Thursday 10 February 2011

Changing business models: JV evolves into non-exclusive licence

UK automotive licensing plc Torotrak have recently stepped out of their “Infinitrak” joint venture with US lawn mower manufacturer MTD. According to a January press release:

“Infinitrak’s exclusivity rights in the 0-45 kW power band have been terminated and replaced with a non-exclusive licence from Torotrak to MTD Products Inc. This new non-exclusive licence is restricted to the 0-25 kW power band and is applicable solely for lawn and garden products that MTD will itself manufacture for its own demand.”

The press release goes on to suggest that:

“these new arrangements play best to the respective strengths and strategic interests of both MTD and Torotrak. MTD will focus on its own branded products and manage future development of transmissions based on Torotrak’s technology tailored to its own needs and cost requirements. Torotrak will benefit from MTD’s success through initial licence payments (of US$1.6m) and future royalties. In addition, Torotrak is now free to develop commercial relationships with other OPE (outdoor product equipment) manufacturers and suppliers and to develop the 25-45 kW licensed field that can extend beyond OPE products.”

Torotrak is apparently also relieved of responsibility going forward for funding tooling or manufacturing investment at Infinitrak.

Infinitrak was formed in November 2005, a press release at the time indicating that the joint venture was expected to maximise Torotrak’s ability to generate earnings in the major new market of outdoor power equipment. The plan was that Infinitrak would initially supply transmissions exclusively to MTD, supplying other companies a couple of years later.

Will the same fate befall Torotrak’s recent “Rotrak” joint venture with Danish supercharger manufacturer Rotrex? Rotrak's market would appear to be greater – according to a May 2010 press release, “Rotrak will exploit opportunities associated with the downsizing of engines, which Torotrak views to be a material and growing trend in the automotive sector”. Also, Rotrak would not appear to be tied to one particular customer. Finally, there would not appear to be the same requirement for manufacturing investment – the May 2010 press release indicates that, whilst Rotrex is well equipped to satisfy low-volume demand from automotive manufacturers, the plan is for Rotrak to sub-license or otherwise contract with third parties.

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