Formulating business strategy for Agribank Ninh Binh branch period from 2013 to 2018

FORMULATING BUSINESS STRATEGY FOR AGRIBANK NINH BINH BRANCH PERIOD FROM 2013 TO 2018 CAPSTONE PROJECT REPORT... 57 CHAPTER 3 FORMULATING BUSINESS STRATEGIES AND PLANNING IMPLEMENTATION

FORMULATING BUSINESS STRATEGY FOR AGRIBANK NINH BINH BRANCH

PERIOD FROM 2013 TO 2018 CAPSTONE PROJECT REPORT

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

FORMULATING BUSINESS STRATEGY FOR AGRIBANK NINH BINH BRANCH

PERIOD FROM 2013 TO 2018

Group 8 Nguyen Thi Minh Nguyet Dang Le Ngoc Nguyen Thanh Tam Dong Anh Tuan

Le Thi Hop

Class: GaMBA.M0111

HANOI 2012

ACKNOWLEDGEMENT

We, members of Group 8 of GaMBA.M0111, would like to extend our deep gratitude to the Center for Educational Technology & Career Development (ETC), the Global Advanced Master of Business Administration (GaMBA) and the Griggs University for your GaMBA Program The courses gave us the most advanced business management knowledge, improved our skills, and strengthen our ability for future career development

We also would like to express our sincere thanks to all the lecturers who provided us with thorough lessons, valuable information and useful experience through the courses, and Capstone Committee Members who gave us great advice, recommendations and suggestions for us to complete our Capstone Project

We hereby acknowledge that our Capstone Project has been performed with our best efforts in doing research, analysis and assessment We hope our work will be appreciated and recognized accordingly

Yours Faithfully,

Group 8 - GaMBA.M0111

Table of Contents

LIST OF ABBREVIATIONS 9

LIST OF TABLES 10

LIST OF FIGURES 11

INTRODUCTION 12

CHAPTER 1 THEORETICAL BACKGROUND ON FORMULATING

BUSINESS STRATEGY FOR ENTERPRISES 15

1.1 Overview of Strategic Management 15

1.1.1 Definitions on Strategic Management 15

1.1.2 Stages of Strategic Management 15

1.1.3 Strategic Management Model 16

1.2 Strategy Formulation 17

1.2.1 Business Vision and Mission 17

1.2.2 External Environment Assessment 17

1.2.2.1 External Environment (PEST Analysis) 18

1.2.2.2 Competitive Analysis (Porter’s Five-Force Model) 19

1.2.3 Internal Environment Assessment 21

1.2.4 Strategies in Actions 22

1.2.4.1 Integration Strategies 22

1.2.4.2 Intensive Strategies 22

1.2.4.3 Diversification Strategies 23

1.2.4.4 Defensive Strategies 23

1.3 Strategy Analysis and Choice 23

1.3.1 Stage 1: The Input Stage 23

1.3.1.1 External Factor Evaluation (EFE) Matrix 23

1.3.1.2 Competitive Profile Matrix (CPM) 24

1.3.1.3 Internal Factor Evaluation (IFE) Matrix 24

1.3.2 Stage 2: The Matching Stage 24

1.3.2.1 Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix 24 1.3.2.2 Strategic Position and Action Evaluation (SPACE) Matrix 25

1.3.3 Stage 3: Decision Stage 27

1.3.3.1 The Quantitative Strategic Planning Matrix (QSPM) 27

1.3.3.2 Strategy implementation 28

CHAPTER 2 ANALYSIS ON REAL BUSINESS SITUATION OF

AGRIBANK NINH BINH 30

2.1 Overview of Agribank Ninh Binh 30

2.1.1 Foundation and Development 30

2.1.1.1 Agribank Vietnam 30

2.1.1.2 Agribank Ninh Binh 30

2.1.2 Organizational Structure 31

2.1.3 Scope of Business, Services and Markets 31

2.1.4 Results of Business Operation 32

2.2 Business Environment Analysis 33

2.2.1 External Factors Assessment 33

2.2.1.1 Macro Environment (PEST Model) 33

2.2.1.2 Industrial Environment (M Porter Model) 37

2.2.1.3 External Factors Evaluation (EFE) Matrix 40

2.2.1.4 Competitive Profile Matrix (CPM) 42

2.2.2 Internal Factors Assessment 47

2.2.2.1 Business Operation 47

2.2.2.2 Financial Resource 50

2.2.2.3 Human Resource and Organization 53

2.2.2.4 Marketing and Sales 54

2.2.2.5 Research and Development 54

2.2.2.6 Internal Factors Evaluation (IFE) Matrix 54

2.2.3 Defining Sustainable Competitive Advantages 56

2.3 Necessity to Formulate Business Strategies for Period 2013~2018 57 CHAPTER 3 FORMULATING BUSINESS STRATEGIES AND

PLANNING IMPLEMENTATION SOLUTIONS FOR AGRIBANK NINH BINH PERIOD FROM 2013 TO 2018 58

3.1 Development Orientation 58

3.1.1 Vision, Mission and Core Values 58

3.1.2 Strategic Orientation by 2018 59

3.1.3 Business Targets 59

3.1.3.1 General Targets 59

3.1.3.2 Specific Targets up to 2018 60

3.2 Matrixes and Business Strategy Selection 60

3.2.1 SWOT Matrix Analysis 60

3.2.2 SPACE Matrix Analysis 64

3.3 Strategy Decision 65

3.3.1 QSPM Analysis 65

3.3.2 Strategic Solutions 68

3.3.2.1 Marketing Strategic Solutions 68

3.3.2.2 Human Resource Strategic Solutions 70

3.3.2.3 Risk Management Strategic Solutions 72

3.3.2.4 Financial Strategic Solutions 73

3.3.2.5 Other Strategic Solutions 73

3.4 Strategic Implementation 74

3.4.1 Business Expansion Plan 74

3.4.2 Organizational Structure Completion 75

3.4.3 Strategic Implementation Conditions 75

3.4.4 Implementation Roadmap 76

CONCLUSION 78

REFERENCES 80

LIST OF ABBREVIATIONS

GDP Gross Domestic Product

WTO World Trade Organization

USA United States of America

Agribank Vietnam Bank for Agriculture and Rural Development

Vietinbank Vietnam Joint Stock Commercial Bank for Industry and Trade BIDV Vietnam Bank for Investment and Development

EFE External Factor Evaluation

CPM Competitive Profile Matrix

IFE Internal Factor Evaluation

SWOT Strengths-Weaknesses-Opportunities-Threats

SPACE Strategic Position and Action Evaluation

QSPM Quantitative Strategic Planning Matrix

AS Attractiveness Scores

TAS Total Attractiveness Scores

STAS Sum Total Attractiveness Scores

IP Industrial Position

SP Stability Position

ATM Automated Teller Machine

R&D Research and Development

MIS Management Information System

LIST OF TABLES

Table 1.1: The Quantitative Strategic Planning Matrix (QSPM) …… 28 Table 2.1: The External Factors Evaluation (EFE) Matrix ………… 41 Table 2.2: Comparative Competitive Profile of Competitors ……… 43 Table 2.3: Competitive Profile Matrix (CPM) ……… 46 Table 2.4: Summarized Business Operation Results ……… 48 Table 2.5: Financial Figures of Agribank Ninh Binh ……… 50 Table 2.6: The Internal Factors Evaluation (EFE) Matrix ………… 53 Table 3.1: The SWOT Matrix for SO and WO Strategies ………… 59 Table 3.2: The SWOT Matrix for ST and WT Strategies ……… 60 Table 3.3: Computation Variables for SPACE Matrix ……… 62 Table 3.4: The Quantitative Strategic Planning Matrix (QSPM) …… 65 Table 3.5: Strategy Implementation Roadmap ……… 76

LIST OF FIGURES

Figure 1.1: The Strategic Management Model ……… 16

Figure 1.2: The Key External Forces ……… 18

Figure 1.3: The Five-Force Model of Competition ……… 19

Figure 1.4: The SWOT Matrix ……… 25

Figure 1.5: The SPACE Matrix ……… 26

Figure 1.6: Internal - External (IE) Matrix ……… 27

Figure 2.1: Organizational Structure of Agribank Ninh Binh ……… 32

Figure 2.2: Business Operation Results in Recent Years ……… 33

Figure 2.3: Vietnam’s Business Environment Ratings ……… 35

Figure 2.4: Mobilized Capital in 2012 (9 months) ……… 49

Figure 2.5: Outstanding Loan in 2012 (9 months) ……… 49

Figure 3.1: The SPACE Matrix of Agribank Ninh Binh ……… 63 Figure 3.2: The Internal-External (IE) Matrix for Agribank Ninh Binh 64

INTRODUCTION

1 Rational

After tightening policies in 2011 to slow down inflation and stabilize the economy, the government has relaxed its fiscal and monetary position to revive growth Restriction on both credits and government expenditures caused stagnant real estate market since last year, and that impact carried into 2012 when GDP growth slowed to 4.73% in the first nine months of 2012, putting banking and financial institutions into the challenge of being restructured and reorganized The situation is eventually creating more fierce competition among domestic commercial banks

On the other hand, WTO Integration Roadmap and Vietnam-USA Trade Agreement require Vietnam to commit for a fair treatment between domestic and foreign banks by removing the entry barriers to the domestic banking services Vietnamese commercial banking system is still weak in all aspects including capital source, management experience, business skills, technology, product diversification, quality control and risk management This requires commercial banks to work out strategic solutions to develop and enhance the competitive advantages, master domestic market and reach international market

Agribank Vietnam, therefore, is encountering a severe competition among both domestic and foreign banks, which creating more threats to the survival and development of banking system Apart from Agribank Vietnam’s overall vision, mission and strategic plans, Agribank Ninh Binh should also formulate its own strategies to take advantages of strengths, pursue opportunities, overcome weaknesses and prevent threats to become a sustainable branch in compliance with international and regional standards of a modern commercial bank

Taking these considerations into account, our Group decided to select the

topic “Formulating Business Strategy for Agribank Ninh Binh Branch in

Period from 2013 to 2018” for our Capstone Project We hope that our

research and proposed strategies will be significant and applicable in current practice

2 Research Objective

Research objective is business strategy of Agribank Ninh Binh, a branch of Agribank Vietnam for 5-year period from 2013 to 2018

3 Target and Scope of Research

Target of this Capstone Project is to research and formulate business strategies for the period from 2013 to 2018 and propose solutions to implement these strategies in order to demonstrate Agribank Ninh Binh’s competitive advantages in financial position, business sustainability and operational strength in Agribank system

Scope of research focuses on business operation activities of Agribank Ninh Binh with comparative analysis on two main competitors of similar conditions (Vietinbank Ninh Binh and BIDV Ninh Binh) Moreover, the research objective is a dependant branch of Agribank, which should be considered within power limitation, scope of business, overall oriented targets and strategies of Agribank Vietnam

4 Research methods

Sources of information and data: Information and data used for our

Capstone Project are obtained from primary sources including Agribank’s Annual Report, Annual Business Plans and Business Operation Reports of Agribank Ninh Binh, State Bank of Vietnam Ninh Binh Branch, Provincial Assessment Report on Socio-economic Situation, etc as well as secondary sources including published by the State Bank of Vietnam, Vietinbank, BIDV, etc

Methods: Possible methods including particular access, historical data

access, quantitative and qualitative analysis are applied to meet the requirements of the Capstone Project Due to the limitations of research

objective as a dependant branch of a commercial bank, our analysis and assessment is simplified and restricted in the range of a branch unit only Applicable models and matrixes such as EFE, IEF, SWOT, SPACE, IE, QSPM obtained through relevant subjects such as Strategic Management, Marketing Management, Human Resource Management, etc are also applied to summarize, analyze and formulate business strategies

5 Structure of Capstone Project:

In addition to Introduction, Tables of Contents, Abbreviation, List of Figures and Tables, Reference, the main contents of this Capstone Project are divided into three (3) chapters as follows:

Chapter 1: Theoretical Background on Formulating Business Strategy for

CHAPTER 1 THEORETICAL BACKGROUND ON FORMULATING

BUSINESS STRATEGY FOR ENTERPRISES

1.1 Overview of Strategic Management

1.1.1 Definitions on Strategic Management

Strategic management can be defined as the art and science of formulating,

implementing, and evaluating cross-functional decisions that enable an

organization to achieve its objective 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

Strategy can be classified by level into corporate strategy, business strategy

and functional strategy Corporate strategy is the general strategy that refers to

the overall strategy of the diversified firm Business strategy refers to the

aggregated strategies of single business firm or a strategic business unit in a

diversified corporation Functional strategy includes marketing strategy,

commercial strategy, new product development strategy, human resource

strategy, financial strategy, legal strategy, information technology strategy, etc

1.1.2 Stages of Strategic Management

The strategic management process consists of three following stages:

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 business to enter, what business

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

Strategy implementation is often called the “action stage” of the strategic

management, which requires a firm to establish annual objectives, devise

policies, motivate employees, and allocate resources in order to execute the

formulated strategies 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 evaluation is the final stage in strategic management Three

fundamental strategy-evaluation activities include reviewing external and

internal factors that are the bases for current strategies, measuring performance,

and taking corrective actions Strategy evaluation is needed because success

always creates new and different problems

1.1.3 Strategic Management Model

The strategic management process can be best studied and applied using a

model This model represents a clear and practical approach for formulating,

implementing, and evaluating strategies Relationships among major

components of the strategic management process are shown in the following

figure 1.1

Figure 1.1: The Strategic-Management Model

Source: “Strategic Management Concepts and Cases”, Fred R David,

Fourteenth Edition, Pearson

Perform External Audit

Perform Internal Audit

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Generate, Evaluate, and Select Strategies

Implement Strategies - Management Issues

Implement Strategies - Maketing, Finance, Accounting, R&D, and MIS Issues

Measure and Evaluate

Develop Vision

and Mission

Statements

Establish Long-Term Objectives

1.2 Strategy Formulation

1.2.1 Business Vision and Mission

Many organizations develop both a mission statement and a vision

statement Whereas the mission statement answers the question “What is our

business?” the vision statement answers the question “What do we want to become?” Clear vision and mission statements are required before alternative

strategies can be formulated and implemented An organization that fails to develop a vision statement or a mission statement loses opportunity to present itself favorably to existing and potential stakeholders All organizations need customers, employees and managers, most firms need creditors, suppliers and distributors The vision and mission statements are effective vehicles for communicating with important internal and external stakeholders

Each organization has a unique purpose and reason for being This uniqueness should be reflected in vision and mission statements The nature of

a business vision and mission can represent either a competitive advantage or disadvantage for the firm An organization achieves a heightened sense of purpose when strategists, managers, and employees develop and communicate

a clear business vision and mission Drucker says that developing a clear

business vision and mission is the “first responsibility of strategists”

1.2.2 External Environment Assessment

External environment assessment, known as an external audit, is to develop

a list of opportunities that could benefit a firm and threats that should be avoided External forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces

Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services External forces affect the types of products developed, the nature of positioning and market segmentation strategies, the types of services offered, and the choices of businesses to acquire or sell External forces directly affect both suppliers and distributors

Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives Key external forces are described in the Figure 1.2 below

Figure 1.2: The Key External Forces

Source: Presented by Group 8-GaMBA.M0111 Based on “Strategic Management Concepts

and Cases”, Fred R David, Fourteenth Edition, Pearson

1.2.2.1 External Environment (PEST Analysis)

Political, governmental and legal forces represent key opportunities or

threats for organizations For industries and firms that depend heavily on government contract 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 forces have direct impact on the potential attractiveness of

various strategies When interest rates rise, funds needed for capital expansion become more costly or unavailable, discretionary income declines, and the demand for discretionary goods falls When stock prices increase, the

Key External Forces

Economic forces

Social, cultural, de mographic and natural environment forces

Technological forces

Political, governm ental and legal forces

Competitive forces

desirability of equity as a source of capital for market development increases When the market rises, consumer and business wealth expands

Social, cultural, demographic and natural environment forces 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 those changes Population, age, birthrate, income, racial and gender issues all shape the way people live, work, produce and consume

Technological forces represent major opportunities and threats to be

considered for formulating strategies Technological advancements can dramatically affect organizations’ products, services, markets, suppliers, distributors, competitor, customers, manufacturing processes, marketing practices and competitive position Technological advancements can create new markets, improve products, change the relative competitive cost positions

in an industry, and create new competitive advantages that are more powerful than existing ones

1.2.2.2 Competitive Analysis (Porter’s Five-Force Model)

Competitive forces affect organizations’ activities in any industry An

important part of an external audit is indentifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies Collecting and evaluating information on competitors is essential for successful strategy formulation

Figure 1.3: The Five-Force Model of Competition

Source: “Strategic Management Concepts and Cases”, Fred R David,

Fourteenth Edition, p 208, Pearson

Bargaining power of

suppliers

Bargaining power of consumers

Potential development of substitute

Rivalry among competing firms: It is the most powerful of the five

competitive forces One firm’s strategies can be successful only when they provide competitive advantage over the strategies of other rivals 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

Potential entry of new competitors: When new firms can easily enter a

particular industry, the intensity of competitiveness among firms increases There are various barriers to these entries such as the need to gain economics of scale quickly, the need to obtain technology and specialized know-how, strong customer loyalty, strong brand preferences, large capital requirements, government regulatory policies, tariffs, possession of patents, etc However, new firms sometimes enter the industries with higher-quality products, lower prices and substantial marketing resources

Potential development of substitute products: Firms in many industries

sometimes compete with producers of substitute products in other industries Competitive pressures arising from substitute products increase when the relative price of substitute products declines The competitive strength of substitute products is based on their inroads into the market share as well as firms’ plans for increased capacity and market penetration

Bargaining power of suppliers: This affects the intensity of competition in

an industry, especially where there are many suppliers, few substitute raw materials, or high-cost raw materials If both suppliers and producers assist each other with reasonable prices, improved quality, development of new services, just-in-time deliveries and reduced inventory costs, they can enhance long-term profitability for all parties

Bargaining power of consumers: This also affects the intensity of

competition in an industry, especially when customers are concentrated, or large in number, or buy in volume Rival firms may offer extended warranties

or special services to gain customer loyalty Bargaining power is higher when

the products are standard or undifferentiated and can be the most important force affecting competitive advantage

1.2.3 Internal Environment Assessment

All organizations have strengths and weaknesses in the functional areas of business Internal strengths/weaknesses, external opportunities/threats, and clear vision and mission statements provide basis for establishing objectives and strategies Internal assessment concentrates on production/operations, finance/accounting, human resource and organization, marketing, research and development, etc

Production/Operations: This function of business consists of all activities

that transform inputs into goods and services Production/operations activities often represent the largest part of an organization’s human and capital assets and have great value as a competitive weapon in a firm’s overall strategy Production/operations management, as suggested by Roger Schroeder (1981), comprises five functions: process, capacity, inventory, workforce and quality,

in which strengths and weaknesses mean the success or failure of a firm

Finance/accounting: Financial condition is often considered the best

measure of a firm’s competitive position and overall attractiveness to investors Determining an organization’s financial strengths and weaknesses is essential

to effectively formulating strategies A firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow and equity often alter existing strategies and change implementation plans

Human resource and organization: Relationship among a firm’s functional

business activities depends on its human resource and organizational culture Culture shapes a workplace, motivates people, influences behaviors and attitude of employees Human resource and organizational culture can represent

a major strength or weakness for the firm and can be an underlying reason for strengths and weaknesses in any of the major business functions

Marketing: Marketing is described as the process of defining, anticipating,

creating, and fulfilling customers’ needs and wants for products and services There are seven basic functions of marketing: customer analysis, selling

products/services, product and service planning, pricing, distribution, marketing research and opportunity analysis Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses

Research and development (R&D): Organizations invest in R&D as such

investment will lead to a superior product or service and give them competitive advantages Many firms today seek to organize R&D activities in a way that breaks the isolation of R&D from the rest of the company and promotes partnership spirit within organization R&D decisions and plans must be integrated and coordinated across departments and divisions by sharing experience and information

integration is a strategy of seeking ownership or increased control of a firm’s

suppliers Horizontal integration refers to a strategy of seeking ownership or

increased control of a firm’s competitors

1.2.4.2 Intensive Strategies

Market penetration, market development and product development can be referred to as intensive strategies because they require intensive efforts of a

firm’s competitive position with existing products to improve A market

penetration strategy seeks to increase market share for present products or

services in present markets through greater marketing efforts Market

development involves introducing present products or services into new

geographic areas Product development is a strategy that seeks increased sales

by improving or modifying present products or services

1.2.4.3 Diversification Strategies

There are two general types of diversification strategies: related and unrelated Nowadays, firms are generally moving away from diversification to

focus Related diversification may be an effective strategy when a firm

competes in a no-growth or a slow-growth industry, when adding new but related products, when firm’s products are currently in the declining stage of

the product life cycle Meanwhile, an unrelated diversification strategy favors

capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses

1.2.4.4 Defensive Strategies

Defensive strategies refer to retrenchment, divestiture and liquidation

Retrenchment occurs when an organization regroups through cost and asset

reduction to reverse declining sales and profits It may also be called a turnaround or reorganizational strategy, which is designed to strengthen a

firm’s basic distinctive competence Divestiture occurs when selling a division

or part of an organization in order to raise capital for further strategic acquisitions or investments Divestiture can be part of an overall retrenchment strategy to rid a firm of unprofitable or capital-requiring businesses

Liquidation is selling all of a company’s assets for their tangible worth It can

be an emotionally difficult strategy, but may be better to cease operating than

to continue making losses

1.3 Strategy Analysis and Choice

1.3.1 Stage 1: The Input Stage

1.3.1.1 External Factor Evaluation (EFE) Matrix

The EFE Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological and competitive information EFE can be developed in five steps:

- Step 1: List 15 to 20 external factors, including opportunities and threats

that affect the organization and its industry

- Step 2: Assign to each factor a weight that ranges from 0.0 (not important)

to 1.0 (very important), which indicates the relative importance of that factor to success in the firm’s industry The sum of all weights assigned to the factors must equal 1.0

- Step 3: Assign a rating between 1 and 4 to each key external factor to

indicate how effectively the firm’s current strategies respond to the factor

- Step 4: Multiply each factor’s weight by its rating to determine a weighted

score

- Step 5: Sum the weighted scores for each variable to determine the total

weighted score for the organization

1.3.1.2 Competitive Profile Matrix (CPM)

The CPM identifies a firm’s major competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position The weights and total weighted scores in both CPM and EFE have the same meaning, while the ratings refer to both strengths and weaknesses The aim is to assimilate and evaluate information in a meaningful way that aids in decision making

1.3.1.3 Internal Factor Evaluation (IFE) Matrix

The IFE Matrix is a summary step in conducting an internal management audit This strategy-formulation tool summarizes and evaluates the strengths and weaknesses in the functional areas of a business and provides

strategic-a bstrategic-asis for identifying strategic-and evstrategic-alustrategic-ating relstrategic-ationships strategic-among those strategic-arestrategic-as IFE Matrix can be developed in the same five steps mentioned above for EFE Matrix

1.3.2 Stage 2: The Matching Stage

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

The SWOT Matrix is an important matching tool for develop four types of strategies: SO (strengths-opportunities) strategies, WO (weaknesses-opportunities) strategies, ST (strengths-threats) strategies, and WT (weaknesses-threats) strategies A schematic representation of the SWOT Matrix is provided in Figure 1.4 below:

Figure 1.4: The SWOT Matrix

Pursue opportunities that are

a good fit to the company's

strengths

Overcome weaknesses to pursue opportunities

Source: Presented by Group 8-GaMBA.M0111 Based on “Strategic Management Concepts

and Cases”, Fred R David, Fourteenth Edition, Pearson

SWOT can be understood as followed: Strengths should be maintained,

developed, used as leverage Weaknesses should be overcome and made into

strengths Opportunities are external conditions to be took advantage Threats

are external conditions to be avoided to concentrate on opportunities

1.3.2.2 Strategic Position and Action Evaluation (SPACE) Matrix

The SPACE Matrix is four-quadrant framework indicating whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a firm The axes of SPACE Matrix represent two internal

dimensions (financial position [FP] and competitive position [CP]) and two external dimensions (stability position [SP] and industry position [IP]) These

factors are perhaps the most important determinants of the firm’s overall strategic position Factors included in the earlier EFE and IFE Matrices, factors determining an organization’s financial strengths such as leverage, working capital, liquidity can be considered in developing a SPACE Matrix The SPACE Matrix is illustrated in the Figure 1.5 below

Figure 1.5: The SPACE Matrix

FP

+5 +4 +3 +2 +1

-4 -5 -6 -7

SP

Source: “Strategic Management Concepts and Cases”, Fred R David,

Fourteenth Edition, p 208, Pearson

The SPACE Matrix can be developed in the following steps:

- Step 1: Select a set of variable to define financial position (FP), competitive

position (CP), stability position (SP) and industry position (IP)

- Step 2: Assign a numerical value ranging from +1 (worst) to +7 (best) to

each of variables of FP and IP dimensions, and from -1 (best) to -7 (worst)

to each of variables of SP and CP dimensions

- Step 3: Compute an average score for FP, CP, IP and SP

- Step 4: Plot the average scores for FP, IP, SP and CP on the appropriate

axis in the SPACE Matrix

- Step 5: Add the two scores on x-axis and plot the resultant point on X Add the two scores on the y-axis and plot the resultant point on Y Plot the intersection of the new yx point

- Step 6: Draw a directional vector from the origin of the SPACE Matrix

through the new intersection point This vector reveals the recommended type of strategies: aggressive, competitive, defensive or conservative

1.3.3 Stage 3: Decision Stage

1.3.3.1 The Quantitative Strategic Planning Matrix (QSPM)

The QSPM is the analytical technique to determine the relative attractiveness of feasible alternative actions This technique decides the best alternative strategies by using input from Stage 1 analyses (comprised of EFE Matrix, CPM and IFE Matrix) and matching results from Stage 2 analyses (comprised of SWOT Matrix and SPACE Matrix)

Table 1.1: The Quantitative Strategic Planning Matrix (QSPM)

Source: “Strategic Management Concepts and Cases”, Fred R David,

Fourteenth Edition, p 221, Pearson

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) “Weight” column records respective weights received by each factor

in the EFE Matrix and IFE Matrix Here are six steps required to develop a QSPM:

- Step 1: Make a list of the firm’s key external opportunities/threats and

internal strengths/weaknesses in the left column of the QSPM (minimum 10 external key success factors and 10 internal key success factors)

- Step 2: Assign weights to each key external and internal factors (the

weights are identical to those in EFE Matrix and IFE Matrix)

- Step 3: Examine the Stage 2 (matching) matrices, and identify alternative

strategies that organization should consider implementing

- Step 4: Determine the Attractiveness Scores (AS) indicating relative

attractiveness of each strategy The range for AS is 1 = not attractive, 2 = somewhat attractive, 3 = reasonable attractive and 4 = highly attractive One attractive strategy enables the firm to capitalize on strengths, improve on the weaknesses, exploit the opportunities or avoid the threats

- Step 5: Compute the Total Attractiveness Scores (TAS), which indicate the

relative attractiveness of each alternative strategy

- Step 6: Compute the Sum Total Attractiveness Scores (STAS), which reveal

the most attractive strategy

1.3.3.2 Strategy implementation

Production/operation concerns: Capabilities, limitations and policies can

significantly enhance or inhibit the attainment of objectives Operation decisions on business size, location, product design, quality control, cost control, applicable standards, job specification, resource utilization, technological innovation, etc can have a dramatic impact on the success or failure of strategy-implementation process

Human resource concerns: An insufficient attention to the human resource

dimension may cause failure to a strategic management system Human resource problems during strategy implementation process usually result from

the disruption of social and political structure, failure to match individuals’ abilities with tasks, and inadequate top management support for implementation activities Strategy implementation gives a threat to the firm’s managers and employees It is required to take measures to match managers with strategies by possible methods such as transferring managers, developing leadership workshops, offering career development activities, promotions, job enlargement and job enrichment

CHAPTER 2 ANALYSIS ON REAL BUSINESS SITUATION OF

AGRIBANK NINH BINH

2.1 Overview of Agribank Ninh Binh

2.1.1 Foundation and Development

2.1.1.1 Agribank Vietnam

Agribank is the abbreviation of the Vietnam Bank for Agriculture and Rural

Development located at 18 Tran Huu Duc Street, My Dinh I, Tu Liem District,

Hanoi Vietnam Bank for Agriculture and Rural Development was established

on March 26, 1988 in accordance with the Decree No 53/HDBT by the

Ministerial Council (now Government) regarding the establishment of

specialized bank including Vietnam Bank for Agricultural Development

operated in agricultural and rural development

On November 15, 1996, Vietnam Bank for Agricultural Development was

renamed to Vietnam Bank for Agriculture and Rural Development

On January 30, 2011, the State Bank of Vietnam issued Decision No

214/QD-NHNN transferring the organizational structure of Vietnam Bank for

Agriculture and Rural Development into state-owned one-member limited

liability company The Bank has officially operated under the new structure

since May 2012

2.1.1.2 Agribank Ninh Binh

Agribank Ninh Binh was established on April 1, 1992 and aimed at

providing services to meet the demands of the industrialization and

modernization of regional agriculture and rural areas right after the province

was separated from Ha Nam Ninh on December 26, 1991

Upon the establishment, Agribank Ninh Binh took over five (5) Agribank

branches in districts of Hoa Lu, Kim Son, Nho Quan, Gia Vien and Tam Diep

as well as two (2) Vietinbank branches of Tam Diep and Ninh Binh towns

Agribank Ninh Binh is the subordinate unit under Agribank Vietnam, which

performs the multi-functional businesses, takes its own financial responsibility

and mainly operates in the agricultural and rural sector It has registered

address at Tran Hung Dao Street, Tan Thanh Ward, Ninh Binh City, Ninh Binh

Province

Head office of Agribank Ninh Binh is located at No.4, Tran Hung Dao

Street, Tan Thanh Ward, Ninh Binh City, Ninh Binh Province

2.1.2 Organizational Structure

Figure 2.1: Organizational Structure of Agribank Ninh Binh

Source: Presented by Group 8-GaMBA.M0111 Based on Agribank Ninh Binh’s Information

Organizational structure of Agribank Ninh Binh (shown on the Figure 2.1

above) consists of one head office in the city, which is responsible for

managing and doing business directly, 9 branches (two in the city and 7 in the

provincial districts and towns), and 30 transaction offices under head office and

district and town branches

2.1.3 Scope of Business, Services and Markets

Being one subordinate unit under Agribank Vietnam, scope of business and

services of Agribank Ninh Binh is the same with that of Agribank Vietnam as

Trans action Divis ion

C U S T O M E R S

BOARD OF DIRECTORS

Accounting

&Tre as ury Divis ion

Accounting &

Tre as ury Divis ion

Admin &

HR

Divis ion

IT Divis ion

Capital Source and Planning Divis ion

Inte rnal Control Divis ion

Loan Divis ion

Se rvice &

Marke ting Divis ion

follows: (1) Capital mobilization, (2) Loan, (3) Foreign exchange business; (4) Providing payment and treasury services such as manners of payment, receipt order, payment order, etc.; (5) Other businesses such as securities, insurance, etc.; (6) Manage branches and perform the policies given by the Government with relation to banking activities, agricultural and rural development policies, functions and tasks assigned and entitled by Agribank Vietnam

Agribank Ninh Binh’s market by administrative division is serving customers in agricultural and rural area within Ninh Binh Province Aiming at extending market share and strengthen banking products during the past recent years, the Bank has been widening services to customers within the city and businesses/enterprises in the province Wide regional network to commune administrative level enables Agribank Ninh Binh to develop and provide products/services at a quick pace to households and individuals in the province

2.1.4 Results of Business Operation

Agribank Ninh Binh has been operating for over twenty (20) years since its establishment Based on the right instructions from the Board of Directors and the endeavor of the employees, Agribank Ninh Binh has gained remarkable achievements in all aspects in accordance with the development orientation of Agribank Vietnam

Figure 2.2: Business Operation Results in Recent Years

Source: Presented by Group 8-GaMBA.M0111 Reports on Business Operation Results of Agribank Ninh Binh

The above Figure 2.2 shows basic figures on business operation results of Agribank Ninh Binh However, liabilities within the first nine (9) months of

2012 decreased compared to 2010 because the mobilized capital of 2010 was big but mostly consisted of deposits of the treasury and unstable insurance deposits The positive point is that liabilities increase again in the first nine (9) months of 2012 compared to 2011 and residential savings, a stable capital source, increase to 82% Outstanding debts and investment in agricultural and rural sectors increase while bad debt ratio on total outstanding debts is low Salary coefficient of Agribank Ninh Binh always remains higher than one time according to the bank regulations In particular, noncredit services income always increases in recent years, which is a difficult-to-perform criterion not only for Agribank but also for all commercial banks Agribank Ninh Binh has achieved good results but it is also required to make more effort in liabilities in order to decrease using central liabilities and increase stability and business operation efficiency

2.2 Business Environment Analysis

2.2.1 External Factors Assessment

2.2.1.1 Macro Environment (PEST Model)

Political, governmental, and legal forces: Vietnam is considered as one of

the countries with political stability and security, which is convenient for domestic and foreign enterprises to carry out investment, production and business activities This is a prerequisite condition for economic development, commercial relations and attraction of foreign direct and indirect investment inflows

However, the world economy is still affected by unstable politics, riot and civil commotion in many regions Boundary and territorial disputes, especially island disputes between the regional countries occurring complicatedly have influenced operational performance of banks

Vietnam’s legal system has gradually been strengthened and improved However, legal documents still have many discrepancies, remain non-integrity and do not keep pace with our country's economic development causing difficulties in operation and unfair competitive opportunities of the businesses Currently, Ninh Binh is a rather highly-ranked province in the competitiveness index of 2011 (ranked 21st out of 63 provinces) Those criteria such as market entry cost, state regulation implementation time cost and unofficial costs are ranked at relatively high points, which is an attractive condition for business investment in the province

However, economic thoughts of many managers and employees are not active or innovated, leading to delays and discrepancies in formulation, management and implementation of socio-economic system Administrative procedure renovation and state management in economy and society have not satisfied the requirements in many places Slow implementation process and insufficient combination among relevant management levels have negatively affected business operation of many organizations

Economic forces: Vietnam is classified into the group of countries with low

GDP per capita Due to the impact of the global economic crisis, the country’s economy is also facing many difficulties Vietnam’s business environment has become more adverse and disadvantageous for both domestic and international investors, and recently been downgraded by the World Bank to 99th out of total

183 countries and territories (the worst ranking over the past 5 years as shown

on the Figure 2.3)

Figure 2.3: Vietnam’s Business Environment Ratings

Source: Presented by Group 8-GaMBA.M0111 Based on World Bank’s Information

Vietnam’s commercial banks are now coping with difficult situation due to low capital resource, increased bad debts, which require organizational restructuring to survive and develop On the other hand, the country is on track

to the strong integration into the world economy, creating equal opportunities for foreign banks to invest in Vietnam and causing strong pressure for domestic banks

However, over the years, Ninh Binh has gained a high and stable annual economic growth of more than 10%, especially during 2006-2010, when the province’s GDP expanded 16.5% per year The ratio of industry-construction accounts for 49% in the province’s GDP while agro-forestry-fishery makes up 15% and services sector accounts for 36% Last year, local budget revenues were VND 3.4 trillion, more than 80 times the amount two decades earlier One of the best conditions for the provincial growth is its convenient business location at an important gateway to the North and the Northern key economic regions This is the connecting place of cultural and economic exchange between the Red River Delta Region and North Central Region, between the Northern plains and the Northwestern mountainous areas Emergent economic strength of Ninh Binh is the building material industry and tourism

Thanks to convenient geographic location and improved infrastructure system, Ninh Binh has attracted more and more investors In 2011, the provincial competitiveness index ranked 21st out of 63, constantly in the top Northern provinces Ninh Binh is one of the provinces to attract foreign investment in Vietnam, ranked 27th out of 63 provinces in term of registered capital as of September 20, 2012; and jumped to 10th out of 48 provinces in term of newly-registered capital from January 1 to September 20, 2012

In addition, entertainment areas, hotels and restaurants and tourism resorts along with a series of historic relics and famous landscapes have made Ninh Binh an attractive tourism destination The number of tourists to the province has increased steadily In 2011, Ninh Binh welcomed 3.6 million tourists Tourism has created a large number of jobs for local residents and made a considerable contribution to the local budget, bringing the trademark of Ninh Binh Vietnam to international friends The provincial tourism industry has recently been developed sharply, focusing not only on available resorts such as

Tam Coc - Bich Dong, Phat Dien Church, Cuc Phuong National Park, and Hoa

Lu Ancient Capital; but also on new areas such as Trang An Grotto Ecotourism Zone, Bai Dinh Pagoda, and Van Long Resort This is a high potential for development of banking products and services Agribank Ninh Binh took advantage of this opportunity to set up a transaction office in Trang An - Bai Dinh for tourists and regional customers

Over the past years, Ninh Binh has improved in administrative procedure renovation, investment incentives, land policies and tax procedures with high expectation to create leverage to economic development Ninh Binh’s economic growth remains at 2-digit number in recent years GDP in 2011 reached 7,600 billion, increased 3.8 times compared to 2000 This is a prerequisite condition for the development of banking sector in the province However, the provincial economic growth is facing potential threats Economic structure shift remains slow Development quality and competiveness are still low Infrastructural development progress has been delayed, not assured quality or satisfied the requirements

Cultural, social, demographic and natural environment forces: Vietnam

has transferred from subsidy economy into market economy for more than 20 years, so people keep working under centralized plans and maintain habit to use cash frequently Therefore, the limited number of people using banking products and services is a potential market for the development of the bank’s products and banking services

Ninh Binh is a province of rich history and culture located in the southernmost gateway to the North and the Northern Delta Region with natural land area of 1,400 km2 Ninh Binh has one city, one town and 8 districts (147 commune-level administrative units including 125 communes, 15 wards and and 7 townships) It has the population of around 900,000 people with the structure of the working age population accounted for more than 50% of the total population, the percentage of trained workers accounted for 40%, the average working age of 28~30 years and relatively stable income Therefore,

the demand remains high as people are willing to access advanced banking services

Technological forces: Integrating with the global information technology

development, Vietnam is one of the countries of rapid information technology growth with increasing number of Internet users The development of telecommunication networks has created the infrastructure for the new banking technology applications Trends in banking technology transfer have improved

in terms of internet banking services, mobile banking, electronic payment, etc

At present, Agribank has completed deployment of Core-bank system, WAN network coverage to all the branches and transaction offices across the country and Cambodia branch, is completing the main data center and backup data center Modern technology system opens a new era for Agribank in the application and deployment of the advanced utility services on a national scale and creates competitive advantages to other banks

2.2.1.2 Industrial Environment (M Porter Model)

Overview of Vietnam’s financial market: Over the past time, the industry’s

unfavorable fluctuations have caused an explosion of bank problems due to poor capital resource and risk management Pressure of profit and “personal interests”, cursory and perfunctory inspection/evaluation process, untransparent compromise between loan officials/bank leaders and customers, spreading of loan brokers and intermediaries, etc are the causes of doubtful and overdue loans at most domestic banks today

Vietnam has recently been downgraded by global credit rating agencies Particularly, Moody Investors Service downgraded Vietnam’s foreign and local currency government bond ratings to B2 from B1 September 28, 2012, which means that the country will encounter higher loan interest for new government bonds Although local currency bond and deposit ceilings were unchanged at Ba2, long-term foreign currency deposit ceiling was downgraded to B3 from B2 Key drivers for the ratings are a higher likelihood that contingent risks to the government’s balance sheets will be realized due to more pronounced weaknesses in the banking system and an expectation of lower medium-term

prospects for the country economy, stemming from the banking system’s encumbered capability to intermediate credit

On the other hand, WTO Integration Roadmap required Vietnam to treat fairly between domestic and foreign banks by removing the entry barriers to the domestic banking services Foreign banks began to expand real influence by their effective performance in term of providing modern banking products, when domestic banks, either large or small, fell into difficult situation due to restricted liquidity, decreased capital mobilization capability, and circular movement of mobilized funds from one bank to another bank

However, the State Bank’s determination to restructure commercial banks

by encouraging merger and acquisition of small banks, suspending to license for new branches and transaction offices, increasing inspection and supervision over banking system, strengthening sanctions for bank criminals in order to enable healthy activities and ensure the survival and development of the whole banking system

Potential entry of new competitors: The State Bank’s current suspension of

licensing new branches and transaction offices to domestic commercial banks will temporarily hamper the appearance of new competitors in the market However, this may be good opportunities for foreign banks to expand their business operation to Ninh Binh province, forcing domestic banks to share the market

Bargaining power of suppliers: The supplier concept is quite diversified in

banking sector They may either be the shareholders that provide capital for the bank’s operation or the companies that take responsibility for banking system

or ATM maintenance Agribank has currently invested in equipment and selected its specific suppliers depending on the conditions in the form of open tender This contributes to reduce the power of equipment suppliers as they must compete with the others However, when spending a significant cost for investment in the system, the bank does not expect to change suppliers as it is cost-consuming, which will then increase the power of the equipment suppliers who have been awarded the bid

Bargaining power of consumers: The customers of bank products can be

classified into two groups in terms of deposits and loans:

- Deposit customers: Threat of changing to a substitute bank of this group is

quite high With low transfer cost, customers almost do not lose anything if they want to take out the deposits from the bank and invest in another one

- Loan customers: They are those customers in need of capital support from

the bank who often have a lower strength in negotiating with banks

Potential development of substitute products: For customers of corporate

financial services, the threat of substitute bank replacement is not very high because they need clear vouchers, invoices in the packages of products and services The appearance of stock market gives businesses an additional channel to raise funds directly without going through the banks as an intermediate stage However, this does not seem to be an effective capital mobilization channel in Vietnam due to the current in transparency in financial accounting, so businesses still have to raise capital mainly through the bank For customers of personal financial services, the threat of substitute bank replacement is very high due to the inconvenience in bank payment process and consumers’ psychological habit to keep and use cash directly rather than using services through banks Apart from bank savings, Vietnamese consumers also have many other options, such as purchase of foreign currency, investment in securities, insurance, precious metals (gold, diamonds, etc.) or housing and real estates Moreover, bank deposit interest rate does not always attract consumers

if the inflation sharply increases

Rivalry among competing firms: According to the forecast, sales of

Vietnam’s banking sector may possibly grow to 25% in the coming 5 to 10 years, making Vietnam become one of the retail banking market at the highest growth rate in Asia Although the economic crisis slows down the growth and has adverse impacts on the banking sector, Vietnam market has not been fully deployed and remains its high potentiality

Ninh Binh currently has branches of 9 credit institutions and 21 local people's credit funds Agribank Ninh Binh accounts for 26.5% of the capital

mobilization market and 28.6% of the outstanding loan market, 13 out of 40 ATMs accounting for 32.5%, and 38 out of 60 POS machines accounting for 63.3% in the province The current economic downturn will influence banking activities, cause difficulty in finding new customers, and lead to the increase of competitive intensity Hopefully, Ninh Binh’s large potential market will enable the banks to deploy market, look for new customers and decrease intensification upon the economic recovery

2.2.1.3 External Factors Evaluation (EFE) Matrix

As indicated in Sub-clause 1.3.1.1 above, EFE Matrix is the first evaluation factor in the input stage for strategy analysis and choice allowing strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological and competitive information Based on analysis of these factors in combination with actual provincial conditions and the results of interviews with Agribank Ninh Binh’s managers, we have weighted the importance level of opportunities and threats and rated these key external factors in the following EFE Matrix:

Table 2.1: The External Factors Evaluation (EFE) Matrix

Score

1 Vietnam’s political stability and

2 State policies are more open thanks to

integration commitment and fair

competitiveness

3 Global integration enables accessing new

technology, management know-how and

innovation

4 Government’s determination to

5 Ninh Binh’s high and stable economic

6 Ninh Binh’s high needs for capital to

invest and develop economic sectors 0.10 4 0.40