MID TERM EXAMINATION

Managing Corporate Strategy & Risks

Amira Jawhara Hasibuan

MM Management

Batch X

21810001009
I. Executive summary

Guajilote Cooperativo Forestal is a part of USAID (United States Agency for

International Development) project based in Honduras who has the permit to
utilize the naturally fallen mahogany trees in the local rural area and selling them
through distributor for wood based product. 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. However, their future is in danger and Guajilote is
facing with decisions to ensure the survival of the cooperative. In order to ensure
their survival the cooperative needs to analyse their external and internal
condition, implement better strategy, establish plans for improvements, and train
the uneducated employees to increase quality of work.

II. Introduction

1. Company brief information

In 1991, Guajilote was founded by USAID (United States Agency for International
Development) to develop La Muralla National Park as an administrative and
socioeconomic model. Guajilote was given the exclusive right to exploit naturally
fallen mahogany trees in La Muralla’s buffer zone by COHDEFOR (the Honduran
forestry development service)

In 1994 Munguia had joined the cooperative, and become the leader of
Guajilote one year later. A young man, energetic and intelligent and had proven
to be a very skilful politician. He quickly became its de facto leader when he
renegotiated a better price for the sale of the cooperative’s wood.

In 1998 the number of out-of-control forest fires had been far greater than
normal. The amount of mahogany wood was limited and was increasingly being
threatened by forest fires, illegal logging, and slash-and- burn agriculture.
2. Problem identification : Financial and non-financial analysis

Based on nonformal public financial records Guajilote’s revenues were

approximately 288,000 lempiras (US$22,153) in 1997. Guajilote processed
around 36,000 feet of wood. Each of Guajilote’s 16 members was paid an average
of about 1,500 lempiras (US$113) per month. Unfortunately there is no financial
record in year 1996 and 1998. Based on the financial records in 1997, all revenues
are paid for the 16 members. They have very little money for capital expenditure
due to the operation’s simple material needs.

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.

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, Juan 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.

The amount of mahogany wood was limited and was increasingly being
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.
3. Current strategic posture: Mission, Objective, Strategy

Vision

new movement among international donor agencies promoting sustain- able

economic development of developing countries’ natural resources.

Mission

develop La Muralla National Park as an administrative and socioeconomic model

that COHDEFOR (the Honduran forestry development service) could transfer to
Honduras’ other national park

Objective

The Guajilote Cooperativo Forestal was given the right to exploit naturally fallen
(not chopped down) mahogany trees in La Muralla’s buffer zone and improve
economic growth of the members

Strategy

In the operation, Gujilote used very simple technologies. Hand-sawmill and cross-
cut saw are the tools to cut and disassemble the tree into various components,
and mules for the transportation. 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.
III. Case Analysis

1. Environmental scanning

1.1 EFAS

Table 1. EFAS of Guajilote Cooperativo Forestal Case

EFAS (External Factors Analysis Summary) is one way to organize the external
factors into the generally accepted categories of opportunities and threats, as well
as to analyse how well a particular company’s management (rating) is responding
to these specific factors in light of the perceived importance (weight) of these
factors to the company. (Wheelen and team, 2018)

The total weighted score indicates how well a particular company is responding to
current and expected factors in its external environment. The total weighted score
for an average firm in an industry is always 3.0. Guajilote EFAS weighted score is
4.10, which means that the cooperative is above average and responding well to
the external environment factors.

The case of Guajilote Cooperativo Forestal has several opportunity and threat,
which the company is aware of. Table 1 shows the summary of both opportunity
and threat
Opportunity

There are 5 opportunities identified in the case as follow:

1. No local competition

Guajilote was the only venture who has the permit to utilize the naturally fallen
mahogany trees in La Muralla’s buffer zone, which means Guajilote do not
have local competition in Honduran area. This gives Guajilote an opportunity
to attract major demand without competition.

2. Revenue growth due to valuable mahogany trees

Guajlote has the opportunity to growth the cooperative revenue, as mahogany

is a rare tree to find. The continuing depletion of mahogany trees around the
world meant that the remaining wood should increase in value over time. The
more the value increase, the more the price of mahogany wood will increase
too.

3. Partnership with specialty shops

Guajilote has the possibility to work together with some specialty shops and
catalogues throughout the world, who might be interested in selling high-quality
mahogany furniture that were produced in an environmentally friendly manner.

4. Business opportunity through export

Guajilote might be able to make and market furniture very profitably even if it
had to go through an exporter to find suitable markets. Guajilote might be able
to more than treble its revenues

5. Strong marketing stories

As Guajilote only processing the naturally fallen tree and brought improvement
in its members’ quality of life, this would make an interesting stories about the
environmental and social care.
Threat

There are 5 main threats identified in the case as below:

1. Limit amount of wood due to deforestation

A serious concern was the threat of deforestation through fires, illegal logging,
and slash-and-burn agriculture. Mahogany forests are not fire-resistant, it will
not only kill adult and young mahogany trees, but they also destroy their seeds.
Mahogany could therefore be quickly eliminated from a site.

2. Limit access to credit loan

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

3. Single distributor with unfair payment

There is no other distributors who were available in the remote location. The
sole distributor was taking advantage of the cooperative, and do not paid as
agreed when the demand was high.

4. Unstable Honduran Politic situation

The unstable of Honduran politic might affect the permit of utilization the
naturally fallen mahogany trees which was given by the COHDEFOR

5. Potential restriction by CITIES

There is a 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 12
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.
1.2 IFAS

Table 2. IFAS of Guajilote Cooperativo Forestal Case

IFAS (Internal Factor Analysis Summary) is one way to organize the internal
factors into the generally accepted categories of strengths and weaknesses as
well as to examine how well a particular company’s management is responding to
these specific factors in light of the perceived importance of these factors to the
company. (Wheelen and team, 2018)

The total weighted score indicates how well a particular company is responding to
current and expected factors in its internal environment. The total weighted score
for an average firm in an industry is always 3.0. Based on the table 2, Guajilote
IFAS weighted score is 3.99, which means that the cooperative is above average
and responding well to the internal environment factors.

Guajilote Cooperativo Forestal has several strengths and weaknesses. Table 2

shows the summary of both strengths and weaknesses.
Strengths

There are 5 strengths identified in the case as follow:

1. Strong leader with political and social power

Munguia’s leadership has been of key importance to Guajilote’s maturing as both

a work group and as a business. Munguia was viewed by many in the area as an
ascending caudillo (revered, feared, and hated at the same time ) because of his
leadership of Guajilote.

2. Economic growth of the members

Guajilote’s existence has had an important impact on its members. The

cooperative helps the members improve their economic situation, enough to eat
and are able to pay the schools of their children.

3. Personal bonds between cooperative members

Due to the improvement of its members’ quality of life, it appeared that the
members have strengthened personal bonds with each other.

4. Sustainable process

From the beginning Guajilote was established as a cooperative who focus on

sustainable process by having the right to exploit naturally fallen (not chopped
down) mahogany trees in La Muralla’s buffer zone. This way, the process is
environmental friendly without harming the trees

5. Low Cost Production

As the operations is using simple technology, the cost of production remains low.
Guajilote only needs a Hand-sawmill and a cross-cut saw for cutting and
disassemble the tree into various components, and mules for the cutting tree
transportation
Weaknesses

There are 5 weaknesses identified in the case as below:

1. Lack of transportation

Guajilote has a lack of transportation. They carried out the trees of the forest using
a combination of mule and human power or floated down a stream or river. The
cooperative had been unable to secure the capital needed to buy its own truck.

2. Low education of the members

None of Guajilote’s members had any education beyond primary school. Many of
the members had no schooling at all and were illiterate

3. No highly skilled carpenters/furniture makers

Guajilote, unfortunately, had no highly skilled carpenters or furniture makers in its

membership

4. Low administrative competence

As a whole, the group knew little about markets or business practices. Guajilote
would need to utilize the talents of its members more if it were to widen its
operational scope

5. Nonstandard organizational structure

Guajilote did not operate in a democratic fashion. Munguia made all the decisions,
and sometimes with input from his second in command and nephew, Miguel Flores
Munguia who handled all of Guajilote’s financial matters.
2. SFAS: Strategic Factors Analysis Summary

Table 3. SFAS of Guajilote Cooperativo Forestal Case

The SFAS (Strategic Factors Analysis Summary) Matrix summarizes an

organization’s strategic factors by combining the external factors from the EFAS
Table with the internal factors from the IFAS Table. The highest-weighted EFAS
and IFAS factors should appear in the SFAS Matrix. The resulting SFAS Matrix is
a listing of the firm’s external and internal strategic factors in one table. The SFAS
Matrix includes only the most important factors gathered from environmental
scanning, and thus provides information that is essential for strategy formulation.

The SFAS in table 3 concludes the EFAS and IFAS most important and highest
weighted factors in Guajilote case, which will support the next step of the
strategies implementation. In addition, the SFAS table also support the length of
time that the cooperative need for implementing the strategies, which divided into
short, intermediate and long term strategies.
IV. Discussion of alternative strategy :

1. Revision to Mission, vision, Objective

In order to survive, Guajilote needs to improve the strategies and revised the
vision, mission, and objective. The suitable revised will be as follow:

Revised Vision
With passion, Guajilote provide sustainable wood for the world’s growing demand.
The solutions from Guajilote improve people’s quality of life, have a positive impact
on the environment and safeguard the business success.

Revised Mission
Inspired by the needs of the world, Guajilote strives to maintain the delicate
balance of People, Planet, and Profit. Guajilote promote social wellbeing and
positive change. The guiding light to our business practices is our goal to positively
impact people’s life and to preserve a world worth living in.

Revised Objective

Guajilote sustainability policy defines various fields of action for the commitment
and contribution to the sustainable development goals:

1. Responsible consumption and production, is supported and monitored by

COHDEFOR

2. Life on land: Guajilote commitment is demonstrated by sourcing wood from

naturally fallen mahogany trees. Guajilote actively contributes to the protection
and preservation of forests.

4. Partnering for the goals: Guajilote is proactive in forging partnerships with

international stakeholders, such as innovative companies, suppliers, and NGOs,
to explore and encourage sustainable business models in the furniture industry.
2. Corporate strategy : Grand Strategy Matrix, Portfolio Analysis

2.1. Grand Strategy

Table 4. Grand Strategy Matrix

Based on table 4, The Grand Strategy Matrix of Guajilote has a rapid market
growth and a strong competitive position, as people are aware of the valuable
mahogany wood using sustainable process manner.

Growth Strategy

To expand the business, Guajilote needs to use the growth strategy. Continuing
growth means increasing in sales and pricing, thereby increasing the revenue of
the cooperative.

Concentration

The utilization of mahogany is a growth potential business, which needs to be

concentrated by the cooperative due to the rare trees and valuable raw materials
for the furniture manufacturers. By using the vertical growth, Guajilote will
distribute the raw material directly to the market in order to increase profit, and to
have a direct access with potential customers.
2.2 Portfolio Analysis

Table 5. BCG Matrix

The BCG (Boston Consulting Group) Growth-Share Matrix is the simplest way to
portray a corporation’s portfolio of investments. Each of the corporation’s product
lines or business units is plotted on the matrix according to both the growth rate
of the industry in which it competes and its relative market share. Based on the 5,
we can conclude that the position of Guajilote is in Question marks, which has a
low market share but a high market growth.

Question marks are products with the potential for success, but needing a lot of
cash for development. This is a decision in which the cooperative members must
decide if the business is worth the investment needed. Gujilote has a potential of
a high market growth, but it needs to upgrade the members knowledge,
technology and the logistic sides. All those upgrades need investment to be
succeed in widen the business.
3. Business strategy

Business strategy focuses on improving the competitive position of a company’s

or business products or services within the specific industry or market segment
that the company or business unit serves. Business strategy is extremely
important as it has the impact on overall company performance.

Competitive

Competitive business strategy means battling against all competitors for

advantage. Gujilote is the only vendor with the permit to use naturally fallen
mahogany tree in La Muralla buffer zone. It has no local competitor, and it is an
advantage to expand and battle against other raw material supplier outside areas.

Differentiation

Differentiation is the ability of a company to provide unique and superior value to

the buyer. Differentiation is aimed at the broad mass market and involves the
creation of a product or service that is perceived throughout its industry. The
company or business unit may then charge a premium. Differentiation is a viable
strategy for earning above-average returns in a specific business because the
resulting of the increased value. Increased costs can usually be passed on to the
buyers. Buyer loyalty also serves as an entry barrier; new firms must develop their
own distinctive competence to differentiate their products or services in some way
in order to compete successfully. Research does suggest that a differentiation
strategy is more likely to generate higher profits than does a lower-cost strategy
because differentiation creates a better entry barrier.

Guajilote needs to focus on their differentiation process by only utilising naturally

fallen tree, which gives value to the customers, and has a positive impact for the
planet, without intentionally doing a deforestation. By maintaining the delicate
balance of People, Planet, and Profit, the customers are willing to buy the raw
material in a higher price.
4. Functional strategy : TOWS Matrix

Table 5. TOWS Matrix

4.1 TOWS Matrix

TOWS Matric illustrates how external opportunities and threats facing a particular
company can be matched with that company’s internal strengths and weaknesses
to result in four sets of strategic alternatives. Based on the table 5, the TOWS
Matrix of Guajilote has define four sets of strategic alternatives, detail as follow:

1. Maxi-Maxi Strategy
Looking into the strengths and opportunities Gujilote has, the appropriate strategy
will be developing the business opportunity through strong marketing stories about
sustainable process and socioeconomic growth to receive higher revenue.

2. Maxi-Mini Strategy
The single distributor and the limit amount of wood are threats for the cooperative.
Therefore, the suitable strategy will be looking for new partnership/distributor and
constantly monitor the forest area
3. Mini-Maxi Strategy
To improve the weakness of Gujilote, the most appropriate strategy will be
providing trainings for members to upgrade the skills for administration process
and to open the opportunity for expanding business

4. Mini-Mini Strategy
To conquer the weakness and threat of Guajilote, the most suitable strategy for
survival and expanding the business is looking for credit loan with the support from
COHDEFOR and USAID to invest in transportation. There is also a possibility to
have an investment also from international customers, who are focused on
sustainable production.

4.2. Functional strategy

Functional Strategy is the approach a functional area takes to achieve corporate
and business unit objectives and strategies by maximizing resource productivity.
It is concerned with developing and nurturing a distinctive competence to provide
a company or business unit with a competitive advantage. Just as a multidivisional
corporation has several business units, each with its own business strategy, each
business unit has its own set of departments, each with its own functional strategy.

Gujilote needs to think how to divide the 16 members into departments, so all the
members have their own task and responsibilities to achieve the cooperative goal.

Marketing Strategy

Marketing strategy deals with pricing, selling, and distributing a product. Using a
market development strategy, a company or business unit can capture a larger
share of an existing market for current products through market saturation and
market penetration or develop new uses and/or markets for current products.

By knowing the market, Guajilote will easier to identify the targeted customers. By
giving an interesting marketing stories to press about sustainable and
socioeconomic growth, these seems to targeting the higher market, who are willing
to pay in a premium price due to the value of the raw material process.
Financial Strategy

Financial Strategy examines the financial implications of corporate and business-

level strategic options and identifies the best financial course of action. It can also
provide competitive advantage through a lower cost of funds and a flexible ability
to raise capital to support a business strategy. Financial strategy usually attempts
to maximize the financial value of a firm.

Based on the situation of Guajilote, to expanding the business, they need to look
for loan credits or looking for investors. With this situation, the finance team needs
to arrange on how to get credit loans and paying the instalment, or looking for
investors who sees the bigger pictures of the cooperative business growth.

R&D Strategy

Research and Development strategy deals with product and process innovation
and improvement. It also deals with the appropriate mix of different types of R&D
(basic, product, or process) and with the question of how new technology should
be accessed—through internal development, external acquisition, or strategic
alliances.

On the case of Guajilote, the members have the opportunity to explore the wood
application not only for furniture, but also for textile and nonwoven industries. In
this way, the market will expand more. The first thing to do is to received
certification from international audit, such as FSC. This will strengthen the value
of sustainability.

Operations Strategy

Operation Strategy determines how and where a product or service is to be

manufactured, the level of vertical integration in the production process, the
deployment of physical resources, and relationships with suppliers. It should also
deal with the optimum level of technology the firm should use in its operations
processes.
Gujilote operations need to be improved for time efficiency. Instead of using simple
Hand-sawmill and cross-cut saw, Gujilote needs to invest on more advance
technology such as petrol chain saw or cutting tree machines. Gujilote also needs
to be aware of the safety of the members, which means it needs to provide safety
tools for the operations.

Logistics Strategy

Logistic Strategy deals with the flow of products into and out of the manufacturing
process. To gain logistical synergies across business units, corporations began
centralizing logistics in the headquarters group. This centralized logistics group
usually contains specialists with expertise in different transportation modes such
as rail or trucking. They work to aggregate shipping volumes across the entire
corporation to gain better contracts with shippers.

The case of Guajilote on the logistic side is to upgrade its transportation. Instead
of using mules, Guajilote needs to invest in trucks to unload the woods. The
advantage of having an own truck is that they will have the opportunity to transport
the wood directly to the major market without needing the support of a distributor.
In this case, Gujilote also needs to have their own drivers who understand the
roads situations from the forest to the major markets.

HRM Strategy

Human Resource Management Strategy addresses issues that range from

whether a company or business unit should hire employee to giving trainings and
development of the staff in a company.

To expand the business, Gualito needs to improved and upgrade the knowledge
of its members. All the members who will be divided into functions needs to have
a basic training to focus on their future task. The members need to understand
about management and business process so that they can support each other to
grow the business which will result to the improvement of their quality life.
V. Conclusion and recommendation

Guajilote is a unique cooperative with 16 members. It has a big potential business

growth in the future. The value they provide in the raw material makes the market
aware of the importance in keeping the three dimensional important in life which
is “people, planet and profit”.

Although Guajilote has a potential to grow the business, it still need to improved
their internal factors. The members need to be educated about business
administrative and basic management. The operations have to change from
simple technology to more advance technology. The transportation has to be
changed from conventional to trucking transportation. All these will need an
investment or loan, but it will be worth to fight for the survival of the business.

In addition, Guajilote needs to manage the external factors. Without the distributor,
Guajilote have the chance to increase their price by selling the woods directly to
the major market. Guajilote also needs to support the government by monitoring
the trees of mahogany. This is to prevent the deforestation from irresponsible
people in the forest.

By having a good connection with Press and NGO, the stories of Guajilote
business process will be known by business players and consumers which will
support them to be well known as “the precious sustainable and socioeconomic
mahogany wood supplier” in Honduras