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CAMERON AUTO PARTS: EARLY INTERNATIONALIZATION
SYNOPSIS
The Cameron Auto Parts: Early Internationalization case deals with a relatively small domestic auto parts
supplier trying to diversify away from its dependence on the North American auto industry. The company
develops a new product line with broader appeal and with excellent international potential. The case deals
with the company’s first faltering steps in becoming an international player.
POSITION IN THE COURSE
SUGGESTED TEACHING APPROACH
It is best to teach the two cases back-to-back because students tend to identify with the characters in the
ASSIGNMENT QUESTIONS
1. Should Cameron have licensed McTaggart or continued to export?
• Christopher A. Bartlett & Paul W. Beamish, Transnational Management: Text, Readings, and Cases in
Cross-Border Management, 7/E, (Burr Ridge, Illinois, Irwin McGraw-Hill), Chapters 1 and 6.
• Jan Johanson & Jan-Erik Vahlne, 1977, “The Internationalization Process of the Firm — A Model of
Knowledge Development and Increasing Foreign Market Commitments,” Journal of International
ANALYSIS
The Cameron cases are designed to address the process of internationalization and expose students to the
A useful lead off question is:
1. Should Cameron have licensed McTaggart or continued to export?
Responses tend to break out as follows:
Exporting
Licensing
Profits would be 16.7 per cent of sales (see note of
case Exhibit 1 — 5/30)
Profits would be limited to three per cent and 2 per
cent of sales
Sales unlikely to grow unless some marketing effort
is put in by Cameron.
Sales growth is a function of McTaggart’s ability,
contacts and resources.
Risk, investment (in working capital), and
management is Cameron’s responsibility.
All risk, investment and management is taken by
McTaggart.
Product technology is controlled by Cameron.
Product technology is put at risk. Cameron may be
creating a competitor.
Source: Case authors.
At this juncture, it is useful to point out that the choice of internationalization strategy is at least partly a
reflection of corporate resources. For example, in 2013, Cameron had little by way of financial or
Page 3 8B16M043
managerial depth, and the domestic growth could easily absorb Cameron’s resources. The following chart
CAMERON AUTO PARTS
Getting New Products into International Markets
Exporting
Licensing
Joint
Venture
Direct
Investment
Financial
Capital Requirement
Low
Zero
Med
High
Profit Potential to Investor
Med
Low
Med
High
Financial Risk
Low
Low
Med
High
Managerial
Management Requirement
Low
Low
Med
High
Operational Decisiveness
Med
High
Low
High
Speed of Market Entry
Low
High
High
Med
Technological
Access to Customer Feedback
Low
Low
Med
High
Technological Risk
Med
High
Med
Low
Other
Ability to Cope with High Tariffs
Low
High
High
High
Ability to Exploit High Economies of Scale
High
Low
Med
Med
2. Was McTaggart a good choice for licensee?
The essential issue to get across at this stage is that firms like Cameron looking at foreign markets, should
first ask themselves what accounts for their success at home, and then try to replicate those critical success
What the factors permit Cameron to do is offer customers good quality, customized service, fast delivery
and reasonable price. The following diagram attempts to capture the critical customer feedback requirement.
Page 4 8B16M043
3. Was the royalty rate reasonable?
Students usually have an uneasy feeling that the royalty rate of 3 per cent on the first million U.K. pounds
of sales and 2 per cent thereafter is too low. However, few understand how to calculate a royalty rate and
The more common approach taken by experienced licensors is to set the royalty rate according to the
profitability of the technology under licence. For Cameron, the expectation is that $12 million in net assets
will generate $30 million in flexible coupling sales at a profit of $5 million.
SALES REPS
CUSTOMERS
DISTRIBUTOR
DESIGN TEAM
Customer FeedbackTechnical support
New productsDelivery
SALES REPS
CUSTOMERS
DISTRIBUTOR
DESIGN TEAM
Customer FeedbackTechnical support
New productsDelivery
4. What about the alternatives to licensing?
Continuing to export is one alternative that looks attractive. The company’s 2012 return on assets on
flexible couplings was 42 per cent (5/12) (see calculation above). Furthermore, there is an opportunity for
Another alternative would be to try to put more controls on McTaggart before you actually show him your
technology. One clause might be a minimum annual royalty to prevent McTaggart from “sitting” on an
A brief glance at the above figures suggests that Cameron should press for significant price reductions in the
Page 7 8B16M043
EXHIBIT TN-1: CAMERON AUTO PARTS: PROFITABILITY OF EXPORTING VERSUS LICENSING
North America
Current Export to
U.K.
License to U.K.
Current Price
License to U.K.
Global Price
License to U.K.
Global Price.
Triple Royalty!
Manufacturing Cost
83
83
77*
77
77
Manufacturing Profit
17
17
–
–
–
Base (Index)
100
100
77
77
77
Insurance & Freight (10%)
–
10
–
–
–
Import Duty (3% on Cost, Insurance,
and Freight (CIF))
–
3
–
–
–
Royalty (2% of Sales)
–
–
3
2
7
Cost to Distributor/Importer
(before VAT and Margin)
100
113
80
79
84
Final Distributor Margin
20
34
67**
21**
16***
Value Added Tax (20% on Cost plus
Margin)
0
29
29
20
20
Total Price from Distributor
120
176
176
120
120
* U.K. wage rates are 71 per cent of those in North America (i.e., £9.00 = US$13.86 vs. $19.54). Direct Labour makes up 24 per cent of cost of goods sold and expenses
(i.e., 24 per cent of $0.83 = $0.20), therefore manufacturing cost is reduced by $0.20 x 0.29 = 0.06.
** Margin for both manufacturing and distribution.
*** By deduction, to maintain global price.
Source: Company files.
