Question

A knotty problem

Nice Wood Products is a small but successful Pacific Coast firm that produces standard types and grades of lumber for the domestic construction industry. This includes 2x4s and 2x6s used in framing as well as plywood and particle board. With the financial setbacks caused by the sub-prime mortgage crisis, the construction industry has experienced a significant decline in housing starts. Fewer houses are being built and it is likely that for the immediate future, there is going to be a slowdown in the construction industry.

Nice Wood could ride out the storm. The slowdown is temporary and will likely last only a year or two, after which construction will probably revive. The company has an established client base and strong relationships throughout the industry, which would allow it to ramp up quickly once housing starts began to rise again. On the other hand, in the short term, this would mean that the company would experience some contraction, including some layoffs. The company is a close-knit operation and senior management values the skills and loyalty of its workers. It does not want to alienate that base through measures that would demoralize employees or undermine their commitment to the

Eastern promise

One strategy that the company had already been contemplating was to diversify its markets as a way of buffering itself against cyclical downturns in its domestic market. Specifically, a few years ago, irritated with the intransigence of its free trade partners regarding softwood lumber products, it had started looking at East Asia in general and China in particular, as a new target market.

At the time, it had sent over a scouting team made up of several senior managers to get a sense of the market and what it would take to penetrate it successfully. The scouting team reported that China was in the midst of an unprecedented economic expansion the likes of which had probably never been seen in history. The scale and pace of construction was breathtaking. However, there were two significant impediments that Nice Wood had to face. On the one hand, Chinese building standards were very different. Lumber grades and dimensions were unique to China and not compatible with those in the home market.

On the other hand, Chinese prices were extremely low by developed world standards. For lumber to compete in China, it had to be sold at prices that were far lower than those in the home market. At the time, these two objections seemed decisive and Nice Wood shelved any thoughts of expansion into the Chinese market. Now with a slowdown looming, the VP of business development dusted off the old report.

Technology to the rescue

Since the original scouting expedition, a few things had changed in the lumber industry. The introduction of new technologies had automated many of the processes associated with picking, cutting and curing wood. Equipment was now available to cut wood to a variety of standards and prepare it in a variety of ways for shipment and use. The

other part of the equation was that freshly harvested wood needed to dry out before cutting so that it would not bend or warp during the drying process. New types of kilns were available to accelerate this process. Finally there was the challenge of shipping. If the lumber could be dried, cut, bundled and then loaded on vessels automatically, this might reduce costs. That would make the lumber competitive in China. Certainly lading technology at the ports had evolved significantly with the advent of containerization. The real problem was the timing of the various steps in the process. The wood first had to sit around drying. Then it was cut. Then it was loaded into containers for chipping. Then it sat in the containers during transport. Somehow, the wood spent too much time “sitting around.” Was there a way of redesigning this process?

There was another challenge, however. The VP of business development recognized that Nice Wood had a relatively short window of opportunity to develop the Chinese opportunity. The mortgage crisis would not last forever and once it had passed, the other executives in the company would probably turn their attention back to domestic markets. Whatever was to be done had to be done quickly. The VP wondered what options were available to enable rapid penetration of the Chinese market.

Finally, there was the question of how to pay for all this. New technology cost money, as did retraining workers in its use. Given the current slowdown, securing additional funding, even from familiar and reliable bankers, could prove to be a problem.

The VP of business development was convinced that the adoption of new technology in new ways could create an opportunity in China. Certainly the idea of riding out the current slowdown by developing new outlets had considerable appeal. Over the longer term, opening up China would guarantee Nice Wood customers with virtually unlimited demand for its products and without the irritations of local protectionism.

The first step was to put together a business case for having another look at the Chinese market. The case would depend on two critical factors: preparing wood to Chinese standards and cutting costs to make the wood competitive in Chinese markets.

The VP has turned to you for advice in developing his case. Specifically, he wants you to set out the kinds of questions that the case should address, as well as some ideas about the methodology to be used in developing answers to those questions.

Case Study Discussion Questions

1. Develop a table of contents for the business case. What issues does it need to address?

2. How can Nice Wood develop the information to answer the questions in the business case?

3. What are the key considerations regarding technology? How can these be resolved?

4. What strategies are available to Nice Wood to accelerate the process?

5. How can the venture be financed?

6. What are the risks involved in the venture and how can they be managed?

Answer 1

Answer:- Table Content for The Business Case-Issues to Be Addressed:

S.no	Issues to Be Addressed by Nice Wood
1	Sub-prime mortgage crisis which is faced by company and which is resulting in significant declining of house start.
2	Due to crisis company may have to go through contraction or layoffs. But here company don’t want to demoralize their employees.
3	As company has plans to develop market in China there are two issues-(a) Building standards in China were different and lumber grade and dimensions were unique and not compatible as home market. (b) China prices were very low as compared to developed by world standards.
4	Technology in China has been updated and all process have been automated as Nice wood have done research earlier and in between this time technology is upgraded.
5	As the travel time was more and within this travel time wood sets so it was setting for more time than required here was issue to redesign the process.
6	Nice wood has very less time to develop opportunity in China because they will be again focusing on home market once the crisis is over. So how to penetrate into Chinese market rapidly was also a major challenge.
7	Lastly finance for new technology, retraining workers and securing additional funds all were issues faced by Nice Wood.
8	To adopt new standards as Chinese Market and reduce cost to give competitive age to Chinese market were also major issues.

Answer:- Nice Wood Can Develop the Information by The Following Ways In Order To Answer The Questions Arose In Business Case-

1. As the mortgage crisis was going in home market was the wrong time for expansion because opening any new venture that too internationally require huge amount of investment.
2. If venture has to be started internationally market survey and research is required which give the information of the requirement of the product standard and the culture of business.
3. As the report with Nice Wood of Chinese Market was not updated there has been many update in their business ways. So in order to understand market requirement new fresh market research was required which can give detailed information.
4. As using technology cost was reduced which can give competitive edge in Chinese Market but here the “Sitting around time” increased. It is a process chain to get a particular product and it can only be reduced if more hi-tech is used or more number or technology is used so that outcome is more. Redesigning the process may again increases the cost will be an issue.
5. Finance is another major issue for technology, training and additional security funds as the company is going to major crisis which will be for very less time like year or two in but these all additional expenses will increase. Further as the Chinese market will be new they have different standards and lower price then home market. Initially in starting any venture you don’t start getting profit it starts with loss than no profit no loss and then profit which takes years to set in new market place till the time company will set steps in Chinese Market it will be time to focus on home market. As the company had good reputation in home market they can go for loans as they will rise in home market once the crisis is over.

Answer:- Following Are the Key Considerations Regarding Technology-

1. Technology has been updated and had made process easy and automated which will reduce cost.
2. During the process using automated technology the sitting around time is increased which can be solved with using more updated technology (which will increase cost) or employing more skilled worker which can do possible work manually and faster so the time spent in sitting around will be less.
3. Chinese port is coming up with the containerization at the ports which is again new part of technology so getting used to it will take time, training employees to work there will increase cost. Again it is going to reduce cost afterwards to give competitive edge to Chinese Market.
4. Lastly funding for technology and business in new market was major issue which can be solved from taking loans as company has good reputation in home market they can cover up once the crisis will be over.

  

Answer:-

The best solution to all the problem in the business case and to overcome temporary crisis in home market is they can have merger with some Chinese wood product company so Nice wood don’t have to invest much in technology and other expenses while they can learn more about Chinese market and standards.

And this will help them to generate revenue with less investment.