(Solved) GreenWood Inc. Case Study #1 – Questions & Answers
GREENWOOD RESOURCES: A GLOBAL SUSTAINABLE VENTURE IN THE MAKING*
“Money still grows on trees.”
—Larry Light, Deputy Editor for Personal Finance, Wall Street Journal1
“The answer to some of the world’s most pressing concerns (global warming, alternative energy, sustainable forestry) lies in one of the earth’s most renewable resources—trees.”
—GreenWood Resources, Inc.2
Jeff Nuss and other senior managers of GreenWood Resources, Inc., emerged after a long deliberation from the conference room in their headquarters in Portland, Oregon, in June 2010. On the one hand, they were inspired by their global vision to build “a resource that lasts forever” and their belief the company, with nearly 70 employees, was finally taking off after almost 10 years of persistent efforts in building the key elements (opportunity, people, resources, and business networks) for a successful tree plantation venture. On the other hand, they had just finished a grueling meeting during which they found it hard to reach a consensus on how to proceed with two strategic investment alternatives in rural China.
Since 2000, Jeff and several other senior managers had traveled to China on numerous occasions. The process of making a deal in the Chinese forest industry had proven to be more time-consuming than anticipated. Complex ownership structures, underdeveloped farming systems, and emerging, sometimes equivocal and unpredictable, government policies characterized the forest industry in China. Chinese farmers who embraced business models and management styles far different than those in the United States posed additional complications.
By March 2009, GreenWood had assessed some 20 potential investment projects in China. The Luxi and Dongji projects passed the initial phase of screening and became the company’s top priorities. The due diligence on these two projects had been extensive, lasting over a year, but both projects still faced considerable obstacles and even potential deadlock. In June 2010, Jeff and his senior management team were still weighing the pros and cons of the two projects, which had been the subject of their last management meeting.
They felt that GreenWood needed to proceed carefully to ensure the company’s sustainable business criteria (rather than its financial return per se) were met in China but also realized the company needed to show some progress to its major investor in China, Oriental Timber Fund Limited. Jeff needed to bring a recommendation from his senior management team to the investment committee comprising himself and two representatives from Oriental. The decision deadline was approaching. Jeff anticipated that the next senior management meeting would result in a recommendation. Should GreenWood choose one of the two projects?
GreenWood Resources, Inc.
Founding of the Venture
In 1998, after 12 years of experience with CH2M Hill3 as a bioresources engineer, Jeff Nuss, a native Oregonian, decided to start his own venture, GreenWood Resources, Inc., specializing in the development and management of high-yield, fast-growing tree plantations. Having looked into other potential businesses such as a golf course and a winery, he was eventually convinced, based on his education and years of experience working with poplar tree farms, that investments in tree plantations held great promise for the future (see Appendix 1 for background industry information).
Jeff’s plan was to help institutional investors (pension funds, endowments, insurance companies, etc.) and wealthy individuals invest in professionally managed high-yield, short-rotation tree farms (Exhibit 1 illustrates tree rotation length and yield of several representative tree species). He wanted to operate farms in accordance with Forest Stewardship Council (FSC) certification. FSC’s objective was to conserve biological diversity and enhance the long-term social and economic well-being of forest workers and local communities (see Exhibit 2).
Firms with FSC certificates were rare because the standards were stringent, often leading to higher operating costs. For example, FSC required the use of less toxic pesticides and herbicides, which were more expensive. It prohibited the use of genetically modified trees. It also demanded that 10 percent of tree farms be reserved for native habitats. At the same time, however, the economic benefits were uncertain because most end users of wood products were not necessarily willing to pay a premium price for FSC-certified products. Nevertheless, Jeff felt it was the right thing to do. “At the end of the day, we do what we believe (is right).”
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EXHIBIT 1 Tree Rotation Length and Yield
The figure shows that eucalyptus and hybrid poplar ripen for harvest much faster than other species.
Source: GreenWood’s brochure.
EXHIBIT 2 Forest Stewardship Council (FSC) Principles and Criteria for Forest Management
| 1 Compliance with laws and FSC principles and criteria. Forest management shall respect all applicable laws of the country in which they occur, and international treaties and agreements to which the country is a signatory, and comply with all FSC principles and criteria. |
| 2 Tenure and use rights and responsibilities. Long-term tenure and use rights to the land and forest resources shall be clearly defined, documented, and legally established. |
| 3 Indigenous people’s rights. The legal and customary rights of indigenous people to own, use, and manage their lands, territories, and resources shall be recognized and respected. |
| 4 Community relations and workers’ rights. Forest management operations shall maintain or enhance the long-term social and economic well-being of forest workers and local communities. |
| 5 Benefits from the forest. Forest management operations shall encourage the efficient use of the forest’s multiple products and services to ensure economic viability and a wide range of environmental and social benefits. |
| 6 Environmental impact. Forest management shall conserve biological diversity and its associated value, water resources, soil, and unique and fragile ecosystems and landscapes, and, by so doing, maintain the ecological functions and the integrity of the forest. |
| 7 Management plan. A management plan—appropriate to the scale and intensity of the operations—shall be written, implemented, and kept up to date. The long-term objectives of management, and the means of achieving them, shall be clearly stated. |
| 8 Monitoring and assessment. Monitoring shall be conducted—appropriate to the scale and intensity of forest management—to assess the condition of the forest, yields of forest products, chain of custody, management activities, and their social and environmental impact. |
| 9 Maintenance of high-conservation-value forests. Management activities in high-conservation-value forests shall maintain or enhance the attributes which define such forests. Decisions regarding high-conservation-value forests shall always be considered in the context of a precautionary approach. |
| 10 Plantations. Plantations shall be planned and managed in accordance with Principles and Criteria 1–9, and Principle 10 and its Criteria. While plantations can provide an array of social and economic benefits, and can contribute to satisfying the world’s needs for forest products, they should complement the management of, reduce pressures on, and promote the restoration and conservation of natural forests. |
Source: Austin and Reficco 2006.4
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Key Milestones: Building Research Expertise and the Management Team
Looking back, Jeff recalled several key milestones for GreenWood. Having founded GreenWood with his limited personal wealth, Jeff’s first milestone occurred when he convinced a large Oregon family office5 to acquire an existing poplar plantation. As a result of this acquisition, GreenWood not only earned a steady fee through managing the poplar plantation assets for the family office but also inherited a group of staff experienced in plantation management. The head of this group was Dr. Brian Stanton, a renowned expert in poplar hybridization and genetic improvement. Over the years, Dr. Stanton’s research team had developed dozens of poplar varieties characterized by high growth rate, strong pest resistance, high wood density, and broad site adaptability.
The second milestone came in 2002. On behalf of the family office, GreenWood helped sell the poplar plantation to GMO Renewable Resources, a large timber investment management organization (TIMO). Despite the ownership change, GreenWood remained the management company, taking care of the plantation assets. This enhanced the company’s credibility and stature and helped initiate a business model which integrated tree improvement, nurseries, tree farm operations, product (i.e., log, lumber, chips) sales, and trading and ecosystem services (i.e., monetizing carbon credits, biodiversity credits, water quality, and renewable energy credits and managing land for total ecosystem value).
Other milestones included the formation of a seasoned management team and the development of a series of strategic relationships. In the course of formulating a viable global business plan and raising capital, Jeff was able to successfully put together what he believed was a highly competent management team (see Exhibit 3 for management team biographies and Exhibit 4 for the organizational structure). For example, Hunter Brown, a veteran operational manager with experience in Asia, joined GreenWood as the chief operating officer.
Brian Liu, a Chinese American with years of experience working for the Oregon State Department of Agriculture (responsible for the forest industry), was recruited to lead the company’s China operations. Brian had supported GreenWood’s endeavors while visiting China as a state government official, and he had been convinced to leave his stable government position to join GreenWood in 2005. In reflecting on his success in recruiting people, Jeff said:
EXHIBIT 3 Executive Management Team Biographies, 2010
| Jeff Nuss is the founder, chairman, and CEO of GreenWood Resources, Inc., and its subsidiaries and is directly responsible for the leadership and strategic direction of the company. He is a leading industry spokesman and advocate for novel methods of sustainable timber production and serves on the boards of the World Forestry Center, Agribusiness Council, and Western Hardwood Council. He received a BS in bioresource engineering and an MS in resource management and policy within the Civil Engineering Department of Oregon State University. |
| Hunter Brown is chief operating officer of GreenWood Resources, Inc. Prior to joining GreenWood, he was executive vice president for PACCESS, a global supply chain services management firm. He has extensive business experience in Asia. Hunter received a BS in forestry from the University of the South and an MS in forestry from Duke University, and he completed the Executive Program at the Darden School of Business at the University of Virginia. |
| Lincoln Bach is corporate controller of GreenWood Resources, Inc. Prior to joining GreenWood, he was corporate controller for an international family-wealth-management firm. He had previously served as an audit manager at Deloitte & Touche. He received a BS in accounting from Linfield College and is a CPA and CFP professional. |
| Brian Stanton is managing director of Tree Improvement Group & Nurseries at GreenWood Resources, Inc. For 20 years, he has overseen the technological developments for poplar on commercial tree farms in the U.S. where he has produced over 40,000 varieties of hybrid poplar that have been tested throughout Chile, China, Europe, and the United States. Brian is the chair of the Poplar and Willow Working Party for the International Union of Forest Research Organizations. He received a BS in biology from West Chester State College, an MS in forestry from the University of Maine, and a PhD in forest resources from Pennsylvania State University. |
| Don Rice is managing director of Resource Management Group at GreenWood Resources, Inc. Previously, Don was the Oregon poplar resource and manufacturing manager for Potlatch Corporation. Don has a degree in agricultural engineering from Washington State University. |
| Jake Eaton is managing director of resource planning and acquisitions at GreenWood Resources. He worked for 21 years with Potlatch Corporation. Jake has extensive global experience in short-rotation tree farm silviculture. He holds a BS in forest management from Oregon State University and an MS in silviculture and genetics from University of Montana. |
| Brian Liu is vice president and general manager of GreenWood Resources, Inc.’s China Operations. Previously, as an international trade representative for the State of Oregon Department of Agriculture, he successfully led the U.S. negotiation teams in opening the Chinese market for Oregon agricultural products. Brian was born and raised in Guangdong, China, and moved to the U.S. at the age of 14. He holds a BS in finance and an MBA in international management from Portland State University. He is fluent in English, Mandarin, and Cantonese. |
Source: GreenWood Resources, Inc.
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Case Overview
GreenWood Resources, Inc. was founded in 1998 by Jeff Nuss, a bio-resources engineer. It was a Portland, Oregon, USA-based investment and asset management company with a worldwide focus on high-yield and fast-growing tree plantations (i.e., tree farms). In spite of its global vision, value proposition, and pursuit of environmental stewardship and social responsibility, GreenWood had struggled for almost ten years to obtain significant investment funds until 2007-2008 when the company successfully raised US$375 million for tree plantations in the United States and China.
Through persistent effort, GreenWood built the key elements (people, resources, and business networks) for a successful venture despite the serious early financial constraints. GreenWood entered and navigated the Chinese market, deciding to establish its China operation with only a fraction of the funds it needed.
Jeff Nuss seized an opportunity to organize a US$175 million private equity fund through his connections with the timber investment community to acquire a large poplar plantation in Oregon. The expanded scale and personnel resulting from the acquisition enabled GreenWood to become a visible player in the tree plantation industry and facilitated its securing an additional commitment of US$200 million of capital for use in the Chinese market. Notwithstanding the availability of the capital and its cumulative knowledge of the Chinese market, the firm’s investment screening and negotiation process in China turned out to be complex due to the differences in business approaches and culturally embedded mindsets.
In June 2010, Nuss and his team were weighing the pros and cons of two potential projects. They felt that GreenWood needed to proceed carefully to ensure its criteria of sustainable business (in terms of economic performance, social responsibility, and environmental stewardship) were met in China but also realized the company should show some progress to its major investor in China, Oriental Timber Fund Limited.
Nuss and his senior management team needed to decide whether they should recommend investing in one of the two projects, (Luxi or Dongji). GreenWood spent a lot of time building relationships and negotiating with the potential partners (i.e., Luxi Forestry Bureau and Dongji Lideng Forestry Development Co., Ltd.) and meanwhile conducting due diligence. Despite the potential risks, GreenWood needs the local partners for investment projects for two main reasons.
First, as noted in the case, all forestlands were owned either by the state or collectively in China. GreenWood can only lease the land (i.e., purchase the services of the land) given the absence of a land market. Thus, a partnership with a locally embedded organization can help mitigate the risks of being expropriated. Second, local partners can help overcome the cultural and institutional distances and manage the crop care labor forces and community relations more effectively.
The Luxi and Dongji projects passed the initial phase of screening and became the company’s top priorities. The due diligence on these two projects was extensive, lasting over a year, but both projects still faced considerable obstacles and even potential deadlock.
Your Task
Submit a paper which will be reviewed by Greenwood’s investment committee. It should provide the following information;
1) Assess the pro’s and con’s of both the Luxi, and Dongji projects.
2) Make a recommendation to choose either the Luxi project, the Dongji project, both projects, or neither project. Provide the basis for your recommendation. Consider “International Expansion” and “Achieving Competitive Advantage in Global Markets” from Chapter 7 in our text when constructing your recommendation.
The paper should be between 500 – 1000 words excluding references. Adhere to this length and include a word count at the end of the paper.
