1. Should Cameron have licensed McTaggart or continued to export?

No: Tariffs, agility and responsiveness, growing market opportunity, smaller commitment, no
high initial costs and less risk Yes: Own know-how and strength, risks regarding know-how and
reputation, solves the tariffs problems, more control and learning opportunity for future
expansion, swift penetration of the market

2. Was McTaggart a good choice for licensee?

Cameron didn’t do much research or consider different companies to have a license agreement
with but McTaggart demonstrated it was a reputable company to do business with. McTaggart
was a reliable company that had been in business for 130 years and had great financial standing
with excellent credit. The company had a high caliber sales force spread throughout Europe and
had established good market contacts. McTaggart was very familiar with Cameron’s product, as
they had been selling Cameron’s product before they even place orders to Cameron. This proved
both companies had a solid business relationship. Cameron could actually benefit from
McTaggart’s expertise in the market and established clientele. McTaggart has the space and
capacity to meet demands and was also willing to invest in special equipment to manufacture
the flexible couplings. McTaggart’s plant showed the ability to keep manufacturing cost low.

3. Was the royalty rate reasonable?

What we get!

Free Technology Transfer clause

3% royalties up to 1,5 million dollars

2% royalties over 1,5 million dollars

100 000 knowledge transfer fees

license for 5 years renewable

What we offer

Our technology know how for producing

Image, name and Brand

Yes, for this one as well. I believe that if Cameron could have gotten more out of this deal, yet
the tradition of the 1.5 % being the regular rate the deal is great for both. So the fact that
McTaggart has already been paying so much amount of residual cost through the importing,
then by all that Cameron can share his information and both can reduce what McTaggart is being
charged. Cameron would have been able to gain valuable insight on the UK Market so that he
can see what it is the step into international operations. The royalty rate was reasonable for
both parties engaged in the business process. This is why Cameron decided to leave money on
the table. So, by saying, the royalty rate is considered the money paid from a licensee to a
licensor. That’s what it stands out to be and because of that it may also be paid in a percent
form. Even though the standard royalty rate for licensing in the UK, is around one and a half
cent. Yet Cameron was asking McTaggart for three per cent on each sale. Which of course is
much higher than the standard royalty rate. However, it sounds reasonable, why you might ask,
well McTaggart will save himself such a greater amount of the import expenses and eventually
have a greater opportunity to sell Cameron’s products at a much lower rate, than they can at
the expense of imports. Also, I think that nothing will be able to beat that profitability Cameron
would have form export. Cameron also has those plans of going public while McTaggart will still
have much control can kind of hurt the image of Cameron but allows for further brand
recognition and potential stakeholders. Therefor in any case, this licensing agreement will be
reasonable for any two companies. So Cameron will be able to penetrate the U.K. market and
obtain adequate benefits, while McTaggart in the other hand will have a great ability to sell a
product that is already in demand with the customers. And take advantage of the professional
training of production and operation.

4. What about the alternatives to licensing? Please identify other alternatives

and assess their pros and cons against the licensing approach.

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 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. to resolve issues
or sell products. The sales side expense would be higher as well. More sales people would have
to be employed to serve that region. They would either must 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 each and
exposes him to having to perform collections and write off bad debt. Since unit production costs
were estimated to decline 20% as annual sales climbed from $20 million to $100 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 penetrate the European market while
eliminating import and other logistical costs. Cameron Auto Parts would benefit most from a
licensing agreement with McTaggart 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.