Effectuation Stories

          Case studies, lessons and stories about Effectuation!

          9 Dragons: A Profit from Waste

          Paper Puzzle

          What would you guess happens to a newspaper after you have read it? Perhaps a social person, you might share it with a friend? Perhaps a resourceful person, you might use it to build a paper airplane? Perhaps, but chances are good it will end up with Yan Cheung of Nine Dragons Paper Holdings Limited in Dongguan, China. And it won't take long either. "The newspaper that you put in your newspaper bin - three weeks later, it's in the hands of someone in China," explains Bill Moore of Moore & Associates in Atlanta, a consultant on recovered paper. Amazing ? but how does this happen?

          Resourceful Recycler

          Rewind to 1990. In that year, Cheung created America Chung Nam (ACN) on a shoestring personal investment of US$3,800. Her plan was to buy recycled paper in the United States and export it to China. She observed that Americans love to consume paper, using more than 700 pounds per person each year. And the Chinese desperately need to produce paper-based cardboard boxes in which to export goods throughout the world. Driving around the U.S. from dump to recycling facility in a Dodge minivan, Cheung and her husband filled containers that had just arrived from China carrying clothing or electronics with waste paper, and sent them back. She sold the paper to small domestic Chinese producers needing inputs to manufacture packaging materials. It wasn't long before she and her husband were filling a lot of containers.

          Printing Money

          Five years later, and armed with new means of a strong cash flow from ACN, a reliable source of high quality recycled paper and a clear understanding of the appetite for packaging materials in China, Cheung returned to Hong Kong. There she launched Nine Dragons to take that stream of waste paper and process it into Kraftlinerboard, Testlinerboard or corrugating medium ? the basic papers used to make a cardboard box. Over the next 15 years, Cheung's operation may as well have been manufacturing cash directly. Nine Dragons built capacity to produce more than 8.8 million tons of paperboard a year. Today it is the largest producer in China and among the largest globally. The self-crowned "Queen of Waste Paper"รน rivals Oprah Winfrey and J. K. Rowling as one of the richest women in the world. At the same time, waste paper has become the biggest export by volume for the United States.

          Paper Trail

          There are two useful insights from Nine Dragons can be boxed up and shipped to entrepreneurs everywhere. The first is new ventures can easily be created with things that already exist. It is easy to believe that in order to start a company, you need a technological innovation, or a huge investment to build something that nobody else has. But Cheung started with nothing more than trash ? available to everyone ? and free. Second, ideas don't become opportunities until somebody acts. The fact that Americans were generating paper waste, and that China needed massive amounts of cardboard was no secret to anyone, even in 1990. Yet someone, an entrepreneur, had to get into her Dodge minivan and make the opportunity happen.

          Packaged Solution

          Also contained in this story is a bigger idea. It's about where solutions to big problems come from. The problem of paper waste is huge. For years, people have known that every 120 pounds of recycled paper saves a tree. And that recycled paper requires 64% less energy than making paper from raw materials. Governments have tried endless and costly schemes to convince people to recycle. But this knowledge and these efforts have amounted to little meaningful change. By building a business on products that use an average of 85% to 90% recovered paper Cheung saves a lot of trees and a lot of watts in addition to making a lot of money. She and entrepreneurs like her that build sustainable businesses out of problems create ecological solutions packaged for success.

          Written by Stuart Read, professor of marketing at IMD and Nick Dew, associate professor at the Naval Postgraduate School and also available at Business Life.  Art is credited to nkzs, through stock.exchng.

          Publication: British Airways Business Life
          Author(s): Stuart Read
          Nick Dew

          Relevant Principles:
          Bird-in-Hand (Means)
          Lemonade (Leverage Contingencies)

          PDF 50X50-1BABL 9Dragons


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