An International Company

Read Case Study Case Study 17-1: iPhone: An International Company and answer the following questions in an essay format.

1. Describe the new product trends that are widely attributed to the iPhone.

2. Describe iPhone’s international presence. Address the different entry modes of the iPhone.

3. How is Apple leveraging its competitive advantage in each of the international markets described in the case?

Your answers must include content and cite reference materials where appropriate. To assist in this requirement, a good rule of thumb is that each answer should be
approximately 200 to 250 words in length

Case 17-1 iPhone: An International

Company

What is made in Taiwan, looks really cute, and left

many leading European companies with their

‘‘nose out of joint’’ because they were rejected as

its partners? Here is another hint: It combines a

mobile phone, a widescreen iPod, and an Internet

device into a handheld device, with full-screen web

browsing, a multi-touch screen, and useful applications,

such as Google Maps and wireless streaming

of YouTube videos. It is the product that

comes with much buzz, that bloggers are calling

the ‘‘Jesus Phone,’’ a product that sold by the

hundreds of thousands before it was even available

on the market. It is the iPhone. With the iPhone,

Apple muscled its way into one of the world’s most

brutally competitive markets, rattling the cell

phone industry’s most dominant players by producing

the number one must-have mobile phone

on the market. And all this before a single phone

ever sold.

The phone is rectangular, and the entire front surface

is a touch screen. All of its functions are activated

by touch, but when you bring your iPhone to your

face, a proximity sensor will turn off the touchscreen

so you do not accidentally face dial. The phone,

which runs the Mac OS X, is able to download and

play both music and movies. The phone brings up

full Web sites, rather than oddly formatted versions

that most smartphones show. But it works slowly:

It does not have third-generation (3G) broadband

initially, but the 3G capability is coming soon.

AT&T, America’s largest wireless phone company,

with 58 million subscribers, sells the

iPhone—and no other carrier will be able to sell it

until 2009. Apple worked with Cingular, which is

owned by AT&T, to develop breakthrough features

like visual voicemail—the ability to see voicemail

messages in a list and choose to listen to them in

any order, instead of sequentially, as most carriers

require today. Apple also worked closely with

Yahoo!, the world’s largest e-mail service, with a

quarter-billion subscribers worldwide. The iPhone

offers free Yahoo! push e-mail (e-mail that is instantly

forwarded from the mail server to the e-mail client,

such as a PDA), a feature that will hurt BlackBerry,

which charges for e-mail. And Apple also had a

close development partnership with the world’s dominant

search company, Google, offering applications

such as Google Maps and streaming YouTube video.

The Winners!

The iPhone is a big hit, and among the companies

that benefit the most from its success are a handful

of Taiwanese companies known only by a few consumers

or investors. Apple does not manufacture

most of its products—instead it hires manufacturing

specialists: Taiwanese companies with extensive

operations in China that assemble Apple’s gadgets

based on Apple’s designs. They use parts from

many suppliers throughout Asia who are running

complex and labor-intensive production lines.

Among these companies is Foxconn International

Holdings Ltd., the Hong Kong unit of Hon Hai

Precision Industry Co., the world’s biggest electronics

contract manufacturer by revenue. Hon

Hai is in charge of handling the iPhone’s assembly.

Catcher Technology Co., which makes stainlessmetal

casing increasingly popular for cell phones

and notebook personal computers, is supplying

iPhone’s casing. Other Taiwanese companies

involved in the manufacturing of the iPhone are

Primax Electronics Ltd., which makes digital camera

modules for cell phones; Entery Industrial

Co., a maker of connectors that join other components;

and Unimicron Technology Corp., which

makes printed circuit boards.

Taiwan’s technology companies have been taking

on an ever-bigger role in the manufacturing

of the world’s electronics, but with the iPhone,

they received an immense boost. Taiwanese technology

companies blossomed in the 1990s making

notebook PCs for other companies, driving down

costs, and delivering orders quickly in part by clustering

together producers from across the entire

supply chain, first in northern Taiwan and more

recently in China. Today, Taiwanese companies,

such as Quanta Computer Inc., make more than

80 percent of the notebook PCs sold worldwide

by brands such as Dell, Hewlett-Packard, and

Apple. However, profit margins for PC manufacturing

have narrowed steadily over the years, primarily

due to mergers, such as the one between

Hewlett-Packard and Compaq, and power was consolidated

among a handful of players. Consequently,

Taiwanese companies have been

branching out into other products, including cell

phones, flat-panel televisions, and videogame

consoles.

Hon Hai has diversified similarly, growing from

a tiny maker of tuning knobs for TV sets to a giant

that produces desktop PCs for Dell and PlayStation

game consoles for Japan’s Sony Corp., among

others. Hon Hai’s Foxconn International unit is

one of the world’s largest cell phone makers, with

customers such as Motorola and Nokia. Apple was

criticized in 2006 after British reports that Hon

Hai was underpaying and mistreating the employees

making the iPods. Apple found minor violations,

which Hon Hai has since remedied.

Catcher also experienced rapid growth in recent

years as the metal cases it makes have come into

fashion.

Chapter 17 Organizing and Controlling International Marketing Operations and Perspectives for the Future 483

The Losers?

The iPhone was first introduced in the United

States in July 2007, and it entered three European

countries in November 2007. In Europe, multinational

powerhouses Vodafone, France Telecom,

Spain’s Telefo´nica, and Germany’s Deutsche Telekom’s

T-Mobile clamored for the honor to be the

iPhone carriers. The stakes were high: The winner

would likely sell more than 6 million iPhones over

3 years, and, most likely, half of that would be

new service contracts. Speculations that Vodafone

would get the deal sent its stock soaring. And

then its stock took a dive when it was announced

that Vodafone was off the list.

The European countries where the iPhone was

launched are the same countries where Apple

chose to launch its iTunes music stores: Germany,

France, and the United Kingdom. And the winners

were Deutsche Telekom’s T-Mobile in Germany,

France Telecom’s Orange network in France, and

Spain’s Telefo´ nica’s O2 network in the United

Kingdom. Each provider is the largest in the three

respective countries. However, industry experts

believe that it would have been in Apple’s best

interest to have more than one operator distribute

the phone because the European market is much

more fragmented than the market in the United

States. Moreover, T-Mobile has little or no presence

in Italy, Spain, or France, whereas Vodafone

is present in all European markets and beyond.

In the negotiations, one of the main concerns

was that Apple’s deals were much more onerous

than previous agreements with other handset makers.

For example, in the United States, the agreement

between Apple and AT&T clearly put Apple

in the driving seat, giving it a share of the customer

revenue, which was substantial, as the iPhone was

priced at $499 for the 4 GB model and $599 for

the 8 GB model. In Europe, the iPhone is priced

at s450 for the 8 GB model in the three countries.

Unfortunately for European customers, the

iPhone runs on the same 2.5G data connection network

as U.S. phones, instead of on the faster 3G

technology common in Europe, but that should

change shortly. And many other changes are to

come, including new partnership with cell phone

operators, as the iPhone is stepping rapidly into

the growth stage of the product life cycle.

iPhone’s prominent position in the European

market and elsewhere in the world may be shortlived,

as Nokia and Sony Ericcson are developing

mobile phones with similar capabilities. Both companies

are planning to market them in their highprofile

stores in key markets. Nokia, a Finnish

mobile phone company that not too long ago sold

rubber boots to the Soviet army, will have the

phones available in its flagship stores in Helsinki,

Moscow, Chicago, New York, Hong Kong, Mexico

City, London and Shanghai in the near future.
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