VRB’s growth of equity and charter capital
The necessity of the topic
International economic integration is an essential trend affecting all economies and business sectors, particularly in finance and banking This integration fosters participation in financial markets, encompassing credit relations, currencies, and various activities, leading to heightened competition within the banking industry Consequently, banks must innovate and enhance their financial capabilities, technology, risk management, human resources, and branding Developing tailored business strategies that align with each bank's unique characteristics is crucial for survival and success in this competitive landscape.
The Vietnam - Russia Joint Venture Bank has established a business strategy, yet the focus for the 2011-2015 period has primarily been on development targets There has been a lack of comprehensive analysis regarding the business environment and internal factors affecting the bank's operations.
In light of the theoretical and practical discussions, our team aims to develop a suitable strategy for the Vietnam-Russia Joint Venture Bank, focusing on effective strategy formulation to enhance its growth and operational success.
Our capstone project for the Master of Business Administration Program at Griggs University and the ETC Center of Hanoi National University focuses on the Russia Joint Venture Bank during the years 2011 to 2015.
2 Aim of the capstone project
To analyze the real business situation of Vietnam-Russia Joint Venture Bank, on this basis, propose appropriate business strategies in the period 2011-2015.
3 Object and scope of the project:
- Study object: Vietnam - Russia Joint Venture Bank
- Scope of the study: To do research of the Vietnam - Russia Joint Venture
Since its inception, the Vietnam-Russia Joint Venture Bank has evolved by leveraging fundamental strategic formulation theories and adapting to competitive trends in the banking sector This article presents key strategies and actionable solutions aimed at effectively implementing business strategies for the bank during the period from 2011 to 2015.
Some methodologies of research used in our capstone include: methodologies of analysis, synthesis, comparison, and inheritance.
- Research and systematization of the basic theory of business strategy as a basis for developing strategies for Vietnam - Russia Joint Venture Bank
- Make analysis and assessment of the business situation of Vietnam - Russia Joint Venture Bank, some results and limitations in implementing the business strategy of Vietnam - Russia Joint Venture Bank
To enhance operational efficiency, VRB must thoroughly analyze its business environment to identify both opportunities and challenges By understanding these external factors alongside its internal capabilities, VRB can develop and implement effective business strategies tailored to navigate the complexities of the market This strategic alignment will enable VRB to capitalize on potential growth areas while addressing obstacles, ultimately fostering a more resilient and productive organization.
Beside the introduction, table of contents, list of abbreviations, list of tables, figures, introduction, conclusion, list of references, appendix, the content of the project is divided into three chapters:
Chapter I General theory of business strategy fomulation
Chapter II Analysis the business situation of Vietnam - Russia Joint Venture bank
ChapterIII: Selection of business strategy for Vietnam - Russia Joint Venture bank in 2011-2015, solutions and recommendations.
Object and scope of the project
- Study object: Vietnam - Russia Joint Venture Bank
- Scope of the study: To do research of the Vietnam - Russia Joint Venture
Since its establishment, the Vietnam-Russia Joint Venture Bank has evolved by applying fundamental strategic formulation theories and adapting to competitive trends in the banking sector This article presents key strategies and solutions for effectively implementing business strategies for the bank during the period from 2011 to 2015.
Research methodology
Some methodologies of research used in our capstone include: methodologies of analysis, synthesis, comparison, and inheritance.
Contribution of the project
- Research and systematization of the basic theory of business strategy as a basis for developing strategies for Vietnam - Russia Joint Venture Bank
- Make analysis and assessment of the business situation of Vietnam - Russia Joint Venture Bank, some results and limitations in implementing the business strategy of Vietnam - Russia Joint Venture Bank
To enhance operational efficiency, VRB must thoroughly analyze its business environment, identifying both opportunities and challenges By understanding these factors, VRB can formulate effective business strategies that align with external market conditions and internal capabilities This strategic approach will enable VRB to navigate complexities and leverage potential growth avenues effectively.
Project structure
Beside the introduction, table of contents, list of abbreviations, list of tables, figures, introduction, conclusion, list of references, appendix, the content of the project is divided into three chapters:
Chapter I General theory of business strategy fomulation
Chapter II Analysis the business situation of Vietnam - Russia Joint Venture bank
ChapterIII: Selection of business strategy for Vietnam - Russia Joint Venture bank in 2011-2015, solutions and recommendations.
GENERAL THEORY OF BUSINESS STRATEGY FOMULATION
Definition and role of business strategy
1 Business strategy definition and classification
The concept of "business strategy" emerged with market competition and has been defined by numerous economists While definitions may vary, business strategy encompasses all aspects of how a company can effectively compete in the marketplace It involves strategic decisions regarding product selection to satisfy customer needs, gaining a competitive edge over rivals, and identifying or creating new opportunities for growth.
To compete successfully, their business strategy must meet some requirements as follows:
- Enable to increase and gain competitive advantage over the competitor. When fomulating business strategy, these enterprises must fully exploit its competitive advantage.
- Ensure the safety in business operation To meet this requirement, the enterprise must research and predict the business environment in the future.
- Business strategy must clearly define the targets and the basic conditions to achieve these targets.
- The strategy must combine the opportunities and maturity, and the enterprise must build provision strategy.
2 The role of business strategy:
Business strategy plays an important role in the sustainable development of enterprises A good business strategy can help the enterprises:
- Identify goals in each stage of the business; help them clear their direction to reach their target.
Leaders must identify external opportunities and challenges while evaluating their businesses' strengths and weaknesses This analysis is crucial for forecasting future changes and developing effective solutions to adapt to potential difficulties.
- Help them to exploit and make use of their resources, to appropriately allocate resources, improve the efficiency of enterprises avoid risks and prevent the difficulties occured.
- Increase coherence and consensus of the staff and the leadership in implementing the goals of the business.
Business strategies can be classified based on various approaches, including their characteristics and scale In our analysis, we focus on categorizing business strategies according to their inherent nature This classification allows for a clearer understanding of different types of business strategies.
- Functional strategy is the strategy aiming at improving the performance of each function in the company such as production, marketing, material management, research and development and human resources.
Corporate strategy involves aligning business strategies with the expectations of stakeholders, focusing on long-term objectives It encompasses various scenarios where the industry may be experiencing growth or decline, ensuring that the organization adapts effectively to market dynamics.
Strategic management process
Strategic management is both an art and a science, involving the establishment, implementation, and evaluation of decisions across various functions to help an organization achieve its defined goals.
Strategic management process consists of three main stages of strategy fomulation, strategy implementation and strategy evaluation as follow:
Source: Strategic management lecture slide-Griggs
1 Strategy fomulation: including the development of business tasks, identifying opportunities and risks from outside the organization, pointing out strengths and weaknesses of the enterprise, setting long term goals, formation of strategy, alternative strategies and select specific strategies to pursue.
2 Implementation strategy: is the process of putting the different strategies of the organization into practice Measures to implement different levels of strategy are tied to the strategy.
Competition strategy and average profit
S tr at eg y ac hi ev em en ts S tr at eg ic re ac ti on s
3 Strategic evaluation: is the final stage of strategic management During this period the business will review basic factors for the current strategy; measure the achievement and implementation of activities, making adjustments if necessary.
Process of strategy fomulation
The process of strategy formulation involves utilizing suitable methods, tools, and techniques to define the overall business strategy and identify specific strategies for each business function over a designated timeframe This process is carried out through a series of structured steps.
Diagram I.2: Process of strategy fomulation
Internal factor evaluation (IFE) matrix
Quantiative strategic planning matrix (QSPM)
Source: Strategic management - concepts and cases by Fred R David, page 209
Diagram I.3: Specific steps of strategy fomulation
Source: Lecture slide of strategic management – Griggs University
The mission statement defines the core purpose of a business, outlining its reason for existence and essential functions It articulates the organization's role within its industry, identifies the target customers, and emphasizes the importance of skill development to achieve its vision This foundational statement serves as the guiding framework for the entire enterprise.
Vision, mission and strategic goals of the business (1)
General business strategy Function strategy
Feedback work of strategic planning It is the reference point for assessing the strategic targets of the organization
A vision statement articulates the overarching mission of an enterprise, outlining its long-term goals and aspirations It serves as a crucial guide, providing clarity on the organization's direction and priorities By establishing a clear vision, businesses can effectively plan and focus their efforts to achieve their desired objectives.
- Strategic target: Is the specific, clear and feasible target in a shorter time.
Aiming to concretize the vision of the business.
Analyzing the business environment involves assessing external factors that impact a company's operations, enabling the identification of both opportunities and challenges This analysis encompasses two main areas: the general business environment, also referred to as the macro environment, and the industrial sectors, known as the operational environment The general business environment includes various external influences that can affect business activities, and a common method for evaluating these factors is the PEST analysis, which focuses on Political, Economic, Social, and Technological elements.
Technical) model of some factors as follow:
2.1.1.Economic factor: Some of the economic factors such as growth, interest rates, inflation, exchange rates, wages and incomes have strong influence on the survival and development of enterprises So, the analysis of current economic situation and forecasting the economic trends affects on the future decisions and strategic success of the business.
2.1.2.Political, legal factor: The government regulates the macro- environment by issuing monetary, tax policy and consumption programs Legal legislation is to allow or not allow, force the businesses to follow Changing in operating political policy, or legal legislation will directly affect on the enterprise.They may be opportunities for this business but risks to other businesses To take advantage of the opportunities and minimize risks, companies need to grasp the government’s directing point in time.
2.1.3.Socio-cultural factor: Include factors such as population, lifestyle, culture, religion, family.
- Population has impact on human resources, affecting on the output of the enterprise to help businesses identify market size
- Lifestyle affects on the consumption demand, culture impact on consumption behavior.
- Family affects on productivity, work quality and efficiency.
- Religion and culture have influence on moral and legal status in the observance and enforcement of decisions
Thus, we can say social and cultural environment may influence on the strategic decisions of the business such as choosing business fields, selecting brands, colors, styles, changing distribution channels.
2.1.4 Technical factor: Technological factors can be considered as determinants for the success or failure of products and services In the context of the technology makes change completely the traditional production process, if not timely apply the scientific and technical improvements in production and business activities, products or services will lose their competitiveness Thus the judgment of technical trends is very important for the development of the enterprises These trends can be an opportunity for the businesses owning ability to raise capital, but also a threat to the business which is closely tied to old technology.
2.1.5 Global environment: The international economic integration means that businesses will no longer receive protection or assistance from the Governement.
As, the business environment becomes fiercely competitive, businesses can only survive and develop with their efforts to improve their competitiveness.
To effectively assess the influence of external factors on an enterprise, strategic decision-makers frequently utilize the External Factor Evaluation (EFE) matrix This tool quantifies the impact of the external environment, enabling organizations to capitalize on opportunities and mitigate potential threats.
2.1.6 Synthesis of external environment analysis - External factor evaluation matrix (EFE)
The External Factor Evaluation (EFE) matrix is a strategic tool that enables planners to summarize and assess the impact of various external factors, including economic, social, cultural, demographic, geographic, political, legal, and technological influences on business operations The EFE matrix is structured into four key columns, facilitating a comprehensive evaluation of these external elements.
Table I.1: External factor evaluation matrix ( EFE )
External factor Importance Classification Points
External factors significantly influencing business activities include economic trends, competitive landscape, regulatory changes, technological advancements, consumer behavior shifts, supply chain dynamics, environmental sustainability concerns, global market conditions, demographic changes, and social media impact These elements encompass both opportunities for growth and potential threats that enterprises must navigate to thrive in their respective industries.
- Column (2): Assign the importance 0,0 (not important) to 1,0 (very important) for each factor This assessment is based on the industry The total weight of the factors must equal 1.0.
- Column (3): Assign score 1 to 4 for each determinant for the success of the enterprise 4 (good), 3 (above average), 2 (average), 1 (not affect)
- Column (4): Score achieved = column 2 x column 3
The total points in column 4 indicate that the company's strategy effectively leverages external opportunities while mitigating the adverse effects of the external environment A score of 2.5 reflects an average performance, whereas a score of 1 suggests a strategy that fails to capitalize on opportunities and does not adequately address external threats.
2.2 Analysis of industrial environment: includes all factors directly affecting on the enterprise’s operation in an industry such as the level of competition in the industry, potential competitors, customers, suppliers, substitute products
To analyze the influence of the factors within the industry, five forces model ofMichael Porter is often used:
Diagram I.4: Five forces model by Michael Porter
Source: Economic management textbook - Griggs University
In the business landscape, perfect competition is a myth, necessitating companies to be proactive and adept at leveraging their competitive advantages Strategic planners must closely monitor industry competition to make informed decisions that enhance their competitive edge The intensity of competition is influenced by various industry characteristics, which are crucial for businesses aiming to thrive in a competitive environment.
- The number of enterprises in the industry
- The growth of the market
- The degree of product differentiation:
- Other factors such as the variety of competitive, market opportunities, fixed costs, exit barriers, also shows the level of competition in the industry.
Substitute products, originating from different industries, significantly influence market dynamics by affecting price comparisons and price elasticity When a substitute is easily accessible, demand for the original product becomes more elastic, as consumers are presented with more options to choose from.
Substitutes may not pose a direct competitive threat, but they can impact market profitability and present challenges for businesses Many new substitute products emerge from technological advancements To thrive in the market, companies must allocate resources towards developing innovative technologies as part of their strategic growth plans.
ANALYSIS THE BUSINESS SITUATION OF VIETNAM -
Overview of Vietnam - Russia Joint Venture Bank
The Vietnam-Russia Joint Venture Bank (VRB) was established to enhance bilateral cooperation, following an agreement during Russian Prime Minister Mikhail Fradkov's visit to Vietnam in February 2006 Officially commencing operations on November 19, 2006, VRB was licensed under No 11/GP-NHNN by the Governor of the State Bank of Vietnam The bank is a collaboration between two prominent financial institutions: BIDV (Bank for Investment and Development of Vietnam), which holds 51% of the charter capital, and VTB (Foreign Trade Bank of Russia), which owns 49%.
In 2007, VRB became the first joint venture bank to raise its charter capital from 10 million USD to 30 million USD, followed by an increase to 62.5 million USD in 2008 According to Implementation Document No 655/NHNN-TTGSNH dated January 21, 2011, VRB further boosted its charter capital to 168.5 million USD, with equal contributions of 84.25 million USD each from its joint venture partners, BIDV and VRT.
After nearly five years of implementation tasks assigned by the two Government and under the support by the two Central Banks, at 30/06/2011 VRB had total assets of
In recent years, VRB has significantly increased its financial capabilities, with capital mobilization rising from 33 million USD in 2006 to 466 million USD The bank has successfully raised capital from both economic entities and individuals, totaling 167 million USD, while outstanding loans have reached 274 million USD Additionally, VRB has established a comprehensive international payment system and a bilateral payment channel with VTB, facilitating transactions in USD, EUR, and two local currencies: RUB and VND.
As a prominent joint venture bank in Vietnam, VRB has established a robust network with six branches located in key economic hubs, including Hanoi, Ho Chi Minh City, Da Nang, Vung Tau, Khanh Hoa, and Hai Phong On May 10, 2008, VRB expanded its international presence by opening a representative office in Moscow The following year, on December 14, 2009, VRB Moscow Bank, a fully owned subsidiary of VRB, commenced operations during a visit from Prime Minister Nguyen Tan Dung, following an invitation from Russian Prime Minister V.V Putin This strategic move marks a significant milestone for VRB, facilitating its expansion into international markets, particularly in Russia and the CIS countries.
Eastern Europe, improve competitiveness and customer development, including the business community between Vietnam and Russia.
VRB operates a comprehensive network consisting of one transaction center, six branches, and nine transaction offices across the country Additionally, VRB has a wholly-owned subsidiary in Moscow, which offers services to both Vietnamese clients and other customers in Russia.
Diagram II.1 VRB’s organizational structure
BOARD OF MANAGER Internal Audit Dept
BOARD OF DIRECTOR CONTROLLING DEPT
VRB Moscow Bank Branches and transaction center
3 Business result in the period 2008-2010:
Some major business indicator and financial situation of VRB in the period from 2008-2010 is as follows:
Table II.1: VRB’s business result in the period from 2008 to 2010
No Items Year 2008Year 2009 Year
- Value paper issuing (billion dong) - 38 907
7 Profit after tax (billion dong) 49 27 11
(Source: VRB’s audited financial report through years)
The profit after tax for VRB has experienced a significant decline, dropping from 49 billion dong in 2008 to 27 billion in 2009 and further down to 11 billion in 2010 Additionally, the net interest margin has also decreased sharply, reaching just 0.59% by December 31, 2010 This decline is attributed to several factors, including unproductive capital allocations such as the long-term investment in VRB Moscow, investment securities, and bad loans.
Despite an increase in total assets and equity, profits are declining, leading to a decrease in both ROAA and ROAE, which reached particularly low levels in 2010 This trend also highlights a reduction in equity growth.
II Analysis of business environment and the internal factors of Vietnam - Russia Joint Venture bank:
Political factors significantly influence banking operations, particularly for the Vietnam-Russia Bank (VRB), a joint venture between Vietnam and Russia The political stability of both nations is crucial for VRB's growth, given their longstanding tradition of solidarity and economic cooperation In recent years, both governments have formalized several agreements aimed at enhancing trade and investment, particularly in the energy, industrial, and military-technical sectors, aligning with their mutual potential and aspirations.
The Vietnam-Russia joint venture bank was established to enhance economic and political cooperation between the two nations Its operations are backed by both countries, indicating strong support and significant potential for future growth.
Following the 2008 global economic crisis, the socio-economic landscape experienced notable growth in 2010, with GDP rising by 6.78%, surpassing the year's target of 6.5% Foreign direct investment reached an impressive $17.23 billion, while total exports amounted to $71.6 billion This economic recovery has fostered a favorable environment for financial markets and has significantly contributed to the development of the banking sector, particularly benefiting VRB.
In early 2011, inflation rates remained elevated, making it feasible to achieve double-digit growth To address inflationary pressures, the State Bank may implement policies aimed at restricting banking activities to meet macroeconomic objectives.
The State Bank tightly regulates bank interest rates, setting a ceiling of 14% for VND deposits, 0.5% for USD deposits from entities, and 2% for individual USD deposits Loan interest rates have been consensually adjusted to between 17-19% by the leading commercial banks in collaboration with the State Bank These limitations on base rates hinder commercial banks, including VRB, from attracting capital from economic organizations and residents, as alternative investment avenues, particularly gold, appear more appealing Consequently, credit activities face challenges, leading to low business results due to minimal interest rate differentials between output and input.
In 2010, the State Bank implemented two significant adjustments to the VND/USD exchange rate, which peaked at 18,932 VND/USD by December 31, 2010 The following year, the government's stringent measures on foreign exchange market management, along with effective regulation of currency sales to banks and low interest rates, contributed to a stable exchange rate, maintaining around 21,000 VND/USD.
Following the economic crisis, key economic and social indicators are flourishing, leading to increased production and consumption This surge has heightened the demand for banking and financial services, resulting in an expanding customer base Consequently, banks are well-positioned to innovate and implement a diverse range of products, thereby enhancing their liquidity and financial capabilities.
Despite the growing banking system in Vietnam, cash consumption remains prevalent among the population, hindering development Additionally, the significant amount of cash and foreign currency held by individuals complicates banks' capital-raising efforts To address these challenges, banks, including VRB, must enhance their marketing strategies and innovate new banking products to better attract consumers.
Evaluation on VRB’s current business strategy
From 2007 to 2011, VRB faced numerous challenges but worked diligently to transform into a commercial bank aligned with its foundational goals, achieving significant milestones during this period.
VRB is establishing a modern commercial bank by enhancing its organizational and management structures, innovating technological banking solutions, and expanding its branch network in key economic regions of Vietnam, including the opening of a subsidiary in Russia These initiatives are essential for VRB to support immediate growth and strengthen long-term strategic relations between Vietnam and Russia Despite being in operation for only five years, VRB has rapidly advanced in operational scale, technological infrastructure, business efficiency, and branch expansion, outperforming other joint venture banks that have been active for 15-20 years.
- Develope the business operations safely, and profitablly: scale of operation serving programs, projects under the agreements signed between the two governments.
- Act as a bridge to promote trade cooperation, investment, contributing to political relations, diplomacy between the two countries
- To consolidate and strengthen the understanding, cooperation and contribution to the activities of the Intergovernmental Committee on banking system of the two countries.
- To show supporting role, bridging and strengthening the cooperation between BIDV and VTB Bank.
- Business operations were profitable, but the efficiency index is not high due to many reasons including the objective causes of economic crisis, the financial world.
- There is limitation in risk management which leading to the high rate of bad debt in recent times.
- Executive management and CEO is lack of political capability as well as the management experience, and the stability is not high.
- VRB hasn’t has good infrastructure for acitvity, especially long-term and stable head office
- The mechanism for payment of foreign trade and exchanging between two currencies (VND and RUB) signed by the two central banks has been slowly implemented.