MAK Brake Lining Company (MAK) is facing a crisis. An American auto parts maker, Federal Mogul, had just acquired a company that had signed a ten year agreement with MAK allowing MAK to manufacture brake pads under the Ferodo brand name. If Federal Mogul decided not to renew the license agreement, MAK would be in serious trouble if it did not take the necessary precautions. At the time, MAK was almost completely dependent on the Ferodo brand name with about 30 percent of its business coming from exports of brake linings under the Ferodo brand. This export business would be lost entirely if Federal Mogul did not renew the license.
MAK faced several significant problems, and whatever decision the company made was likely to have serious consequences. One problem was whether or not to react immediately or wait for Federal Mogul the first move or make a decision about MAK. Management was unsure about what direction the company should take. One option was to try to replace lost sales revenues with local sales in Egypt. The problem with this idea was that MAK had only a 10 percent market share. The question was whether enough local sales could be generated to offset the loss of export revenues under the Ferodo brand. Another option was to try to negotiate a license with another brake manufacturer. Another option involved trying to develop its own non-asbestos technology that could be used to produce brake linings for export. The real problem was that MAK had too many options to consider and not enough information to make an informed decision.
I recommend that senior management at MAK plan a visit to Federal Mogul in the U.K. or in the United States to discuss Federal Mogul's plans for the Ferodo name and for Ferodo's licensing arrangement with MAK. It is possible the Federal Mogul would be willing to tell MAK its plans with respect to the license renewal. Armed with this information, MAK could make a better i
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