Essay On Cameron Auto Parts Example For Students

Essay On Cameron Auto Parts The APT allowed for tariff-free trade between the Big Three American automakers and parts suppliers and factories in both countries. The one caveat in the APT to qualify for the zero-tariff trade was that companies must maintain assembly facilities on both sides Of the border. Cameron Auto Parts specifically manufactured original equipment parts (MEMO) such as small engine parts and accessories based 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 financial crisis. Sales in 2000 had dropped to $48 million and were only $18 million for the first six months of 2001 Cameron lost $2. 5 million in 2000 and the same amount in the first six months of 2001. This decline was primarily due to declining auto sales of American cars and trucks and the increased presence of Japanese automakers. Market forces were driving the American firms to tint ways to cut sots and modernize plants. Cameron used 510 million of its $12 million credit line to reinvest back into the firm by modernizing equipment and computer- assisted design and manufacturing systems. However, Cameron did not have its own design engineering team and relied on specs from the Big Three automakers for its products This left Alex Cameron with an uneasy feeling that expansion into product design was essential for the long-term survival 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 flexible pulling idea that would entice international buyers and not just the Big Three automakers. Cameron was then faced with the dilemma of how to market and sell the product. Projected 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 handle the production. They needed to decide if it was better to expand current facilities, buy, build a new facility, or license the fabrication of the product to outside companies. While on a vacation trip to Scotland, Alex went to check in on a local customer, McGrath Supplies, Ltd, who convinced him that the flexible pulling 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 tooth flexible coupling to McGrath in order to gain a stronger foothold in the ILK, for relatively little up- front investment. I _ Should Cameron have licensed McGrath or continued to export? Cameron Auto Parts should license to McGrath in the ASK. It was one of Cameramans key goals to penetrate foreign markets and the licensing agreement with McGrath old be a swift way to begin executing this business sweater. McGrath was in a superior position to penetrate the LLC. K_ market due to a good cultural understanding and close proximity to potential clients. Once this business arrangement was proven successful, Cameron Auto Parts would be able to form similar agreements with other companies and expand to other foreign markets. McGrath is an excellent licensee, as they are a reputable company in the U. K. With excellent credit, cost saving manufacturing practices, good market contacts, and 130 years of service in the business. They are also assuming most f the financial risk by paying Cameron Auto Parts the startup costs as well as a percentage of sales. Embarking on a licensing strategy would also eliminate the prohibitive cost of developing and maintaining a sales force in a foreign country that likely wouldnt perform as well as a local company like McGrath since customers had cultural ties and existing relationships with them. Bronwyn Donaghy about the facts and consequences of teenage sex EssayThis would involve dedicating a certain amount of production floor space to a market that is culturally and geographically distant and unpredictable. There is risk involved as the production space ties up cash flow 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 resolve issues or sell products. The sales side expense would be higher as well. More sales people would have to be employed to that region. They would either have to travel often or be based there and paid in pounds, which are currently stronger than the dollar. Instead of receiving a check from one contact that represents all sales for the whole area, Cameron would have to maintain relationships with various customers, which requires personalized attention to ACH and exposes him to having to perform collections and write off bad debt Since unit production costs were estimated to decline as annual sales climbed from $20 million to million and Andy felt that the $20 million mark was easily obtainable in the coming year, the continued value of exporting 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 domestic and foreign distributors, licensing is an effective strategy to entreat the European market While eliminating import and Other logistical costs. Cameron Auto Parts would benefit most from a licensing agreement with McGrath Supplies Ltd. Other options exist besides exporting 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. Ill Case Update Cameron Auto Parts enjoyed rapid growth during the 2004-2005. In 2004, the company undertook a major plant expansion for SIS million, adding 200,000 square feet to the compacts production capacity. Royalties from McGrath during the first year of the licensing agreement were EYE,OHO; this grew to and OHIO,OHO the following year. High 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 Misheard Ice. , 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 McGrath, who had been selling flexible couplings in Europe and would now be competing with Misheard.