Background information
This case study mainly deals with the crisis that recently came up in Vietnam when a steel company that has been owned by one of the Taiwanese business giant, Formosa plastics, has release several tons of toxic spills in the sea.
This steel giant was formed in the year of 208 under the subsidiary of Formosa plastics and has largely been into the iron and steel making industry, which has been set up in the deepwater port of Vietnam. In the year of 2010 about 3,300 hectares of land has been allotted for the setting up of the company to help accommodate around 7.5 million steel per year, which literally cost around $ 15 billion.
Based on the four environments, internal, external, micro and macro environments, the company has been operating since establishment. The internal factors the plans and policies, the human resources, financial resources, plant and machinery, labor management and the relationship, the company is well established and secured (Bennett & Chorley, 2015). This can be understood by the huge infrastructure and the operations of the plant, with a huge investment of $ 15 billion. It can be assumed that it would not have been possible if the company had not maintained the cash flow and the other parameters in the internal environment. The company has maintained synchronization with the external factors( both macro and micro), however, the company failed to meet some of the parameters that affects any business such as the environmental, economic and the cultural factors, which would be elaborated on further analysis (Bickel & Friedrich, 2013).
The specific causes that lead to the temporary closure of the plant is the reckless dumping of toxic waste in the water, poisoning several fishes and marine life, thus disrupting the balance in the marine eco system and the livelihood of several people.
The initial and straight forward confrontation of the authorities at the time of the crisis could have been beneficial in convincing the society about the sense of responsibility amongst the official, however, the incident resulted in clash between protesters and the government resulting in arrests and hurting of the sentiments thus giving rise to further misunderstanding. These action further probed into understanding that the company has bribed the officials to take such action. Nonetheless, the paying of compensation and a responsibility acceptance testimonial that was produced later on turned down these allegations. This explains that the business was unsuccessful in turning down the crisis effectively apart from the giving rise to another.
Based on the concept of environment, every business is influenced by external influences, which consist of the Microenvironments and the Macro environments. The microenvironment consists of the customers, the competitors, the suppliers and the society. The macro environment includes the Demographics, Economics, Technological, Political and the Cultural factors. With reference to the influence of the external factors (Micro environments), the company has millions of customers ranging from other industrial to individual commercial business (Van den Bergh et al., 2013). South-east Asia is currently the largest consumers of iron and steel and is considerably the biggest target market of the company. Southeast Asia has also begun noticeable development in industrialization and urbanization, which resulted in the increased demands of iron and steel (Dixon et al., 2013). The company has several competitors who are trying to run the business in parallel to Formosa. Some of the companies, which are into the competition, are Bac Giang Exploitable Mineral Joint Stock Company, Bacviet Steel JSC, Bac A Mineral and Metallurgical joint Stock Company, Becamex Mineral Corporation and Besra Vietnam Ltd. All of these companies are based in Asia and notable contenders of Formosa Steel Corporation. One of the significant suppliers of Formosa is SMC, which is estimated to provide Formosa with over 100,000 tons of construction steel for the project allotted by Formosa. Another vital supplier of Formosa is a UK based company, a joint venture of Siemens and Mitsubishi, which in turn helped Formosa get its Hot Rolled Coil mill. This is considerably the first of a kind in the whole of Vietnam as well as it would help Formosa manufacture an extensive range steel grades. Influence of the society is one of the significant factors that affect the business. The livelihood of majority of the population is based on the employment opportunities that are provided by the plant. However, this can be affected in terms of lockdown of the plant or strikes. In addition, any crisis, like the killing of the fishes due to the toxic release has affected the livelihood of several anglers, who in turn lost their livelihood (Hitt, Ireland & Hoskisson, 2012).
Discussion
With relevance to the macro factors the number of population, along with the need and demand of the iron and steel due to the industrialization and the urbanization purpose is one of the factor that influences the business.
The economic environment that influences Formosa consists of factors that influence the financial functioning of the unit. The iron and steel business of Formosa collaborates with the economic conditions of Vietnam, which considerably includes the financial system, financial policies, commercial cycle, employment and the consumer interests (Hohmeyer & Ottinger, 2012).
The technological environment is one of the conditions that helps reach a company reach far in terms of production. The technological advancements has helped Formosa reach a higher grade in terms of production due to the sophistication and the intricacy of the technological advancements and machinery installation. However, the technological advancements are susceptible to high incurring cost due to their sophistication, which can affect the financial chain as well as the traditional labor method in terms of manufacturing.
The cultural environment revolves around the knowledge, the culture, belief of the Vietnamese people. It is a cultural aspect that is transferred between generations. It is the culture, which shape the behavior of the society and its perceptions. Therefore, any alteration in thee cultural attributes can affect the business. In this case, any change in the culture, perspective of the society can in turn affect the smooth functioning of the company. For example, if people start believing that rapid industrialization can hurt the traditional sentiments of the people or the livelihood, the people can get influenced by the perception, which would push the people into boycotting of industrialization and industries.
The political environment that can affect the business refers to the legal impositions and the parameters that the company needs to abide by to keep the business running. For example, Formosa needs to comply with the legal impositions and the regulations of the Vietnamese government to first set up the plant. The political environment affective Formosa’s business also includes the legislature, the executives and the judiciary of Vietnam, which would also affect the company.
The availability of the resources like the land, water and the mineral are the crucial factors in terms of the development of a business organization. The natural environment includes the natural resources, the weather, climate, location, topography and the transportation facilities. Formosa has been set up on 3,300 hectares of land. Construction of the plant had been significantly difficult due to the socio-economic conditions of the area. Yet the industrial plant has been constructed in the deepwater port with the facility of getting 200,000 tonnes vessels and favor consistent operation with the steel mill and power plant. The availability of skilled and cheap workforce along with water resources for cooling purpose are the additional factors favoring the manufacturing and business operations (Harris & Roach, 2013).
The legal environment refers to the formal rules and regulations by the country’s legislation The legal factors creates a structure of rules and regulations, which is necessary for the company to abide by and comply with. Thus, knowledge of the rules and regulations should be completely known by the authorities in the order to avert any legal complications. Laws such as Environmental law (55/2014/QH13), Orientation for Development of Water Supply (1929/QD-TTg) and Decision 2147/QD-TTg, Chemical Laws of Decree No. 113/2017/ND-CP, are incorporated by the Vietnamese government and it is necessary for Formosa to abide by it. In this manner, it can be justified how the external environmental (macro factors) can influence the company’s business.
References
Bennett, R. J., & Chorley, R. J. (2015). Environmental systems: philosophy, analysis and control. Princeton University Press.
Bickel, P., & Friedrich, R. (Eds.). (2013). Environmental external costs of transport. Springer Science & Business Media.
Dixon, J. A., Carpenter, R. A., Fallon, L. A., Sherman, P. B., & Manipomoke, S. (2013). Economic analysis of the environmental impacts of development projects (Vol. 1). Routledge.
Dixon, J., Scura, L., Carpenter, R., & Sherman, P. (2013). Economic analysis of environmental impacts. Routledge.
Harris, J. M., & Roach, B. (2013). Environmental and natural resource economics: A contemporary approach. ME Sharpe.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012). Strategic management cases: competitiveness and globalization. Cengage Learning.
Hohmeyer, O., & Ottinger, R. (Eds.). (2012). External environmental costs of electric power: analysis and internalization. Springer Science & Business Media.
Van den Bergh, J. C., Button, K. J., Nijkamp, P., & Pepping, G. C. (2013). Meta-analysis in environmental economics (Vol. 12). Springer Science & Business Media.
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