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Le Phuoc Vu four strategic pieces

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Expanding the retail-branches network, building a strong brand, speeding up investments with advanced technology and low cost as well as developing professional staff are the strategies of Hoa Sen Group’s Chairman. Those are the key drivers for Hoa Sen to become a Vietnam’s steel sheet industry leader.

 

Hoa Sen Group is quite a special enterprise – being one of the fastest growing enterprises in the market even through tough economic periods. According to Nhip Cau Dau Tu – a financial magazine, on average, during the period from 2011 to 2013, Hoa Sen’s turnover growth rate was 34%. The Group also achieved 19% of return on equity (ROE) and 13% of return on owner’s capital (ROC) in the same period. Remarkably, although the Group was established only 13 years ago, it is approaching a milestone of USD 1 billion in revenue– an amount that Vietnamese private enterprises may normally take 20 years to achieve.


Chairman of Hoa Sen Group, Mr Le Phuoc Vu is also quite a special person. He is a vegan Buddhist and a businessman who applies Buddhism philosophy in his business. This philosophy is illustrated on a stylized lotus on the logo of Hoa Sen Group, the company founded by him. The 8 petals of the lotus stand for Buddhism’s Noble Eightfold Path which represents right view, right thought, right speech, right action, right livelihood, right effort, right mindfulness and right concentration. In other words, this Buddhist’s living and practicing method is towards enlightenment, lofty and happiness. In Mr Vu’s business philosophy, the Noble Eightfold Path is the direction towards “Honesty – Community – Development”. At Hoa Sen, honesty and community are the top two criterias in every business activities of the Group and has become a unique corporate culture.


The office that Mr Vu welcomes us also uses lotus motifs to drive everyone in the Group to work towards the Noble Eightfold Path guidelines, such as the lotus pictures outside the door. The opposite wall also hangs a big picture of beautiful lotus pond. However, our conversationis not about  the beauty of the lotus, the religion and lifetime as he usually said, it is about the “2014 Entrepreneur of the Year” award organising by E&Ywhich he won the first prize.


Retail advantages


Among six criterias of the Entrepreneur of the Year award (including Entrepreneurial Spirit, Financial Performance, Strategic Direction, Global Impact, Innovation and Personal Intigrity/Influence), so which criteria have you not completed yet?


(Laughing) This question is really difficult to answer. We have submitted documents according to the Organizing Committee’s requirements. And we do not know clearly the way the Board and the Organizing Committee voted and assessed according to which criteria.

Which issues will you talk about when you represent the Vietnamese Entrepreneur community to join the World Entrepreneur of the Year award in Monaco in the year 2015?


I will talk about the success story at Hoa Sen Group. At the time of starting business, we almost had nothing but have managed to build a rapid growth enterprise and one that is sustainable, leading the Vietnam’s steel sheet industry and expanding to South East Asia and other countries in the world.


How did Hoa Sen do that?


We are creative constantly, flexible in managing and finding out different ways to build our competitive advantages in order to maintain our high growth rate, therefore create breakthroughs in business.

 

 

 

Some Hoa Sen’s financial ratio. Source: Annual Report, VPBS analysis – fiscal year from 1.10 to 30.9
 

 

In particular, we have already focused on 4 basic strategy pieces. First of all, we develop a distribution network  – sell directly to the end users and be able to manage such distribution network. Second, we build a strong, friendly, community-oriented brand and thus creates brand-induced demand. Third, we speed up investments with advanced technology and low cost. Finally, we develop a reliable team, promote a professional, standardised,, flexible and effective corporate governance, which is adaptable to changes and challenges of the market.


 

You have just told us that Hoa Sen competitive advantage is the retail - distribution network. What is the difference with other enterprises’ distribution network?


 

We have forseen the market and determined that the market output is an important factor to ensure consumption capabilities and cash flow. For that reason, at inception, we have oriented to invest into the retail-branches network. During our 13 years of development, we now have nearly 140 branches nationwide. Based on our plan, this number will increase up to 300 branches in the next 2-3 years.


 

Whereas the distribution network of other enterprises in this industry is independent agents, most of Hoa Sen’s distribution branches, including its land, factory and machinery, belongs to Hoa Sen Group. Hence, with the centralized and consolidated management due to general policy, we have been proactive in implenting responsive sales policies according to market fluctuation as well as tightly controlling products’ quality to the end-users. These strategies has helped Hoa Sen to overcome the challlenges during the economic crisis.


 

Would you please to talk more in detail?


 

The financial crisis and global economic downturn in quarter IV/2008 had made the world steel prices to plunge rapidly. Reacting to that situation, steel companies had to sell-out their high-cost inventory.


 

However, whereas other enterprises could not sell goods quickly due to its dependence on other distributors and agents, Hoa Sen, through its retail-branches network, was proactively bringing the product to the end users with flexible price strategies. As a result, our retail-branches network had sold out the inventory thus maintain our turnover although the selling price was falling down deeply. More significant, the Group had secured the cash flow to take the opportunities when the steel price recovered and obtained profit rapidly in subsequent quarter.


 

One of the marketing strategies that contribute to the success of brand building during last time is the invitation for Nick Vujicic’s presentation in Vietnam. What is the fate that you and Nick Vujicic meet each other?


 

We received the invitation to sponsor Nick’s trip in Vietnam. However, after watching video clips about Nick’s daily life as well as his presentation, I was deeply empathetic with Nick about the value of humanity he had shared. His presentation not only brought benefits to the community but also encouraged and brought positive living value for everybody. Thus, I decided to organize large-scale events in order to send Nick’s message to millions of Vietnamese citizens. And this also expresses my respect for Nick.


 

Hoa Sen has just finished the fiscal year 2013-2014. What is the business result of Hoa Sen this year?


 

According to the consolidated business result of the fiscal year 2013-2014 (1.10.2013-30.9.2014), The sales volume of Hoa Sen’s finished product reached 810,226 tons, exceeding 16% compared with the fiscal year plan. Hoa Sen’s net sales of the year gained 15,004 billion dongs and profit after tax was 410 billion dongs.


An analysis of a securities company stated that one of the reasons that had caused Hoa Sen’s profits was not as planned is because Hoa Sen Group speculated in raw materials at an inappropriate time. What is the truth?



The world steel price is affected by the fluctuation of iron ore price which is often cyclical and the previous period is the downturn cycle of the ore price. Earlier this year, the ore price was around 110-120 USD/ton, but now it is only 80 USD/ton. The reason was explained as a sharp decline in demand, particularly in Chinese market.


Falling in iron ore prices leads to steel price reduction. Although acknowledging that the prices will fall, manufacturers must maintain minimum inventory to ensure business operations. It is inevitable in business. For the steel industry, in the downturn price cycle, the profit of manufacturers will decrease, and in the upturn price cycle, the profit increases.


Hoa Sen has positive business result; however, the Group’s ratio of debt/owner’s equity is quite high. Is there any risks?


Hoa Sen is currently expanding investment, therefore the high debt/owner’s equity ratio is understandable. Typical business of Hoa Sen is also a cause of this high ratio. Hoa Sen is not only a manufacturer but also a distributor and retailer, hence in each field, we must have a certain amount of inventory. Thus, Hoa Sen’s working capital demand is 3 times higher than an enterprise with only one phase. High debt, but if we divided into 3 phases it is not that high.

Revenue Target: 1 Billion USD  


For now, who are Hoa Sen’s competitors?


In Vietnam steel sheet industry, there are dozens of domestic and foreign enterprises. However, saying that Hoa Sen has competitors is right but does not have competitors is also right, because Hoa Sen has grown to the leading position in many segments. In the galvanized steel field, Hoa Sen is holding nearly 40% market share, beyond that of enterprises at second and third rank. For steel pipe and plastic pipe, with only 7 years of participation in the market, the Group has been the top in steel pipe market with 20% market share and third rank in plastic pipe market.


With such large market share, whether Hoa Sen can continue to grow rapidly in the future or not?


Hoa Sen has grown continuously by promoting the expansion of domestic market and international market, in order to achieve 1 billion USD revenue in the next 2 years. The Group is pursuing production scale and market expansion to actualize this target.


Recently, Hoa Sen has started to build a large-scale plant in Nghe An. The total investment capital for this plant is more than 2.300 billions dong, including 12 steel pipe production lines with a design capacity of 100.000 tons/year, colour-coating line 100.000 tons/year, galvanizing line 400.000 tons/year, cold rolling line 400.000 tons/year, acide recycling line with a design capacity of 300 liters/hour, pickling line 400.000 tons/year and CNC roll grinding machinegrinding CNC steel sheet roller machine with a design capacity of 24 rolls/day.


Why do you build the plant in Nghe An instead of the North area?


The investment in the Nghe An plant aims to bring the plant closer to the market in order to increase supply chain capacity, increasing our competitive edge and to satisfy customers’ needs from the Middle area  - Thua Thien Hue province - to the North of Vietnam. Setting the plant here will also help the Group to increase export volume to Lao, Thai Lan, Myanmar… Moreover, when Formosa Ha Tinh project goes into operations at the end of 2015, it may become a good source of raw materials for the Group in the future.


Export has contributed significantly to Hoa Sen’s turnover during last 2 years. What is your plan for the international market in the future?


Hoa Sen’s products are now presented in more than 40 countries and territories. The Group’s forthcoming orientation is to continue expanding export to international market, especially oriented to large market such as United States of America and Australia. If Vietnam succeeds in joining Trans-Pacific Strategic Economic Partnership Agreement (TPP), we will have a great chance in USA market.


The challenge of exporters, including steel enterprises, is trade litigation issue. How will Hoa Sen solve this problem?


Trade barrier is a complicated issue in internal relations in each export country. It is common practice for domestic enterprises to lobby their Government to create trade barriers to ward off international competition. For this reason, export enterprises must be ready to cope with this issue.


For Hoa Sen, first of all, we always provide transparent data to demonstrate that Hoa Sen is not dumping. Furthermore, we also set specialized team, hire good lawyers and even the world-best professional lawyers to prove for Hoa Sen’s arguments about not dumping. For this reason, I think every export enterprise needs to improve such specialized skill.


Does Hoa Sen have any investments plans for plant construction in foreign countries?


Previously, Hoa Sen already planned to invest some plants in foreign countries but now we have delayed due to some obstacles in terms of investment procedures and conditions. For example, in Thai Lan, the political situation is unstable; in Myanmar, the procedure is very complicated, particularly high land rent and strict land renting process. Therefore, we are still waiting for opportunity, but have not had any particular plan yet. 


Professional Corporate Governance


 

 

Many Vietnamese business owners usually intervene deeply into Genenral Director’s execution. How about in Hoa Sen?


I think every enterprise must have leader. The leadership role is very important, but we need to build the corporate governance rather than relying on individual orders.


Currently, we manage the enterprise based on our corporate governance and clear designation. I am the Chairman of the Board of Directors and the General Director is another person. Sometimes I have a long business trip up to 20 days and I come to the office only for 2 hours/day, however, all business activities still flow smoothly. This demonstrates that Hoa Sen Group has a well-operated management team. I am only the leader in terms of guidence, policies and ideas as well as strategy.


Some opinions state that Mr Vu is only suitable with the owner’s role, rather than managing position.What do you think about this judgement?


Since early 2011, I transferred the General Director position and only hold the Chairman position; before that, I was both the Group’s Chairman and General Director. Without good management, how could Hoa Sen overcome such difficulties right from inception to develop until today?


Most top current managers in Hoa Sen are under my training. Mr Chu (Tran Ngoc Chu, Hoa Sen General Director) previously specialized in Tax Accounting, or Mr Tran Quoc Tri, Managing Deputy General Director worked for me with a starting salary of only 1.7 million dong/month.


Hoa Sen has several shareholders who are foreign organization. Do they support Hoa Sen in governance and management?


Most of Hoa Sen’s foreign investors are financial investors and they also provide helpful advice for the Group.We always follow the business strategies which approved by the Board of Directors. However, since Hoa Sen understand the industry and the Vietnamese market, we are the one who make decisions on business strategy.


What is the biggest failure in administration that you have faced during Hoa Sen development process?


We have not faced failure but have learnt lessons, particularly, the human management lesson based on standardized behavior, prominence to professionalism and responsibility. We have to form corporate governance based on standards and ensure individuals do not act on self-interest or corruption. An example to illustrate this is the story of 18 days General Director. After we fired this General Director together with his team, the Group’s operations were much better: sales increased, profit increased, cost were controlled. When an enterprise is on the development path, these lessons are very important.


But this is the General Director you had promoted. Is this a governance lesson or lesson for human value judgement?


That is the inevitable consequence. In our breakthrough phase, we seriously lacked human resources. Thus, in term of strategy, we must accelerate our growth while human resource could be adjusted later. We must choose the optimum solution in each situation; it would never have been perfection, particularly in a rapid developing economy like Vietnam.


How about investing in real estate and port, then withdraw?


These were changes in strategy. Investing in real estate was an action to discover new business field and once it was ineffective, we sold our shares and withdraw. We did not spend too much money and have not lost yet in these investment projects. Therefore, it could not be said as a failure. When Hoa Sen decided to invest in port project, the economic prospect was still quite bright. But now, with exceeding port capacities, the investment was not recommended. Hence, withdrawing these projects was just a correction. The current market now was unpredictable and volatile, thus flexible management to deal and adapt to those fluctuations would determine the enterprise’s success.


What is your ambition for Hoa Sen in the future?


Currently, we are orienting to restructure the Group in order to continue to exploit the strength of our brand and distribution network and strive for becoming the top building materials distribution in medium and long term. We will continue to invest in expanding our distribution network, increase the total number of branches up to 300-400 and will have around 60 building materials distribution center in every province.


Are you ambitious to become the billionaire dollar?


I have no ambition in monetary gain, because to have such ambitions will lead to the mindset of doing whatver it takes to obtain that ambition. For example, commenting that Mr Vu bribes to do business will never happen. I am only ambitious in honest business, foresee the opportunities to develop and being responsible in community. Developing ethically, we will get rich from it and this is really meaningful.


Do you admire any businessman?


I am a Buddhist and only adore Buddha. I just believe and pursue the teaching of the Buddha.

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