Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 CASE STUDY PRESENTATION of GROUP 1 CAMERON AUTO PARTS (PART B) Navid Nazemian Presentation done by: AIM 6th term

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 A presentation from: © waterproof concepts

Table of contents: Introduction of the team Working Procedure Answering Question 4 Answering Question 3 Answering Question 2 Answering Question 1

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our working procedure: Minutes Discussions Teamwork Calculations Brainstorming Regular Meetings Comparison of different scenarios

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our opinion about McTaggart‘s previous behaviour Cameron‘s point of view – Opinion about McT‘s behaviour The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our opinion about McTaggart‘s previous behaviour Scenario 1: Cameron‘s point of view The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Theoretical Background OUR OPINION ABOUT MCTAGGART‘S PREVIOUS BEHAVIOUR Types of Licensing 1) Handout International Marketing, Prof. J. Höppner, p. 98 ProductionSalesUsage Brands Technical Equipment Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 McTaggart‘s Internationalisation MCTAGGART‘S INTERPRETATION OF LICENSE CONTRACT Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Constant increase of royalties by 500% ROYALTIES RECEIVED year $ Royalties * * Estimated by McTaggart Source: [Page 1,2 case study part B] Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Performance of McTaggart McTaggart 1995 Royalties $ 150,000 Revenues: 1,500,000 x 3 = $ 45,000$ 150,000 - $ 45,000 = $ 105, ,000 x 100 = $ 5,250,000 $ 5,250,000 + $ 1,500,000 = $ 6,750,000 2 Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Revenues are growing remarkably MCTAGGART‘S AND CEMRON‘S TURNOVER (flexible couplings) mio $ revenues year * * Estimated Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Increase of revenues in 1995 EXTENSION OF CAPACITY LIMIT $ revenues Source: [Part A, page 8; Part B, page 2] $ 750,000 Cameron‘s point of view – Opinion about McT‘s behaviour

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Conclusion Cameron‘s point of view – Opinion about McT‘s behaviour + - Orientation to foreign markets  negotiation power  Blackmailing  price reduction  flexible response to market situation  honest reports & payments  more royalties

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our opinion about McTaggart‘s previous behaviour Scenario 1: Cameron‘s point of view The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Theoretical Background OVERVIEW OF POSSIBLE ENTRY STRATEGIES 1) : Determinants: 2) 1. Company oriented - strategy - cost situation 2. Product oriented 3. Market oriented - legal situation - economic situation - competitive situation - trade situation - consumer situation Objectives: 3) 1. Market Position -share -sales volume -new markets 2. Cost objectives -scale of economy -productivity gains 3. Profitability -profits -return on sales -return on capital 4. Financial objectives -credit -liquidity -self financing -capital lay-out Sources: 2) Kutschker 1992, 3) Meffert, Bolz, Internationales Marketing Management Exporting Licensing Contract Manufacturing Mgt. Contract Joint Venture Own Subsidiaries Acquisition 1) Handout International Marketing, Prof. J. Höppner, p. 91 Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Domestic company Home country shares profits capital management Host country Foreign company Theoretical Background JOINT VENTURE 1) : 1) Handout International Marketing, Prof. J. Höppner, p. 101 Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Theoretical Background more control more influence secure step to an infamiliar market shared responsibility more profit motivation of partner ADVANTAGES OF JOINT VENTURE DISADVANTAGES OF JOINT VENTURE dependence on Joint Venture partner financial risk losses possible investment necessary Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Conditions of Australian Joint Venture Contract § Conditions § Assembling in Australia (tariffs) No management responsibilities 60:40 share Investment $ 1.2 Mio 40% of remaining profits Royalties 2.5 % Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s total profit from Australian Joint Venture Profits JV 1997Profit after tax 1997 $ Management fees Royalties Source: [Part B, page 3] McTaggart $ 360,000 Cameron $ 240,000 60% 40% Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Assumed sales in 1997 Estimated sales: $ 7.5 Mio Royalties/year: $ 7.5 Mio x 2.5% = $ 187,500 Estimated net profit after tax: $ 600,000 x 40% = $ 240,000 Total Profit: $ 187,500 + $ 240,000 = $ 427,500 Source: [Part B, page 2] Cameron‘s point of view – Proposal of Joint Venture

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Joint Venture profit higher than UK-profit COMPARISON BETWEEN UK LICENSE BUSINESS & AUSTRALIAN JOINT VENTURE 0 UK license conditions referring to estimated sales in Australia Profit Investment Profit Investment $ * *

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s final statement to Joint Venture with McT: More profitable than a pure license business Known cost structure on Australian market Good market knowledge Tariff reduction by local assembly Good prospects (New Zealand) Quick market entry Reliable partner Cameron‘s point of view – Proposal of Joint Venture -> Let‘s do it!

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our opinion about McTaggart‘s previous behaviour Scenario 1: Cameron‘s point of view The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Theoretical background COMPARISON BETWEEN GREENFIELD AND BROWNFIELD INVESTMENT Source: [Welge/Holtbrügge, 1998, page 122

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Michelard & Cie Family-owned business No experience in manufacturing (pure distributor) Cash-shortage High administrative costs Good knowledge of French, Belgian, Italian & Swiss market Sales problems in the Netherlands & Germany European Union Important customer Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Immense increase in sales figures CAMERON‘S SALES TO MICHELARD * Estimated * Source: [Part B, page 5] $ years Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Domestic market is the strongest MICHELARD‘S TOTAL SALES SPECIFIED TO COUNTRIES Total sales: $ 12.2 Mio Belgium France Switzerland Italy Germany Holland Source: [Part B, page 11] Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Conditions of Joint Venture with Michelard § Conditions § $ 4 Mio investment 40:60 share based on profit with couplings Royalties 4% on sales 10% profit on component shipment (until 1998) Management competence with Michelard Source: [Part B, page 11] Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Immense increase of sales of flexible couplings PROSPECTED SALES OF FLEXIBLE COUPLINGS * all figures prospected * Source: [Part B, page 5] Mio $ years ** Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Biggest profit share made by component shipment COMPOSITION OF PROFIT FROM MICHELARD‘S BUSINESS IN 1998 Source: [Part B, page 11] Total = $ 2.08 Mio Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Amortisation within a short period possible CAMERON‘S INVESTMENT & PROFITS FROM MICHELARD BUSINESS Mio $ Source: [Part B, page 11] Premise: still dependent oncomponent shipments years investment profit Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 BUT -> Risk of getting in trouble with McTaggart Final statement MORE PROFITABLE THAN ANY OTHER FOREIGN BUSINESS AT THE MOMENT Cameron‘s point of view – Alternative of investing in Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Our opinion about McTaggart‘s previous behaviour Scenario 1: Cameron‘s point of view The proposal of the Australian JointVenture The alternative of investing in Michelard Our strategy towards the European market Cameron‘s point of view – Strategy towards the European Market

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Strategy towards the European Market Subdivision of European Market between McT & Michelard McTaggart Michelard

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 What is our strategy all about? Enter a Joint Venture with Michelard More control over European Market Competition between Michelard & McT shall be avoided Find a compromise with McTaggart Optimum marketing End of 98: new negotiations with McTaggart: to avoid u nnecessary competition higher royalties -> Overall aim: profit maximisation

Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Thanks for your attention! Sources: 1) Handout International Marketing, Prof. J. Höppner, p. 91 2) Welge / Holtbrügge 1998, p ) Kutschker ) Meffert, Bolz, Internationales Marketing Management 5) Microsoft Encarta 1999 Questions?