Building business strategy for Vietcombank Hoan Kiem branch, period 2013-2017

- In the research process of activity environment will help VCB Hoan Kiem aware of the opportunities, threats as well determine the leading position of VCB and VCB Hoan Kiem in a competi

GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGY FOR VIETCOMBANK HOAN KIEM BRANCH, PERIOD 2013-2017

Group Number : 01, GaMBA.M0111 Student’s name:

Le Thi Thu Ha Tran Vinh Hao Nguyen Thi Thu Hien Chu Viet Quang

Nguyen Ngoc Thu

HANOI 2012

ACKNOWLEDGEMENTS

We would like to thank Griggs University, the representative of Grigg University in Vietnam, ETC center of Hanoi National University, ETC staff who are dedicated to support organizational work, facilities, and help us during the learning process

We would like to thank the teachers who taught and tutored in the program for academic knowledge and practical experience, methods of assessment, problem solving and complementing us with valuable management knowledge Thank the teachers for advising us during research time and capstone completing

We would also like to thank Joint Stock Commercial Bank for Foreign Trade of Vietnam-Hoan Kiem Branch (VCB Hoan Kiem) that has created the favorable conditions in the course of working, researching and providing data; thank students

of class GaMBA.M0111, colleagues and families created favorable conditions to promote, encourage and help us during the process of work, study, research to achieve good results that are presented in this graduation capstone

COMMITMENT

We, five members of group no.1, class GaMBA.M0111 hereby certify that: This capstone project report is our whole group research work with our own efforts The published data of organizations and individuals are consulted and used for the purpose to completing the capstone as prescribed The results that are presented in the project are honest and have not been published by anyone in any other works

We also commit that this capstone project report has not been submitted to any other research and training program, duplicated or violated of any other document

Hanoi, 18 th November, 2012

Group no.01 of class GaMBA.M0111

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

LIST OF TABLES iv

LIST OF FIGURES, CHART v

LIST OF ABBREVIATIONS vi

INTRODUCTION 1

CHAPTER 1: THEORETICAL BASIS OF STRATEGIC MANAGEMENT 4

1.1 Business Strategy 4

1.1.1 The Concepts of Strategy 4

1.1.2 The characteristics and roles of strategy 5

1.2 Comprehensive Strategic-Management Model: 6

1.2.1 Strategy formulation: 7

1.2.2 Strategy implementation: 8

1.2.3 Strategy evaluation: 9

1.3 Strategic Formulation Process: 10

1.3.1 Input stage: 11

1.3.1.1 Analysis and evaluation of the external environment: 11

1.3.1.2 Analysis and evaluation of the internal environment: 16

1.3.2 Matching stage: 17

1.3.3 Decision stage: 20

1.3.3.1 Quantitative Strategic Planning Matrix (QSPM) 21

1.3.3.2 Strategic decision 22

CHAPTER 2: ANALYSIS OF BUSINESS ENVIRONMENT FOR 23

VIETCOMBANK HOAN KIEM BRANCH 23

2.1Overview of VCB Hoan Kiem branch 23

2.1.1 Overview of Vietcombank: 23

2.1.2 Current operation of VCB Hoan Kiem 25

2.1.2.1 Introduction: 25

2.1.2.2 Organizational model: 26

2.1.2.3 Main business areas: 26

2.2 Analysis of business environment .28

2.2.1 Analysis and evaluation of the external environment factors of VCB Hoan Kiem: 28

2.2.1.1 Analysis of the macro environment: 28

2.2.1.2 Analysis of the industry environment (Competitive analysis) 35

2.2.1.3 EFE matrix of VCB Hoan Kiem: 49

2.2.2 Analysis of the internal environment factors of VCB Hoan Kiem 52

2.2.2.1 Summary of the operations and business results from 2009-2012 52

2.2.2.2 Analysis of VCB Hoan Kiem resources 57

2.2.2.3 IFE matrix of VCB Hoan Kiem: 73

CHAPTER 3: BUSINESS STRATEGY FOR VIETCOMBANK 77

HOAN KIEM BRANCH, PERIOD 2013-2017 77

3.1 Targets for development of VCB Hoan Kiem 77

3.1.1 General targets of Vietcombank: 77

3.1.2 Specific objectives of VCB Hoan Kiem, period 2013 - 2017: 77

3.2 Strategic selection 79

3.2.1 SWOT matrix: 79

3.2.2 Strategic selection based on QSPM matrix: 84

3.3 Solutions of the strategic implementation: 89

3.3.1 Human resources solution 89

3.3.2 Organizational solutions 91

3.3.3 Risk management 91

3.3.4 R&D solution 92

3.3.5 Marketing solution: 94

3.3.6 Financial solution 96

3.3.7 Management Information System Solution 97

3.3.8 Technology and process solution: 97

3.4 Implementation roadmap and budget estimate for implementation of the business strategy:98 3.5 Recommendations to Vietcombank Head office: 100

CONCLUSION 102

REFERRENCES 104

LIST OF TABLES

Table 1.1 External Factor Evaluation (EFE) Matrix 16

Table 1.2 Competitive Profile Matrix (CPM) 16

Table 1.3 Internal Factor Evaluation (IFE) Matrix 17

Table 1.4 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix 20

Table 1.5 The Quantitative Strategic Planning Matrix—QSPM 22

Table 2.1 Classification of clients 36

Table 2.2 Basic operation data of the rivals 42

Table 2.3 CPM Matrix of the main competitors of VCB Hoan Kiem 43

Table 2.4 External factor evaluation Matrix of VCB Hoan Kiem (EFE Matrix) 49

Table 2.5 Bonus and welfare funds and the number of trained staffs 61

Table 2.6 Fund mobilization and loans, period 2010-2012 64

Table 2.7 Business result report of VCB Hoan Kiem 66

Table 2.8 IFE matrix of VCB Hoan Kiem 73

Table 3.1 SWOT matrix analysis 80

Table 3.2 QSPM Matrix 84

Table 3.3 Roadmap and estimated funding 99

LIST OF FIGURES, CHART

Figure 1.1 - Comprehensive Strategic-Management Model 7

Figure 1.2 Strategic Formulation Process 10

Figure 1.3 Porter’s Five – Forces Model of Competition 13

Figure 2.1 Organizational chart 27

Chart 2.2 CPI changes in Vietnam, period 2009-2012 31

Chart 2.3 GDP growth rate of Ha Noi and Viet Nam during 2008-2012 32

Chart 2.4 Population of Ha Noi period 2008-2012 33

Chart 2.5 Comparison chart of lending and deposit scale 43

Figure 2.6 summarize the affect of competitive forces on VCB Hoan Kiem according to Porter’s five forces model 46

Figure 2.6 Assessment of industry environmental impacts in operation of VCB Hoan Kiem 46

Chart 2.7 Fund mobilization growth chart, period 2009-2012 53

Chart 2.8: Diagram of growth of outstanding loans by maturity. 54

Chart 2.9: Diagram of import-export payment volume from 2009-2012 55

Chart 2.10: Diagram of growth of customers using SMS Banking and Internet Banking of VCB Hoan Kiem 55

Chart 2.11: Diagram of the number of cards issued by VCB Hoan Kiem from 2009-2012 55

Chart 2.12 Profit of VCB Hoan Kiem over the years of 2009-2012 56

Chart 2.13: Graph of the number of staffs of Hoan Kiem VCB 2009-2012 58

Chart 2.14 VCB Hoan Kiem staff's education level structure in 2012 58

LIST OF ABBREVIATIONS

latter value minus the former ones Incase of percentage differences, divided the result to the former value

classification on decision 493/2005/QD-NHNN dated 22, April, 2005 of SBV

VCB Hoan Kiem : Vietcombank Hoan Kiem branch

INTRODUCTION

1 The necessity to research the topic:

As a bank with a development history of nearly 50 years, Vietcombank is very focused on strategic management and strategic direction of the phases which are relatively appropriate with the development of the economy and the level of the financial banking industry The strategic planning has created Vietcombank with the leading position in the domestic commercial banks as well as the prestige in the international transactions As a subsidiary branch, based on the orientation of the development of the system as well as the annual business plan targets assigned, VCB Hoan Kiem has built business plan for it in order to perform its good business tasks However, building its own business strategy for the next phase is necessary for VCB Hoan Kiem because:

- The short-term nature of the year plans will affect the regulation and allocation of resources, personnel arrangement, organizational arrangement as well

as policies for its clients, affecting the sustainability of development so initiative to build business strategies is essential for VCB Hoan Kiem to stronger grow in the coming period

- In the research process of activity environment will help VCB Hoan Kiem aware of the opportunities, threats as well determine the leading position of VCB and VCB Hoan Kiem in a competitive environment, thereby making the appropriate decisions in order to maximize opportunities and reduce the most threats from the external environment and simultaneously initiative to lead the market to obtain better business performance During this period, the impact of monetary policy, interest rates, exchange rates and the hot cold element of the stock market, real estate market, gold market, due to the imperfections of the market economy has made the business situation of the enterprises in general and the field of banking and finance in particular have potential of risk factors Increased competing pressure is due to the massive establishment of banks, issuing for various branches that do not rely on the synthesis of scale and the benefits of the economy, together

with the pressure of the capital increase of the banks and liquidity problems The unfair competitive banks to ensure liquidity, bad debt resolution, non-transparent financial information of enterprises have reflected dishonest financial situation, causing confusion for customers, bad impact on the sustainability of the system is the most basic difficulties that VCB Hoan Kiem must face

Strategic management is a process, in which, building objectives, vision and environmental analysis for the strategy formulation is the first steps In a competitive environment with a lot of impact factors, how a commercial bank branch should orient and develop is not a simply matter for managers

VCB Hoan Kiem is just in the stage of formation and development The achievements of the past four years have demonstrated the great efforts in its operations, strategic direction and right plan Besides, the success that VCB Hoan Kiem has had also reveals huge potential about market and internal resources which need to have a strategy to achieve better results in the next stage Those are reasons

why our group chooses the topic: "Building Business strategy for Commercial Joint Stock Bank for Foreign Trade of Vietnam, Hoan Kiem Branch, period 2013-2017"

2 Purpose, scope and methods of research:

The purpose of this project is to explore, analyze the Strengths, Weaknesses of Hoan Kiem VCB, analyze and identify Opportunities and Threats in the coming years from which to build the optimal strategies to achieve the set objectives The research range of the topic is only limited in the business activities of Hoan Kiem VCB and the competitors in the region

Our analysis are written based on the actual data of VCB system and VCB Hoan Kiem with the data of the competitors in the region as well as the macro data that we’ve collected We use scientific methods and tools learned in the MBA program to analyze such data, as a basis for the construction and selection of business strategy

We hope that our business strategy that we’ve built based on the knowledge and scientific methods which have been studied in this course will be able to apply and be highly successful in the practice

3 Outline of the capstone project report: consists of three chapters:

- Chapter 1: The theoretical basic of strategic management:

In the contents of this Chapter we refer to the theory and basic knowledge of Strategic Management and the tools that we use in the analysis in the following chapters The purpose of this chapter is also to help us systematize the knowledge learned to help us write better

- Chapter 2: Analysis of business environment for VCB Hoan Kiem branch

In this section we introduce the Parent Company - Vietcombank and Vietcombank Hoan Kiem branch (Vietcombank Hoan Kiem) and analysis the actual situation of Vietcombank Hoan Kiem In this chapter, we also analyze the key external and internal factors of Vietcombank Hoan Kiem in order to make base for strategic formulation and decision in the following sections

- Chapter 3: Business strategy for Vietcombank Hoan Kiem branch, period 2013-2017

In this chapter we use the science tools of strategic management subject to analyze and match the input we get in Chapter 2 to formulate the feasible alternative strategies and evaluate to decide the most suitable strategy for Vietcombank Hoan Kiem, period 2013-2017

CHAPTER 1: THEORETICAL BASIS OF STRATEGIC MANAGEMENT

1.1 Business Strategy

1.1.1 The Concepts of Strategy

There is a famous quote of Joel Ross and Michael Kami on the strategy:

―Without strategy, an organization is like a ship without a rudder, going

around in circles It’s like a tramp; it has no place to go.‖ – Joel Ross and Michael

Kami

So what strategy is, why would an organization need a strategy?

Strategic concept originally used in the military, refers to the ways in which

a party done to change the position to take the victory in a military battle Today, the strategic concept is used more and more in the economic market when the economy associated with the fierce competition makes businesses must find a way (find strategy) to get the competitive advantage to compete with rivals

There are many definitions about Strategy and Strategic Management:

Provisional definition: ―A coordinated series of actions which involve the deployment of resources to which one has access for the achievement of a given purpose‖

―Strategic management is all about gaining and maintaining competitive advantage‖.

art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives‖ [Fred R.David

(Fourteenth edition-2011), Strategic Management concepts and cases, Pearson, page 35] As this definition implies, strategic management focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational success

The term strategic planning originated in the 1950s and was very popular

between the mid-1960s and the mid-1970s During these years, strategic planning was widely believed to be the answer for all problems At the time, much of

American corporate was ―obsessed‖ with strategic planning Following that

―boom,‖ however, strategic planning was cast aside during the 1980s as various planning models did not yield higher returns The 1990s, however, brought the revival of strategic planning, and the process is widely practiced today in the business world

There are two terms usually use together are strategic management and strategic planning The term strategic management in this text is used synonymously with the term strategic planning Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation The

purpose of strategic management is to exploit and create new and different

opportunities for tomorrow; long-range planning, in contrast, tries to optimize for

tomorrow the trends of today

1.1.2 The characteristics and roles of strategy

Characteristics of strategy are all commitments, decisions and actions that an organization needs to achieve: (1) strategic competitiveness; (2) sustainable competitive advantage and (3) profit above average level

The role of strategy is to use the resources effectively, enhance the company's position and is the base to select the business alternatives

Strategic management allows an organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence (rather than just respond to) activities—and thus to exert control over its own destiny

1.1.3 The categories of strategies:

Strategy is divided to 3 levels: Corporate Strategy, Business Strategy and Functional Strategy (advertised Strategy, Sale Strategy…)

Corporate Strategy: are the specific actions that a company do to get a competitive advantage by selecting and managing a group of different business activities and competition in some sectors and certain products market

Business strategy: a series of commitments and actions that a company uses

to get a competitive advantage by exploiting core competencies on the certain markets The purpose of business strategy is to be formulated to create the difference between the position of the company in relation to its competitors

Strategy of functions: those related to the implementation of the strategy of the business functions such as sales strategy, marketing strategy

1.2 Comprehensive Strategic-Management Model:

The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation

The framework (see Figure 1.1) is a comprehensive model of the management process This model does not guarantee success, but it does represent

strategic-a clestrategic-ar strategic-and prstrategic-acticstrategic-al strategic-approstrategic-ach for formulstrategic-ating, implementing, strategic-and evstrategic-alustrategic-ating strategies In order to develop a strategy, we need answer three important questions:

Where are we now?

Where do we want to go?

How are we going to get there?

Strategy formulation, implementation, and evaluation activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional By fostering communication and interaction among managers and employees across hierarchical levels, strategic management helps a firm function as a competitive team Most small businesses and some large businesses do not have divisions or strategic business units; they have only the corporate and functional levels Nevertheless, managers and employees at these two levels should be actively involved in strategic-management activities

Figure 1.1 - Comprehensive Strategic-Management Model

Business Ethics, Social Responsibility, and Environmental Sustainability

Long-Generate, Evaluate, and Select Strategies

Implement Strategies—

Management Issues

Implement Strategies Marketing, Finance, Accounting, R&D, and MIS Issues

Measure and Evaluate Performance

Global / International Issues

[Source: Fred R David,―How Companies Define Their Mission,‖ Long Range Planning 22, no 3

(June 1988): 40]

Strategic management process is dynamic and continuous so the strategic formulation, implementation, and evaluation activities should be performed on a continual basis, not just at the end of the year or semiannually

1.2.1 Strategy formulation:

Strategy formulation includes developing a vision and mission, identifying

an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover

Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most Strategy-formulation decisions commit an organization to specific products, markets, resources, and

technologies over an extended period of time Strategies determine long-term competitive advantages For better or worse, strategic decisions have major multifunctional consequences and enduring effects on an organization Top managers have the best perspective to understand fully the ramifications of strategy-formulation decisions; they have the authority to commit the resources necessary for implementation.

1.2.2 Strategy implementation:

Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance

Strategy implementation often is called the ―action stage‖ of strategic management Implementing strategy means mobilizing employees and managers to put formulated strategies into action Often considered to be the most difficult stage

in strategic management, strategy implementation requires personal discipline, commitment, and sacrifice Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more an art than a science Strategies formulated but not implemented serve no useful purpose

Interpersonal skills are especially critical for successful strategy implementation Strategy-implementation activities affect all employees and managers in an organization Every division and department must decide on answers to questions, such as ―What must we do to implement our part of the organization’s strategy?‖ and ―How best can we get the job done?‖ The challenge of implementation is to stimulate managers and employees throughout an organization

to work with pride and enthusiasm toward achieving stated objectives

1.2.3 Strategy evaluation:

Strategy evaluation is the final stage in strategic management Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information All strategies are subject to future modification because external and internal factors are constantly changing Three fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are the bases for current strategies,(2) measuring performance, and (3) taking corrective actions Strategy evaluation is needed because success today is no guarantee of success tomorrow! Success always creates new and different problems; complacent organizations experience demise

Many organizations semiannually conduct formal meetings to discuss and update the firm’s vision/mission, opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and performance

Strategy evaluation is necessary for all sizes and kinds of organizations Strategy evaluation should initiate managerial questioning of expectations and assumptions, should trigger a review of objectives and values, and should stimulate creativity in generating alternatives and formulating criteria of evaluation Strategy-evaluation activities should be performed on a continuing basis, rather than at the end of specified periods of time or just after problems occur Waiting until the end

of the year, for example, could result in a firm closing the barn door after the horses have already escaped

The final strategy-evaluation activity, taking corrective actions, requires

making changes to competitively reposition a firm for the future Taking corrective actions does not necessarily mean that existing strategies will be abandoned or even that new strategies must be formulated Taking corrective actions is necessary to keep an organization on track toward achieving stated objectives

Strategy evaluation can lead to formulation changes, implementation changes, both formulation and implementation changes, or no changes at all Corrective actions should place an organization in a better position to

strategy-capitalize upon internal strengths; to take advantage of key external opportunities;

to avoid, reduce, or mitigate external threats; and to improve internal weaknesses Continuous strategy evaluation provides information needed for an effective strategic-management system

1.3 Strategic Formulation Process:

Strategic formulation process includes three stages (see Figure 1.2)

Figure 1.2 Strategic Formulation Process

STAGE 1: THE INPUT STAGE External Factor Competitive Profile Internal Factor

Evaluation (EFE) Matrix (CPM) Evaluation (IFE)

STAGE 2: THE MATCHING STAGE Strengths-

Boston Consulting Group (BCG) Matrix

External

Internal-Grand Strategy

Action Evaluation

(IE) Matrix Matrix

relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies

1.3.1 Input stage:

1.3.1.1 Analysis and evaluation of the external environment:

Analysis of the external environment is the analysis of five factors including the four macro factors - the Political, Economic, Social and Technology (PEST) and the 5th factor is analysis of industry environment

The socio-economic factors and industry factors have a close relationship and influence each other, thus creating opportunities and challenges for businesses

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends Once information is gathered, it should be assimilated and evaluated A meeting or series

of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm

For industries and firms that depend heavily on government contracts or subsidies, political forecasts can be the most important part of an external audit Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms significantly The increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies

Economic factors (E)

Economic (E) factors have a direct impact on the potential attractiveness of various strategies For example, when interest rates rise, funds needed for capital expansion become more costly or unavailable Also, when interest rates rise, discretionary income declines, and the demand for increases Also, when the market rises, consumer and business wealth expands Economic factors include stock prices, interest rates, inflation rates, money market rates, Federal government budget deficits, unemployment trends…

Social factors (S)

Social, cultural, demographic, and environmental changes have a major impact on virtually all products, services, markets, and customers Small, large, for-profit, and nonprofit organizations in all industries are being staggered and challenged by the opportunities and threats arising from changes in social, cultural, demographic, and environmental variables

Technology factors (T)

Technological factors represent major opportunities and threats that must be considered in formulating strategies especially in internet and information

organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position Technological advancements can create new markets, result in a proliferation of new and improved products, change the relative competitive cost positions in an industry, and render existing products and services obsolete Technological changes can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers Technological advancements can create new competitive advantages that are more powerful than existing advantages No company or industry today is insulated against emerging technological developments In high-tech industries, identification and evaluation of

key technological opportunities and threats can be the most important part of the external strategic-management audit

Industrial analysis

Industry environment analysis is the analysis of the competitive forces in the industry An important part of the external environment analysis is to identify the competitors and identify strengths, weaknesses, capabilities, opportunities, threats, and their strategic goals Collecting and evaluating information on competitors is essential for successful strategy formulation Five competitive forces model of Michael Porter (see Figure 1.3) is commonly approach used to analyze the industry environment

Five competitive forces in Porter's model include:

1 Rivalry among competing firms

2 Threat of new entrance

3 Threat of substitute products

4 Bargaining power of suppliers

5 Bargaining power of customers

Figure 1.3 Porter’s Five – Forces Model of Competition

[Source: Fred R.David (Fourteenth edition-2011), Strategic Management concepts and cases,

Pearson ].

Rivalry Among Competing Firms

Rivalry among competing firms is usually the most powerful of the five competitive forces The strategies pursued by one firm can be successful only to the

Threat of new entrance

Rivalry among competing firms

Threat of substitute products

extent that they provide competitive advantage over the strategies pursued by rival firms Changes in strategy by one firm may be met with retaliatory countermoves, such as lowering prices, enhancing quality, adding features, providing services, extending warranties, and increasing advertising.

The intensity of rivalry among competing firms tends to increase as the number of competitors increases, as competitors become more equal in size and capability, as demand for the industry’s products declines Rivalry also increases when consumers can switch brands easily; when barriers to leaving the market are high; when fixed costs are high; when the product is perishable; when consumer demand is growing slowly or declines such that rivals have excess capacity and/or inventory; when the products being sold are commodities (not easily differentiated such as gasoline); when rival firms are diverse in strategies, origins, and culture; and when mergers and acquisitions are common in the industry As rivalry among competing firms intensifies, industry profits decline, in some cases industry becomes inherently unattractive

Potential Entry of New Competitors

Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases Barriers to entry can include the need to gain economies of scale quickly, the need to gain technology and specialized know-how, the lack of experience, strong customer loyalty, strong brand preferences, large capital requirements, lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to raw materials, possession of patents, undesirable locations, counterattack by entrenched firms, and potential saturation of the market

Despite numerous barriers to entry, new firms sometimes enter industries with higher-quality products, lower prices, and substantial marketing resources When the threat of new firms entering the market is strong, incumbent firms generally fortify their positions and take actions to deter new entrants, such as

lowering prices, extending warranties, adding features, or offering financing specials.

Threat of substitute products

In many industries, firms are in close competition with producers of substitute products in other industries Competitive pressures arising from substitute products increase as the relative price of substitute products declines and as consumers’ switching costs decrease

Bargaining power of suppliers

The bargaining power of suppliers affects the intensity of competition in an industry, especially when there is a large number of suppliers, when there are only a few good substitute raw materials, or when the cost of switching raw materials is especially high However, in many industries it is more economical to use outside suppliers of component parts than to self-manufacture the items

Bargaining power of customers

When customers are concentrated or large or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry Rival firms may offer extended warranties or special services to gain customer loyalty whenever the bargaining power of consumers is substantial Bargaining power of consumers also is higher when the products being purchased are standard

or undifferentiated When this is the case, consumers often can negotiate selling price, warranty coverage, and accessory packages to a greater extent The bargaining power of consumers can be the most important force affecting competitive advantage

EFE Matrix and CPM Matrix

Build the EFE and CPM matrix from the information collected is the way that strategists usually used to summarized and evaluate the macroeconomic factors (economic, social, cultural, demographic, environment, politics, technology, etc.) and environment sectors, which identified opportunities and threats Table 1.1 and 1.2 Illustrate how to build EFE and CPM

Table 1.1 External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Rating Score Rating Score Rating Score

1.3.1.2 Analysis and evaluation of the internal environment:

Analysis and evaluation of the internal environment means studying, analyzing the internal information of the business, and then can identify the resources, core competencies, identify the strengths and weaknesses of the business

The process of performing an internal audit closely parallels the process of

performing an external audit The internal audit requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations

The Internal Factor Evaluation (IFE) Matrix

A summary step in conducting an internal strategic-management audit is to

construct an Internal Factor Evaluation (IFE) Matrix This strategy-formulation

tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating

relationships among those areas The IFE Matrix provides important information for strategy formulation

Table 1.3 illustrates how to build an IFE matrix Based on the summary results obtained from the IFE matrix, strategist can identify the strengths and weaknesses of the business, which can build or maintain the competitive advantage

of the business

Table 1.3 Internal Factor Evaluation (IFE) Matrix

Score Strengths

The matching stage consists of five techniques that can be used in any sequence: the SWOT Matrix, the SPACE Matrix, the BCG Matrix, the IE Matrix, and the Grand Strategy Matrix These tools rely upon information derived from the input stage to match external opportunities and threats with internal strengths and

weaknesses Matching external and internal critical success factors is the key to

effectively generating feasible alternative strategies In most situations, external and internal relationships are more complex, and the matching requires multiple alignments for each strategy generated

Developing a strategy also means that use strengths to capitalize on opportunities (offense strategy) and improve weaknesses to avoid threats (defensive strategy) Every organization has some external opportunities and threats and

internal strengths and weaknesses that can be aligned to formulate feasible alternative strategies

In five approaches listed above, we would like to just go into introducing the SWOT matrix methods – the methods that we will apply to the analyses in the following Chapter

1.3.2.1 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is an

important matching tool that helps managers develop four types of strategies: SO (strengths-opportunities) Strategies, WO (weaknesses-opportunities) Strategies, ST (strengths-threats) Strategies, and WT (weaknesses-threats) Strategies Matching key external and internal factors is the most difficult part of developing a SWOT Matrix and requires good judgment

SO Strategies use a firm’s internal strengths to take advantage of external

opportunities All managers would like their organizations to be in a position in which internal strengths can be used to take advantage of external trends and events Organizations generally will pursue WO, ST, or WT strategies to get into a situation

in which they can apply SO Strategies When a firm has major weaknesses, it will strive to overcome them and make them strengths When an organization faces major threats, it will seek to avoid them to concentrate on opportunities

WO Strategies aim at improving internal weaknesses by taking advantage of

external opportunities Sometimes key external opportunities exist, but a firm has internal weaknesses that prevent it from exploiting those opportunities For example, there may be a high demand for electronic devices to control the amount and timing of fuel injection in automobile engines (opportunity), but a certain auto parts manufacturer may lack the technology required for producing these devices (weakness) One possible WO Strategy would be to acquire this technology by forming a joint venture with a firm having competency in this area An alternative

WO Strategy would be to hire and train people with the required technical capabilities

ST Strategies use a firm’s strengths to avoid or reduce the impact of external

threats This does not mean that a strong organization should always meet threats in the external environment head-on Rival firms that copy ideas, innovations, and patented products are a major threat in many industries

WT Strategies are defensive tactics directed at reducing internal weakness

and avoiding external threats An organization faced with numerous external threats and internal weaknesses may indeed be in a precarious position In fact, such a firm may have to fight for its survival, merge, retrench, declare bankruptcy, or choose liquidation

A schematic representation of the SWOT Matrix is provided in Table 1.4 There are eight steps involved in constructing a SWOT Matrix:

1 List the firm’s key external opportunities

2 List the firm’s key external threats

3 List the firm’s key internal strengths

4 List the firm’s key internal weaknesses

5 Match internal strengths with external opportunities, and record the resultant SO Strategies in the appropriate cell

6 Match internal weaknesses with external opportunities, and record the resultant WO Strategies

7 Match internal strengths with external threats, and record the resultant

ST Strategies

8 Match internal weaknesses with external threats, and record the resultant

WT Strategies

Table 1.4 The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

Strengths (S) 1…

2…

3…

Weaknesses (W) 1…

1.3.2.2 Limitations of SWOT Matrix:

Although the SWOT matrix is widely used in strategic planning, the analysis does have some limitations First, SWOT does not show how to achieve a competitive advantage The matrix should be the starting point for a discussion on how proposed strategies could be implemented as well as cost-benefit considerations that ultimately could lead to competitive advantage Second, SWOT

is a static assessment in time As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix Third, SWOT analysis may lead the firm to overemphasize a single internal

or external factor in formulating strategies There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important

in devising strategies

1.3.3 Decision stage:

Analysis and intuition provide a basis for making strategy-formulation decisions The matching techniques just discussed reveal feasible alternative strategies Many of these strategies will likely have been proposed by managers and employees participating in the strategy analysis and choice activity Any additional strategies resulting from the matching analyses could be discussed and added to the list of feasible alternative options

1.3.3.1 Quantitative Strategic Planning Matrix (QSPM)

Other than ranking strategies to achieve the prioritized list, there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions This technique is the Quantitative Strategic Planning Matrix (QSPM), which comprises Stage 3 of the strategy-formulation analytical framework This technique objectively indicates which alternative strategies are best The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies That is, the EFE Matrix, IFE Matrix, and Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed information for setting up the QSPM (Stage 3) The QSPM is a tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal critical success factors Like other strategy-formulation analytical tools, the QSPM requires good intuitive judgment

The basic format of the QSPM is illustrated in Table 1-5 Note that the left column of a QSPM consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2) Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix In a column adjacent to the critical success factors, the respective weights received by each factor in the EFE

Matrix and the IFE Matrix are recorded

The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix These matching tools usually generate similar feasible alternatives However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM Strategists should use good intuitive judgment in selecting strategies to include in a QSPM

Table 1.5 The Quantitative Strategic Planning Matrix—QSPM

Strategic Alternatives

Key External Factors

Base on the Sum Total Attractiveness Scores (STAS), the strategist can decide

which strategy is most attractive in each set of alternatives Higher scores indicate more attractive strategies, considering all the relevant external and internal factors that could affect the strategic decisions

CHAPTER 2: ANALYSIS OF BUSINESS ENVIRONMENT FOR

VIETCOMBANK HOAN KIEM BRANCH

2.1 Overview of VCB Hoan Kiem branch

2.1.1 Overview of Vietcombank:

Company name: Joint stock commercial Bank for Foreign Trade of Viet Nam

Head office: 198 Tran Quang Khai street, Hoan Kiem District, Ha Noi, Viet Nam

Tel: 84.4.39343137, fax: 84.4.38241395 Website: http://www.Vietcombank.com.vn License No.138/GP-NHNN issued by the Governor of the State Bank of Vietnam on 23/05/2008 Business registration certificate: Business code

0100112437 issued 7th change by Hanoi Department of Planning and Investment (DPI) on 10/01/2012

History and development, achievements

 Vietcombank was established on 01 April, 1963 by Decision No 115/CP by the Council of Government issued on 30 October, 1962

 On 21 August 09, 1996, the Governor signed Decision No 286/QD-NH5 to establish the Vietcombank according to the model of State Corporation under the provisions of Decision No 90 on 07 March, 1994

 On 02/06/2008, Bank for Foreign Trade of Vietnam was officially operated

as a joint-stock commercial bank after IPO in 12/2007 By 30/06/2009, Vietcombank shares (stock code: VCB) was officially listed on Ho Chi Minh Stock Exchange Vietcombank is the first state-owned bank equitized in Vietnam with an initial capital of VND 12,100,860,260,000 in which: state shareholder accounted for 90.72%, domestic shareholders were 6.87% and foreign shareholders accounted for 2.41%

 By the end of 2011, Vietcombank's chartered capital was VND 23,174 billion, the state held 77.11%, strategic shareholders Mizuho held 15% the remaining was other small shareholders

 VCB is the leading commercial bank in Vietnam in the field of trade finance, international payment, foreign exchange trading and advanced technology applications in banking activities Vietcombank is one of the first members of Vietnam Banking Association and is member of several associations of other banks such as Asian Bankers Association, SWIFT global payment organization, international card payment organizations VISA, MASTER CARD So far, Vietcombank has had agent banking relationships with more than 1,450 banks and financial institutions in 90 countries and territories around the world Vietcombank

is the only commercial bank in Vietnam, voted by the international prestige and reputation journals (such as The Banker, Trade Finance, etc.) as "The Best Bank in Vietnam in 2000 - 2011." VCB was ranked B+ stable prospect in the rating period

of 9/2012 by S & P assessment organization and assessed by the Bank of New York

as the best bank Vietnam in 2011, according to the Annual Report of Vietnam credibility index by VCCI and VRC, VCB was rated A class (A: Banks with high competitiveness, great market power, stable financial capacity, business efficiency and long-term growth potential

 After nearly half a century of operation, Vietcombank has about 11,500 employees and an extensive network of nearly 400 branches / transaction offices/ representative offices / domestic and foreign affiliates, including the Head Office in Hanoi, 1 transaction office, 74 branches and nearly 300 transaction offices nationwide, three subsidiaries in Vietnam, two subsidiaries and two overseas representative offices, four joint venture companies, 2 associate companies

Vision and business mission of VCB

On the basis of the business environment assessment along with working experience of 50 years, VCB has confirmed its leading position in the market Since then, Commercial Joint Stock Bank for Foreign Trade of Vietnam determines the business vision and strategy as follows:

 Strategic objectives: Building Vietcombank to become multi-banking finance group on the basis of the application of the best international practices,

maintaining the leading position in Vietnam, giving customers the best services, harmony of interests among customers, shareholders and employees

 Strategic vision: to become the leading bank in Vietnam, have regional influences and become one of the 300 largest financial institutions in the world by 2020

 Business mission of VCB

- Always bringing success to the clients

- Towards a green, sustainable development bank for the community

- Convenience in commercial transactions and activities on the market

- Affirming the core business activities as commercial bank

2.1.2 Current operation of VCB Hoan Kiem

2.1.2.1 Introduction:

Name: Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hoan Kiem branch

Address: 23 Phan Chu Trinh Street, Hoan Kiem District, Ha noi, Viet Nam

Image of Vietcombank Hoan Kiem branch

[Source: Vietcombank Hoan Kiem branch]

VCB Hoan Kiem came into operation on 21 November, 2008 on the basis of upgrading Transaction office No 1 of VCB Transaction Center Office according to the decision No 1188/QD-NHNT.TCCB.DT of the Chairman of the Board of VCB VCB Hoan Kiem is 1st level branch under the VCB H.O., has its own balance sheet and is dependent accounting unit of VCB VCB Hoan Kiem is the 60th branch of VCB system and as the 7th branch of VCB system in Hanoi

The introduction and operation of VCB Hoan Kiem is based on the policy of network expansion of VCB system to provide extensive financial and banking services in order to increase the market share of VCB on the second dynamic economic area of Vietnam So far, VCB Hoan Kiem has held its relatively stable activities, revenue, profits are increased steadily over the years

2.1.2.2 Organizational model:

By the present time, VCB Hoan Kiem’s number of employees is 120 people who are sorted into: Board of directors, six function departments, one team and five transaction offices

Function departments are: Accounting department, Payment and services banking department, Client department, Administrative and Human resources department, Treasury department, General department and Compliance Monitoring team

Five transaction offices outside the Branch office are: Lo Duc Transaction Office: address: No 50 Lo Duc, Hai Ba Trung District; Dinh Cong Transaction Office: Address: Lot CN2 - Dinh Cong Urban Area, Hoang Mai district; Nguyen

An Ninh Transaction Office, Address: 106 Nguyen An Ninh, Hai Ba Trung District; Bach Mai Transaction Office: 297 Bach Mai Street, Hai Ba Trung District; Kim Dong Transaction Office: Address: No 809 Giai Phong, Hoang Mai District Organizational chart (see figure 2.1)

2.1.2.3 Main business areas:

VCB Hoan Kiem is a branch of VCB, so they are providing a full range of banking services that VCB is deploying to all of the customers of personal,

economic organizations in the area mainly Hoan Kiem District and Ha Noi city such as:

- Capital mobilization,

- Loans and guarantees

- Foreign exchange trading,

- Card services, payment, funds

- Export and import payments and abroad money transfer

- Retail banking services such as: money grams transfer service, electronic banking services, supply of the means of payment

Figure 2.1 Organizational chart

[Source: Vietcombank Hoan Kiem 2012 report]

2.2 Analysis of business environment

2.2.1 Analysis and evaluation of the external environment factors of VCB Hoan Kiem:

2.2.1.1 Analysis of the macro environment:

a Evaluation of Legal-political factors:

Factors of the government, law and politics affect businesses in different directions They can create opportunities, obstacles, even the failure risk for businesses

The banking sector relies heavily on fiscal policy of the Government and of the State Bank The economy in general and the financial investment market in particular are heavily dependent on political factors Political stability will help the domestic and foreign investors feel safe to invest long-term, they do not need to worry about the threats of terrorism, war or even coup etc The Vietnamese politics

in recent years is considered relatively stable for economic development In recent years, the State has been gradually improving corporate law, investment law, economic policies to create an environment of transparent finance and business for development

However, the fiscal and economic operating policies of the Government according to the evaluation of our group are unstable, the policies constantly change, short-term, in part because of global economic crisis, in part because of the unreasonable macro adjustments by the Government Especially with recent major events in the banking sector have partly created confusion psychology among people as well as businesses and investors, who are main customers of the bank, certainly will affect the policies and strategies of the bank

For the economy which the development depends heavily on credit as Vietnam today, the tightening of credit at the request of the State Bank would largely impact on the economy causing many difficulties for business but will help the economy develop more stable and sustainable

The State Bank of Vietnam has instructed to require commercial banks and credit institutions (CIs) to temporarily pause to open new transaction offices until further notice

Circular 21/TT-NHNN dated 18-6-2012 applied has made the banks to move from the deposit activities to loan activities (credit), so it might entail a shift from interbank transaction to sales and purchase transactions on the secondary bond market Strengthening the management of credit institutions as well as small 'shock'

on financial market in the third quarter has shown partly the 'health' of the banking system is potential with risks, particularly liquidity of a number of banks, even banks that formerly reviewed well by the State Bank of Vietnam are not really as good as expected While large banks with good liquidity become more cautious in lending and ensuring its long-term solvency, liquidity tensions in the small bank have made the secondary bond market and open market become quite exciting Two major international credit rating organizations that are Standard & Poor's and Moody's have given the rather different assessment of the banking system Standard

& Poor's has raised the rating of Vietnam banking system, namely the level of risk from group 10 to group 9 and adjusted the level of economic risks of Vietnam for the 'very high' level to the 'high' level Meanwhile, Moody's has lowered the rating

of domestic and international bonds from B1 level to B2 level, mobilizing long-term foreign currency from B2 level to B3 level

For the economy depends heavily on credit like Vietnam, the tightening of credit policies would caused many difficulties for the business But in other way, it will help economic stability and sustainable development

Viet Nam have jointed in WTO and with the trend of globalization and integration, the banking sector have obtained favorable opportunity for development However, opportunities always come with challenges to banks It demands the banks to innovate to strengthen their competitiveness

b Evaluation of Economic factors:

The moves of relaxation of the monetary and fiscal policy which was done in the second quarter helped GDP of the third quarter increase 5.35%, a sign of improvement compared with an increase of 4% in the first quarter and 4.66% in the second quarter However, general calculation of 9 months, GDP has only increased

by 4.73% compared to the same period of last year, much lower than the figure of 5.77% of 9 months in 2011 Although the government has increased a certain amount for public investment and deployment of financial support measures for businesses to shore up the growth, but total demand is still very weak In fact, the fiscal policy supporting growth is not large due to high public debt ratio and growth

is based on public investment that does not create sustainable growth Although growth support is low clearly there is support increase of private investment and maintaining of the momentum of the consumer

Exchange rate and foreign exchange market are relatively stable from the beginning of this year till now, thanks to the market control measures done consistently by The State bank of Vietnam since late 2011

USD / VND interbank average rate has been maintained at 20,828 VND/USD over the past nine months; the rate in the commercial banking system is also fluctuating stably in the range of + / -1%, close to reference level during the third quarter In addition to commitment which does not adjust the rates more than 3% in

2012 by the Governor of the State Bank of Vietnam, the maintenance of a relatively high VND interest rate to the U.S dollar interest rate (subject to the USD deposit cap interest rate of 2%/year from 6/2011) has helped increase demand for the domestic currency, limiting curb speculation in foreign currency, regulating exchange flow freely into strengthening the official foreign exchange reserves

According to estimates, the current foreign exchange reserves have risen significantly to the equivalent level of 11.5 weeks of imports, from level of 9 weeks

at the end of June Import demand goes down Besides, the gold market is arranged and managed more tightly making transactions are decreased Gold speculation demand, as well as foreign currency, has not created more pressure on

re-the exchange rate as re-the previous years In addition, weak UDS maintaining policy

of the U.S government is also a supporting factor for the stability of the exchange rate of Vietnam in the past time as well in the upcoming period

In recent years, the government has adopted policies to curb inflation and stabilize the macro economy In 2012, inflation tends to decrease in compared to the index of previous year However, the impact of the economy from this cause will lead to difficulties in the operation of the business Interest rate does not have the stability, leading to difficulties in management of the business of banking VCB Hoan Kiem also affected by this factor

Chart 2.2 CPI changes in Vietnam, period 2009-2012

in July, 2012 to reduce to 15%, while regulating commercial banks to perform support packages down to 9%/year for a number of areas This has caused much difficulties for the commercial banking system because the commitments for mobilized customers have bound and been not able to break the terms of the deposit

profits of the banking system However, due to the general difficulties of the economy, the businesses are difficult to grow production and promote outstanding debt Potential of bad loans due to borrowers using loan to pay overdue principal debts or interests have given challenges for the risk management as well operation growth of the bank

With the advantage of the central district of Hanoi, the economic development of the district is able to be better GDP growth rate of Hoan Kiem district is often higher than the rate of Ha Noi city It provides good condition for developing banking services of VCB Hoan Kiem

Chart 2.3 GDP growth rate of Ha Noi and Viet Nam during 2008-2012

GDP growth rate, period 2008-2012s

Ha Noi GDP growth rate Viet Nam GDP growth rate

[Data source: http://www.gso.gov.vn]

According to the report of the Executive Committee of the Party of Hoan Kiem district (Hanoi city) at the 9th conference on 24/10/2012, evaluating the first 9 months of 2012 has showed the district economy still maintains growth, commercial and tourism service sales increased by 18.75%; private business sector made a turnover of 288,889 billion dong, equivalent to 76.87% of the annual plan of the district; total state budget revenue reached 3,244.3 billion dong (78.3% of the year plan and increased 26.5% compared to 9 months of 2011 Disbursement of the budget is 164.92 billion dong, equivalent to 41.5% of the annual plan for the works, projects

c Evaluation of social factors (S):