Guajilote Cooperativo Forestal, Honduras sample essay

Guajilote Cooperativo Forestal was a company based in Honduras, whose main operations revolved around handling of fallen mahogany trees in the local rural area, and selling them through the distributor to the wood-processing companies like furniture shops, etc. The company had exclusive right for such activity. It was situated in a rural province called Olancho in the buffer zone of La Muralla National Park.

When assessing the performance of the company, it is necessary to note the special features of the country where the business was operating. The level of economic growth, technological development, and average education of the labor force is very different in Honduras when compared to those in more developed countries. Honduras has a high level of poverty among rural population, and therefore most of the employees at the Cooperative were not sufficiently educated. Also, the level of technological development in Honduras at the time of company operations was significantly low. We can assume that from the fact that Guajilote had some major challenges with processing and transporting mahogany wood to cities. Besides, credit loans were not popular and accessible by most of the businesses at the time, so Guajilote was limited financially from expanding its operations and growth. The industry in which the company was operating was not very well developed. The studied company had the exclusive right for processing and selling fallen mahogany trees, while only one distributor was available for purchasing the wood from the company to wood processing companies in the cities including Tegucigalpa. The one distributor had monopolistic power over transporting Guajilote wood to shops and companies, and set low wood prices.

The management style of the leader was not democratic, but rather autocratic. The leader, Santos Munguia, did not delegate most of the work in the company. A very negative aspect of the company appears to be the insufficient education of the employees. Most of the workers employed at the company had the most basic education, while some were illiterate, which makes it impossible to effectively and efficiently manage the business. The fact that all financials were handled by the leader alone and no formal reports were issued made the business not transparent on both external and internal level.

There were several strengths in the performance of Guajilote. Firstly, the company had the exclusive permission for handling fallen mahogany trees. Therefore, there were no direct competitors in the area nearby which could compete with Guajilote in any way. Besides, there was a general conviction that it would not be a problem to extend the exclusive right of Guajilote after the current period expired. Secondly, the new top manager of the company had greatly improved operations of the company and the business was doing much better than before the manager joined the company. Lastly, the employees of the company were in general very loyal to the company. The main reason for this was that Guajilote offer a very good compensation for their work compared to other alternative employment options available in the local rural area nearby.

Guajilote’s weaknesses were as follows. Firstly, most of the employees working for the company had very low levels of education. The top manager himself had only primary school education. Many employees were illiterate, and all did not have sufficient knowledge of markets, business strategies and procedures, marketing, productions and operations management, etc. Secondly, the lack of transparency in finances led to distrust among employees and other companies, including their foreign partners. Employees did not know how fairly the leader was compensated for his work compared to their compensation, though they were concerned about this issue. Thirdly, the operation of Guajilote was limited by the amount of mahogany trees in the area, and that’s why the company could not easily expand. Lastly, the relationship of Guajilote and its only distributor was a weakness because the wood was under priced due to no alternative distributors in the area. The company could not transport the wood to the city with the use of its own resources and that’s why was dependent on the monopolistic distributor and lost reasonable amount of potential profit.

Opportunities were very limited for Guajilote. The opportunity of operations expansion was limited because of the lack of credit loans in the country, lack of qualified labor force, and other factors. However, a great opportunity of purchasing trucks for transportation could be available to Guajilote. If the company retained and reinvested the earnings into trucks, it could significantly increase net income by selling wood directly to wood processing companies in the cities, and not through the monopolistic distributor. This way wood would not be under priced and more earnings in the future could be reinvested in expansion of company operations.

One of the major threats the company could face was a threat of international or national ban on sale of mahogany wood. That would automatically put Guajilote out of business. Second main threat was the declining number of mahogany due to deforestation through fires, illegal, logging, etc. Also, in the area close to mahogany forests rural farmers were settling and tearing down trees for their own personal use.

The clear competitive advantage of Guajilote was the exclusive right to handle fallen mahogany trees and resell them for profit. This opportunity was unique for Guajilote and thus the company had no competitors in the area. If managed well, Guajilote could maximize its profits by taking advantage of the situation even better – by getting rid of the dependence on the monopolistic distributor. The competitive advantage of the company was enhanced by the fact that this unique right could be extended in the future when expired.

A value chain is a system of enterprises working together in a sequence to satisfy market demands for a particular product or service (Value Chain Partnership). Guajilote was operating in mahogany wood industry in Honduras, which had its specific value chain. Wood was produced from fallen trees in the forests of Olancho province of Honduras. Then it was sold to the sole distributor and taken to Tegucigalpa and major cities, and then sold to wood-processing companies like furniture shops, single carpenters, etc. Then the wooden products of mahogany were either sold directly to consumers, or moved further down the value chain to wholesalers, retailers, and to ultimate buyers in the market. As we have already found, the weak link in the value chain is the monopolistic distributor. If the value chain consisted of Guajilote producing wood and the following wood processing companies much unnecessary costs of Guajilote could be avoided.

A good value chain is meant to organize the link companies in a way to maximize customer satisfaction (Value Chain Partnership). It was important for Guajilote and other companies in the Honduran mahogany industry to organize the production, sale and distribution in such a way that would maximize product utility and minimize costs of the firm.

There were many alternatives open to Guajilote at the time of its operations in Honduran mahogany industry. Unfortunately, not many of these opportunities were known to the top management and employees of the company due to lack of business and management education among them. The following are some of the alternatives open to Guajilote. Firstly, the company should conduct a thorough situation analysis, both internal and external. Secondly, the company should input planning procedures in the operations, including such business activities as setting long-term objectives, planning possible investment projects, and setting up implementation plans, budgeting, and master scheduling for the future. All of these business practices should be learned from business sources and foreign partners. Thirdly, employees should be trained at some business activities and markets. Additional training of the employees would lead to higher level of employee knowledge and qualifications, and make task delegation possible more often.

Long-term objectives set by the firm should include such issues as possible investment in transportation equipment in order to make possible the transportation of wood directly to wood processing companies in cities. Also, the company should research other business opportunities available in the area where it operates. The mahogany industry is declining, and it is possible that very soon sale of mahogany wood can be banned. In other words, Guajilote Cooperativo Forestal needs to set up diversification strategies for diversifying its present business practices. This would eliminate the risk of going out of business in case of banning mahogany sales or significant reduction in sales in case of deep mahogany deforestation in rural areas of Honduras.

Guajilote was operating in a very risky and declining industry of mahogany wood production. In order to keep the competitive advantage the company had, it needed to implement planning procedures, set up diversification plans, and train the uneducated employees for increased qualification at work.

Bibliography

Value Chain Partnership. What is a Value Chain – Longer Definition. From Value Chain Partnership for Sustainable Agriculture. Web Site: http://www.valuechains.org/valuechain/definition.html

Wikipedia, Strategic Management. Web Site: http://en.wikipedia.org/wiki/Strategic_management
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