Business Strategy

Amina Satour

900140082

Assignment 4

Dr Ashraf Sheta

Facts From the Case

• The company was developedin1991 by Ahmed Abdelwahab, an Engineer
• The company is specialized in producing brake lining and passenger pads for trucks, commercial vehicles and cars using asbestos.
• Mr. Abdelwahab was not able to fund the company alone, so he approached El Kharafi, a Kuwaiti investment company to help him with the financing.
• The capital structure: 75% for El kharafi and 25% for Abdelwahab (mangement team included).
• Mr. Abdelwahab thought that the automotive industry in Egypt has a strong potential to grow.
• Main strategy was to build  alliance with reputable technology partners that will be able to satisfy the needs of the original equipment manufacturers.
• Ferodo and the egyptian company share the same vision about the egyptian industry, therefore they created a licensing and technical agreement. The agreement stated that

• Firstly: the two companies are going to produce asbestos products and that MAK should use the brand name Ferodo while selling locally and that they will have to pay royalties for Ferodos brand name.
• Secondly: they cannot export independently using Ferodos brand name. However, there was not any barrier for MAK to export products that carry other brand names.

• Privilege of this agreement to MAK is that they were granted all the know-hows from a well know company in the industry. Maks main target market is the replacement market, even though the company wanted to focus on the automotive industry, however, their capabilities helped them to serve other segments as well.
• As any start-up, the first year the company was not making any profits; however, the second and third year the company started to break even and make little profits.
• Recognization: increasing the exports to the UK, increases the profits of the comapny.
• Conclusion: the local market alone is not beneficial, thus exporting is cruicial in order to  maintain profitability margins.

Characters:

• Ahmed Abdelwahab, manager director of MAK: gathered the manager to inform them with the new announcement and discuss the future of their company.
• Hosny zeidan Production manager: Suggests that the company should try to produce product free asbestos and that the company should rely on its own from now on.
• Adel shokry Domestic sales manager: against the idea mentioned above and he believes that the local sales depend on the brand name and that any egyptian name will not survive in the market. Since barking lining is a very sensitive industry that they cannot gain the trust of the customers directly
• Ahmed El Afifi, Export manager: he showed his concern that if MAK stopped working with ferodo this means that the company will lose all its foreign sales since it was the only company they exported to. Exports accounts for 30% of their total sale.

Place: 

• managers meeting discussing the future of their company

Degree of certainty: 

• High: all the information mentioned in the case was told by the manager director of the company and was supported by figures showing the financial position of the company.

Symptoms that lead to the problem:

Problem 1

• Asbestos material is classified to be very dangerous because long exposure of the workers to this material can cause them to be infected with lung cancer. This fact triggered public opinions to file cases against companies using this material.

Problem 2

• For the local markets: no fierce local competition because of several reasons:

• Firstly: most of the consumers did not trust locally produced goods and they see them as inferior products.
• Secondly: most of the competitor products were imported from outside and that there were only two egyptian companies competing with MAK in the same industry.
• Thus Abdelwahab decided that he does not want to rely solely on the local markets,since it was not profitable. So he decided to expand to near Arab countries like Sudan, libya and Kuwait.
• Additionally, Ferodo paved the way for Mak to join the global market when they asked them to complement for their production in the UK. Abdelwahab made huge investment to be able to satisfy this request. By 1995, Mak started to export to the UK.

• Ferodo is not willing to pass any technology regarding the asbestos free with the license because they only pass this kind of technology when there is a joint venture between the two companies. Ferodo do not want to form a joint venture currently because they have a lot of joint ventures going on in China, India and brazil.

Problem the company is currently facing:

• Federal Mogul, an american auto part company, has acquired another company called T&N. The problem is that MAK has been working under a 10 year licensing from T&N subsidiary ferodo and apparently this new company is not going to renew the contract for them. The manager director gathered the managers to know what are the recommendations that he should tell to the board of director in the next meeting
• In 1994, an official document was released banning the usage of asbestos in the production of baking lining. Abdelwahab knew that this decision is going to shift the whole production process in this industry. In order to produce asbestos free products they should have a special technology. This special technology Ferodo will not give to Mak unless their is a joint venture and Ferodo do not want to form any venture with Mac.

Goal 

• Main goal was renewing their licensing with ferodo and discuss with them the option of producing non asbestos products and finally to focus on on their exports because they know the significance of the exports to the company’s overall profitability.

Discussion Questions

1.  Focus on the local market with asbestos based technology: 

• The company would still have the chance to use Ferodo’s asbestos based technology. This is because the asbestos based technology would be of no benefit for Ferodo, whose main target population is in Europe, where they have completely banned asbestos usage.
• Thus, Ferodo allowed MAK to utilize the asbestos based technology after the expiration of the agreement as well.
• In addition, MAK can benefit from this offer by improving the asbestos based technology in order to be competitive in the Egyptian market.
• Also, MAK has the chance to export to other African and Arab countries, like Kuwait, who would not mind the usage of asbestos based technology in producing brake lines.
• On the other hand, it would be hard for MAK to shift its production specifications of European countries to other provisions that would suite the African or Arab markets.

• Reason: already made huge investments in its plants, machineries and quality control to order to reach international standards of brake lines and become more appealing to the European market.

• Problem: MAK looses a huge amount of their market share after the expiration of the aggreement with Ferodo.

• MAK will need to sell its products under its own brand name, which can create a discouragement for Egyptian customers to purchase MAK’s brakes, because Egyptians trust more imported products over locally produced ones, especially when it comes to brake lines.

2. Make contacts with other technology and or brand name provider to find one that would  provide technology as well as brand name:

• If MAK finds a new partner who is willing share asbestos free technology, MAK’s products will continue to be appealing to the European customers.
• In this case, MAK would project increase in its export sales and profits, as a result of adapting the new asbestos free technology.
• Using a foreign brand name with advanced technology would be a privilege for MAK.

• As previously mentioned Egyptian customers prefer foreign goods over local goods, specifically for automotive related goods.
• Problem: this new technology would incur additional investment expenditure on MAK. In this case, the increase in manufacturing costs, due to purchasing new machines and hiring skilled labor, for example, would be passed on to the customers in the form of high prices.
• MAK in this case would lose its competitiveness to other importers or local manufacturers, who sell brake line products at affordable prices. (egyptians care about the price).

3. Strike out on their own, develop their own brand name and seek export markets with non-asbestos technology: