Multinational Business: of Cameron Auto Parts - Case Study Example

Case Study Analysis for a Multinational Business: Cameron Auto Parts BY YOU YOUR SCHOOL INFO HERE HERE Cameron Auto Parts Introduction Cameron Auto Parts experiences many difficulties in an effort to build a workable strategic plan that brings higher profit and more market exposure. After nearly being forced into bankruptcy in 2001, the company found that it was having problems in areas of new product development and was experiencing sales losses due to a recession and limited demand for its products. Despite having sizeable contracts with the Big Three, Cameron was unable to secure enough additional sales contracts to ensure sustainability, much less explore growth opportunities. This report identifies the problems within Cameron Auto Parts and makes recommendations on how to improve their competitive and strategic position. 2. The Key Issues Unable to sustain business by focusing on its traditional core products, such as wiper blades, fan belts and air filters, Cameron Auto Parts realized that it needed to diversify its product line and capture market share with new product development and sales strategies. This was highly difficult due to external market conditions, which were unfavorable and in the midst of a recession, and the high costs of research and development. Coupled with ongoing sales losses, Cameron had many risks in trying to develop new products to capture new market attention. In 2003, after recovering modestly from two years of losses, Cameron suddenly witnessed an explosive growth in the costs associated with selling and administration. This was due to the costs of developing new sales strategies and sales team, along with higher salary budgets for design concepts for diverse new products. The high costs of research and development put Cameron in a difficult cash position where they were unable to reach new markets because of cost issues. However, after finding success, finally, in keeping costs of new product development low and recruiting the talent needed to build a new product line, sales began to increase. Cameron Auto Parts began to consider different licensing agreements with foreign suppliers and manufacturers in an effort to get their product to international markets. However, there are costs associated with these agreements and Cameron wondered whether these royalty costs would actually be worth the investment. Deciding to take a chance, Cameron worked out a licensing agreement with a foreign facility to take on the role of selling and producing licensed products. During this time, sales of the new product began to take off, bringing new profit opportunities, however the business did not have the operational capacity to support higher production. Faced with limited full-time personnel and the costs of building a totally new manufacturing facility, they had to temporarily abandon expansion plans and rely on their existing contracts and the new licensing agreement to bring a better competitive and strategic position. At the same time, the company had tapped out most of its credit worthiness and would have had a difficult time finding financing in order to build a new production facility in Detroit (or in the U.S. in another location). Lack of credit availability was another risk caused by the drops in sales in 2001 and 2002. 3. Environmental Analysis Key market conditions included the ongoing recession and a new Big Three presence that was constantly auditing Cameron Auto Parts to try to influence them to use cost-savings measures to bring down the Big Three’s purchasing costs. They were trying to tell the business, essentially, how to run their production facility and it was causing profit problems for Cameron. The general market conditions were not favorable for making the most of their current Big Three contracts with auditing always causing interruption to how the company had structured its production operations. However, in order to keep the Big Three contracts, Cameron was often forced to just comply with their quality-based demands. After the new licensing agreement was ironed out by Alex Cameron with the foreign supplier/manufacturer, they were taking on a very big risk. Overseas buyers had concerns about tariffs and other import costs, so they demanded the ability to produce the product themselves in the foreign facility. Cameron, in order to expand his international market presence, had no choice but to agree with certain conditions. In general, the external environment was not very supportive of the problems Cameron Auto Parts was facing and it was an everyday struggle to remain profitable because of these conditions. 4. SWOT Analysis Cameron has many factors that aid or cause problems with developing its new international strategy: Strengths: - Labor. After downsizing in 2001, the company learned to operate using part-time staff and redesign its organizational structure so that operations would be unaffected. This reduces health insurance costs for full-time employees and other associated cost overhead. - A new in-house research and development team with a focus on adding to the product line. - Assets. The company has better liquidity now that it has new production equipment that can be sold in the event of profit losses or risky licensing ventures. Weaknesses: - Limited credit availability for financing or leasing on new equipment. - Limited experience with marketing and promotion - Too much reliance on Big Three contracts - Limited capacity for expanding production even if new contracts can be secured. Opportunities: - Build a brand. Cameron can outsource a full-service marketing department, often at a lower cost than hiring a full-time employee (Andrews, 8). This is less costly than having a marketing staff working in-house. - Consider opening negotiations with Mexico under the North American Free Trade Agreement to improve supply costs with a country having a significantly low exchange rate. - Form a strategic alliance with other suppliers to pool expertise in research and development, marketing, or basic brand-building. Threats: - Constant auditing of Big Three. The ability of this automotive faction to come up with new quality standards or demand cost-reduction in areas of purchasing and production can severely limit the success of a small supplier, especially one that already has profit and cash problems. The QS9000 and other automotive doctrines can put a stranglehold on businesses with credit problems. - Low Canadian exchange rate leading to potential pricing issues for international shipments to Canada. Pricing, especially during a recession, is a major concern for businesses and they might defect to other suppliers. However, Cameron needs to adjust pricing to meet with currency exchange issues in order to remain profitable. Canadian buyers are at the disadvantage when exchange rates plummet and they are going to be sensitive to price increases when they already pay higher for U.S. product than what they would domestically. - Risk. There are risks that the licensing agreement in Europe that the foreign sales team might not provide the right quality or customer-focused support for Cameron products. - Further regulations set by overseas governments that increase the cost of doing business in Europe. 5. Strategic Alternatives Innovation, flexibility, the presence of highly-skilled knowledge workers, and a stronger emphasis on customer focus are considered to be the most important assets a company can carry (Joia & Malheiros, 539). Cameron has a very functional organizational structure that allows for decision-making to be made with top leadership and then move vertically down the different chains of command. This type of structure limits opportunities for workers to be cross-trained in different business areas that can weaken business flexibility and innovation. Cameron has the strategic alternative of being able to redesign the organizational structure so that employees can contribute to innovative ideas or process changes, improving their competitive position. The idea of a knowledge organization that offers opportunities to express worker ideas builds more motivation to meet productivity goals and could lessen the high costs the company is currently experiencing in areas of design. This alternative would also require Cameron Auto Parts to invest more into human resources in terms of training and team development for employees that have become innovators and knowledge workers. This might improve problems with retention costs, if any exist, giving Cameron more advantage than other smaller producers in terms of human capital. Any competitive edge the company can achieve when facing its many problems, at low cost, is a benefit worth considering. Since the company’s credit worthiness is so low, the business could consider the alternative of taking the company public and offering securities (stock) to make sure that capital can be raised. By issuing a small amount of shares to investors, and then promoting this by media, they can raise quick capital for new facility development to make more innovations in product line outputs. Without necessarily having to hire a whole new research and development team, the original Cameron location can serve as a headquarters for design, process and sales decisions. Using investor funds is a great strategy to give instant capital for business improvements and more marketing focus, perhaps being able to reduce its long-standing reliance on the Big Three and their tough quality and service standards. 6. Conclusion and Recommendation Based on the potential strategic alternatives, Cameron Auto Parts should consider taking the company public, especially since it serves two international markets: One in Canada and the other through a licensing and distribution agreement. The business needs to raise money quickly in order to be a more competitive supplier and the company simply cannot do this with their capacity issue. This process is easy, though it poses two risks related to gaining investor interest in the new stock offerings and also makes business decision-making more visible to investors. It would rely on Cameron being able to comply with SEC regulations pertaining to financial accounting and reporting, however through these learnings Cameron would become a very diverse and knowledgeable business. The capital raised through stock offerings can also manage new equipment purchasing (assets) or help to conduct research on how to better align the supply chain for cost savings. This could also give Cameron an opportunity to better publicize its innovations, using investor and media reporting formats, to give the business a better brand name in domestic and international markets. Cash is a major issue for the company and it seems to limit their ability to become anything more than a small-time supplier to various accounts. Through this effort they will be rated by external parties on their ability to manage the business, structure its processes, and generate quality outputs and innovations. These ratings could improve their credit position faster than through years of sales increases to guarantee any loans requested. 7. References Andrews, Debra. “Outsourced marketing: Expertise without overhead”, B to B. Vol. 95, Iss.3, 2010, p.8. Joia, L. & Malheiros, R. “Strategic alliances and the intellectual capital of firms”, Journal of Intellectual Capital, Bradford. Vol. 10, Iss. 4, 2009, p.539. Read More