Sunday, July 17, 2011

Apple: Using High Tech Supply Chains for Market Domination

Apple has been developing the coolest products for years now (arguably decades).  But a little fact often overlooked in all the buzz about the latest and greatest Apple gadget is why it takes so long for competitors to catch up.  There was a gigantic 12-18 month gap between the first iPad hitting the market and a suitable alternative.  In today's age of instantaneous information flow and technology development that is a staggeringly long time for competitors to be shutout of a high tech space.  After some deeper research it appears that this competitive advantage comes from Apple's dominance of certain high tech supply chains.

It turns out that when Apple has cash to spend (which they have plenty of) they invest it in the construction of factories that manufacture key components (touchscreens, chips, LED displays).  In return they receive exclusive rights to the output of those factories.  This keeps competitors at bay because they will not have economical access to these assets and all the while Apple is charging premium rate for its products.  Then when competitors eventually hit the market Apple can undercut the competitor price because they can produce the product more cheaply, leading to more profit, and of course starting the cycle again. 

This is a must read article.

Read the article.

1 comment:

  1. Is anybody surprised by this? I for one am not.


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