Prof. Dr.

Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied

Sciences
PRESENTATION: GRO U P 1
CA M E R O N AUTO PARTS (PART A)

Kai-Uwe Heesch

Knut Kirchmann

Navid Nazemian

Siegrun Pache

Nils Peters

Tim Steffens

Stefanie Wasner

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Table of contents:

!Introduction ofthe team

!W orking Procedure
!Answering Question 1
!Answering Question 2
!Answering Question 3
!Conclusion

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Should Cameron have preferred licensing or 1

export?
W as McTaggart a good choice as licensee? 2
W ere the royalties appropriate? 3

Scenario 1: Cameron‘s point of view

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Theoretical Background

Our working procedure:

!Team work
!Regular Meetings
!Minutes
!Discussions
!Brainstorming
!Calculations
!Co mparison of different scenarios

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences
Theoretical Background
1)
Overview ofPossible Entry Strategies :
Sources: 2) Kutschker 1992, 3) Meffert, Bolz,Internationales Marketing

3)

Handout International Marketing, Prof. J. Höppner, p. 91

2) Objectives:
Determinants: Exporting
1. Market Position
1. Company - share
oriented Licensing - sales volume
- strategy - new markets
- cost situation Contract 2. Cost objectives
Manufacturing - scale of economy
2. Product oriented
- productivity gains
Mgt. Contract
3. Market oriented
-legal situation
3. Profitability
- economic situation - profits
Joint - return on sales
- competetive situation
Venture - return on capital
-trade situation
- consumer situation O wn Subsidiaries 4. Financial
objectives
Management

1)
- credit
Acquisition - liquidity
- selffinancing
- capitallay-out
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences
Theoretical Background
1)
Licensing :

Handout International Marketing, Prof. J. Höppner, p. 98

Ho me country
Do mestic company
= licensor
patents
copyrights fees
trademarks royalties
know-how

Local company
=licensee

1)
Host country
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences
Theoretical Background
1)
Export :

Handout International Marketing, Prof. J. Höppner, p. 97

Ho me country
Do mestic company
Export department

indirect
direct

Independent
International
Marketing
Intermediator Agent
Distributor

1)
Sales Branch
Host country
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Should Cameron have preferred licencing or

export?
W as McTaggart a good choice as a licensee?

W ere the royalties appropriate?

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Licensing vs. Export

Advantages Disadvantages
of Licensing of Licensing

Advantages Disadvantages
of Export of Export

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Advantages of Licensing

Low investment costs

Reduced financial risk

Minimised risk of poor performance oflicensee

Economies of scope

Quick market entry

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Disadvantages of Licensing

Lack of revenue transparency oflicensee

Less influence
No control over local business
Risk ofimage loss

Know-how diffusion

Com munication gaps

Loss offlexibility (Com mitment for a specific time)
Shared profits
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Advantages of Export

Independence
Economies of scalein the long run
Higher quality through own responsibility

Higher profit/ no profit sharing

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Disadvantages of Export

High Investments
Lack of capacity
No specific market knowledge

Currency risks
Transportrisks
Trade barriers

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Preparatory calculations

Premises:
Price charged by Cameron as exporter: $ 100/unit
Price charged by McTaggart as distributor: $ 176/unit
Price charged by McTaggart as licensee: $ 176/unit(exhibit 3, page 12)

Revenue potential ofMcTaggart: 100 %

Revenue potential ofCa meron: 100 x 100= 56.82%
176

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Preparatory calculations
Licensing:
Royalties:
" 3% up to $ 1.5 Mio
" 2% over $ 1.5 Mio
" $ 100,000 knowledge transfer fees

Export:
" Profitability on revenue: 16.67 %
based on forecast 1994: $ 5 Mio profit x 100 = 16.67%
$ 30 Mio revenue
Ca meron‘s profit:f(x)-> 0.03x + 0.02y + 0.1667z
x= McTaggart‘s revenue up to $ 1.5 Mio (Licensing)
y=McTaggart‘s revenue over $ 1.5 Mio (Licensing)
z= Cameron‘s revenue export

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Export always more profitable than licensing

C O M PA RISON OF PR OFITS: LICENSING VS. EXPO RT

Scenarios bad m edium good

Alternatives
Licensing $ 15,000 $ 45,000 $ 135,000
Export $ 47,380 $ 142,045 $ 568,181
x=500,000 x=1.5 Mio x=1.5
=6 Mio
Mio
y=0 y=0 y=1.5 Mio
z=284,090 z=852,270
z=3,409,090
x= McTaggart‘s revenue up to $ 1.5 Mio (Licensing)
y=McTaggart‘s revenue over $ 1.5 Mio (Licensing)
z= Cameron‘s revenue export

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Export always more profitable than licensing

C O M PA RISON OF PR OFITS: LICENSING VS. EXPO RT

Thousand USD
8
600 56
500
400
300
2
200 14 135
100 15 4
7 45
0 Scenario
bad

good
medium
Licensing
Export

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Conclusion

Export more profitable

BUT
Licensing easierto implement because of restricted capacities
New plant: $ 10 Mio
or
Two-shift work

or
Reduction ofcore business

Change to export possible after 5 years

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Should Cameron have preferred licencing or

export?
W as McTaggart a good choice as a licensee?

W ere the royalties appropriate?

YES!
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

High equity quota leads to excellent credit

wor
M CTA G G A RT‘S thiness
TOTAL BALAN CE SHEET

100

80 41%

60
liabilities
40 equity
59%
20

0
100%

[Page 12, case study part A]

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Intense decrease of McTaggart‘s revenues

REVEN UES OF MCTA G G A R T BET W EE N 1991 AND 1993

£ Mio 45 44
40 35
35
30
25
20 Revenues
15
10
5
0 Year
1991 1993

[Page 12, case study part A]

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

In spite of revenue decreases McTaggart reached a

remarkable profit
PR OFITABILITY OF MCTA G G A RT IN 1993

Revenue
Profit

35
1,5

0 10 20 30 40
£ Mio
[Page 12, case study part A]

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Advantages ofthe choice for McTaggart:

Capacities Good market

knowledge
Excellent
creditrecords
High calibre
sales force
Flexible respond
to former crisis
Reliabilitythrough
Technology
tradition
flow-back

No research for Limited sales

alternative solution Difficultto control area (UK only)
McTaggart‘s business

Disadvantages ofthe choice forMcTaggart:

[Page 12, case study part A]
Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts
Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Should Cameron have preferred licencing or

export?
W as McTaggart a good choice as a licensee?

W ere the royalties appropriate?

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

W hat we get:
3 % royalties up 2 % royalties
to 1.5 Mio over 1.5 Mio
revenues
$100,000
knowledge
transfer fee
Free technology License for 5
transfer clause years, renewable
for further 5 years

Image, Name,
Our technology know- Brand
how for producing
flexible couplings

W hat we offer:

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Royalties to reach export profits:

100 x 0.1667 x 100 = 9.47 %

176
McTaggart‘s profit on revenue (as export distributor):
35 x 100 = 19.89 %
176
McTaggart‘s profit on revenue (as licensee):
-> Supposed to be higher because of ...
Lower labour costs
No import and transport costs
No producer margins (Cameron)

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Conclusion:

Current royalty of 3% / 2% is TOO LO W !

Export-equivalentroyalty of 9.47% isirrealistic

Our suggestion:

5% would be appropriate
This rate wouldn‘t decrease McTaggart‘s motivation

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts

 Prof. Dr. Rainer Schnauffer Internationale Kooperation und Lizenzvergabe University of Applied
Sciences

Thanks for your attention!

Sources:
1)
Handout International Marketing, Prof. J.Höppner, p. 91
2)
Kutschker 1992
3)
Meffert,Bolz,Internationales Marketing Management

Questions?

Group 1 Cameron Auto Parts (PartA) © allcopyrights: waterproof concepts