GREEN WOOD – INVESTMENT APPRAISAL IN CHINA Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

GREEN WOOD – INVESTMENT APPRAISAL IN CHINA Case Study Solution

SWOT ANALYSIS

More commonly known as the Strengths, Weaknesses, Opportunities and Threats Section; of Green wood are considered:

STRENGTHS	WEAKNESSES
Green Wood Boasts an experienced Directorial and Operational team, with all veterans being provided in their areas of businesses.	The organization's head office is situated in USA, with a limited amount of people (10) working in China's office; which is bigger potential and growth area for the organization. The staff are over stretched in their tasks.
Heavy Privately Finance Commitments of $ 200 Million by an organization for its Investment areas.	The amount of time it takes for a response to be provided is very high. Both of the Investment opportunities in LUXI and DONGJI might be ended due to the negotiation managers not happy on response time.
The Research and the Development team under Mr. Stanton has state of the art techniques, new in field and will be highly useful	The markets for the Chinese is different from the USA, with informality being the basis as compared to the USA. This has created problems in the operations of the organization.
5-10 years of Relationships developed in the CHINA sector to encourage growth Potentials.
OPPORTUNITIES	THREATS
Great potential for the organization to invest in the Chinese markets and provide returns satisfying its equity return of IRR.	As the trade secrets are protected of the organizations, the partnership opportunities can create problems on the intellectual data as China has no Intellectual data protection act in this field.
Partnership opportunities with Big Chinese Development authorities such as LIDEN to divide risk and achieve benefits of integration.	The organizations lack of approvals had positioned the organization in a precarious situation, as the time is passing and IRR of 15% has to be generated from somewhere.
Demands are high in the Chinese market, with limited supply. This can be used by the organization.	Lack of Time and to and fro from China for its directors has led to other Negotiation managers being unhappy, Organization might lose projects.
The organization does not have to select one of the Investment opportunities, as it has capital backed; it can attempt to more than one opportunity.

VALUE CHAIN

The Value chain of Green Wood is provided below:

PRIMARY ACTIVITIES	DEPARTMENTS
PLANTATION OF TREES OF VARIOUS KINDS	CAPITAL MANAGEMENT
CARE OF THE PLANTATION – OPERATIONS	RESOURCE PLANNING
HARVESTING	TREE IMPROVEMENT AND NURSERIES
SUPPLYING TO MARKETS	RESOURCE MANAGEMENT
GENERATING CASH	PRODUCT SALES AND TRAINING
	ECOSYSTEM MARKETS AND VALUES
SUPPORT ACTIVITIES	GLOBAL CORPORATION CONTROLLER AND ADMINISTRATION
SUSTAINABILITY CAUSES	GREEN WOOD CHINA
ECONOMIC AND SOCIAL VALUE
INVESTOR PURSUING BY THE HEADS
FSC CERTIFICATE

When we consider the value chain of the Green Wood Organization, The primary activities and the support activities of the organization are provided; with primary activities relating to the Plantation, harvest and selling, while the support activities relating to the Sustainability, environmental, and the FSC certificate value for the organization.

The main contention in this case is the use of departments of the organization, most of the departments are in relation to the support activities with Resource Planning, Product Sales and Training, and Green Wood China only working for the primary activities. This is the drawback for the organization as this can be taken as one of the reason for the feedback or slowing of the negotiation process. While, most of the departments of the organization are focused on the Experimental and projections on the sustainability, other departments directly relating to the operations such as Green Wood China, being heavily work burdened to that stage. The organization needs to improve on the value chain to be more efficient and productive.

OPPORTUNITIES AND THREATS OF PROJECTS

LUXI

The LUXI project has a lot of opportunities for the organization, as the project is based on a rich soil and irrigation area; the business will have to imply limited resources for operations and the management of the plantation. The supply for the Timber in the LUXI County has a shortfall by 3 times the value of demand, this is encouragement for the organization to completely sell off all its stock in the current year end generating greater profits. The area will be used for Tourism facilities which will provide further recognition to the organization and will enhance its image in the eyes of its potential investors and the market of China.

The threats of the LUXI project relates to the yet to be held approval from the Forestry departments, which has asked from the organization to create a mill worth $ 750,000. This mill is a secondary business to the ownership and will create additional cost. Though, this can be mitigated, if the organization and the department can come up with a deal to employ the country local workforce after training and forego the demand of creating a mill.

DONGJI

The opportunities when the DONGJI area is considered is the sheer size of the area for plantation available to the organization. This can encourage the organization’s development side to create better answers and results as a big test space to further and refine the techniques employed in the Plantation. The labor and support will be provided from a more native player in the market; LIEDING. The area is highly in the nature of going towards desertification and the government of China is based on stopping it, this can assist the organization as government subsidies can be provided to assist in their operations.

The main threat relates to the condition of the Soil which has a growth potential of 0.7%, which is very low. Mr. Stanton takes that as a challenge, but this is a negative factor for the organization if Stanton fails. The return is not big to employ with high substitutes available to the general population if the quality is not up to the standard.

ANALYSIS ON PROJECTS AND RECOMMENDATIONS

Financial analysis on both the projects had been computed according to the data and is presented in Exhibit 1 of this report. According to the projected results, Project LUXI shows a negative NPV of $ 0.904 Million, while the project DONGJI shows a Positive Net present Value of $ 4.07 Million.

This is the projection on the results, the costs of inputs are very high for the LUXI project and not much returns are compared. As though the demand of the Timber is great in that area, the organization can consider increasing the prices to achieve a positive NPV on the project.

The Project DONGJI shows a positive NPV Value with $ 4.07 million in the project investment which relates to somewhere in the category of around $ 6 Million, though the amounts that will be generated would be of a 10 year later cycle with costs being implemented throughout this cycle every year.

Though many things further have to be ascertained for these projects, as the sensitivity analysis would help the organization, the time period is of the essence here from 7 – 10 years which is a longer cycle. This will increase the price of timber in the later years, but this will also increase the expense costs which are to be attributed to the cycle.

Upon the recommendation criteria, it has been recommended to the organization to opt for the Project DONGJI as this will create profits of $ 4.07 Million on an initial investment of $ 6 million approximately. Further, the organization needs to increase its investment analysis department so that these type of opportunities can be handled early and efficiently. Project LUXI is not supported until further analysis and data is not provided on that matter. One major change for the organization, is the needed change of Head Quarters from USA to CHINA, as the USA market is saturated with less growth, in the near future- CHINESE market will expand, and so the organization needs to be here- where the action is.

EXHIBITS

Exhibit 1

Project	LUXI	DONGJI

Total Area - MU	92,073.0	82,644.0

INITIAL INVESTMENT (RMB)	296,548,734.0	40,903,578.3
Planting Expenses / MU	632.0	255.0

Per Annum Costs (/ MU)
Land, Lease, etc.	367.0	87.0
Crop Care Expense	110.0	45.0
	477.0	132.0

STUMPAGE VOLUME
LUXI - 7 years	12.6	-
DONGJI - 10 years	-	7.0

Total Produce	1,160,119.8	578,508.0
Price / MU	559.0	445.0

REVENUE	648,506,968.2	257,436,060.0

COSTS
Planting	58,190,136.0	21,074,220.0
Per Annum Costs	307,431,747.0	109,090,080.0
Investments	296,548,734.0	40,903,578.3
	(13,663,648.8)	86,368,181.7

Discount Factor @ 12%	(6,180,740.8)	27,808,243.0
Dollar Value @ 6.83	(904,940.1)	4,071,485.1