VCBS COMPANY BACKGROUND AND SWOT ANALYSIS ON THE COMPANY’S BROKERAGE ACTIVITIES

ABBREVIATION & DEFINITIONVCBS VietComBank Securities Company IPO Initial Public Offering OTC Over the Counter Market SSC State Securities Committee HOSE Ho Chi Minh Stock Exchange HNX Ha

Thesis is an important part for each student of CFVG First and foremost, Iwould like to express my sincere thanks and appreciation to Ass.Pr.Dr Vu ThanhHung for his devoted assistant to me during my preparation and research for thisthesis Thanks to his valuable and detailed guidance and suggestions, I have finishedthis dissertation successfully

I would like to express my thankfulness to all teachers in CFVG, who havedirected and supplied me the necessary knowledge during the time at CFVG and Ma

Do Cong Duc, the manager of Strategic planning Department of VietcombankSecurities Company for data collection and useful advice in my analysis

ABBREVIATION & DEFINITION

VCBS VietComBank Securities Company

IPO Initial Public Offering

OTC Over the Counter Market

SSC State Securities Committee

HOSE Ho Chi Minh Stock Exchange

HNX Hanoi Stock Exchange

VSD Vietnam securities depository centre

UPCOM The Unlisted Public Company Market

SSI Saigon Securities Incorporation

ACBS Asia Commercial Bank Securities Company

TSC Thang Long Securities Company

FSC First Class Securities Company

ABS An Binh Bank Securities Company

HSC Ho Chi Minh Securities Company

SBS Sacombank Securities Company

KLS Kim Long Securities Company

BVS Bao Viet Securities Company

KEVS KimEng Securities Company

PTSC Petro Vietnam technique and servicesCompany

Short Sale Borrowing a security (or commodity futures contract) from a broker

and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker

Margin Account or Margin trading: is a brokerage account in which the

Broker lends the customer cash with which to purchase

securities Unlike a cash account, a margin account allows an

investor to buy securities with money that he/she does not have, by borrowing the money from the broker

TABLE OF CONTENT

ACKNOWLEDGEMENT 1

ABBREVIATION & DEFINITION 2

DISSERTATION INTRODUCTION 6

1 Reasonable 6

2 Objectives 6

3 Methodology 6

4 Scope 7

5 Dissertation structure 7

CHAPTER I: THEORETICAL FRAMEWORK 7 & LITERATURE REVIEW 7 1 Strategic management 7

1.1 Concepts strategic management 7

1.2 Characteristics of strategic management 8

1.2.1 The elements of strategy implementation 8

1.2.2 The elements of strategy evaluation 9

2 SWOT analysis 9

2.1 PEST model 10

2.1.1 Concept of PEST model 10

2.1.2 Factors of PEST 11

2.2.1 Product life cycles 12

2.2.2 BCG Matrix 13

2.2.3 Michael Porter five forces model 15

2.3 Internal Analysis 18

2.4 TOWS matrix 19

3 Brokerage 19

3.1 Concept of brokerage 20

3.2 Types of Stock brokers 20

3.3 Stock Broker activities in Viet Nam 20

CHAPTER II: VCBS COMPANY BACKGROUND AND SWOT ANALYSIS ON THE COMPANY’S BROKERAGE ACTIVITIES 22 1 Company Background 22

1.1 Overview 22

1.2 Range of business 23

1.3 VCBS Partners 23

1.4 VCBS mission & objectives 23

1.5 VCBS business activities 24

1.6 VCBS Business Performance 26

1.7 VCBS brokerage performance 28

2 External analysis 30

2.1 PEST analysis 31

2.1.1 Political and legal factors 31

2.1.2 Economic factors 31

2.1.3 Social factors 33

2.1.4 Technological factors 33

Table 11: Key external factors evaluation (EFE) on VCBS brokerage activities 34

2.2 Industry analysis 36

2.2.1 General analysis 36

2.2.2 Five forces analysis 37

2.2.2.1 Potentiality of new entrants (rather low) 37

2.2.2.2 Bargaining power of Suppliers (low): 37

2.2.2.3 Bargaining power of Buyers (high): 38

2.2.2.4 Threats of Substitutes (rather high): 38

2.2.3 Product life cycle (PLC) analysis 38

2.2.4 BCG analysis 39

2.3 VCBS Brokerage internal analysis 40

2.3.1 Strengths 40

2.3.2 Weaknesses 44

CHAPTER III: SUITABLE STRATEGIES SOLUTIONS TO STRENGTHEN BROKERAGE ACTIVITIES IN VCBS 48 1 The goals of brokerage activities in 2009-2013 48

2 General strategies 49

2.1 Market penetration 50

2.2 Market development 50

2.3 Product development 51

3 Specific solutions to implement the intensive strategy for VCBS brokerage activities 52

3.1 Building up a high tech information system for VCBS brokerage activities 52

3.2 Implementing specializing human resources structure, providing more training, building up a clear career road maps 52

3.2.1 Restructuring human resources for VCBS brokerage department 52

3.2.2 Providing more trainings, setting up a clear career road map and establishing encourage bonus range for staff 53

3.2.3 Applying ISO procedure in brokerage activities 54

3.3 Bigger investment to finance intensive strategy for VCBS brokerage activities 54

3.3.1 Financing marketing activities for market penetration strategy 54

3.3.2 Financing marketing activities for market development activities 54

3.4 Creating clear, planned and reasonable marketing campaign 55

3.4.1 Setting up a reasonable wide range of brokerage fee: 55

3.4.2 Providing more convenient securities services for potential customers: 55

3.4.3 Building up a strong and supporting distribution network: 56

3.4.4 Organizing regular conferences, training courses and introduction seminars for customers: 56

4 Expected results when applying an intensive strategy for VCBS brokerage activities 56

CONSLUSION 57

REFERENCES 59

LIST OF TABLES AND FIGURES

Table 1: SWOT analysis model 10

Table 2: Product life cycle 13

Table 3: BCG Matrix 15

Table 4: Michael Porter competitive Five forces model 18

Table 5: VCBS company structure 22

Table 6: Total Assets 2003 – 2009 (billion dongs) 27

Table 7: Turnover and Profit 2004 – 2009 (billion dongs) 27

Table 8: VCBS Brokerage Department Structure 28

Table 9: VCBS brokerage turnover (billion dongs) 29

Table 10: Top 10 biggest securities companies in brokerage 30

Table 11: Key external factors evaluation (EFE) on VCBS brokerage activities

34

Table 12: Securities trading account statistics in July 2009 36

Table 13: VCBS Position at BCG Matrix 40

Table 14: VCBS brokerage forces 42

Table 15: Securities account statistics 44

Table 16: Key internal factors evaluation (IFE) on VCBS brokerage activities

46

Table 17: VCBS brokerage objectives in the period of 2009-2013 48

Table 19: Estimated cost of VCBS new establishment (VND mil/year) 54

Table 20: Expected VCBS brokerage activities results 57

DISSERTATION INTRODUCTION

1 Reasonable

From the Renovation in 1986, Vietnam’s economy has made many vitalachievements It overcame the financial crisis in 1997 and maintained a verystrong economic growth rate nearly at 7% during the period of 2004-2009 Inaddition, Vietnam has gained a lot of impressive results in macro – economicstabilities, FDI, export growth, hunger elimination and especially in capitalmarket The Vietnam stock market is one of three capital markets in Vietnam and

is rather young market in the world financial market with nearly 10 year old(HOSE initially established in July 2000)

Up to now, there are around 100 securities companies in Vietnam Stockmarket and almost are not familiar with the advantage of using strategies in theirbusiness The business activities of one Securities Company have three main partsconsisting of brokerage, investment and corporate finance consultancy Normally,brokerage business takes no risks and contributes about 40%-50% of total revenue

to the company So, the applying of strategies to brokerage activities is one of themost important things that securities companies should take into account

Vietcombank Securities Company is one of the three biggest securitiescompany in Vietnam and like many companies in this sector, it didn’t have anyspecific and professional business strategies in its brokerage activities As a result,the brokerage activities of VCBS face a lot of difficulty in keeping pace with theplanning sales growth rate and how to prepare finance, human resources,information system and marketing campaign to achieve posed objectives

With the knowledge gathering in CFVG and the tutor’s instructions, I am going

to introduce the reality of brokerage activities in VCBS and strategies solutions tosolve these problems

2 Objectives

The dissertation is aimed at the following purposes:

- Summary relating theories of strategic management, and point outapplication of these theory in VCBS

- Identify opportunities, threats, strengths and weaknesses of VCBS

- Make general and specific strategic solutions to VCBS brokerage activities

3 Methodology

- Sources of information:

+ Primary data: via interview, observations, and survey…

+ Secondary data: Through books, publications, reports, cases, websites…

- Methodology:

+ Interview managers and staff of Brokerage Department of VCBS

+ Collect related data and information from prospectuses, annual reports,financial statements of VCBS and reports from relevant state agencies+ Access websites of specific organizations (State securities committee,

Ho Chi Minh stock exchange…) to gather relevant data and usefulinformation to complete the study as well as to make solutions andrecommendations for improving performance of brokerage activities inVCBS

+ Use general, analytical, comparative and statistical methods with charts,tables and factual figures for support

4 Scope

Due to time limitation and data unavailability, I am going to do research

on brokerage activities in VCBS (other business activities such as corporatefinance consultancy and investment are not mentioned in this study) and mystudy only focuses on the brokerage activities of VCBS from 2004 to the firsthalf of 2009

5 Dissertation structure

This Dissertation named “Suitable strategies to strengthen Vietcombank

securities company brokerage activities” is divided into five parts as follows;

- Introduction

- Chapter I: Theoretical frameworks & literature review

- Chapter II: VCBS company background & SWOT analysis on thecompany’s brokerage activities

- Chapter III: Brokerage Strategies to improve VCBS brokerage activities

- Conclusion

CHAPTER I: THEORETICAL FRAMEWORK

& LITERATURE REVIEW

1 Strategic management

1.1 Concepts strategic management

The term of strategic management is usually used with the term of strategicplanning The term strategic planning originated in 1950s and was very familiarbetween 1960s and 1970s During these years, strategic planning was widelybelieved to answer for all problems related to companies’ activities Followingthat “boom” however, strategic planning was cast aside during the 1980s asvarious planning models did not yield higher returns The 1990s, however,brought the revival of strategic planning and the process is widely used in worldbusiness today

There are several definitions of strategic management or strategic planning asfollows:

“Strategic management can be defined as the art and science of formulating,implementing, and evaluating cross-functional decisions that enable anorganization to achieve its objectives”1

Or “Strategic management is an ongoing process that evaluates and controlsthe business and the industries in which the company is involved; assesses itscompetitors and sets goals and strategies to meet all existing and potentialcompetitors; and then reassesses each strategy annually or quarterly [i.e regularly]

to determine how it has been implemented and whether it has succeeded or needsreplacement by a new strategy to meet changed circumstances, new technology,new competitors, a new economic environment., or a new social, financial, or

political environment” 2

1 Fred Davis – Strategic management concepts & cases, page 5

2 Lamb, Robert, Boyden Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall, 1984

To sum up, strategic management is the conduct of drafting, implementing andevaluating cross-functional decisions that will enable an organization to achieveits long-term objectives.

1.2 Characteristics of strategic management

The strategic management process consists of three stages: strategicformulation, strategic implementation and strategic evaluation

The strategic formulation includes developing a vision and mission, identifying

an organization’s external opportunities and threats, determining internal strengthsand weaknesses, establishing long term objectives, generating alternativestrategies and choosing a particular strategy to pursue

1.2.1 The elements of strategy implementation

The strategy implementation includes:

 Allocation and management of sufficient resources (financial, personnel, operational support, time, technology support)

 Establishing a chain of command or some alternative structure (such as crossfunctional teams)

 Assigning responsibility of specific tasks or processes to specific individuals

or groups

 It also involves managing the process This includes monitoring results,comparing to benchmarks and best practices, evaluating the efficacy andefficiency of the process, controlling for variances, and making adjustments tothe process as necessary

 When implementing specific programs, this involves acquiring the requisiteresources, developing the process, training, process testing, documentation,and integration with (and/or conversion from) legacy processes

1.2.2 The elements of strategy evaluation

The Strategy evaluation consists of: Measuring the effectiveness of the

organizational strategy, it's extremely important to conduct a SWOT analysis to figureout the strengths, weaknesses, opportunities and threats (both internal and external) ofthe entity in question This may require to take certain precautionary measures or even

to change the entire strategy

In corporate strategy, Johnson and Scholes present a model in which strategicoptions are evaluated against three key success indicators such as Suitability (would itwork?); Feasibility (can it be made to work?) ; Acceptability (will they work it?) There are some main types of strategic management from corporate level unitlevel such as: corporate strategy (for the whole organization), business strategy (forbusiness segment or division), and functional strategy (for business units) Anadditional level of strategy called operational strategy was encouraged by PeterDrucker in his theory of management by objectives (MBO) It is very narrow in focusand deals with day-to-day operational activities such as scheduling criteria It mustoperate within a budget but is not at liberty to adjust or create that budget Operationallevel strategies are informed by business level strategies which, in turn, are informed

by corporate level strategies

500 companies

Four elements of SWOT analysis are:

3 Hill, T & R Westbrook (1997) "SWOT Analysis: It’s Time for a Product Recall" Long Range

Planning 30

 Strengths: attributes of the person or company that is helpful to

achieving the objective

 Weaknesses: attributes of the person or company that is harmful to

achieving the objective

 Opportunities: external conditions that is helpful to achieving the

in identifying areas for development

Table 1: SWOT analysis model

2.1 PEST model

2.1.1 Concept of PEST model

PEST analysis stands for "Political, Economic, Social, and Technological

analysis" and describes a framework of macro-environmental factors used in theenvironmental scanning component of strategic management4 The model has recentlybeen further extended to STEEPLE and STEEPLED, adding education anddemographics factors It is a part of the external analysis when conducting a strategicanalysis or doing market research and gives a certain overview of the different macroenvironmental factors that the company has to take into consideration It is a usefulstrategic tool for understanding market growth or decline, business position, potentialand direction for operations

The growing importance of environmental or ecological factors in the first decade

of the 21st century have given rise to green business and encouraged widespread use

of an updated version of the PEST framework STEER analysis systematicallyconsiders Socio-cultural, Technological, Economic, Ecological, and Regulatoryfactors

2.1.2 Factors of PEST

The purpose of the external audit is to develop a finite list of opportunities thatcan benefit a company and threats should be avoided When the term finite suggests,the external audit is not aimed at developing and exhaustive list of every possiblefactor that could influence the business Thus, firms are able to respond eitheroffensively or defensively to the factors by formulating strategies that take advantages

of external opportunities or that minimize the influence of potential threats Externalforces ca be divided into five board of categories as follows:

 Political: Specifically, political factors include areas such as tax policy, labor

law, environmental law, trade restrictions, tariffs, and political stability.Political factors may also include goods and services which the governmentwants to provide or be provided (merit goods) and those that the governmentdoes not want to be provided (demerit goods or merit bad) Furthermore,

4 "PEST: Political, Economic, Social, and Technology Analysis" The Decision Group

http://www.decide-guide.com/pest.html Retrieved 2009-01-27

governments have great influence on the health, education, and infrastructure

of a nation

 Economic factors include economic growth, interest rates, exchange rates and

the inflation rate These factors have major impacts on how businesses operateand make decisions For example, interest rates affect a firm's cost of capitaland therefore to what extent a business grows and expands Exchange ratesaffect the costs of exporting goods and the supply and price of imported goods

in an economy

 Social factors include the cultural aspects and include health consciousness,

population growth rate, age distribution, career attitudes and emphasis onsafety Trends in social factors affect the demand for a company's productsand how that company operates For example, an ageing population mayimply a smaller and less-willing workforce (thus increasing the cost of labor).Furthermore, companies may change various management strategies to adapt

to these social trends (such as recruiting older workers)

 Technological factors include ecological and environmental aspects, such as

R&D activity, automation, technology incentives and the rate of technologicalchange They can determine barriers to entry, minimum efficient productionlevel and influence outsourcing decisions Furthermore, technological shiftscan affect costs, quality, and lead to innovation

 Legal factors include discrimination law, consumer law, antitrust law,

employment law, and health and safety law These factors can affect how acompany operates, its costs, and the demand for its products

 Environmental factors include weather, climate, and climate change, which

may especially affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to climate change is affecting howcompanies operate and the products they offer it is both creating new marketsand diminishing or destroying existing ones

2.2 Industry analysis

2.2.1 Product life cycles

The product life cycle goes through many phases, involves many professionaldisciplines, and requires many skills, tools and processes Product life cycle (PLC)has to do with the life of a product in the market with respect to business/commercialcosts and sales measures; whereas product life cycle management (PLM) has more to

do with managing descriptions and properties of a product through its developmentand useful life, mainly from a business/engineering point of view To say that aproduct has a life cycle is to assert four things: 1) that products have a limited life, 2)product sales pass through distinct stages, each posing different challenges,opportunities, and problems to the seller, 3) profits rise and fall at different stages ofproduct life cycle, and 4) products require different marketing, financial,manufacturing, purchasing, and human resource strategies in each life cycle stage

Table 2: Product life cycle

Sources:Pr.Dr Le The Gioi &Dr Nguyen Thanh Liem, 2007, Statistics Hall, 2 nd

edition,”Strategic Management”, pp 128

Even though its validity is questionable, it can offer a useful 'model' for managers

to keep at the back of their mind Indeed, if their products are in the introductory orgrowth phases, or in that of decline, it perhaps should be at the front of their mind; forthe predominant features of these phases may be those revolving around such life anddeath Between these two extremes, it is salutary for them to have that vision ofmortality in front of them

However, the most important aspect of product life-cycles is that, even undernormal conditions, to all practical intents and purposes they often do not exist (hence,there needs to be more emphasis on model/reality mappings) In most markets themajority of the major brands have held their position for at least two decades The

dominant product life-cycle, that of the brand leaders which almost monopolize manymarkets, is therefore one of continuity.

2.2.2 BCG Matrix

The BCG (Boston consultancy group) is based on the product life cycle theorywhich could be used to determine what priorities should be given in the productportfolio of a business unit To make sure long term value creation, a corporate shouldhave a portfolio product that consists of both high grow products in need of cashinputs and low growth products which create a lot of cash The model has twodimensions which are market share and market growth The basic idea behind it isthat the bigger the market share a product has or the faster the product’s market growsthe better it is for the company

Placing products in the BCG matrix results in four categories in a portfolio of

a company as follows:

- Stars (means high growth and high market share): In this position, acompany should use large amount of cash and are leader of its business sothey should also make larger profit Because the rewards will be a cashcow if the market share is kept, a company is frequently rough in balance

on cash flows

- Cash cow (means low growth and high market share): In this stage, thecompany’s profit and cash generation should be high and because of lowgrowth, the investment should be low and keep the margin high So, weneed to take consider a new business to invest

- Dogs (means low growth and low market share): In this position, thecompany should avoid and minimize the number of dogs in the company.Hence, it has to be aware of expensive “turn around plans”

- Question marks (means high growth and low market share) In this stage,the company has the worst cash position due to high demand and lowrevenues because of low market share If nothing done to change the

market share ratio, question mark will simply absorb great amounts ofcash and then, as the growth stops, a dog will be appeared

The BCG Matrix method can help to understand a frequently made strategymistake and has one –size- fits- all- approach to strategy The BCG has somelimitation such as: high market share is not the only successful factor, market growth

is not the only indicator for the market’s attractiveness, and in some times, dogs willearn more cash than cash cow does

Table 3: BCG Matrix RELATIVE MARKET SHARE

DOGS

Sources: http://commons.wikimedia.org/wiki/File:Bcg.GIF

2.2.3 Michael Porter five forces model

Porter's five forces analysis is a framework for the industry analysis and

business strategy development developed by Michael E Porter of Harvard BusinessSchool in 19795 It uses concepts developed in Industrial Organization (IO)economics to derive five forces which determine the competitive intensity andtherefore attractiveness of a market Attractiveness in this context refers to the overallindustry profitability An "unattractive" industry is one where the combination of

5 Porter, M.E (1980) Competitive Strategy, Free Press, New York, 1980

forces acts to drive down overall profitability A very unattractive industry would beone approaching "pure competition".

Porter referred to these forces as the micro environment, to contrast it with themore general term macro environment They consist of those forces close to acompany that affect its ability to serve its customers and make a profit A change inany of the forces normally requires a company to re-assess the marketplace Theoverall industry attractiveness does not imply that every firm in the industry willreturn the same profitability Firms are able to apply their core competences, businessmodel or network to achieve a profit above the industry average A clear example ofthis is the airline industry As an industry, profitability is low and yet individualcompanies, by applying unique business models have been able to make a return inexcess of the industry average

Five forces of Michael porter five forces model describe as follows:

A The threat of substitute products

The existence of close substitute products increases the propensity of customers toswitch to alternatives in response to price increases (high elasticity of demand buyerpropensity to substitute)

 relative price performance of substitutes

 buyer switching costs

 perceived level of product differentiation

B The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many newentrants, which will effectively decrease profitability Unless the entry of new firmscan be blocked by incumbents, the profit rate will fall towards a competitive level(perfect competition)

 The existence of barriers to entry (patents, rights, etc.)

 economies of product differences

 brand equity

 switching costs or sunk costs

 capital requirements

 access to distribution

 absolute cost advantages

 learning curve advantages

 expected retaliation by incumbents

 government policies

C The intensity of competitive rivalry

For most industries, this is the major determinant of the competitiveness of theindustry Sometimes rivals compete aggressively and sometimes rivals compete innon-price dimensions such as innovation, marketing, etc

 number of competitors

 rate of industry growth

 intermittent industry overcapacity

 exit barriers

 diversity of competitors

 informational complexity and asymmetry

 fixed cost allocation per value added

 level of advertising expense

 Economies of scale

 Sustainable competitive advantage through improvisation

D The bargaining power of customers

The ability of customers to put the firm under pressure and it also affects thecustomer's sensitivity to price changes

 buyer concentration to firm concentration ratio

 degree of dependency upon existing channels of distribution

 bargaining leverage, particularly in industries with high fixed costs

 buyer volume

 buyer switching costs relative to firm switching costs

 buyer information availability

 ability to backward integrate

 availability of existing substitute products

 buyer price sensitivity

 differential advantage (uniqueness) of industry products

 RFM Analysis

E The bargaining power of suppliers

Also described as market of inputs, Suppliers of raw materials, components, labor,and services (such as expertise) to the firm can be a source of power over the firm.Suppliers may refuse to work with the firm, or e.g charge excessively high prices forunique resources

 supplier switching costs relative to firm switching costs

 degree of differentiation of inputs

 presence of substitute inputs

 supplier concentration to firm concentration ratio

 employee solidarity (e.g labor unions)

 threat of forward integration by suppliers relative to the threat of backwardintegration by firms

 Cost of inputs relative to selling price of the product

Table 4: Michael Porter competitive Five forces model

Sources: K.C Robinson & P.P.Mcdougall,2001,”Entry Barriers and News Venture performance a comparison of Universal and Contingency Approaches”, Strategic Management Journal, 16pp 535-549

Competitive Rivalry Within an Industry

Threat of Substitute Product

Bargaining

Power of

Suppliers

Threat of New Entrants

Bargaining Power of Customers

Weaknesses should also be examined from a customer perspective because customersoften perceive weaknesses that a company cannot see Being market focused whenanalyzing strengths and weaknesses does not mean that non-market oriented strengthsand weaknesses should be forgotten Rather, it suggests that all firms should tie theirstrengths and weaknesses to customer requirements Only those strengths that relate tosatisfying a customer need should be considered true core competencies (Marketingand Its Environment, pg 44)

The following area analyses are used to look at all internal factors effecting acompany:

 Resources: Profitability, sales, product quality brand associations, existingoverall brands, relative cost of this new product, human resources capability,product portfolio analysis

 Goal: To identify internal strategic strengths, weaknesses, problems,constraints and uncertainties

SO Strategies use a firm's internal strengths to take advantage of externalopportunities All managers would like their organizations to be in a positionwhere internal strengths can be used to take advantage of external trends andevents For example, Mercedes Benz, with the technical know-how and the qualityimage (strength), can take advantage of the external demand for luxury cars(opportunity) by an increasingly affluent public

WO Strategies aim at improving internal weaknesses by taking advantage ofexternal opportunities Sometimes key external opportunities exist, but a firm hasinternal weaknesses may prevent it from exploiting those opportunities Forexample, an auto accessory company with a great demand for electronic devices

(opportunity) to control the amount and timing of fuel injection in automobileengine may lack the technology required for producing these devices (weakness).One possible strategy would be to acquire this technology through cooperationwith a firm having competency in this field.

WT strategies aim at minimizing weaknesses and avoiding threats Forexample, a company have large labour cost and it will try to cut cost by reducingsize of labour force and train human resources to do a variety of work

ST Strategies use a firm's strengths to avoid or reduce the impact of externalthreats For example, amazon.com an online market place for individuals so thatpeople from many countries can login in the website and take sources ofinformation about products in amazon.com and buy them very easily

3 Brokerage

3.1 Concept of brokerage

A broker is a party that mediates between a buyer and a seller A broker who

also acts as a seller or as a buyer becomes a principal party to the deal6.Distinguish agent: one who acts on behalf of a principal A "brokerage" or a

"brokerage firm" is a business that acts as a broker A brokerage firm is a businessthat specializes in trading stocks A broker in that context is, strictly speaking, anexchange member who is actually executing the purchase or sales order in the 'pit',

on the exchange, as a service to the client of the firm for which that salesmanworks

3.2 Types of Stock brokers

A transaction on a stock exchange must be made between two members of the

exchange — an ordinary person may not walk into the Ho Chi Minh Stock Exchange(for example), and ask to trade stock Such an exchange must be done through abroker

There are three types of stock broking service

6 O'Sullivan, Arthur; Sheffrin, Steven M (2003) Economics: Principles in Action Needham, Mass.: Pearson Prentice Hall pp 287

 Execution-only, which means that the broker will only carry out the client'sinstructions to buy or sell

 Advisory dealing, where the broker advises the client on which shares to buyand sell, but leaves the final decision to the investor

 Discretionary dealing, where the stockbroker KEVSertains the client'sinvestment objectives and then makes all dealing decisions on the client'sbehalf

3.3 Stock Broker activities in Viet Nam

Vietnam stock market has been developed for over the past ten years and stock

broker career is still strange to many people As I mentioned above, in world financialmarket, there are three types of stock brokers However, in Viet Nam, execution-onlyand advisory dealing brokers are legally accepted

In Vietnam, one person who wants to become a stockbroker must have auniversity degree and pass 07 certificates issued by State securities which are usuallyheld twice a year The number of securities companies are becoming double and tripleyear by year and the number of brokers are rising at the same speed or even more.Existing along with professional brokers certified by SSC, there are a lot of amateurbroker who execute their deals out of control of SSC

As we know, broker career is very risky (for example, may make a mistake oftype sell order from buy order from customers), but they aren’t still insured for thosemistakes by the insurance company in Vietnam Up to now, some big securitiescompanies are preparing to sign insurance contracts between them and insurancecompanies to protect their brokers from risky circumstances

Now, in Vietnam, brokers deal orders with customer everyday through two listedmarket (one in Ho Chi Minh City and one in Hanoi city), one OTC market namedUPCOM operated in HNX and one bond market operated in HNX too

This chapter provides us relevant theoretical frameworks which need to make ananalysis and suitable strategies for VCBS brokerage activities in Chapter 2 andChapter 3 I will make it more practical in the next Chapter

CHAPTER II: VCBS COMPANY BACKGROUND AND SWOT ANALYSIS

ON THE COMPANY’S BROKERAGE ACTIVITIES

1 Company Background

1.1 Overview

Vietcombank Securities Limited Company (VCBS) - a subsidiary 100%owned by Bank for Foreign Trade of Vietnam (VCB) - was established incompliance with Decision 27/27/QĐ-HĐQT dated 7/1/2002 by the Board ofManagement of VCB7 The company formally launched its operations on June18th, 2002 with the initial charter capital of VND 60 billion Up to now thechartered capital is increased up 700 billion VND and the number of employee

is around 200 people

Table 5: VCBS company structure

7 www.vcbs.com.vn

Board of Members

Deputy CEO in charge

of securities services

Deputy CEO in charge

of Investment &

Corporate finance consultancy

Deputy CEO in charge

Custody department

Marketing department

Investment department

CF consultancy department

Research department

Accounting department

Internal control department

Risk Management department

Strategic planning department

IT department

Branches

Representatives offices

HRM department

Source: VCBS Strategic planning Department

1.2 Range of business

As per License for Securities Business Operations No.09/GPHDKD granted

on 24 April 2002 by State Securities Commission, VCBS is permitted toprovide a full range of securities-related products and services, including:

 Securities Custody

 Securities Brokerage and Trading

 Securities Investment

 Securities Underwriting and Distribution Agent

 Corporate Finance Consultancy

 The Australia and New Zealand Banking Group Limited

 Standard Chartered Bank

 HSBC Holdings

 Prudential

1.4 VCBS mission & objectives

Strategic vision

The company vision is becoming the leading securities company inVietnam by 2010, a strong arm of Vietcombank Financial Holdings.

To sum up, in order to achieve the position of market leader inVietnam Securities market, VCBS is providing its customers a wide range ofservices based on a strong information system and skilled work forces Now,the backbone of securities companies is information system and employeeswhich will bring brilliant success or terrible collapse to the company

Objectives of VCBS

With client focus, VCBS always bears in mind that client’s interestsshould be our top priority and protection of client’s interests is our mostconcern We also try to implement the policies and provide services thatfacilitate client’s interests

In 2008, VCBS tried our best to preserve our client’s rights by complyingwith three important policies Firstly, VCBS well maintained a clear-cutseparation between the accounts of customers and the company’s own account.That helps to eliminate mistakes, faults or shortcomings which may arise duringclient’s trading or custody Moreover, the VCBS departments of brokerage,internal audit and compliance jointly work to guarantee validity of client’sorders in receipt prior to the brokerage’s transmitting them to the trading floor.Thanks to these two departments, most of the mistakes in the trading process

could be spotted and eliminated on a timely basis Also in 2008, VCBSsuccessfully launched a connection with Vietcombank to transfer the task ofclient’s cash account to the mother bank Since then, client’s deposit for tradingwill be kept separately and safely.

The objectives of VCBS are very clear that the company is trying toidentify customer needs especially a big corporate and satisfy their needs withhigh quality services

1.5 VCBS business activities

Securities Services

With focus on fairness, faith and devotion, VCBS provides a package solution

of brokerage service which enables convenient and secure trading forindividual and institutional clients, including:

 Trading via Internet: account opening, online trading, accountchecking, and financial data downloading

 Trading via telephone

 Trading direct at the counter (refer to VCBS network)

VCBS takes into consideration a number of factors related to client’s capacityand needs (financial capacity, goals, age, income, tolerance for risk, socialstatus, etc) in order to create a specific “risk profile” for each client, whichincludes correlative advisory services as follow:

 Restructure and optimize current portfolio

 Develop proper investment strategies

 Select the suitable time and structure for investment

 Look for effective investment opportunities.

 Assist in creating benchmark for assessing investment result

 Provide technical analysis of listed and unlisted stock, and stockvaluation according to the request of investors

VCBS is a registered member of Vietnam Securities Depository (VSD) In thissystem, physical security holdings are converted into electronic holdings.When opening account in VCBS, our client can be provided with all ofsecurity custody services, as follows:

 Transfer and settle securities

 Receive securities entitlements

 Freeze or unlock account

To meet the capital needs of customers’ investment activities, VCBS has operated with Institutional Lender(s) in Vietnam to provide the followingservices:

1.6 VCBS Business Performance

 Following successes in business performances in 2008, VCBS continues topush up its strategic targets in 2009-2014 for the purpose of expandingcustomer network At present, number of trading accounts in VCBSreaches more than 48,0008

 In terms of trading values in the market, VCBS keeps staying the stableposition and continues flourishing The average trading values reached

1500 billions per day9, hitting the cap in the market In 2008, VCBSopened Danang Branch and 02 trading points in Nghe An and Daclak,which marked the milestone in the plan of spreading transaction networknationwide VCBS has been present at almost big cities in Vietnam:Hanoi, Ho Chi Minh, Da Nang, Can Tho, Vung Tau, Binh Duong, DongNai and An Giang

 In addition, VCBS is proud of its technology with the first and leadingonline trading system named Cyber Investorđ With nearly 60%transaction orders from Internet, Cyber Investor has brought Customers theutmost benefits

 In terms of market shares, despite of rough competition in the market,VCBS maintains to be one of the three largest securities companies in term

of market share: brokerage accounts for 19% of the total market (including5.5% of shares, fund certificates and 32% of bonds)10

8 VSD monthly report, July 2009, page 9

9 HOSE monthly report, July 2009, page 5

10 SSC quarterly report, July 2009, page 10

Table 6: Total Assets 2003 – 2009 (billion dongs)

Sources: VCBS annual report year 2008

Table 7: Turnover and Profit 2004 – 2009 (billion dongs)

44.6

19.7

90.9 34.4

124.6 40.3

234.3

108.7

354

200 301

-200

400 300

Sources: VCBS annual report year 2008

33

Table 7: Turnover and Profit 2004 – 2009 (bil VND) –

From two above charts, we can see a brilliant growing rate of VCBS in term ofrevenue, total assets and profit In the period of 2003-2007, VCBS keep ROA at 10%and ROE at 40%-50%11 However, because of the financial crisis in the beginning of

2008, VCBS make loss of 200 billions dong due to huge provision in securitiesinvestment especially in OTC market Thanks to the surge of stock market in VietNam in the first half of 2009, VCBS nearly balances the provision in investment andwill make profit from it

1.7 VCBS brokerage performance

VCBS brokerage department is one of three business departments of VCBS andits turnover always contribute about more than 40% to the company turnover Now,its structure has two divisions including corporate and individual division beingprescribed in the following chart:

Table 8: VCBS Brokerage Department Structure

Source: VCBS Brokerage Department

In the below chart, we can see average growing rate of brokerage business atnearly 60% per year in 2003-2009, a very impressive sales figure In 2003, VCBSbrokerage sales has only 2.5 billions VND with 8 brokerage men, but in 2008, VCBSbrokerage sale forces reach 50 sales men in VCBS network and turnover obtains 85

11 VCBS annual report 2008 page 7

Deputy CEO

Ho Chi Minh

Brokerage

Manager

Hanoi Brokerage Manager

Da Nang Brokerage Manager

Can Tho Brokerage Manager

Corporate Account Division

Individual Account Division

Individual Account Division

Corporate Account Division

Individual Account Division

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

Domestic Customer Team

Foreign Customer Team

billion dongs12 In the worst year 2008, even investment and corporate financeconsultancy made a great loss, brokerage business still kept growing pace at 60% andthe sales force remains the same compared to the number before crisis occurred

Table 9: VCBS brokerage turnover (billion dongs)

0 20

VCBS market share and revenue remain top 3 compared to brokerageactivities in other securities companies Because of the booming in Vietnam stockmarket in 2006, the number of securities companies increase so fast from 15 securitiescompanies in 2005 to 105 securities companies in 2008 So, the competition inVietnamese stock market is tougher and tougher resulting in the market share inbrokerage of top 5 securities companies are decreasing The objective of VCBSbrokerage business activities is:” keeping pace of 60% growing rate in sales andremaining top 3 in market share”13

12 VCBS brokerage report January 2009 page 5

13 VCBS planning department

Table 10: Top 10 biggest securities companies in brokerage

For the first half of 2009

TOP 10 securities

companies

Market share (%) Stock Fund Certificates Bond

PEST model to evaluate opportunities and threats for VCBS brokerageactivities.

2.1 PEST analysis

2.1.1 Political and legal factors

 Strong legal support: VCB has been IPO in 2007 and will become a joint –stocks bank from 2008 This event requires Vietcombank and VCBS torestructure its system, change the management methodology and restructure itssubsidiaries including VCBS The transforming in system will create theopening regulation and policies that allow VCBS brokerage team to be moreproactive and be self-control its business operation

 After establishing State securities committee (SSC) in April 1998, Vietnamstock market welcomed two securities trading centre in Ho Chi Minh in 2000and in Hanoi in 2006 Following the settlement of two trading centre, SSCopened one centre for educating people who want to become securities brokers

or dealers or financial analysts In 2001, SSC also open a centre for custodysecurities for all members of the trading centre After that, the full version ofthe securities law was launched into public in January 2007 and manydocuments were issued to help securities companies to implement theirprocedure including the trading procedure issued by HOSE and HNX In July

2009, HNX provided securities companies documents realizing principal whenits members trading in UPCOM and Specialized Bond Market regulated byHNX To sum up, the political and legal environments for VCBS brokerageteam are clearer and more supported than it did in five years ago

 However, the size of the market is much larger year by year and the tradingprincipals are more sophisticated so that the legal and political environmentsometimes cannot keep up the pace of change For example, until now therehasn’t been any legal document regulating to margin trading or short sale orelectronic signatures These insufficient legal documents posed many threats

to brokerage teams of securities companies when they are intermediaries inVietnam stock market