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Assignment 1 of BDM course in RMIT University
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Semester Semester 1, 2024 Title of Assignment Assessment 1: Business Report Name and Student ID Le Nguyen Thien Kim – S Signature Le Nguyen Thien Kim Location RMIT SGS Class Group G Lecturer Daniel B Word Count 1641
The 2016 environmental disaster in Vietnam involving Formosa Ha Tinh Steel Corporation (FHS) is considered as one of the local largest man-made natural pollution incidents, according to the country's Ministry of Natural Resources and Environment (Xuan Long 2017). The primary driver of this catastrophe was the discharge of industrial wastewater from the FHS facility. This incident led to the widespread deaths of marine life across four central Vietnamese provinces: Ha Tinh, Quang Binh, Quang Tri, and Thua Thien-Hue (Xuan Long 2017). The economic, environmental, and social activities in the mentioned regions, particularly the fishing, service, and tourism industries,were severely and extensively impacted by the disaster (Xuan Long 2017). This report aims to conduct a comprehensive examination of the Formosa Ha Tinh Steel Corporation case, with a focus on analysing the company's sustainability efforts, the problems it encountered, and the root causes behind this disaster. Furthermore, the report will assess potential strategies that FHS could have adopted to avoid or mitigate these issues, drawing insights from the relevant concepts learned in this course. II. CONTEXT OF THE CASE Background information of the company: Formosa Ha Tinh Steel Corporation (FHS) is a subsidiary of the Formosa Plastic Group (FPG), a Taiwanese conglomerate that operates diverse fields of businesses including petrochemicals, electronics, biotechnology, etc (Formosa Plastic Group). Focusing on FHS, the company is a massive steel plant located in the Vung Ang economic zone of Ha Tinh (FHS 2017). Established in 2008 as a foreign direct investment (FDI) project, FHS is considered one of the largest iron and steel complexes in Southeast Asia, with an annual production capacity of up to 7.5 million tons (Nhan Dan 3 August 2010). This project aimed at boosting Vietnam’s domestic steel production and exports, and its operation include iron ore processing, steel smelting, and the manufacture of various steel products (FHS 2017). Circumstances surrounding the incident: In April 2016, a catastrophic environmental disaster unfolded in the water surrounding the FHS facility. Particularly, a massive fish kill resulted in the deaths of over 70 tons of marine life, impacting the four central Vietnamese provinces of Ha Tinh, Quang Binh, Quang Tri, and Thua Thien-Hue (VN Express). According to local fishermen, this is an unprecedented event, as many seafood species living on the seabed, which are typically difficult to catch, were found washed up dead on the beaches (VN Express). In Vietnam, the Central region is heavily reliant on fishing and marine tourism, and this environmental disaster brought about a devastating impact on the livelihoods and economic activities of local
Social issues: Besides serious environmental issues, the incident led to a devastating impact on relevant society. In particular, hundreds of households that rely primarily on fishing for their livelihoods, who are predominantly low-income families that have been receiving government subsidies, were affected severely to the point that they struggled with financial issues. Beyond the fishing industry, the incident has also severely disrupted the region's aquaculture and marine-based service sectors. In total, up to 222,500 people have been affected across these industries (Le et al. 2020). On average, households had to suspend their main income-generating activities for up to half the year (Le et al. 2020). Even after this period of time has passed, business operations have many problems returning to normal levels due to the slow recovery of the damaged marine ecosystems (Le et al. 2020). Clearly, this disaster has created enormous social problems, plunging a huge number of impoverished residences into severe financial hardship. The disaster has exacerbated the vulnerability of these marginalised communities, requiring emergency intervention and support from the government. Underlying causes: On the FHS side, this case highlights the severe consequences of a company’s failure to apply the principle of corporate social responsibility (CSR) in its business operations while CSR has become one of the crucial requirements of companies (Phan T and Podruzsik S 2018). Specifically, at the core of CSR is the requirements of businesses to balance 5 dimensions: environmental, social, economic, stakeholder and voluntariness (Dahlsrud 2008); however, FHS disregarded these responsibilities. FHS’s shocking statement announced by Mr. Chu Xuan Pham - FHS representative - on 25 April 2016: "Catch fish and shrimp or run a modern steel factory?" (VTC14 2016) showed its neglect of stakeholder interests. Furthermore, the company’s lack of transparency in disclosing information and its dismissive attitude towards social and environmental responsibilities eroded stakeholder trust, going against the CSR principles of transparency and public accountability. On the government side, firstly, the incident highlights significant shortcomings in the Vietnamese government's oversight and regulation of environmental issues. Prior to the disaster, the government's inspections of the Formosa factory were considered highly inadequate, with only 8 inspectors conducting a single-day review (Nguyen 2016). Conversely, the post-incident investigation required 100 scientists over an entire month to complete (Nguyen 2016). Furthermore, in November 2015, 2 months before the inspection conclusions were announced, Formosa operated wet coking illegally without the Government addressing this violation (Nguyen 2016). Secondly, the lack of CSR regulations from the government regulations in Vietnam enabled Formosa and other enterprises to neglect their environmental and social obligations with limited consequences (Phan T and Podruzsik S 2018). As a result, many enterprises
beside FHS do not care about these lawsuits, such as the case of Veden in 2008 or 11 companies with poor quality fertilisers in 2008 at Vinh Long province (Phan T and Podruzsik S 2018). IV. EVALUATION OF POTENTIAL STRATEGY In 2016, although advanced wastewater treatment methods may have been less prevalent compared to nowadays ones, alternatives to FHS’s polluting wet coking process were still available. A noticeable example can be the wastewater system used by the Hoa Phat Steel Group in Vietnam. Hoa Phat's approach centred on continuously upgrading its wastewater treatment infrastructure (Tran 2016). All wastewater from production was thoroughly treated before being recycled for in-plant cleaning processes. Any remaining excess was then safely discharged into the environment (Tran 2016). Although this wastewater treatment model cost substantial investment due to the number of stages and facilities required, Hoa Phat still had the advantage of offset costs by reusing the treated water. Importantly, this approach is far more environmentally responsible than FHS's extremely damaging choices. On the other hand, due to the lack of awareness about the importance of applying the CSR concept into its business operations, FHS could have developed and implemented a clear and proper CSR strategy that met international standards, such as the Global Reporting Initiative (GRI) or the UN Global Compact. This approach could have prevented FHS from causing the disaster by considering and balancing the interests of all relevant stakeholders. Although this potential strategy might have taken considerable time and effort to create and realise, and could have slightly reduced FHS's profits; it would have saved the company from having to pay enormous sums of money to address the consequences from the incident. Additionally, it would have helped FHS establish a better reputation instead of the stigma associated with environmental destruction like the present time. V. CONCLUSION The Formosa Ha Tinh incident can be seen as a valuable lesson for other companies and the FHS company itself to reflect and investigate. This disaster highlights the need for companies to balance between profit, the environment and social responsibility by following sustainable practices and environmental rules. The case also shows the importance of strong regulations, enforcement and mechanisms to reduce negative impacts and prevent enterprises from harming the ecosystem. Ultimately, this lesson reminds the whole community that companies, governments and individuals all have a role to play in achieving a more sustainable future by balancing economic growth with environmental protection and well-being of society.
Nhan Dan (3 August 2010) ‘Hà Tĩnh tích cực triển khai dự án Formosa' (Ha Tinh actively implements the Formosa project), Nhan Dan, accessed 4 April 2024. https://nhandan.vn/ha-tinh-tich-cuc-trien-khai-du- an-formosa-post498582.html Pham M and Nguyen M (24 December 2016) ‘Vietnam says recovery from Formosa industrial disaster could take a decade’, Reuters , accessed 3 April 2024. https://www.reuters.com/article/idUSKBN14C1CK/ Phan T and Podruzsik S (2018) ‘CSR in Developing Countries: Case Study in Vietnam’, Management (Spletna izd.) , 13(4): 287-300. Tran N (14 July 2016) ‘Ống thép Hoà Phát nâng cấp hệ thống xử lý nước thải' (Hoa Phat upgraded the wastewater treatment system), Hoa Phat website, accessed 5 April 2024. https://www.hoaphat.com.vn/tin-tuc/ong-thep-hoa-phat-nang-cap-he-thong-xu-ly-nuoc-thai.html VN Express (n.d) ‘84 ngày truy tìm nguyên nhân thảm họa cá chết' (84 days searching for the cause of the massive fish death disaster), VN Express , accessed 3 April 2024. https://vnexpress.net/interactive/2016/84-ngay-ca-chet VOV (24 August 2016) ‘Formosa to finish fixing all environment - related flaws by mid - 2018’, VOV website , accessed 4 April 2024. https://english.vov.vn/en/society/formosa-to-finish-fixing-all- environment-related-flaws-by-mid-2018-329143.vov VTC14 (30 June 2016) ‘(VTC14)_Toàn cảnh sự cố môi trường biển miền Trung’ (Overview of marine environmental incident in the Central region of Vietnam) [video], VTC14 Channel, Youtube website, accessed 4 April 2024. https://www.youtube.com/watch?v=EARI575JBWg&t=44s Xuan Long (13 July 2017) ‘Formosa đứng đầu các vụ gây ô nhiễm năm 2016’ (Formosa ranked first in pollution cases in 2016), Tuoi Tre Online , accessed 4 April 2024. https://tuoitre.vn/formosa-dung-dau- cac-vu-gay-o-nhiem-nam-2016-1351267.htm
