Tech giant Apple Inc. (AAPL, Financial) recently made history when it reached a market cap of a whopping $1 trillion, a milestone that officially made it the biggest tech company in the entire world.
This is obviously great news for the tech industry but it begs the question: what is Apple doing right in comparison to its competitors? The company has been able to reach incredible heights that are yet unimaginable for companies like Amazon.com Inc. (AMZN, Financial), Alphabet Inc. (GOOG, Financial) (GOOGL, Financial) and Microsoft Corporation (MSFT, Financial), even though they are now closing in.
When you look at the evidence, you’ll see that what really sets Apple apart from its competitors is the company’s ability to penetrate the fast-growing Chinese market, which currently makes up 25% of Apple’s revenue. The company reported $13 billion in revenue from Greater China during the second quarter of fiscal 2018 — a 21 percent year-over-year spike.
Compared to its competitors such as Facebook (FB, Financial) and Google that only derive about 1% of their earnings from this massive market, you’ll realise that Apple is absolutely crushing it.
Not only does China have the largest smartphone and e-commerce market in the world, but it’s also the biggest consumer of Apple products thanks to an insatiable demand for high-end smart devices in the country.
It’s also interesting to note that when it comes to shipment volumes of smartphone devices, the Indian market is currently leading while the U.S. still trails only behind China in terms of overall volume.
Of course, Apple’s strong presence in the East means that companies like Alibaba Group Holding Ltd (BABA, Financial) and Tencent have to work twice as hard in order to gain market share, and their home advantage doesn’t seem to be helping out in competing with Apple in this regard.
What these two companies need in order to compete with Apple is to build a stronger presence in the U.S. market, which is not only the world’s second-largest consumer of e-commerce products but also the world’s largest economy.
However, even as Apple continues to expand and dominate international markets, it still maintains a strong home base. This is mainly because to this day, a new Apple product release is still one of the most anticipated events in any American techie’s calendar.
So, when we look at what sets Apple apart, it’s its strong ability to maintain a strong presence in both the U.S. and Chinese markets, which are the two largest economies in the world today.
With a market reach that huge, it’s no surprise that Apple was the first to break into the $1 trillion market cap. Obviously, congratulations are for Apple’s CEO Tim Cook who did a fantastic job of ensuring that Apple enters the Chinese market successfully. And it probably had a lot to do with their ability to take advantage of the source to pay outsourcing, sometimes also known as the source to procure outsourcing.
Apple has been outsourcing raw materials for product development mainly from companies based in Asia. The company also outsources manpower for sales, product development, and several other services from the Asian region at cheaper rates, which significantly reduces its cost of production thereby increasing profit margins.
The company also ensures that its global operations are smooth and optimal by using the source to pay technologies to improve process efficiencies in the supply chain. Many companies in the technology sector have tried to adapt their operations to the latest technologies in a bid to keeping up with the competition and it appears the iPhone maker is one of the leading early adopters.
Apple rarely tops the charts for the number of devices shipped in a fiscal year. However, its revenues and profits often trump those of its rivals due to impressive margins and pricing. This gives the company an advantage in terms of flexibility, which enables it to easily expand to new markets.
Conclusion
With all that said, it’s important to look at this monumental event from a broader perspective and not just based on Apple’s entry into the Chinese market. Of course, they’ve set a great example for Facebook and Google, as well as Asia bigwigs Baidu Inc. (BIDU, Financial), Tencent and Alibaba, but at the end of the day, this is just one aspect of Apple’s success story.
Disclosure: I have no position in stocks mentioned in the article.
