Apple PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. Apple PESTEL analysis (or Apple PESTLE analysis) involves the analysis of potential impact of these factors on the bottom line and long-term growth prospects for the tech giant.
Political Factors in Apple PESTEL Analysis
The extent to which Apple is able to achieve its primary objective of profit maximization depends on a wide range of political factors. These include government stability, level of bureaucracy, corruption, freedom of press, home market lobbying groups etc. Additionally, activities of trade unions can be mentioned as important political factors for Apple.
Tax Payments
The payment of taxes is a noteworthy political factor affecting Apple. The multinational technology company uses complex legal means to keep its tax payments as low as possible globally, especially in the US and Ireland. In the US, the tech giant holds the majority of its cash offshore so that it can avoid paying corporate income taxes in the US.[1]
In Europe, European Commission concluded that Apple should have paid the Irish state at least €14 billion (USD 16.2 billion) in corporate tax for 2004-2014. However, in 2020 the General Court of the European Union ruled that European Commission was wrong, a decision that was welcomed by the Irish government.[2] Changes in taxation policies in general and the stance of governments and government agencies towards the iPhone maker in particular are external political factors that have implications for the business.
Dispute with US Federal Bureau of Investigations
The most significant case that illustrates the potential impact of a political factor relates to Apple’s battle with US Federal Bureau of Investigations (FBI). Specifically, the company has disputed with FBI over whether it should be forced to hack an iPhone used by one of the San Bernardino terrorists. The matter turned into a major political debate dividing the public into two camps – those who support the company and those who oppose it regarding this particular issue.[3]
Moreover, some members of US Congress demanded Apple to remove controversial Saudi Arabia government Absher app. The app has attracted criticism “due to its nature of curtailing the rights of women to travel and move freely in and out of Saudi Arabia”[4] The pressure from Congress members to get the app removed from Apple App Store is another stark illustration of potential impact of political factors on the business.
Political Lobbying
The amount of political lobbying by the company represents an important element of Apple PESTEL analysis. Political lobbying is a bid to influence politicians and external political environment with positive implications for the iPhone maker. As it is illustrated in Figure 1 below, the company has been consistently increasing its annual political lobbying budget during the past several years to reach USD 7,41 million in 2019. Nevertheless, this amount is considerably less than lobbying budget of other tech giants, namely Facebook, Amazon and Google, which respectively paid out USD 16.7 million, USD 16.1 million and USD 11.8 million over the same period.[5]
The numbers of Apple lobbyists have been increasing as well and the multinational technology company employed 46 lobbyists in 2019. Apple’s lobbying efforts are directed at the development of legislations that are favourable for the business on long-term perspective.
Figure 1 Annual lobbying by Apple Inc.[6]
Apart from the direct business interests of the company, Apple’s lobbying activities also pursue greater causes for the benefit of the humanity and the environment in general. To illustrate this point, it can be mentioned that in June 2017, Apple urged the White House to remain in the Paris climate agreement, to retain American leadership, and to take meaningful action on climate change. [7]
Impact of global political factors
Apple had to deal with the impacts of political factors in international scale as well. A call by Dmitry Gorotsov, a Member of Parliament in Russia to stop lawmakers in the country “using iPhones and iPads to protect them from eavesdropping by foreign special services”[8] can be referred to as an example where politics interferes with business. Another lawmaker in Russia famous for his harsh approach towards gay propaganda has publicly suggested Apple CEO Tim Cook to be banned from visiting the country due to the latter’s public acknowledgement of his homosexuality on October 30, 2014[9].
Trade war between USA and China can be mentioned as another global political factor that affects revenues and long-term growth prospects of the iPhone maker. These cases can be interpreted as a clear illustration of potential impact of a political factor on Apple sales in Russia. It is important to clarify that both cases mentioned above relate to political factors that are associated with Apple in a direct manner.
Economic Factors in Apple PESTEL Analysis
There is a wide range of economic factors that affect Apple directly, as well as, indirectly. These include overall macroeconomic climate in the market, inflation rate and interest rate, as well as, foreign currency exchange rates. Moreover, the world’s largest IT company by revenue is affected by the cost of labour and changes in disposable incomes of consumers.
Currency exchange rate
Apple generates about 59% cent of its total sales from international markets outside of United States[10]. Accordingly, company revenues are negatively affected by the current tendency of strengthening USD. Apple’s CEO Tim Cook adopted a currency hedging program in 2014 aimed at easing the negative effects of strengthening USD.
The tech giant hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.[11] It has to be noted that hedging practices can only compensate exchange rate losses to a certain extent and the foreign exchange risk for the company is not going away any time soon.
Interest rates
Changes in interest rates can affect Apple revenues to a significant extent. Based on investment positions as of September 26, 2020 and September 28, 2019, a hypothetical 100 basis point increase in interest rates across all maturities would result in a USD 3.1 billion and USD 2.8 billion incremental decline in the fair market value of the portfolio, respectively.[12]
Cost of Labour
Apple has based its manufacturing units in China due to cost-efficiency of resources in general and cheaper human resources in particular. However, the cost of labour is increasingly rising in developing countries in general and in China in particular. As illustrated in Figure 2 below, manufacturing labour cost in China reached USD 6,5 per hour in 2020 and this trend is forecasted to continue.
Rising costs of labour is a significant economic factor that has direct implications on the profitability of the business. Specifically, rising cost of labour erodes the profit margin of the world’s largest IT company by revenue.
Figure 2 Changes in cost of labour in China, Mexico and Vietnam[13]
Inflation rate
The company is also affected by increasing rate of inflation in the US due to its large amount of cash reserves. Interestingly, in the past one of many Apple’s investors, hedge fund billionaire David Einhorn has attempted to sue the company to force payment of dividends of USD 137 billion[14] so that negative impact of inflation could be addressed.
Apple Inc. Report contains a full version of Apple PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Apple. Moreover, the report contains analyses of Apple business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of Apple marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Hoxie, J. (2018) “Commentary: Apple Avoided $40 Billion in Taxes. Now It Wants a Gold Star?” Fortune, Available at: https://fortune.com/2018/01/18/apple-bonuses-money-us-350-billion-taxes-trump
[2] Sullivan, A. (2020) “Apple tax ruling for Ireland shines light on global tax avoidance” DW, Available at https://www.dw.com/en/apple-ireland-tax-avoidance/a-54274213
[3] Tibken, S. (2017) “Apple vs. FBI one year later: Still stuck in limbo” CNET, Available at: https://www.cnet.com/news/apple-vs-fbi-one-year-later-still-stuck-in-limbo/
[4] Owen, M. (2019) “Members of congress demand Apple take down Saudi Absher app” Apple Insider, Available at: https://appleinsider.com/articles/19/02/25/members-of-congress-demand-apple-takes-down-absher-app
[5] Campbell, M. (2020) “Apple spent $7.4M on lobbying efforts in 2019, well below outlays from Amazon and Facebook” Apple Insider, Available at: https://appleinsider.com/articles/20/01/22/apple-spent-74m-on-lobbying-efforts-in-2019-well-below-outlays-from-amazon-and-facebook
[6] Open Secrets (2020) Available at: https://www.opensecrets.org/federallobbying/clients/summary?cycle=2019&id=D000021754
[7] Environmental Responsibility Report (2018) Apple Inc.
[8] Russia Today (2014) Available at: http://rt.com/politics/210675-russian-parliament-iphone-ban/
[9] The Independent (2014) Available at: http://www.independent.co.uk/news/people/news/russian-politician-says-apple-ceo-tim-cook-should-be-banned-from-country-after-coming-out-as-gay-9829670.html
[10] Annual Report (2020) Apple Inc.
[11] Annual Report (2020) Apple Inc.
[12] Annual Report (2020) Apple Inc.
[13] Source: Statista (2021)
[14]Neate, R. (2013) “David Einhorn Suing Apple Over Shareholder Cash” The Guardian, Available at: http://www.theguardian.com/technology/2013/feb/07/david-einhorn-apple-shareholder-cash