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CASE STUDY PRESENTATION of GROUP 1 CAMERON AUTO PARTS (PART B) Presentation done by: Navid Nazemian AIM 6th term Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 A presentation from: © waterproof concepts Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Table of contents: Introduction of the team Working Procedure Answering Question 1 Navid Nazemian Prof. Dr. Rainer Schnauffer Answering Question 2 Answering Question 3 Answering Question 4 © 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 Cameron‘s point of view – Opinion about McT‘s behaviour Our opinion about McTaggart‘s previous 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 Cameron‘s point of view – Opinion about McT‘s behaviour Our opinion about McTaggart‘s previous behaviour The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Scenario 1: Cameron‘s point of view Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Theoretical Background Types of Licensing Production Sales Usage 1) Brands Technical Equipment Handout International Marketing, Prof. J. Höppner, p. 98 OUR OPINION ABOUT MCTAGGART‘S PREVIOUS BEHAVIOUR Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour McTaggart‘s Internationalisation MCTAGGART‘S INTERPRETATION OF LICENSE CONTRACT Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Constant increase of royalties by 500% ROYALTIES RECEIVED 1994-1996 $ Royalties 750,000 800000 700000 600000 500000 400000 300000 150,000 200000 100000 30,000 0 94 95 96 * year * Estimated by McTaggart Source: [Page 1,2 case study part B] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Performance of McTaggart McTaggart 1995 Royalties $ 150,000 Revenues: 1,500,000 x 3 = $ 45,000 100 $ 150,000 - $ 45,000 = $ 105,000 105,000 x 100 = $ 5,250,000 2 $ 5,250,000 + $ 1,500,000 = $ 6,750,000 Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Revenues are growing remarkably MCTAGGART‘S AND CEMRON‘S TURNOVER (flexible couplings) 1994-1996 mio $ revenues 140,00 128 120,00 100,00 80,00 65 McTaggart Cameron 60,00 20,00 36,75 33 40,00 1 6,75 0,00 94 95 96 * year * Estimated Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Increase of revenues in 1995 EXTENSION OF CAPACITY LIMIT $ revenues 8,00 7,00 6,00 $ 750,000 Additional capacity Capacity Limit 5,00 4,00 3,00 2,00 1,00 0,00 Capacity of McTaggart Source: [Part A, page 8; Part B, page 2] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Opinion about McT‘s behaviour Conclusion flexible response to market situation + honest reports & payments Orientation more royalties to foreign markets Navid Nazemian Prof. Dr. Rainer Schnauffer negotiation power Blackmailing price reduction © all copyrights: waterproof concepts 2001 - Cameron‘s point of view – Proposal of Joint Venture Our opinion about McTaggart‘s previous behaviour The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Scenario 1: Cameron‘s point of view Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Theoretical Background Determinants:2) 1. Company oriented - strategy - cost situation 2. Product oriented 3. Market oriented - legal situation - economic situation - competitive situation - trade situation - consumer situation Exporting Objectives:3) 1. Market Position Licensing Contract Manufacturing Mgt. Contract - share sales volume new markets 2. Cost objectives - scale of economy productivity gains 3. Profitability Joint Venture Own Subsidiaries Acquisition Navid Nazemian Prof. Dr. Rainer Schnauffer - profits return on sales return on capital 4. Financial objectives - credit liquidity self financing capital lay-out © all copyrights: waterproof concepts 2001 Handout International Marketing, Prof. J. Höppner, p. 91 OVERVIEW OF POSSIBLE ENTRY STRATEGIES1): 1) Sources: 2) Kutschker 1992, 3) Meffert, Bolz, Internationales Marketing Management Cameron‘s point of view – Proposal of Joint Venture Cameron‘s point of view – Proposal of Joint Venture Theoretical Background Domestic company capital management shares profits Foreign company Host country Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 1) Home country Handout International Marketing, Prof. J. Höppner, p. 101 JOINT VENTURE1): Cameron‘s point of view – Proposal of Joint Venture Theoretical Background ADVANTAGES OF JOINT VENTURE more profit more control more influence motivation of partner secure step to an infamiliar market dependence on Joint Venture partner losses possible shared responsibility investment necessary financial risk DISADVANTAGES OF JOINT VENTURE Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Proposal of Joint Venture 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 % Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Proposal of Joint Venture Cameron‘s total profit from Australian Joint Venture Profits JV 1997 Profit after tax 1997 $ 40% 300000 300,000 250000 McTaggart $ 360,000 187,000 200000 Cameron $ 240,000 150000 100000 60% 50000 0 McTaggart Cameron Management fees Royalties Source: [Part B, page 3] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Proposal of Joint Venture 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] 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 $ 600000 400000 200000 0 -200000 -400000 -600000 -800000 -1000000 -1200000 -1400000 427,500 165,000 * 0 -1,200,000 UK Profit UK Australia Ausralia Investment Profit Investment * UK license conditions referring to estimated sales in Australia Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Proposal of Joint Venture Cameron‘s final statement to Joint Venture with McT: Quick market entry Tariff reduction by local assembly Reliable partner -> Let‘s do it! Good market knowledge Good prospects (New Zealand) Known cost structure on Australian market More profitable than a pure license business Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Our opinion about McTaggart‘s previous behaviour The proposal of the Australian Joint Venture The alternative of investing in Michelard Our strategy towards the European Market Scenario 1: Cameron‘s point of view 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 Strategy Criteria Access to market Investment Site Greenfield Investment Brownfield Investement delayed split selectable quick high entry costs given Source: [Welge/Holtbrügge, 1998, page 122 Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Michelard & Cie Family-owned business No experience in manufacturing (pure distributor) High administrative costs Important customer European Union Cash-shortage Good knowledge of French, Belgian, Italian & Swiss market Navid Nazemian Prof. Dr. Rainer Schnauffer Sales problems in the Netherlands & Germany © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Immense increase in sales figures CAMERON‘S SALES TO MICHELARD 1994-1996 $ 300000 240,000 250000 200000 150000 Sales 100000 50000 85,000 30,000 0 94 95 96* years * Estimated Source: [Part B, page 5] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Domestic market is the strongest MICHELARD‘S TOTAL SALES SPECIFIED TO COUNTRIES France Belgium Switzerland Italy Germany Holland Holland 2.3% Germany 2.62% Italy 4.59% Switzerland 18.85% 53.77% France Belgium 17.87% Total sales: $ 12.2 Mio Source: [Part B, page 11] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard 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] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Immense increase of sales of flexible couplings PROSPECTED SALES OF FLEXIBLE COUPLINGS 1997-1999 Mio $ 25 20 20 15 Sales 12 10 5 5 0 97 * 98 * 99 * years * all figures prospected Source: [Part B, page 5] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Biggest profit share made by component shipment COMPOSITION OF PROFIT FROM MICHELARD‘S BUSINESS IN 1998 Total = $ 2.08 Mio 19,2% Component shipment Royalties 23,1% 57,7% Share of incremental profit Source: [Part B, page 11] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Amortisation within a short period possible CAMERON‘S INVESTMENT & PROFITS FROM MICHELARD BUSINESS 1996-1999 Mio $ 4 4 3 investment profit 2,08 2 1 0,7 0 0 0 0 0 -1 -2 -3 -4 -4 96 96 97 97 98 98 99 99 years Premise: still dependent oncomponent shipments Source: [Part B, page 11] Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Alternative of investing in Michelard Final statement MORE PROFITABLE THAN ANY OTHER FOREIGN BUSINESS AT THE MOMENT BUT -> Risk of getting in trouble with McTaggart Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001 Cameron‘s point of view – Strategy towards the European Market Our opinion about McTaggart‘s previous behaviour The proposal of the Australian JointVenture The alternative of investing in Michelard Our strategy towards the European market Scenario 1: Cameron‘s point of view 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 unnecessary 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. 122 3) Kutschker 1992 4) Meffert, Bolz, Internationales Marketing Management 5) Microsoft Encarta 1999 Questions? Navid Nazemian Prof. Dr. Rainer Schnauffer © all copyrights: waterproof concepts 2001