Case 3 PDF

case 9-755-550
Yolanda Sarason
Asad Aziz August 22, 2017
Emily Fifield
East Meets West: Growing a For-Profit Social Venture in

Vietnam
Trang Tran, CEO of Fargreen, gazed out the window as her plane prepared for departure to Hanoi.
Trang had spent the past week in Vancouver at the annual TED Conference as part of her fellowship with
the organization, and she was now returning home to Vietnam. Trang shook her head in disbelief as she
thought back on how far she had come in just 18 months. In that short time, Fargreen had transformed from
a nebulous opportunity she had begun exploring during her MBA program into a startup with funding from
prestigious organizations like Green Challenge and Echoing Green. In business plan competitions, Trang had
presented the following purpose for the company: “Fargreen is a social enterprise working with a purpose of
building prosperous and sustainable farming communities in rural Vietnam and around the world where no such
environmentally damaging practices like open burning of straw exist, and no farmer is left behind in poverty
for choosing to stay with their land.”1 Her vision was becoming a reality: a financially sustainable enterprise
that offered threefold benefits of reducing the pollution caused by burning rice straw, offering farmers an
additional source of income, and providing gourmet, locally produced mushrooms to the Vietnamese market.
The jolt of the plane as it lifted off the runway brought Trang back to the present and the decision
that awaited her in Hanoi. Once home, she would have to deal with perhaps the biggest challenge to date
for the fledgling startup, requiring her to apply the skills she had acquired as an MBA student, along with
the lessons learned during Fargreen’s first six months of operations. The issue had begun just before Trang
left for Vancouver, when her friend and partner, Van,i had informed Trang of her decision to leave Fargreen.
Although not unexpected, the news came as a disappointment. In addition to providing important technical
expertise in mushroom cultivation, Van had helped establish Fargreen’s pilot facilityii in the province of
Ninh Binh through her family connections and other contacts in the community. These social ties had been
instrumental for Fargreen to gain access to land in the province for its pilot facility, as well as to sign a
rental agreement with reasonable terms.
i Some names and identifying details have been changed in this case to protect the privacy of individuals.
ii Fargreen’s pilot facility consisted of a small capacity production line and an experimental laboratory where different production
techniques and types of mushrooms could be evaluated.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
©2017 Yolanda Sarason, Asad Aziz, and Emily Fifield. This case was developed and written by Yolanda Sarason (Associate Professor of
Entrepreneurship & Strategic Management), Asad Aziz (Clinical Professor of Management), and Emily Fifield (GSSE MBA Candidate) at
Colorado State University’s College of Business.
This case was prepared exclusively as the basis for class discussion and is not intended to illustrate either effective or ineffective
handling of a situation. The case should not be considered criticism or endorsement and should not be used as a source of primary data.
Unauthorized reproduction and distribution is an infringement of copyright. Contact us for permissions: Permissions@WDIpublishing.com or 734-615-9553
East Meets West: Growing a For-Profit Social Venture in Vietnam 9-755-550
Trang had initially assumed that those terms would continue despite Van’s departure, and that Fargreen
would be able to continue operations in Ninh Binh under the existing contract. That hope had quickly
disappeared, however, when Trang received an email from Van saying that she would not allow Fargreen to
continue at the pilot facility unless there was an agreement to increase rent payments from the amount laid
out in the original agreement. If Trang did not agree to the conditions, Fargreen would have to leave Ninh
Binh, setting the new venture’s timeline back at least six months.
Trang considered her options carefully. If Fargreen agreed to Van’s terms, the increase in payments would
severely hamper Fargreen’s ability to invest in its operations and could lead to cash flow problems. On the
other hand, if she refused the terms and left Ninh Binh immediately, it would mean abandoning not only the
latest trial run of mushrooms that was already underway but also the significant investments she had made
in the facilities and staff there. Even so, leaving Ninh Binh could be an opportunity for a fresh start, allowing
her to apply the lessons she had learned thus far and jump ahead in Fargreen’s learning cycle.
Weighing her options, Trang decided that it would be infeasible to operate in a financially and
environmentally sustainable manner while remaining in Ninh Binh. She would decline the new terms and
prepare to leave the Ninh Binh pilot facility.
The ensuing question then was where to relocate Fargreen’s operations. Trang knew from experience
that perfect options without tradeoffs did not exist, and selecting a new location would involve evaluating
the advantages and disadvantages of various factors. She also knew she would have to come to a decision
quickly and begin the transition immediately in order to avoid missing an additional growing cycle. With this
in mind, Trang had emailed her two most trusted senior employees at Fargreen and asked them to identify
potential locations for Fargreen’s next phase and to be ready to discuss them as soon as Trang returned. She
was confident that with their deep knowledge of Fargreen’s operations and market, they would be able to
propose some feasible alternatives.
Trang contemplated how much easier it had been to develop Fargreen’s business model on paper than
it was to implement it within the reality of Vietnam’s intricate social ties, evolving political and economic
systems, challenging infrastructure, and unique history and culture. Further complicating the situation,
Trang had to balance Fargreen’s financial objectives with its social mission, addressing tradeoffs at every
step. The task before her now was to select the most advantageous new location for Fargreen that would
allow the fledgling enterprise to grow its operations without sacrificing its larger vision. As her flight reached
cruising altitude, Trang settled into her seat and thought back on the path that had brought her to this point
and on the decision that awaited her in Hanoi.
The Genesis of Fargreen
Trang had grown up 60 km (37 miles) from Hanoi, in a small town where rice was central to daily life:
it was a staple in every family’s diet, a vital source of income, and the primary crop grown in the fields that
surrounded the town. For two to three months a year, however, the grain’s presence took on a different,
darker form. Following each harvest, rice farmers had to dispose of the rice straw left behind from the
harvest before they could plant a new crop. Most farmers did this by burning the straw in the fields or on the
side of the road. This meant that in the weeks and months following rice harvests, the air would have a blue
haze and a smoky smell. The pollution made people cough and caused their eyes to burn.
After leaving home to begin her university studies in Hanoi, Trang continued to notice the smoke and
pollution from rice straw burning reaching far beyond the rice paddies and into Hanoi. Because this was so
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commonplace, neither Trang nor anyone else thought much about what could be done to fix the problem.
They simply accepted it as the way things had always been and would be.
After graduating from the Hanoi University of Technology in 2009, Trang worked for several years
in Hanoi’s health sector. She was passionate about the work but soon became concerned by the limited
effectiveness of the non-profit business models that were so prevalent in her field. Interested in learning
about business approaches to address social problems and eager to gain exposure to different perspectives,
Trang applied to the Global Social Sustainable Enterprise MBA program at Colorado State Universityiii and
was accepted in 2012.
One May evening before leaving for the US to begin her MBA, Trang went to dinner in Hanoi’s Hoan Kiem
district with a visiting professor from Colorado State University. It was a warm evening and would have been
quite pleasant, but it was the middle of the rice straw burning season and Hanoi was covered in an acrid
blue haze. Trang’s visitor coughed, wheezed, and complained about the smoke. He urged Trang to think about
ways to stop the burning. Trang listened politely but thought, “He doesn’t know Vietnam. There is nothing
I can do – it is just the way things are here.”
Exhibit 1
Thick haze from rice straw burning hangs over Hanoi.
Source: Fargreen, 2015-16.
Trang did not give their conversation any more thought at the time, and she left Vietnam soon thereafter
to begin her studies. As she learned more about sustainable business and social entrepreneurship during
her MBA, however, she found herself returning to that evening in Hoan Kiem and wondering if something
iii The Global Social and Sustainable Enterprise MBA is a graduate program focused on developing entrepreneurs and ventures to
address broad social and sustainability challenges.
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actually could be done to address the issue of rice straw burning. When she was not busy working on her
coursework, Trang began spending time researching the causes and trying to better understand the problem.
The Rise of Rice Straw Burning
Although farmers had burned rice straw for as long as Trang could remember, her research revealed
that it had not always been the dominant practice in Vietnam. It was, rather, the result of changes in rural
lifestyles and agricultural practices over the past few decades. One contributing factor was the rise in rice
production in the years following the Doi Moi policies of the 1980s, with total production reaching 40 million
tons of rice in 2010. As rice production had increased, so had the amount of rice straw left behind in the
fields. By the time Trang was beginning her studies in the US, it was estimated that some 23 million tons of
rice straw were produced each year in Vietnam.2
Unfortunately, this increase in the supply of rice straw coincided with a decrease in its perceived value,
as farmers found this by-product less and less useful. Traditionally, farmers had used the straw in a variety
of ways, such as cooking fuel and thatch for their roofs. As new fuel sources and building materials became
available, however, farmers no longer needed rice straw for these uses and came to see it as a nuisance
instead of a resource. Further adding to the problem of increased amounts of rice straw was the fact that
many farmers had begun increasing from two rice harvests per year to three, which meant they needed to
remove the straw more efficiently from the fields due to the limited time available between crops.
Exhibit 2
Smoke from rice straw burning on the side of the road decreases visibility
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These trends drove farmers to the quick, inexpensive option of burning rice straw in their fields or along
roads, a practice that produced thick clouds of smoke. The burning often happened in the late afternoon
as air temperature began to fall. This caused the smoke to stay close to the ground and spread beyond the
farmland, affecting surrounding communities and even major cities. The fine particles and toxic chemical
compounds emitted by rice straw burning had been linked to respiratory conditions and other health issues
that threatened the people who lived and worked in affected communities.3 Burning the rice straw when it
was wet also resulted in an especially thick, black smoke, which could severely decrease visibility and create
dangerous commutes for motorcyclists coming and going from the city.
Trang was all too familiar with the health and safety issues created by rice straw from her own experiences
living outside of Hanoi and her work in the health sector. One element that she had been less aware of
before her research was the environmental impact of rice straw burning. Following each rice harvest, millions
of tons of greenhouse gases (GHGs) were released into the air as farmers burned the straw waste. These
emissions were a leading contributor to climate change, an especially serious problem for Vietnam. In
fact, the country was considered one of the most vulnerable to climate change due to rising sea levels and
salinization, as well as the severe impacts of extreme weather.4
Low Income Levels from Rice Farming
In addition to the multitude of issues caused by rice straw burning, Trang’s research revealed another
problem faced by a large percentage of Vietnam’s rural population: low income levels and poverty for rice
farmers. Although national rice production and exports had rapidly increased over the past decades, farmers’
incomes had not kept pace, with the average farming household earning just $100 a month from rice
production in 2014.5
The inability to increase their incomes through farming had forced many rural Vietnamese to leave their
land and migrate to cities in search of improved opportunities in manufacturing, services, and construction.
Although Vietnam’s urban population was still only a third of the total population, the national annual rate
of urbanization was 2.95% between 2010 and 2015 and was not expected to slow in the near future.6 This
rapid urbanization, on top of the approximately 33% of Vietnam’s population (2015) that already lived in
urban areas, presented a challenge for urban infrastructure and services, as well as increased potential for
food shortages if there was an insufficient labor force left to carry out rice production in rural areas.
Opportunity: Unmet Demand for Locally Grown, Safe, Branded Mushrooms
During the time that Trang was gaining an understanding of the issues surrounding rice straw burning in
Vietnam, she was also learning new skills and developing a more entrepreneurial mindset as she advanced in
her MBA studies. The broad question she had started with – of how to get farmers to change behaviors they
had practiced for decades – led her to a focus on the value of rice straw. Could the perception of rice straw
be changed from a waste product to a valuable resource? She began thinking in terms of value creation and
value capture, researching uses for rice straw and speaking to her contacts in Vietnam.
After considering and rejecting many ideas, Trang learned that rice straw was an ideal substrate for
growing mushrooms. From that discovery, an idea began to take shape in her mind for an enterprise that
could address both the problems of rice straw burning and low farmer incomes. With easy access to the
optimum substrate, rice farmers could grow mushrooms on rice straw and sell them as a cash crop. Rice
farmers would then view rice straw as a valuable resource rather than waste to be burned, and farmers who
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chose to grow mushrooms in the rice straw could generate additional income to supplement what they
earned from farming rice.
Trang was excited by the potential impact this idea could have in her home country, and the more
she learned about the Vietnamese mushroom market, the more it seemed like an unexploited opportunity.
Mushrooms had long played an important role in Vietnamese cuisine, and a renewed focus on their high
nutritional and medicinal value had further increased their popularity in recent years. The country also had a
long tradition of mushroom cultivation, but most production was still done on a small scale by a household
or family farm and was not sufficient to support domestic demand. It was difficult to arrive at reliable
production estimates because of the unregulated and distributed nature of production, but the Vietnamese
Ministry of Agriculture estimated that mushroom production in 2013 was approximately 250,000 tons. Of
this, about half were consumed domestically.7
In 2012, the Vietnamese government approved mushrooms as a national product with a production goal
of one million tons by 2020 as part of Scheme 439 signed by the Prime Minister. Vietnam also increased
imports, with 8,000 tons imported in the first half of 2014, a 62% increase from the same period in 2013.
While South Korea, Japan, Malaysia, Thailand, and Australia all supplied mushrooms to Vietnam, nearly 80%
came from China.8
Chinese mushrooms were often cheaper than domestic mushrooms, but many in Vietnam distrusted the
quality and safety of Chinese imports after numerous food scares and a lack of transparency in supply chains.
Country-of-origin labeling was often unreliable or completely absent from products, thus making it difficult
for consumers to make informed purchasing decisions. Even domestic mushrooms were not necessarily
perceived as a safe, reliable option for customers due to the rise of chemical pesticides and other inputs
on local farms. Food safety regulatory government agencies existed, but it was difficult to monitor the
scattered, small-scale production of mushrooms. There was also a high level of distrust of these agencies
due to the perception that they were corrupt and could easily be influenced with bribes. Prices paid varied
widely across the market and depended greatly upon the customer’s perception of the product and its origins.
The price for straw mushrooms for domestic consumption generally ranged from about VND 50,000 to VND
100,000 per kilogram (about $2.50 to $5.00), while that of oyster mushrooms ranged from about VND 10,000
to VND 40,000 (about $.50 to $2.00).iv
The lack of options for clean, safe mushrooms had created a rising demand in Vietnam for local, organic
mushrooms from trusted brands with solid reputations. This was especially true in urban areas like Hanoi,
where consumers had come to expect more choice when making food purchases, and preferences for organic
and branded produce were increasing. Trang’s market research indicated that members of the growing middle
class in these areas were willing to pay a premium for quality and transparency. There was a clear market
opportunity for a branded product that addressed these needs.
Fargreen’s Business Model
As Trang entered the final semester of her MBA, she juggled her studies with the development of Fargreen’s
business model, dedicating nights and weekends to the new venture and keeping up with coursework during
the week. It seemed that for the first few months her advisers and colleagues continuously rejected her ideas
for Fargreen – the value proposition did not hold; the business model was flawed; the cost structure did not
fit with the market pricing; or any of a host of other issues. Many times Trang despaired at the difficulty of
the task before her, but she persisted and kept working through the challenges.
iv In 2014, the average exchange rate between VND and USD was about VND 21,000 per USD.
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After a number of iterations, the Fargreen business model finally took shape. Fargreen would form
relationships with rice farmers in rural communities where high levels of rice straw burning occurred and
would set up agreements to collect the straw from them after each harvest. This arrangement would provide
Fargreen with a sustainable supply of substrate for its mushroom production at minimal cost while giving
farmers an efficient, inexpensive way to clear their fields of the unwanted waste straw from rice farming
without the detrimental effects of burning it. From these same communities, Fargreen’s staff would select
farmers interested in growing mushrooms and would set up supplier agreements with them. These farmers
would build small greenhouses suitable for mushroom farming on their premises and Fargreen would help
finance their investment through loans of up to $500. Farmers would also receive training in Fargreen’s
mushroom cultivation and harvesting techniques.
The business model required the farmers to cultivate the mushrooms by using very specific processes
with strict requirements to ensure high standards of quality and hygiene in the final product. The farmers
were also responsible for harvesting the mushrooms and then transporting them to a central collection
location within the community where Fargreen would pay the farmers based on the weight and the grade
of the mushrooms. The straw left over (depleted to 10% of its initial volume) after the mushroom harvest
could be used by the farmers as bio-fertilizer to nourish the soil. Farmers were paid by Fargreen at the time
of delivery, receiving up to a 30% premium over the price of unbranded mushrooms at local markets.
Exhibit 3
Mushrooms being harvested from rice Fargreen staff weigh mushrooms at
straw substrate processing facilities
Farmer agreements would also include a provision for them to receive bonuses if they exceeded average
yields while meeting Fargreen’s quality metrics for the mushrooms. Meanwhile, farmers who had received
loans from Fargreen to build their greenhouses would return 10% of their sales to Fargreen until the loan
was paid off. This model was especially attractive to farmers because the mushroom harvests were off-cycle
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from the two rice harvests, during the time when farmers would be idle and have no income. Working with
Fargreen allowed farmers to get income from two mushroom production cycles in addition to the two rice
production cycles that were the norm.
Fargreen would process and package the mushrooms at its facilities and deliver the mushrooms to
customers in urban areas under Fargreen’s label. Some of the mushrooms would be dried, but the majority
would be sold fresh, requiring refrigeration and quick turnaround from the time of harvest to the delivery
to Fargreen’s customers. The initial target market was identified as high-end restaurants and supermarkets
in Hanoi, where demand for healthy, safe, quality mushrooms was high and where customers were willing
and able to pay more for known brands. In Trang’s words, her vision for Fargreen’s business model was, “…
to prove that businesses can do well by doing good, that you can build prosperous and sustainable farming
communities, prioritize the environment and still create a successful enterprise. That’s why we called it
Fargreen — going far by going green.”9
In business plan competitions, which she had entered while still in the USA finishing up her MBA, Trang
presented this version of Fargreen’s business model along with cost estimates and financial projections. She
forecasted that the company would be able to reach 10 to 15 farmers when beginning operations, increasing
to 50 by the end of the second year, 100 the third year, 500 the fourth year, and 1,000 the fifth year. It
was expected that the company would break even once it was working with 155 farmers, early in the fourth
year. Until that time, Fargreen would be funded through startup capital. By year five, Fargreen estimated
it would have prevented about 4,000 tons of GHG emissions, raised the income of about 1,000 farmers by
$600/year each – an increase of more than 50% – and benefited more than 5,000 people through reduced
risk of lung disease.
Then, just before graduation, Fargreen won a coveted place in the local venture accelerator at Colorado
State University – a position that came with coaches, money, meeting space, and a five-month commitment
of support. Although this show of support was very encouraging, Trang knew that launching her own business
in Vietnam was still a risky proposition and provided far less security than working for one of the established
organizations or businesses with which she had built relationships over the past several months. She was at
a crossroads – should she take a lucrative job in the US or continue to pursue her vision for Fargreen? Trang
decided to pursue her vision for Fargreen. What ensued was a rapid string of successes. During the next nine
months, Trang went on to raise $381,500 in prize money and grants to start Fargreen (see Table 1).
Reentry Shock
After these early successes with fund raising in the US and Netherlands, Trang was anxious to return
to Vietnam to begin implementing Fargreen’s business model. Having lived in Vietnam her whole life, Trang
considered it her home and was looking forward to being back in familiar territory armed with new skills and
experiences. It came as a surprise, then, to find that many elements of Vietnamese life and work now seemed
foreign to her after less than two years abroad. Trang soon discovered that some of the assumptions she had
made while developing her business model had been based more on political, economic, and cultural realities
of the US than on those of Vietnam; she would have to adjust to working in a different type of business
environment if Fargreen was to succeed.
Although Vietnam had been progressing rapidly toward a more open, globally integrated, free market
economy since the implementation of Doi Moi policies in 1986, its one-party, socialist system continued to
dominate life in the country. For instance, the notion that individuals would give money to invest in new
ventures was viewed with distrust and skepticism. In addition, there were limited mechanisms for small
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businesses to raise funds or access credit, making it difficult for new ventures to raise startup capital.
Bureaucracy and excessive red tape further complicated the situation, with Vietnam ranked by the World
Bank as 125 out of 189 economies based on the ease and efficiency of starting a business.10
Table 1
Prizes and Grants Awarded to Fargreen in 2014.
Name of Grant or Competition Description Date Amount Award Type
Colorado State University Center
One-year incubator for CSU
for the Advancement of Sustainable
startups, with focus on social and Jan 2014 $4,000 Grant
Enterprise New Economy Venture
sustainable enterprises
Accelerator (NEVA) Award
International business plan
University of Washington Global
competition for student-led Feb 2014 $12,500 Prize (1st)
Social Entrepreneurship Competition
business solutions to poverty
Sustainable business plan
Walmart Better Living Business Plan
competition for US college and Apr 2014 $5,000 Prize (3rd)
Challenge
university students
CSU Blue Ocean Enterprise Challenge Business plan competition for US
May 2014 $20,000 Prize (1st)
– Collegiate Track college or university students
CSU Blue Ocean Enterprise Challenge Business plan competition for US
May 2014 $10,000 Prize (3rd)
– Enterprise Track startups or existing companies
Two-year fellowship for social
Echoing Green Climate Fellowship entrepreneurs innovating around Jul 2014 $80,000 Grant
climate change
Largest international business
€200,000
Postcode Lottery Green Challenge plan competition for sustainable Sept 2014 Prize (2nd)
(~$250,000)
entrepreneurship
Total $381,500
Source: Fargreen, 2014.
Trang had seen the studies and spoken to people in Vietnam who had experienced these difficulties
firsthand, but it was disheartening to her how much time, money, and persistence were required to set up
her company in Vietnam. In the US, she had heard from entrepreneurs who had paid a single fee of $50 and
completed the paperwork within a day or two, but in Vietnam it took her several months and at least ten
times the amount of fees to register Fargreen as a firm.
All of this red tape and inefficiency did not just lead to frustration and delays; it also helped create
an environment that was ripe for corruption and bribery. Bureaucrats’ expectations of bribes presented
an ethical dilemma for companies like Fargreen that were trying to maintain operations while promoting
transparent business practices. The company could pay the bribe and significantly reduce the time, effort,
and resources required to get through the red tape, or face significant obstacles, financial costs, and delays
if it behaved in an ethical manner.
Widespread corruption also led to high levels of mistrust in government institutions, including regulatory
agencies. One implication for Fargreen was that labels or certificates, like those often used in the US to
identify products that were organic or met certain health standards, carried little to no weight in Vietnam,
where consumers could not trust that a bribe hadn’t been paid to obtain that designation. In order to gain
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credibility with customers, Fargreen would instead have to rely heavily on positive word of mouth and build
a reputation for itself based on customer experience that was relayed through social networks.
This reliance on social networks reflected another strong point of contrast between Vietnam and the
US: the emphasis on relationships and collectivism over individualism. Whereas Vietnam’s long tradition of
communal farming had led to a more egalitarian society that prioritized long-term relationships and a group-
oriented mentality, the individualism of the US placed greater value on competition and achievement. A new
venture based on entrepreneurial principles of innovation, competition, and market disruption could therefore
have high potential for conflict when placed in a Vietnamese context, especially within more traditional,
collectivist rural communities. Furthermore, the high value placed on self-reliance and independence in US
culture differed from the relationship-based culture of Vietnam, which stressed the need to share with and
support all members of the group.
Trang was well aware of these differences, but it was not until she had completed Fargreen’s first
growing cycle in Vietnam that she realized how deeply her time in the US had influenced certain assumptions
that formed the foundation of her business model. For example, all of Fargreen’s projections for scaling and
production capacity, as well as impact, had been based on the assumption that Fargreen would be working
with individual farmers. After several months at the pilot site, however, Trang learned that rather than one
farmer working under each contract, whole families – and sometimes extended families – were working under
an individual contract. This meant that most of Fargreen’s initial projections were incorrect and would have
to be recalculated through different methods.
Finally, Trang had to be careful to take infrastructure into account, especially in rural areas of Vietnam.
Key factors were water, electricity, and transportation infrastructure. Fargreen required that its mushrooms
be irrigated with potable water, which meant that each farmer had to have adequate potable water capacity
on their premises. The mushrooms had a very short shelf life, so a constant supply of electricity was also
critical to keep the mushrooms refrigerated to maintain their freshness – especially during the summer
months. Finally, the collection and delivery of mushroom substrates and mushrooms required transport and
access infrastructure. Traditionally, rice paddies were accessed by foot, and many of them only had pedestrian
access, making it difficult to use vehicles to move straw. Areas with poor transportation infrastructure
located farther from Fargreen’s markets could also create challenges for efficient transport of mushrooms,
leading to concerns with timely delivery and compliance with food safety requirements.
As Fargreen grew, it would need to hire more people, rely on Vietnam’s legal institutions to safeguard its
interests, and depend increasingly upon efficient market mechanisms. This meant that Fargreen would also
need to pay attention to education, legal and market infrastructure for the long term.
Pilot Facility in Ninh Binh
As she faced these early challenges and tried to adjust to an unfamiliar business culture, Trang was
relieved to have Van, a plant scientist and friend, as part of the team. Trang was especially happy to learn
that Van’s village, Ninh Binh, could be the base for their pilot facility and the source of their first cohort of
farmers.
Ninh Binhv was located approximately 100km (62 miles) due south of Hanoi in the Red River Delta
region of North Vietnam. With dramatic karstsvi that attracted many tourists, Ninh Binh had convenient and
fast transport links to Hanoi and a more developed infrastructure than many of the surrounding areas. This
v The locations, names, and towns describing Fargreen’s initial pilot facility have been changed.
vi A karst is a type of landscape in which soluble rocks have been dissolved by water, leaving towers, fissures and other landforms
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would allow for relatively efficient deliveries to Fargreen’s urban customer base in spite of the distance, and
it would minimize the potential for food safety and quality control issues. Although the larger region was
highly dependent on tourism, Van’s community still relied on rice farming for nearly all its income, with
harvests in May and November. The farmers Van selected had limited access to formal education or training
besides rice farming but seemed eager to learn and were excited about the opportunity to earn additional
income.
Trang hoped that the farmers’ ties to Van would foster loyalty to the company and help minimize
turnover and related training costs. By Van’s reports, corruption in Ninh Binh was not as prevalent as in
other areas and would not be an obstacle to Fargreen’s operations. Ninh Binh was probably too small a
community for Fargreen to continue operations in the long term, but Trang expected that it would provide a
good location for the pilot facility and allow enough space to grow for at least a few years.
Exhibit 4
Fargreen staff collect rice straw from fields to be used as mushroom substrate
Over the course of Fargreen’s first six months in Ninh Binh, Trang and her team began the process
of developing and testing Fargreen’s business model and seeing how their expectations and assumptions
matched reality. Some elements of the model had generally worked as expected. The collection of rice straw,
for instance, had gone according to plan and met initial expectations. Farmers in the Ninh Binh community
were eager to have Fargreen take away their rice straw after the harvest, seeing the benefits of quick removal
without the negative effects of burning the straw. Fargreen, meanwhile, was satisfied with the efficiency
of its collection methods and consistent supply of substrate. Trang saw this early success in reducing the
occurrence of rice straw burning as an encouraging indicator for Fargreen’s potential social impact. Much to
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Trang’s relief, corruption had also not proven to be an issue for Fargreen so far, perhaps due in part to Van’s
strong social ties in Ninh Binh.
Market demand, meanwhile, appeared to be even higher than initially expected with high-end grocery
stores, restaurants, and consumers in Hanoi clamoring to find out when they could buy Fargreen mushrooms.
It seemed that insufficient demand would not be a difficulty for Fargreen as it began operations; rather, the
challenge would be ensuring a predictable supply of mushrooms. The sales team would need to prioritize
customers carefully if it wanted to meet expectations while Fargreen worked to increase production.
Growing Pains
Not everything was going smoothly, however: Fargreen was encountering significant obstacles in
mushroom production. One major concern for Trang and her small management team was the time and
expense associated with having farmers follow the detailed production processes Fargreen had developed for
the farmers. Mushrooms – especially straw mushrooms – were very sensitive to temperatures and humidity,
as well as to the straw used as substrate, and their conditions needed to be closely monitored to ensure
consistently high quality. Farmers had learned about these conditions in their training and agreed in their
contracts to fulfill certain responsibilities. It appeared, however, that Fargreen’s expectations did not align
with actual farmer practices. For example, farmers were required to fill out process sheets at specified times
so that Fargreen could monitor production and adjust growing methods. It soon became clear that rather
than regularly entering the data at the appropriate times, farmers would wait and fill out all the sheets on
the day they were due for collection by Fargreen. This irregular reporting cast doubt on the data collected
and made it difficult for Fargreen to regulate and modify growing practices appropriately.
Treating farmers as independent suppliers with their own production facilities and ownership of the
product was also creating unforeseen challenges. First, scarce resources and financial anxieties made many
farmers uneasy about taking out a loan to finance the construction of a greenhouse on their property. This
aversion to risk led some of the farmers, who could have benefited most from the additional income, to
decide not to participate in mushroom production. Farmers were also discovering that they could sell the
high quality mushrooms they produced elsewhere, creating a conflict of interest on the part of the farmers.
In light of this and other production challenges, Trang found herself struggling to balance the desire
to maximize Fargreen’s social impact with the reality of production and operations. She knew that the
regions where Fargreen could have the most impact and room to scale were those that relied most heavily
on rice farming, but she also knew that farmers in these areas – due to the lack of opportunities and access
to education – would potentially present a challenge in terms of training and maintaining high levels of
production. Consistency and high quality were critical to Fargreen’s reputation and the strength of its brand,
and the company could not afford to have disappointed customers sharing negative experiences that would
tarnish Fargreen’s name. If Fargreen could not sell its product or be financially sustainable, it could not
address its social objectives either. Moreover, if farmers were afraid to take on the risks of ownership until
the point of sale, Trang would not be able to reach those whose livelihoods could most be improved by the
opportunity to grow mushrooms.
In the midst of these successes and challenges, Trang and Van’s relationship had begun to deteriorate.
Trang suspected that Van no longer wished to work with Fargreen. It would be difficult to lose Van along
with her social ties in the community, but Trang had begun to build her own relationships with the farmers
and expected that Fargreen would be able to continue production at the pilot facility.
12
Entering Fargreen’s Next Phase
Trang sighed as the plane touched down on the tarmac in Hanoi. Her expectation that the original
rental agreement in Ninh Binh would continue had not been realized, and Fargreen’s time at the pilot facility
would soon have to come to an end. As the passengers ahead of her began to file out of the plane, Trang
checked her email and felt a spark of anticipation as she opened a message from one of her senior managers
about possible relocation sites (see Appendix A). She scanned the email, feeling her sense of optimism
and determination returning. Despite the setbacks she had faced in her time developing and launching
Fargreen, Trang believed that the social enterprise could be successful and deliver on its promises of financial
sustainability and social impact in Vietnam. In the same way that Fargreen had transformed the problem
of rice straw burning into a viable business opportunity, Trang believed this new challenge could be turned
into an opportunity. As she hailed a taxi to take her to the office, she was already weighing the tradeoffs
between the different locations, steadfast in her commitment to Fargreen’s mission and eager to apply the
lessons she had learned thus far.
See Appendix B for additional information on Vietnam’s economic background.
13
Appendices
Appendix A
The choices presented by Trang’s senior managers are summarized below.
The location of each option is depicted in Exhibit 5.
Option 1: Ha Nam
Ha Nam village was desirable because it was close to Hanoi (approximately 60 km, or 37 miles) with
good transportation links. The paved roads to the village could handle motorized traffic and small trucks –
keeping driving time to Hanoi to about one and a half hours. There was frequent bus service between Hanoi
and Ha Nam. There was also a large farming community, which meant that Fargreen would be able to scale
up quite significantly before having to expand operations to another community. It appeared, however, that
the farmers in Ha Nam already supplemented their incomes by growing other crops in addition to rice. None
of Trang’s staff had strong social connections to the community there. Infrastructure (water, electric, etc.)
was spotty, depending upon location. Families had figured out that burning the straw close to home was bad
for their health and therefore had dedicated areas where the straw could be burned away from homes, thus
minimizing health effects as much as they could.
Option 2: Thai Binh

Thai Binh was located about 100 km (62 miles) from Hanoi and had poor to adequate transportation
infrastructure. The roads were not well maintained, and few areas could be accessed by small vans. Driving
time to Hanoi was about three hours. It appeared that this was a tightly knit community with broadly
respected leadership. The farmers in Thai Binh were almost exclusively rice farmers, with no other crops or
activities as significant sources of income. The families in Thai Binh had higher exposure to the toxic gases
from rice straw burning, and there was a clear case for health benefits if rice straw burning was eliminated
or curtailed. One of Trang’s managers was from this community and had deep social connections to the area.
Option 3: Hoa Binh

Hoa Binh was about 95 km from Hanoi (59 miles) and had challenging transport infrastructure. Roads
were likely to flood and were not well maintained, making driving time to Hanoi about two hours. The area’s
farmers cultivated several different crops in addition to rice and were therefore less dependent on rice
farming for income. Average incomes were still quite low, however, and this community could see its incomes
rise significantly if it became the host for Fargreen’s operations. Long-term growth would be a challenge for
Fargreen due to the smaller size of the community. General quality of the infrastructure was poor. The area
did not suffer as much as others from the health effects of rice straw burning, partly because the geography
was such that the smoke blew away from the homes. Although the current staff at Fargreen did not have
personal connections with the community, they had close connections with other stakeholders. The staff felt
like they could create close ties relatively quickly.
14
Exhibit 5
Approximate locations of Fargreen’s pilot facility in Ninh Binh and potential
relocation sites in Northern Vietnam
Source: Adapted from Google Maps and Wikipedia.
15
Appendix B
Background Note on Vietnam
Current Economic Conditions
On October 5, 2015, negotiations for the Trans-Pacific Partnership Agreement ended, marking the
culmination of five years of talks between Vietnam and eleven other countries from both sides of the Pacific.
The event also signaled an important step in Vietnam’s transformation into a rapidly growing economy with
rising importance on the global stage. Beginning with the Vietnamese government’s Doi Moi (“renovation”)
policies implemented in 1986, the country was in the midst of a transition from a highly centralized planned
economy to a more socialist-oriented liberalized economy.
Throughout this period, the governing Communist Party of Vietnam had shown a willingness to set
aside strict ideological orthodoxy in favor of economic development. Collectivized agricultural and industrial
production had gradually given way to expanding private property rights, increases in commercialized
production, growing opportunities for entrepreneurship, and an increasing emphasis on manufacturing and
service industries in addition to the country’s traditional agrarian sector.11
The three decades since the far-reaching reforms of Doi Moi had also brought about a greater degree
of integration into the global economy. Vietnam gained entry into the Association of Southeast Asian
Nations (ASEAN) Free Trade Area and Asia-Pacific Economic Cooperation (APEC) in the 1990s, followed by
the World Trade Organization in 2007. The adoption of the US-Vietnam Bilateral Trade Agreement led the US
to become one of Vietnam’s primary trade partners, second only to China in total import and export value,
and the largest importer of Vietnamese goods at over $31 billion in 2014.12,13 In 2014, Vietnam was ranked
34th globally in annual exports with total exports of $147 billion, further proof of the country’s increasingly
important role in the global economy.14 Despite the progress made, the country was dominated by a few large
state-owned enterprises on one hand and small family-owned ventures on the other.
The Vietnamese government had taken significant steps to facilitate the country’s economic development
through sweeping structural and policy reforms; however, considerable work still needed to be done to
avoid impeding future development. Meeting the commitments of its various trade agreements and further
encouraging international exports would require additional policy and structural changes in IPR (Intellectual
Property Rights) protection, investment and securities laws, and anti-corruption measures.15 In addition,
steps had to be taken to improve the business climate for entrepreneurs within the country.
Vietnamese Rice Industry

Although the opening of its borders to foreign investment and trade had increased the importance of
manufacturing and service industries in Vietnam, agriculture still played a central role in the economy and
provided employment for 61% of the Vietnamese labor force, or over 30 million people.16. The country’s
primary agricultural products included coffee, rubber, cotton, tea, and soybeans. Rice, however, was by far
the most important staple crop in Vietnam. Even as Vietnamese diets shifted to more varied sources of protein
and calories, rice still accounted for half of the population’s daily caloric intake and continued to form the
basis of at least two meals a day.17 Although some of the country’s supply was imported from neighboring
countries, the grain continued to far outpace other agricultural products in domestic production, both in
quantity and in dollars.18
Rice had always been central to Vietnam’s culture and domestic economy, but it wasn’t until the Doi
Moi policies of 1986 that farmers began shifting away from subsistence rice farming and into production
for commercial sales and exports (See Exhibit 6). The transition, however, was not initially a smooth one.
16
During the 1980s, rural farmers experienced hunger and poverty due to declining incomes and insufficient
rice production. By 1985, they had begun abandoning cooperative fields, contributing to the fall of annual
rice production from 16 million tons in 1986 to 15.1 million tons in 1987. In 1988, the situation came to a
head due to a bad growing season, hyperinflation, and a lack of foreign reserves to import rice from Thailand.
The result was widespread food shortages and famine that affected some 40% of the rural population of
northern Vietnam. It was estimated that between 3 and 3.5 million people experienced severe hunger, with
many going without food for weeks.19
Exhibit 6
Vietnamese Rice Production 1964 - 2014
50,000.00
45,000.00
40,000.00
35,000.00
Production (Thousand tons)
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
Year
Source: Created by the authors using data from www.ricepedia.org/vietnam
In response to these events, the government moved quickly to implement additional reforms to move
the country away from a collectivist agricultural system toward private, household-based production, hoping
that the model would encourage higher levels of productivity and food security. To this end, the central
government legalized private agricultural production, granted households the responsibility for all phases
of production, provided long-term contracts for land tenure on cooperative land, and offered farmers the
choice of purchasing agricultural inputs from private suppliers rather than being solely reliant on the state
for fertilizer, seeds, irrigation, and pesticides. These and other policy changes resulted in a rapid increase in
agricultural productivity. Per capita rice production jumped from less than 242 kilograms per person in 1987
to 293 kilograms in 1989, and rice exports more than doubled from 0.91 million tons in 1988 to 1.95 million
tons in 1992, making Vietnam the world’s third leading exporter of rice.20
Rice production in Vietnam continued to increase over the decades that followed, reaching 40 million
tons in total production in 2010. Despite approximately two-thirds of production being reserved for domestic
use, Vietnam maintained its status as one of the top three global suppliers of rice, with 6.8 million tons
(approximately $4 billion in value) exported in 2014.21
17
Corruption and Transparency

Transparency International reported the following about Vietnam: “In spite of improvements over the
past years, corruption is still considered widespread throughout the country and Vietnam still lags behind
other Asian countries in terms of control of corruption and most governance indicators. Corruption affects
different sectors such as health, education, construction, [and] land management as well as natural resources
and the extractive industries. The private sector is also affected by cumbersome legislation, which provides
both incentives and opportunities for corruption.”22
Vietnam was still a predominantly cash-based economy because the legal and banking systems were not
yet mature or widely accessible. This made graft and rent-seeking behavior easy and common. Furthermore,
the collectivist value of sharing wealth led to the expectation that financial gains should be shared, even if
parties had not contributed to the gain. In this hierarchical society, power was given to status, and those
in power often viewed seeking additional income as acceptable. In contrast, there were those who could not
live off the salary they received. For example, it was common for police to receive bribes in lieu of fines in
order to support their families. Part of this was due to the fact that private sector incomes were rising faster
than public sector salaries and causing market prices for consumables to rise beyond the reach of those on
fixed salaries. This disparity in incomes, accompanied by the need to augment salaries, was typical when
previously-closed economies moved to more market-driven economies.
18
Endnotes
1
The case’s first author worked closely with Fargreen as a Fulbright Scholar in Hanoi in 2015-16, and the second author is an
advisor to Fargreen and has spent time in Vietnam with Fargreen. Case data was obtained through interviews by the first and
second authors with Trang Tran, access to Fargreen’s market research, and through secondary research of public sources as noted.
2
Heinze, C. (2012, March). Biomass Business Opportunities Viet Nam. Retrieved October 12, 2015, from Energypedia: https://
energypedia.info/images/8/8f/Biomass_Business_Opportunities_in_Vietnam.pdf
3
Viet Nam News. (2015, June 10). Post harvest straw smoke continues to harm people. Retrieved October 15, 2015, from Viet Nam
News: http://vietnamnews.vn/society/271534/post-harvest-straw-smoke-continues-to-harm-people.html
4
Meessen, J. (2015, May 21). The Viet Nam Green Growth Strategy: A review of specificities, indicators and research
perspectives. Retrieved October 11, 2015, from Belgian Development Agency: http://congrestransitiondurable.org/browse/
author?authorid=318830
5
The Economist. (2014, January 18). Against the grain: Vietnam’s farmers are growing a crop that no longer pays its way. Retrieved
October 5, 2015, from The Economist: http://www.economist.com/news/asia/21594338-vietnams-farmers-are-growing-crop-no-
longer-pays-its-way-against-grain
6
Central Intelligence Agency. (2015). Vietnam. Retrieved September 30, 2015, from World Factbook: https://www.cia.gov/library/
publications/the-world-factbook/geos/vm.html
7
Viet Nam News. (2013). Mushroom farms come out of the dark. Retrieved October 10, 2015, from Viet Nam News: http://
vietnamnews.vn/in-bai/242487/mushroom-farms-come-out-of-the-dark.html
8
Tuoi Tre News. (2014, July 15). No abnormalities found in Chinese mushrooms in Vietnam: official. Retrieved October 22, 2015,
from Tuoi Tre News: http://tuoitrenews.vn/business/20968/no-abnormalities-found-in-chinese-mushrooms-in-vietnam-official
9
Eng, K. (2015, April 24). Straw into gold: A TED Fellow cultivates mushrooms to fight climate change. Retrieved March 5, 2016,
from TED Blog: http://blog.ted.com/straw-into-gold-a-ted-fellow-cultivates-mushrooms-to-fight-climate-change
10
World Bank Group. (2015). Ease of Doing Business in Vietnam. Retrieved October 10, 2015, from Doing Business: http://www.
doingbusiness.org/data/exploreeconomies/vietnam#starting-a-business
11
Vuong, Q. H. (2014, May 27). Vietnam’s Political Economy in Transition (1986-2016). Retrieved October 13, 2015, from Stratfor
Global Intelligence: https://www.stratfor.com/the-hub/vietnams-political-economy-transition-1986-2016
12
Vietnam Customs. (2013). Developments and highlights of merchandise trade between Vietnam and United Statesin 2013, update
for 2014. Retrieved December 6, 2015, from Vietnam Customs: http://www.customs.gov.vn/Lists/EnglishStatistics/ViewDetails.
aspx?ID=361&Category=&Group=Trade%20news%20%26%20Analysis&language=en-US
13
United States Census Bureau. (2015, November 18). Trade in Goods with Vietnam. Retrieved December 6, 2015, from United
States Census: https://www.census.gov/foreign-trade/balance/c5520.html
14
Vuong, Q. H. (2014, May 27). Vietnam’s Political Economy in Transition (1986-2016). Retrieved October 13, 2015, from Stratfor
Global Intelligence: https://www.stratfor.com/the-hub/vietnams-political-economy-transition-1986-2016
15
Embassy of the United States. (2015). Current Trends in Vietnam’s Economy. Retrieved October 8, 2015, from Embassy of the
United States - Hanoi: http://vietnam.usembassy.gov/econ9.html [no longer available at this site]
16
FAO. (2015). Vietnam Country Profile. Retrieved October 19, 2015, from FAOSTAT: http://faostat.fao.org/CountryProfiles/Country_
Profile/Direct.aspx?lang=en&area=237
17
CGIAR. (2012, September). Ricepedia: Vietnam. Retrieved October 20, 2015, from Ricepedia: http://ricepedia.org/vietnam
18
FAO. (2014). Viet Nam. Retrieved October 14, 2015, from FAOSTAT: http://faostat.fao.org/CountryProfiles/Country_Profile/Direct.
aspx?lang=en&area=237
19
Raymond, C. (2008). No Responsibility and No Rice: The Rise and Fall of Agricultural Collectivization in Vietnam. Journal of
Agricultural History, 82(1): 43-61.
20
Raymond, C. (2008). No Responsibility and No Rice: The Rise and Fall of Agricultural Collectivization in Vietnam. Journal of
Agricultural History, 82(1): 43-61.
21
CGIAR. (2012, September). Ricepedia: Vietnam. Retrieved October 20, 2015, from Ricepedia: http://ricepedia.org/vietnam
22
Martini, M. (2012, January 27). Overview of corruption and anti-corruption in Vietnam. Retrieved March 5, 2016, from
Transparency International: http://www.transparency.org/files/content/corruptionqas/315_Overview_of_corruption_and_anti-
corruption_in_Vietnam.pdf
19
Established at the University of Michigan in 1992, the William Davidson Institute
(WDI) is an independent, non-profit research and educational organization focused on
providing private-sector solutions in emerging markets. Through a unique structure
that integrates research, field-based collaborations, education/training, publishing,
and University of Michigan student opportunities, WDI creates long-term value for
academic institutions, partner organizations, and donor agencies active in emerging
markets. WDI also provides a forum for academics, policy makers, business leaders, and
development experts to enhance their understanding of these economies. WDI is one
of the few institutions of higher learning in the United States that is fully dedicated to
understanding, testing, and implementing actionable, private-sector business models
addressing the challenges and opportunities in emerging markets.

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case 9-755-550

East Meets West: Growing a For-Profit Social Venture in

The Genesis of Fargreen

Source: Fargreen, 2015-16.

The Rise of Rice Straw Burning

Source: Fargreen, 2015-16.

Low Income Levels from Rice Farming

Opportunity: Unmet Demand for Locally Grown, Safe, Branded Mushrooms

Fargreen’s Business Model

Source: Fargreen, 2015-16.

Pilot Facility in Ninh Binh

Source: Fargreen, 2015-16.

Entering Fargreen’s Next Phase

See Appendix B for additional information on Vietnam’s economic background.

Option 2: Thai Binh

Option 3: Hoa Binh

Source: Adapted from Google Maps and Wikipedia.

Vietnamese Rice Industry

Corruption and Transparency

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