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One of the most notable aspects of what account for the essence of economic realities in today’s world is the fact that, as time goes on, more and more of the so-called multinational corporations (MNCs) decide in favor of pursuing the policy of internalization. The mentioned tendency, on the part of MNCs, appears fully justified, because there are a number of good reasons to believe that, by making an entrance into the previously unexplored markets, these corporations will be able to sharpen their competitive edges rather substantially. In this paper, I will explore the validity of the above-stated at length, in regards to what account for the qualitative aspects of how Apple Inc. strives to inflate its niche in the Australian market of IT-related products and services.
Analysis of the company’s market entry
Before moving on to discuss what could be considered the most appropriate internalization-strategy, on the part of Apple Australia, we will need to provide insights into both: what account for the company’s corporate strengths/weaknesses and what can be considered the main characteristics of Australia’s business-climate in the field of IT.
Apple Inc. is one of the world’s leading manufacturers of personal computers/mobile communication devices and a developer of software applications. The company’s most well-known products include Macintosh (Mac) computers, iPad, iPhone, iPod, and Apple TV, as well as the OS X and iOS operating systems. As of 2013, Apple’s net-sales accounted for $14.4 billion. At the end of the fiscal year 2013, Apple announced that its annual revenues amounted to $170,910 million. It is being estimated that, as of 2013, the company’s market capitalization has reached staggering $430 billion. As of the same year, the number of the company’s full-time employees was announced to account for 72.000. Being a true MNC, Apple currently operates in 14 countries, with the overall number of its fully functional retail stores accounting for 425 (Apple Inc. 2014).
Ever since having expanded into the Australian IT-market, the company was able to secure the status of being the country’s second largest vendor of IT-products/services. As of the end of 2012, the amount of the locally-generated revenues, on the part of Apple Australia, was estimated to be as large as $6 billion. There are now 18 Apple retail stores in Australia, with the number of the locally based employees accounting for 2,600 (External 2013).
Now, we will need to identify the main qualitative aspects of the concerned country’s business-climate, in order to be able to gain an insight into what could be considered the most circumstantially appropriate internalization-approach, on the way of Apple Australia striving to remain competitive in the newly acquired share of the local IT-market. While doing it, we will resort to the conceptual provisions of the so-called OIL – (Ownership, Internalization, Location), or Eclectic theory of internalization, as the most discursively sound and up-to-date. The mentioned aspects are as follows:
a) Australia welcomes foreign investments. The validity of this suggestion can be illustrated, in regards to the fact that, “FDI in Australia accounts for 24 percent of total foreign direct investment in the country… In 2011, U.S. direct investment in Australia was US$136 billion” (2013 Australian Investment 2013, p. 1). This, of course, suggests that one of the reasons why Apple decided to expand to Australia, in the first place, is that the concerned move was expected to benefit the company, in the sense of allowing it to take advantage of the would-be-acquired market’s actual locality. Nevertheless, it would be quite inappropriate to suggest that the subsidiary’s (Apple Australia) location is without any deficiencies. For example, while operating in Australia, Apple will not be able to benefit from the low cost of labor. The same can said, in regards to the fact that in Australia, the cost of raw materials is comparatively high.
b) Australia is a highly urbanized country. This, of course, naturally endows Apple Australia with yet another important competitive advantage, which in turn is concerned with the fact that, as the relevant studies indicate, the lines of the company’s products and services predominantly appeal to the IT-skilled urbanites, who happened to be heavily dependent on staying in close ‘wireless’ touch with each other (Combs & Banks 1987). In its turn, this allows us to deduce that, while deciding to expand the range of its business-activities in Australia, the company’s top-officials strived to capitalize on what happened to be the move’s ‘ownership’ advantages. The main of them is the company’s possession of many ‘know-how’ patented technologies.
c) Australia is a country with the structurally/operationally complex legal system. What it means is that, while operating in Australia, Apple will inevitably experience a number of setbacks, on the way of trying to ensure its full compliance with the locally applied rules and regulations. The fact that it is indeed being the case can be illustrated, in regards to the recent public controversies, triggered by the allegations of Apple Australia having indulged in tax evasion (Ockenden 2014). Within the conceptual framework of the deployed theory, this could be seen as the indication that, while pursuing with the policy of internalization, the company will not be able to reap the benefits of one of the most important internalization-favoring factors – the neglectfully small number of the governmentally enforced entry-regulations.
Thus, when assessed through the conceptual lenses of Eclectic theory, the best approach for Apple Australia to proceed with trying to remain competitive on the ‘new turf’, should be concerned with transferring technology, rather than with relocating the actual production-lines to Australia, or investing in the country’s economy directly. The fact that this being is not quite the case can be interpreted from a variety of different perspectives. However, it makes a good rationale to proceed with doing it within the methodological framework of Global theory of internalization, as such that emphasizes the importance of taking into account the factor of Globalization, when it comes to assessing the internalization-related issues.
According to this theory, the very realities of a post-industrial living create the objective preconditions for specifically the universally standardized lines of products to be able to achieve high sales (Safarian 2003). Because the company’s iOS operating systems are being ranked second in worldwide popularity (after the Android-based ones), the very decision to expand into the Australian market of IT-related products and services, on the part of Apple, appears thoroughly justified. The reason for this is that, upon having entered this market, the company would not have to deal with the problem of facing much of a local competition. In fact, in some of the segments of the country’s IT-market (e.g. tablet-computers), Apple Australia was able to achieve an undisputed dominance. In turn, this naturally empowers Apple Australia in a variety of different ways. For example, as opposed to what it would be the case with its potential competitors in the market (with the exception of Samsung), Apple Australia does not have to invest much in marketing-campaigns. Another example – by having established its presence in Australia, the company will be able to increase the sphere of its geopolitical influence (as MNCs do), in the sense of exposing the targeted market to the innovative and yet patented technologies. It is understood, of course, that this will substantially increase the company’s ability to offer competitive prices for the lines of its products/services. The above-mentioned suggestion correlates perfectly well with the theory’s provision that the policy of internalization, undertaken by a particular MNC, primarily benefits the undertaker, in the sense of making it capable of addressing competition with the mean of choosing in favor of a low-cost operational strategy.
What also contributes to the company’s capacity, in this respect, is the fact that the country’s socio-cultural climate is being fully consistent with that of the U.S., where Apple Inc. was founded initially. In its turn, this implies that Apple Australia is spared from facing the challenge of having to adjust the locally sold products/services to be fully consistent with the specifics of the targeted consumers’ existential stance. As a result, the company’s rate of competitiveness in the new market is predetermined to remain rather high – even through the time of economic instability. In fact, it is specifically when Global economy is in the state of decline (as it happened to be the case nowadays), that Apple Australia should prove particularly effective, in the operational sense of this word. The reason for this is apparent – the harsher are the economic realities in a particular country, the more its citizens (consumers) are likely to act in the price-sensitive manner, while expressing very little willingness to spend extra-money for what can be considered the would-be-purchased products’ ‘perceptual value’. Given the fact that the line of the company’s most-popular products/services cannot be considered utterly expansive, this should allow Apple Australia to focus on promoting and selling its main ‘sale-pushers’, without having to face the risk of losing a competitive momentum, as a result.
Thus, within the theory’s framework, the main internalization-inducing incentives, which prompted Apple Inc. to decide to expand to Australia, can be outlined as follows. Political: Australia is a politically stable country with the efficiently functioning free-market economy. Economic: The country’s government encourages the inflow of FDIs. Social: Australia’s socio-cultural climate is fully consistent with the company’s corporate philosophy.
Experience and lessons learned
Probably the main lesson that I learned, while analyzing the case of Apple Australia through the lenses of the mentioned theories of internalization, is that the conceptual premises, upon which these theories are based, are largely speculative. Therefore, even though the application of these theories, within the context of trying to define the main forces of internalization (as applied to a particular company), is fully appropriate, one should never cease being aware of the fact that they still in the state of being developed. There is another factor, which undermines the theoretical legitimacy of the mentioned approaches to internalization. They do not seem to be observant of the principle of Occam’s Razor, which stresses out that, when it comes to discussing a particular phenomenon, there is no reason to resort to the complex explanations of what account for its mechanics, as long as there is a plenty of the simplified ones are available (Stansfield 2002).
Therefore, it would be much more appropriate to discuss the company’s internalization-policies, in light of Adam Smith’s theory of what makes the generation of ‘surplus-value’ possible. According to this theory, the effectiveness of a particular trade-system/manufacturing process, positively relates to the rate of the applied labor’s specialization (Fairlamb 1996). In plain words, the stronger there is the factor of labor-specialization in the publicly traded line of products, the higher would be the associative prices. There is, however, a certain downside to it – the more a particular manufacturing/marketing process is ‘labor-specialized’, the higher are the personal investment-risks, on the part of the affiliated shareholders. Hence, the main reason for the existence of banks – they are there to diminish the operational risks of the privately owned commercial enterprises.
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As time goes on, however, these enterprises grow increasingly more complex (specialized), in the structural sense of this word, as the mean of ensuring their ability to generate the adequate amounts of ‘surplus product’. Consequently, the risks, associated with maintaining a high degree of ‘specialization’ of the manufacturing/commercial processes, continue to grow, as well. Eventually, there comes a moment when banks simply recognize these risks as being much too acute and close down their credit lines. For a company (especially if it fits the definition of MNC), there can be only one way out of this situation – expanding its manufacturing/marketing system size-wise, while aiming to establish itself in the foreign-markets.
Up until comparatively recent time, this used to be problematic, because the functioning of the world’s most lucrative markets was primarily the subject of the locally imposed laws and regulations, which in turn reflected what was the geopolitical status quo in the world at that time. The onset of Globalization, however, has changed the situation rather dramatically, in this respect. The reason for this is that, as of today, the very concept of national sovereignty has grown discursively outdated. Nowadays, it is specifically the multinational corporations (on whose behalf the national governments often act), which define the essence of the political dynamics in the world – something that can be easily illustrated, in regards to the fact that these corporations have long ago acquired the status of the ‘quasi-states’ of their own.
Thus, Apple’s decision to enter the market of IT-related products and services in Australia, can be well discussed as such that illustrates the following: a) Expansion is the ultimate key to the self-sustainability of Capitalism, b) As of today, the ongoing struggle for the world’s markets remains just as intense, as it used to be the case a century ago, c) MNCs serve the purpose of allowing the world’s well-established ‘production/consumption chains’ to expand (the main precondition for them to continue remaining competitive), without undermining the current geopolitical status quo in the world.
I believe that the earlier provided line of argumentation, as to what can be considered the actual significance of the concerned company’s internalization-policy in Australia, is fully consistent with the paper’s initial thesis. Apparently, there is indeed a good reason in believing that the emergence on the term ‘internalization’, as well and the recent rise of MNCs, have been predetermined dialectically. That is, that the very laws of history have brought this specific state of affairs into being.
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External, C 2013, Apple’s longest statement about Australia ever, Web.
Fairlamb, H 1996, ‘Adam Smith’s other hand: a capitalist theory of exploitation’, Social Theory and Practice, vol. 22, no. 2, pp. 193-223.
Safarian, E 2002,’ Internalization and the MNE: a note on the spread of ideas’, Journal of International Business Studies, vol. 34, no. 2, pp. 116-124.
Stansfield, W 2002, ‘Occam’s razor & the nature of scientific theories’, The American Biology Teacher, vol. 64, no. 2, pp. 107-109.