Greenwood’s Rationale for Entering China

Company’s Introduction

Greenwood Resources was founded by Jess Nuss in 1998. He was a bio resources engineer and had 12 years of experience in this industry. The company specializes in the development and management of fast growing tree plantation to tackle deforestation and for timber usage to make different products. The company operates in various parts of the US and in China. Despite of the early financial problems faced by the company, it managed to build a strong team of experienced people in the timber industry, resources and business networks.

The company has a strong management team such as Hunter Brown and Brian Liu who has great experience in the Asian markets especially in China (Dess, McNamara, Eisner & Lee, 2019).

Greenwood’s Rationale for Entering China

Greenwood Resources entered China in 2005 because Jeff believed that the company needed to consider expanding in other countries of the world due to the limited poplar plantation industry in the United States. A strong rationale for Greenwood Resources to enter China was the concept of sustainable managing of the tree farms.

There was a growing demand of wood products in the country which lead to deforestation especially in northern China. Greenwood resources saw the window of opportunity and entered the Chinese market. Their main competency was the high quality material that produced high-yield and fast growing plantation. The entry strategy that the company used was the wholly owned subsidiary. Greenwood entered the Chinese market on their own and had risk in what they did.

There were number of potential projects that company would considered but the most potential projects were the Luxi and Dongji projects.

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Greenwood Resources did the comprehensive due diligence analysis to analyze whether to pursue the projects or not. However, the company invested in the projects and became successful due to the highest rate to return on the investments due to the various factors such as fertile lands, good irrigation systems and favorable natural conditions to grow the trees in less time. There were several pros and cons of the projects such as high up front cost were high to lease the land for plantation, economic slowdown in the country and the demand of the government to set up a wood processing mill (Dess, McNamara, Eisner & Lee, 2019).

Advantages and Disadvantages of Entering China

There were several advantages and disadvantages of entering China by Greenwood Resources. Some of the advantages include the number of investment opportunities in China due to the exploding timber market in the country. The timber plantation industry was still in an initial stated and it lacked competition due to the lack of companies operating in this industry. There were areas which were fertile enough to produce high yield plantation and fast growing of poplar trees. Another advantage was the good quality material for the growth of plantation. This material was prepared by the years of research by the US and was lacked by China. This was another huge advantage for Greenwood as it was its own supplier of the plantation material. China was facing shortage of timber due to the high demand of wood products. They had to rely on the imported wood form Russia which was more costly and the cost of transportation was high. This made a potential country to invest in the tree plantation industry. All these factors were beneficial for the company when it entered China.

On the other hand, there very several disadvantages that company had to face after entering China. Problem such as weak intellectual property protection in China was a serious concern for the company because others can possibly copy them. Other than that, there were political and social risks in the country. Most of the forestlands where owned by the state government who leased the land for typically 20 to 30 years (Dess, McNamara, Eisner & Lee, 2019). The problem was the country’s weak laws on the land leases which can be broken due to several reasons. The social risk that company had to face was the unhappy farmers who protests against the foreign companies if they believe that they are not getting enough share of the money from the company. Another important risk factor was the lack of proper documentation of the plantation assets. The company needed to know the areas which are suitable for the plantation of trees to extract high yield and maximum profits.

Greenwood Entrepreneurial Strategies

There are several entrepreneurial resources that are critical for a company to be successful. These two important resources are based on financial capital and human capital. For a startup company like Greenwood Resource, financial capital is most important because a new firm had to invest to operate on its own. Initially, Greenwood Resources faced some challenges to raise the capital to their desired goal because the only funding was the founder’s personal wealth. The acquisition of Potlatch’s tree farms attracted the capital investors. The company managed to get $175 million of funding through this acquisition and became a big player in the tree plantation industry (Dess, McNamara, Eisner & Lee, 2019). In terms of human capital, Greenwood Resources has the best management in the company who has the right amount of industry experience and great entrepreneurial qualities. By the help of this great management, the company managed to raise good amount of funds to enter China and become successful.

Solutions and Recommendations

Greenwood Resources faced number of challenges while entering in China such as intellectual property protection, weak laws on land leasing, high upfront costs to lease the land and the lack of trust on the foreign investment due to the economic slowdown in the country. In terms of intellectual property protection, Greenwood Resources can patent their materials in case someone tries to imitate it. Patenting of the materials will allow the company to claim a copy write claim if someone tries to steal the technology behind it. The company can lease the land for longer periods to reduce the cost of leasing as well as it can save a company for the future changes in the laws of leasing.

One major problem the company was facing was the lack of funds for the investment. The company can raise the funds in way to ask the people to donate for a good cause which are the efforts that will be done to tackle the deforestation in the country. Crowdfunding is a great way to collect funds for a startup company. The pros of crowdfunding are that it serves as a marketing tool, minimizes the risk of investment and it provides instant access to the capital (Prive, 2012). The company can also give the proper training to the Chinese workers in way that they can know the western procedure to work more efficiently and effectively. Another recommendation for the company to be successful in China is the good relations with the government and the tree plantation companies in the country. This will allow them to gain trust on them and can open new ways to invest in the region as well as the new policies and the taxes will be favorable to the company in some ways.