A Triple Bottom Line Showdown: Analyzing LUXI and Dongji Projects and

GreenWood's Ultimate Choice

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 A Triple Bottom Line Showdown: Analyzing LUXI and Dongji Projects and

GreenWood's Ultimate Choice

Introduction

GreenWood Resources is a global sustainable venture that develops and manages sustainably

harvested timber plantations. The company's goal is to create a sustainable and renewable

source of timber for the global market while promoting sustainable land management

practices that support biodiversity and local communities. Although the company is based in

the United States, it aimed to expand its customer base and assets through expanding

toseveral countries, including China. GreenWood would partner with an indigenous project

so as to enables it cope well with the new environment, and to enable it source raw materials.

Although China has over 50 afforestation projects, it still suffers a serious shortage of timber,

presenting a good market opportunity for GreenWood.

Through leveraging its decision making skills, GreenWood had a huge opportunity to select

the most viable project to partner with in China. GreenWood should use the triple bottom line

model to decide the most viable business partner. The triple bottom line theory is an

accounting framework that emphasizes the importance of considering three dimensions of

organizational performance: social, environmental, and financial. The social dimension

considers an organization's impact on people, including its employees, customers, and the

broader community. This includes issues such as employee working conditions, customer

satisfaction, and community engagement. Companies also consider the environmental

dimension to analyse its impact on the planet, including its use of natural resources and its

contribution to pollution and climate change. Profitability within an organization is

considered through the financial dimension. Many companies rank this aspect as the most

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important and are likely decide based on this consideration only. Howeve, it is important to

consider all the other perspectives as they are equally important.

Following its expansion ambitions in 2005, GreenWood Resources expressed interest in

expanding its sustainable timber plantation model to China, which had a significant demand

for timber and a growing interest in sustainable practices. The company saw an opportunity

to partner with Chinese companies and investors to develop sustainable forestry operations

that met economic and environmental goals. In March 2009, the company assessed twenty

potential investment Chinese projects, emphasizing the quality of the assets and the project's

ability to sell timber in the international market.

The Luxi and Dongji projects emerged as the most viable partners for GreenWood Resources

to partner with. Marc Hiller, a Forest Stewardship Council (FSC) specialist, stated that these

projects were selected based on their ability to sell, fulfillment of the FSC requirements,

current owners' relational status with the community, etc. These projects, therefore, managed

to enter phase two of the GreenWood Resources decision considerations. There are multiple

and different opportunities and risks that GreenWood Resources would face in choosing

either project. For instance, the Luxi project, located in Shandong province, provided

favorable environmental conditions for the flourishing of Poplar plantations but with a higher

land lease price. On the other hand, Dongji Project, located in the inner Mongolia region,

offered a cheaper land leasing option but with a retarded plant growth rate. Therefore, the

company was required to conduct a deeper but comprehensive due diligence report based on

economic (Internal Rate of Return and Net Present Value), social, and environmental

considerations to select the most viable and profitable of the two projects.

Economic Perspective

It is important to compare Luxi and Dongji projects regarding their economic viability to

enable GreenWood Resources to make the best investment decision. This comparison will

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embark on economic value indicators such as each project's Net Present Value (NPV) and

Internal Rate of Return (IRR).

Table 1: Financial comparison of the two companies

Project LUXI DONGJI

Total area- MU 92073 82644
Initial investment 296548734 40903578.3
Planting expense/mu 632 255
Per annum costs
Land lease 367 87
Crop care expense 110 45
477 132
Stumpage volume
Luxi (after 7 years) 12.6 -
Dongji (after 10 years) - 7.0
Total yield 1160119.8 578508
Price per MU 559 445

Revenue, R 648506968.2 257436060

Costs
Planting 58190136 21074220
Per annum cost 307431747 109090080
Investment 296548734 40903578.3
Total cost, c 662170617 171067878.3

Cashflow (r-c) -13663648.8 86368181.7

Discount factor @ 12% -6180740.8 27808243
Dollar value at 6.83 -904940 4071485

The financial projections indicate that the LUXI project has a net present value (NPV) of -

$0.904 million, which implies that the project is not financially viable. On the other hand, the

DONGJI project is expected to yield a positive NPV of $4.07 million, indicating that the

project is financially feasible (Greenwood, 2019).

Social Perspective

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From a social standpoint, several factors affect each project's viability and could impact

GreenWood Resources should they choose a certain project. Creating employment

opportunities is a major consideration in selecting the most viable project. In this case, both

projects create job opportunities for the surrounding local people. However, it is perceived

that the Luxi project is expected to create significantly more jobs due to its larger scale than

the Dongji project. The project's impact on the environment is a social impact which

consequently impacts GreenWood Resources' choice. The Dongji project has a greater

potential for desertification and soil erosion than the Luxi project, which has gently sloping

terrain. Erosion could lead to soil degradation and siltation of water bodies, resulting in

unsustainable forestry. On the other hand, the Luxi project has a greater potential for water

pollution due to using fertilizers and pesticides.

GreenWood Resources should also consider how well each project engages with local

communities and addresses their needs and concerns. In the case of Luxi, the company has

already established personal connections for mutual benefits (building guanxi) with local

government officials. There is a motivational push from Mr. Jiao, the director at Luxi

Forestry Bureau, hoping the organization will mentor locals through capital contribution and

tree plantation know-how. However, Mr. Jiao claimed that GreenWood's Portland

headquarters needed more knowledge concerning the local situation and were still unwilling

to delegate their responsibilities to the Beijing office. On the other hand, at Dongji, Lideng

has a track record of working with private forestry companies currently under litigation for

illegal fundraising and pyramid schemes, which could raise concerns about the company's

business practices. Although Lideng provides a seemingly appealing land purchasing offer,

GreenWood Resources would place its reputation at risk of being questioned concerning its

values.

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GreenWood Resources should consider the Long-term sustainability of each project. This

could be described by its ability to remain relevant, attract more investors, and maintain a

good public reputation. This factor will be impacted by the project's impact on the immediate

public, such as job opportunities creation, environmental conservation, and attraction of

foreign investors. Li et al. (2011) described that Luxi had been striving for afforestation and

sustainability in economic development since 2002. It plans to integrate tourism, landscaping,

and tree plantation into a single ecological and coexisting system.

Environmental Performance

The Luxi project is located in the Shandong province in southeastern China. The area has a

subtropical climate, with an average annual temperature of 19.5°C and an average annual

rainfall of 1,400 millimeters (Dai et al., 2022). This makes the area well-suited for poplar

growth, as the trees require abundant rainfall and warm temperatures. Additionally, the

project is located in fertile soils and a sophisticated water system, providing access to a

reliable water source. The area has a high latitude and receives adequate sunlight, allowing

for faster growth of poplar trees. The area is also characterized by gentle slopes with ensure

gradual runoff water drainage without excessive soil erosion.

Moreover, the project aligns with the company's objective of increasing forest coverage, as

Luxi has embraced afforestation and sustainable economic development since 2002. The

timber processing center at Linyi, which is 300km from Luxi, provides an accessible

processing site for GreenWood Resources, should it partner with the Luxi project.

Furthermore, the Linyi processing plants present a high timber intake capacity which will

serve the company well.

In contrast, the Dongji project is located in the eastern part of Inner Mongolia, northeast of

China, a semi-arid and windy area. However, the area has fertile and good-textured soils

which support the growth of poplar plantations, and the strong winds have been observed to

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lower the plants' growth rate. Even with GreenWood's Elite plant materials, the estimated tree

growth rate can always be at most 0.7 m3 per mu, a value lower than the optimum desired

tree growth rate. The area was subject to desertification and an adverse timber shortage,

which was why the government had set an ambitious goal of increasing forest coverage from

22% to 30% by 2010 to combat this issue. GreenWood's involvement in this project would

align with the government's objective, therefore, synchronizing the company better with the

Chinese government. Private firms like Dongji Lideng Forestry Development Company have

played a greater role in afforestation at Dongji. Lideng is ready to offer GreenWood

82,644 mu for purchase, providing a high-value asset to GreenWood's investment. However,

associating with Lideng poses a reputational risk to GreenWood Resources as it (Lideng) is

associated with Wanli and Yilin Wood industries, two forestry companies listed under

litigation for illegal practices and pyramid scheme usage.

Making the Choice

GreenWood Resources should partner with the Luxi project in investment, considering the

presented economic, social, and environmental considerations. From a social perspective,

both projects create job opportunities for local people. However, the Luxi project is expected

to create significantly more jobs due to its larger scale than the Dongji project. This would

benefit the local community and GreenWood Resources, as it would have access to a larger

pool of skilled workers (IvyPanda, 2022). Also, the Luxi project has a more positive track

record of engaging with local communities and addressing their needs and concerns. The

company has already established connections with local government officials and plans to

mentor locals through capital contribution and tree plantation teaching. On the other hand,

Lideng, the company associated with the Dongji project, has a track record of working with

other private forestry companies that could ruin Greenwood's reputation. By partnering with

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the Luxi project, GreenWood Resources would not only be making a socially responsible

investment but would also be protecting its reputation.

The environmental performance of the Luxi project is more favorable than the Dongji project.

The Luxi project is located in a subtropical climate, providing abundant rainfall and warm

temperatures well-suited for poplar growth. The area also has fertile soils and a sophisticated

water system, providing access to a reliable water source. Furthermore, the area has gentle

slopes, ensuring gradual runoff water drainage while minimizing soil erosion. The Luxi

project aligns with the company's objective of increasing forest coverage, as it has embraced

afforestation and sustainable economic development since 2002. The Dongji project is

located in a semi-arid and windy area which could lower the growth rate of poplar trees. The

area was subject to desertification, implying that Greenwood Resources has to carefully

check its activities to avoid contributing to desertification during timber harvesting periods.

Although GreenWood's involvement in the Dongji project would align with the government's

objective, the project's environmental impact would be a cause for concern.

Moreover, the Dongji project has a greater potential for desertification and soil erosion than

the Luxi project, which has gently sloping terrain. Erosion could lead to soil degradation and

siltation of water bodies, resulting in unsustainable forestry. Additionally, the Luxi project

has a greater potential for water pollution due to using fertilizers and pesticides. However,

this could be addressed by implementing sustainable forestry practices and regulations.

The financial analysis reveals that the LUXI project has high input costs and comparatively

low returns. However, there is high demand for timber in the region, and therefore

GreenWood Resources could consider increasing the prices of its products to improve the

project's NPV. Considering a lease period of seventy years, the company would incur a

whooping cost of RMB 2.4 billion, likely to scare away potential investors. The high input

expenses minimize the project's profitability margin, given a growth rate of 1.8 m3 stumpage

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per mu per year. The results are reflected in a relatively low cash flow rate compared to the

Dongji project. However, partnering with this project could benefit GreenWood Resources

more economically. For instance, the timber processing center at Linyi, which is 300km from

Luxi, provides an accessible processing site for GreenWood Resources should it partner with

the Luxi project. Furthermore, the Linyi processing plants present a high timber intake

capacity which will serve the company well.

The Luxi project provides a socially responsible investment opportunity with a positive track

record in engaging with local communities and addressing their needs and concerns.

Additionally, the Luxi project's environmental performance is more favorable than the Dongji

project's. Although the Dongji project has higher economic viability, the Luxi project

presents additional economic benefits for GreenWood Resources, with access to a timber

processing center and high timber intake capacity.

Action Plan to Implement

Having settled on the Luxi project, GreenWood Resources should implement several actions

and strategies to set itself up for successful collaboration in China. Greenwood should

consider adjusting its Lumbar prices to achieve a positive NPV value. Otherwise, the

company could work on its silvicultural practices to increase the growth rate above 1.9

m3/mu. Pricing stumpage at RMB 650/m3 would return RMB 754077870 above the

expenditure. Combining this price with a growth rate of 2.0m3/mu would result in a return of

RMB 837864300 after seven years. However, increasing the growth rate would require an

initial input increase (Chen et al., 2020).

GreenWood Resources should investigate the patent rights and exceptions in China. The

weak intellectual property protection guidelines greatly risk GreenWood's elite plant

materials. Being the greatest advantage over other companies, GreenWood should be careful

to identify the loopholes in intellectual property protection and create appropriate mitigation

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procedures should the issue escalate. Also, the management should negotiate with the Luxi

Forestry Bureau to discuss investment opportunities and potential partnerships. This

discussion should entail matters of land ownership. The complexity of the land ownership

structure also poses social and political risks to the company by holding private land. Most

land is owned by the state or is owned collectively. The company should follow the legal and

risk-free individual land ownership procedures or even consider leasing state-owned land.

GreenWood Resources should onboard the Luxi Forestry Bureau to aid in land acquisition

advice or recommendations to obtain a cost-effective farm. The Luxi Forestry Bureau would

also provide the available documentation and statistics to enable GreenWood Resources to

make the best decision on resources and personnel.

A significant modification the organization needs to undertake is relocating its headquarters

from the USA to China. This is necessary as the US market is saturated and has limited

potential for growth, while the Chinese market is expected to expand rapidly soon. Thus, the

organization needs to be present in China, where the growth opportunities lie. Most projects

presented persistent complaints about the company's slow feedback and negotiation process.

It needs to refine its communication procedures to enable GreenWood to participate in more

profitable deals. In response, Jake Eaton agreed that the main challenge was that

communication with the company's real decision needs improvement. In that concern, the

company must onboard the real decision makers during discussions to obtain immediate

feedback, hence an efficient process. The company must also understand and integrate with

the local government bureaus involved in the Luxi project to avoid complexities during

regime changes. Many Chinese partners had risen a perception concerning the unfairness of

GreenWood's market-based assessment and pricing strategies. For instance, Lideng's Mr.

Huang believed that the assessment system undervalued his company assets by at least 20%.

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Therefore, GreenWood should develop an assessment and pricing strategy specific to China

to avoid disagreements with the locals.

GreenWood needs to prioritize the project's environmental impact and sustainability, working

with local communities and governments to ensure proper conservation measures are taken.

This would include setting up a monitoring and evaluation system to track progress and

ensure that the project is achieving its intended social and environmental goals and the FSC

requirements.

Reflection

The quest to find out the ultimate choice made by GreenWood is greatly challenged by the

unavailability of documentation of events following this case. Greenwood might have

partnered with Dongji based on various factors evaluated during the due diligence process.

However, this conclusion is based on inductive reasoning. The Hunan Forest Restoration and

Development Project (HFRDP) by World Bank (2012) repoerted a study on loaning to

rehabilitate 22 forestry projects in China. Among these projects were Mayang, Yuanling,

Luxi, Taoyuan and Dingcheng. While Dongji was not a part of the rehabilitated projects, it is

possible that GreenWood had partnered with Dongji providing financial instability during the

selection of these projects.

However, Rosalyn (2012), a publication made on August 6th 2012, shows that GreenWood

resources was later acquired by TIAA-CREF in 2012, for an undisclosed amount. TIAA-

CREF grew to a total of 1.8 billion dollars following this purchase, with 840,000 acres all

over the world. Staff (2012) mentioned that Greenwood would become a TIAA-CREF

subsidiary, but with the executive management remaining within GreenWood. Also, as a part

of the deal, Ph.D. Clark Binkley would join GreenWood’s management team to assume the

chief investment officer role. Jeff Nuss, on this deal, said that It is in line with GreenWood

Resources’ foundation mission and they aim to benefit by accelerated investments in

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innovation, growing their platform, as well as extending their customer base. “GreenWood

Resources was founded with the mission of meeting the needs of our clients and communities

in which we invest through one of the earth’s most renewable resources – trees – by using

superior plant material and sustainable practices…Partnering with TIAA-CREF will allow us

to accelerate our investments in innovation, grow our platform and take advantage of

attractive new markets to best meet our clients’ needs” said Jeff Nuss (Businesswire, 2012).

However, this transaction did not affect GreenWood’s mission and vision obligations. It

actually led to an increased acknowledgement of GreenWood’s products and services. TIAA-

CREF managing director, also heading global and natural resources and infrastructure

acknowledged that they could leverage GreenWood’s specialized knowledge and expertise to

better their services and gain a local access. Through onboarding GreenWood resources,

TIAA-CREF hoped to diversify their investments on timber to different regions and on

clients who maintain sustainable environments. GreenWood resources is still determined to

carry out more research on fast growing species, with usage values. The company operates its

175million dollar farm, which owns 31800 acres of land in Oregon and Washington

(Rosalyn, 2012).

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 References

Chen, H., He, Z., Hong, W., & Liu, J. (2020). An assessment of stumpage price and the price

index of Chinese fir timber forests in Southern China using a hedonic price

model. Forests, 11(4), 436.

Dai, L., Wang, Y., Su, D., Zhou, L., Yu, D., Lewis, B. J., & Qi, L. (2011). Major forest types

and the evolution of sustainable forestry in China. Environmental Management, 48,

1066-1078.

Green wood – INVESTMENT appraisal in China case solution and analysis, HBR case study

solution & analysis of Harvard case studies. (2019, May 21). Harvard Case Study

Solution & Analysis - HBR Case Study Solutions - HBR Review & Case Study

Solutions And Analysis. https://www.thecasesolutions.com/green-wood-investment-

appraisal-in-china-159321

IvyPanda. (2022, June 14). GreenWood Resources:

Strategies. https://ivypanda.com/essays/greenwood-resources-strategies/

Li, C. Y., Zhang, G. Y., Hammer, K., Yang, C. Y., & Long, C. L. (2011). A checklist of the

cultivated plants of Yunnan (PR China). Genetic Resources and Crop Evolution, 58,

153-164.

World Bank. (2012). Hunan Forest Restoration and Development Project (HFRDP): A Social

Assessment Report.

https://documents1.worldbank.org/curated/ar/103121468241467380/IPP5740v20IPP0

0t0Report002012-5-17.docx.

Rosalyn Retkwa. (2012, August 6). TIAA-CREF deal for timberland a sign of the

times? Institutional

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 Investor. https://www.institutionalinvestor.com/article/b14zpn63cxmmxn/tiaa-cref-

deal-for-timberland-a-sign-of-the-times

Staff, R. (2012, August 2). TIAA-CREF deepens timber holdings through Greenwood.

U.S. https://www.reuters.com/article/agriculture-investing-

idUSL2E8J28EZ20120802\

Businesswire. (2012, August 2). TIAA-CREF acquires majority stake in Greenwood

resources,

Inc. https://www.businesswire.com/news/home/20120802005854/en/TIAA-CREF-

Acquires-Majority-Stake-in-GreenWood-Resources-Inc

APPENDIX

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Table 2: China map showing location of all viable projects

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