RISK ANALYSIS:

GROUP 3: TRAN VIET DUNG

NGUYEN THUY DUONG
NGUYEN HOANG GIANG

1 INTRODUCTION THE CASE

1.1. Problems challenging THACO group:

 High competitiveness in the industry
 High material prices
 Changing government policies and tax rates

1.2. Objectives of research

- Our research analysis and specify the risk related to Thaco Group and give some
rational solutions to address such risk.
1.3. Questions of research:
 How well does the company operate through the period from 2015 to 2018?
 Risks detected from Ratio Comparative Analysis
 Risks involved to THACO Group from business analysis
 Sources of risk
 How THACO Group should manage the risks?
1.4. Methodologies and Data
 1.4.1: Methods: ratio analysis
1.4.2: Data: base on THACO’ s financial report of 4 recent years

2. BACKGROUND OF THACO GROUP

2.1 : Introduction
 Truong Hai Automobile Co., Ltd. was established on 29 April 1997, headquartered at 19
Street No. 2A, Bien Hoa II Industrial Zone, Dong Nai Province. The founder is Mr. Tran
Ba Duong, who is now THACO’s Chairman.

 In 2007, Truong Hai Automobile Co., Ltd. changed to become Truong Hai Auto
Corporation (THACO). Currently, the company has three administrative offices located in
Ho Chi Minh City, Hanoi, and Chu Lai (Quang Nam). Particularly, Chu Lai - Truong Hai
Auto Manufacture and Assembly Complex (Quang Nam) which was established in 2003
on an area of nearly 600 hectares, consists of 24 subsidiaries and affiliated factories.

 Main activities: Passenger Cars Trading & Manufacturing

Commercial Vehicle Trading & Manufacturing
Logistics
Industrial Park Infrastructure

 THACO currently operates in auto manufacture, assembly, and distribution; provides auto
spare part and maintenance services, including manufacturing, trading, and distributing
commercial vehicles (trucks and buses), manufacturing and trading passenger cars from
the brands including Kia (South Korea), Mazda (Japan), and Peugeot (France -Europe). As
to April 2016, the distribution system consists of 89 showrooms and 53 dealers nationwide
and the company now has 14,900 employees.

 At the present time, THACO is the only enterprise in Vietnam that manufactures and
assembles all 3 car lines including passenger cars, trucks, and buses with the localization
rate from 16%-50%, providing Vietnamese people with diversified, quality, and affordable
cars. In 2014 and 2015, THACO has topped the sales chart of Vietnam Automobile
Manufacturers' Association (VAMA).

 As the leading auto manufacture, assembly, and distribution company in Vietnam, THACO
aims to maintain its position and expand its market to the ASEAN region, enhance
international cooperation to select appropriate technology, increase the local content, and
join the global value chain creating platform to become a multi-industry conglomerate in
the region.

2.2: Objectives and strategies

 Mission: To become a multidisciplinary industrial group with high growth rate and
sustainable with the leading position in the region, bringing maximum effect to investors
and pride on Vietnamese brand products.
  Vision:
+ Create products to improve the quality of life of users to become a well-known brand
in the AFTA and the world.
+ Sustainable development brings the greatest benefits to shareholders and partners, and
creates a favorable environment for employees to develop in their personal and
professional life.

 Strategy is to increase the market share of the company, affirm the brand by the quality of
its products, achieve a solid position in the international market.

2.3: The company’s organization chart:

Chairman of the board

Trần Bá Dương

Permanent Vice Chairman of the Board

Nguyễn Hùng Minh

Member of Member of Member of

management council management council management council

Mai Phước Nghê Phạm Văn Tài Cheah Kim Teck

Member of Member of
management council management council

Lê Trọng Sánh Nguyễn Thiện Mỹ

Member of Member of
management council management council

Viên Diệu Hoa Adrian Teng

 2.4: Scope of project:
The project focused on the use of Financial and Annual Report of THACO Group

2.5: Stakeholder

Stakeholders Interest Right Obligation

Owners -Received an Receiving an -Maintain
interest investment confidentiality of
(dividend) from -Making an operating sensitive information
THACO decisiom -Complete financial
- Attract obligations in a
investors timely manner

Customers Receiving Responding the

products and service, locating the
services from branding of THACO,
THACO, deciding the
development of
Company.

Suppliers Maintaining an Receive payments or -Provide goods and

relative with prepaid services on a timely
THACO -Providing good & manner
-Providing a service on time and -Provide after sale
high quality reducing fails services
good and service (maintenance….)
-selling raw
3. marterial
Goverment -Reducing -Receive tax -Provide public
unemployment payment security
-Increasing -issue preferent or -Maintaining
government’s limited policies infrastructure
budget -Balancing the fair in
-Reduce the market competition
budget deficit

BUSINESS ANALYSIS

3.1: PESTEL analysis:

- Political factors:
 Political factors include: Political environment, political stability, political conflict
trends, this is the decisive factor to the survival of the company. Vietnam is
membership of 63 international organizations, including United Nations, Association
 of Southeast Asian Nations, World Trade Organization, International Monetary
Fund. Until 2010, Vietnam had established diplomatic relations with 178 countries.
The President stressed that one of our outstanding strengths is a stable political
environment and national defense to attract investment and economic development.
Vietnam also maintains a good relationship with almost countries in global. This is
the premise for Vietnamese companies in general and THACO in particular to
develop production and business.
 The most influential political factor for Vietnam's automobile industry in recent
times is the conflict between Vietnam and China in the East Sea. At present, China is
the second largest supplier of components to Vietnam, therefore the conflict will
greatly affect the domestic manufacturers.

- Economic factors :
 Vietnam's economic growth rate increased for recent years :
+ GDP increased from 475.8 billion USD in 2013 to 647.4 billion USD in 2017) .
+ Average 5 years, GDP per capita increased by 6,7% / year and GDP growth rate increased
by 5.8% / year.
+ Unemployment decreased from 2.8% in 2013 to 2.2% in 2017.
 Economic growth entails the development of the middle class, who have demand for
car consumption. In addition, a large urbanization rate also contributes to high
demand for automobiles. On the Government side, perseverance with the goal of
globalization through the process of privatizing state-owned enterprises and
restructuring the commercial banking system is considered a step in the right
direction. Along with that, Vietnam also became a member of WTO and AEC,
promising to create competition and promote domestic enterprises to develop.
 However, Vietnam's economy is also facing many challenges of Policy. Although
monetary devaluation has positive impacts on the trade balance, however, for the
automobile industry, which is heavily dependent on imported components, will create
disadvantages in input costs. Although inflation has been controlled, the economic
recovery rate is still slow. Credit growth is generally low.
 Nonetheless, the material production sector tends to increase gradually. This poses
opportunities to develop and also challenges to compete for automobile
manufacturing and assembly enterprises in general and Thaco in particular.

- Socio-Cultural Factors:
 Vietnam with more than 90 million people, there is 67% of working age with the
demand for transportation and road freight transport with growth rate of over 10% per
year; in which passenger transport accounts for 91.4%.
 Rate of urbanization: 2.98% annual rate of change (2015-2020 est.) that can increase
the demand of purchasing cars.
  The advantage is that as an local business, Thaco understands the needs of domestic
customers and understands the topography, thereby continuously improving the design
models, changing the design for the cars to bring out the lines convenient products to
meet the high demand for consumers. It is not too difficult to explain why the models
like Newmorning and Thaco's family cars -Kia are so popular with Vietnamese people
(compact, fuel-efficient, suitable for the terrain and shape).

- Scientific - Technical factors :
 The processing and transfer of knowledge and information takes place quickly and
widely thanks to the development of a modern tool system, in which information
technology plays a decisive role.
 The above development has really created favorable conditions for international trade
in terms of time as well as costs.
 However, in Vietnam at present, the state of technology is still very outdated , has not
been invested much innovation, lack of modern refinement equipment, so the product
quality is not evenly and low productivity, leads to high costs which reduce the
competitiveness of products.
 With the car industry's special characteristics, science and technology are a very
important factor in the production process, improving production efficiency, export,
scale up output, and optimize costs. However, with integration trend, strong
globalization process brings THACO many opportunities to access the new and
advanced technology.

- Environmental factors
Include the ecological environment that exists around the environment in which the company
operates, for the company's inputs, on the process of transporting the raw materials.
 In the company, fuel such as electricity, gas, petroleum ... and some factors affecting
the company's production through natural factors include: Air pollution, environment
Industrial waste, status natural disasters, while our country is a more unstable climate
than other countries. Natural factors are quite important, with the natural advantage of
the country, the state has created planning zones and industrial centers, which helped
Thaco to build the most modern and largest production complex in the country - Chu
Lai - Quang Nam automobile production and assembly complex .
 The national natural element with abundant resources, providing large sources of fuel,
low prices bring many advantages to the company in production, orienting the
localization process from the production of parts to assembling and distributing
products instead of imports from suppliers.

- Legal factors:
System of laws, regulations in general and laws related to the field of automobile production
of the company.
 As in 2003, the Prime Minister issued a decision on planning the development of
Vietnam's automobile industry by 2010 - a vision to 2020.
  Tariff barriers and technical barriers are set by the government to protect young
domestic enterprises. (big income tax incentives, high import tax on complete cars
(more than 80%) to encourage self-production .... Quickly seize opportunities, the
company set up strategies and bold decisions to enter Chu Lai open economic zone,
building Chu Lai - Truong Hai automobile production and assembly factory,
specializing in trucks and passenger cars.
 However, the over-preservation of the current automotive industry is often easy to
make the price of domestic cars too high, creating inertia for businesses. The current
tax policy is still highly protective so the price of cars is still high. Automotive parts’
s tax is not reasonable, domestic parts cannot be produced but still remain at high tax
rates.

3.2: Five forces analysis

3.2.1. Intensity of rivalry amongst existing competitors:
 Businesses in the industry will compete directly with each other, creating pressure
on the industry to create a competitive intensity. For foreign competitors, the
biggest competition of Vietnamese enterprises in ASEAN region is with Thailand
and Indonesia. Competitors with Truong Hai such as Toyota, Mercedes-Benz, Audi
...’s promotion and attracting customers are not strong... However, at the time of the
current market economy development, the current competitive companies always
create new things such as: new products, beautiful, different models and bring some
outstanding features, and especially the price, the companies compete with each
other very high in price, the rear models have more fashionable models, suitable for
more consumers, and prices will be more favorable. Meanwhile, current consumers
are very much in need of changing their vehicles according to the trend of higher
development first, pursuing and gaining strong market share.
=> rivalry competition in the industry is high.

3.2.2. Threat of new entrants:

 The number of companies that are not currently competing in the industry but are
capable of doing so in the future, enterprises in the industry in the process of
integration with the gender card economy, the number of foreign enterprises,
foreign joint ventures investing in real estate and automobile assembly increasing
that creates a high competitive strength in the industry. About barriers to entry or
withdrawal ,It will be very difficult to participate in the automotive market, with
large investment costs for production, a strong distribution system is needed, while
industry has too many strong brands with the advantage of reputation of brand,
Loyalty of customers and advantage of experience in the market customers. The
industry has a high growth rate and also creates a great competition among
competitors. In cost advantages: Existing companies can easily produce and offer
its products and/or services at a lower cost/price than that of new entrants. About
government policy and protection tariffs, car has very high tax rate coupled with
 excise duty tax. In addition, THACO are striving to become the largest automobile
supplier in Vietnam.
=> High barriers to entry into the industry => As a result, pressure from new entrants
is low.

3.2.3. Threat of substitutes:

 Substitute products of the industry are products of another industry but serve
customers similar to the analyzing industry. For automobile manufacturing and
assembly industry, the company's replacement products such as ships, motorbikes,
bicycles, etc. .Because of the size of the consumer market, there is also a majority
of consumers, medium and low income, so the demand for these products will not
be as high as other means ...
=> Threat of substitutes is medium.

3.2.4. Bargaining power of buyers (customers)

 The buyer is the basic force that determines the potential profitability of the
industry as well as the ability of the company, the buyer can be individual or
organization, business .... The number of customers participating in buying a lot of
products, and the number of diverse automobile companies, many well-known
brands compete and create conditions for buyers to choose between these suppliers:
TOYOTA, FORD , HUYNDAI, ... .. The ability of customers to integrate in the
opposite direction is very difficult, because basically the automobile industry is
very difficult to enter with high costs, high-tech and market factors consumption ...
Customer's transition barrier is not high, because the conversion cost for customers
is possible in the current development trend. Currently, comparing to the average
income per capita in Vietnam, the conversion cars from local brand to another such
as TOYOTA are possible costs. Understanding, capturing information about
products and companies is very high, along with the barrier of conversion of buyers.
=> Bargaining power of buyers is high.

3.2.5. Bargaining power of suppliers:

 Supplier is also one of the factors that determine the competitiveness of the
Company, suppliers of equipment and raw materials for production, Commercial
ability. The bargaining power of suppliers is shown by: The number of suppliers of
raw materials and spare parts for automobile manufacturing companies is high, but
the number of companies consuming less and large consumption scale.
Differentiation of suppliers is not high, there is no difference between suppliers,
does not create high competitiveness among suppliers, products that suppliers offer
to replace by other suppliers. Suppliers also have the ability to integrate along the
downstream but not high, because the entry barrier is quite high. But the company
may be able to integrate along the opposite direction, self-supply input materials for
itself (Truong Hai is implementing this process in the localization orientation).
=>The impact of suppliers is not high. (bargaining power of suppliers is medium)
  General remarks: by analyzing the model of 5 competitive factors of the
automobile industry in the business environment of the company, it is found that the
automobile industry is a focused and strong industry, and by analyzing the external
environment, shows the opportunities and threats of the THACO group. There are
many development opportunities in Vietnam. But, there are also some threatening
factors around the company's external business environment does significantly
affect to the company's business processes.
3.3: SWOT ANALYSIS
- Strengths:
 Having many major automobile brands like Kia, Mazda, Peugeot....
 At present time, Thaco is only enterprise in Vietnam that manufactures and assembles
all car lines including passenger cars, trucks and buses with the localization rate from
16-50%.
 In 2014-2015, Thaco has stopped the sale chart of Vietnam Automobile
Manufacturers’ Association (VAMA)
 Enhance international cooperation to select appropriate technology, increase the local
content, and join the global value chain creating platform to become a multi-industry
conglomerate in the region.
 Distribution network throughout the country, distributed in all three regions. System
expansion happens regularly.
 Products are very diversified, supply fully for every market segment.
 It is run by the pioneers, experienced in the manufacturing and assembly of cars.
 Access to modern production technology, advanced management model quickly by
the multinational manufacturers.

- Weaknesses:

 Financial resources are not equal to rivals whose parent companies are multinational
corporations such as: Toyota, Metz, GM, Ford….
 Professional technical level is not high, lack of experts.
 Small domestic market.

- Opportunities:
 Business expansion and production scale.
 Capitalization of capital, expansion of business.
 Import tariffs from many ASEAN countries will be 0% as a big opportunity to export
back to ASEAN.

- Threatens:
 Fierce competition not only with domestic enterprises but also external enterprises.
 Gasoline prices escalate, requirements for environmentally friendly products.
  Increasing demand for quality products of customers.

4. ANALYSIS AND FINDINGS

4.1. Strategic position:
- The competitive advantages of THACO when conducting projects is the capacity of
subsidiary companies, affiliated company, big investment resources, well location and
terrain...
4.2. Strategic choice:
- Raise investment to build modern and large production complexes
- Focus on building strong management system and advancing risk control.
- Training staff for member companies.
- Strengthening remuneration policies on employee income associated with business
results.
- Pioneering in technology innovation and application new, improve labor productivity to
save costs labor costs during construction.
- Development of Subsidiary and Affiliated Companies strong, cultural and identity with
the parent company.
- Building construction management apparatus for the Company in accordance with
THACO standards.
- Expanding new business activities in the value chain through member companies
4.3. Strategic action:
- Upgrade the management and technology system
- Focus on production in Chu Lai - Quang Nam automobile production and assembly
complex
- Expand automotive distribution and retail system

4.4: Ratio Analysis

2015 2016 2017 2018

Liquidity ratios
 Cash Ratio 0.04 0.04 0.01 0.01
Quick Ratio 0.49 0.31 0.34 0.53
Asset Management ratios -4.36 29.38 6.77 8.7
Inventory Turnover 3.22 2.42 1.5 1.71
Days Sales Outstanding 13 12 21 24
Fixed Asset Turnover 7.21 8.14 5.98 5.81
Total Asset Turnover 1.67 1.4 0.87 0.87
Debt Management ratios - - - -
Debt Ratio 35.91 31.36 33.96 33.26
Times Interest Earned 31.27 17.75 10.95 11.01
Profitability ratios
Profit Margin 24.46 19.2 18.46 19.86
Return on Assets 28.3 - - -
Return on Equity 61.2 41.7 19.64 21.03
Market Value ratios
Price-to Earnings Ratio - - - -
Price-to-Cash Flow
- - - -
Ratio
Market-to-Book Ratio - - - -
Du Pont Analysis
ROE 116.41 98.51 47.46 46.48
PM 17.05 13.51 10.07 10.61
TATO 1.67 1.4 0.87 0.87
Equity multiplier 4.09 5.21 5.42 5.04

4.4.1. Liquidity ratios:

- Current ratio: 3.1
4.4.2. Asset Management ratios:
- Inventory turnover: 1.71(2018)
- Days sales outstanding: 24
- Fixed Asset Turnover: 5.81
- Total Asset Turnover: 0.87
4.4.3. Debt Management ratios:
- Debt Ratio: 33.26%
- Times interest earned: 11.1
- EBITDA Coverage Ratio: 84.5
4.4.4 Profitability ratios
- Profit Margin: 19.86%
- Basic Earning Power: -
 - Return on Assets: -
- Return on Equity: -
4.4.5. Market Value ratios:
- Price-to-Earnings ratio: 0.7
- Price-to-Cash Flo ratio: 0.7
- Market to Book Ratio: 1.1
- ROE: 46.48
- PM: 10.61
- TATO: 0.87
- Equity Multiplier: 5.04

According to the ratio, we conclude some identification:

- Firstly, Current ratio is 3.1 so with this highly rate proves that THACO has ability to pay
the obligation and other liabilities. The operation cycle of THACO running effectiveness,
and the transformation from products to liquidity high.
- Secondly, the inventory turnover ratio low (1.71) because competitors in 2018 rising high
and the has the diversify model and furthermore, import tax reduces so customer has the
tendency to keep the money and waiting the price reduce. So the inventory of THACO is
high. And this make the risk of inventory
- Day sales outstanding rising from 13 days (2015) to 24 days (2018) mean that it takes
THACO long day more to collect its accounts receivable from customer. By quickly
turning sales into cash, the company has a chance to put the cash to use again more
quickly.
- Fixed asset turnover low (5.81) and this is the lowest ratios of Fix asset turnover in
nearest 5 years indicates that THACO has been decreasing the ability to effectively
utilized investment in fixed assets to generate revenue.
- Debt Ratio (33.26%) due to the nature of a construction firm. And also because of the
corporation with banks in supporting for debt ratios to reduces from 2015 – 2018. And
this ratios still remains in stable level.
- Profit margin of THACO reduces from 24.46% (2015) to 19.86% (2018) because of the
competition from another company with diversify in model. But in 2017-2018 this ratios
increase again by the way that corporation of THACO with KIA motors and Mazda
motors in supply chain in Vietnam
- In 2015 The number of imported cars continues to increase, in the first quarter of 2015, a
total of 25,169 cars have been imported, total turnover of 590 million, up 136% in
volume and 180% in price. value compared to the first quarter of 2014. As of August
2015, Vietnam automobile import value has doubled compared to the same period in
2014, reaching 3.8 billion USD (up 80.2%), in which complete automobile increased by
132.1% . And in this time Thaco was decrease because of domestic car. And their Profit
margin was reduced in period of 2015-2017.
- For the whole of 2018, the industrial production index increased by 10.2% over the
previous year (the first quarter increased by 12.7%, the second quarter increased by 8.2%,
the third quarter increased by 10.7% and the fourth quarter increased by 9.4%), lower
 than the increase of 11.3% in 2017. The market value of THACO still evolve in market
and Profit ratios remain for.

4.5: Control Mechanism

4.5.1: Rewards:
For employee:
- Raise salary
- Promotion
- Benefits package
- Employee Stock Ownership Plan
For Investors:
- Pay dividends
4.5.2. Penalties
For employee:
- Salary penalties
- Dismiss staff
- Demotion
4.5.3. Monitoring mechanism
4.6.3.1: Conflict
Confliction between Board of Director and investors
Confliction between Board of Directors and investor
4.6.3.2: Resolution of conflicts
Establish Board of Supervisor, Audit Committee

5. RISK ANALYSIS:
5.1: Risk identification
 IDENTIFICATI PROBABILI IMPACT REACTION
ON TY
OPERATION Lack of spare High Delay -Buy
AL parts production insurance for
and the sales imported
cars and
spare parts
-Coordinate
with many
suppliers
- Increase the
capacity to
self-produce
spare parts
- increase the
localization
rate of the
automobile
industry

In 2015 and 2016, Medium - Reduction - Adjust the

FINANCIAL THACO of Revenue competitive
significantly - When the price to suit
reduces the price number of with the
of its imported customer’s market and
and distributed car demand to the
lines repair or company's
maintain the development
car doubled plan
but the
factory, the
machine and
the number of
workers does
not increase,
after-sales
service may
not respond
promptly in
 time and
quality.
Currency Medium to Income loss -Hedging
exchange rate high -Follow the
fluctuations government
guideline
-Buy
currency
futures
options
-Use
Forward
Exchange
Contract
- Choose the
payment
methods that
best suits
your
business.
Increasing in High Increase the -Changing
excise duty and price the price of
tax rate in product
Vietnam -Decrease
the operating
costs and
find the
suppliers that
have lower
price
ECONOMIC Economics Medium to -Fall in stock Diversificati
recession high price on, expand
-Make operation
difficult for activities
operating
activities
-Hard to lend
money,
decrease
investment
capital
- the demand
of buying
cars reduces
 A lot of High -Create high - Develop
competitors competitiven technology
ess in to create new
domestic models
market which meet
- Create big the
change in customer’s
car’ s price demand
- Reduce
product cost
to have a
competitive
price
- Promote
other
activities
such as
Logistic
activities and
Industrial
Park
Infrastructure

5.2: Sources of risks involved THACO Group and Recommendations to address such risk
5.2.1: Operational risks: (Lack of spare parts)

1: Sources of risk:

 Localization rate in Vietnam automobile industry is low (only 10%). The

supporting industry of Vietnam is underdeveloped. Vietnam automobile
industry lacks of conditions of capital and technology to self-produce spare
parts and cars.
 The importation of THACO’s auto parts is difficult. Price and Costs to import
spare parts from abroad tend to increase due to the high tax rate.
 Political problems: At present, China is the second largest supplier of spare
parts to Vietnam but the conflict between Vietnam and China at the East Sea
has greatly effect to the importation.
2: Recommendations to address
 Coordinate with many suppliers
  Promote the capacity to self-produce spare parts of the economic zones and the
automobile production and assembly factories of company, especially in Chu
Lai – Quang Nam
 Invest, contribute and promote the Vietnam automobile support industry to
raise the localization level
5.2.2: Economic risks: A lot of competitors
1: Sources of risk:
 Free trade agreement (FTA), ATIGA Agreement and the upcoming EVFTA
agreement increase competition for both domestic and foreign automakers due
to the huge cost reduction of import tax for automobiles (ASEAN: 30%-> 0%,
Europe: 70%-> 0%)

 Import tax on automobiles in Vietnam will be reduced to 0%. That means the
protection umbrella named "tariff barriers" will no longer work. At this time,
Thaco will face big rivals in countries such as Japan, the United States and
Thailand. The biggest rival for Vietnam will be the car line from Thailand.
Thailand's auto assembly plant capacity is up to 2.85 million units, even if it
runs at full capacity, it could reach 4 million units. In the context of the
consumption of Thailand is saturated, the export will be the strategy promoted
by enterprises. With the above-mentioned production figures, there is reason to
believe that after 2018, "Made in Thailand" cars will overwhelm the Southeast
Asian market, including Vietnam.

 The inventory turnover ratio low (1.71) because competitors in 2018 rising
high and the import tax rate reduces to 0% so customer has the tendency to
keep the money and waiting the price reduce. So the inventory of THACO is
high => Risk from the inventory is medium

2: Recommendations to address
 Develop technology to create new models which meet the customer’s demand
 Reduce product cost by increasing capacity to self-produce spare parts to have
a competitive price
 Promote other activities such as Logistic activities and Industrial Park
Infrastructure.
5.2.3: Financial risks:
Reducing car’s price
1: Sources of risk
  Profit margin of THACO reduces from 24.46% (2015) to 19.2% (2016)
because in 2015 and 2016, THACO reduced its imported and distributed car
lines’ s prices to generate sales. Despite that the company get big sales (sales
increased from 41,494,266 billion VND in 2015 to 59,163,238 billion VND in
2016), large price cuts minimize the gross profit THACO get on it.
 This also gave THACO the potential risk of a quick ratio that tend to decrease
from 0.49 in 2015 to 0.31 in 2016 and 0.34 in 2017. The company had big sale
but liquid asset decreased (especially is cash) and debts sharply increased less
profit and high cost. So, THACO did not have adequate current assets, without
inventory, to cover near-term debt.
 Over time, maintaining a strong brand image made THACO maintain stable
price points or even increase prices. Therefore, in 2017-2018 this ratio
increased again by the way that THACO brought KIA motors and Mazda
motors on supply chain in Vietnam.
2: Recommendations to address
 Reduce the cost of goods sold through the acquisition of cheaper supplies or
cutting labor costs
 Continue to maintain stable price
 Adjust the competitive price to suit with the market and the company's
development plan whenever the market change.
 Develop the factory, the machine and the number of professional workers to
respond the high demand of customers.

Currency exchange rate fluctuations

1: Sources of risk

Vietnam 2013 2014 2015 2016 2017

Exchange rate( vs
USD) 21,095 21,388 22,485 22,771 22,710

Yuan to Dong (CNY/VND) Forex Rate charts

 Baht to Dong (THB/VND) Forex Rate charts

 The depreciation of the denominated VND currency or the appreciation of the

denominated USD currency in Vietnam were very clear for 5 recent years.
 In addition, exchange rate of VND vs foreign currency ( especially of countries
that company usually import goods) changed frequently
 Transaction risk: when THACO imports spare parts or cars from abroad: If the
selling company’s currency were to appreciate versus the VND, then the
company will have to make a larger payment in its base currency to meet the
contracted price. Therefore, the fluctuation of the exchange rate of the foreign
currency against the Vietnam Dong will be a risk to the Company, affecting the
price of imported materials, thereby affecting the results of business operations.
 Economy risk: The market value of THACO is also impacted by currency
fluctuations
2: Recommendations to risk
 Implement hedging strategies to mitigate that risks
 Use Forward Exchange Contract to buy one currency amount and sell another at
a fixed exchange rate on an agreed future date. This means THACO must know
exactly how much it ’ll pay for imports and that can protect business when
exchange rates turn for the worse
 Use Currency options that allow THACO to buy the asset or goods at a state
price within a specific timeframe. In addition, with it company can protect a
certain exchange rate but also be able to participate if market rates move in
company’s favor.

 Try to limit the imported spare parts consumption, increase the capacity to self-
produce spare parts or buy components from local suppliers.

Legal risk: Changing in excise duty and tax rate in Vietnam

 1: Sources of risk
 Government policy changes quickly from each economic periods
 According to the new calculation of excise duty, if spare parts produced
domestically is exempted, the automobile production costs will decrease. Since
then, car prices will also fall. This policy of Government aims to encourage
automobile assembly enterprises in Vietnam to improve localization rates, lower
product prices and improve competitiveness between domestic and imported
cars. So, THACO have to not only reduce the price but also increase the car’s
quality and models to compete with other companies. In the first stage, company
may lose profit for reducing from normal price to competitive price.
 But now, Government want to increase excise duty taxes to reduce CO2
emissions causing greenhouse effect; apply economic tools to force producers to
convert environmental protection costs into product prices and encourage
manufacturers to invest in environmental protection. (applying a lower tax rate
for gasoline-powered cars combining electricity and bio-energy ...). That make
THACO have to change development plan and strategic to adapt. THACO can
lose sales due to high tax rate, high price and high costs in production and
operation.
2: Recommendations to risk
 Follow the government policy to understand the tax rate and excise duty rate
 Hire the consulting company
 Adapt quickly to the new policy by changing development plan and strategic
 Raise capital to develop science and technology to promote the capacity of self-
produce spare parts and cars, reduce cost from importation, apply modern
technology to protect environment.

6. FINDINGS AND DISCUSSIONS

6.1. Findings
Based on the results of risk identification and analysis, we noticed that the major risks
come from the operating, financial and economics process. There are some reasons for
THACO’ risks:
- Lack of spare parts
- Reducing car’ s price
- Currency exchange rate fluctuations.
- Change in tax rate and excise duty
6.2. Implications
Based on the findings, we suggest that THACO Group should develop technology and
scientific, training workers, attract external investors, promote risk management system,
follow the government policy to adapt to the changing and development of the Vietnam
automobile market
6.3. Conclusion: Despite of some risks from operating, financial and economics process,
THACO is still at the good position in Vietnam auto market and need to utilize
opportunities from both domestic and external market, manage risk effectively and raise
the quality of products to develop company in the future that has high competitiveness.