978-1259278211 Case 11 Solution Manual Part 1

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Teaching Note: Case 11 – GreenWood Resources:

A Global Sustainable Venture in the Making

Case Objectives

1. To assess the advantages and disadvantages of different international entry modes.

See the table below to determine where to use this case:

NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The

Teaching Note gives guidance for the PRIMARY use chapter and provides suggestions if the

instructor wants to use the case to illustrate concepts from the optional Secondary chapters.

Chapter Use Key Concepts Additional Readings or

Exercises

PRIMARY

Strategy

International expansion; entry

NOTE: additional reading –

SECONDARY

1: Strategic

Management

Vision, mission, strategic

2: External

External scanning and

5: Business-Level

Competitive strategy; generic

6: Corporate-Level

Corporate strategy;

8: Entrepreneurial

Strategy

Opportunity recognition

Case Synopsis

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,

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

Teaching Plan

The case provides a unique setting for analyzing the market entry rationale and process and for

deliberating the strategic investment decisions for an American entrepreneurial firm in China. In

particular, the case describes the situation in which the company has to evaluate its investment

opportunities with a simultaneous consideration of economic performance, social responsibility,

and environmental sustainability. Instructors can use the case to address the need for a strategic

mindset prior to making any decision on how to proceed with any given strategy, and can adopt

the resource-based view (RBV) to identify and classify GreenWood’s resources and capabilities

as a precursor to any investment decision.

Of special interest to more advanced students is the question of Porter and Kramer’s “shared

value” view. Porter and Kramer (2006) argue that firms should adopt a strategic approach to

fulfill corporate social responsibility in which a firm’s long term competitive advantages and

positive social impact will be mutually reinforcing. This perspective applies well to the analysis

of the pros and cons of the Luxi and Dongji projects – which is the best investment project? This

more extensive analysis needs to be completed before GreenWood and its investor can make an

informed decision, and could benefit from a reading of Hennart’s (2009) recent work which

indicates that contractual (as opposed to equity-based) partnering is desirable at the investment

project level for GreenWood.

For this advanced discussion, instructors may find it helpful to assign the following articles to the

class prior to the use of the case:

Porter, M., & Kramer, M. 2006. “Strategy and Society: The Link between Competitive

Advantages and Corporate Social Responsibility.” Harvard Business Review, December: 78–92.

Hennart, J. F. 2009. “Down with MNE-centric theories! Market entry and expansion as the

bundling of MNE and local assets.” Journal of International Business Studies, 40, 1432 –1454.

Icebreaker

Since most of the students in a typical business class are unfamiliar with the forest/tree plantation

industry, it might be useful to show a few pictures of tree farm operations (see

http://greenwoodresources.com/about/), and refer to the Case Appendix.

Instructors may start the discussion by asking the following questions:

What do you like and dislike about doing business in the tree plantation industry? Why?

What do you think about GreenWood Resources’ business focus & strategy?

Money notwithstanding, how many of you would invest in one or both of the two projects (Luxi

and Dongji) and why?

A brief discussion of ten minutes or so tends to warm up the class.

Additional reading on the issue of the environmental impact of tree farms, especially those in

And information about the impact of certain other industries, i.e., book publication, on the tree

industry can be found at http://www.greenpressinitiative.org/documents/ForestTreeFarms.pdf

GreenWood Resources belongs to the Forest Stewardship Council, whose mission is to promote

environmentally sound, socially beneficial and economically prosperous management of the

According to its website, “GreenWood Resources (GWR) is a global timberland investment and

asset management company specializing in the acquisition, development and management of

forestry assets: GWR creates value through the integrated deployment of improved plant material

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

Discussion Questions:

1. PRIMARY QUESTION: What was GreenWood’s rationale for entering China in 2005?

What entry strategy did GreenWood use to enter China? What were the advantages and

disadvantages of the China entry decision?

2. SECONDARY QUESTIONS: What forces in the external environment might affect

GreenWood’s choice of strategy?

3. What business-level and corporate-level strategy did GreenWood pursue? And how did

GreenWood adopt entrepreneurial strategies in its quest for growth?

4. OPTIONAL QUESTION: Which is the best investment partner: Luxi or Dongii?

Discussion Questions and Responses

1. What was GreenWood’s rationale for entering China in 2005? What entry strategy did

GreenWood use to enter China? What were the advantages and disadvantages of the

China entry decision?

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter

1, Exhibit 1.1: Strategic management consists of the analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages:

●strategy directs the organization toward overall goals and objectives;

●includes multiple stakeholders in decision making;

Leaders face a large number of complex challenges. Leaders must be proactive, anticipate

change and continually refine changes to their strategies. This requires a certain level of

“ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their

See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision,

mission and strategic objectives. Leaders must communicate their initial vision of the

organization’s purpose: what was the original goal, one that evokes a powerful and compelling

The organizational mission also needs to be considered: a mission encompasses both the purpose

of the company, as well as the basis for competition and competitive advantages. In writing a

GreenWood Resources had a global vision to build “a resource that lasts forever,” and had a plan

to specialize in the development and management of high-yield, fast-growing tree plantations

and then to help institutional investors (pension funds, endowments, insurance companies, etc)

and wealthy individuals invest in these professionally managed assets. The company’s website

has stated its vision/mission as follows:

●Build a resource that lasts forever

●Meet the needs of investors, communities and the environment with the earth’s most

To do this, the company stated its values as people – helping people pursue their interests and

passions for a greater good; excellence – striving to be the best in the field of acquisition and

Regarding his commitment to these values, Jeff Nuss stressed the importance of understanding

Organizations must respond to multiple constituencies if they are to survive and prosper, and the

mission provides a means of communicating to diverse organizational stakeholders. Although

GreenWood Resources had several stakeholder groups that might exert conflicting claims on the

company, depending on the performance expectations each group had. The investors, both

institutional and wealthy individuals, would want to see financial results; the employees would

want job security and opportunities for growth, therefore expecting that the company would

Although CEO Jess Nuss had an obligation to provide economic returns to his investment

customers, he also realized his vision/mission supported his decision to operate GreenWood’s

farms in accordance with Forest Stewardship Council (FSC) regulations – conserving biological

Anticipating that things might change, an organization’s leadership must then establish strategic

objectives to operationalize the mission statement. That is, objectives help to operationalize the

These vision and mission statements and the resulting strategic objectives have implications for

how to analyze opportunities, manage innovation, and provide leadership to encourage growth. It

The basic question strategic management tries to answer is: How can we create a sustainable

competitive advantage in the marketplace that is not only unique and valuable but also difficult

for competitors to copy or substitute?

According to the GreenWood Resources website, since its founding the company has

“specialized in creating value through the integrated deployment of improved plant material and

intensive silvicultural management strategies to maximize the sustainable production of fiber for

According to this, GreenWood Resources had been able to carve out a unique and valuable niche

Corporate strategy focuses discussion on the questions of what businesses a corporation should

compete in, and how the businesses should be managed so they can create “synergy” – creating

Diversification is the process of firms expanding their operations by entering new businesses. In

related diversification, a firm enters a different business in which it can benefit from leveraging

core competencies, sharing activities, or building market power. Some possibilities include:

●Mergers and acquisitions

●Strategic alliances

Whatever the choice, it should create value for all stakeholders – employees, suppliers,

GreenWood Resources had started with a poplar plantation in the northwestern U.S. While

managing that tree farm, Dr. Brian Stanton, a renowned expert in poplar hybridization and

genetic improvement, had joined the team to research the development of poplar varieties

characterized by high growth rate, strong pest resistance, high wood density, and broad site

As a result of acquiring these skills, and demonstrating the ability to share activities, GreenWood

was able to build market power, allowing it to use its growing reputation to get financial support

Referencing Chapter 7: International Strategy: Creating Value in Global Markets

International expansion is a viable diversification strategy, however before pursuing this, a firm

There are several reasons to expand internationally. A firm’s motivation for international

expansion could involve the following:

▪To increase the size of potential markets

▪To attain economies of scale

When choosing a country to expand into, firms must assess certain factors: the degree of

consumer demand, the degree to which resources such as skilled labor and other supplier or

supporting infrastructure are developed and available, the speed with which such resources can

GreenWood was motivated to seize both market opportunities and gain access to forest resources

in foreign countries. The case states: “The poplar plantation industry in the United States was of

GreenWood developed some ownership or firm-specific advantages (i.e., unique resources and

capabilities), which could be potentially exploited overseas. The advantages included:

●Ownership of elite poplar plant materials;

●Substantial experience in the development and management of high-yield, fast-growing

At this point, the main ownership disadvantages appear to be lack of operating scale and lack of

financial and human resources. Nevertheless, Jeff feels that these rather common entrepreneurial

To further support the decision to expand internationally, students can be asked to identify the

The logic of RBV argues that unique bundles of resources and capabilities or core competencies

can (and should) be leveraged in an ever-broader scope through internationalization. Students

The concept of the resource-based view of the firm includes the three key types of resources:

tangible resources, intangible resources, and organizational capabilities. A firm’s strengths and

capabilities – no matter how unique or impressive – do NOT necessarily lead to a competitive

Appendix Exhibit IM-1 should be helpful for the instructors to summarize the class discussion

on GreenWood’s resources and capabilities before the company implemented its international

expansion strategy in 2005.

As shown in Exhibit IM-1, GreenWood was initially constrained by a lack of physical and

financial resources. The company also had inadequate human resources. As a matter of fact, Jeff

had to convince Brian Liu, a Chinese American with years of experience working for the Oregon

Location or country-specific advantages play an important role in motivating GreenWood to

enter China. Location advantages in the tree plantation industry in China include:

1) Substantial market size

●China’s timber market is expanding rapidly. In Luxi, and in the remaining mills in Linyi

●Timber has good investment returns (15 percent or so).

●The potential for high-yield, fast growing plantations in general, and poplar tree farming

2) Available natural resources

●A large forest base (2 million hectares or so) is available for developing high-yield poplar

●For example, over 6,000 hectares (92,073 mu) are available in Luxi; more than 13,500

3) Low labor costs

●The labor force for crop care is available.

●The labor costs in China, in particular in the tree plantation areas, are low due to

4) Pro-industry government policies

●Nationwide, China set a goal of raising its afforestation (i.e., establishing forestland by

planting seeds or trees in open land) rate to 26 percent of its land area by 2050, which

●The No. 9 state council decree is promulgated to encourage Chinese people to go out and

5) Lack of competitive intensity

●The tree plantation industry is fragmented and lacks serious

Students should also examine the following location disadvantages:

1) The legal enforcement of intellectual property protection is relatively weak.

2) The variety of government agencies at different levels forms a complex set of ownership

3) There is a need to build comprehensive connections in China (guanxi), which is a long

4) Due to an inadequate technological infrastructure, the Chinese approach to silviculture

●There has been a lack of systematic knowledge in tree farm investment, plant material

●This has been exacerbated by a clash of mindsets between viewing the projects through

5) The negotiating process for land and for tree assessment and pricing is difficult and slow.

Despite some location disadvantages, the Chinese tree plantation industry is attractive to firms

that make a commitment, and get their foot in the door. GreenWood has many valuable

ownership advantages for China. As Jeff said, “China has two main hybrid varietals of poplar

Entry modes available for international expansion differ based on the extent of investment and

risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.9. In order from low to

high, they include:

●Exporting

●Licensing

As mentioned in the case, GreenWood decided to establish a wholly owned subsidiary based on

greenfield investment in China in 2005. It is useful to discuss foreign entry modes briefly in light

of internalization (or transaction cost) theory. GreenWood already possesses a substantial amount

The internalization advantages for a wholly owned greenfield subsidiary are significant for at

least two major reasons. The first is that GreenWood’s core ownership advantages (i.e., research

The second is that the organizational structure of GreenWood (Exhibit 4 and Exhibit 6 in the

case) may be too complex to involve either a joint venture partner or an acquired partner

Have these decisions been adequately anticipated by GreenWood’s overall strategy? Are these

decisions consistent with the company’s vision, mission and values?