It is September 2019 and you have just met with Ron Smith. Ron owns a battery-operated children's car manufacturing company, Car-It, and needs your advice on strategy. Ron is a self-made car builder. He taught himself how to build children's cars from scratch. After having success making for his local community, he started his own business out of a small shop located next to his house.

The cars are called Vroom-Vroom and come in three models, Basic, Deluxe, and Super Deluxe. The three models are designed to exploit the unique engine technique developed by Ron. In addition to complete cars, the company also sells Deluxe frames with no engine or battery.

The unique features of the Vroom-Vroom include a light frame and battery that can last for 8 consecutive hours before needing to recharge. The light frame is balanced by the weight of the engine and battery, giving the car the flexibility to move freely while maintaining a gravity pull.

Car-It’s cars have captured the attention of the community. The cars are being known to be safe for children, and come in different colors that can be customized to the children’s desires. The children-car is a growing market due to the increased population in Canada and the demand for personalized children’s cars is increasing. The industry has many players, including finished product manufacturers, parts manufacturers, large retailers and small specialty shops. Cars similar to Car-It products are mostly sold through specialty shops. However, large retailers are showing increased interest in displaying custom-designed children cars at a premium, where the customer can pick and choose the color and model, and the retailer will order it from the manufacturer.

Currently, Cars-R-US are producing similar cars to the Vroom-Vrooms, but are not as light-weighted and with battery capability of 6 continuous hours of operations.

Customer feedback has been extremely positive. Customers have praised the Vroom-Vroom cars on the company’s website and parenting websites quoting “amazing”, “safe”, and “great value for price”.

The prices of the models have not increased since they were introduced 3 years ago. However, Ron’s friend has warned him that competitors may offer a cheaper version of his cars if he doesn’t patent his battery-engine design. Ron has decided previously not to patent it due to the parent’s upfront costs that can be used to further develop his engine design. He also considered that a patent would only protect his design in Canada, giving competitors worldwide the ability to replicate his design without the protection of his invention.

Ron, along with his only worker, Harry, are working at capacity. However, Car-It is experiencing net loss and issues with its cash flow. Ron is not worried as he has a steady number of orders for the cars. He also believes that as the demand from the market increases, the company will be very successful. To solve his current cash flow problem, Ron went to his local banker, ABC Bank, to secure additional financing to expand the business. ABC Bank indicated that at this time they will not be able to increase’s the company’s operating line of credit. Financial information is provided in Exhibit I.

Ron is contemplating three options to grow the business. The first one is organic growth. Currently, Martha, Ron’s wife is handling all administrative, selling, and accounting tasks of the company at a salary of $10,000 per year. Ron and Harry pride

themselves on each unit produced and consider it a work of art, where Ron inspects and signs each car to give it authenticity. Ron trusts only Harry with working on the products, and therefore their capacity is limited to 5,400 hours per year.

Harry has approached Ron with a suggestion to double the current location size to a new facility that would create an efficient workplace leading to decreasing the time spent working on each unit by 40%. This will increase the fixed costs by $12,000 per year for the incremental increase in rent. He also suggested that they can hire an additional employee to handle receiving, packing, and unpacking of the inventory. The new employee would be paid $24,000 per year. With the anticipated demand, Ron believes that he can increase each unit price from all models by 10%, and still be able to sell all units produced.

Ron has also been approached by a retail store that offered a three-year contract to Ron. The contract requires the following:

• 500 frames each year for a price of $900 each.

• 1,000 units of Basic for a price of $1,100 per unit, and 1,000 units of Deluxe for a price of $1,200 each.

In order to fulfill this order, Ron will need to outsource the production of the Basic and Deluxe. Ron has contacted a facility in China and they offered to produce the required units for a cost of $1,000 for Basic, $1,100 for Deluxe, and $850 for the frame. These costs include any expenses associated with shipping the cars to Car-It. This offer will free all of the capacity of the company to produce 155 units of Super Deluxe at a cost of $1,150 and a selling price of $1,200.

At the same time, Ron was approached by Marlin Stewart, the owner of Scooter-Me. Marlin has offered Ron to merge with her company, giving both companies greater exposure to the market. She has indicated that Ron will still be responsible for the children's car division while she handles the scooter division.

Marlin offered to share her state-of-the-art production facility, which will increase Car- It’s capacity by an additional 10% than moving to the new facility suggested by Harry.

All fixed manufacturing overheads, selling, and administrative expenses will be covered by Scooter-Me. She would also help Ron access new markets and strengthen its current position in the market.

In exchange, Marlin requires a 50% ownership of Car-It by the end of the 5th year, requiring a 10% of ownership transfer each year. Marlin and Ron will share their percentages each year in the business profits.

From a strategic standpoint, Ron has asked you to help him in deciding which alternative will fit best with:

• Car-It’s mission, vision, and values.

• Having the least risks to the business.

• Yield the highest profitability.

• The ability of the company to get financing.

• Fit with the external environment.

• Exploit the company’s core competencies.

• Preserve the unique design of the engine battery.

• Approval of key stakeholders (consider Ron, Martha, Harry, ABC Bank, customers, and the community).

To help Ron, you are to prepare a report analyzing Car-It’s internal and external environment using SWOT. He also wants your analysis of the three alternatives from qualitative and quantitative perspectives and determines their fit with the SWOT. Your report should also answer the questions asked by Ron above and provide a recommendation for which alternative the company Ron should pursue.

Exhibit I

Car-It financial information

Production data and income statement (unaudited) For the 12 months ending September 30, 2019 Revenue and costs per unit

Basic Deluxe

Super

Deluxe Frame Total

Hours available 2,430 1,728 540 720 5,400

Direct labor hours/unit

10 12 15 18

Revenues:

Unit price COGS/unit	$900	$1,000	$1,200	$600
Frame	150	150	200	200
Parts	300	300	350	0
Materials	150	150	200	200
Direct labour cost	200	240	300	360
Overhead cost	100	100	100	90
Gross margin/unit	0	60	50	(250)
Units sold	243	144	36	39
	$0	$8,640	$1,800	$ (9,750)	$690
Selling costs					4,000

General and admin. expenses

18,000

Pre-tax profit (loss) $(21,310)