintoitsfunctionalstrategyinIndia.

AfinalfacetofApplesfunctionalstrategypertainstoitshumancapitalandhowitcreatesacompetitiveadvantage:thein-storeexperience

providedthroughApplescompany-ownedretaillocationsisvitalforaproductthatismosteffectivelyengagedthroughtherelationshipthatApple

haswithitsconsumers.

STRATEGICPLAN

InordertoavoidlosingmarketshareandtoestablishitselfasapremierbrandinIndiaforbothnowandthefuture,Appleneedstoexpand

morefullyintoIndiaandcommittoaphysicalpresencethereforthelong-term.

AppleStoresinIndia

WithoutaretailpresenceinIndia,Appleismissingoneofthekeycomponentsofitsvaluechain:customerservice(seeAPPENDIXIII,

Exhibit12).AppleshouldenterIndiabyestablishingAppleStorelocationsthroughoutIndiaslargestcities.Initially,Appleshouldopenthreestores:oneinMumbai,oneinDelhi,andoneinBangalore.ThesearethethreelargestmarketsinIndiabypopulation,andtheirdispersionaround

threeofIndiaskeyregions(WestCoast,NorthernInland,andtheSouth)willenableAppletogainafootholdfromwhichitcanbegintoestablish

itsowndistributionnetworks.Withintwoyearsofopeningitsdoorsinthesethreemarkets,AppleshouldthenexpandintoHyderabad,oneofthe

wealthiestcitiesinIndiaanditsde-factotech-hub,andKolkatta,alargeportcityintheNorth-EasternregionofIndia.Thesetwocitiesrankfifth

andseventh,respectively,withregardtomostpopulouscitiesinIndiaandarealsoamongthetopfivemostvaluableIndianmarketsintermsof

wealth,levelofconsumption,andoverallawareness.44

ApplesretailentryintoIndiashouldbedoneusingaGreenfieldforeigndirectinvestment.Whilethisposesthemostsignificantamountof

risktoApple,italsooffersthemostcontrol,somethingvitaltothecompleteestablishmentoftheApplebrandinIndia.Fewcompanieshavethe

financialresourcestotake-onthiskindofproject,butAppleiswell-equippedbecauseofitslowdebtandhighcashflow.Asasingle-brandretailer,Applewillnowbeabletoenterwithaforeigndirectinvestmentof100%,aSeptember2012reformthatnearlydoubledtheforeignallotment.

Currently,Applesellsselectnon-AppleaccessoriesinitsAppleStores,somethingthatwouldcauseitsinvestmentinIndiatobecomea

multi-brandinvestmentandwouldallowforupto51%only.Tostrategicallyaddressthisissue,Appleshouldinvestigatethepossibilityof

partneringwithlocalconsumerelectronicsstorestoset-upshopnextdoortoApplelocations.Evenbolder,totakethetacticastepfurther,Apple

couldrentoutaportionofitsactualAppleStoresdedicatedtoanindependentlycontractedaccessoriesretailer,similartoamallkiosk.Thisway,

Applewouldstillexertitscustomerserviceinfluenceoverthepartnerorindependentcontractorwhilebeingallowedtoinvest100%initsretail

locationswithoutpenalty.

43NeedToHaveorNiceToHave:IndianConsumerWantsBoth

44Indiastop10towns.


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ThealternativeapproachforApplewouldbetoenterthroughacquisition;however,thiswouldnotsuitAppleinIndiabecausethey

wouldenduppayingahighpriceforadomesticconsumerelectronicschainsellingdiverseinventorythatApplewillnotretaininitsownstores

andnumerousretaillocationsthataresuperfluousforApplesplantoenterthroughthreeIndianflagshipstoresandexpandsurgicallyfromthere.

Appledoesnotrequirerealestateinhighquantity,butinstead,inhighquality.

iTunesinIndia

iTunesisthecentrallinkbetweenallofApplesdevicesasfarasdigitalentertainmentmedia.ItpresentsahugeopportunityinanyApple

marketbecauseitissupremelystandardizedconsumersallovertheworldwanttobeabletodownloadsongsbyglobalpopartists(thinkAdele)

andbandswhohavemadeacross-culturalimpact(thinkTheBeatles)whilealsoallowingforanexceptionalamountofcustomizationand

tailoringtolocaltastesandpreferences.iTunesisalsothemechanismbywhichAppletakesitbrandontonon-Applecomputeroperating

platforms,allowinguserstoexperienceiTunesontheirpersonalcomputers,engagingwiththeproductandincreasingtheirinterest.Whena

purchasedecisionisstimulatedthroughhavingworkedwithApplesiTunes,ApplethenisabletoselliPadsandiPhones,deviceswhereiTunes

doesnotcrossoperationalborders(i.e.iTunesisnotavailableonSamsungorRIMstablets).iTunesholds66.2%ofglobalmarketshare45andmust

solidifyitselfasthemarketleaderfordigitalmediadistributioninIndiainordertobolsteritsbrandreputationthere.

DistributioninIndia

OneexpensivecostincurredbyAppleinvestingmorefullyinIndiaisthetransportationofitsgoodsfromwarehousesintheU.S.toIndia.ThiscostcouldbereducedifAppleinsteadset-upawarehouseinIndiawheretheycouldkeepproductsfortheIndianmarketinordertomore

easilymeetconsumerdemandasmoreiPadsaresoldinIndia.ThiswouldalsoallowAppleanopportunitytosatisfytherequirementthatatleast

30%ofthevalueoftheirsalesmustbesourcesfromlocalfirms.IfApplemanagestoset-upawarehouseandbeginstoconstructitsownIndian

distributionnetwork,thisiscertainlyanoperationalprocessthatwouldaddvalueandallowAppletosourcelocally.Moreover,creatinglocaljobs

inIndiawillpermitAppletocurryfavourwithIndianconsumersasApplebecomesabroaderemployerbeyondjustitsretailstores.

Further,ApplemaybeabletousethispermanentphysicaloccupationtoinvestigatethepossibilityofmovingsomeofitsChinese

manufacturingoperationstoIndia,anationwhereintellectualpropertyrightsareconcretelyprotected.46Indiaiswell-knownforbeingatech-

savvynationwithalargepoolofworkers.Also,theaverageageofanIndianworkeris23,whileChineseworkersaverage35yearsofage.47

FoxconnalreadyhasafacilityinaSpecialEconomicZoneinChennai48,oneofIndiaswealthiestcities.49,50Lastly,severalIndiancompaniesarein

thesamebusinessasFoxconnandpossesssimilarmassproductioncapabilities,includingBharti,HCLTechnologies,andReliance

Communications.51

45iTunesnowholds66%ofdigitalmusicmarket

46IntellectualPropertyRights

47HedgingChinaCouldAppleManufacturetheiPadinIndia

48Ibid.

49

Top10WealthiestCitiesinIndia 50Top10RichestCitiesofIndia

51HedgingChinaCouldAppleManufacturetheiPadinIndia


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12

WorksCited

2ForeignCorruptPracticesActReporter,AppendixA(2ded.)

Apple'sForgotten$8BillionBusiness:iTunes,BusinessInsider(March15,2012):http://articles.businessinsider.com/2012-03-15/tech/31195494_1_itunes-ios-smart-phones

Applevs.SamsungwithasideofSony:VerticalIntegrationWars,ZDNet(July30,2012):http://www.zdnet.com/apple-vs-samsung-with-a-side-of-sony-vertical-integration-wars-

7000001818/

ApplesReputationistheBestAmongTopBrands,WallSt.CheatSheet(February2012):http://wallstcheatsheet.com/breaking-news/apples-reputation-is-the-best-among-top-

brands.html/

Blackberry-makerResearchInMotiontoexpandfootprintto160citiesinIndia ,TheEconomicTimes(February13,2012):http://articles.economictimes.indiatimes.com/2012-02-13/news/31055152_1_blackberry-smartphones-blackberry-curve-blackberry-style

CulturalDimensions,China. GeertHofstede:http://geert-hofstede.com/china.html

CulturalDimensions,Japan. GeertHofstede:http://geert-hofstede.com/japan.html

CulturalDimensions,India. GeertHofstede:http://geert-hofstede.com/india.html

EconomicSurveyofIndia ,OrganisationForEconomicCo-OperationandDevelopment(October2007): http://www.oecd.org/economy/surveys/39452196.pdf

GartnersaysAppleWillHaveaFreeRuninTabletMarketHolidaySeasonasCompetitorsContinuetoLag ,GartnerReport:http://www.gartner.com/it/page.jsp?id=1800514

HedgingChinaCouldAppleManufacturetheiPadinIndia ,ChinaBriefing(February17,2012):http://www.china-briefing.com/news/2012/02/17/hedging-china-could-apple-

manufacture-the-ipad-in-india.html

HowToMakeYourCompanyMoreLikeApple ,Technorati(April18,2012):http://technorati.com/business/article/how-to-make-your-company-more/

IloveIndiabutnotitsdistributionnetwork:AppleCEO ,DailyNews&Analysis(July25,2012):http://www.dnaindia.com/india/report_i-love-india-but-not-its-distribution-

network-apple-ceo_1719714

Indianconsumerisextremelyvalueconscious:LutzKothe,VolkswagenPassengerCars ,TheEconomicTimes:http://articles.economictimes.indiatimes.com/2011-07-

20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars

IndianCultureIncludesWesternCulture ,IndiaFirst-Hand(September22,2010):http://indiafirsthand.com/2010/09/22/indian-culture-includes-western-culture/


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Exhibit1.1CountryBenefit,India

MarketSize/SalesPotential

TheTabletPCmarketinIndiaisoneofthefastestgrowingmarketsaroundtheglobeandisexpectedtosurpassUS$800Mby2016.Withits

introductioninJuly2010inIndia,themarkethaswitnessedhugegrowthintermsofdemand,shipmentsandemergenceofvariousplayers,

national&international,intheindustry.ThefiguresandthegrowthrateindicatethattheTabletPCmarketisstillanichemarketinIndiaand

hashugepotentialinthecomingyears.

Ease&Compatibilityof

Operations

FromaBusinessOperationsperspective,USfirmsareabletoeasilyattracttalent-thebestemployersinIndiaareconsideredtobetheMulti-

NationalCompanies,whichtypicallyofferbettersalaries,5daywork-weekswith8-9hourwork-days,andhaveabetterculture.SotheUSfirm

shouldbeabletoattractreasonablygoodtalenteasilytoset-upandmanagetheiroperations.1

ResourceAvailabilityIndia'smajormineralresourcesincludeCoal(fourth-largestreservesintheworld),Ironore,Manganese,Mica,Bauxite,Titaniumore,Chromite,

Naturalgas,Diamonds,Petroleum,LimestoneandThorium.

PriceLevels&ElasticityThePriceLevelsandelasticitytendtostayconstantinIndialongerthanintheUS.Consumersarecomfortablewaitingforayeartobuya

productatalowerpricelevelthanpayabigpremiumtobuytheproductduringlaunch.2

IncomeLevels&ElasticityAnannualsalaryof$10,000isconsideredOKinIndia.95%oftheIndianpopulationmakeslessthan$5,000peryear.Sothetargetsegmentfor

productslikeApplewillonlybe2-3%ofthetotalpopulation.InflationinIndiaisveryhigh-7%+perannumtypically.Sothisalsoplaysabigrole

intheactualspendingpoweroftheconsumers.3

IncomeInequalities

InequalityinearningshasdoubledinIndiaoverthelasttwodecades,makingittheworstperformeronthiscountofallemergingeconomies.

Thetop10%ofwageearnersnowmake12timesmorethanthebottom10%,upfromaratioofsixinthe1990s.Moreover,wagesarenot

smoothlyspreadouteventhroughthemiddleofthedistribution.Thetop10%ofearnersmakealmostfivetimesmorethanthemedian10%,

butthismedian10%makesjust0.4timesmorethanthebottom10%.

SubstitutabilityofProducts

WhileTabletPCshavebecomeanemergentindustryglobally,theirtreatmentinIndiaasnotonlyanemergingproduct,butalsoaniche

product,meansthatthereisahigherloyaltytosubstituteproductsinIndiauntilthepopularityofTabletPCsincreases.Substituteproducts

rangefromothercomputingdevices(i.e.laptopsanddesktops)andvideogameconsolestopersonalentertainmentdevicesandmobilephones

(i.e.smartphones).

ExistenceofTradingBlocs WorldTradeOrganization

Taste&OtherCulturalFactorsTheconsumerinIndiaisextremelyvalueconscious;theyarenowwelltravelledandeducatedandthereforeareawareofwhatisavailablein

thewesternworld.Theywantthelatest,mostmoderntechnologywithouthavingtopayaheavypriceforit.4


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15

Exhibit1.2CountryCost,India

LabourCost Low,butgraduallyincreasing.5,6

UtilityCosts

UtilitycoststhroughoutIndiavarygreatly.InMumbai,forexample,theaveragemonthlycostforbasicutilities

(electricity,gas,water,garbage)fora278.8squarefootapartmentrunataboutUS$36.99,withcostranginginthe

cityfromUS$25.11toUS$80.70.AsofMay2012,theaveragesizeofanApplestoreisabout8,400squarefeet7,so

withoutfactoringinadditionalcostsaddedtocommercialrealestateinadditiontoresidentialrealestatein

Mumbai,averagemonthlyutilitycostsforasingleApplestoreinthiscitywouldcostUS$63,312.25

TaxRatesCorporateTax:Themaincorporatetaxrateisaround42%.Upto30%ofincomeistaxablefordomesticcompanies

aretaxable,inadditiontoa10%surchargeanda2%fee.Forforeigncompanies,40%ofincomeistaxable,witha

2.5%surchargeand2%educationfee.8

RealEstateCosts High(Urban)/Low(Rural)

AvailableCapitalCosts

MostforeigncompanieswillberequiredtobringtheirowninvestmentintoIndia-thegovernmenthasbeen

aggressivelypromotinginvestmentsintothecountryandofferstaxbenefits,incentivesetc.TheotherapproachforeigncompanieshavetakenistoropeinalocalJVpartnerwhoowns50%oftheentityandalsoinvests50%in

thebusiness.E.g.HondaCarsIndiaisaJVwiththeShriramGroup.HondaTwoWheelerswasaJVwiththeHero

Groupwhentheysetitup-Hondaboughtthelocalpartner'sstakelastyear.Havingalocalpartnermakesiteasier

fortheforeigncompanytoestablishandstarttheoperationsinIndia.AppleinIndiaisrepresentedthrough

RelianceDigital-RelianceisoneofthelargestbusinessgroupsinIndiaandthepromoter,MukeshAmbani,is

amongthe100richestindividualsintheworld.9

TransportationCosts High(Commercial)

OtherInputCosts High

SupplyCosts

LogisticsisanightmareandalsoveryexpensiveinIndia.Flipkart(www.flipkart.com)-thelargestconsumer

shoppingsiteinIndia,hasitsowndistributionnetwork.FuelcostsarehigherinIndiathanintheUS(aliterofPetrol

costs$1.5inIndiatoday).Inaddition,eachstatehastheirownTaxstructure-soshippingproductsbetweenstates

isnotveryseamless.IndiaisstillonaVATstructureandnotaGSTstructure.Thismeansthatifaproductis

manufacturedinastate,andsoldtoaconsumerinanotherstate,Taxisapplicableinbothstates.Thisincreasesthe

costoftheproduct.10


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Exhibit1.3CountryRisk,India

Systemic

PoliticaldisagreementshaveadirecteffectonIndianeffortstocreateamoreattractivebusinessenvironment.Theseare

furtheredbystate-levelelectoralconsiderationsthatcomplicatethemajoritygovernment'staskingettingreformbills

passed.Thegovernment'sinabilitytoimplementitsreformagendacouldbecomeaseriousliabilitybetweennowandthe

nextelectionasIndianeedseconomicreformsinordertoencourageforeigndirectinvestmenttohelpthecountryreachits

goalsforeconomicgrowth.Becauseofanincreasinglydoubtfullegislativeposition,theIndiangovernmentislikelytodisplayafairamountofcautionwhenapproachingsomenecessary,butpoliticallysensitive,reforms.Nonetheless,thefact

thatIndiahasweatheredtheglobaleconomiccrisisinfarbettershapethanthemuchmoreopeneconomiesinEastAsia

hasreinforcedpopularsentimentthatmeasuredreformisbest.11

Control

IndiasrestrictionsonforeignequityownershiparegreaterthantheaverageoftheBRICnations(Brazil,RussianFederation,

India,andChina).Indiaimposesrestrictionsonforeignequityownershipinmanysectors,andinparticularintheservice

industries.Sectorssuchasrailwayfreighttransportationandforestryaredominatedbypublicmonopoliesandareclosed

toforeignequityparticipation.Withtheexceptionofcertainactivitiesspecifiedbylaw,foreignownershipintheagriculture

sectorisalsonotallowed.Nonetheless,comparedtomanydevelopingnations,theIndiangovernmenthasbeenrelatively

limitedinitsdecisiontonationalizemanycompanies.IndiannationalizationhascenteredprimarilyonIndianbanks.

However,thegovernmentasalsonationalizedanairline(AirIndia,1953)andthecountry'scoalindustryandoilcompanies

(1973).TheIndiangovernmentalsonationalized106insurancecompaniesintofourlargeronesin1972.

PoliticalTurmoil

Applyingapoliticalstabilityindexmeasuringthedynamicbetweenthequalityofacountry'sgovernmentandthethreats

thatcancompromiseandunderminestability,Indiaranksat8onascaleof1to10,with10markingthehighestlevelof

politicalstability.12

Monetary

Highmonetaryrisk.India'sfiscalpoliciesandtheuseofanon-reservecurrencylimittheliquidityofcapitalwithinIndia.

Further,India'sinflationratethrough2011was8.87%comparedto3.34%intheU.S.attheendof2011.Lastly,India's

balanceofpaymentsimprovedinlate2011followingarecord-high,themonthlydeficitfallingtoUS$13.6BfromUSS$19.6B

inOctober2011.

Transfer ThishasbeenmadefairlyseamlessbytheReserveBankofIndia(www.rbi.gov.in)-theequivalentofthefederalreserveintheUS.Thisistypicallynotconsideredarisktodayforforeigncompanies.13

Operational

InvestingandSettingupbusinessesinIndiaforUScompaniesisnotextremelystraightforward-thereareseveralcountry

levelandstatelevelregulationsandnormstobemet.ButgiventhenumberofUScompaniesalreadypresentinIndia,

thereareseverallawfirms/accountingfirmsthatofferspecializedservicesforforeigncompanieslookingtoenterIndia.At

thistime,IwouldsaythatifaUSfirmwantstoestablishoperationsinIndia,thelegalandstatutoryrequirementscouldbe

easilytakencareof.14


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CAGEDistanceFramework

Exhibit2.1CulturalDistanceLanguage:TheofficiallanguagesoftheRepublicofIndiaareStandardHindi(spokenbyabout41%ofthe

population)andEnglish.15

Ethnic&SocialNetworks:DuetoIndia'ssub-optimallegalstructures,whichmaybeunabletoenforcea

contractbetweentwoparties(suchasrepaymentofaloanorhonoringabusinesstransaction),Indian

businesstransactionsoftenrelyonpersonalandfamilycontacts,orcharacteristicstheyconsidertrustworthy

tosubstituteformissinggovernanceandcontractualenforcement,especiallyinsituationswherepeople

mustmakeariskybusinessdealwhereonepartycouldeasilydefault.Thereisacommonperceptionthat

individualsthatcomefromlikebackgroundscaneasilyestablishbusinessrelationshipsorevengetaccessto

financethroughthetheircommunitynetwork.InthepresenceofIndiasweakinstitutions,peoplemaybeusingethnicstereotypestotrytominimizetheirriskduringbusinesstransactions.Similarly,whentwo

partiesfromthesameethnicityinteractduringabusinesstransaction,ahigherleveloftrustmaybe

established.16

Religion:IndiaiscomprisedofprimarilyofHindus(80%)withadditionalIndianspursuingIslam(14%),

Christianity(2%),Sikhism(2%),Buddhism(1%)andJainism(1%).AmericansareprimarilyProtestant(56%)

butalsopursueRomanCatholicism(28%),NoReligion(10%),OtherReligions(4%)andJudaism(2%).17

SocialNorms:WhereastheU.S.isaprimarilylow-contextculture,Indiaisamorehigh-contextculture.Thisisaculture,therefore,inwhichcommunicationreliesalotontheunderlyingunspokencontext,whichisas

importantasthewordsused.Thiscomesthroughinanon-confrontationalbusinessstyle,evenamidst

negotiations.Indiansalsoplaceagreatdealofemphasisonhierarchy(aproductoftheHindu)CasteSystem,

whichleadstoacontinuedfocusonfamilyandacollectivistidentityratherthanindividualismand

directness.Businessrelationshipsarebuiltontrustandmutualrespectandareconsequentlymorelong-

termfocused.18


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Exhibit2.2AdministrativeDistanceHistoricalTies:BothnationsaretiedtoaCommonwealthheritageduringtheBritishEmpirethroughBritishimperialism.

Eachnationthereforederivesthefoundationofitspolitical,legal,andeconomicsystemsfromthisBritishroot,whichwasa

democratic,commonlaw,andfreemarketsociety.

Political&MonetaryAssociations:BothIndiaandtheU.S.sharesomeformoranotherofassociationwithineachofvarious

internationalorganizations,bothpoliticalandmonetary.ThemostimportantofthesearetheIMF,theUN,andtheWTO.TheIMFservestostabilizeexchangeratesandoverseetheongoingconstructionoftheworldsglobalpaymentsystem.The

UNcreatescooperationinsuchareasofinternationalrelationsasinternationallaw,internationalsecurity,economic

development,socialprogress,humanrights,andtheachievementofworldpeace.TheWTOexiststoliberalizetradeacross

internationalborders.19

Severalotherinternationalorganizationswherebothnationsholdmembershiparealsoimportant,specificallyforApples

purposes.TheBankforInternationalSettlements(BIS)fostersmonetaryandfinancialcooperationandservesasabankfor

centralbankswhiletheMultilateralInvestmentGuaranteeAgency(MIGA)isaninternationalfinancialinstitutionwhich

offerspoliticalriskinsuranceguarantees.TheInternationalOrganizationforStandardizationpromulgatesworldwideproprietary,industrial,andcommercialstandardswhiletheOrganizationforEconomicCooperationandDevelopmenthelps

governmentstotakeoneconomic,social,andgovernancechallengesthatarisewithinamoreglobalizedeconomy.The

WorldCustomsOrganization(WCO)attemptstostandardizecustomspoliciesacrossglobalboundaries,importantforApple

whenexportingitsiPadsintoIndia.Lastly,andoneofthemostimportantconventionsforApple,istheWorldIntellectual

PropertyOrganization,aimedtoencouragecreativeactivity,topromotetheprotectionofintellectualpropertythroughout

theworld.20

PoliticalHostility:DuringtheColdWar,IndiadevelopedafairlycloserelationshipwiththeSovietUnionandIndias

relativelycooperativestrategicandmilitaryrelationswiththeSovietUnionandstrongsocialistpolicieshadadistinctly

adverseimpactonitsrelationswiththeU.S.AfterthedissolutionoftheSovietUnion,however,Indiabegantoreviewitsforeignpolicyinaunipolarworld,andtookstepstodevelopclosertieswiththeEuropeanUnionandtheUnitedStates,in

furtheranceofitsnationalinterests.Today,IndiaandtheUSshareanextensivecultural,strategic,military,andeconomic

relationship.21,22

InstitutionalFortitude:WhileIndiahasmadeseveral"'formidableachievements'infosteringdemocracy,growthandcultural

dynamism,'"theseaccomplishments"arenullifiedbyitsstructuralweaknesses,widespreadcorruption,poorleadership,extreme

socialdivisions,religiousextremismandinternalsecuritythreats."Essentially,Indiahasthefoundationofastrongdemocratic

politicalsystem,derivedthroughBritishinfluence,whichisbecomingincreasinglyliberalizedeconomically.However,poor

administrativeexecutionandinefficienciesateverylevelofpoliticalorganizationleadtocircumventionofinstitutions,ranging

fromevadingtaxestobusinessesbribingtheirwaythroughredtapeanddirebureaucraticinefficiency.23


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19

Exhibit2.3GeographicDistancePhysicalRemoteness:India'scapital,NewDelhi,is12,055kilometers(7,492miles)fromWashington,D.C.,thecapitalof

theUnitedStates,representingasignificantlevelofphysicalremoteness.

CommonLandBorder:IndiasharesborderswithBangladesh,China,Pakistan,Nepal,Myanmar,andBhutan.TheUnited

StatesshareslandborderswithbothCanadaandMexico.Thereisthereforealackofacommonborderbetweenthetwonations.

Sea&RiverAccess:Mumbai/Bombay,themostpopulouscityinIndia,islocatedalongIndia'sWesternCoastandis

accessibleviatheArabianSea,asizeablebodyofwaterthatisconnectedtotheIndianOcean.NewDelhi,thenation's

capital,islocatedintheNorthandinlandfromthebodiesofwatersurroundingIndia.However,theGangesRiver(andits

tributarytheYamuna)allowforriveraccessintogreaterNewDelhi.

Transportation&Communication:Intermsoftransportation,Indiahasdevelopedairways,railwaysandroadways.India

haswelldevelopedairconnectivity.Flightsfromallpartsoftheworldarriveanddepartastherearelargenumbersof

domesticaswellasinternationalairportsinthecountry.RailwaysarethemostimportantmodesoftransportationinIndia.

ItisthecheapestandthemostconvenientformoftransportationinIndia.Almostallpartsofthecountryarewell

connectedbytherailwaynetwork.AnothercommonformoftransportationinIndiaistheroadway.Roadsconnectalmost

allpartsofthecountry.Buses,carsandotherroadtransportsplyregularlyandefficientlyontheroadsofIndia.Traveling

byroadsislessexpensive.CommunicationiswidelydevelopedinIndia.Telephoneservice,electronicmail,cellularphones,

Internet,voicemail,letters,courierservicesandmanyothersconstitutethemodesofcommunication.

Climate:TheclimateinIndiavariesfromtropicalmonsoonintheSouthtotemperateintheNorth.Theaveragedaily

temperatureinJanuaryinIndiais14.10C(57.38F)ascomparedto-0.70C(30.74F)intheUnitedStates.Theaverage

dailytemperatureinJulyinIndiais32.00C(89.60F)ascomparedto24.20C(75.56F)intheUnitedStatesinJuly.


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20

Exhibit2.4EconomicDistanceConsumerIncomes:Indiaspercapitaincomein2011wasUS$1,066.14whileitspercapitapurchasingpowerparity(PPP)wasUS$3,187.27.

Conversely,theU.S.percapitaincomein2011wasUS$46,662.88.24

NaturalResources:Indiareliesprimarilyoncoal(domestic)andoil(foreignimport)foritsincreasingenergydemands.ThroughoutIndia,

mineralsofvariouskindsareminedforvariouspurposes,includingironore,naturalgas,diamonds,andpetroleum.Withasignificantamount

ofrainfalleachyear,Indiaalsohasvastexpansesofarablelandthroughoutthecountry.

FinancialResources:In2011,Indiasinflationratewas11.27%whiletheinterestratewasrightat4%.Additionally,totaldepositsinIndias

commercialbankshaverisenfromlessthanRs5000crorestoupwardsofRs1,200,000croressince1969(representing280-foldgrowthin

threedecades).GoldreservesheldbyprivatecitizenshavegrowncommensuratelyandmayroughlyequaltotalinvestmentinIndianstock

markets.Inaddition,Indiasforeignexchangereserveshaverisendramaticallyfrom$1billionto$110billionduringthepast13years.25

HumanResources:India'slarge,skilledworkforcemakesitapopularchoiceforinternationalcompaniesseekingtooutsourcework,andthere

alsohasbeenamanufacturingboominrecentyearsdrivenbytheefficientuseoftechnology.26

Infrastructure:TheIndianinfrastructuresystemsuffersfromalackofmaintenanceandgovernmentandutilityinvestment,particularlyinthe

electricindustry.TheIndianpowersectorismoreinefficientthansimilarsectorsinMexico,Brazil,Indonesia,SouthAfrica,China,and

Singapore.Poorgovernanceisinvolvedaswell,and[t]hisrangesfromcorruptionandvenalitywhenpoliticiansencouragepowertheftor

diversionofpowertotheirconstituenciestopanderingpoliticsinwhichpoliticiansprovidecheaporfreepowertofarmersandothergroups

inexchangeforsupport.Therearealsoproblemsofpowerlostnaturallyintheprocessoftransmissionanddistributionorwhenlawsagainst

theftarenotenforced.Further,manyIndianinfrastructurefirmshavestruggledrecentlyandasbusinessslows,sodoinfrastructure

improvements.ThereisahighlevelofcentralizationamongstinfrastructurefirmsinIndia,whichmeansthatindividualfirmsaremoreclosely

tiedtogovernmentpolicyandpoliticalgovernance.However,inlightofthesestruggles,theIndiangovernmentisplanningtoinvestheavilyinitsinfrastructureoverthenextseveralyears,withthenewMinisterofRoadTransportandHighwaysindicatingthatthegovernmentwill

accelerateitsbuildingprogram.Regardingitspowershortages,theIndiangovernmenthastargetedcapacityadditioninpowergenerationasa

keyobjective.27,28

Information&Knowledge:Indiaisa$1trillioneconomythatneverthelessstruggleswithaveryhighpovertyrateandverylowaccessto

knowledgeforalmostseventypercentofitspopulationthatlivesinruralareas.However,in2005,IndianParliamentpassedtheRightTo

InformationActwhichstatesthefollowing:AnActtoprovideforsettingoutthepracticalregimeofrighttoinformationforcitizenstosecure

accesstoinformationunderthecontrolofpublicauthorities,inordertopromotetransparencyandaccountabilityintheworkingofevery

publicauthority,theconstitutionofaCentralInformationCommissionandStateInformationCommissionsandformattersconnected

therewithorincidentalthereto.Whilenotanovernightsolution,thiskindofdirectionprovidesthefoundationforIndiatodevelopamoresophisticatedframeworkforcreatingmoreinformedcitizensandmorereasonablestanceonknowledgemanagement.29


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Exhibit3.1Hoffstede'sCulturalDimensions,India30

PowerDistanceIndividualism/

Collectivism

Masculinity/

FemininityUncertaintyAvoidance

Long-Term

OrientationIndiascoreshighonthis

dimension,77,indicatinganappreciationforhierarchyanda

TopDownStructureinsociety

andOrganizations.Ifonewereto

encapsulatetheIndianattitude,

onecouldusethefollowing

wordsandphrases:dependent

onthebossorthepowerholder

fordirection,acceptanceofun-

equalrightsbetweenthepower-

privilegedandthosewhoare

lesserdowninthepeckingorder,

immediatesuperiorsaccessible

butonelayerabovelessso,

paternalisticleader,

managementdirects,gives

reason/meaningtooneswork

lifeandrewardsinexchangefor

loyaltyfromemployees.Real

Poweriscentralizedeventhough

itmaynotappeartobeand

managerscountonthe

obedienceoftheirteam

members.Employeesexpecttobedirectedclearlyastotheir

functionsandwhatisexpected

ofthem.Controlisfamiliar,even

apsychologicalsecurity,and

attitudetowardsmanagersare

formalevenifoneisonfirst

namebasis.Communicationis

topdownanddirectiveinits

styleandoftenfeedbackthatis

negativeisneverofferedupthe

ladder.

India,withascoreof48isa

societywithclearcollectivistictraits.Thismeansthatthereisa

highpreferenceforbelongingto

alargersocialframeworkin

whichindividualsareexpected

toactinaccordancetothe

greatergoodofonesdefinedin-

group(s).Insuchsituations,the

actionsoftheindividualare

influencedbyvariousconcepts

suchastheopinionofones

family,extendedfamily,

neighbours,workgroupand

othersuchwidersocialnetworks

thatonehassomeaffiliation

toward.Foracollectivist,tobe

rejectedbyonespeersortobe

thoughtlowlyofbyones

extendedandimmediatein-

groups,leaveshimorher

rudderlessandwithasenseof

intenseemptiness.The

employer/employeerelationship

isoneofexpectationsbasedonexpectationsLoyaltybythe

employeeandalmostfamilial

protectionbytheEmployer.

Hiringandpromotiondecisions

areoftenmadebasedon

relationshipsthatarethekeyto

everythinginaCollectivist

society.

Indiascores56onthis

dimensionandisthusconsideredamasculinesociety.

Eventhoughitismildlyabove

themidrangeinscore,Indiais

actuallyverymasculineinterms

ofvisualdisplayofsuccessand

power.Thedesignerbrandlabel,

theflashandblingthatgoes

withadvertisingonessuccess,is

widelypracticed.However,India

isalsoaspiritualcountrywith

millionsofdeitiesandvarious

religiousphilosophies.Itisalso

anancientcountrywithoneof

thelongestsurvivingcultures

thatgivesitamplelessonsinthe

valueofhumilityandabstinence.

Thisoftenreignsinpeoplefrom

indulginginMasculinedisplays

totheextentthattheymightbe

naturallyinclinedto.Inmore

Masculinecountriesthefocusis

onsuccessandachievements,

validatedbymaterialgains.Workisthecenterofoneslife

andvisiblesymbolsofsuccessin

theworkplacearevery

important.

Indiascores40onthisdimension

andthushasamediumlowpreferenceforavoiding

uncertainty.InIndiathereis

acceptanceofimperfection;

nothinghastobeperfectnorhas

togoexactlyasplanned.Indiais

traditionallyapatientcountry

wheretoleranceforthe

unexpectedishigh;even

welcomedasabreakfrom

monotony.Peoplegenerallydonot

feeldrivenandcompelledtotake

action-initiativesandcomfortably

settleintoestablishedrollsand

routineswithoutquestioning.

Rulesareofteninplacejusttobe

circumventedandonerelieson

innovativemethodstobypassthe

system.Awordusedoftenis

adjustandmeansawiderange

ofthings,fromturningablindeye

torulesbeingfloutedtofindinga

uniqueandinventivesolutiontoa

seeminglyinsurmountableproblem.Itisthisattitudethatis

boththecauseofmiseryaswellas

themostempoweringaspectof

thecountry.Thereisasayingthat

nothingisimpossibleinIndia,so

longasoneknowshowtoadjust.

TheIndiansscore61,

makingitalongterm,pragmaticculture.InIndia

theconceptofkarma

dominatesreligiousand

philosophicalthought.Time

isnotlinear,andthusnotas

importantastowestern

societiesthattypicallyscore

lowonthisdimension.

CountrieslikeIndiahavea

greattoleranceforreligious

viewsfromalloverthe

worldHinduismisoften

consideredaphilosophy

morethanevenareligion;

anamalgamationofideas,

views,practicesandesoteric

beliefs.InIndiathereisan

acceptancethatthereare

manytruthsandoften

dependsontheseeker.

Societiesthathaveahigh

scoreonLongTerm

Orientation,typicallyforgivelackofpunctuality,a

changinggameplanbased

onchangingrealityanda

generalcomfortwith

discoveringthefatedpath

asonegoesalongrather

thanplayingtoanexact

plan.


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22

Exhibit3.2Hoffstede'sCulturalDimensions,UnitedStates31

PowerDistanceIndividualism/

Collectivism

Masculinity/

FemininityUncertaintyAvoidance

Long-Term

OrientationTheUnitedStatesscore

lowonthisdimension

(40),whichunderscorestheAmericanpremiseof

libertyandjusticefor

all.Thisisalso

evidencedbythefocus

onequalrightsinall

aspectsofAmerican

societyandgovernment.

WithinAmerican

organizations,hierarchyisestablishedfor

convenience,superiors

arealwaysaccessibleand

managersrelyon

individualemployeesand

teamsfortheirexpertise.

Bothmanagersand

employeesexpecttobe

consultedand

informationissharedfrequently.Atthesame

time,communicationis

informal,directand

participative.

TheUnitedStates,witha

scoreof91onthisdimension,

isahighlyindividualisticculture.Thistranslatesintoa

looselyknitsocietyinwhich

theexpectationisthatpeople

lookafterthemselvesand

theirimmediatefamilies.

Thereisalsoahighdegreeof

geographicalmobilityinthe

UnitedStatesandmost

Americansareaccustomedtodoingbusinesswith,or

interacting,withstrangers.

Consequently,Americansare

notshyaboutapproaching

theirprospectivecounterparts

inordertoobtainorseek

information.Inthebusiness

world,employeesare

expectedtobeself-reliantand

displayinitiative.Also,withintheexchange-basedworldof

work,hiringandpromotion

decisionsarebasedonmerit

orevidenceofwhatonehas

doneorcando.

TheUnitedStatesscore62

onthisdimensionandis

consideredamasculinesociety.Behaviorinschool,

work,andplayarebasedon

thesharedvaluesthat

peopleshouldstrivetobe

thebesttheycanbeand

thatthewinnertakesall.

Asaresult,Americanswill

tendtodisplayandtalk

freelyabouttheirsuccessesand

achievementsinlife,here

again,anotherbasisfor

hiringandpromotion

decisionsintheworkplace.

Typically,Americansliveto

worksothattheycanearn

monetaryrewardsand

attainhigherstatusbased

onhowgoodonecanbe.Conflictsareresolvedatthe

individuallevelandthegoal

istowin.

TheUSscores46onthis

dimensionandtherefore,

Americansocietyiswhatonewoulddescribeas

uncertaintyaccepting.

Consequently,thereisa

largerdegreeof

acceptancefornewideas,

innovativeproductsanda

willingnesstotry

somethingnewor

different,whetheritpertainstotechnology,

businesspractices,or

foodstuffs.Americans

tendtobemoretolerant

ofideasoropinionsfrom

anyoneandallowthe

freedomofexpression.At

thesametime,Americans

donotrequirealotof

rulesandarelessemotionallyexpressive

thanhigher-scoring

cultures.

TheUnitedStatesscores

29onthisdimensionand

isashort-termorientedculture.Asaresult,itisa

culturefocusedon

traditionsandfulfilling

socialobligations.Given

thisperspective,

Americanbusinesses

measuretheir

performanceonashort-

termbasis,withprofitandlossstatements

beingissuedona

quarterlybasis.Thisalso

drivesindividualsto

striveforquickresults

withintheworkplace.

Thereisalsoaneedto

havetheabsolute

truthinallmatters.


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23

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

$1,000.00

0 2 4 6 8 10 12

Price(

$US)

Display Size (Inches)

Exhibit 4.1 Strategic Group Map: Display Size

Acer Iconia Tab A500

Amazon Kindle Fire

Apple iPadApple iPad 2

Blackberry Playbook

Dell Streak 7

Motorola XOOM

Samsung Galaxy Tab 10.1

Samsung Galaxy Tab 7

Toshiba Thrive


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24

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

$1,000.00

0 2 4 6 8 10 12

Price(

$US)

Battery Life (Hours)

Exhibit 4.2 Strategic Group Map: Battery Life


Amazon Kindle Fire

Apple iPad

Apple iPad 2

Blackberry Playbook

Dell Streak 7

Motorola XOOM



Toshiba Thrive


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25

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

$1,000.00

0 100 200 300 400 500 600 700 800 900

Price(

$US

)

Weight (Grams)

Exhibit 4.3 Strategic Group Map: Weight


Amazon Kindle Fire

Apple iPad

Apple iPad 2

Blackberry Playbook

Dell Streak 7

Motorola XOOM



Toshiba Thrive


26/37

26

Exhibit5KeySuccessFactors,TabletPCs

KeySuccessFactor Weight Apple Samsung RIM Acer

Performance 50% 9 4.50 7 3.50 6 3.00 4 2.00

Portability 30% 5 1.50 6 1.80 9 2.70 4 1.20

Price 20% 3 0.60 3 0.60 6 1.20 4 0.80

SumofWeights 100%

StrengthRating 6.60 5.90 6.90 4.00

KeySuccessFactor Weight Amazon Dell Motorola Toshiba

Performance 50% 2 1.00 3 1.50 6 3.00 5 2.50Portability 30% 8 2.40 7 2.10 4 1.20 3 0.90

Price 20% 9 1.80 8 1.60 1 0.20 5 1.00

SumofWeights 100%

StrengthRating 5.20 5.20 4.40 4.40


27/37

27Exhibit6ProductLifeCycle,TabletPCsinIndia

Factor

GrowthRate

AlthoughfarbehindChinainconsumption,Indiahasthesecond-highestpenetrationoftabletPCsglobally,with10percentof

respondentsowningone.FuturegrowthfortabletPCsinIndiaalsolooksstrongwith10%ofIndianrespondentsplanningto

purchaseatabletPCthisyear.AsTabletPCsinIndiamovebeyondtheIntroductionstageandmorefullyintotheGrowthstage,this

growthratewillcontinuetoexpandasitbecomesexceedinglylarge.Globally,63.6milliontabletswereprojectedtobesoldglobally

in2011representinga261.4%increasefromthe17.6millionunitssoldin2010.TheIndianmarketisthereforelaggingbutsteadily

catchinguptotheglobalgrowthrate.

Competitors

WhenApplereleaseditsfirstiPadinIndiainJanuary2011,DellhasalreadyreleaseditsStreak7Tablet(October2012)andSamsung

hadalreadyreleaseditsGalaxyTablet7(November2010).Atthispoint,ApplehadfewlargeTabletPCcompetitorsinIndiaasthe

marketwasstillintheIntroductionstage.However,bytheendof2011,RIM,Motorola,andToshibahadallreleasedTabletPCsinto

theIndianmarket.Moreover,Acer,HTC,Cisco,andAmazonarelargecompaniesenteringtheTabletPCmarket.Lastly,Apple'siPad

mustalsocontendwithsmallerfirms'productsinIndiasuchastheiBallSlide,theReliance3GTablet,SMobility'sMi-720,the

MercurymTabandtheBeetelMagiq.

Segments Therearecurrently3keysegmentsemerginginIndia:PremiumCustomers,ValueCustomers,andPricePointValueCustomers.

Intensityof

Competition

Thecompetitionhereinisincreasinglyintense.WhenApplefirstreleaseditsiPadinIndia,thecompetitionwasfairlessintense.

However,overthepast3years,therehasbeenanexponentialincreaseinTabletPCcompetitionwithintheIndianmarketasnew

productshavebeenreleasedandconsumersbegintoadoptTabletPCsmoreconsistently.

Emphasison

ProductDesign

WhiletheIndianTabletPCmarketshiftsfromtheIntroductionstagetotheGrowthstage,theemphasisonproductdesignremains

high.Indianconsumerswant3Gaccessandproductsthatperformwellwhileretainingahighdegreeofportability.

Emphasison

ProcessDesign

IntheTabletPCmarket,competitorsneedtobeginplacingmoreofanemphasisonprocessdesignastheymoveintotheGrowth

phase,whereprocessdesignwillmakemoreofanimpactonrivalpositioningandhowcompaniesareabletoachieveeconomiesofscale,speed-uptheirlearningcurves,andmaintainefficientoperations.

MajorFunctional

Area(s)of

Concern

HavingputintheresearchanddevelopmenttocreateitsiPad,Apple'sfocus,andthefocusofitscompetitors,istoincreasesales

andcommunicatevaluetoIndianconsumersbymarketingitsiPadwidelyandeffectively.

OverallObjective

WhileIndianconsumershavebecomeincreasinglyawareofAppleanditsiPad,thereisaneednowtostimulateconsumerdemand

inIndiaasAppleattemptstogrowitsTabletPCbusinessthere.ThetransitionfromIntroductiontoGrowthmeansthatApplemust

imparttoIndianconsumersasenseofneedanddesireforitsiPadproductswhereconsumersarealreadyawareofwhattheproduct

isandthatitisavailabletothem.


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28

IndustryCompetitiveness

=HIGH

INDUSTRYCOMPETITORSThereareseverallargefirmsintheTabletPCmarket.Here,Appleiscompetingwithsomeof

thelargestcompaniesintheconsumerelectronicsindustry(Samsung,RIM,Toshiba,HP)aswellassomeoftheworld'slargest

emergingcompaniesoverall(Google,Amazon).Sustainablecompetitiveadvantagehereinhingesonconstantinnovationandanever-

evolvingtechnologicallandscape.

POTENTIALENTRANTSTheTabletPCmarketoffershighreturnsandtherefore,createsindustryattractiveness.ThereisthepossibilityofnewentrantsenteringtheTabletPCmarketastabletmodelsofferedinIndiais

expectedtoincreasefrom27modelsofferedby10vendorsto90modelsofferedby35vendors.However,theleadingfirmsinthisindustrycapitalizeonthepossessionofintellectualpropertyrightsandhighbrandequity,twocrucialbarrierstoentry.Essentially,thereisathreatof

consumerelectronicscompaniesdevelopingsuccessfulTabletPCofferingsthroughtheuseofpre-existingdistributionchannels,R&Dcapabilities,brandloyalty,andtechnologicalknow-how.

ThoughthethreatofentirelynewentrantswhoarenotalreadycompetingwithApplesucceedingintheIndianTabletPCmarketmaybelaw,thefactthatthemarketispoisedfor

rapidsaturationmeansthatthereisatleastamoderatethreatofnewentrantsintheindustry.

BUYERS

Buyersintheconsumerelectronics

industry(andtheTabletPCmarket

asanemergentsub-industry)have

littlebuyingpower,primarily

becauseenduserspurchasethe

productsdirectlyandtherefore,mostbuyersaremerelyregular

consumerswhomakelimited,

personalpurchases.Asendusers,

thesebuyersarenotconnectedto

afurtherpartofthesupplychain.

FromanRFMstandpoint,aTablet

PCbuyerwillnotoftenmakean

additionalpurchaseshortlyafter

makingafirstpurchase,purchases

donothappenfrequently

comparedtomostregular

purchases(suchasgroceriesor

clothing),andthougheachproduct

maybeasignificantcosttothe

consumer,individualsalesarenot

impactfulwhencomparedtothese

companies'totalrevenues.Tablet

PCbuyersarefragmented

(numerousanddifferent)andno

individualbuyerhasanyinfluence

ontheproductortheprice.

Ultimately,TabletPCcustomers

haveaverylimitedabilitytoput

firmsunderpressure,resultingin

lowbuyerpower.

SUPPLIERSSuppliersintheconsumerelectronics

industry(andtheTabletPCmarket)are

fairlyweakbecausethereisa

concentrationofpurchasers(largetech

companies)andthereisacredible

backwardsintegrationthreatfromthe

mainindustrycompetitors.Suppliers

havehigherswitchingcoststhanthe

companiesintheindustry.Companies

likeApplecommandsuchlarge

portionsoftheworldwidemarketfor

certainkeycomponentsthatsuppliers

areeagertobeapartofApple'ssupply

chain.Further,thefactthatthese

companiesbuyfromsuppliersinsuch

largeandconsistentquantitiesmeans

thatAppleanditscompetitorsexercise

asignificantmeasureofleverageover

suppliers.Applehasadistinctabilityto

exerciseinfluenceoveritssuppliers

andtherefore,supplierbargaining

powerislow.

ThreatOfSubstitutes=HIGH

BargainingPower

OfBuyers=

LOW

ThreatOfNewEntrants=MEDIUM

BargainingPowerOf Suppliers = LOW

SUBSTITUTES

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 performancecomparable to most of the Tablet PCs currently on the market. Lastly, from an entertainment standpoint, Tablet PCs compete with well-established video game platforms (such as Microsoft's XBox and Sony's Playstation), mobile gaming platforms (such as Nintendo's DS), andmobile 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 PCsbecause, although they provide a combination of features from these substitute products, they also represent one more (often costly) pieceof technology for consumers who increasingly already possess a laptop computer, a smartphone, etcetera. There are, therefore, a significantnumber of threatening substitutes available.

Exhibit7Porter's5Forces,AppleInc.


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29

ChanceChance events are

occurrences that are outside ofa firm's control. They haveinfluence over competitiveadvantage because they

create discontinuities in whichsome firms improve their

competitive positions whileothers are harmed.

Government

Thegovernmentisbothacatalystanda

challenger,aimedtoencouragecompaniesto

raisetheirperformance,stimulateearly

demandforadvancedproducts,andfocuson

specializingfactorcreatingandtostimulate

localrivalrybylimitingdirectcooperationand

enforcinganti-trustregulations.ForAppleandtheAmericanconsumerelectronicsindustry,

strictcommerciallawsgoverningmonopolies,

financialreporting,productstandards,andso

onmeanthat,havingoperatedwithinavery

consumer-centriclegalenvironment,Applecan

goabroadandmaintainadistinctcompetitive

advantageinservingconsumerneedsand

maintainingoutstandingqualitystandards.

FIRMSTRATEGY,STRUCTURE,ANDRIVALRY

ThewayApplehasbeencreated,thewaythatitsetsongoinggoals,andthe

waythatitcontinuestobemanagedareeachimportantforitssuccess.

Becausetheworldisdominatedbydynamicconditions,however,the

presenceofintenserivalryanddirectcompetitioninitsdomesticmarket

impelsthecompanytoworkforincreasesinproductivityandinnovation.

Whentheseareachieved,competitivenessisupgraded.

DOMESTICDEMANDCONDITIONS

IntheconsumerelectronicsandTabletPCindustries,consumersareexceedingly

demanding.Consequently,thesedemandingconsumersintheAmericaneconomyincreasethepressurefacingfirmstoconstantlyimprovetheircompetitivenessviainnovativeproductsthroughhighquality,highperformance,andreasonableprices.BecausesophisticatedbuyersexistinApple'shomemarketandforceAppletoinnovatequicklyinanattempttoadvanceforrapidlythanitscompetitors,domesticdemandconditionscanhelpAppleanditsdomesticcompetitorsdevelopacompetitiveadvantageabroad.Apple'sextensiveexperienceunderstandingtheneedsanddesiresofAmericanconsumers,oftenverysophisticatedusersoftechnology,enablesthecompanytocarryaheightenedsenseof

consumerpreferencesglobally.COUNTRYFACTORENDOWMENTS

Basicfactorendowmentsincludehumanresourcesandaccesstorawmaterials.Apple,asanAmericancompany,however,benefitsthroughtheemploymentofskilledlabour,thelargegenerationofcapital,andtheabilitytomakeuseofAmerica'shigh-qualityinfrastructure.Byoperatingwiththesespecializedfactorsofproduction,Appleincreasesitscompetitiveness.Similarly,asitsdomesticindustryrivalsemploytheseaswell,theycombinetocreateamorecompetitiveindustrywhichcantranslateintocompetitive

advantagesforthesecompaniesinaninternationalsetting.

RELATEDANDSUPPORTINGINDUSTRIES

Formanyfirms,thepresenceofrelatedandsupportingindustriesisofcritical

importancetothegrowthofthatparticularindustry.Nationalcompetitive

strengthstendtobeassociatedwith"clusters"ofindustries.ForApple,its

locationwithintheAmericanSiliconValleytechno-clusterallowsforitsclose

associationwithotherhigh-techindustriesthatincludeindividualcomputer

softwareandsemi-conductorfirms.

Exhibit8Porter'sDiamondModel,AppleInc.


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30

Exhibit9SWOTAnalysis,AppleInc.32

Strengths WeaknessesWellDiversifiedProductMix DependenceonNetworkProviders

RobustResearch&Development UnresolvedLegalProceedings

OperationalEfficiency

LimitediPhone/MobilePhoneVariants

Opportunities ThreatsInnovativeProducts&Designs IntenseCompetition

ScopeinRetailSegment

AbsenceofMultipleDistributionNetwork

EmergingMarketsProvidingLadderforGrowth TheftofDigitalContent


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31

Exhibit10Porter'sGenericStrategies,AppleInc.

CompetitiveAdvantage

UniquenessPerceivedbyCustomer LowCostPosition

Strategic

Target Industrywide

Differentiation

OverallCostLeadership

ParticularSegment Focus(Unique) Focus(LowCost)

Applesoverall,genericstrategycentersondifferentiatedpositioningwithintheconsumerelectronics

industry.ThereisauniquenesstoAppleproductsthatderivesfromitsabilitytoeffectivelycreatean

experienceforitscustomersthroughengagementwithitsproducts,bothgoodsandservices.Appledoes

notappealtocustomerswhoareparticularlyconsciousaboutpricepointsanddealsonproducts.Apple

usesitsdifferentiatedstrategytobalanceanindustrywideapproachtomarketingandproductpositioning

withanexclusivebrandidentityandacommitmenttoinnovationthatmotivatesconsumerstopaya

premiumpriceforApplesproducts.


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32

Exhibit11.1Resource-BasedAnalysis,AppleInc.

TangibleResources&Capabilities Valuable Rare Inimitable SubstitutableCompetitive

Advantage

Financial

Applehascontinuedgrowthratesinsales,earningspershare,andnet

profitmargin.Appleisabletofinanceitsoperationsthroughits

retainedearnings.BytheendofDecember2011,Applewasthesecond

largestcorporationintheworldwithamarketcapitalizationofUS

$376,410,600,000. Yes Yes Yes Yes

Temporary/

SustainableCompetitive

AdvantageAppledoesnotissuebonds,doesnotissuepreferredstock,anddoes

notborrowmoney.Appletherebymanagestorunitscompanywithout

anydebt.Theydo,however,issuecommonstock,onewaythatApple

raisesexternalcapital.

Physical

FoxconninChinamanufacturesApplesproducts.ThisallowsApplethe

advantageofmaintaininglowlabourcosts.Apple'sofficesarelocated

inCupertino,California,rightintheheartoftheSiliconValleyandone

ofthepremierconcentrationsofhigh-techfirmsglobally.Apple's

equipmentissourcedfromnationsaroundtheglobe.Forexample,the

iPhoneincludespartsfromtheU.S.,Taiwan,Japan,Korea,Germany,

andtheU.K.Mostofthehigh-techequipmentutilizedinmanufacturing

Apple'sproductscomesfromfirmsinAsia.AsofNovember2012,Applehas394retailstorelocationsin14countries. Yes Yes No No

Temporary

CompetitiveAdvantage

Intermsofrawmaterials,Apple'sworkwithFoxconnprovidesthem

withaccesstoseveralrareEarthmetalsthatareminedexclusivelyin

ChinaandusedtomanufactureitsiPads.Foxconnisresponsiblefor

shippingfinishedproductstowarehousesintheU.S.andelsewhere.

Usingitsownindependentretailstores,Applealsopossessesultimate

controloverthepoint-of-salecustomerexperience.

Technological

Applepossessesthemostpowerfulportfolioofpatentsinthe

consumerelectronicsindustry(566asof2010).Applealsopossesses

186trademarksandhasrecentlybeensuccessfulinenforcingseveral

copyrightinfringementclaimsagainstSamsung,oneofitslargest

competitorsinthemobileelectronicsindustry.Lastly,Applepossessesa

wealthoftradesecretssurroundingitsdesignprocesses,itsmanufacturingtechniques,anditsforthcomingproductinnovations.

Yes Yes Yes Yes

Sustainable

Competitive

Advantage

Organizational

AtApple,employeesarespecialistswhoarenotexposedtofunctions

outsidetheirareaofexpertise,creatingahighly-specialized

environment.StoreinventoryselectionisdonebyCEOTimCook

becauseofhisbackgroundinsupplychainmanagement.

Yes Yes No No

Temporary

Competitive

Advantage

Applehasdevelopedanextremelyefficientandeffectivesupplychain

managementsystemthatwasrankedastheworld'sbestfrom2007-

2010.Thecompany'smanufacturing,procurementandlogisticsenables

ittoexecutemassiveproductlauncheswithouthavingtomaintain

large,profit-sappinginventories;Apple'sprofitmarginshavebeen40

percentcomparedwith1020percentformostotherhardware

companiesin2011.


33/37

33Exhibit11.2Resource-BasedAnalysis,AppleInc.

IntangibleResources&Capabilities Valuable Rare Inimitable SubstitutableCompetitive

Advantage

Human

SteveJobs,theiconicformerCEOofApple,definedhiscareerasaleaderwho

bothunderstoodwhatappealedtocustomersandwascommittedtoacting

decisively.Jobsfiguredouttrajectoriesofnewopportunitiesandwouldthen

conceiveandexecutenotonlydifferentiatedproductsthatyieldhighmargin

andhighbrandrecognition,butalsobusinessmodelsthatwillexploitthemmostprofitably.Throughgreatinsightandbrilliantexecution,Jobshasdriven

Appletobecomeoneofthemostinnovativeandwell-respectedbrandsever.

Yes Yes Yes Yes

Sustainable

Competitive

Advantage

Appleisacorporationandabrandconstructedonthenotionthatthe

customerexperienceisfirstandforemostandonemustworkbackwardsto

thetechnologythatsupportsthatfocus.Apple'sculturecentersonproviding

ahigh-qualitycustomerexperienceandthistranslatesintotheperformance

ofitsproductsandtheexcellenceofitsemployees.Applehascultivatedan

exceedinglyvaluablewealthofhumancapitalthroughitstrainingandits

leadership,andthistranslatesintoalevelofconsumer-centrismwhichallows

Appletomaintainitspositionintheconsumerelectroniccomputer

manufacturingindustry.

Innovation

FromSeptember2011toDecember2011alone,Applespent$758Monresearchanddevelopment.WhileAppletypicallyinvestslessmoneyintoits

R&Dthanmanyofitscompetitors,thecompanyhasahistoryofusingitsR&D

investmentsefficientlyandmaintainingacompetitiveedgeonitscompetition

intermsofinnovationandtheevolutionofnewproductfeatures.

Yes Yes Yes Yes

Sustainable

Competitive

Advantage

Applehascarvedoutforitselftheabilitytoberecognizedasaprogressive

companythatremainsinnovativeamidstcommitmenttocertaincore

businessideals:maintainingaminimalist,tightproductline,placinguser-

friendlinessatthecenterofitsproductfeatures,maintaininghigh-quality

products,etc.ThebalancebetweenthesecoreprinciplesandApplesongoing

commitmenttoconstantinnovationhasprovidedthecompanywitha

competitiveadvantagegoingforward.

Reputational

Applehasfocusedoncreatinghigh-qualityproductsandthoughtheyhavea

reputationforcostingconsumersapremiumprice,Appleproductsarenotknownforbeingpoorlydesignedandcheaplyconstructed.Appleproductsare

alsocapableofsoliddurability,bothintermsofdamageandusage.Lastly,

Appleproductsareknowntobereliableintheirperformance,givingriseto

thefamousSteveJobstagline:"ItJustworks."

Yes Yes Yes Yes

Sustainable

Competitive

Advantage

Appleoftenfinisheswithhighrankingsonlistsof"TheMostAttractive

Employers,"buthasalsorunintosomeissueswithitsoutsourced

manufacturinglabour,especiallyinChina.WhilekeysuppliersFoxconnand

Inventechaveundergonesignificantremedialmeasurestoimprovethe

workingconditionsofitsemployees,Apple'sreputationasagoodemployer

hascertainlysufferedbecauseofissueswithforeignworkconditions

throughoutitssupplychain.

Applereportsitsenvironmentalfootprintcomprehensively.Appleisalsoa

partneroftheProductREDCampaign,aprojectaimedatpreventingthe

spreadofchildhoodHIV.


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34

NewProducts:AppleinvestsanincreasinglysignificantamountofitsinternalcapitaltoR&D

eachyearandtheprimarysourceofvalueinits

operationscomesthroughitsabilityto

generatenewandcutting-edgeproductideas.

ProductDesign:OnceAppleformulatesanideaforanewproduct,theirR&Dcapabilitiesalso

servetohelpthemimplementtheseideasin

waysthatmeethighqualitystandardsand

enableAppletomaintainitsreputationasa

reliableandinnovativebrand.

Creation:Apple'soutsourcedmanufacturingprocessesaddvaluebutenablingAppletogain

accesstouniqueresourcesabroad,cheaper

labourcosts,andsmallermanufacturersthat

havecometospecializeincreatingApple's

productsinanexcellentway.

Distribution:Applehasestablishedretailstore

locationsincountriesallovertheglobeand

theseaddthemostvaluetoitsdistribution

channels,enablingAppletomaintaincontrol

overthepoint-of-saleshoppingexperience,

promoteitsproductslocally,andbeselective

aboutwhereitsproductsaresold.

Sales&Marketing:Apple'smarketing

campaignscenterontheconsumer

experiencesandhowindividualsengagewith

theirproducts.Apple'ssalesandmarketing

teams,therefore,doanexceptionaljobof

communicatingvaluetoApplecustomers.

CustomerService:Throughitsretaillocations,

AppleCareplans,andonlinecustomerservice

forums,Appleisdedicatedtoproviding

ongoinghelptoitscustomersandcontinuesto

addvaluetotheproductexperiencewellafter

theproductisinitiallysoldtotheenduser.

CustomerService

Sales&Marketing

Distribution

ProductCreation/

FundingTechnological

Application&

Product

Design(R&D)

NewProductIdea

Generation(R&D)

Exhibit12ValueChainAnalysis,AppleInc.


35/37

35

Exhibit13FinancialRatioAnalysis,AppleInc.33

Short-TermSolvency/LiquidityRatios

Long-TermSolvency/FinancialLeverageRatios

CurrentAssets $44,988,000,000

TotalAssets-TotalEquity $39,756,000,000

CurrentLiabilities $27,970,000,000

TotalAssets $116,371,000,000

CurrentRatio 1.6084

TotalDebtRatio 0.3416

CurrentAssets-Inventory $44,212,000,000

TotalDebt $39,756,000,000


TotalEquity $76,615,000,000

QuickRatio 1.5807

Debt-EquityRatio 0.5189

Cash $9,815,000,000

TotalAssets $116,371,000,000



CashRatio 0.3509

EquityMultiplier 1.5189

MarketValueRatios

PricePerShare $404.3034

EarningsPerShare $7.0535

Price-EarningsRatio 57.34751773

MarketValuePerShare $404.3036

BookValuePerShare 82.4537

Market-To-BookRatio 4.903577926


36/37

36

AssetUtilization/TurnoverRatios

CostofGoodsSold $64,431,000,000

Inventory $776,000,000

InventoryTurnover 70.53

365Days 365

InventoryTurnover 70.53

Days'Salesin

Inventory 5.1751

Sales

$108,249,000,000.00

AccountsReceivable $10,792,522,432.70

ReceivablesTurnover 10.03

365Days 365

ReceivablesTurnover 10.03

Days'SalesTurnover 36.3908

Sales $108,249,000,000

TotalAssets $116,371,000,000

TotalAssetTurnover 0.9302

TotalAssets $116,371,000,000

Sales $108,249,000,000

CapitalIntensity 1.0750

ProfitabilityRatios

NetIncome $25,922,000,000

Sales $108,249,000,000

ProfitMargin 0.2395

NetIncome $25,922,000,000

TotalAssets $116,371,000,000

ReturnOnAssets

(ROA) 0.2228

NetIncome $25,922,000,000


ReturnonEquity

(ROE) 0.3383

ProfitMargin 0.239466415

Sales/Assets 0.930205979

Assets/Equity 1.518906219

ROE 0.3383


37/37

37

AppendicesEndnotes1InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).

2Ibid.

3Ibid.

4http://articles.economictimes.indiatimes.com/2011-07-20/news/29794980_1_digital-marketing-indian-market-volkswagen-passenger-cars

5http://www.independent.co.uk/news/business/analysis-and-features/rising-costs-are-making-indian-labour-less-attractive-2309557.html

6http://www.just-auto.com/analysis/indias-rising-manufacturing-labour-costs-overtake-china_id106790.aspx7http://www.tuaw.com/2012/05/08/apple-retail-stores-still-crowded-at-8400-average-square-feet/

8http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true

9InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).

10Ibid.

11India:CountryReport,July2011.ThePRSGroup,Inc.:http://web.ebscohost.com.libproxy.sdsu.edu/ehost/pdfviewer/pdfviewer?sid=d724a6e5-000c-4cb5-9402-

724d1ba32cfa%40sessionmgr14&vid=2&hid=1812http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=POSTB&GLOBAL=true

13InterviewwithJayanthNarayanan,HumanResourcesOutsourcingEntrepreneur&FounderofJLNVentures(November28,2012).

14Ibid.

15https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

16

http://www.povertyactionlab.org/evaluation/importance-ethnic-networks-business-transactions-india17https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

18http://www.kwintessential.co.uk/resources/global-etiquette/india-country-profile.html



21http://www.fas.org/sgp/crs/row/RL34161.pdf

22http://www.comw.org/pda/0603india.html

23http://defenceforumindia.com/forum/defence-strategic-issues/32902-india-may-never-superpower-london-school-economics.html

24http://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=25http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=data&vcountry=78&disc=9&tableid=1

26http://www.countrywatch.com.libproxy.sdsu.edu/cw_topic.aspx?type=text&vcountry=78&topic=MAOVR

27http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/indias-infrastructure-woes-in-two-graphs/28http://www.economist.com/node/21559941

29http://asiafoundation.org/in-asia/2011/09/28/right-to-information-in-india-an-effective-tool-to-tackle-corruption/

30http://geert-hofstede.com/india.html

31http://geert-hofstede.com/unitedstates.html

32http://callisto.ggsrv.com.libproxy.sdsu.edu/imgsrv/FastFetch/UBER1/300559_GDTC27353FSA

33MergentOnline:

http://www.mergentonline.com

/companyfinancials.php?pagetype=asreported&compnumber=12161&period=Annuals&dataarea=ALL&range=3&currency=AsRep&scale=AsRep&Submit=Refresh34Yahoo!Finance:September23,2011

35NASDAQ:September24,2011

36Yahoo!Finance:September23,201137NASDAQ:September24,2011

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