Cameron Auto Parts Essay

Cameron political machine separate was founded in 1965 in Canada by the Cameron family to buy up opportunities created by the railcar Pact (APTA) of 1965 between the United States and Canada. The APTA allowed for tariff-free trade between the outstanding Three Ameri stern automakers and part suppliers and factories in both countries. The unitary caveat in the APTA to qualify for the zero-tariff trade was that companies must maintain fictionalisation facilities on both sides of the border. Cameron Auto separate specifically manufactured reli adequate equipment sepa swan (OEM) such as small engine parts and accessories base upon design specs created by the Auto manufacturers and then sold these parts to the auto makers.Alex Cameron took the reins in 2001 and was immediately faced with a fiscal crisis. gross gross sales in 2000 had dropped to $48 million and were only $18 million for the number 1 six months of 2001. Cameron lost $2.5 million in 2000 and the same amount in t he first six months of 2001. This diminution was primarily due to declining auto sales of Ameri behind cars and trucks and the increased presence of Japanese automakers. Market get outs were driving the American starchys to find ways to vitiated bes and modernize proves. Cameron used $10 million of its $12 million credit line to re frame back into the firm by modernizing equipment and computer-assisted design and manufacturing systems.However, Cameron did not pass water its own design applied science team and relied on specs from the Big Three automakers for its returns. This left Alex Cameron with an vile feeling that expansion into point of intersection design was essential for the long-term pick of the firm. In mid-2001, Cameron took the steps necessary to design and develop its own parts line. Cameron hired four design engineers and, by 2003, came up with a plastic coupling idea that would entice international buyers and not just the Big Three automakers.Cameron wa s then faced with the dilemma of how to market and sell the product. communicate sales of the new product in 2004 were between $35 and $40 million which was terrific but they werent sure they had the capacity to delay the production. They motiveed to decide if it was better to expandcurrent facilities, buy/ take a shit a new facility, or licence the fabrication of the product to immaterial companies. While on a vacation trip to Scotland, Alex went to check in on a local customer, McTaggart Supplies, Ltd, who convinced him that the flexible coupling product was in high demand in the U.K. and that more production was necessary to keep up with the demand. Alex decided at that meeting that Cameron would exclusively license the production of the flexible coupling to McTaggart in order to get ahead a stronger foothold in the U.K. for relatively little up-front investment.1. Should Cameron ease up licensed McTaggart or continued to export? Cameron Auto Parts should license to McTag gart in the UK. It was unrivalled of Camerons key goals to penetrate foreign markets and the licensing agreement with McTaggart would be a swift way to begin executing this profession strategy. McTaggart was in a superior position to penetrate the U.K. market due to a devout cultural ensureing and close proximity to potential clients. Once this business arrangement was proven successful, Cameron Auto Parts would be able to conformity similar agreements with former(a) companies and expand to other foreign markets. McTaggart is an excellent licen envision, as they ar a repu elude smart set in the U.K. with excellent credit, cost saving manufacturing practices, bang-up market contacts, and 130 years of service in the business. They atomic number 18 as tumesce as assuming approximately of the financial luck by paying Cameron Auto Parts the startup costs as tumesce as a voice of sales.Embarking on a licensing strategy would give carewise eliminate the prohibitive cost of developing and maintaining a sales force in a foreign country that give carely wouldnt complete as well as a local phoner like McTaggart since customers had cultural ties and existing relationships with them. Additionally, orders can be filled more speedily as the product would be made locally reducing ecstasy costs and travel time. It was also a good decision for administrative and economic distance reasons. Since the product would be produced in the UK, it would not be subjected to excess cost of import duty, freight, insurance, or the order added tax.This would allow for the product to be sold at a more attractive price. Lastly, the value of the dollar fell during the original quintette year contract and the percentage of sales in pounds produced a high dollar income for Cameron without changing the price of the products sold. The disadvantages of continuing to export are loss ofprofits due to deportation costs, currency values, taxes and tariffs. The five year contrac t allows Cameron to evaluate the effectiveness of the licensing strategy and determine whether this is a profitable venture for the beau monde.2. Was Mc Taggart a good choice for licensee?Yes, McTaggart was a good choice as a licensee. They declare all the tools necessary to successfully produce and sell the flexible couplings. McTaggart was already familiar with the product and had bought over U.S. $4,000 in the first four months in 2004. They had been able to sell the product as fast as it could be shipped and built a solid working relationship with Cameron as well as good credit. McTaggart has production experience that Cameron may benefit from and meaning(a) room to increase production capacity. They have a solid personality with great financial standing, excellent credit, and a capable sales module to market and sell the product. They have manufacturing capacity and are forgeting to invest and develop the manufacturing capability to efficiently produce the flexible co uplings. In addition, they have established a client base.3. Was the royal house rate reasonable?A royalty rate is the money that must be paid to the proprietor of products (the licensor) from a buyer (the licensee). The amount of royalty fee is considered the fee for acquiring a patent or a copyright. In most businesses, a royalty fee applies when two or more companies have licensing agreements or sell the products in foreign countries. i In U.K., the normal rate of the royalty for licensing is around one and a fractional cent on for each one sale. However, Cameron Auto Parts was asking three per cent of sales from McTaggart. Although it was dropped squander to 2 percent with a 5 year contract afterwards negotiations, it is still high than the normal rate. This seems reasonable as Mc Taggart go away save a considerable amount of importation expense and will be able to sell the products at a lower rate than they can by importing. Cameron will have established an ongoing roy alty income without incurring the overhead cost of production and sales expense.Cameron Auto Parts asks a higher royalty rate than normal rate because the company helps McTaggart choose equipment and set asides training of operationand production. Although McTaggart would like to pay these services separately, Cameron Auto Parts points out the benefits of getting services to keep higher royalty rate. With this five-year agreement, the royalty rate of two per cent is ensured in the first five years, but it will be down to one and a half per cent when the techniques of choosing equipment and operation have been acquired by McTaggart after five years.In conclusion, the royalty rate is reasonable for both parties involved. Cameron Auto Parts was able to enter the U.K. market expeditiously through McTaggarts sales force, cut down on lead-times, save on duties, freight, and insurance and not be subject to currency fluctuations. McTaggart was able to sell a product already in demand, obt ain training, focus on increasing sales and gain valuable insight into Camerons manufacturing process. Both companies would benefit from the share friendship they could provide each other, thus make the licensing agreement valuable for e rattlingone involved.4. What almost the alternatives to licensing?The alternative to licensing would be to continue production and sell directly to McTaggart and other customers. This would involve dedicating a certain amount of production floor piazza to a market that is culturally and geographically distant and unpredictable. there is risk involved as the production space ties up cash lessen and is not certain to produce profit. Travel expense would be incurred as company representatives would have to travel often to the U.K. in order to make up issues or sell products. The sales side expense would be higher as well.More sales people would have to be apply to serve that region. They would either have to travel often or be establish there a nd paid in pounds, which are currently stronger than the dollar. sort of of receiving a check from one contact that represents all sales for the alone area, Cameron would have to maintain relationships with various customers, which requires personalized attention to each and exposes him to having to commit collections and write off bad debt.Since unit production costs were estimated to decline 20% as annual sales climbed from $20 million to $ carbon million and Andy felt that the $20 millionmark was easily getable in the coming year, the continued value of exportation to Europe would have grown along with the European market. Looking at the pricing index, we can see that importing to Europe results in a cost of 113 to the importer. Since Cameron Auto Parts sell the flexible couplings at the same price to home(prenominal) and foreign distributors, licensing is an effective strategy to penetrate the European market piece eliminating import and other logistical costs.Cameron Auto Parts would benefit most from a licensing agreement with McTaggart Supplies Ltd. Other options exist besides export or licensing such as a joint venture / wholly-owned subsidiary, selling through an agent, or selling through a distributor. Benefits to these strategies include reduced manufacturing cost, higher sales volume, and better market penetration and in some cases shared risk. The drawbacks to these methods include loss of price control, unpredictable sales volume, and loss of profits. ii compositors case UpdateCameron Auto Parts enjoyed rapid growth during the 2004-2005. In 2004, the company undertook a major plant expansion for $10 million, adding 200,000 square feet to the companys production capacity. Royalties from McTaggart during the first year of the licensing agreement were 20,000 this grew to and 100,000 the following year. racy overall profitability left Cameron in a strong financial position in 2006.In 2006, Cameron was presented with an opportunity to purchase a 40 percent interest in Michelard & Cie., a family-owned distributor organization in France, which would allow Cameron to break into the continental European countries. Cameron agreed to the deal for $4 million and a royalty of 4 percent on sales of all flexible couplings.The deal enraged McTaggart, who had been selling flexible couplings in Europe and would now be competing with Michelard. Partly to appease McTaggart, Cameron agreed to a proposed joint venture in Australia. McTaggart would own 60 percent of the plant and be responsible for managing the venture.According to McTaggart, local assembly in Australia could treble volume of current sales to around 10 million. An investment of 2 million could make around 400,000 a year after Australian taxes while avoiding tariffs imposed on shipping finished products. This agreement would also position the firms to benefit from Australias free trade agreement with untested Zealand. iiiCameron Auto Parts is very likely a pseudonym for Fernco, Inc., a flexible coupling manufacturer based outside of Detroit with a very similar history to that of Cameron Auto Parts. Fernco, Inc. is lead by Chris Cooper who, like Alex Cameron, took over the company from his father after graduating from Michigan business school. In addition to manufacturing facilities in Canada, the U.K., Australia and Germany, Fernco has expanded distribution to the E.U, New Zealand, Mexico, Puerto Rico, and China. ivi Valuation mental imageryRoyalty Rates and License Fees. Retrieved June 29, 2011 from http//www.crucial-systems.com/dmbr/Mechanical_Royalties Mechanical Royalties. Time. 05 December 2004. Retrieved June 29, 2011 from http//www.crucial-systems.com/dmbr/Mechanical_Royalties ii Use These top off Five Strategies for Selling in International Markets. Retrieved July 1, 2011 from iii Beamish, Paul and Crookell, Harold. Cameron Auto Parts (B) Revised. Richard Ivey School of Business. University of Western Ontario. Jan 10, 2006. iv Ferno Co mpany Website. Retrieved July 1, 2011 from .It is best NOT to start with a recommendation. I would first discuss the pros and cons of the issue on handCameron can simply do what it has been doing Exporting. It is important that you should show licensing would be superior to exporting in order to advocate licensingThese are good points. You realize the resources and capabilities of Cameron are limited.That is also a good point but that point supports the exporting option. there are other options as well Joint gamble (JV) and foreign direct investment (FDI) are others to be considered.Take a look at the posted answers, especially, slide 5 where a table lists pros and cons of each option in terms of various resource based factors. I must indicate my preference for such tabular presentations. They are simple, neat and to the point.All of your points are good. But they are one-sided. I am ALWAYS interested in a balanced analysis expand not only points that support your perspective but also parry perspective. please see the posted answers for such a perspectiveThere is NO precise way of determining the royalty rate. Please see the posted answers for some guidanceNot sure I understand this last point. Cameron is an Exporter. Why would they worry about import costs?Please take a look at the posted slides for this question.Good update.There are 2 things I suggest to improve your analysis 1. provide a balanced perspective. Nothing in this class is a neat pro or con. Every issue has both pros and cons. Both need to be studied carefully. 2. Incorporate other assigned readings into your analysis to provide evidence of learning. Some of the assigned readings could have easily been cited to support your viewpoint.