Recent media reports rumor about a potential merger between Apple and electric-c
ID: 427351 • Letter: R
Question
Recent media reports rumor about a potential merger between Apple and electric-car maker Tesla Motors which subsequently raises the question whether Apple should be launching a new product, namely the iCar. Should Apple create the iCar?
Answer: Your answer must be between 1000 and 1200 words (e.g., 2 pages, 10pt font).
diversification y el TCE framework
As we know, Apple is a brand that has established reputation, name and loyal customers. Apple’s industry is not the automobile industry, instead they dedicate to the tech industry, therefore launching the iCar implies the entry of a new industry and at the same time a new product. The question here is what corporate strategy best fits Apple’s needs to launch the iCar. According to what we learned in class, corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.
In terms of whether Apple should create the iCar we can take a look at the TCE framework. The main goal of the Transaction Cost Economics framework is to asses the efficiency of vertically integrated strategy over market-based strategies, in terms of cost properties. In other words, it helps you to asses whether to make in house or buy a new product that you want to launch. In these types the decisions corporate strategies are necessary. Thus the TCE framework will help us to determine our decision. If the Cost in house <cost market, then the firm should vertically integrate.
Explanation / Answer
As of date there is no official statement from Apple about its iCar project . Since last four-five years there are various rumours doing the rounds about the Apple's iCar project. We are assuming they are on course to create iCar . Now the question is should they do it and what corporate strategy under TCE (Transactions Cost Economics ) they should adopt . Whether they should adopt a vertically integrated strategy or they should go for a market based strategy. Generally a vertically integrated strategy is adopted if the inhouse cost is less than the cost if the product is manufactured outside and organization wants to create a solid entry barrier. Make or buy also depends upon the company's competitive scope. Lets first analyze whether Apple should get into the automobile industry and then using the Transaction Cost Economics frame work we will discuss how they should go about it.
Since the last one and a half decade the automobile industry has gone through a lots of changes . Earlier automobile industry was all about the driving experience one gets while driving the car . It was more about the quality of music system and air cooling system . Then gearless cars came where in driving became much more easier and music systems & air cooling systems were also made better . Today we are talking about driver less cars which means car users would like to differentiate between the cars depending upon the living room experience they will get once inside the cars. They would like to listen to music , watch movies , chit chat with friends & video-conferencing . This is where Apple's forte is into and it can tap into and make a high margin business for it self by designing the top end software and hardware just like it has done in the gadget and smartphone arena . And what will work in Apple's favour is that there will not be too many competitors in it and Apple can rule this industry may be for ever . They can sell a wide range of services here because when at home the users can get into a host of other physical activiities and when they are seated inside the car not doing anything they have to dwelve into some sort of top end self entertainment and today usage of smart phone's and gadgets has become such a favourate hobby for them that they will look into something of this sort only.
Now lets see what would be the best corporate level strategy . If they go for an make all inhouse strategy there will be a fear of unknown as manufacturing cars is altogether a different ball game . It requires huge initial investment and one cannot roll back because once started it has to be supplied to each and every corner of this universe . They have to generate a lot of capacities for building cars . Although it may cost higher for Apple to make cars inside because of the high end business they will be able to recover all the costs . If they will build cars inside along with making the hardware , software and services that are consumed on a hardware device they will be presenting a strong entry barrier. They can dwell into it not now but at a latter stage because car design itself will go for a lots and lots of changes . For now now it will be prudent for them to partner with a 3rd party contract car manufacturer who will make the cars and living room entertainment related software and hardware will be taken care off by Apple . This will give ample opportunity for Apple to test everything and then may be get into the car manufacturing or partner with car industry partners who have deeper penetration and reach in the industry . Partnership with Tesla may not fit the bill that well for them because once with Tesla they will ever remain with Tesla and their success story will depend hugely on success of Tesla . And it will be difficult for them to figure out what is driving the customers the Tesla's cars or Apple's high end living room entertainment inside cars . They will not be able to test their products fully and make necessary adjustments . They need something where they can solely showcase what they are offering to the consumers .
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