Business strategy for consumer lending of HSBC

vietnam national university, HANOI school of business Nguyen Viet Thang BUSINESS STRATEGY FOR CONSUMER LENDING OF HSBC master of business administration thesis Hanoi - 2007 vietnam national university, HANOI school of business Nguyen Viet Thang BUSINESS STRATEGY FOR CONSUMER LENDING OF HSBC Major: Business Administration Code: 60 34 05 Master of business administration thesis Supervisors: DR.ChU THANH MRS TRAN PHUONG LAN,MBA Hanoi – 2007 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iii LIST OF ABBREVIATIONS v LIST OF TABLES v LIST OF FIGURES v INTRODUCTION 1 Aim and objective 2 Company profiles 3 Problem Area CHAPTER 1: LITERRATURE REIVEW 1.1 Definition 1.2 Strategic management process 11 1.3 Strategic management model 14 1.4 Evaluating and choosing a value added strategy 30 1.4.1 Evaluation Principles 30 1.4.2 Requirement 30 1.4.3 The main factor for choosing business plan 31 1.4.4 Choosing Process 31 1.5 The Strategy Hierachy 32 vi 1.6 Type of Corporate Business Strategy 33 CHAPTER 2: HSBC AND CAR LOAN PRODUCT 36 2.1 Introduction of HSBC 36 2.1.1 HSBC Global 36 2.1 Introduction of HSBC 36 2.1.2 The HongKong and Shang Hai Banking Corporation Limited 37 2.2 HSBC in Viet Nam 41 2.3 Business Environment Analysis 44 2.3.1 External Analysis 44 2.3.2 Internal Analysis (Industry Environment) 49 2.3.3 Internal Analysis (The company) 69 2.3.4 Choosing the right strategy 71 CHAPTER 3: CONCLUSION AND RECOMMENDATION 72 3.1 Choosing the right strategy 72 3.2 Detailed Functional strategy 77 3.2.1 Business Development Strategies 77 3.2.1 Product Strategies 77 3.2.2 Product Strategies 79 3.2.3 Marketing Strategies 81 CONCLUSION 85 REFERENES 86 APPENDIX 87 vii List of abbreviations HSBC HSBC Viet Nam PFS List of tables Table: 1.1 Three stages of strategic process Table 2.3.1 Toyota Car Loan payment method Table 2.3.2 Competitor analysis matrix Table 2.3.3 Brief about HSBC Car loan Table 2.3.4 Approval/ Underwriting Criteria Table 2.3.5 Number of Car sales 2006 -2007 Figure 3.2.1: Ha Noi – Toyota Car Loan market share List of figures Figure 2.1.2 Profit before tax Figure 2.1.2 Total assets Figure 2.3.1 Viet Nam Economical Indicator over times Figure 2.3.2: Side of the market Figure 2.3.3 Car sale number of all major brands Figure 2.3.4 Staff of PFS v INTRODUCTION To get an introductory illustration of the studied subject, in this chapter, the author is going to describe a basic background of the theme, determine the problem area and identify the purpose of the research, followed by an illustration of its aims and objectives Economic globalization is a natural development trend of the labor division and cooperation around the world, with the support of modern science and technology This trend is irreversible and it involves any nation, covers most the facets of the socio-economic life, promote competition, strengthen cooperation while increasing the interdependence between economies This double-side nature of international economic integration depends on the condition and level of economic development in each nation In banking and finance system, international integration opens an opportunity to international cooperation in expand their business to other countries which was very sensitive and hard to enter When coming to a developing country like Viet Nam, foreign banks can take advantage of capital, modern technology, management experience, and etc to develop the comparative advantage to catch up with the local competition that establish a large distribution channel and have depth knowledge about the local business environment However, international integration in banking is also associated with the rising risk and sensitivity of the domestic financial market in front of the volatile world market The opening up of the new financial market will pave the way for foreign banks to penetrate the domestic financial market, with the number of strong competitors in the local market Becoming an official member of WTO (by end of 2006) Viet Nam target is to fully integrate to the global economic and financial system In the new situation, there is a great opportunity for foreign bank especially retail bank like HSBC to enter the new and emerging market of Viet Nam From the above discussion, it can be seen that with the opportunity to enter the new market HSBC now experiencing a game with some tough competition in the race of obtain new customer, win their loyalty and remain the business with them The most pressing point is that Vietnamese banks in particular and financial institutions are important corporation that work in sensitive situation therefore they have a strong back up from local government In addition, they have an reckonable distribution channel with a good customer base Hence, to setup distribution channel and build up database is some of core targets for foreign bank to achieve in the new situation Aim and objective This thesis‘s aim is to answer the question what the Bank should in the new context of accessing WTO to effectively setup the new business Strategy and build up the customer database in order to enter a very promising market like Viet Nam and equal compete with other local and foreign banks The objectives of the research, therefore, will be as follow: 1) Literature review of Strategy and strategic management 2) An evaluation of the Bank‘s current position of car loan product and assess the bank‘s current strategy on kept going to be the best retail bank and build up the bank customer database 3) Highlight areas for improvement for HSBC Company profiles Company profile The Hong Kong & Shanghai Banking Corporation have been operation in Vietnam since 1880 with quite long history However, after the Civil war, they have just come back to Vietnam in 1995 in HCM City and 2005 in Ha Noi With long experience in banking services and a contingent of well-trained, dynamic and enthusiastic staff, the Bank continues to play a crucial role in Vietnam's banking sector For the recent year, the bank have awarded many important prize such as: ―best foreign bank in Vietnam‖ in and ―bst bank in Vietnam‖ in by The Banker In parallel with its development of banking products and services, the Bank has continued to expand its network in order to better serve its customers' demand At the moment, the Bank was recognized for its well-established group consisting of 02 major branches at two important city of Vietnam as Ha Noi and Ho Chi Minh City, one representative offices in Can Tho In the future, when new law of banking system come to effect and HSBC will be treated as local bank, they will have more and more branches in all over the countries Currently, the Bank have operate many activities in Vietnam such as:  Deposit: Current account, saving account (both VND and USD), mutual fund …  Loan: include consumer credit, overdraft, trade finance, project finance …  Money transaction include account transaction, ATM, Credit card …  Securities services …  … a Problem Area - new to the market - not know the market well as the local ones - high in capital, technologies, experienced … Becoming an official member of WTO therefore the target for Vietnam is to fully integrate to the global economic and financial system International integration will generate more opportunities and more challenges ‗After joining the WTO, we have to accept a wider opening of banking services Foreign banks and credit organizations will have more opportunities to penetrate the Vietnamese market And thus, the competition pressure against domestic banks is also higher‘ (Governor Le Duc Thuy, 2006) Therefore, with this trend of development, we can see lots of foreign bank that coming or expanding their business into Vietnam such as ANZ, Citi Bank, GE capital, UOB Bank … and HSBC is not exceptional And the problem of HSBC Vietnam in particular and other bank in general is how to expand their business and win the sweet cake of this new and emerging market as much as possible because at this moment, local bank still have powerful backup from Vietnam governor Within the scope of this paper, I would like to emphasize a number of activities in the banking sector of foreign bank in Vietnam in general and HSBC Vietnam in particular for the car loan market that would partly show the readiness for international integration and accession of Vietnam's banking system in order to rise the challenges of an exiting system of local bank Purpose The purpose of this thesis is to conduct a theoretical and empirical study to analyze and find out the strategy for Car loan product of HSBC, one of the world largest retail bank after Vietnam with the WTO accession This strategy is given in order to present an overview on the whole improvement scheme There are five issues in terms of recommendation and they are needed to be implemented together in order to guarantee the consistency within the organization The implementation of the Car Loan Product is largely depended on the performance of the Personal Bankers They are the people who represent the product to the customer, keep the relationships with them and mostly, make the customer believing that they are using the right choice In order to be succeeding with that, there are a number of crucial matters that a personal banker has to work on The following chart will shows the map of networks that a personal banker has to maintain in order to work effectively End-customers external Personal Banker Sale Supports Team Members internal Customer Credit Risk Dept As can be seen in the above graph, network maintenance is the fundamental issue that may define the success or failure on a lot of deals for Personal 69 Banker The above networks are divided into two types: Internal and External The Internal networks are the affiliation that Personal Bankers have with their sale support staff who are supporting them in all operating and administrating activities to complete the deals and more importantly, with Consumer Credit Risks staff ( CCR) who stand on the opposite side with the Bankers CCR staffs finish their job through verifying all the information and documents collected by the Personal Bankers With a very much idea different to the ―sale‖ point of view of Bankers, CCR people take things into their consideration with the mindset of mitigating the risk and maintaining the credit grade Even though the ultimate objective of CCR is to support the sales of PFS and protect the bank from the credit threats, conflict still occurs between these two departments due to the opposition of points of view As a personal banker who daily has direct impact with the sales support and CCR, he or she needs to find the best manner in dealing effectively with both In order to reach a good balance in maintaining the good relationship with Sales Support as well as CCR, strong support and clear structure from the management must be given to a Personal Banker besides his/her own effort The External networks can be shortly called the customer relationships of Personal Bankers This is the vital issue that not only a Personal Banker himself but also the entire sales department of HSBC has to concern in their priority Since the product given by HSBC is defined on an intangible basis which is high-quality service, customer oriented and long term benefits, both Car Dealers and End Customers are essentially needed to be served as long 70 term customers Car Dealers are the main resources for Bankers to have referrals and contacts of Car Loan customers The relationships between Personal Bankers and Car Dealers are fundamental since the network and reputation of a Personal Banker largely can be expanded from these relationships In addition to the relationship with Car Dealers, Personal Bankers also have to keep a sustainable relationship with End- Customer How well a certain Personal Banker handles a certain End-Customer referred by a certain Car Dealer will not only show his capability and level of service towards the End-Customer but also has the effect on their relationships with Car Dealers In fact, the External Relationships play a vitally important part in the business of Car Loan of HSBC Managing well a network of External Relationships will partially support to keep up the performance of a Personal Banker and more than that, retain a well known and concrete image of HSBC Personal Banker Team With the intention to reach this and secure it, actions from management level have to be taken in order to effectively support the sales The entire chain of External and Internal is somewhat equivalent to a tight cycle The established and concrete internal network will help HSBC maintaining its coherent outlook as well as will support the Personal Banker in fully completing their deal properly To retain a high class level towards the External network, it is important for a Banker to organize effectively the internal network In overall, if HSBC Retail Banking is to broaden its business both horizontally and vertically, tools and supports are necessarily what are needed to be offered 71 Therefore, taking all the above into consideration, the following recommendation are strongly advised to the Management Level of HSBC in order to solidly and constantly improve the performance of all the asset products, especially the Car Loan products  Below the lines – pulling strategy ( approaching the end customers)  Extensive promotion program to Car Dealers  Enhancement of the upgrading in internal processing and support system of the bank  Marketing activities ( Pr, Advertising, promotion) The first two above issues are principally focused in the External Network where end customers and Car Dealers are being targeted The third on will be a course of internal activities which are aimed to improve the current existing issues within HSBC The last one so called marketing activities is basically the classic action to consolidate and be a good base of support for the other three issues Each part will be expanded in turn in the following pages 4.2 Detailed Functional Strategies 4.2.1 Business Development strategies (Below The Line – Pulling Strategy) As we have seen above, the network with car dealer plays a fundamental part in the business development of a Personal Banker Therefore, the sale performance of a Personal Banker is somewhat very much dependable on 72 how many referrals he is able to get from the Car Dealer That leads to the fact that if a Personal Banker does not have a wide and concrete network with Car Dealers, his or her network, it will be quite challenging for him to maintain a sufficient performance In a long term, when the market is gradually expanded, the numbers of customers is expectedly growing higher and higher The Sales Department of HSBC can not only rely through the referrals and relationships from Car Dealers since it is not an initiative approach and too much dependent Hence, it is strongly recommended for HSBC to utilize the pulling strategy which is proactively approaching the end customer The factor of success of pulling strategy is relied on various aspects The primary aspect is depended on how well the end customers are treated by Personal Bankers Currently a lot of HSBC Car Loan customers are Small and Medium Companies and Hanoi is a medium developing market Therefore, the better they are treated, the wider reputation a Personal Banker might be known through network of Small Medium Companies The second aspect of this strategy is the main aspect It is related to the management level of Sales Department of HSBC It is a big task for the managers of HSBC to set up a scheme of approaching, establishing and maintaining the relationship with the end customer If Car Loan of HSBC is to dominate the market and reach the superior position in the market, the network with end customers will be the key to lead 73 The core issue here is how and where to approach the end customer Therefore, a customer database is needed to be established This database is crucial for the whole scheme of approaching since it is the foundation and tools to support the Personal Banker in understanding their customer and selling the service In a long term, this customer database will be regularly updated The main point of establishing this database is to understand customers and to get as much information as possible about the customers A complete database will be the frame for all sales staff to rely on in dealing with customer There are various methods to establish and build up a good customer database for Sales Department of HSBC The primary data can be collected by Personal Banker through a number of resources such as Golden Book where all the contact info of all companies is listed Also, the Tax Department and Hanoi People Committee of Planning and Investment are the authorizer where HSBC Sales Department may get all the precise contact as well as financial figures reported of all the companies This method will be costly since HSBC may need to sign the cooperate contract and pay certain fees for this type of database Also, considering the current Car Loan customer database that HSBC currently has together with other customer database from others document of HSBC such as Commercial Banking or Securities Service, the Sales Managers of PFS can also compile an additional database to support for further development in building relationship with end customer 74 4.2.2 Product strategies (Enhancement of the upgrading in internal processing and support system of the bank) As it has already been mentioned in the Overall Scheme Part, it is a big task for a Personal Banker to balance the Internal and External networks One of the key for Personal Banker to gain advantage points towards Car Dealers is how capable and efficient he /she can complete a deal with an end customer So as to achieve a win-win deal in a timely fashion which highly satisfies both Car Dealers and End Customers, it will be advisable for the management in PFS to enhance the internal system with the PFS support as well as CCR in order to make it works smoothly and systematically The market is rapidly expanded with a growing number of deals and as a result of that, there will be more and more Personal Bankers for HSBC The adequate from Sale Support must be given to them in order to have a smooth flow of communication An appointment of a Team Leader of Sales Support Team will be beneficial and strongly advisable Every team that works effectively will need someone who leads Since most of the time, Personal Bankers are out of office to meet up, negotiating and establish relationship with customers, so having a solid base of support will help them significantly in succeeding their deals An efficient Sale Support Team Leader should possess, among other characteristics: the art of personal dealing, the ability to make quick and easy adjustments to other personalities, executive ability especially in handling team member and in office management, a moderate amount of selling experience and the ability to organize, instruct and direct others in various activities It is naturally seldom that a certain person is able to possess all these qualities in a marked degree, but a reasonable combination of them is often found 75 Besides, as Sale Support Staffs are working on various administrating and documentary jobs in completing the deal for Personal Bankers, they will be the one who can directly have most precise information about the customers as well as receive direct feedbacks from the customers about how are they satisfied or not satisfied about the entire progress of their deals with HSBC Personal Bankers PFS of HSBC at the moment already has a good team of Sale Support; hence, it will be not a big challenge to choose the best from this team to be the Leader There will be no need to recruit a new person for the position of Team Leader This will save a lot of time since the Team Leader chosen has already been familiar with the majority of the tasks The next point in upgrading the internal system of PFS is regarding the Risk Reward Program of the Bank This is the basis to set the criteria for the Car Loan Risk Reward Program is established based on the agreement of PFS which stands on sale side and Consumer Credit Risk which stands on risk side The market of Hanoi is currently in the transition stage where the economy is booming Thus, the market is being diversified day by day To catch up with the market in order to maintain a good commercial sense and having a appropriate standard, the Risk Reward Program are highly recommended to review in every quarter of the year The source of database for the review can be found through the customer database or feedback survey conducting through existing customers 76 4.2.3  Marketing Strategies (Pr, Advertising, promotion) Extensive promotion program to Car Dealers Nowadays, all leading companies in the world usually use both pulling and pushing strategy As HSBC Vietnam is growing rapidly in their retail banking, it is strongly recommend taking the best use of both strategies The pulling strategy as mentioned above is directly approaching the end customer The pushing strategy here in HSBC is building up the networking with Car Dealers – the main current resource for a lot of business for Personal Bankers of HSBC The ultimate aim in relationship between Car Dealer and Personal Banker is to reach the win – win solution The Car Dealers can finish their deals, Personal Banker can complete their jobs and End Customer can get the items they want Therefore, having a close relationship with Car Dealers will be a strong base of support for Personal Banker At the moment, in overall market of Vietnam, other competitors of HSBC such as ANZ, VP Bank or VID Public Bank offer lots of promotion to Car Dealers such as cash gifts which are very lucrative and encouraging for Car Sale Person to refer their deals to these banks To compete with them, it is advised that HSBC to have promotion to Car Dealers Currently, there are already HSBC programs offered to Car Dealers such as Golden Car and at this moment, Cash Gifts However, it is important to point out that it is not actually about the gift or how much is it worth, but it is about the continuation of the programs The more constant the programs HSBC offers, the better support Personal Banker may receive in building up their relationship with Car Dealers 77 As Vietnam is booming in its economy, car market is expanding and improving a great deal with more and more players involved HSBC needs to pinpoint which brand, which players are the potential ones which are needed to be put in the top priority The below graph shows the Car Loan Market Share in Hanoi of Toyota Figure 4.2.1: Ha Noi – Toyota Car Loan market share Hanoi - Toyota Car-Loan Market Share Banks HSBC ANZ VID UOB Chohungbank Oricom ACB BIDV Habubank Incombank Military Bank Sacombank Techcombank VBARD VIB VPbank VCB Southeat Asia The figures show improving results that HSBC has with Toyota from 2005 till now Toyota at the moment is the main player in Car Market (which counts for approx 40% of the entire market) They have a tight and wide network of dealers spreading in all important spots in Hanoi Therefore, HSBC will need to put their concentration on the Car Dealers of Toyota 78 In addition to gifts offered, it is important to set up different events such as party or attend some big events from Car Dealers such as new product launching show, anniversary Since the Car Loan product is the service and not the consumer goods, these activities will potentially tighten up the relationship that the entire Sales Team of HSBC has with Car Dealers  Marketing campaign to the market through media Since Hanoi is a traditional Asian market with the characteristics of a low context culture, word of mouth and visual aids can have a significant influence on how people perceives the image and the services of HSBC Car Loan Therefore, a diversified and extensive campaign of marketing activities will be strongly recommended to implement The ultimate aim of these activities will be mostly to influence the end customer and widen the image of HSBC Retail Services in the market In addition to all the above pushing activities to Car Dealers, all the marketing activities such as Public Relation, Advertising and other promotion will just give some added value for HSBC Advertising through different means would definitely be advisable for the Car Loan product of HSBC There is a significant amount of people who care lots about the information regarding the consumption every day As the economy is booming and purchasing a car becomes the main concern of lots of people, advertising in various means such as telecommunication, media (TV, radio, newspaper, magazines,Internet) will surely catch the attention of consumers 79 In order to promote more effectively the Car Loan product of HSBC, event marketing is also necessary The Car Loan product is actually the service product, hence a close connection between HSBC and its customer is essential A high focus on establishing the different events such as presentation, customer conference, sponsoring for charity or foundation events will not only enhance the image of HSBC but also consolidate the relationship of HSBC to the mass market of consumers Succeeding in these public relations will support the Car Loan product of HSBC a great deal in dominating and having a superior position in the market A Marketing Budget will be invested to launch the marketing events for HSBC The budget will includes advertising expenses, public relation expenses and other overhead expenses which may arise during the marketing campaign The whole marketing budget is expected to be accounted as % of the entire revenue of HSBC Retail 4.3 Conclusion After a survey and take depth analyze in the situation of HSBC, the author would like to make a suggestion of strategy as above in order to kept the position of HSBC as the best retail foreign bank in Viet Nam now and even be the best retail bank in the near future 80 References Heffernan, S (2005) Modern banking, London MacDonald, S.S, Timothy, W.K (2006) Management of Banking Sixth Edition, Thomson higher education, USA Saunders, A (1997) Financial Institutions Management: A Modern Perspective, 2nd edition, (10), Boston Bessis, J (2002) Risk Management in Banking, Second Edition, West Sussex, London Michael Porter (1985) Competitive Advantage, Prentice Hall Internal document of Viet Nam Automobile Manufacturing Association (VAMA); Toyota Viet Nam; HSBC Viet Nam Websites: Dantri.com.vn Websites: wikipedia.org Websites: Hsbc.com 81 Appendix Dialogue with: o Business Development Manager of Personal Financial Services, Mr Quan Ngoc Tuan o Officer of Consumer Credit Risk, HSBC, Mr Vo Le Minh o Director of VP Bank Dong Do, Mr Pham Quyet Thang How you assess retail credit market in Vietnam, credit demand, supply and credit safety? Statistic reveals that Vietnam banks have a very high level of bad debts and capital safety ratio is lower than 8% as standard (approximately 5%) Do you have any idea of the reasons why? And what is the status of retail Credit of HSBC? How you describe the loan granting procedure at HSBC? Do you use any technique of credit worthiness assessment, credit score, cash flow assessments for the loan granting procedure? Do you think that Vietnam banking needs a credit scoring agents and a credit bureau to manage credit files, as in other developed countries‘ practices? What you think about the opportunities and challenges of WTO accession for foreign bank to enter Vietnam in general and for HSBC in particular? Does HSBC have any preparation for enter the local market and to compete with other exiting bank which have lot of distribution channel and a huge database of customer? 82 By far as I know, HSBC is now one of the leading creditors in Vietnam car market What can you say about credit activities and credit strategy of HSBC in the present and near future? Thank you for spending your time with our interview 83 ... national university, HANOI school of business Nguyen Viet Thang BUSINESS STRATEGY FOR CONSUMER LENDING OF HSBC Major: Business Administration Code: 60 34 05 Master of business administration thesis... The Strategy Hierachy 32 vi 1.6 Type of Corporate Business Strategy 33 CHAPTER 2: HSBC AND CAR LOAN PRODUCT 36 2.1 Introduction of HSBC 36 2.1.1 HSBC. .. processes  Strategy evaluation: Measuring the effectiveness of the organizational strategy Table 1.1 Three stages of strategic process Strategy formulation 13 Strategy Implementation Strategy Evaluation