Sustaining competitive advantage for priority banking of Standard Chartered bank Vietnam

MBAVB4 NGUYEN HUYNH HONG ANH SUSTAINING COMPETITIVE ADVANTAGE FOR PRIORITY BANKING OF STANDARD CHARTERED BANK VIETNAM MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION PART-TIME Tut

MBAVB4

NGUYEN HUYNH HONG ANH

SUSTAINING COMPETITIVE ADVANTAGE

FOR PRIORITY BANKING OF STANDARD

CHARTERED BANK VIETNAM

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

(PART-TIME)

Tutor’s Name: Dr Tran Ha Minh Quan

Ho Chi Minh City – 2011

COMMITMENT

I hereby, Nguyen Huynh Hong Anh, committed all material presented in this paper is my own work or fully and specifically acknowledged whenever adapted from other sources All statements and information contained here are true, correct and accurate to the best of

my knowledge and belief

Name: Nguyen Huynh Hong Anh

Date: 30 November, 2011

ACKNOWLEDGEMENT

Firstly, I would like to present a sincere thank to all the professors, teachers, tutors and

Solvay Brussels School of Economics and Management and Open University of Ho Chi Minh City for bringing to me a huge volume of useful academic knowledge

I would like to express my sincere thanks to Prof Tran Ha Minh Quan who is my research supervisor His valid comments and advices contributed a lot to the completion of my research

Secondly, I would like to say thank the board of director and all my colleagues of Standard Chartered Bank (Ltd) VN, who sponsored my Master program and provided much useful information for me to finish the research

Lastly, I would also express my special thank you all my classmates, friends, and my beloved family who provided me la plenty of encouragement and support during Part time MBA program in general and through this research in particular

EXECUTIVE SUMMARY

Standard Chartered Bank (SCB) has about one hundred and fifty year’s history with seventy five thousand employees of over one thousand branches all over the world SCB is leading the way in Asia, Africa and the Middle East, etc with optimally financial solutions about wholesale and retail With strong global experience, SCB has established its presence in the two most dynamic cities in Vietnam is Ha Noi - the capital and Ho Chi Minh City - the economic hub, focusing on Priority banking – high value segment

Priority banking is designed to provide the most select customers with highly personalized retail products and service Besides offering a high level of expertise and commitment, all banking transactions will be handled with utmost care and confidentiality

This thesis firstly conducts the retail banking environment in Vietnam and competitors analysis to understand more about the strength and the weakness of SCB when joining this market By determining the market segmentation, targeting and positioning; using the quantitative and qualitative combination methodology, the information is conducted from survey, in-depth interviews and focus group discussions to collect data from customers and bank’s staff in order to explore and identify the competitive advantage of Priority banking

of SCB With the result from analysis, recommendations are proposed for the bank to achieve and sustain the competitive advantage in this particular area

TABLE OF CONTENTS

COMMITMENT i

ACKNOWLEDGEMENT ii

EXECUTIVE SUMMARY iv

TABLE OF CONTENTS v

LIST OF ABRIEVIATIONS viii

LIST OF FIGURES ix

LIST OF TABLES x

Chapter 1 INTRODUCTION 1

1.1 Statement of the problem 1

1.2 Questions and objectives 2

1.2.1 Questions .2

1.2.2 Objectives 2

1.3 Date collection method 3

1.3.1 Desk research (secondary data) 3

1.3.2 Quantitative research (primary data) 3

1.4 Scope and limitation of the study 3

1.5 Structure of the study 4

Chapter 2 LITERATURE REVIEW 5

2.1 Market segmentation 5

2.2 Targeting at the right segmentation 5

2.3 Positioning to build competitive advantage 6

2.3.1 The close link between positioning and competitive advantage 6

2.3.2 Competitive advantage .7

2.4 Porter’s generic strategies 8

2.4.1 Cost leadership strategy .9

2.4.2 Differentiation strategy 10

2.4.3 Focus strategy 11

2.4.4 Hybrid (Combination) strategy 12

2.5 Achieving and sustaining competitive advantage 12

Chapter 3 RETAIL BANKING ENVIRONMENT AND OVERVIEW ABOUT PRIORITY BANKING OF STANDARD CHARTERED BANK VIETNAM 14

3.1 Retail banking environment in Vietnam 14

3.1.1 Overview 14

3.1.2 Competitors 18

3.2 Overview about Priority banking - Standard Chartered bank Vietnam 23

3.2.1 Standard Chartered Bank 23

3.2.2 - Priority Banking of Standard Chartered Bank in Vietnam 24

Chapter 4 FINDING AND ANALYSIS 26

4.1 Competitive strategy 26

4.2 Quantitative research – Questionnaires survey 29

4.2.1 Customer segmentation and Targeting at the right segmentation 29

4.2.2 Customer’s satisfaction 32

4.3 In-depth interview and Focus group discussion 38

4.3.1 In-depth interview with SCB Premium Segment Manager 38

4.3.2 Focus group discussion 40

4.3.3 SWOT analysis 43

Chapter 5 CONCLUSION AND RECOMMENDATIONS 44

5.1 Conclusion 44

5.2 Recommendations 45

REFERENCE i

APPENDIX 1: List of managers, staff were interviewed and questions iii APPENDIX 2: Questionnaire to customers iv APPENDIX 3: Questionnaire survey result vi

LIST OF ABREVIATIONS

ACB Asia Commercial Bank

Agribank Bank for Agriculture and Rural Development ANZ Australia and New Zealand Bank

ATM Automated Teller Machines

BIDV Bank for Investment and Development

CIP Consumer Index Inflation

EAB Eastern Asia bank

FB Foreign bank

GDP Gross Domestic Product

GSO General Statistics Office

HSBC Hongkong and Shanghai Consumer Bank

JSCB Joint stock commercial banks

MHB Mekong House bank

POS Point of Sales

Sacombank Saigon Thuong Tin Commercial Joint Stock Bank SBV State Bank of Vietnam

SCB Standard Chartered Bank

SOCB State – Owned commercial banks

Techombank Technological and Commercial Joint- stock Bank USD United State Dollars

VCB Bank for Foreign Trade of Vietnam

Vietinbank Bank for Industry and Commerce

VN Vietnam

VND Vietnam Dong

WTO World Trade Organization

LIST OF FIGURES

Figure 2.1: Porter’s Generic Strategies 8

Figure 3.2: Urban population growth in Vietnam 1990 – 2010 17

Figure 3.3: Market share of Vietnamese banks in 2009 19

Figure 4.1: Revenue from business section of personal banking in 2007 27

Figure 4.2: Number of Personal Financial Services/Products per Person and percentage of willing to pay for financial advice 28

Figure 4.3: Standard Chartered Bank – Segmentation classification 29

Figure 4.4: Age range of Priority customers 31

Figure 4.5: Nationality of Priority customers 31

Figure 4.6: Working industry field of Priority customers 31

Figure 4.7: Customer’s satisfaction with Priority package 34

Figure 4.8: Customer’s satisfaction with SCB products 35

Figure 4.9: Customer’s satisfaction with Priority center 35

Figure 4.10: Customer’s satisfaction with SCB service quality 36

Figure 4.11: Customer’s satisfaction with staff’s soft skill and knowledge 36

Figure 4.12: Customer’s expectation from Priority banking 37

Figure 4.13: What should SCB improve? 37

LIST OF TABLES

Table 3.1: GDP growth rate of Vietnam 2008 – 2011 15

Table 3.2: Inflation rate of Vietnam 2006 – 2011 15

Table 3.3: Major Vietnamese banking sector 19

Table 3.4: Capitalization of selected major SOCB and JSCB in 2010 21

Table 3.5: Charter capital of foreign banks in 2010 22

Table 3.6: Bank capability profiles 23

Table 4.1: Segment population in Hanoi and Ho Chi Minh city 30

Table 4.2: Evaluation of customer experience by service elements - Personal banking 38

Table 4.3: SWOT analysis 43

CHAPTER 1 – INTRODUCTION

1.1 Statement of the problem

Vietnam has been called a country with high growing-economic Just ten years ago, living standards have been classified with a modest opportunity to become wealthy The GDP growth rate increases and pulled the appearance of the top layer crowdedly When the idea

of Priority services imported from abroad, it seems to be very luxury and strange in the past but the tendency is changed together with the development of Vietnam On the threshold date of joining WTO, many wonderful opportunities have been opened up massively They begin requiring the Exclusive Service that costs worthily to their own asset Thus, there is an opening for idea to select the favorite bank with the best offer and service for keeping their wealth This concept is getting more and more renamed and popular with the emergent of foreign banks, but not too much Vietnamese banks care so much about this kind of service The “war” of market share holding between foreign banks and local banks start to break out when the concept of Priority Banking standard is implemented in Vietnam to sniff the potentiality of this sprouting market

With a banking heritage spanning more than one hundred and fifty years, Standard Chartered has developed extensive global reach and a strong position in the emerging markets and new trade corridors of Asia, Africa and the Middle East Throughout this time, Standard Chartered bank has been driven by a unique philosophy - to be the right partner, leading by example Standard Chartered Priority Banking is a more personalized expression of that philosophy

This research aims to identify the most appropriate approach for Priority banking of Standard Chartered Bank in Vietnam Conducted survey, in-depth interviews and focus group discussions are used to collect information data from customers and bank’s staff in order to explore the competitive advantage of the bank in this particular segment The result from the quantitative and qualitative combination methodology will help to propose recommendations for the bank to achieve and sustain the competitive advantage in the market

1.2 Questions and objectives

1.2.1 Questions

- What is the opportunity of SCB when focusing Priority segment?

- How to identify the potential customer of Priority segment?

- How to explore a variety of options in approaching Priority segment?

- How to explore the competitive advantage of SCB Priority banking?

- What is the gap between the expectation from Priority banking of customer and the current package of SCB?

- How to evaluate and sustain the competitive advantage of SCB Priority banking?

1.2.2 Objectives

The main purpose of this research is to explore competitive advantage over competitors and propose recommendations to sustain competitive advantage for Priority banking of Standard Chartered Bank in order to penetrate in the market successfully The research objectives are as following:

- Overall analysis of retail banking industry and competitors

- Outline about SCB conduction, Priority package and the opportunity of business from priority segment

- Identifying the competitive advantage of SCB Priority banking

- Evaluating the competitive advantage of SCB from the customer perception and understand the gap between the competitive advantage and customer evaluation

- Proposing recommendations to sustain the competitive advantage of SCB Priority banking based on the suitable competitive strategy

1.3 Date collection method

1.3.1 Desk research (secondary data)

The secondary data of SCB Priority banking is selected from reports, website … to support for its analysis The date come from the bank and it could be considered as a reliable source to use and save time for this research

Besides, the data about retail banking industry and competitors are sorted out from public information (website, review report, Vietnam Statistic year book, …) and other sources This information gives a wide view about the environment which SCB is affected

1.3.2 Quantitative research (primary data)

Primary data is collected mostly through some usual methods like in-depth interview, survey, focus group discussion and is particularly severed for the research only

In-depth interview with Premium Segment Managers is to explore concept, strong points

of SCB Priority banking Additional, the group discussion with some frontline staff in both sales and service help to understand deeply about customers’ need, customers’ satisfaction about Priority service and point of view of them with this segment

Besides, a survey with ten questions was given out and received a hundred and twenty one Priority customers to understand Priority customers’ profiles and their feedbacks about SCB Priority banking service It helps to evaluate the gap of customer’s expectation and current providing product/service of SCB Priority banking

1.4 Scope and limitation of the study

The study focuses on analyzing the current environment of retail banking industry and competitors to find out the strength and weakness At this juncture, by identifying and improving the internal strength, Standard Chartered bank Vietnam could make the best and develop competitive advantage The limitations of the study (interview, survey, focus group discussion) is just presented in Ho Chi Minh city where SCB concentrates on building in business and highlighted some major competitors, especially HSBC and ANZ

1.5 Structure of the study

Chapter 1: INTRODUCTION

The preliminary chapter provides the problem statement, research questions, objectives, scope - limitation of the study and structure of the study

Chapter 2: LITERATURE REVIEW

This chapter will describe the theoretical framework for this study

Chapter 3: RETAIL BANKING ENVIRONMENT AND OVERVIEW ABOUT

PRIORITY BANKING OF STANDARD CHARTERED BANK VIETNAM

In this chapter, we can see the retail banking environment, the competitors and the overview about Priority banking of Standard Chartered bank in Vietnam

Chapter 4: FINDING AND ANALYSIS

This chapter presents the data relative to theories described in chapter 2 It will be presented here the practical findings regarding the research questions

Chapter 5: RECOMMENDATIONS AND CONCLUSION

Basing on the finding and analysis, recommendations for the bank to achieve and sustain the competitive advantage SCB Priority banking and the conclusion of the study will be proposed

CHAPTER 2 - LITERATURE REVIEW

2.1 Market segmentation

This introduction reveals that generic process of ‘target marketing’ keeps an essential role

in the marketing process (Kotler, 2001) As a part of differentiation process, how to identify the suitable market segments, how to evaluate, and how to choice between possible market segments present some challenges (Elliott and Glynn, 1998)

With the limitation of company’s resources and comparing with the huge needs and wants from customers, an organization cannot satisfy all the markets Segmentation is simply the process of dividing a particular market into sections, which present similar characteristics

or behavior Besides, the result from many researches has revealed that a small number of high-valued customers often contribute to the majority of the profit but most companies make a loss on serving the majority of their customers Thus, segmentation is at the core of all marketing problems and the reason to segment the market is in order to target at the customers who create long term value for the business is very important for strategy of company (Jobber, 2004 and Doyle, 2000)

2.2 Targeting at the right segmentation

One of the additional tasks of evaluating and choosing between segments beyond identifying them is targeting This is the process of selecting among available segments and it is frequently based on an assessment of the value of the range of segments The usual chosen main criteria are their sales potential and the rate of fit with the organization’s activities (Elliott and Glynn, 1998)

According to Jobber (2004), when evaluating market segments, market attractiveness and the company’s capability of competing in the segment are the suggestion which should be examined: The previous emphasizes on the external environment elements and the latter on the internal resources of the firms

Market Attractiveness

Market attractiveness can be assessed through market factors There are concerns about the segment size, growth rate of the segments, price sensitivity, bargaining power of customers, and barriers to entry etc In addition, the market attractiveness needs to consider competitive factors including nature of the competition whether it is aggressive or not, new entrants, and competitive differentiation The political, economical and social issues are also related to market attractiveness

Capability

Capability of a company may be determined by the market assets, cost advantages, technological edge, and managerial capabilities and commitment etc These factors will help company to serve the market segment with the highest effectiveness and must be placed on the firm’s capability against the market attractiveness in the particular area

2.3 Positioning to build competitive advantage

2.3.1 The close link between positioning and competitive advantage

In the tough competition market, the firm has to find a way to make a distinction from its competitors along real dimensions That is the rationale for the effort of positioning in order to be the most preferred one for a certain market segment or prospect It helps to find

a window or gap in the mind of the prospect, and then filling it at the right time and under the right circumstances (Ries and Trout, 1986) This is a reason for giving the target customers something better than what the competitors are offering

Choosing right the market segmentation and targeting will reveal the attractiveness of the market, and positioning will finish the rest because of the importance of positioning to be a necessary step to create differential advantage If the positioning is successful, a differential advantage of the firm can be found or established and even retained

For that reason, the successful positioning implies the successful match of the firms’ capability with the result of the segmentation and targeting process It not only takes advantage the strength of company but also focuses on the narrow market and serves with the best resources

An effective positioning could establish the competitive advantage of a firm Both involve what superior advantage a firm wants to achieve, how to match the external environment with the firm’s capabilities to achieve a superior position and how to retain this superior position This is a close link between successful positioning and competitive advantage In this sense, the process of positioning is actually the process to build the competitive advantage This can be supported to understand more the concept and approach to competitive advantage

2.3.2 Competitive advantage

The objective of all organizations is to maximize the performance over time Therefore, competitive advantage is a fundamental concept to the competitive strategy of a firm Competitive advantage is the ability to outperform the competition by creating superior value to the customer, thus achieving above-normal profit in the long run within an industry based on the generally compromise among the previous literatures (Porter, 1985; Bharadwaj, et al., 1993; Kolter, 2001) Thus, the importance of obtaining competitive advantage is apparent It not only requires the understanding’s environment, but also positions the firm according to It places most emphasis on adapting the company to its environment and follows that what is delivered to the market The value of an offering delivered to customers is the focus of competitive advantage

Besides, superior resources which are matched appropriately to environment opportunities can be basis for building and sustaining competitive advantage Finding and developing capabilities that are difficult to imitate and can distinguish the company from its competitors in the long run It follows that those resources which allow firms to deliver advantage are sources of competitive advantage

The immediate goal of every competitive strategy is therefore to achieve competitive advantage over the company’s rivals in a given market, industry or geography

2.4 Porter’s generic strategies

Different sources of competitive advantage leads to different competitive strategy

Generic strategies of Michael Porter were used initially in the early 1980s, and seem to be even more popular today He defined that “competitive strategy is taking offensive or

defensive actions to create a defendable position in an industry, to cope with competitive forces and thereby yield a superior return for the firm” His generic strategies include cost leadership, differentiation, and focus strategies; and can be pursuit to achieve sustainable competitive advantage through The generic strategy framework (Porter 1985) comprises two alternatives of advantage (low cost or product uniqueness) with two alternative scopes (narrow market segment or broad industry wide)

Figure 2.1: Porter’s Generic Strategies

Source: Porter M.E (1985)

2.4.1 Cost leadership strategy

According to Porter (1985), Cost leadership is based on:

- Efficiency to controlling down cost

- Effectiveness- what is significant to clients and saving on the latter

This strategy focuses on achieving the lowest cost producer in the industry via scale of economies, proprietary technology, preferential access to raw materials and others factors The competitive advantage is gained by controlling down cost Obviously, a company with the lowest cost will have advantage on price with other competitors at the open market and earn higher profits at a standard market price Cost reduction will be focused on the main strategy of the firm, it creates a potential cost leader position for the firm but has to be noted that the products of firm would not have a cheap price The purpose of this strategy

is how an organization can create a cost advantage over the competitors

A company that achieves this strategy successfully often has the following internal strength:

- Aggressive construction of efficient-scale facilities

- Significant investment in products assets

- Skill in designing products for efficient manufacturing

- High level of expertise in manufacturing process engineering

- Tight cost and overhead control

- Efficient distribution channels

If there are price-sensitive buyers in the market and it is hard for the company to differentiate its products, this strategy will work well in these conditions Additional, the brand name is not the concern of buyers and they also have a power of bargaining A firm works with cost advantage, it can eliminate its rivals out of market because it can enjoy higher than average profits, engage in price war, defend market share Besides, the firm enables to grow market share and have a good advantage to participate in new markets Thus, this strategy could bring many benefits for an organization Moreover, the strategy

also creates many challenges for joining of the newcomers In addition, this advantage contributes to avoid the threat of substitutes

2.4.2 Differentiation strategy

The second generic strategy of Porter (1985) is Differentiation In contrast to Cost leadership, Differentiation is to offer added value to customers who are willing to pay for premium products or services; it therefore adds more cost to the manufacturing process In doing so the company hopes to build competitive advantage with its product or service by having it to be “different” The difference can be features, performance or other factors and must be hard to create or difficult to copy Customers enjoy to be served differently and ideally uniquely The company can succeed with this strategy if it can manage the premium price exceeds the extra costs incurred in being unique Moreover it is crucial that costs are only added in areas that customer perceives as important

This strategy works well when the company has a good identification and understanding of target customers Customer’s needs and uses are diverse For a significant result the company needs to have some internal strength as below:

- Access to leading scientific research

- Focus on product and service quality

- Highly skilled and creative product development team

- Strong sales team with ability to successfully communicate the perceived strengths

of the product

- Corporate reputation for quality and innovation

- Long tradition in the industry or unique combination of skill drawn from other businesses

However, this strategy also remains risks and weaknesses no matter what it based on differentiation from the competition If there is imitation by rivals and changes of customer tastes, the significant risks from these factors should be considered when applying this strategy

Therefore, instead of trying to simply differentiate themselves from competition at sometimes quite a high cost, many firms believe that they could apply another, more fine-tuned approach - Focus strategy which will be discussed in the following section The strategy seems to be more efficient in creating greater differentiation in a specific segment

2.4.3 Focus strategy

The third generic strategy mentioned in Porter’s theory (1985) is the Focus strategy In the focus strategy, one or limited number segment of the market are concentrated This strategy is the fine-tuning of the two previous strategies because competitive advantage is achieved using the same two strategies, either in cost leadership or differentiation, but applied to a clearly predefined market segment The narrow focus may be defined by geography, product types, customer type or the combination of these

When applying the focus strategy, the firm is required to identify an appropriated target client firstly Then, the firm must research requirements of this client target Besides, the firm will estimate the competitive spread within the segment Furthermore, the manufacture of company must meet the particular requirements of that group In addition, the last but not least, the firm should make decision to choose the cost leadership or differentiation strategy within segment

This strategy is classified two of focus strategies as following:

- Cost focus: cost leader is in the specific segment This strategy concentrates on one kind of customer attracted by a low cost product and the lowest cost operator

- Focus differentiation: the chosen segment has differentiation The goal of this strategy concentrates on one kind of client being willing to pay premium price for a differentiated product In the niche segment of the market, the firm will develop a unique position

The focus strategy brings many advantages for the company applying it well By growing core competition, the company builds up barriers with its competitors Because of few alternatives, buyer in this niche segment has less power The company can decrease the supplier power in this case by passing supplier price rises on loyal customers With specialized products and core competencies, the company can reduce threat of substitution

Hence, it is difficult for other rivals to enter in this niche segment of this market In contrast, the company pursuing the focus strategy has more opportunities to make entry to new market because of lower investment in resources and greater knowledge of the niche segment

Same as other strategies there are risks for company applying Focus strategy It is the threat of imitation and changes in the target segment Furthermore a cost leader in a broad-market is easy to customize its products to compete directly to the company Besides the other focusers are also able to expand to sub-segment and become competitors in the same niche

2.4.4 Hybrid (Combination) strategy

Nowadays, demand of customer is more and more changes and growths so one strategy is insufficient to make customer satisfied This requests a hybrid strategy combining the cost leadership and differentiation strategy

This strategy looks for gaining simultaneously differentiation and lower costs so it would provide a better result because of coordinating advantages The prominent advantage of this strategy is that it causes more difficult for competitors to imitate

However, it is actually hard to combine both cost leadership and differentiation strategy in practice According to Porter (1985), the company failing in achieving both of these two strategies could become “stuck in the middle” The company that is stuck in the middle gains no competitive advantage and leads to poor financial result Hence, it should be better to concentrate on each of strategy for each of period

2.5 Achieving and sustaining competitive advantage

The sustainability of competitive advantage depends on the ability of the firm to resist the erosion of its competitive advantage by competitor’s behavior or industry evolution

George Buckley (cited in Thompson and Martin, 2005), a Chairman and Chief Executive

of the Brunswick Corporation, indicated that a strong firm should consider six competitive platforms to achieving and sustaining the competitive advantage:

- The best cost leader: In the toughest trading condition, cost is truly the most important weapon to gain competitive advantage However, the best cost does not mean the lowest cost and the lowest cost does not imply the lowest quality The best cost means creating comparative perceived quality with lower cost than rivals

do

- Technology, innovation and styling: Technology and innovation helps the company sustaining its competitive advantage A differentiation advantage could be guided

by a good design and style

- Customer service: In order to increase a differentiation advantage, customer service is always a significant role but companies must pay attention to applying it appropriately

- Branding, marketing and reputation: These are also important factors to make the differentiation advantage however they require the big effort, costly investment, long-term period to build up It also contributes to the differentiation advantage

- Distribution: The best product with a good design will be wasted opportunities if the company fails to approach the right customers

- People: Competitor can imitate competitive advantages such as cost leadership, technology, style, process, etc but it is quite difficult for them to copy high-performance human assets Hence, if a firm has an effective management of human resources including recruitment, selection, training, motivation, and retention policy it could seize many opportunities to achieve the success

CHAPTER 3 - RETAIL BANKING ENVIRONMENT AND OVERVIEW ABOUT PRIORITY BANKING OF STANDARD CHARTERED BANK VIETNAM

3.1 Retail banking environment in Vietnam

3.1.1 Overview

Retail banking in Vietnam is a potential market need to be exploited

Vietnam’s banking sector has expanded substantially in recent years The market revenue pool of retail banking is expected to grow three fold to three billion US dollar by the year

2012 (SCB, 2009) Vietnam has a consistent economic growth of about six to seven percent over the last decade, greater industrialization and globalization, has led to rapid growth in retail banking and in a new class of individual customers (entrepreneurs and salaried) who are young, technology ability, upwardly mobile and open to try foreign brands

The main forces for Vietnamese banking which drive this rapid development in retail banking can be analyzed in the following aspects: Political, Economic, Social and Technical (PEST)

Political

The government has conducted economic and political reform in many years which exerted profound influence to social wealth This reformation encourages the appearance of rich class and a new middle class The rapid increase in the number of entrepreneurs, ‘gold collars’ and ‘white collars’ sophisticated personal financial structures, thus generated high

demand for tailored property and wealth management business The welfare system also

underwent great changes with many policies to protect employee, citizens

Economic

The economy maintained its trend of steady expansion, with consumption-driven growth of GDP ranging from six percent in recent years, but there were lower growth rate in 2009

compare to in 2008 in difficult conditions caused by the crisis’s global economic After that, it is recovery at the rate of 6.78 percent in 2010 Its forecast gradually goes slow in

2011 which GDP growth at 6.15 percent on average

Table 3.1: GDP growth rate of Vietnam 2008 - 2011

(Source: Vietnam Economic portal, www.vnep.org.vn)

Annual Inflation/Consumer Index Inflation (CIP) remains one digit rate exception 2008 sharply increasing with a 23% high inflation negative impacted of the global financial crisis Vietnam has success in restraining inflation in 2009 by Government’s multi-policies keep inflation rate comeback one digit number The inflation rate in 2010 and forecast

2011 increase two digit number but are under control with many timely interventions from Government

Table 3.2: Inflation rate of Vietnam 2006 - 2011

(Source: General Statistics Office of Vietnam www.gso.gov.vn)

Monetary tightening policy is on the most powerful consistent in the purpose of restrain to monetary supply on the market to decreasing inflation: increase the base interest rate to 9% from November 2010; VND ceiling mobilizing rate of 14% per annum; managing a stable exchange rate - the rate will be adjusted by a maximum of 1 percentage point to end 2011; tight control of Bank system for safe liquidation,… and request all banks have to strictly implement (SBV website)

This is not a glory period of Vietnamese economy due to many challenges but it created a fairly playing field for all banks, especially foreign banks The policy is applied the same and every bank can take its own competitive advantage

According to market research (CI Electronic Monitor, 2006), the size of the urban middle class - those with a monthly income over 500 USD living in the six major cities - has grown from 9% of the population to 34% since 2000 With an urban population of about

23 million (29% of the population) that amounts to an urban middle class of about 8.1 million people The urban population is increasing by about 800,000 (1% of the total population) a year (GSO, 2006) However, only about 22% of these people currently have

a bank account That means that only 1.7 million urbanites had a bank account as of 2005 (SBV, 2006) High income people is currently about 1% popular, however its forecast is approximately 10% of total popular in 2016 according to some researches of professional companies

Figure 3.2: Urban population growth in Vietnam 1990 - 2010

(Source: GSO, 2006)

The other character of Vietnamese society is higher education and living standard beyond basic demands on Maslow pyramid The demand of society is up to now on the top of pyramid – self esteem The top class needs a safe, convenient, luxury life

The last but not least, Vietnamese’s psychology is to desire use product of luxury famous brand mark, which is often a foreign one in the purpose of showing their wealthy

Technical

In an effort to modernize banking Information Technology system and enrich value added services to customers and to realize the objective of a cashless society, more correctly is a society of less cash spending mandated by the Government, Vietnamese banks over the last ten years has kept investing in electronic payment systems, major in ATM and POS network

Up to Sep 2010, there are about 27 million cards connected to 11,000 ATMs and 42,000 POS in the bankcard market The number of issued cards from 2006 to 2010 has risen by 150% -200%, but the rate of goods and services paid by bankcards was only less than 5% The amount of cash transactions with ATM cards accounted for 80% of transactions via cards (Banknetvn, 2010) Like ATM systems, to improve the efficiency and bring best convenience to cardholder customers, POS systems of banks should be linked up together and ‘talk to each other” enabling a POS of certain bank can accept card of every other banks within an alliance This is the reason for the birth of BankNetvn and Smartlink This function brings customer an effective financial management mechanism and convenient in comparison with that of spending cash and a peace in mind

3.1.2 Competitors

Banking industry in Vietnam had a rapid growth and witnessed a lot of changing In last time, the Vietnamese banking system has also quick development both quantities and qualities Number of banks increased from nine banks in 1991 to near one hundred in

2010 Quantity of banks focus in two segments is private joint-stock commercial banks and foreign banks, which shows attraction of Vietnam banking with domestic investors and international financial institutions

According to State Bank of Vietnam, up to June 2011, Vietnam has five state commercial banks, one bank for social policies, one development bank, thirty seven private joint stock commercial bank, five joint venture banks, five wholly foreign-invested banks, forty eight branches of foreign banks, and forty eight representative offices of foreign banks Some major banks of these groups are showed in Table 3.3 and Market share in Figure 3.3:

Table 3.3: Major Vietnamese banking sector

Source: State Bank of Vietnam website, www.sbv.gov.vn

Figure 3.3: Market share of Vietnamese banks in 2009

Source: Reuter’s

The analysis below is focused on these bank groups due to their affect to the retail market:

State – Owned commercial banks (SOCB):

The six SOCB are the Vietnam Bank for Agriculture and Rural Development – the largest

in terms of assets, the Bank for Foreign Trade of Vietnam, the Bank for Investment and Development of Vietnam, the Bank for Industry and Commerce, Mekong Housing Bank and the Vietnam Development Bank remain the principal credit institutions in Vietnam

Market share of deposit in 2010 gained 51.4% market share of the whole industry Profitability indicators of State owned commercial banks Group are relatively good, equivalent to Commercial Joint Stock Bank Group but lower than Joint Venture Bank Group and wholly foreign owned Banks but profit is following downtrend Besides, they still enjoy a good reputation among the public For local networks, they have historically established wide branch networks nearly full provinces in Vietnam This satisfies the geographical demands of the consumers’ to the greatest extent On the other hand, although they have built up huge networks over the country, they did not obtain a great deal of expertise in Retail Banking neither in the techniques nor service perspectives So they can not provide satisfactory services in Retail Banking at the present Furthermore, the huge networks also incur huge costs for those banks

They do not have superiority in staff quality Although they have well established training system for staff at counters, the promotion and performance appraisal mechanisms are not satisfactory As a result, staff lacks motivation and a sense of mission The state-owned charters make them less flexible in decision making

In 2010, profit percentage of this Group decreased 5.1%, from 40.8% in 2009 to 35.7% in

2010 (Vietnam Investment Review) Operating market share of Group decreased but it has retained the leading position

They are still competitive in their financial strengths and credit standing Their traditional industry/segment specializations and differentiations have nearly all been removed and most now pursue a common universal banking business strategy In addition, Vietnam Government has supported their operations

Joint stock commercial banks (JSCB):

Comparing with SOCB, the scale of JSCB’s charter capital is smaller but the percentage of Capital Adequacy Ratio is nearly the same in Table 3.4 The key advantages of JSCB are their nimbleness and ability to adapt and upgrade quickly compared to State – Owned

commercial banks As a result, they generally have developed better banking systems and

more dynamic The application of modern corporate systems in these banks requires a

management team fully responsible to the shareholders Their operations are market

oriented, easy to implement advanced marketing strategies and absorb the experiences

from successful global banks The small scale enables them to concentrate on particular

market areas and to adapt more flexibly to the market changes Therefore, they have

already achieved success with some services such as online banking and credit card

services, establishing a good name among young consumers

On one hand, Joint-Stock Commercial Banks have a shorter history and smaller capital

scale; on the other hand, their existence totally relies on their own profitability, i.e they

have no financial and credit support from the government This affects their ability to

attract deposits from the public and expand their business They have smaller networks

over the country; compared with State – Owned commercial banks Some of them focus on

certain geographic areas This may affect their business expansion for individual customers

who often require personal contacts at business outlets

Bank Charter Capital (Trillion VND) Capital Adequacy Ratio

Table 3.4: Capitalization of Selected major SOCB and JSCB in 2010

Source: Various banks and news from Website 2011

Foreign Bank:

Comparing with others SOCB and JSCB, the scale of charter capital of foreign banks is

quite small but it is just a start in Vietnamese banking market