Trees Guajilote example essay topic

Solution by: Submitted on: Business, Management Year 4 Strategy Formulation Solution 1. The business is certainly located in rural areas and considerations of how this may affect tribal people should be considered. The use of natural resources can be profitable but environmental such as the impact of deforestation on the global climate needs are vital. Mahogany is a rare wood and the tree does take a long time to grow. This business venture should plant so many trees for each Mahogany tree it finds felled. 2.

Strengths: 1. Setting up hand sawmills at the fallen trees. 2. Developing a knowledge of markets and business practices. Opportunities: 1. Contributing to Honduras' economic growth.

2. Establish a good working relationship with distributors like Santos Munguia. 3. Establishing direct links with local furniture makers. Weaknesses: 1. Massive funding required to drive operations.

2. Size and growth of the company is limited by the amount of mahogany produced per annum. 3. Hard to find and process the trees.

4. Lack of adequate transportation. Threats: 1. Deforestation and impacts on the environment. 2. Pressure groups like Greenpeace and CITES.

3. Natural disasters like forest fires. 4. Decline in numbers of trees. 5.

Treacherous terrain and wet weather. 6. Lack of co-operation from Honduran authorities. 7.

Corrupt distributors not paying the workers for the wood worth. 3. This does have a competitive advantage in that it can develop its links with local furniture manufacturers. It is possible to operate within the constraints of Cites, if transport costs are met by local buyers.

Help provided to these local manufacturers may be achieved by setting up IT systems that monitor input and output of wood. Guajilote's strategy is weak in dealing with deforestation issues. It should engage in planting more mahogany trees. Greenhouses could be set up to cultivate the seedlings. The local population needs to be educated about the importance of up-keeping its natural resources and in conservation matters. 4.

The value chain is: Site (forests) -- Transport (carts and river) -- Collection (distributors) -- Sale (manufacturers) -- Exporting (USA and Europe). 5. This company's strategic alternatives include: co-operating with Cites. Develop a sound strategy that for every tree felled, 10 new trees will be planted. Convince the government of Honduras that their natural resource needs to be protected and developed. This includes providing jobs for workers in greenhouses cultivating the seedlings.

A proportion of the sale of the wood could be allocated to the development of new schools and clinics in rural Honduras. The local population, via the co-operation of village headmen, need to be educated on the importance of conserving their environment. Children need to be taught this at schools via the provision of posters and books. GUAJILOTE COOPERATIVO FORESTAL, HONDURAS Nathan Nebbe and J. David Hunger Guajilote (pronounced wa-he-low-try) Cooperativo Forestal was a forestry cooperative that operated out of Chaparral, a small village located in the buffer zone of La Muralla National Park in Honduras' Olancho province. Olancho was one of 18 Honduran provinces and was located inland bordering Nicaragua. The cooperative was one result of a relatively new movement among international donor agencies promoting sustainable economic development of developing countries' natural resources.

A cooperative in Honduras was similar to a cooperative in the United States. It was an enterprise jointly owned and operated by members who used its facilities and services. Guajilote was founded in 1991 as a component of a USAID (United States Agency for International Development) project. The project attempted to develop La Muralla National Park as an administrative and socioeconomic model that COHDEFOR (the Honduran forestry development service) could transfer to Honduras' other national parks. The Guajilote Cooperativo Forestal was given the right to exploit naturally fallen (not chopped down) mahogany trees in La Muralla's buffer zone. Thus far, it was the only venture in Honduras with this right.

A buffer zone was the designated area within a park's boundaries, but outside its core protected zone. People were allowed to live and engage in economically sustainable activities within this buffer zone. Guajilote in 1998 was facing some important issues and concerns which could effect not only its future growth, but also its very survival. For one thing, the amount of mahogany wood was limited and was increasingly threatened by forest fires, illegal logging, and slash and burn agriculture. If the total number of mahogany trees continued to decline, trade in its wood could be restricted internationally. For another, the cooperative had no way to transport its wood to market and was thus forced accept low prices for its wood from the only distributor in the area.

What could be done to guarantee the survival of the cooperative? This case was prepared by Nathan Nebbe and Professor J. David Hunger of Iowa State University. Copyright (c) 1999 by Nathan Nebbe and J. David Hunger. This case was edited for S MBP-8th edition. Reprinted by permission. Presented to the Society for Case Research and published in Annual Advances in Business Cases 1999.

OPERATIONSGuajilote's work activities included three operations using very simple technologies. First, members searched the area to locate appropriate fallen trees. This, in itself, could be very difficult since mahogany trees were naturally rare. These trees were found at elevations up to 1,800 meters (5,400 feet) and normally were found singly or in small clusters of no-more-than four-to-eight trees per hectare (2.2 acres). Finding fallen mahogany in La Muralla's buffer zone was hampered due to the area's steep and sometimes treacherous terrain. (La Muralla means steep wall of rock in Spanish.) The work was effected by the weather.

For example, more downed trees were available during the wet season due to storms and higher soil moisture - leading to the uprooting of trees. Second, the cooperative set up a temporary hand-sawmill as close as possible to a fallen tree. Due to the steep terrain, it was often difficult to find a suitable location nearby to operate the hand-sawmill. Once a suitable work location was found, men used a large cross-cut saw to disassemble the tree into various components. The disassembling process was a long and arduous process that could take weeks for an especially large tree. The length of time it took to process a tree depended on a tree's size - mature mahogany trees could be gigantic.

Tree size thus affected how many trees Guajilote was able to process in a year. Third, after a tree was disassembled, the wood was either carried out of the forest using a combination of mule and human power, or floated down a stream or river. Even if a stream happened to be near a fallen tree, it was typically only usable during the wet season. The wood was then sold to a distributor who, in turn, transported it via trucks to the cities to sell to furniture makers for a profit. Guajilote's permit to use fallen mahogany was originally granted in 1991 for a ten-year period by COHDEFOR. The permit was simply written, and stated that if Guajilote restricted itself to downed mahogany, its permit renewal should be granted automatically.

The administrator of the area's COHDEFOR office indicated that if things remained as they were, Guajilote should not have any problem obtaining renewal in 2001. Given the mercurial nature of Honduran politics, however, nothing could be completely assured. In 1998, Guajilote's mahogany was still sold as a commodity. The cooperative did very little to add value to its product. Nevertheless, the continuing depletion of mahogany trees around the world meant that the remaining wood should increase in value over time.

MANAGEMENT AND HUMAN RESOURCES Santos Munguia, 29 years old, had been Guajilote's leader since 1995. Although Munguia had only a primary school education, he was energetic, intelligent, and had proven to be a very skillful politician. In addition to directing Guajilote, Mr. Munguia farmed a small parcel of land and raised a few head of cattle. He was also involved in local politics. Munguia had joined the cooperative in 1994. Although he had not been one of Guajilote's original members, he quickly became its de facto leader in 1995 when he renegotiated a better price for the sale of the cooperative's wood.

Before Munguia joined the cooperative, Guajilote had been receiving between three and four Lempiras ($0.37 or 11 Lempiras to the dollar) per foot of cut mahogany from its sole distributor, Senior Suazo. No other distributors were available in this remote location. The distributor transported the wood to Tegucigalpa or San Pedro Sula and sold it for 16-to-18 Lempiras per foot. Believing that Suazo was taking advantage of the cooperative, Munguia negotiated a price increase to 7 to 8 Lempiras ($0.60 to $0.62 per foot at the July 15, 1998 exchange rate) per foot by putting political pressure on Sr. Suazo. The distributor agreed to the price increase only after a police investigation had been launched to investigate his business dealings.

(Rumors circulated that Suazo was transporting and selling illegally logged mahogany by mixing it with that purchased from Guajilote.) MUNGUIA: EL CAUDILLO After renegotiating successfully with the cooperative's distributor, Santos Munguia quickly become the group's caudillo (strong man). The caudillo was a Latin American political and social instit uti on. A caudillo was a (typically male) purveyor of patronage. All decisions went through, and were usually made by, him.

A caudillo was often revered, feared, and hated at the same time because of the power he wielded. Munguia was viewed by many in the area as an ascending caudillo because of his leadership of Guajilote. Guajilote did not operate in a democratic fashion. Munguia made all of the decisions - sometimes with input from his second in command and nephew, Miguel Flores Munguia - and handled all of Guajilote's financial matters.

Guajilote's members did not seem to have a problem with this management style. The prevailing opinion seemed to be that Guajilote was a lot better off with Munguia running the show by himself than with more involvement for the members. One man put the members' view very succinctly: 'Santos, he saved us (from Suazo, from COHDEFOR, from ourselves). ' Guajilote's organizational structure emphasized Munguia's importance. He was alone at the top in his role as decision maker. If, in the future, Munguia became more involved in politics and other ventures that could take him out of Chaparral (possibly for long periods of time), he would very likely be forced to spend less time with Guajilote's operations.

Munguia's leadership has been of key importance to Guajilote's maturing as both a work group and as a business. In 1998, there did not seem to be another person in the cooperative that could take Munguia's place. GUAJILOTE'S MEMBERS When founded, the cooperative had been composed of 15 members. Members were initially selected for the cooperative by employees of USAID and COHDEFOR.

The number of employees has held steady over time. Since the cooperative's founding, three original members have quit; four others were allowed to join. Although no specific reasons were given for members leaving, they appeared to be because of personality differences, family problems, or differences of opinion. No money had been paid to them when they left the cooperative.

In 1998 there were 16 members in the cooperative. None of Guajilote's members had any education beyond primary school. Many of the members had no schooling at all and were illiterate. As a whole, the group knew little of markets or business practices. Guajilote's existence has had an important impact on its members. One member stated that before he had joined Guajilote, he was lucky to have made 2,000 Lempiras in a year; whereas, he made around 1,000 to 1,500 in one month as a member of the cooperative.

He stated that all five of his children were in school, something that he could not have afforded previously. Before joining the cooperative, he had been involved in subsistence farming and other activities that brought in a small amount of money and food. He said that his children had been required previously to work as soon as they were able. As a simple farmer, he often had to leave his family to find work, mostly migrant farm work, to help his family survive. Because of Guajilote, his family now had enough to eat and he was able to be home with his family. This was a common story among Guajilote's members.

The general improvement in its members' quality of life also appeared to have strengthened the cooperative members' personal bonds with each other. FINANCIAL SITUATION No formal public financial records were available. As head of the cooperative, Santos Munguia kept informal records. Guajilote's 1997 revenues were approximately 288,000 Lempiras ($22,153 U.S. ). (Revenues for 1996 were not available.) Guajilote processed around 36,000 feet of wood during 1997. Very little of the money was held back for capital improvement purchases due to the operation's simple material needs.

Capital expenditures for 1997 included a mule plus materials needed to maintain Guajilote's large cross-cut saws. Each of Guajilote's 16 members was paid an average of about 1,500 Lempiras ($113 U.S.) per month in 1997 and 1,300 Lempiras ($100 U.S.) per month in 1996.1998 payments per month had been similar to 1997's payments, according to Guajilote's members. Money was paid to members based on their participation in Guajilote's operations. There was conjecture, among some workers, that Santos Munguia and his second in charge were paying themselves more than the other members were receiving. When Munguia was asked if he received a higher wage than the others because of his administrative position in the group, he responded that everything was distributed evenly. An employee of COHDEFOR indicated, however, that Munguia had purchased a house in La Union - the largest town in the area.

That person conjectured, based on this evidence, that Munguia was likely receiving more from the cooperative than were the other members. ISSUES FACING THE COOPERATIVEGuajilote's size and growth potential was limited by the amount of mahogany it could produce in a year. Mahogany was fairly rare in a forest and Guajilote was legally restricted to downed trees. Moreover, with the difficulties of finding, processing by hand, and then moving the wood out of the forest, Guajilote was further restricted in the quantity of wood it could handle. Lack of transportation was a major problem for Guajilote. The cooperative had been unable to secure the capital needed to buy its own truck - lending through legitimate sources was very tight in Honduras and enterprises like Guajilote did not typically have access to lines of credit.

Although the prices the cooperative was receiving for its wood had improved, the men still thought that the distributor, Sr. Suazo, was not paying them what the wood was worth. It was argued that when demand was high for mahogany, the cooperative gave up as much as 10 Lempiras per foot in sales to Suazo. Guajilote could conceivably double its revenues, if it could somehow haul its wood to Honduras' major market centers and sell it without use of a distributor. The closest market center was Tegucigalpa - three to four hours from Chaparral on dangerous, often rain soaked, mountain roads. A POSSIBILITY Some of the members of Guajilote wondered if the cooperative could do better financially by skipping the distributor completely. It was possible that some specialty shops (chains and independents) and catalogs, throughout the world, might be interested in selling high quality mahogany furniture - i.e. chests or chairs - that were produced in an environmentally friendly manner.

Guajilote, unfortunately, had no highly skilled carpenters or furniture makers in its membership. There were, however, a couple towns in Honduras with highly skilled furniture makers who worked on a contract basis. A U.S. citizen with a furniture export business in Honduras worked with a number of independent furniture makers on contract to make miniature ornamental chairs. This exporter reviewed Guajilote's situation and concluded that the cooperative might be able to make and market furniture very profitably - even if it had to go through an exporter to find suitable markets. Upon studying Guajilote's operations, he estimated that Guajilote might be able to more than treble its revenues. In order to do this, however, the exporter felt that Guajilote would have to overcome problems with transportation and upgrade its administrative competence.

Guajilote would need to utilize the talents of its members more if it were to widen its operational scope. It would have to purchase trucks and hire drivers to transport the wood over treacherous mountain roads. The role of administrator would become much more demanding, thus forcing Munguia to delegate some authority to others in the cooperative. CONCERNS In spite of Guajilote's improved outlook, there were many concerns that could effect the cooperative's future.

A serious concern was the threat of deforestation through fires, illegal logging (i.e. poaching of mahogany as well as clear cutting), and slash and burn agriculture. Small fires were typically set to prepare soils for planting and to help clear new areas for cultivation. Often these fires were either not well supervised or burned out of the control of the people starting them. Due to the 1998 drought, the number of out-of-control forest fires had been far greater than normal. There seemed to be a consensus among Hondurans that 1998 would be one of the worst years for forest fires. Mahogany and tropical deciduous forests are not fire resistant.

Fires not only kill adult and young mahogany trees, but also destroy their seeds. Mahogany could therefore be quickly eliminated from a site. Each year, Guajilote lost more area from which it could take mahogany. To make matters worse, many Hondurans considered the area around La Muralla National Park to be a frontier open to settlement by landless campesinos (peasant farmers). In fleeing poverty and desertification, people were migrating to the Olancho province in large numbers.

Not only did they clear the forests for cultivation, but they also cut wood for fuel and for use in building their homes. Most of the new settlements were being established in the area's best mahogany growing habitats. Another concern was that of potential restrictions by CITIES (the international convention on trade in endangered species). Although trade in mahogany was still permitted, it was supposed to be monitored very closely. If the populations of the twelve mahogany species continued to decrease, it was possible that mahogany would be given even greater protection under the CITIES framework. This could include even tighter restrictions on the trade in mahogany, or could even result in an outright ban similar to the worldwide ban on ivory trading.

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