To Germany, fighting the Communists is our raison d'etre, to borrow a phrase from our likely enemies. It is our reason for being, because the Communists threaten all that we hold dear. These Spanish Republicans pretend to be a "western democracy" like the French or British have. But on the other hand they give in to the most radical socialistic ideas and have even begun burning churches. This suggests a closer link than they will admit to Godless Communism. Soon we will see repeated in Spain the greatest atrocities of the French Revolution. Nevermind that Nazism is also mostly an atheistic creed, many of the aristocrats and officers who lead the German Army are deeply religious Protestants and Catholics, and they are increasingly concerned about the disorder allowed by the Spanish Republicans.
It must not be allowed to prevail, if we can help it. We may not succeed in turning the tide there. But we must try. Besides, it will provide valuable experience for our fighting men and will serve as a testing ground for our innovative new weapons systems and techniques.
Germany commits to intervene with military advisors, some soldiers, and some air squadrons. Italy, at the same time, joins with us to fight against the Republicans and their Soviet allies who are already bombing and strafing Fascist positions with their tiny little biplanes.
Meanwhile, Germany must prepare for the war ahead. The primary target is, of course, the Soviet Union. But, just as in the previous war, we must expect that the meddling Western Democracies are going to put their noses in our business and prevent us from re-asserting German sovereignty over the lands populated by ethnic Germans -- the lands that were taken from us through the travesty of the Versailles Treaty.
And, also as in the last war, this means we must prepare for a two-front war. We must prepare against enemies in both the east and the west. France must necessarily be our most immediate enemy, and it is she who we prepare to meet most diligently in the short term.
But, wherever, our war must be fought, we must have industry to produce our guns and tanks and planes, and we must be able to protect ourselves from the dread of aerial attack. Thus, Germany has enacted a programme of protecting German industrial centers with anti-aircraft guns, and bolstering our economic power through the construction of new factories that will also put all Germans back to work.
So, back to gamespeak, we're spamming factories. Not nearly so much as some gamey games I've seen, but definitely prioritizing economic growth to a significant degree over most other things at this stage in our game. You'll see this later in this update when I show you my production queue.
In strategic terms, factories I build early in the game are worth more, because they will ultimately produce more (a factory which hypothetically produces 10 IC per year will produce 30 more IC if built in 1937 than if built in 1940 -- nevermind that this isn't how IC works, but you get the idea). It's also easier for me to prioritize factories early in the game when I don't have urgent campaigns hanging on the availability of bombers or armored units needing to be pushed through before all else.
You'll notice that, throughout the game, even when I'm prioritizing military necessities, I keep one or two factories in the queue just so I don't completely stagnate my growth.
Naturally, the Industrial Production advance helps me in building my economy. Comparing the base IC (actual factories) to available IC (effective output) from October '36 gives a ratio of 1.14, meaning I'm producing 14% more effective output than actual factories. In May '37 that ratio has grown to 1.17, reflecting the 2.5% added increase provided by my Industrial Production advance (2.5% per level = 12.5% total at level 5).
Altogether, that plus my new factories results in a growth of 20/28 (base/available) IC between Oct '36 and May '37. That means I can produce an extra medium armor division (about 23 IC) every 6 months, give or take, because I invested in my economy early.
My technological research continues apace, too. Notice that when I achieve the Medium Tank Chassis tech in October (this is an HPP innovation, I think) I'm able to research the next level of Medium Tank Gun, Engine and Armor, each of which I achieve about 5 months later because I'm fast-tracking armor (no pun intended).
Supply organization is a key tech, because the thing I most hate in HOI3 (which is not at all unrealistic) is that I'm enjoying massive spearhead thrusts through enemy territory, grabbing up territory, until.... my supply chain runs out, my tanks run out of gas, and my whole offensive comes to a creeping halt.
Improving throughput is the #1 best way to prevent that from happening. It also helps to build Infrastructure along your paths of advance (something you'll see me do later), because you can't push cheese through a straw. And the Supply Efficiency tech is somewhat useful, in that you're wasting fewer supplies just getting supplies to the front. At the end of a long, successful campaign, that could save you whole volumes of Supplies, because if it costs 1 Supply unit to move 25 Supply units 10 provinces (totally hypothetical numbers, again), and one spearhead eats up 50 Supply units per day, you lose 2 whole Supply units per day per 10 provinces. If that one spearhead (I must assume if you're good at this you've got at least 2 spearheads moving at any one time, hoping to link up) is 50 provinces away, 10 Supply units per day is the cost of transport. Over time and distance, you can see how this adds up. Lastly, obviously, improving your efficiency techs for Supply Production helps prevent your stockpiles from disappearing so quickly.
It matters little, in game practicalities, whether Stanley Baldwin or King Edward continue in office (if I'm wrong, please tell me -- I'm making an educated assumption). But the Great Purge of Soviet Generals is significant, and it's as good for our German generals as watching a Max Schmeling boxing match!
In January Italy hops into our corner with the Rome-Berlin Axis, and we follow up with the Anti-Comintern Pact in January '37 between the various anti-Communist governments of the world. We're building a stronger Axis bloc.
The Nationalist Chinese offered to join, but we had an idea that the events of March '37 were coming, so we refused their application. No sense in having allies fighting each other. I could easily have refused the Japanese and avoided any possible entanglement with China or the USA... And I've done that in the past, with mixed results. This time I choose to keep Japan as an ally because they may be useful against the British Asian territories.
In April Yugoslavia asks to join, and we welcome them. I want Yugoslavia on my side, and I'm quite irritated that Hungary and/or Romania aren't considering joining too.
Spain, alas, was a lost hope.
We intervened in September 1936. Already by November it became clear they were still losing ground, despite the capable German expeditionary forces, which the Fascist AI was surely not employing effectively. When this starts to happen, the only viable alternative is for Germany to declare war and invade, which on practical levels... is not very.
By March '37 El Ferrol had become an enclave, and by May it was all over.
We'd lost this war. We might have to revisit it later. But at least we get back some highly experienced units and leaders whose talents and abilities will come in handy later.
Meanwhile, during those two months from March to May, the Japanese finally get their army rolling and start taking their first few provinces of the Republic of China (you can see it way up north, just south of Mengiang and Manchukuo (which, of course, are Japanese puppets after their adventures in Manchuria from '33 on). Taiwan/Formosa is also theirs.
So far I'm not that impressed by our Japanese allies. However, it's only been 2 months, and all of China has ganged up against them via the United Front. I'll continue to keep an eye on this peripheral battlefield.
Western Europe still sleeps, as does the USSR. Germany grows and plans...
Please forgive the massive screenshot conglomeration, but here's a window into my planning: my production and tech research queues. Feel free to save the image and look at it in a separate window if you want to follow my turgid commentary.
As I mentioned, you'll see the production queue peppered with factories, generally centered upon cities which already have some industry, but also spreading it out a little so not all my industry is centered upon a few choice targets. Where my industry is clustered together I've fortified it with AA protections.
I'm building a number of cruisers. As I mentioned in my previous update, I'll build a few cruisers early so I have something to fight with early in the game. Then it's my intention to rush through some key cruiser and battleship and submarine techs (they're not in the queue yet) in the later pre-war years and then start building a second set of improved ships, including some battleships and battlecruisers. I don't want to lay down any expensive battleships before I've researched some key techs for them, because then I'd just have dressed up dreadnaughts who wouldn't be able to stand toe to toe with the modern British (or American!) battlewagons.
Now that I can build medium armored divisions, I'm doing so. But they're expensive, so I'll build them a handful at a time. My early war enemies are likely to be France, Britain, Poland, etc., and I trust that Light Armor divisions can carry me through until I have a sizeable force of Medium Armor divisions.
Typically, my Light Armor divisions have 1 or 2 brigades of light armor and 1 or 2 brigades of motorized infantry, teamed with a truck-towed support (artillery/AT/AA) regiment. My Medium Armored divisions are meant to be heavier and will presumably be supported by LtArm/Mot units, so they have 2 medium armor brigades, supported by 1 light armor or motorized brigades and a truck-towed support regiment.
This tech research queue is pretty much my "wish-list" -- I may not intend to research some of the items lower on the list until much later, but they're here to remind me I want them.
I don't think there are any surprises among the items at the top of my queue. Airborne Infantry because I want paratroops. Industry and Supply techs, infantry and tank techs. Radar is always important, because I want to see what I'm getting into. I like the Heavy Artillery tech because I have support units (mostly artillery) with all of my units (except for maybe cavalry). That's some serious killing power there, and the more effective my artillery is, the more effective my advances will be (or my defensive positons).
Lower down, waiting to be researched, you'll see armored cars (there to improve my support units), radios (it's a "before-its-time" tech, so it's penalized, but it's important nonetheless, so I'll push it through), assault weapons and bridging to keep my armies from getting held up in cities or on rivers... Arctic Warfare equipment was a mistake that I spent a couple months researching. I assumed without looking that it would help me in winter combat, which it will not (which I think is dumb). There's not enough arctic land of any importance to make it worth researching.
I don't recall if this is an HPP innovation, or if vanilla has this too, but training techs improve either organization or morale, or both. With air units the "pilot training" improves organization and the "ground crew training" improves morale. Morale, of course, affects repair/recovery rate, so is important.
Sorry if I went on, there, with unnecessary detail. I made the assumption that if you already knew this stuff you would have bailed out and gone onto the next AAR.

I know some of my readers value this kind of analysis because many players just dive into HOI 3. And now, 8 years after release, I'm not sure how many of you actually have access to my old strategy guides, so there may be a loss of institutional knowledge which I can help remediate.
I'll be back next week with more feedback, and another update! Thank you so much for reading, and I definitely welcome feedback, and I'd even encourage you to look at my other AARs if you want (though it seems recently they've become plagued with some spotty cases of missing images, due to new Photobucket policies -- I'll try to fix this soon).
Thanks!
Rensslaer