In 2001 Alex began the “Operation Survival”, taking the decision of reducing costs, mainly in labor force. Alex cut its workforce from 720 to 470. At the beginning of 2002 the revenue would raise to $ 45 million and there were small gains. In the midst of “Operation Survival” Alex decides to do something about diversification, bringing to four engineers, designers and instructors. In 2003 Cameron Auto Parts spends $ 2. 5 million in equipment for quality products, faster service delivery, but not price.
In late 2003, the Cameron situation returned to normal, although there was a need to invest in a new plant to separate the line of production of flexible couplings, As Cameron was not financially prepared to make that commitment, he options were either to wait a year to generate more profits and financial stability, or license production of the flexible coupling. In the spring Of 2004, Alex signed a five-year agreement with licensing Supplies Ltd. McGrath.
McGrath had to pay $ 100,000 in fees in advance for the help Of Cameron to make things right and a royalty Of 3% on the first E I million sales and 2% in the second million. Megastar was forced to give a feedback of technology back to Cameron should get an improvement. Case Problem: In this case we can identify several problems, like in the beginning, that there as no diversification of the product or there was no major sales contracts that with the “gag Three”.
Due to the crisis experienced at the beginning of the century, they were forced to improve their production, modernize and diversify it. Throughout the case we can see like Alex Cameron solves the problems of beginning, to the point of starting to recover economically the company, The situation had changed, and now the problem was that Cameron parts could not satisfy the demand, they don’t have the production capacity for it.
The company’s market position in North America began to improve, and 50 they Egan to think about foreign markets. As the problem remained the lack of productive capacity, a bargain with McGrath Supplies Ltd started, and Cameron Auto Parts give them the license of the production if flexible couplings due to the impact that they might have products in the LLC_K.
The problem With Cameron Auto Parts was that they Willing to deliver their products themselves, make a direct deal with the customer and make strong the brand by their their own, but since that did not have the productivity capacity, it was necessary to license But McGrath Supplies Ltd did not have the genealogy, and feared that they might give bad image to the product and thus could not perform well the production process. Problem Solution: To enter the European Union market Cameron Auto Parts needs a large investment, which does not have.
The lack of capacity at its production plant because its market is centralized mainly on the IS,S, market, and since they now have to start exporting they need to expand the plant also acquiring new technology to meet the new requirements. The European markets is completely new for they and they didn’t have the necessary information of it, so they need to make a market study and then segment the target market and measure their socioeconomic level, in order to know if their customers have the ability to purchase.
All this operation would generate more costs to the company. Another important point that Cameron must take care is ballot tithe currency rate risk, they work with the currency U. S. , but they don’t not know how the exchange rate fluctuates in the European union, for what they have to know how to handle all costs and whether it will be able to make a profit at the end of the operation. Cameron did not know basically what kind of economical barriers exist within he European market and what kinds of regulations must meet in order to enter there.
Which is why as soon as we mentioned above that the solution to these problems must be a graduate with Mac Taught, which offers a deal for 5 years and once expired can renew it it they like it or not, so Cameron sign this agreement only for S years and then no longer renewed, they will know the market without doing a study of thanks to the feedback between the firms, and the information gathered during the years, It required a big investment, but what better way to work if it is not only leaving his partner that invests capital with her.
Cameron manages to increase its production capacity because it has money to do so, also manages to get new technology from its partner, allowing you to keep up with competition. Due to the agreement, Cameron no longer has to worry about the exchange rate since Mac Taught will be in charge, since the utilities have to be good to hand out to them. Which in the 5 years time, Cameron will know how to manage the exchange rate. All the disadvantages that Cameron could have at export time only give results with the help of Mac Taught. Before becoming an independent company higher profits because they no longer need to partition the same.