Purus Wood Products: Developing a Competitive Edge Purus Wood Products (PWP) is a small but successful Brazilian firm th
Posted: Sat Feb 19, 2022 2:43 pm
Purus Wood Products: Developing a Competitive
Edge
Purus Wood Products (PWP) is a small but successful Brazilian
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 Brazil into the second
year of an economic recession, the
construction industry has experienced a significant decline in
housing starts. Fewer houses are being
built and there is likely going to be a slowdown in the
construction industry for the immediate future.
Purus Wood Products could wait out the slowdown. It is projected to
be temporary and will likely last
only a year or two, after which construction will likely rebound.
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, 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 its base
through measures that would demoralize employees or undermine their
commitment to the company.
Eastern Promise
The company had already been contemplating diversifying its markets
as a way of buffering itself
against cyclical downturns in its domestic market. A few years ago,
irritated with the intransigence of
some trading partners, it had started looking at expanding in
eastern Asia in general, and Korea in
particular, as a growth market.
At the time, it 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 Korea was
poised for renewed economic expansion as it rebounded from the
global financial meltdown of 2008
and its aftereffects. The projected scale and pace of construction
and the need for increased lumber
imports were impressive, yet there were two significant impediments
facing PWP. First, Korean
building standards were very different. Lumber grades and
dimensions were unique to Korea and not
compatible with those in PWP’s home market. Second, Korean prices
were highly competitive. For
PWP to compete in Korea, it would have to sell lumber at prices
that were far lower than those in
Brazil.
At the time, these two objections seemed decisive and PWP
shelved any thoughts of expansion into
the Korean market. Now with a slowdown looming, the VP of business
development was taking a
close second look at the opportunity.
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. Additionally,
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 now 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 PWP’s pricing competitive in Korea. While
lading technology at the ports had
evolved significantly with the prevalence of containerization, the
real problem was the timing of the
various steps in the process. The wood first had to dry. Then it
was cut. Then it was loaded into
containers for shipping. It then sat in the containers during
transport. The obvious issue was that the
wood spent too much time “sitting around”, prompting PWP to
consider how to redesign the process.
There was another challenge, however. The VP of business
development recognized that PWP had a
relatively short window of opportunity to develop the Korean
opportunity. The domestic recession
would not last forever; 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 Korean market.
Finally, there was the question of how to pay for all this. New
technology costs 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 Korea that could have positive
spin-off effects for other markets,
including domestic ones. The notion of navigating the current
slowdown by developing new outlets
had considerable appeal. Over the long term, the expansion in Korea
would guarantee PWP virtually
unlimited demand for its products, without the irritations of local
protectionism.
The first step was to put together a business case for having
another look at the Korean market. The
case would depend on two critical factors: preparing wood to Korean
standards and cutting costs to
make the pricing competitive in Korean 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 Questions
1. Develop a table of contents for the business case. What
issues does it need to address?
(3 Marks)
-How can PWP develop the information to answer the questions in the
business case?
(3 Marks)
- What are the key considerations regarding technology? How can
these be resolved? (3 Marks)
-What strategies are available to PWP to accelerate the process? (3
Marks)
-How can the venture be financed? (1.5 Marks)
-What are the risks involved in the venture and how can they be
managed? (1.5 Marks)
Although based on the research of actual events, organizations,
and/or individuals, this case study
is fictional and is intended to support learning. Cases are not
intended to serve as endorsements,
sources of primary data, or illustrations of effective or
ineffective management.
Edge
Purus Wood Products (PWP) is a small but successful Brazilian
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 Brazil into the second
year of an economic recession, the
construction industry has experienced a significant decline in
housing starts. Fewer houses are being
built and there is likely going to be a slowdown in the
construction industry for the immediate future.
Purus Wood Products could wait out the slowdown. It is projected to
be temporary and will likely last
only a year or two, after which construction will likely rebound.
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, 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 its base
through measures that would demoralize employees or undermine their
commitment to the company.
Eastern Promise
The company had already been contemplating diversifying its markets
as a way of buffering itself
against cyclical downturns in its domestic market. A few years ago,
irritated with the intransigence of
some trading partners, it had started looking at expanding in
eastern Asia in general, and Korea in
particular, as a growth market.
At the time, it 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 Korea was
poised for renewed economic expansion as it rebounded from the
global financial meltdown of 2008
and its aftereffects. The projected scale and pace of construction
and the need for increased lumber
imports were impressive, yet there were two significant impediments
facing PWP. First, Korean
building standards were very different. Lumber grades and
dimensions were unique to Korea and not
compatible with those in PWP’s home market. Second, Korean prices
were highly competitive. For
PWP to compete in Korea, it would have to sell lumber at prices
that were far lower than those in
Brazil.
At the time, these two objections seemed decisive and PWP
shelved any thoughts of expansion into
the Korean market. Now with a slowdown looming, the VP of business
development was taking a
close second look at the opportunity.
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. Additionally,
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 now 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 PWP’s pricing competitive in Korea. While
lading technology at the ports had
evolved significantly with the prevalence of containerization, the
real problem was the timing of the
various steps in the process. The wood first had to dry. Then it
was cut. Then it was loaded into
containers for shipping. It then sat in the containers during
transport. The obvious issue was that the
wood spent too much time “sitting around”, prompting PWP to
consider how to redesign the process.
There was another challenge, however. The VP of business
development recognized that PWP had a
relatively short window of opportunity to develop the Korean
opportunity. The domestic recession
would not last forever; 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 Korean market.
Finally, there was the question of how to pay for all this. New
technology costs 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 Korea that could have positive
spin-off effects for other markets,
including domestic ones. The notion of navigating the current
slowdown by developing new outlets
had considerable appeal. Over the long term, the expansion in Korea
would guarantee PWP virtually
unlimited demand for its products, without the irritations of local
protectionism.
The first step was to put together a business case for having
another look at the Korean market. The
case would depend on two critical factors: preparing wood to Korean
standards and cutting costs to
make the pricing competitive in Korean 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 Questions
1. Develop a table of contents for the business case. What
issues does it need to address?
(3 Marks)
-How can PWP develop the information to answer the questions in the
business case?
(3 Marks)
- What are the key considerations regarding technology? How can
these be resolved? (3 Marks)
-What strategies are available to PWP to accelerate the process? (3
Marks)
-How can the venture be financed? (1.5 Marks)
-What are the risks involved in the venture and how can they be
managed? (1.5 Marks)
Although based on the research of actual events, organizations,
and/or individuals, this case study
is fictional and is intended to support learning. Cases are not
intended to serve as endorsements,
sources of primary data, or illustrations of effective or
ineffective management.