Hoa Phat's Competitive Advantage in Steel Industry

This assignment provides an analysis of Hoa Phat's competitive advantage in the steel industry. With a strong investment capability, advanced technologies, and high market share, Hoa Phat is a leading company in the sector. The comparison with Pomina and Chinese rivals highlights Hoa Phat's effectiveness in managing costs and increasing profits despite challenges in the industry.

ASSIGNMENT 2 FRONT SHEET
Qualification BTEC Level 4 HND Diploma in Business
Unit number and title Unit 1: Business and Business Environment
Submission date 25 June 2020 DateReceived1stsubmission
Re-submission Date DateReceived2ndsubmission
Student’s Name Tran Tan Phat Student ID GBD191252
Class GBD0804B Assessor’s name Alelie C. Zaragoza
Student declaration
I certify that the assignment submission is entirely my own work and I fully understand the consequences of
plagiarism. I understand that making a false declaration is a form of malpractice.
Student’s signature Phat
Grading grid
P4 P5 P6 M3 M4 D2

 Summative Feedback: Resubmission Feedback:
Grade: Assessor Signature: Date:
Internal Verifier’s Comments:
Signature & Date:

Assignment Brief 2
Higher National Certificate/Diploma in Business
Student Name/ID
Number:
Unit Number and Title: Unit 1: Business and Business Environment (485)
Academic Year: 2020
Unit Assessor: Alelie C. Zaragoza
Assignment Title: ASSIGNMENT 2- Internal and External analysis of a Business
Issue Date:
Submission Date:
Internal Verifier Name:
Date:
Submission Format:
Format:
 This assignment is an Individual report and specifically. You must use font Calibri size 12, set number of the pages and use multiple line spacing
at 1.5. Margins must be: left: 1.25 cm; right: 1 cm; top: 1 cm and bottom: 1 cm. You should use in text references and a list of all cited sources at the end of the essay
by applying Harvard referencing style. The recommended word limit is 2000-2500 words (+/-10%), excluding the tables,
graphs, diagrams, appendixes and references. You will not be penalized for exceeding
the total word limit. The cover page of the report has to be the Assignment front sheet 2 (to be attached
with this assignment brief).
Submission
 Students are strictly mandated to submit the assignment in due date (slot 38) and in a
way requested by the Tutor.
 The form of submission will be a soft copy posted on http://cms.greenwich.edu.vn/.
 Remember to convert the word file into PDF file before the submission on CMS.

Note:
 The individual Assignment must be your own work, and not copied by or from another
student. If you use ideas, quotes or data (such as diagrams) from books, journals or other
sources, you must reference your sources, using the Harvard style. Make sure that you understand and follow the guidelines to avoid plagiarism. Failure to
comply this requirement will result in a failed assignment.
Unit Learning Outcomes:
LO3 Use contemporary examples to demonstrate both the positive and negative
influence/impact the macro environment has on business operations.
LO4 Determine the internal strengths and weaknesses of specific businesses and explain
their interrelationship with external macro factors.
Assignment Brief and Guidance:
Assignment scenario.
You are working as an analyst in JP Morgan, a famous investment bank which aims to find out
dynamic companies around the world to make investment in. After submitting a written
profile of a chosen company, your supervisor believes this firm has an opportunity to be a
profitable investment. The next task is for you to write an analysis of the chosen company’s
internal and external environment.
This time, you need to do the following:
1. The same company in Assignment 1.
2. The country or a specific province in the country, where the chosen company provides
its products or services, to make a research for the effect of the external environment
factors.
This will be performed a report to the Director and should include the following structures.
Structure of the Report :
1. Introduction: this section should give a brief explanation of the purposes and structure
of the report.
2. Identify the positive and negative impacts the macro environment has upon the chosen
company. Student need to explain the competitive environment (Five forces model)
and 6 factors (PESTLE) of macro environment. For each factor, you have to present the

general impact of each in the business or the chosen company.
3. Conduct internal analysis of the chosen company by analyzing the following factors: (i)
Core value or Mission or Vision; (ii) Organizational structure; (iii) Human resources; (iv)
Brand name or brand equity; (v) Financial strength/ factors; (vi) Fix/physical assets; (vii)
Market resources; (viii) Technology base or Research and Development. Based on the
previous analysis, identify the strengths and weaknesses of the company.
4. Explain how strengths and weaknesses interrelate with external macro factors. First,
you have to search for at least 1 real business decision-making of the chosen
company (strategies/ action plans/ investment decisions/ developing decisions). Next,
you have to prove how the previous mentioned decision is affected by (i) strengths or
weaknesses of the chosen company and taken into consideration of (ii) factors of the
macro environment (PESTLE) and (iii) competitive forces of the competitive
environment, which make an effect on the chosen company. SWOT or TOWS must be
applied to come up with meaningful analysis of the internal and external business
environment. Find an example to highlight how different companies have different
business decisions when they are affected by similar external factors.
5. Partnerships and other business ventures made by your chosen company.
6. Conclusion: summarize all the key points from the report.
7. Recommendation: Why do you think this business will be a good investment for J.P
Morgan? Support your answer.
8. Prepare a presentation. Note minimal use of words/sentences.
 Profile of the company
 Results of the internal assessment
 Results of the external assessment
 Why do you think this company is a good investment opportunity for J.P Morgan?

Learning Outcomes and Assessment Criteria (Assignment 1):
Learning Outcome Pass Merit Distinction
LO3 Use
contemporary
examples to
demonstrate both
the positive and
negative
influence/impact the
macro environment
has on business
operations.
P4 Identify the
positive and negative
impacts the macro
environment has
upon business
operations,
supported by specific
examples.
M3 Apply
appropriately the
PESTLE model to
support a detailed
analysis of the macro
environment within
an organization.
LO3 & 4 D2 Critically
evaluate the impacts that
both macro and micro
factors have upon
business objectives and
decision-making
LO4 Determine the
internal strengths
and weaknesses of
specific businesses
and explain their
interrelationship with
external macro
factors.
P5 Conduct internal
and external analysis
of specific
organisations in
order to identify
strengths and
weaknesses.
M4 Apply
appropriately
SWOT/TOWS analysis
and justify how they
influence decision-
making.
P6 Explain how
strengths and
weaknesses
interrelate with
external macro
factors.

Student: Tran Tan Phat
Teacher: Alelie Campana Zaragoza
Submission date: June 25, 2020
Words count:

Table of content:

I. Introduction:
This is the second assignment for “Business and Business Environment”. The
researcher will be going to assess the internal and external of Hoa Phat Group. Plus,
the researcher will also look for 1 real business decision-making of the company and
compare the success rate with a business decision-making of another company. The
essay down here is going to explain why the company is deserved to invest in.
II. Methodology:
In order to collect data about Hoa Phat, the researcher had used the Internet to get
the background of the company. The researcher is also used some physical evidence
to show how employees were trained.
III. Finding:
*The Porter Five Forces model brings together a large number of different factors in
a simple model to analyze the basic competitive landscape of an industry. The
Potter Five Forces model identified five main sources of competition, namely:
1. Bargaining power of suppliers
2. Bargaining power of suppliers
3. Threat of New Entrants
4. The threat of Substitutes
5. Competition of existing competitors in the industry

1. The bargaining power of suppliers:
When the input elements provided by the supplier constitute a large proportion of
the total cost of the product to the buyer, potential bargaining power of the supplier
is greatly increased. In general, suppliers who meet the following conditions will
have stronger bargaining power.
_The supply-side industry is for some companies that have a relatively stable market
position and are not plagued by fierce competition in the market.
_ Supply-side products have certain characteristics, buyers are difficult to convert, or
conversion costs are too high.
_ The supplier facilitates forward integration, or otherwise impose additional cost to
the production process.
2. The bargaining power of buyers:
Buyers mainly influence the profitability of existing companies in the industry
through their ability to lower prices and requirements to provide higher product or
service quality. In general, buyers who meet the following conditions have strong
bargaining power:

_The total number of buyers is small, and each buyer purchases a large amount and
accounts for a large percentage of the seller's sales.
_ The seller's industry consists of a large number of relatively small companies.
_ The purchaser purchases a standardized product, and it is economically feasible to
purchase the product from multiple vendors at the same time.
_Suppliers facilitate forward integration, while buyers find it difficult to combine or
integrate backward.
3. The threat of new entrants:
New entrants, while bringing new production capacity and new resources to the
industry, hope to win a place in the market that has already been divided by existing
companies. This may cause competition with existing companies in raw materials
and market share, resulting in the existing industry. The level of corporate profits is
reduced, even threatening survival. The severity of competitive entry threats
depends on two factors: the size of the barriers to entry into new areas and the
expected response of existing businesses to entrants. Barriers to entry mainly
include the following factors:
Economies of scale
With the expansion of business scale, the industrial characteristics of the decline in
unit product costs, the higher the industry's lowest effective scale, the greater the
barriers to entry.
Differentiation degree
Differentiation refers to the unique targeting of products and services to customer
needs. The higher the difference, the greater the barrier to entry.
Conversion cost
The conversion cost of a customer or buyer refers to the extra cost that the
customer must pay in order to change the supplier.
Technical obstacles
Includes patented technology, proprietary technology and learning curve.
Control of sales channels

The company's self-built distribution channels, good partnerships and reputation,
brands, etc.
Policy and Law
National policies protect certain industries, such as the financial industry.
4. The threat of Substitutes:
Two companies in different industries may generate competing products because of
the products they produce are alternative products.
_ Increased selling price and profitability of existing products will be limited due to
the existence of alternatives that can be easily accepted by users.
_ Due to the intrusion of alternatives, existing companies must improve product
quality or reduce costs.
_ The intensity of competition from producers of alternative products is affected by
the cost of the conversion of product buyers.
5. Competition among existing competitors in the
industry:
Enterprises in most industries are closely linked to each other's interests. As part of
their overall strategy, their goal is to make their own companies more competitive
than their competitors. There are conflicts and confrontations, often manifested in
prices, advertising, product introductions, and after-sales services. (online.visual-
paradigm.com, 2020).
* Next, the researcher will analyze some factors of Hoa Phat company in order to
identify the strengths and weaknesses of the company:
1. Vision: “Becoming the leading industrial production group with leading
quality, in which Steel is the core field” (hoaphat.com.vn, 2020)
Hoa Phat is well-known for steel production and manufacturing, but Pomina is also
one of the few private enterprises that dare to embark on the industrial production
also Investing in a closed chain in steel production with a capital of thousands of
billion dong but failing to regain capital as Hoa Phat
In 2012, Hoa Phat reached VND 994 billion in profits, more than VND 17,200 billion
in revenue. Meanwhile, despite reaching more than 11,760 billion dong in revenue

at the same time, Pomina earned less than 5 billion dong in profit. The reason,
according to Nguyen Trung Hoa, senior analyst of Maybank Kimeng Securities
Company (MBKS), is due to Pomina's new steel billet factory. After inauguration of
the second factory to increase capacity to 1.5 million tons / year in July 2012,
Pomina immediately under pressure to increase fixed costs per product unit. The
cost increased, but Pomina's steel sales volume in that year only increased slightly
by 3%, as the plant only ran at 40% capacity.
Meanwhile, looking back 2 years ago, Hoa Phat also put into operation phase 1 of
Hoa Phat Iron and Steel Complex, causing the Group's steel sales to increase by
64%, despite the market There are many oversupply concerns. HPG's net profit /
revenue ratio is even higher than it currently is.
This difference is explained by the fact that Hoa Phat was one step ahead in building
a relatively complete vertical integration model, revolving around the main pillar of
steel. In his message to shareholders in 2012, Chairman Tran Dinh Long continued
to reiterate the group's vision of "setting a solid foundation to be one of Vietnam's
leading industrial manufacturers." Nam with steel is the core production sector”.
This shows that Hoa Phat's vision is getting stronger and clearer. (hoaphat.com.vn,
2012)
2. Organizational structure:

-Figure 1: Structure of organization (jobsgo.vn)-
Functions and duties of each department in the management apparatus:
- Director (Giám đốc công ty): As the head of the company, the legal
representative of the company, managing and operating the company in accordance
with the orientation and goals set by the Association. The Board Directors sets out
and is responsible to the Board of Directors for all production and business activities
of the company , administering labor , wages , salary regimes , labor recruitment -
Deputy Director (Phó giám đốc) : Receive duties from the company director ,
organize the implementation of the assigned tasks . To be in charge of general
affairs of the sales department and the accounting department responsible for the
operation results of the sales department and the accounting department. On behalf

of the director to handle the internal affairs, urge the implementation of the work of
the departments in the company, responsible for regularly reporting to the Director
about the assigned work. - Plant manager (Giám đốc nhà máy): Receive and
implement the company's short - term and long - term production plans. Manage,
supervise and urge all activities production of the plant, ensuring the good
implementation of objectives on planning, output, quality, industrial hygiene, labor
hygiene, safety and discipline. Direct the functional departments of the factory and
the workshops to perform the assigned tasks effectively, responsible to the
company for all activities of the plant. Sales Department (Phòng kinh doanh):
Responsible for market research and exploitation expanding market share ,
understanding market needs , promoting products considering signing sales
contracts; transactions , contact customers; order for warehouse keeper. Sales
Department responsible for market research and exploitation expanding market
share , understanding market needs , promoting products considering signing sales
contracts ; transactions , contact customers , order for warehouse keeper
Customized products have been reviewed and discussed with customers. Planning
production, monitoring, organizing the implementation of production plans of steel
pipe factory and cold rolling factory Accounting Department (Phòng kế toán): It is
in charge of accounting arising economic transactions, providing financial
information to the Board of Directors accurately and timely. The most important task
of the accounting department is to collect data.
- Materials - Import - Export Department (Phòng vật tư/XNK): Monitor the situation
of import , export and inventory of materials , meeting the demand for supplies for
production Planning to purchase materials, equipment, spare parts, repair
machines ,equipment for production and other equipment Transacting and
negotiating with suppliers and partners to choose the best supplier - Department of
training (Phòng tổ chức đào tạo): Managing the company's human resources
department to monitor and update the personnel changes in a complete and
accurate manner. Based on the company's human resources needs, there is a plan
for recruiting and training to submit to the board of directors for approval Technical
Department Manage records, records of equipment in the whole factory, propose
plans to improve, improve, upgrade equipment to increase labor productivity,
reduce costs, improve product quality. Technical guidance for the processing,
manufacturing and repair of equipment to promptly meet production - Quality
management department (Phòng quản lí chất lượng): manage the entire quality
system according to the company's ISO 9001: 2000 processes, ensure both system
maintenance and effective operation. Coordinate with relevant department heads to
ensure the best quality products - Corrugated iron workshop (Phân xưởng cắt
tôn): Manage all machinery and equipment of the steel sheet workshop ensuring

always well done the assigned plans. Receive religious cutting plan from moderation
production plan , coordinated with moderation of production plan , in coordination
with other parts of the factory - Galvanizing workshop (Phân xưởng mạ kẽm):
Managing all manpower , machinery and equipment of two galvanizing lines
performing production at the two galvanizing lines through the production plan
ensuring stable production , responsible for all operations of the plating factory -M &
E workshop (Phân xưởng cơ điện): Managing all equipment tools , supplies and
spare parts of the electromechanical workshop Complete assigned tasks and timely
tasks for production of the entire factory - Black steel pipe workshop (Phân xưởng
ống thép đen): Managing all equipment tools and spare parts of the tube bending
workshop Coordinate with dispatching plan to carry out production according to plan
Coordinate other departments and workshops to ensure a good job - Mold workshop
(Phân xưởng khuôn):Manage all the files , documents and equipment of the mold
shop Managing , monitoring and proposing measures to improve mod quality as well
as well as the proper use of molds Planning supplies and spare parts for the
workshop to operate continuously , timely meet the requirements of production.
HPG have a matrix structure. This bring HPG both advantages and disadvantages
Advantage:
_ Improve communication efficiency throughout the organization.
_ Allows individuals to use their professional skills in a variety of contexts.
_ Shorten the decision-making process.
Disadvantages:
_ Takes time for personal of getting used to this operating structure.
_ Conflicts of interest occur between project leaders and functional leaders.
3. Human resources:
Currently, Hoa Phat Group has 11 member companies with about 20,000 employees,
operating nationwide and 01 office in Singapore (hoaphat.com.vn, 2020).
4. Brand equity:

Hoa Phat is valued at US $ 128.9 million by Forbes, leading the construction
materials industry and is the only steel producer in this ranking.
Hoa Phat brand holds the No. 1 market share in Vietnam in the fields of
construction steel, steel pipes, office furniture and has always affirmed its leading
position in business sectors, Since November 2017, Hoa Phat has changed its brand
identity , wearing a more modern, more beautiful outfit, commensurate with the
Group's size and stature.
In the second quarter of 2019, in the context of many difficulties, Hoa Phat still
recorded positive business results when reaching VND 15,300 billion in revenue and
VND 2,050 billion in after-tax profit. In the first 6 months, HPG has reached 58% year
profit target with 3,860 billion dong.
For many consecutive years, Hoa Phat brand was chosen as the National Brand; Top
strongest Brand in Vietnam; Vietnam Golden Star, Top 50 Vietnam's most effective
companies; Top 20 enterprises paying the largest corporate income tax in Vietnam...
-Figure 2: Hoa Phat is among the top 20 brands valued over USD 100 million-
Note: Thương hiệu: Core value , Ngành: branch , Giá trị triệu đô (triệu đô la Mỹ):
Value (million USD).

Compared to the list in 2018, this year's list has changed when expanding the
number from 40 brands to 50 brands, suitable for the development of businesses
and the economy. Besides, while maintaining the calculation method, the list is
arranged by each industry. Accordingly, after segmentation, the most valuable
brands by each industry will be selected from top to bottom.
Forbes Vietnam makes this list according to Forbes (US)’s evaluation method,
calculating the role of the brand in the business performance of the business. The
most valuable brands are brands that achieve a large turnover in the industries
where the brand plays a leading role. At the same time, these companies have
strong brands, products with high coverage and awareness to consumers. The data
collection of businesses is based on financial statements of companies, data on the
stock market. The final brand value is determined based on the industry average P /
E. (hoaphat.com.vn, 2019)
5. Financial strength:
-Figure 3: Hoa Phat Group’s stock exchange (Finance.vietstock.vn, 2019)-
This is the stock exchange of the company. Based on the information displayed on
the stock exchange, shareholders will know about the daily increase or decrease of
the stock and the cost to pay for a stock. Obviously, the selling price for a stock was
26,300 VND Million, then increased to 26,500 VND Million, but then curtail down to
25,350 VND Million, equivalent to a reduce of 4.15% on June 15, 2020.
6. Physical assets:

-Figure 4: Fixed assets of HPG (finance.vietstock.vn, 2020)-
We can see the physical assets of HPG are 46,005,627 (million VND) in March 31 of
2020. It has been increased for almost 33.185,627 (million VND).
7. Market resources:
-Figure 5: Graph of steel consumption (tons) and market share of Hoa Phat Steel.
(hoaphat.com.vn)-
The road to construction steel for Hoa Phat is not full of commissions. Sharing at the
2015 annual shareholder meeting, Mr. Tran Dinh Long, Chairman of the Board of
Directors of Hoa Phat Group, said in 1999 "to ask 9 people, then 10 people think that
Hoa Phat will fail". But after 15 years, this group has become a leading enterprise in
the industry, accounting for more than 19% market share of construction steel. Hoa
Phat's output and market share have been growing steadily from 2007 to the

present. Except for 2012, consumption of Hoa Phat decreased due to the general
difficulties of the economy. From 7% in 2007, Hoa Phat surpassed Pomina and TISCO
to rise to 19.1% in 2014. According to the latest figures, in the first 7 months of this
year, this company reached approximately 22% market share of construction steel
of the country.
HoaPhat. 2020. Hòa Phát: Con Đường Lên Số 1 Thị Trường Thép Xây Dựng. [online]
Available at: https://www.hoaphat.com.vn/tin-tuc/hoa-phat-con-duong-len-so-1-thi-
truong-thep-xay-dung.html [Accessed 27 June 2020].
7. Technology base or Research and Development:
-Figure 6: Steel making process of Hoa Phat (hoaphat.com.vn, 2020)-
The closed steel production process from iron ore to finished steel is a long cycle in
which the output of one stage is the input of another. During the process, the
recovery and reuse of waste gas, waste water, excess heat and even solid waste are
treated in a circulation chain, without discharging into the environment, helping to

save energy and protect the environment, optimal production efficiency, product
competitiveness.
This solution is applied to both Hoa Phat Iron and Steel Complex in Hai Duong and
Quang Ngai. The investment capital for environmental items of Hoa Phat steel
accounts for about 20-30% of the total investment capital for the projects. The
effectiveness of the application of closed circulation technology has been proved
very specific in these Complexes. With closed blast furnace technology, all waste,
exhaust gas and wastewater are thoroughly treated, meeting the current standards
in heavy industry production, reusing circulation, and not discharging into the
environment. The amount of iron-containing dust recovered during the process of
iron and steel refining is also reused at the production stages, both saving costs and
improving the working environment. Hoa Phat Steel selects the most advanced
ultra-clean heat recovery coking coal technology in the world today, friendly to the
environment. This is a technology to produce clean coke coal that recovers heat and
meets environmental standards under the clean development mechanism to reduce
greenhouse gas emissions following the Kyoto Protocol. This technology eliminates
all gases, fumes and toxic chemicals generated from the coking process, only
recuperating heat to run the generator.
Thanks to this solution, Hoa Phat Hai Duong Steel Complex has a generating
capacity of 64MW, contributing to proactively 60% of the annual electricity demand.
With the Complex in Dung Quat, Quang Ngai, the autonomy power output is up to
70% thanks to 04 generating sets with a capacity of 240MW, bringing significant
economic value, and increasing competitiveness for Hoa Phat steel. Moreover, the
Group's member companies are continuing to research and improve technologies to
increase generation capacity, reduce consumption of coal fuel and other materials
to increasingly optimize the device.
Strengths of HPG:
_ Hoa Phat has a solid vision of their business.
_ Hoa Phat's organizational structure enhances communication efficiency throughout
the organization, allows individuals to use their professional skills in multiple
contexts and approves the decision-making process in the shortest possible way.
Make the earliest decision for the company.
_ Hoa Phat's steel market share percent is higher than other competitors, helping
Hoa Phat to have a strong foothold in competing with other companies.

_ Hoa Phat Steel is manufactured on closed synchronous technology line, using
modern machinery and advanced production process in the world. Specifically,
Italy's Danieli steel mill line is a QTB process that increases mechanical properties
and resistance to welding, helping to optimize flexural strength and reduce rust
levels. Hoa Phat Steel provides the market with a variety of different steel types.
Plus, Hoa Phat Steel always improves its technology and strictly follows industry
standards and regulations. From there, produce good products, high strength,
stamina and high toughness, ensuring quality and longevity for the project.
_ Last but not least, thanks to the large scale of production and the synchronization
system from input materials to finished products, Hoa Phat Steel ensures price
competitiveness compared to other steel brands. Therefore, using this steel will
save you a lot of costs and still ensure the quality of the project.
Thép tấm - Thép hình - Thép hộp giá rẻ. 2020. Thép Hòa Phát - 3 Ưu Điểm Vượt Trội Chinh Phục Mọi
Khách Hàng. [online] Available at: http://thepcongnghiep.vn/tin-tuc/4-uu-diem-noi-bat-cua-thuong-
hieu-thep-hoa-phat/ [Accessed 28 June 2020].
Weaknesses of Hoa Phat:
_ Hoa Phat is currently experiencing a stock issue, as their share value has decreased by 4.15%.
_ In the short term, weakening issues of the real estate market and delays in infrastructure
investment may slow demand from the market, and Hoa Phat's penetration will take more time.
_ In 2019, Hoa Phat faced many difficulties when iron ore price exceeded 120 USD / ton, nearly
doubled in the same period last year. Therefore, Hoa Phat must have a long-term plan, so they can
prepare raw materials from many different sources, minimizing the impact of the supply and demand
market.
Internal/External analysis –SWOT
* Business decision-making:
At the end of 2019, Hoa Phat decided to invest in Dung Quat - a Multi-economic
and multi-field development area in South. They plans to focus on the southern and
central markets, as well as expand into new foreign markets such as Canada and
Mexico, in order to fully consume construction steel capacity from the Dung Quat
Complex.
The influence of strengths and weaknesses of the
company:
From the strengths of Hoa Phat, we can see that the investment in Dung Quat
Complex is reasonable because Hoa Phat's organizational structure allows

individuals to use their professional skills in many contexts and approve the decision
making process in the shortest possible way. Therefore, the cooperation with Dung
Quat Complex - a multi-sector and multi-field development area which has been
developed for many years in Quang Ngai province in the South of Vietnam will help
those individuals learn more about how to develop and apply their professional skills
when learning about the market in the south and gradually moving to new foreign
markets like Canada and Mexico in the future.
Above all, when Hoa Phat has a large production scale and a synchronization system
from input materials to finished products, applied with modern machinery and
advanced production processes in the world. Using this steel will save a lot of costs
while ensuring the quality of the project and always ensure the price
competitiveness compared to other steel brands. This helps Hoa Phat to build an
absolute trust in the product by cooperating with Dung Quat and bringing its
products to the South.
 In addition to a number of drawbacks (weaknesses) that can be clearly seen from
the outside of Hoa Phat, such as weakening issues of the real estate market and
delays in infrastructure investment slowing demand from the market, and Hoa
Phat's penetration will take longer. We can also see certain disadvantages in Hoa
Phat's products. For example, galvanized steel pipe:
_ Higher price than crude steel pipe, black steel pipe.
_ Only one base color is the color of zinc.
_ Due to domestic galvanized steel pipe is mainly welded steel pipe so the bearing
capacity compared to cast steel pipe will not be equal to other steel pipes.
Beside, Hoa Phat will face many difficulties when iron ore price increases many
times. Without long-term plans, they will always be affected by fluctuations in the
supply and demand market and that will affect more or less on profit plans no
matter what.
The influence of factors of the macro environment
(PESTLE):
Politics:
In the manufacturing industry, Hoa Phat Group Joint Stock Company (Code: HPG)
has 6 subsidiaries contributing to the V1000 list this year, namely:

Hoa Phat Hai Duong Steel Joint Stock Company, Hoa Phat Steel Pipe Company
Limited, Hoa Phat Hung Yen Steel Company Limited, Hoa Phat Furniture Joint Stock
Company, Hoa Phat Energy Joint Stock Company (under Hoa Phat Hai Steel Duong)
and Hoa Phat Steel Pipe Company Limited Da Nang.
Of the six companies, Hoa Phat Hai Duong Steel is the largest taxpayer in 2018 with
2,559 billion dong. Next is Hoa Phat Steel Pipe Company Limited with 936 billion
dong.
In 2018, Hoa Phat recorded consolidated revenue of VND 56,580 billion, an increase
of nearly 21% compared to 2017, profit after tax reached VND 8,600 billion and an
increase of more than 7%. The whole Hoa Phat Group paid VND 6,388 billion to the
state budget, an increase of 32% compared to 2017 (this amount includes corporate
income tax and many other items).
The budget contribution of Hoa Phat in 2018 is equivalent to that of Binh Dinh
province, the locality ranked 34th out of 63 provinces and cities nationwide in
remitting the budget. Within 10 years from (2008 - 2018), the subsidiaries of Hoa
Phat Group contributed about VND 27,000 billion to the State budget.
In the opposite direction, each year, Hoa Phat gets a few hundred billion dong
reduction in corporate income tax expenses because its subsidiaries are entitled to
tax incentives. According to the semi-annual consolidated financial report 2019
(reviewed) published recently, Hoa Phat achieved net sales of VND 30,596 billion,
profit after tax of VND 3,860 billion and tax incentives of VND 166 billion in the first
6 months of the year.

-Figure 7: Tax incentives for subsidiaries of Hoa Phat over the years (Compiled from
financial statements)-
Note: ( tỉ đồng ): billion VND
Economic:
Steel demand fluctuates unpredictably
According to VDSC, real estate market conditions are a major concern of Hoa Phat
as demand for construction steel for the real estate industry is expected to grow at a
moderate level. Currently, the civil sector accounts for about 60% of Hoa Phat's
construction steel sales, while demand from projects accounts for the remaining
40%.
However, Hoa Phat has significant advantages for sales at large-scale projects
because of its better and more stable steel quality. Therefore, Hoa Phat will not be
too dependent on steel demand from the real estate market.
For hot rolled steel (HRC), Hoa Phat's management is quite optimistic about demand
because in 2019, Vietnam imported about 12 million tons of HRC. In the same
period, Formosa's sales volume in the domestic market was over 3 million tons.
If Formosa sells out its maximum capacity of 5.2 million tons of HRC, the market will
still need about 7 million tons for Hoa Phat, which has a HRC capacity of 2.4-3
million tons.
Beside, in 11 months of 2019, total HRC demand of downstream producers was only
5.6 million tons, of which exports were 1.6 million tons. VDSC believes that domestic
HRC demand is not really high, and both Hoa Phat and Formosa producers will have
to expect export activities to take place so that they can fully consume their output.
Hoa Phat's HRC segment will be significantly supported by internal demand.
Currently, Hoa Phat has three steel pipe factories and one galvanizing plant, which
can use about 1.15 million tons of HRC per year if these plants operate at 100%
efficiency.
Financial problems when investing in Dung Quat project and interest rate of Hoa
Phat
Disbursement of fixed assets investment (CAPEX) for Dung Quat Complex has now
reached VND 50,000 billion, of which VND 30,000 billion has been mobilized from
internal sources and to conduct the Dung Quat project, Hoa Phat has signed a loan
contract of VND 10,000 billion from Vietnam Joint Stock Commercial Bank for

Industry and Trade (VietinBank) and VND 10,000 billion from Vietnam Joint Stock
Commercial Bank for Foreign Trade of Vietnam (Vietcombank).
7-year loan tenor, 2-year grace period, floating rate based on 12-month deposit rate
formula + interest rate margin. At the Annual General Meeting of Hoa Phat in 2019,
the Group's Chief Financial Officer said that the interest rate range is in the range of
7.5% - 9% / year. The specific formula is the 12-month average interest rate of state
commercial banks + 2.5%.
Chairman Tran Dinh Long added that this interest rate of Hoa Phat is quite
attractive, real estate businesses are borrowing at the interest rate of 10-12% /
year.
Ngọc, S., 2020. Hòa Phát Đã Giải Ngân 50.000 Tỉ Đồng Vào Dự Án Dung Quất, Bắt Đầu Trả Nợ Gốc Từ
Tháng 8/2020. [online] vietnambiz. Available at: https://vietnambiz.vn/hoa-phat-da-giai-ngan-50000-
ti-dong-vao-du-an-dung-quat-bat-dau-tra-no-goc-tu-thang-8-2020-20191226085024746.htm
[Accessed 28 June 2020].
Hoa Phat shares fell despite foreign investors' favor
HPG was held by foreign investors for the most in 11 months, but lost 3% since the
beginning of the year while VN-Index increased by nearly 7%.
According to FiinGroup , HPG is the most held stock by foreign funds with more than
139 million units, worth more than VND 3,000 billion in the first 11 months.
However, from the beginning of the year, this stock was out of step with the market.
In the first three months, HPG moved in the same direction as VN-Index. After
dropping by nearly 12% at the end of January, HPG rebounded more than nearly
30%, reaching the peak of the year at the price area of over VND 27,000 (post-
adjusted price) when the VN-Index returned to the thousand point threshold.
However, after announcing the business plan in 2019 with deep dropping profits and
unfavorable movements of iron ore prices in the world, HPG returned to the
downward trend. In the latest session, HPG shares traded around 23,000, down
nearly 3% compared to the beginning of the year while the VN-Index still increased
by nearly 7%.
The situation was not so positive with Hoa Phat's stock, which was perceived by the
analysts as a business story, when the challenge was surrounding businesses with
the highest market share in the construction steel industry.
At the end of the latest quarter, Hoa Phat have earned nearly VND 15,100 billion in
revenue, an increase of more than 6% over the same period but profit before tax

was only over VND 2,160 billion, down 24%. This result is not surprising, because
this is also the reality of recent steel enterprises.
Hoa Sen ended the fiscal year 2018-2019 with a 12% net profit decrease, Vietnam
Italy Steel lost the sixth consecutive quarter, Pomina Steel reported a loss of nearly
120 billion dong in the third quarter, while Nam Kim Steel also reduced its profit by
only one third over the same period.
Due to the Vietnam Steel Association, steel production and consumption in the first
10 months of this year increased by only one figure, a sharp decrease compared to
the increase of 20-40% in the last four years. The main reason is the slowdown of
the construction market, especially the large projects that are slow to deploy.
Competitive pressure among manufacturers is also pushed up due to the continuous
supply increase, but the demand from the market does not increase proportionately.
-Figure 8: Growth in consumption of construction steel Hoa Phat and members of Vietnam Steel
Association. (Hoa Phat Annual Report 2018)
While Hoa Sen chose to restructure to keep its profitability ratio, Hoa Phat chose the
opposite direction, exchanging profits for market share. Since the beginning of the
year, Hoa Phat's steel price has decreased by 10.8%, faster than other peers such as
Pomina and VinaKyoei. By price strategy, Hoa Phat's sales volume still increased by
15% in 11 months, despite the general market's decline. Market share of
construction steel increased slightly from 24% to 25% at the end of the third
quarter.
However, as a result, indicators of profitability performance are reduced. In the third
quarter, the gross profit margin of Hoa Phat dropped to below 18%, compared to
23% in the same period of 2018. Accumulated in the first 9 months of this year, this

rate only recorded more than 18.3%, compared to the approximately 22% over the
same period last year.The problem of the market, in broader view, also brings
another challenge for Hoa Phat as the company is focusing all efforts on the great
Dung Quat project.
In conclusion if Hoa Phat continues to choose price competition to win market
share, Hoa Phat's profits will be eroded. However, the market is not the only factor
affecting the profitability of leading construction steel enterprises. The pressure
from changes in capital structure as the company increased its debt to invest in
Dung Quat is becoming more visible and impactful.
Sơn, M., 2020. Vì Sao Cổ Phiếu Hòa Phát Giảm Dù Được Khối Ngoại Chuộng? - Vnexpress. [online]
vnexpress.net. Available at: https://vnexpress.net/vi-sao-co-phieu-hoa-phat-giam-du-duoc-khoi-ngoai-
chuong-4028616.html [Accessed 28 June 2020].
Social:
Hoa Phat Group sponsors the construction of a concrete bridge in Hau Giang
On June 17, 2020, Hoa Phat Group cooperated with People's Committee of Vinh
Tuong ward, Long My town, Hau Giang province to hold the inauguration ceremony
of Binh Hieu market concrete bridge, in Binh Hieu area, Vinh Tuong ward. The
ceremony was attended by representatives of the People's Committee, Fatherland
Front Committee of Vinh Tuong Ward, Ms. Nguyen Thi Thao Nguyen - Deputy
General Director of Hoa Phat Group, Ms. Tran Hai Yen - Deputy Director of Food Co.,
Ltd. raising livestock Hoa Phat Dong Nai and many people in the area.
Speaking at the inauguration ceremony, Mr. Do Van Duc - Chairman of Vinh Tuong
Ward People's Committee on behalf of the people of Binh Hieu in particular and Vinh
Tuong Ward in general sent his sincere thanks to Hoa Phat Group for providing
financial support. to build Binh Hieu market bridge to replace the old, seriously
deteriorated bridge.
Also in the ceremony, Hoa Phat Group presented 30 cash gifts for disadvantaged
families and policy families in the area, each worth VND 500,000. This helps these
people promote economic development in their areas. This also makes Hoa Phat to
be more respected by the people in these areas.
Trang, H., 2020. Tập Đoàn Hòa Phát Tài Trợ Xây Dựng Cầu Bê Tông Tại Hậu Giang. [online] HoaPhat.
Available at: https://www.hoaphat.com.vn/van-hoa-doanh-nghiep/tap-doan-hoa-phat-tai-tro-xay-dung-
cau-be-tong-tai-hau-giang.html [Accessed 28 June 2020].
Technology:

Hoa Phat - Leading quality with advanced technology
With the enthusiasm to lead by quality, Hoa Phat Group has always invested and
applied the best technology in its production and business activities, ensuring to
provide the market with quality products. sustainable values such as:
1. Construction steel:
Hoa Phat produces steel from iron ore using 100% closed blast furnace technology.
All exhaust gas, dust, heat and produced water will be collected, treated and reused
in production stages, without being discharged into the environment. Especially, the
excess heat generated in the coke coal refining process is used to operate the
generator, helping to control 50-70% of the electricity produced, saving hundreds of
billions of dong each year, while reducing consumption. power, better environmental
protection. On the other hand, blast furnace slag in the process of pig iron refining is
processed into fine grinding blast furnace slag, as a construction material,
thoroughly handling solid waste in the steel production process. Thanks to the
closed circulation technology from ores and modern equipment lines of G7
countries, Hoa Phat construction steel is always rated the highest in quality. The
impurities in the steel are deeply cleansed and almost no harmful elements
2. Steel pipes:
The factories of Hoa Phat Steel Pipe Co., Ltd. are equipped with modern technology
lines, high automation levels of Germany, Italy, Taiwan, .... From the input material
of hot rolled coils, steel pipes are produced through 05 basic steps: pickling, cutting
slitting, bending welded pipe, galvanizing (with hot-dipped galvanizing pipe) and
cooling or coating. Anti-rust oil (with black welded steel pipes and large-sized steel
pipes). All production stages are highly automated, meeting the rigorous standards
of Vietnam, the US, the UK, ... and are strictly controlled by the quality management
system ISO 9001: 2015. As a result, Hoa Phat Steel Pipe products have superior
quality, not only for many years, occupying the No. 1 market share in the country
but also reaching export standards to many fastidious markets such as Australia,
North America, Latin America. , India ... From the beginning of 2020, Hoa Phat Steel
Pipe is a pioneer in producing and supplying large-sized steel pipe products with
sizes such as ⱷ273 and ⱷ 325mm round pipes, 200x200, 250x250 square box tubes.
mm, rectangular tube 200x300. The production line of this product line is invested in
a methodical and modern way in Vietnam at present with a value of over 4 million
USD, equipped with a system of pressure testing equipment, dredging pipe ends,
scraping welded lines in help provide the market with superior quality products,
manufactured according to ASTM A53 and ASTM A500 to ensure good bearing and
high aesthetics.

HoaPhat. 2020. Hòa Phát - Chất Lượng Dẫn Đầu Nhờ Công Nghệ Tiên Tiến. [online] Available at:
https://www.hoaphat.com.vn/cong-nghe/hoa-phat--chat-luong-dan-dau-nho-cong-nghe-tien-tien.html
[Accessed 28 June 2020].
Consistent concerns about the environment
Recently, the environmental impact issues related to Dung Quat Hoa Phat Complex
attracted a lot of public attention when many crops of people around this plant area
died massively, the sea near It also turns black like coffee. The case is still being
clarified by the authorities. A few days ago, from inside the Dung Quat Complex
emitted an unusual red smoke that confused the people.
The leader of Hoa Phat Dung Quat later wrote a document explaining that this kind
of red smoke is Fe2O3 dust from the electrostatic precipitator system of the blast
furnace which burst out, the incident took only half a minute and the red dust
quickly settled down. . The company also pledges that this red dust is non-toxic.
VDSC said in a recent meeting of investors, Hoa Phat's management affirmed that
environmental protection is the company's top priority to maintain sustainable
growth. Hoa Phat has also shown efforts with the construction of solid waste and
wastewater reuse facilities and optimizing energy use.
According to VDSC, Dung Quat Complex is invested in a modern water treatment
system, which allows treating and reusing wastewater many times without
discharging it into the environment. Solid waste from steel production will be utilized
by the blast furnace slag mill.
The influence of competitive forces of the competitive
environment:
Ignoring potential companies VDSC thinks that only Hoa Phat can compete with
Chinese rivals
According to Rong Viet Securities Company (VDSC), safeguard tax on construction
steel and steel billet is likely to be extended. Current tax rates for steel billets and
construction steel are 17.3% and 10.9% respectively. This tax rate will be reduced to
0% if not extended in March 2020.
Due to VDSC's survey, most of the major construction steel companies in the
country support the extension of this tax. In 2019, steel enterprises faced many
difficulties, even many large enterprises such as Pomina Steel (HoSE: POM); Vietnam
Italy Steel (HoSE: VIS); Tien Len Steel (HoSE: TLH) and DANA Steel - Italy (HNX: DNY)
suffered losses.