Introduction
Purpose, Limitations, and Scope of Report
The world has become a global village. Markets are accessible to almost anyone provided they have knowledge about the local conditions. With multiple opportunities, marketers understand the need for a consistent bearing in their planning efforts (Wall, 2004). The possibility of wandering off towards unprofitable opportunities is real.
Marketing strategists must continually ask themselves what they are aiming at (Robert, 2005). With the relenteless forces of globalization continually changing the international business climate, Apple Inc has a solemn role to consider how it gets into new markets. Apple has an interest in the Russian market. Previous efforts to enter the Russian market came to naught.
If Apple wants to return profits in its Russian operations, then it cannot ignore the need for a detailed environemental analysis to determine the issues that influence business in this vast market. They need this analysis in order to develop a strong marketing strategy that will insure good results.
After all, “Strategy is about doing the right things” (The Harvard Business School, 2005, p. xi.) Apple already recognizes the need for the development of a formal strategy. This is a position that Henderson (1991) supports. He advocates for the formal planning of all strategies, which includes marketing strategies.
The analysis will rely on available data. Getting first hand information from the country is very difficult given the government bureaucracy. In addition, the cost of a full-scale market research is prohibitive. Hence, a desktop search is a fitting substitute for the process provided there is a proper appreciation of its limitations.
This report therefore will provide preliminary assessment of the environment of the market, which may inform the need for an onsite market research project. The report covers various aspects of the business climate.
The Background of Apple Inc in Russia
Apple Inc has been in the personal computer and electronics business for more than thirty years. The headquarters of Apple Inc is in the Silicon Valley in California. Its first name was Apple Computers Inc, but in 2007, it dropped the name “Computer” from its name to reflect its growing stature as a provider of personal electronics and not just computers.
Currently its product line includes the world famous Macintosh computers, the I-phone, the I-pad, and the I-pod, in addition to many software products. The company diversified its product portfolio to take advantage of technological advances and changes in consumer preferences.
Apple Inc takes seriously the advice of Mark, (2004) who lists some of the benefits of a consistent strategy as the identification of multiple growth opportunities, and the taking advantage of them.
Apple Inc is set to open up an Apple Store in Moscow in the coming months of this year. This shows that the company no longer views the Russian market as a marketing destination only, but as one where is should have a permanent presence. Apple Stores typically feature a complete product range of Apple products available for testing by potential clients.
The stores have highly skilled staff who provide various services such as trouble shooting and customization, and they also provide advice on the best user plans for the clients who come knocking. The benefit of having an Apple Store in the Russian Federation is that it demonstrates Apple’s commitment to the Russian market.
Instead of planning product launches in its headquarters only, Apple Inc will have the opportunity of planning for the Russian market with the advantage of being right there. The company will find it more convenient to identify the significant factors that will shape its future success in its Russian operations (2007, Morden).
After the fall of communism, Russia opened up its markets gradually to international products. The transition from communism took its toll on the Russian economy. Many industries collapsed when certain regions seceded from the then USSR. Russia has never fully regained its manufacturing prowess.
This has made the country reliant on foreign countries such as Japan, China, and the United States for hi-tech products. Apple produces such products. Russia is a natural part of Apple’s expansion strategy because it is a vast market with huge potential for profits.
The choice of Moscow as the location of an Apple Store in Russia validates the adage that, “Location is also important in marketing” (Levinson & Levinson, 2007, p.12). The choice of a location does not fall under the ambit of external forces that are impossible to control internally (Robinson & Robinson, 2005). Every business has some choices in this one area.
Environmental Analysis
All business units operate in an environment. Different factors in that environment impinge differently on each business depending on its features. This section seeks to determine the unique characteristics of the Russian business environment. It will determine how those factors will influence the operations of the Apple Store that is coming up in Moscow.
Economic Environment
The primary reason for looking at the economic environment is to provide a basis for the setting up of the economic objectives of the marketing campaign. This helps in ensuring that a company does not end up in a situation where the management of costs becomes impulsive and uncoordinated (Institute of Management and Administration, 2006). It also influences pricing.
Retske (2002) notes the significance of the process of pricing products and services for any business. The third reason for an analysis of the environmental analysis is to ensure that the marketing project itself does not fail to keep within the set budget. This is because “Many projects exceed their budget yet still fail to deliver the promised outcome” Stratton, 2006, p.9).
The Russian economy is a mixture of very attractive elements with some undesirable ones. In the nineties, Russia faced a lot of political uncertainty and instability characterized by seceding states. Corruption became rampant as the economy reorganized under a capitalistic philosophy as a departure from its socialist roots.
In the last decade, Russia’s economy stabilized. Its management became much more prudent with careful tax laws, which saw the reduction of personal taxes and an increase in national revenues. This increased buying power shored by magnificent growth in the county’s average income to six hundred and eighty dollars in 2008, up from eighty dollars at the turn of the century.
The drawbacks to the Russian economy stem from the decade long decay that the country suffered in the nineties. There was rampant neglect of the country’s infrastructure. This will require almost ten years for complete restoration.
The implications for Apple in as far as the economic environment of Russia is concerned include the need to target customers carefully in order to access the segments of clients who can afford Apple products.
The economy has strong and weak elements, hence the basic strategy must be to leverage on the economic strengths of the country while avoiding the pitfalls. This information will make it easier for the Apple marketing team to determine the best location within Moscow to set up the Apple Store to reach the intended market.
Political, Legal and Regulatory Environment
The political organization of Russian features a president who is the head of state, and a prime minister who is the head of government. This structure came up after the fall of communism. The political climate in Russia is stable. The country has managed its transitions well to ensure continuity. Claims of vote rigging and intimidation characterize the electoral process in the past, but eventually, the country normally settles down.
On the legal and regulatory front, the country has well developed laws governing the conduct of business in the country. The laws are clear and straightforward. The laws, which are typical to most countries, include issues like the registration of business units and the process of acquiring equity.
The Russian central bank is a key regulator of international business. This is because the bank regulates the availability of currency in the country. The rules set by the bank do not interfere with the day-to-day conduct of Russian business.
In general, the legal and regulatory framework of the country does not interfere with the running of business, but is the source of complications when neglected. Another source of problems is dealing with situations that are new to the regulators or do not have clear procedures. This means that to succeed in business in Russia, an investor needs to follow the law carefully.
It is refreshing to note that despite the already solid legal foundation that the country has set, there are further efforts towards reforms to protect both local and international investors. The implication for Apple in this situation is that there is need to consider carefully all the legal requirements that the government demands of foreign investors, and to seek to fulfill them.
Failure to take them seriously may lead to a big disparity between the proposed, realized, and evolving strategies (Robert, 2005). The intended strategy here refers to what the company has planned for the Russian market. The realized one is the practical one, given the implementing conditions.
The emergent strategy refers to the final output during implementation of the intended strategy. In conclusion, the legal environment in Russia is suitable for Apple’s entry into the market, provided it is ready to follow the rules.
Social and Cultural Environment
The Russian people have a very rich cultural heritage that stretches back for one millennium. They have a very distinct presence in the arts and music scenes. The people are proud of their achievements in various technological areas and boast some of the greatest scientific minds. For instance, the periodic table was Dmitri Mendeleev’s brainchild, while the Russians were first to send a man to space during the space-race.
As a people, the Russians consider themselves as among the best in the world. They do not like to play a secondary role to anyone. This permeates all sectors of Russian life. In the political arena, the Russians were keen to develop a political model that was unlike the American one and nothing like the British one. They implemented democratic ideals in a manner consistent with their nationhood.
One of the key social ills in Russia is rampant and growing corruption. The graft monitoring organization, Transparency International, ranked Russia as number 146 out of 180 in the year 2006. This problem has historical roots. However, during the communist era, taking bribes attracted the death penalty. The revolutionaries considered the act antirevolutionary.
In post communist Russia, corruption is a growing problem that the government is struggling to contain. It is a real put off for business people in the country. They must either keep paying bribes to remain in business or face inconveniences associated with non-delivery of services.
Another serious business issue in the Russian business landscape is the presence of cartels and mafia in several industries. They have permeated all levels of Russian society. They present a considerable risk to international investors because of their unorthodox business practices that fail to follow legal procedures.
The implications of these cultural and social phenomena on Apple Inc is that the company needs to put it in mind that it is dealing with a proud people with a very strong cultural heritage. Apple has a strong American image and hence the consequence of doing business in Russia creates what Dalic (2007) refers to as the amalgamation of cultures.
This needs to show in the product offerings, which need to include a sense of respect for the Russian people. Secondly, the company will need to take special care to avoid entanglement in corruption webs. There is need to ensure that all deals are properly documented with due regard to anticorruption legislation in the country.
In addition, the threat from cartels will require careful handling. The idea is that the company should aim at taking full control of its distribution chain to ensure that no cartel finds a way of getting into the chain.
Technological Environment
Various inventions establish Russia as a technologically oriented country. As noted earlier, the Russians built the first satellite and space vehicle that Yuri Gagarin used in the first space orbit by a human being. The cold war era necessitated the rapid development of technology earmarked for military purposes.
The computer had its roots in the military where it provided a means of breaking down long strings of information into meaningful pieces. All major powers worked to develop capacity to break coded messages from other governments in order to keep abreast with developments in other countries.
The use of hi-tech devices by spies was a significant part of these efforts. Spies in the field required a covert means of communicating with command centers to relay intelligence and to receive instructions.
In the civilian context, the Russians have used radio, cinema, and print to pass on information and propaganda to the citizenry. Currently, Russia is a key market for electronic products. Apple has sold I-phones and I-pads in the Russia. The uptake of technological products in Russia is very good. The people’s heritage includes an appreciation of technology. With globalization, all Russians want to be on the cutting edge of technology.
This predisposes Russia as an important market for the Apple Inc products, which will improve dramatically with the opening of an Apple Store in Moscow. Russia also has expertise in the manufacture of technological products. This raises the possibility of Apple Inc manufacturing products meant for the Russian market, in Russia.
The technological environment presents Apple with two opportunities. The first one is that the market is receptive to technological products of the nature that Apple Inc. specializes. The second one is the possibility of manufacturing in Russia. This may have certain advantages, such as reducing overheads because wages are lower in Russia as compared to the United States where Apple does its Manufacturing.
Suzue (2002) observes that companies that attain excellent business results have programs, which encourage continuous innovation, to reduce the lead-time in projects while increasing the quality of the products.
By switching to manufacturing Russian bound products in Russia, Apple may have the opportunity to reduce costs and increase its bottom line. At the same time, it will increase the degree of acceptance of the products in the market because it will enhance ownership.
Contemporary Environmental Considerations
The natural environment has become a serious issue in international business. With the advent of global warming, all companies must take a second look at their manufacturing practices to determine ways through which they can reduce their carbon footprint. Apple Inc has a number of green initiatives but still needs to do more in order to reduce its footprint.
There is a lot of debate going on about the consequences that global warming will have on Russia. Scholars were quick to point out that the heat waves that struck the country in the closing months of 2010 were the result of global warming. The loss of acres of wheat was devastating for the country, which is the breadbasket of Eastern Europe. Russia has huge tracts of land under snow on its northern side.
With global warming, the snow will melt, which in turn will affect numerous ecosystems in the Russian Federation. The Siberian desert may lose its place as one of the worlds coldest places.
On the other hand, a school of thought actually supports global warming because it appears that the consequences will be more beneficial than destructive for Russia. The country will have longer warmer seasons, which will reduce their heating bills. This group feels that Russia will have lesser consequences to deal with compared to many other countries in the world.
In the end analysis, Apple Inc has more to gain in pursuing a green strategy in Russia because of its international image. It will make fewer enemies by pursuing a green strategy than it would if it ignores global warming.
While this report looks at Russia, it is impossible to handle global warming in isolation without a global backlash. The company will do well to develop a green strategy for its Russian operations so that it does not risk its international image as a green company.
Competitive Environment
Apple’s Store in Moscow will have to deal with at least two classes of competitors. These are international manufacturers based in America, Japan Europe, and China. Companies such as HP, Dell, and IBM continue to be influential in the development of personal computers and other computing devices. These companies are spoiling for business in Russia.
In addition, Apple must face the threat presented by manufacturers in Russia who have a very strong local presence, better understanding of the local business environment, and the local culture. Montgomery and Porter (1991) capture the essence of this challenge when they note that competition for markets has become a global affair. In the software business, Apple has a distinct advantage.
Their operating system, Mac OS X, is not as susceptible to viruses as windows based systems. This has not made the sales of the Mac system to grow, but it has built a solid brand reputition for the Mac. With increasing cyber attacks on computers, clients will begin to require better systems to fend off these attacks.
If Mac is able to retain this reputation with consistency as part of their business strategy, then they will break through in the PC market. Daughtry and Casselman (2009) warn that a business strategy is pointless if its implementation is not systematic and consistent.
In as far personal handheld devices are concerned, Apple is a market leader. The flagship brands such as the I-pad and the I-phone have become industry standards. As innovation leaders, they define the standards for personal handheld devices. Apple must continue its robust innovation regimen to ensure it does not lose this edge to any other manufacturer worldwide.
The implication of this situation is that Apple must remain keen on innovation, and it must keep a close eye on its operating system to ensure it keeps ahead of the pack min as far as security is concerned. Windows currently control about ninety percent of the application software market. This lead will be difficult to surmount. However, Mac appeals to a niche market that is growing steadily.
With an Apple shop in Moscow, more clients will join the Mac user network. In order to be ahead of Russian manufacturers, Apple must maintain its quality. That is why Butje (2005) says that one of the worst things in a product’s life cycle is a flashy introduction to the market, followed by disastrous service delivery.
Internal Environment
In order to win over the Russian market, Apple needs to assess what it has in its internal environement to determine its strategic position. Howard (2004), states that to become profitable, “you must first wake up to the internal rules you are currently playing by and expand you field of possibilities” (p.xvii).There are several things things that stand out about Apple Inc which are internal assets.
The first one is a strong management. Apple Inc is one of the most respected companies, not just in America, but the world over. In fact, the company has won several “most admired company” surveys in the last few years. A strong management ensures that the company keeps to its policies and continues to operate in sustainable ways.
The second advantage that Apple has is its wide product portfolio. This ensures that it meets the needs of diverse clients at any one time. Product portfolio speaks of experience and produces customer confidence especially if the individual products are of quality high.
The third thing that stands out for Apple is that it is a very innovative company. The expectation that enthusiasts have for Apple products was best inllustrated by the hyped unveiling of the I-pad late last year. The I-pad was an innovation of the Apple company which other companies have not responded to convincingly. This demonstrates Apple’s innovative egde.
The fourth area that makes Apple’s internal environment strong is the possession of a very strong brand image right across the globe. This makes entry to new markets by construction of Apple Stores fairly easy because there is already momentum in the market. By leveraging on the brand strength, Apple will enter Russia with relative ease.
These internal strengths will mean nothing unless the company takes advantage of them in its marketing efforts. Apple is at a point in its existence where the difference between success and failure in its marketing effort will depend on the marketing effort. (Shanklin & Ryans, 1987).
One of the ways to take advantage of this momentum is by developing customized products for the Russian market. In Russia, English is not as widely spoken as the Russian language. With a bit of innovation, Apple can develop customized products that will take into account the peculiar needs of the Russian people.
Conclusions
After careful consideration, the following are the conclusions that relate to the issues Apple Inc needs to do to enter the Russian Market by opening an Apple Store in Moscow. They will ensure that the company secures the long-term advantages accruing from its operations in Russia (Maromonte, 1998, p.7).
The nature of the Russian economy is that it has a number of segments within its population that have varying buying power. This requires careful segmentation in order to reach target customers. Apple needs to have in mind the economic realities of the Russian federation as it enters into the market.
The legal and regulatory environment in the Russian Federation is receptive to foreign investment. The laws are clear and easy to follow. This means that Apple will not have a difficult time working in this environment except if it begins to introduce elements of operations that are new in that environment. It will also do well to take great care to follow the laws to avoid any problems.
The social and cultural environment requires an understanding that Russians are a proud people with a deep sense of patriotism. Products produced for them need to show respect for this sense of the Russian nation. In addition, Apple must watch out for cartels and Mafia that may seek to be part of its distribution chain.
The technological environment suggests that there will be good uptake of Apple’s products because the Russian people have a long history with technology and appreciate the role of technology in their lives. This implies that the market is ready for Apple.
Apple will do well to take environmental consciousness seriously because of its international reputation. While Russia does not yet have a coherent position on global warming, the company does not have the luxury of relaxing its green program in Russian operations because of the potential for international backlash.
There will be stiff competition for the Russian Market from both local and international companies. Apple has its brand reputation as its chief strength, which it should use to capture a substantial market share. The company must maintain its reputation as an innovative company, and take advantage of the quality of its products to attract and retain customers.
Apple’s internal environment provides it with a strong basis for its business. It must take advantage of its strong management, wide product portfolio, reputation for innovation and strong brand image.
The company has a lot of momentum that it needs to channel into marketing campaigns in the Russian Federation. These conclusions support Mercer (2001) who advises that a marketing strategy must take into account the resources available for the campaign.
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