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1. What is your impression of Guajilote as a business venture?
This venture has been able to improve the income and quality of life of the members of the organization as narrated in the case. The members were earning 1500 annually but now they are earning this amount per month.
Another good point is that it has been able to raise the product prices partially.
There are concerns about the following: It has not been able to move up the value chain, in that it can not easily transport the product to the other places to fetch the better prices.
It has not been able to make its own furniture and export in the global market. The Co-op has limited managerial capacity and its members have limited education.
Overall I think it has been a successful business venture. However, to remain viable and profitable Guajilote must be able to change.
2. Conduct a SWOT Analysis of Guajilote.
Situational Analysis
Strengths
• Networking
The leader has good networking abilities and enough political influence to get the work done for the organization.
• Monopoly
The Coop has the sole rights for mahogany given by the government. Being the only authorized business in the country. Guajilote is the only organization that is given the legal right to exploit natural mahogany trees in Honduras. The cooperative simply has no competitors in the domestic market. COHDEFOR’s permit renewal will be granted automatically as long as the business restricts itself to downed mahogany.
• Community Loyalty
The members have a good relationship and are loyal to the Coop leader
• Financial Position
The financial position of Coop members has improved considerably.
• Mahogany wood sources are decreasing in the world
The amount of mahogany wood is limited in the world. This may lead to many threats like bans. However at the same time this is a great advantage for the cooperation in the domestic and international markets. There is a high probability that Guajilote will have more customers and take more orders in the future.
• Strong leadership
Munguia established a strong leadership in the organization and has the capability to decide quickly during critical times. He has negotiations skills and he seems to have a good understanding of politics.
Weakness
• Lack of transportation and distributors
Guajilote has no way to transport its wood to the market and the business is unable to secure the capital needed to buy its own truck due to difficulties in getting credit. Thus it is forced accept low prices for its wood from the only local distributorGuhas not been able to move up the value chain, like it can itself transport the product to the other places to fetch the better prices.
• It has not been able to make finished furniture products and export them in the global market.
• No or very little capital expenditures
Guajilote doesn’t invest enough in capital expenditures. A very small percentage of the funds are held back for capital improvement purchases due to the operation’s simple material needs. For example the only capital expenditures for 1997 included a mule plus materials needed to maintain Guajilote’s large cross-cut saws. Inadequate funding limits the growth potential of the business.
• Limited managerial talent
It has limited managerial capacity and its members have limited education.
• Too dependent on the leader
The leader takes all the major decisions and there is hardly any delegation of responsibility.
• Guajilote has limited resources to purchase their own trucks to transport mahogany to other towns.
• Supply to single distributor
They have a single distributor which leads to less revenue realization.
Opportunities
• Skipping the distributor
Guajilote may borrow long term loans from its customers who consider the company as a profitable business venture, purchase trucks and hire drivers to transport the wood over the mountains. These customers would also benefit from this since they will be able to eliminate the distributor and buy the wood at a cheaper price.
• Selling high quality mahogany furniture
Guajilote may locally hire skilled carpenters or furniture makers on a contract basis for the organization to produce high quality furniture and attract the potential customers.
• Demographics favor the products
There is lot of demand and there will be increase in value for the product.
• International markets are unexplored
• Huge international demand for furniture products can fetch better revenues.
• Furniture making skills are locally available
Threats
• Deforestation
There is a threat of deforestation through fires, illegal logging, slash and burn agriculture. Mahogany and tropical deciduous forests are not fire resistant and fires destroy their seeds as well as killing them. . If the total number of mahogany trees continued to decline, trade in its wood could be restricted internationally.
• Political instability
Honduran politics has a mercurial nature and nothing guarantees that the organization’s grant will continue in the future.
• Migration
Many Hondurans are migrating to the Olancho province, clearing the forests for cultivation, cutting the wood for fuel and for use in building their homes. Guajilote should request the government to take action to limit this migration before the whole area is occupied by these peasant farmers.
• Management
Currently many of the members believe that Guajilote is better off with Munguia. However the organization e does not operate in a democratic fashion. Munguia makes all of the decisions by himself and ignore other cooperative member’s opinions. Besides, his
cousin handles all of the organization’s financial matters. These unfair practices may lead to disagreements among the cooperate members and create problems.
• Government regulations
This can have the prime influence as until now it has given sole rights for harvesting mahogany to Guajilote, but in future it may change.
• Foreign trade hindrances due to the scarcity or protection of mahogany
• Lack of transportation
• Legally restricted to harvesting only already downed trees
• Steep terrain which contributes to the transportation problem
• Potential restriction by CITES.
3. Does Guajilote have a competitive advantage and/or a competitive strategy?
Justify your answer.
Guajilote is almost like a monopoly in its industry since the cooperation is the only organization given the right to exploit naturally fallen mahogany trees in La Muralla’s buffer zone and the only venture in Honduras with this right. This is a great competitive advantage because within ten-year period (the length of COHDEFOR’s permit that is granted to Guajilote) it’s impossible to find mahogany other then illegal practices. However, the cooperation cannot be able to use its competitive advantage at full levels because it doesn’t have much control over the distribution of its products. Thus most of the profits of the overall operations are flowing to distributors like Suazo.
Guajilote is planning to increase its competitive advantage by eliminating the distributors and selling its wood to Honduras’ major market centers. This can be assumed as a competitive strategy.
4. Describe the components of the value chain in the production and sale of mahogany in Honduras.
The first component of the value chain is the skill level of the carpenters that process the mahogany wood. Another important component in the value chain is the constraints that limit the amount of mahogany wood (e.g. fires, illegal logging, and restriction to downed mahogany). Guajilote does very little to add value to its product because the cooperation has no highly skilled carpenters or furniture makers in its membership. However due to the continuing depletion of mahogany trees around the world, the remaining wood continuously increase in value over time. Thus we can consider scarcity as a natural value driver. The third component is the ease of distribution. Transportation expenses have an important effect on the price of mahogany in the market.
5. What strategic alternatives are open to Guajilote? Explain and justify your answer.
The cooperative is planning to sell high quality mahogany furniture to specialty shops and chains throughout the world. The cooperation can use the environmentally friendly characteristics of its products as a competitive advantage in the international markets.
Guajilote can be able to make and market furniture very profitably even if it has to go through an exporter to find suitable markets
However the cooperation needs to overcome problems with transportation and upgrade its administrative competence in order to better deal with the financial, marketing and advertising issues. Guajilote has to purchase trucks, hire drivers to transport the wood over treacherous mountain roads and make contracts with highly skilled carpenters or furniture makers in other towns. The cooperation also has to avoid the establishment of new settlements in the area’s best mahogany growing habitats and illegal logging in order to protect its sources.
References:
Wheelen, T. J., & Hunger, J. D. (Eds.). (2006). Strategic Management and
Business Policy (10th ed.). Upper SAddle River, New Jersey: Pearson Inc