Cameron Auto Parts Case Study

Cameron Auto Parts (A) Revised

The opportunity for Cameron Auto parts to expand to the United Kingdom through a license, rather than continuing to export was a good decision. However, there should have been more thought behind the decision in terms of market research for flexible couplings, supplier opportunities and global expansion than the unexpected trip leading to a business deal without consulting with the Cameron Auto Parts executive team, including production and legal.

Cameron Auto Parts faced plant expansion hurdles for due to balance sheet issues and the concern for potential order loss from the Big Three US automakers. This prevented the business from increasing unit sales from $20 million to a potential $250 million. The solution of adding two full shifts was only able to increase sales from $20 to $125 million. Thus, by taking the risk of not expanding the company potentially lost $125 million in future sales over the next two years.

The license granted to McTaggart will help bring in the cash flow needed to expand in North America. Throughout the bargaining process the CEO Alex Cameron negotiated well keeping with his initial price at three percent, with a caveat of 2 percent after the first million. He also negotiated important business terms for Cameron including free technology flow-back for improvements or adoptions to the manufacturing process - which can only help improve existing business. Equipment purchasing and training is additional costs for McTaggart, providing more job opportunities for employees at Cameron Auto.

The last part of the deal - a five year contract was a great idea by McTaggart allowing them to see net profits after equipment purchase and Cameron Auto payout. It also allow Cameron Auto to renegotiate for a higher percentage in the future. The biggest take away from the license partnership will allow Cameron Auto entry into the United Kingdom market and give the company a first experience with global expansion - it's low risk and has low development costs. There's not a huge potential loss for Cameron Auto by licensing with McTaggart if the deal doesn't work out after five years between the companies.

The decision to license was made due to exporting not being able to handle the demand for the product, resulting in McTaggart ordering minimal product. Alternatives to the McTaggart agreement were not explored, and they should have before a contract was signed. There are other competitors in the UK that would see a similar opportunity to partner with McTaggart. Putting out a competitive bid would allow Cameron Auto to get the highest royalty rate, opportunity for additional knowledge sharing of new products/innovations from Europe, an experienced company with up-to-date production equipment and skills and the best product marketing. Would McTaggart market the product better than a competitor,