CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Case study: Hoa Phat Group Joint Stock Company

Group 2
Nguyn Thy Dng (31141020417)
L Thnh Danh (31141023597)
Phan Th Thy Dng (31141022844)
Managerial Economics (Class ME-DH40ISB-03)
Instructor: Phm nh Long

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Case study: Hoa Phat Group Joint Stock Company

Hoa Phat Group is one of the leading private industrial production groups in Vietnam
with the vision to become a leading multi-disciplinary industrial manufacturer in Vietnam well
prepared for global integration with steel production as its core business activity. With a long
history of development, Hoa Phat group has gained significant achievements and reputation in
domestic market. Regarding the changing economic condition and business environment, the
Group is facing noteworthy challenges and opportunities, which are analyzed and argued in this
paper.
Background
History
Hoa Phat Group was founded in August 1992 as a trading company specializing in
construction machines. Over the time, it extended the business in different field such as
Furniture, Steel Pipe, Steel, Refrigeration and Real Estate by establishing Hoa Phat Furniture
Joint Stock Company (1995), Hoa Phat Steel Pipe Co., Ltd (1996), Hoa Phat Steel Joint Stock
Company (2000, which is now Hoa Phat Steel One Member Co., Ltd), Hoa Phat Refrigeration
Engineering Co., Ltd (2001), Hoa Phat Urban Development and Construction Joint Stock
Company (2001) and Hoa Phat Trading Co., Ltd (2004).
In 2007, there were some significant changes in the company. In January 2007, Hoa Phat
restructured to a Group model, in which Hoa Phat Group Joint Stock Company is the parent
company of its subsidiaries and affiliates. In November 15, 2007, Hoa Phat was officially listed
in the Vietnam Stock Exchange with ticker HPG. After the restructure, Hoa Phat has many
great strides in which the most prominent progress was implementing of Hoa Phat steel

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

integrated complex project in Hai Duong province with the steel production technology from
iron ore to steel, and invest to exploit minerals to create input for steel production.
2008 was a year with many difficulties in economic environment such as rising interest
rates, exchange rate fluctuations, volatility in the price of primary commodities in the world and
in Vietnam due to the crisis in the world economy. Despite the overall obstacle of the whole
industry, at the end of the year, Hoa Phat still presented the positive result in the operation of the
Group: return on equity (ROE) reaching 21%, higher than that of 2007 (20%); return on total
assets (ROA) reached 15% in 2008 compared to 14% in 2007. In late 2008, the total assets of the
Group reached 5,639 billion; Equity reached 4,111 billion.
In 2009, Hoa Phat Group acquired An Thong Mining investment Joint Stock Company
and Hoa Phat Energy Joint Stock Company as a signal to expand the operation in mining and
energy to support the steel production process.
Specially, in 2015, Hoa Phat officially launched Hoa Phat Feeds Production & Trading
One Member Limited Liability Company, marking a new step in the groups development history
by penetrating the agricultural sector, with a charter capital of VND300 billion and a capacity
designed to reach 300,000 tonnes per year. Entering into agriculture sectors raises a number of
questions and doubts among shareholders of the Group as Hoa Phat actually experienced losses
in this sector in 2015. However, in the shareholders meeting in quarter 1/ 2016, the Group did
claim that the penetration into agriculture is the strategic step of Hoa Phat long-run development
(Tu Linh, Cafef).
The appendix provides more detailed information about the historic milestone of Hoa
Phat Group.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Group Structure
Overtime, Hoa Phat has been continuously expanded its size and operation. As of 29
February 2016, the Hoa Phat group had 18 subsidiaries and 1 associate (Hoa Phat- SSG Mining,
Joint Stock Company).

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

(Hoa Phat Groups 2015 Annual Report )

Current Business Performance
By the end of 2015 the group achieved revenue of VND27,864 billion and profit after tax
of VND3,504 billion, exceeding the set targets by 24% and 8%, respectively, an increase of 8%

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

as compared to 2014. The main activities of Hoa Phat Group can be divided into four groups,
which are steel, other industrial production, real estate, and agriculture. The core segment, steel
production and trading accounted for 79.4% of the groups revenue and 82.3% of its profit,
contributing to the solid platform and internal force based on which the Hoa Phat group will
boost its growth in the future with its new segment, i.e. agriculture. The form of conglomerate
allows Hoa Phat to have strong financial support to invest in new segment based on the profit of
the primary segment. The following charts show the contribution of each sector into the Groups
profit and revenue.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

(Hoa Phat Groups 2015 Annual Report)

Regarding liabilities and debts, Hoa Phats debt ratio experienced a decrease over the past
three years from 1.42 in 2013 to 0.76 in 2015, which means the risk of failure to pay has been
reduced. The bank borrowing to equity ratio in 2015 was 0.47, considered to be a safe indicator
for a typical heavy industrial production group.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

(Hoa Phat Groups 2015 Annual Report)

The owners equity the owners equity of the group as at 31 December 2015 was
VND14,466 billion, showing significant growth from VND11,965 billion at the beginning of the
year due to dividend payment by share. This increase in capital can finance the Group to invest
in new project. Return on Assets (ROA) and return on equity (ROE) ratios decreased slightly
since new project has not been put into operation to yield revenue.

(Hoa Phat Groups 2015 Annual Report)

Steel Production and Related Industries
Overview of Vietnam steel industry:
The iron and steel industry is the basic for the development of almost industries in the
global economy: the defense industry, transportation and heavy engineering, energy and
construction (including aeronautical and shipping construction). Moreover, the iron and steel
industry is closely related to chemical industry and light industry. It proves that the iron and steel

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

industry has potential to contribute to the competitiveness of nation producers and to the growth
of the nation economy.
The World Steel Association (world steel) today released its Short Range Outlook (SRO)
for 2015 and 2016. World steel forecasts that global apparent steel use will increase by 0.5% to
1,544 Mt in 2015 following growth of 0.6% in 2014. In 2016, it is forecast that world steel
demand will grow by 1.4% and will reach 1,565 Mt. The outlook for the steel industry suggests
slow growth for global steel demand. Commenting on the outlook, Hans Jrgen Kerkhoff,
Chairman of the world steel Economics Committee said, We are releasing a restrained growth
outlook for the global steel industry mainly due to the deceleration in China. The outlook also
reflects the influence of major structural adjustments in most economies, particularly owing to
limited investment growth post 2008. As these changes take effect, the steel industry will
experience a slower pace of growth, it will focus on operational efficiencies and on the value that
steel products generate for customers and society.
While we continue to face some downside risks coming from some parts of Europe
geopolitical instability, international capital flow volatility and the economic slowdown in China
the impact of these risks has come down. We have also started to see some encouraging
developments. We hear increasingly positive news from developed economies, especially signs
of firming recovery momentum in the Eurozone. In the developing and emerging world, we see
increased optimism about India and growth in steel use in some MENA and ASEAN countries.
While these developments will not be enough to counterbalance the deceleration of China, we
expect to see gradually improving growth prospects beyond 2016, Kerkoff concluded. An
interesting factor which has become increasingly apparent is that in some developing economies
the steel markets are beginning to exhibit the characteristics of mature markets.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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In addition, the steel industry is one of the core industries of Vietnam which support
development of the country, especially infrastructure development. Vietnams steel industry saw
a revival in 2014 with high demand and improved macroeconomic conditions. Rebound of the
frozen real estate market, the main steel consumer in Vietnam, coupled with relaxed monetary
and fiscal policies during the year caused the demand to rise. Vietnams apparent steel
consumption surged by 22% y/y to 14.4mn tonnes in 2014, making it the second-largest steel
consuming country in ASEAN. Vietnam Steel Association (VSA) estimates domestic steel
consumption to increase by 1.5-2mn tonnes in 2015, amid higher GDP growth and increases in

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

11

both export turnover and total investment. Moreover, controlled inflation and interest rate cuts
will lead to higher demand from the construction and real estate sectors, while other steel
consuming industries such as shipbuilding, automobile manufacturing and mechanical
engineering will also see healthy growth. Potential for long-term expansion of the Vietnamese
steel industry is strong, but it still faces some difficulties in terms of the huge cheap steel
importation from China and steep decline in selling prices.
Table 1 shows the supply-and-demand relationship in the steel industry in East Asian
countries. The Vietnamese steel industry lags developed countries and other ASEAN countries in
production and consumption of steel. However, the industry escaped severe damage during Asian
monetary crisis and the growth in demand has continued.
Table 1: The steel consumption and crude steel production in East Asia (Unit: million ton)
Apparent steel consumption
96

97

98

99

Crude steel production

96

97

98

99

China

97.3

103.5

113.9

125.0

101.2

108.9

114.6

123.3

Japan

80.6

82.1

70.3

68.3

98.8

104.5

93.5

94.2

Korea

37.6

38.1

24.9

32.1

38.9

42.6

39.9

41.0

Taiwan

18.0

21.0

20.2

20.3

12.4

13.0

16.9

15.4

ASEAN Indonesia

6.3

6.8

2.8

3.5

4.1

3.8

2.7

2.8

Malaysia

7.9

8.1

3.6

n.a.

3.2

3.0

1.9

2.0

Thailand

8.8

7.6

4.1

n.a.

2.1

2.1

1.8

1.9

Philippines

2.8

4.2

3.0

3.0

0.9

1.0

0.9

0.9

Singapore

3.8

4.0

3.3

2.9

0.5

0.4

0.5

0.5

Viet Nam

1.6

1.7

1.9

2.3

0.3

0.3

0.3

0.3

31.2

31.8

19.5

n.a.

11.2

10.6

8.1

8.5

Total East Asia

264.7

276.5

248.8

n.a.

262.5

282.6

273.0

282.4

Total World

658.7

698.2

693.3

698.8

750.0

798.8

775.9

784.2

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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Source: Edited by Japan Iron and Steel Federation, from data of South East Asia Iron and Steel
Institute
Table 2 shows supply and demand in the Vietnamese steel industry. It indicates that
production cannot keep pace with the growth in consumption of steel products and imports are
increasing. Table 3 provides a breakdown of imported steel materials, with flat products being
the main import. Apart from finished steel materials, the imports of billet, semi-finished product
for long products, are increasing as shown in Table 4. As Tables 2 and 3 show, the production
figure for 2000 is known but breakdown of demand is not.
Table 2. Steel production, consumption and import situation from 1992 to 2000 February 5,
2001
1. Steel products Unit: 1,000t
1992

1993

1994

1995

1996

1997

1998

1999 2000
(est.)

Steel

2001
(expect.)

560

863

854

1,180

1,638

1,822

2,128

2,379

2,850

3,170

220

280

360

490

865

977

1,150

1,300

1,588

1,770

(Long product)
VSC

370

464

443

464

464

540

JVs of VSC

68

351

484

586

678

837

Others

52

50

50

100

150

393

866

947

807

917

1,146

consumption
Domestic
production

Import
Stock

343

686

600

1,429

1,400

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

at beginning

at ending

106 0
106 0

176

13

176

350

312

251

318

485

350

312

251

318

485

485

Source: VSC (from Mr. Tanaka, JICA Expert).

Table 3. Imports of finished steel products (Unit: 1.000 tons)
Year
Total

1998
846

1999
1,144

Flat Products
Plate
Sheets and strip
Hot rolled sheets and strip
Cold rolled sheets and strip
Surface treatment sheets
Tin plate
Galvanized sheets
Colored galvanized sheets
Electrical sheets
Non flat products
Stainless steel
Steel products for constructi
Sections and shapes
Structural steel
Spring steel
Wire rod
Other products
Source: General Customs Office, VSC.

685
234
342
166
176
100

966
292
564
273
291
103

25
27
48
9

26
16
62
7
162

178

22
11
53
22
0
11
43

42
13
47
26
0
14
36

Quoted from CRM F/S Report, -2-2.

Table 4. Billet demand and production/import Unit: 1,000t
1992

1993

1994

1995

1996

1997

1998

1999 2000

2001

(est.)

(expect.)

A Steel

220

280

360

490

826

976

1,150

1,300

1,550

1,770

B Billet demand*

265

333

424

576

918

1,073

1,265

1,430

1,712

1,956

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

C Billet (domestic (219)

(270)

(301)

(271)

(311)

(314)

14
306

307

306

396

959

1,123

1,406

1,560

production)
D Billet (outside) 46

63

123

305

607

759

(B-C)
( ) : from IISI statistics
* : estimated A/B (yield of rolling) = 83% ~ 90.5%
Source: VSC (from Mr. Tanaka, JICA Expert).
Vietnams steel industry is dominated by producers of construction steel products such as
rebar. The notable exception is Hoa Sen Group, which produces galvanised steel sheets that are
also used extensively in the construction industry. There are 27 major construction steel
manufacturers, the top five of which have a collective market share of nearly 60%. The market
leaders are HPG with a market share of 19.1% (2014) and 21.3% (2015) , POM with 15.1%
(2014) and 12.6% (2015), Vinakyoei with 8.4% (2014) and 8.5% (2015) market share.
About 40-45% of Vietnams construction steel demand comes from the north.
Competitive pressure in this geographic region is intense because many large construction steel
companies such as HPG, TISCO, and VIS are located there, as are tens of small-to medium-sized
companies in the port city of Hai Phong. The southern market represents about 55-60% of
Vietnams steel market demand but the competition in the south is less intense because there are
not as many competitors and most of the competitors with obsolete factories are state-owned.
Only POM and Vinakyoei have modern factories with sufficient economies of scale. The selling
price of construction steel in the south is usually slightly higher than in the north because most
steel companies in Vietnam import raw materials such as scrap from China, Korea and Japan.
The transportation cost from these countries in north Asia to the north of Vietnam is lower than

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

15

to the south of Vietnam, but northern producers cannot use those cost advantages to compete
against southern producers because transportation costs for finished steel products are prohibitive
for distances over 1,000km, resulting in higher steel prices in the south. The southern market has
also been disproportionately hit by the ongoing economic slowdown in Vietnam. Many of the
governments infrastructure construction projects are concentrated in the north and are still being
implemented, albeit at a slower pace, while many privately-developed real estate and
infrastructure projects in the south have been forced to halt due to financial difficulties.
Finally, note that HPG and (unlisted) TISCO, the only two steel producers in Vietnam
with blast furnaces, both own iron ore mines in the north. Iron ore reserves in the south of
Vietnam are limited, which is one reason why southern producers use EAF technology to recycle
steel scrap.
Production of steel plate and related sectors continue to be the leading industry groups to
promote growth for Hoa Phat group. In the past year, this industry group has contributed 82.3%
79.4% revenue and profit after tax on group-wide common results.
Hoa Phat Operation

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Vertical integrated, modern synchronized full circle production lines from iron ore
to finished steel. Officially operating in early 2010 with the large-scale up to 132ha, Hoa Phat
Integrated Steel Complex consists of a full circles cluster including Iron ore processing factory,
coal coking and thermal electricity plant, Iron cast processing factory, Billet casting factory and
Steel rolling mill. In 2015, the first iron and steel complex in Hai Duong reached 1.1 million tons
output on embryos, of which 1 million tons have already been rolled out steel building products
serve the needs of the domestic and foreign markets. This full circle production lines can take
advantage of cost complementarity and economies of scope to reduce cost significantly and
make Hoa Phats production less depend on other supply.
Input. With the application of blast furnace technology The input of Hoa Phats
production line are coke and iron ore.
Coke is a solid carbon fuel and carbon source used to melt and reduce iron ore. Coke
production begins with pulverized, bituminous coal. The coal is fed into a coke oven which is
sealed and heated to very high temperatures for 14 to 36 hours. Coke is produced in batch
processes, with multiple coke ovens operating simultaneously. Heat is frequently transfered from
one oven to another to reduce energy requirements. After the coke is finished, it is moved to a
quenching tower where it is cooled with water spray. Once cooled, the coke is moved directly to
an iron melting furnace or into storage for future use.
During ironmaking, iron ore, coke, heated air and limestone or other fluxes are fed into a
blast furnace. The heated air causes the coke combustion, which provides the heat and carbon
sources for iron production. Limestone or other fluxes may be added to react with and remove
the acidic impurities, called slag, from the molten iron. The limestone-impurities mixtures float
to the top of the molten iron and are skimmed off, see Figure 1, after melting is complete.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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Sintering products may also be added to the furnace. Sintering is a process in which solid
wastes are combined into a porous mass that can then be added to the blast furnace. These wastes
include iron ore fines, pollution control dust, coke breeze, water treatment plant sludge, and flux.
Sintering plants help reduce solid waste by combusting waste products and capturing trace iron
present in the mixture. Sintering plants are not used at all steel production facilities.
Productivity. After renovating furnace and continuous billet casting machine, the
productivity of Hoa Phat steel billet factory in Pho Noi A Industrial park Hung Yen has
increased 20% in comparison to last year. Steel billet output reached 110,100 tons in the 5 first
months, specifically for April with 24,700 tons, the highest output ever.
The average monthly output reached 22,000 tons, an increase of 2,000 tonnes per month
compared to the average of 2011. Electricity consumption decreased from 40 kWh to 50 kWh
per ton of product. Electrode consumption decreased 0.5 kg per ton of billet. These figures show
the effect of investment research, continuous improvement on the equipment system that Hoa
Phat Steel Company Limited has implemented last time.
Meanwhile, the equipment maintenance activities are always taken seriously, regular and
strict compliance to management process of equipment, product quality standard ISO 9001:
2008. During maintenance, the operating departments are not only responsible for operating the
device system but also control the status of equipment system and timely feedback to the
technical department for planning maintenance program close to reality.
After nearly 10 years in operation, the first steel billet mill is increasingly contributing to
the development of steel business field of Hoa Phat Group. Through many revisions, the current
capacity of this plant has reached 250,000 tons per year.

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Price. Low price enable market share gains. Hoa Phat steels price is still lower than
competitors (in fact, the quality and amount of product is as good as the competiors product).
HPGs market share grew from 9% in 2009 to 17% in 1Q14, surpassing its main competitor
Pomina (POM:VN) whose market share dropped to 15.3% even though its capacity is double
HPGs capacity. The steel industry in Vietnam is fairly fragmented and the top five producers,
including HPG, only hold an aggregate 57% share of the market (versus 80% in the case of the
steel industries of other countries in the region). That proportion has remained constant since
2010 but HPGs market share increased from 12% to 17% over the same period, which means
that it is helping to consolidate the market gradually at the expense of its other main competitors.
Hoa Phats Product Price

Volume/pile

Price
/kg

Product Name

Unit

Roll steel 6

Kg

9,500

Roll steel 8

Kg

9,500

Steel 10

1pile(11.7m)

7.21

9,600

Steel 12

1pile(11.7m)

10.39

9,500

Steel 14

1pile(11.7m)

14.15

9,500

Steel 16

1 pile (11.7m)

18.47

9,500

Steel 18

1 pile (11.7m)

23.38

9,500

Steel 20

1 pile (11.7m)

28.85

9,500

Steel 22

1 pile (11.7m)

34.91

9,500

Steel 25

1 pile (11.7m)

45.09

9,500

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Steel 28

1 pile (11.7m)

56.56

9,500

Steel 32

1 pile (11.7m)

73.83

9,500

New product. Recently, Hoa Phat group JSC (HPG) announced joining the market with
color coated decided to invest the project Factory Hoa Phat PPGI in Pho Noi A Industrial Zone,
Hung Yen, a capacity of 400,000 tonnes / year. The factory started work from January 5/2016,
completed after 18 months and put into operation in early 2018. The market galvanizing / plating
cold and painted in Vietnam with annual consumption 2.5 ~ 2.8 million tons. Currently, the
production capacity of all the plants are operating is about 3.2 ~ 3.5 million tons / year. Most of
the factories are located in the southern region, such as respect Ton Hoa Sen in Binh Duong and
Phu My, Vietnam Factory Kim and religious principles are based in the East Asia Pacific, in
addition to other factories as TVP, TVC, Ton Phuoc Khanh, ... are located in the south. Reviews
about this, that Hoa Phat HSC CTCK will directly compete with Ton Hoa Sen market in the
North when the "big boss" this coated industry are growing ambitions.
According to Hoa Phat Group Joint Stock Company, Hoa Phat Steel Corporation is also
expected to provide production welding steel on quarter 3/2016 to contribute to help businesses
in the welding materials are natural water initiative production and avoid dependence on imports.
Currently, Vietnam needs annually about 100,000 tons of carbon steel welding rod to do.
According to Mr. Ho Duc Tho - Deputy Director of Hoa Phat steel Joint Stock company, which
is kind special steel, high technical requirements, particularly the carbon content must be less
than 0.09%, less than 0.65% Manganese is very ductile, impurity elements such as P, S will
require content must be very small. Steel welding rod used as cores have SWRY steel grade 11,
JIS Standards G 3503 (2006); steel grade H08A, China GBT 3429 standards; automatic welding
wire core steel grade EM 12K, American standard ASME SFA / AWS A5.17, ... The steel grade

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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categories and standards can vary but are in rolls 6.0 mm Plain or 5.5 mm and weight
requirements of 400 kg roll / coil, tangle, twist. In Vietnam and the world's only manufacturer of
steel mills with blast furnace technology and train new furnace was blown products. Previously,
Hoa Phat has also produced for the draw wire coil for export to Australia with carbon component
is approximately 0.12%. Steel welding rod more demanding, therefore, Hoa Phat Steel Joint
Stock Company takes time to adjust to technology and procurement of equipment at the stage of
the steel and casting stages accordingly. Currently the company has ordered dedicated devices
such as control systems in voice frequency furnace slag blowing, casting secret protection system
antioxidant casting lines, magnetic agitation system to remove impurities casting lines and
increase the quality of casting billet. It is expected that the Company will manufacture test
welding rod steel products made in late October 7/2016.
Problems and Solution
Foreign competitors, especially China. From a few years now, the steel industry is
continuously faced with pressure from cheap steel imports, especially from China.
According to figures from the General Department of customs, in 2015, Vietnam has
imported 15.7 million tons of steel-33% increase in volume compared to the year 2014. In it,
steel imported from China is 9.6 million tons, an increase of 54% and accounted for 61.3% of the
total production of imported goods. Compared to the year 2012, the amount of steel and long
steel import volume in 2015 has increased more than 3 times. In the context of a larger supply,
pressure from imported steel has pushed the price of the product goes down and steel enterprises
are holes, even as losses for many years, if quite over with interest but very low. However,
playback is still growing both revenue and profit are very stable, worthy of keeping the No. 1 in
the industry. In 2015, reached more than 27,000 Hoa Phat billion revenue-rising almost 9%

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compared to the year 2014, of which 22,000 contribution national steel plate. Profit after tax
reached 3,504 billion up nearly 8% and 7.8% compared to the adjusted plan.
This turnover rate dropped two big business is the Vietnam Steel Corporation (VnSteelTVN) and Hoa Sen Group (HSG). About profit then the distance between the broadcasting
business with the Republic rest also a lot higher.

According to the evaluation of the expert analysis, advantages of scale is the key to
solving difficult Hoa Phat, pass to other businesses and accounts for 22% of the market share of
the whole industry.
First off, using the technology of high furnace, draw Play to take advantage of the input
raw material prices rising well over the business using electric-arc technology. Thus, in 2015,
when the price of iron ore and Coke (2 main ingredients of HPG) plummeted more than the scrap
steel and electricity (inputs of the other FIRMS), Hoa Phat has beneficial than about the
production costs.

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Besides, the strong hands paid commercial discount, use sales eased policy making his
sales costs increased, but this is also worthy of the efficiency gain: revenue growth, maintain
market share.
In late 2015, billet import tariff of only 9%. The decision of the Ministry of industry and
trade new tax rate of 23.3% applied for and 14.2% Billets for long steel. In addition, the
imported items apply safeguard measures Official incur additional import tariffs (taxes and selfdefense). Thus import duties on China steel ingot to 33.3% and 29.2% level of longs. This
decision will limit Chinese steel imports into Vietnam. Thus, as a self-sufficient enterprise billet,
Hoa Phat will have two advantages. One is to reduce competition from imported steel - such
petitions which the Group has submitted to the Prime Minister. Two, when restrictions are cheap
supply from abroad, domestic steel price increases and Hoa Phat - which is now supplied steel
for many of them self-control not embryonic - will be able to increase both selling prices and
sales volume. With these advantages, the competitiveness of Hoa Phat higher than
peers. Speaking as "tiger sprouted wings" is not wrong, though tiger is still facing many
difficulties.
Entrant into corrugated iron market. Hoa Phat Group has just decided to invest the
project color coated production plant in Hoa Phat at the INDUSTRIAL PARK in Hung yen, with
a capacity of 400,000 tons/year in order to serve the market demand is growing stronger, and
auxiliary material source for coated steel pipe factory in Hung yen. However, there is one
business titan in this market that Hoa Phat has to compete, Hoa Sen group. The biggest problem
Hoa Phat is facing now is how to gain market share while Hoa Sen almost rule this market. We
think in this situation Hoa Phat should take advantage of extensive steel distribution system to
market penetration. According to leaders of the HPG, PPGI factory Hoa Phat built with the aim

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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of penetrating the market cold galvanized steel sheet / galvanized, expanded new production
sectors. The plant will use advanced technology scratchy Italy, Japan, Germany. The entire
system of Hoa Phat Steel Pipe sold business are PPGI products thus output as on very favorable.
As said in Cafef.vn, Most of the factories are located in the southern region, such as respect
Lotus factory in Binh Duong and Phu My, Vietnam Factory Kim and religious principles are
based in the East Asia Pacific, in addition to other factories as TVP, TVC, Ton Phuoc Khanh, ...
are located in the south. In the north, there is now just the VN Steel plant Thang Long, the only
producer of the downstream product is cold and painted galvanized steel sheet with a capacity of
50,000 tons / year, so cold-rolled material must still buy South transfer, so another solution for
Hoa Phat can be penetrating galvanized market in the North because supply is still low in this
region while the galvanized steel plants are allocated most in the southern. Project PPGI
production of Hoa Phat will compensate for the shortage product markets in the area, especially
in the mid-range and high-end segments.
Input and supplier. According to Hoa Phat Group Joint Stock Company, expected in
2016, Hoa Phat will import volume of around 1.6 million tons of iron ore in 2017 and could rise
to 3 million tons if the iron mine Thach Khe has yet to be put into operation. Ore will primarily
enter the country from South Africa, Australia, Brazil, Ukraine, India. This might seem to be an
advantage in the short run because many experts have predicted the world iron ore prices will
keep falling deeply in late 2016 and early 2017 due to many projects of large-scale iron mine in
the world to go into production causing excess supply iron ore at least until end 2020. Compared
with companies that use electronic or junk steel as input, Hoa Phat is obviously leading on low
cost. However, in the long run, depending on the price of imported input can cause considerable

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obstacles for Hoa Phat. In case of it, Hoa Phat should invest more in developing technology to
manipulate its own input and can take advantage of abundant mineral resources of Vietnam.
Steel slab self-production. This is not exactly an obstacle but rather an advantage for
Hoa Phat. While other companies have to import slab in order to be able laminate steel and finish
final product in the production line, Hoa Phat manufactures under a closed process. Not only
that, Hoa Phat is a big slab distributor for its competitors. Thus, Hoa Phat, as a vertical integrated
firm, can apply strategy like vertical foreclosure or price-cost squeeze to compete with others
that use steel slab as input. In the situation where the price of imported slab is increasing due to
the safeguard tax, Hoa Phat can definitely increase competitors cost by increasing the cost of
steel slab. Thesaigontimes claims that if the tax rate increases billet imports into Vietnam up 45%
(in 2015 this tax is 9%), the domestic steel prices will increase by the company and the majority
of domestic steel production increasingly fall into the sub depending on one or several suppliers
to the domestic steel billet. Thus invisible imposition of safeguard policies benefit only a few
"giants" big steel, billet supply controlling the majority of raw materials in steel production
enterprises remaining embryos import dependence will burden additional costs, increased
product costs, the possibility of loss due to the price reduction in competition.
Agriculture
Overview of the Industry
Regarding animal feed market, it is growing impressively at a double-digit rate. Although
the profit ratio is not very high, this market has large scale and is very potential. Animal feed is
the most profitable segment in agriculture, which is the reason why there are a significant
number of Vietnamese large companies investing in this market such as Masan, Hung Vuong,
etc. However, because of the profitability, this market is highly competitive. As March 2015, 59

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25

foreign-invested firms and joint ventures dominate half of the market while 180 domestic firms
share 20 percent market share, with the remainder accounted for by imported products (Lan
Nhi,The Saigontimes). Some dominant companies in the sector include CP Group, Cargill, New
Hope, and GreenFeed with the annual global revenue of hundreds of billion USD.
About livestock market, the price is frequently affected by negative information such as
disease, using prohibited substances (like Salbutamol) causing the anxiety among consumers.
This market is also vulnerable and affected by the purchase of other countries, especially China.
For example, at the beginning of May 2016, the price of pork in south-east Vietnam reached the
highest point within 19 months because of the surge in buying of China. However, at the middle
of this month, China suddenly stopped the importation through unofficial channel, which led to
the decrease in the pork price (Channuoivietnam). Furthermore, foreign-invested companies also
has a dominant position in livestock market, like CP sell about 150,000 swines, on average, per
day and almost dominates the Vietnamese meat market valuing 18 billion USD (Nguyen Bao &
Hai Au, Doanhnhansaigon).
Hoa Phat Operation
In March 2015, Hoa Phat officially started investment in the agricultural sector by
establishing Hoa Phat Animal Feed Trading and Production Company One Member Co., Ltd. and
many member entities have been established and begun operating in animal feed and livestock
raising since then. Hoa Phat Trading Co., Ltd., which previously specialized in trading steel
products, was restructured and shifted to research and implementation of high-tech cow raising
projects in late 2015. Hoa Phat Mining JSC, which previously specialized in exploiting and
processing iron ore, was also restructured to undertake biosafe pig raising projects.

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With a strategy of systematic and professional capital management and investment, the
group established Hoa Phat Agriculture Development JSC, with a charter capital of VND2,500
billion. This is a holding company that governs and manages business and investment projects of
member entities in the agricultural segment. In the immediate future, Hoa Phat will focus on
animal feed production and trading and livestock raising. In the long term, Hoa Phat will
consider formulating a value chain in the agricultural sector from production to food distribution.
For the animal feed product line, Hoa Phat is accelerating the progress of its first
production factories in Hung Yen and Dong Nai provinces. The first factory, in hung Yen, is
expected to be put into operation early in Quarter 2 of 2016; the second animal feed factory, in
Dong Nai, is expected to be completed in Quarter 4 of 2016. After completion, the maximum
capacity of both factories may reach a total of 600,000 tons per year. As planned, these factories
will start trial operation of production lines to test their capacity and align their output with
market demand in the Northern provinces in the immediate future. In 2017, Hoa Phat has further
plans to construct its third animal feed factory to reach an animal feed target of 1 million tons.
For the livestock raising segment, Hoa Phat is currently considering implementing largescale pig and cow raising projects in many provinces across the country, such as Lang Son, Bac
Giang, Yen Bai, Hoa Binh, Quang binh, Phu Tho, Hung Yen, Thai Binh, Dong Nai and Dak Lak.
(Hoa Phats 2015 annual report)
Currently, Hoa Phat imported 500 breeding stocks (GPP) from Denmark and planned to
supply pork from 2018

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

It can be seen from the plan of Hoa Phat that this Group intend to build a full circle
production process 3F model (Feed Farm Food), the model that large companies like CP,
Cargill applied.

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However, the result at the beginning is not very positive. In quarter 1/ 2016, agriculture
sector experienced a loss of 14 billion VND.
Revenue and profit of agriculture sector
Unit: billion VND

Quarter 1/
2015

Quarter 2/
2015

Quarter 3/
2015
Revenue

Quarter 4/
2015
Profit

Quarter 1/
2016

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Problem and Solution

Hoa Phat is a new entrant in agriculture, which is dominated by very large companies
with strong financial position and long history in the market. Hoa Phat may face many
challenges when penetrating in this market. On the other hand, this new sector also has some
similarity with the tradition industry of Hoa Phat such as large scale production and output,
depending on many local factors.
Financial problem. Developing the 3F model requires a lot of capital at the beginning.
In order to gain significant market share, Hoa Phat needs to build about 7 to 8 factory, which is
estimated to cost about 2,000 to 2,500 billion VND (Viet Nguyen, nhipcaudautu). Hoa Phat has a
strong financial position, and the conglomerate business form can allow the Group to use profit
in the core business (e.g steel) to support this new segment. Nevertheless, the Group may have to
borrow money from bank or other channels to finance new projects. This situation may deter the
competitive competency of the Group since according to VCCI, the real interest rate in Vietnam
is still high (7%-8%/year), compared to other countries in ASEAN like The Philippines
(2.2%/year) or Malaysia (2.1%/year) (Thuy Linh, PLO). Moreover, in Vietnam, foreign-invested
enterprises are granted promotions in terms of corporate income taxes, tariffs, etc.
To address this problem, the Group should make use of its current capital and have
prudent decision in financing projects to keep the debt ratio at the safe level like the current one
(0.76). It is very tough at the beginning. However, once the 3F model can operate fully, it can
help to substantially reduce the cost, yield more profit, which in turns will decrease the pressure
on capital and the Groups liability in the following periods.

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Distribution channel. For animal feed, Hoa Phat needs large and extensive distribution
networks like existing firms. For example, in 2015, CP co-operated with farmers to build over
3,000 small farms and food factories all over the country. As a result, the revenue of C.P
Pokphand Co.,Ltd in 2015 increase 1.1% in comparison with that in 2014. Moreover, FDI
enterprises still want to increase their distribution networks. CP has already planned to develop
about 10,000 dealers through franchising and the retail chain Seven Eleven (Viet Nguyen,
nhipcaudautu).
It seems to be very challenged to Hoa Phat. To solve the distribution channel problem,
Hoa Phat Group may utilize the existing widespread distribution network for steel to distribute
animal feed and pork. Nonetheless, in the long-run, it is essential to have to the professional
channel for agriculture product because unlike steel, the channel for this product must be closer
to farmers in each village in the countryside. To do that, Hoa Phat can learn from the strategy of
existing competitors. That is to co-operate with farmers the consumers to help them with
techniques in feeding and use advertising and other campaigns to differentiate Hoa Phats
products. In addition, to increase the coverage of the network, Hoa Phat should deal with local
distributor and dealers to distribute their product. Hoa Phat is a Vietnamese firm, so it should
take the advantage of the understanding about Vietnamese dealers when dealing with them.
Input. Another challenge for Hoa Phat is the import material, like protein and other
nutrients to produce animal feed since the domestic supply is fluctuated and not enough. This
make the operation of the company depends on the foreign supplier, and is affected by the
exchange rate, other factors in the world market, tariffs, transportation cost. Therefore, Hoa Phat
should have more suppliers to reduce the risk of dependency as well as enter into firm contract
with suppliers to ensure the supply and price of input to maintain the price of the product. In the

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long-run, Hoa Phat should think about using domestic supplier by contract with farmer and
teaching them how to produce material, like maize, soybeans, in accordance with standards. This
strategy can help Hoa Phat to reduce the cost and facilitate domestic production.
Livestock market problems. As mentioned before, the market of livestock is vulnerable
because of the anxiety of consumers, and the influence of the purchase of China. To manage this
risk, Hoa Phat should apply modern technology and sanitary standard in order to try to build
reputation in the market. When consumers trust the Group brand, its products will be less
sensitive to negative information relating to the livestock feeding industry.
Another point is that the Chinese pork market is an opportunity for Vietnamese firms like
Hoa Phat. Pork is the main goods in the purchase basket of Chinese. It is estimated that the
domestic supply will be not sufficient to serve the Chinese demand market and China will
become the third largest importing-pork-country (Nguyen Dinh Bich, The Saigontimes).
Therefore, to take advantage of this lucrative market, Vietnamese livestock feeding industry
should not rely on the unauthorized channels of Chinese importation. Unauthorized channels are
risky since the Chinese partners can stop importation at any time. Thus, Hoa Phat can enter into
this market by legally bounded contracts to guarantee the importation. Of course, some actions of
Vietnamese authority are needed for the feeding of Vietnam to take an official step into this
profitable market.
Other Industrial Products
Air Conditioning And Refrigeration
Hoa Phat Refrigeration Engineering Co., Ltd was established in July 2001. Our aims is
Producing replace importing goods, our company has invested in home appliance production

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line for refrigeration, electric household products for example: refrigerator, air conditioner,
washing machine, enameled electric water heater under Funiki brand. Those mentioned above
products are produced by modern technology line with cooperation of the leading groups in the
world to produce high quality and stable product. The products of Hoa Phat Refrigeration
Engineering Company have achieved remarkable position on local market share compare with
other famous brands.
Main products:
Air conditioner with capacity range 9000BTU, 12000BTU, 18000BTU, 24000BTU
Floor type air conditioner with capacity range 24000BTU, 27000BTU, 45000BTU, 48000,
60000BTU
Ceiling cassette air conditioner, capacity 24.000BTU, 27.000BTU, 45.000BTU, 48.000BTU
Intelligent system VRV, VRF,
Direct and indirect cooling refrigerator capacity range from 50 L to 220 L
Freezer with 1 chamber and 2 chamber capacity from 207 to 425L
Enameled water heater with antibacterial Silver Nano technology and Titanium enameled tank,
capacities 15L, 20L, 25L, 30L, 50L.
Refrigerator Factory Hoa Phat Refrigeration Company has completed the installation
and operated the new freezer production chain at the beginning of the Lunar year 2010, raising
capacity of factory up to 700 products/ day.
This chain is fully automatic, using modern control equipment and good quality of the
brands in the world such as Siemen, Mitsubishi, Omron Therefore, the freezer Funiki is

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always guaranteed with high accuracy, avoid errors of product surface, ensuring supply timely
and enough for the market. The chain was designed and installed by leading experts in the field
of automation. Capacity of the new line reaches 200 products/shift/8hours; raising capacity of the
factory to 700 products per day.
The installation of new chain contributes to improving product quality and more stable
operation of the Factory, while increasing production output to meet the growing need of
customers nationwide. The chain officially runs on February 19th, 2010 (January 6th of Lunar
Year). This will be a good start, opening for the new successes of Hoa Phat Refrigeration
company in 2010.
Furniture
Hoa Phat Furniture Joint Stock Company manufactures and markets furniture in Vietnam.
The company was founded in 1995 and is based in Ha Noi City, Vietnam. Hoa Phat Furniture
Joint Stock Company operates as a subsidiary of Hoa Phat Group Joint stock Company. The
modern technology and equipment, variety kinds of product, the spreading network of
distributors are Hoa Phats advantages to affirm the leading brand of Vietnamese furniture
industry.
Main products:
Wooden office table and cabinet
Steel office table and cabinet
Computer table
Office chair

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Fire resistant safe box
Safe and Security box
Solid wood or Steel chair and table
Solid wood or Steel household
School furniture from kindergarten to university, library room, lab, boarding school
Furniture for public place: lounge chairs at air, train, bus station, post office, theater chairs,
meeting chairs, stadium chair, hospital furniture,
Construction & Mining Machinery
Founded in August, 1992, Hoa Phat Equipment & Accessories Co., Ltd, the first
member of Hoa Phat Group, specializes in manufacturing and trading construction equipments
and mining machines and is one of leading manufacturers of equipments in construction field:
Scaffoldings, combination support (electrostatic sprayed, painted and galvanized).
Steel formwork and steel frame formwork with plywood plate.
Construction hoist.
Mast lifting.
Tower crane (Hoa Phat is the only manufacturer in Vietnam).
Concrete mixing plant.
Concrete mixer.
Stone, ore and sand crushers.
Cast products such as crushing liners and components for producing crusher, screen, ore
exploiting machines

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CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Hoa Phat is now the sole distributor in Vietnam for the following products:
MIKASA brand construction equipments made in Japan. Hoa Phat is sole distributor in
Vietnam.
JINLONG brand concrete vibrator and plate compactorMADE IN CHINA .
AIRMAN and FIAC brand air compressor & generator made in Japan and Italy
respectively
OMI brand air dryer, an equipment for industrial air treatment made in Italy.
KOSHIN brand water pump and generator made in Japan
-PRAMAC brand generator made in Italy, TSURUMI brand generator made in Japan.
Film faced plywood for making formwork from China.
Products seen as the company pride is tower crane and crusher. Hoa Phat is the pioneer
in transforming the products into Vietnamese products. The first time in Vietnam there are
mechanical products of high technology produced locally with high rate of internalization
making reputation not only in Vietnam but also in regional countries.
Products made by Hoa Phat are all produced from modern technological production
lines and severely tested in term of quality. The company was recognized by TUVNORD
organization, Germany and BSI organization, Britain for its quality management system ISO
9001:2000 and ISO 9001: 2008 respectively.
The products have been supplying and installing in many big construction projects all
over the country and exporting to such countries as Laos, Cambodia, Russia, Ukraine and
Srilanka, the Philippines.

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CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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With 20 years of experience in manufacturing and trading construction equipments, the

company owns a team of high skilled and experienced technicians in offering consultancy,
installation, maintenance immediately meeting every demand of customers. A network of
dealers and branches scattering from the North to the South together with availability of spare
parts, Hoa Phat is very proud to be a SUPPLIER with the continuous, long term and
prestigious service after sale in Vietnam.

Real Estate Development

Hoa Phat officially joined the real estate market in 2001, specializing in the field of
industrial and civil construction. HPG has one active residential real estate project in Hanoi. Its
Mandarin Garden development of four condominium blocks is nearly completed and 90% of
the units have been sold. HPG previously planned to develop more residential real estate
projects but abandoned those plans following the deflation of Vietnams real estate bubble.

High-class office, apartment and commercial centre combination project at 257 Giai
Phong road, Dong Da district, Hanoi

Mandarin Garden apartment combination project in South East Tran Duy Hung road, Cau
Giay district, Hanoi. It is a complete highlight with a position that can not be more beautiful in
the west of Hanoi.

The office, apartment and commercial combination project at 493 Truong Dinh road,
Hoang Mai district, Hanoi.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

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Hoa Phats strategy is ensuring the progress committed to the customers. This expresses
the Groups economic potential and simultaneously builds trust and create efficiency for every
project invested by Hoa Phat.
Located in Hung Yen, Pho Noi A Industrial Park with the scale of 600 ha is one of the
largest industrial zones in Vietnam. Having a favorable position and modern infrastructure, it is
the ideal destination of both domestic and foreign investors.
Additionally, Hoa Phat is also the investor of Hoa Mac Industrial Park with the scale of
200 ha in Ha Nam province.

CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

References
Hoa Phat Group. Groups Annual Report 2015. Retrieved from
http://www.hoaphat.com.vn/en/category/investor-relations-en/annual-reports/
Tu Linh. HC Tp on Ha Pht: Li nhun sau thu qu 1/2016 khong 900 t.Cafef.
Retrived from http://cafef.vn/doanh-nghiep/dhcd-tap-doan-hoa-phat-loi-nhuan-sauthue-quy-1-2016-khoang-900-ty-20160331093906083.chn
Channuoivietnam. Retrieved from http://channuoivietnam.com/25374/
Lan Nhi. T Ha Pht u t chui nh my thc n chn nui. Thesaigontimes. Retrieved
from http://www.thesaigontimes.vn/127366/TD-Hoa-Phat-dau-tu-chuoi-nha-may-thucan-chan-nuoi.html
Nguyen Bao & Hai Au. Th trng thc n chn nui: Cuc ua 3F. Doanhnhansaigon.
Retrieved from http://www.doanhnhansaigon.vn/chuyen-lam-an/thi-truong-thuc-anchan-nuoi-cuoc-dua-3f/1096243/
Nguyen inh Bich. Th trng Trung Quc: vn ng cho tht heo ca Vit Nam. Retrieved
from http://www.thesaigontimes.vn/147202/Thi-truong-Trung-Quoc-van-de-ngo-chothit-heo-cua-Viet-Nam.html
Viet Nguyen. Ginh 10% th phn thc n chn nui: Ha Pht c qu tham vng?
Nhipcaudautu. http://nhipcaudautu.vn/doanh-nghiep/phan-tich/gianh-10-thi-phan-thucan-chan-nuoi-hoa-phat-co-qua-tham-vong-3278105/#axzz4C1IgLc5I

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CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Thuy Linh. ng ln vo cuc, gic m gim li sut c thnh hin thc?Phapluat. Retrieved
from http://plo.vn/kinh-te/ong-lon-vao-cuoc-giac-mo-giam-lai-suat-co-thanh-hienthuc-629064.html

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CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

Appendix

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CASE STUDY: HOA PHAT GROUP JOINT STOCK COMPANY

(Hoa Phat Groups 2015 Annual Report)

42