Service recovery for viettinbank trade finance operation

VIETNAM NATIONAL UNIVERSITY, HANOI HANOI SCHOOL OF BUSINESS HOANG PHUONG NGA SERVICE RECOVERY FOR VIETINBANK TRADE FINANCE OPERATION: SITUATION AND SOLUTION FOR IMPROVEMENT Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS SUPERVISOR: DR NGUYEN THI PHI NGA HANOI - 2012 TABLE OF CONTENTS ACKNOWLEDGMENTS ABSTRACT TÓM TẮT TÓM TẮT TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLE INTRODUCTION Necessity of the thesis Literature review Objectives of the research Research Methodology Contribution of the thesis Structure of the research CHAPTER 1: THEORETICAL FOUNDATIONS 1.1 The concepts of service, customer service and service recovery 1.1.1 Service and customer service 1.1.2 Service recovery 1.2 Types of customer‟s response to the service failures 1.2.1 Types of customer actions 1.2.2 Types of complainers 1.3 The reasons customers complain 1.4 The expectation of customers 1.4.1 Customers expectation of fair treatment 1.4.2 Companies‟ behavior 1.5 Service Recovery Strategies 1.5.1 Fail-safe your service – Do it right at the first time 1.5.2 Welcome and Encourage complaints 1.5.3 Act quickly 1.5.4 Treat customer fairly 1.5.5 Learn from recovery experiences 1.5.6 Learn from lost customers 1.5.7 Return to “Doing it right” 1.6 Service Guarantees 1.6.1 Benefits of Service Guarantees 1.6.2 Types of Service Guarantees 1.6.3 When to Use (or Not Use) a Guarantee CHAPTER 2: SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN VIETINBANK 2.1 Overview of VietinBank and trade finance operation 2.1.1 History of VietinBank 2.1.2 Corporate Vision, Mission, Values and Ambitions 2.1.3 Trade finance operation of VietinBank 2.1.4 VietinBank‟s Trade Finance resources 2.2 Analysis of VietinBank‟s current situation of Service Recovery 2.2.1 How customers respond to service failures in VietinBank: 2.2.2 VietinBank‟s Service Recovery Strategies for Trade finance operation 2.2.3 VietinBank‟s Service Guarantees 2.3 Summary of strengths and weaknesses of service recovery activities in VietinBank CHAPTER 3: RECOMMENDATIONS TO SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN VIETINBANK 3.1 Strategies and solutions for the development of Trade finance operation in VietinBank 3.1.1 Quantitative targets: 3.1.2 Qualitative targets: 3.2 Strategies and actions plan for improvement of Service Recovery for trade finance operation in VietinBank 3.2.1 Strategy for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 3.2.2 Actions plan for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 3.1.3 Recommendations for the improvement of Service Recovery in VietinBank REFERENCES ANNEX LIST SERVICE RECOVERY FOR VIETINBANK TRADE FINANCE OPERATION: SITUATION AND SOLUTION FOR IMPROVEMENT Hoang Phuong Nga MBA, 2007-2009 School of Business Vietnam National University, Hanoi Supervisor: Dr Nguyen Thi Phi Nga INTRODUCTION Necessity of the thesis Vietnam foreign trade activities have recorded a sharp increase in volume for over a decade since 2000 From the time Vietnam opened door to the world market up to now, the import-export turnover of the country has risen by more than four times The steady increase in trade flow between Vietnam and foreign countries opens greater opportunities for commercial banks to provide trade finance services to domestic enterprises However, also as a result of international integration, a domestic commercial bank has to cope with fierce competition from foreign bank branches as well as other local banks in this field This challenge is not an exception for VietinBank, one of the four leading state-owned commercial banks of Vietnam Therefore, with an aim of enhancing competitiveness in this banking service, VietinBank carried out restructuring of its trade finance activities by the establishment of a center for centralized processing of all trade finance operation for all VietinBank‟s branches, called VietinBank Main Operation Center (VMOC) Realizing the importance of the role of service recovery for the bank where the author is working, the author would like to choose this topic for the MBA thesis, with the title “Service Recovery for VietinBank Trade finance operation: Situation and Solution for improvement” Literature review Service recovery comes into play when something in a service delivery goes wrong The service delivery company ideally takes actions to ensure that their customer gets their desired outcome anyway, and later rectifies their own process so that the failure does not reoccur Service recovery has received attention for over 30 years within service management and service marketing In the 70‟s and 80‟s, service recovery was the plan for dealing with telecommunications problems or recovering particular services Companies adopted systems that produced „zero defects‟, to produce a high quality service and a cost effective production line approach Zero-defect is a definition of quality standard, indicating that if a requirement expresses what is genuinely needed, and then any unit that does not meet requirements will not satisfy the need and is no good Although the idea of zero-defect in services is simply an unattainable goal, it is implemented all over the world From the late 1970s, since the cost of gaining a new customer usually greatly exceeds the cost of retaining a customer (it is often stated that it costs five times as much to attract a new customer as maintaining one), managers are increasingly concerned with minimizing customer defections The role of service recovery in the event of a service failure is recognised as “doing the service very right the second time” (Brown, Cowles et al 1996) In order to understand service recovery, it is necessary to understand how the customer experiences the service and the impact of the service encounter on customer satisfaction Effective service recovery can improve the image of the firm and also reduce perceived risk to the customer There is one issue of great importance in service recovery that we can not fail to mention: it is the “service recovery paradox” The “service recovery paradox” states that with a highly effective service recovery, a service or product failure offers a chance to achieve higher satisfaction ratings from customers than if the failure had never happened Nevertheless not all service recovery efforts will lead to increased satisfaction ratings as several studies have already shown The key is to understand that there are certain situations when it is highly likely that a service recovery will lead to increased customer satisfaction Service recoveries that are likely to be efficient are obviously those where the service failure is perceived to be not systematic or that the company has little control over it But even in cases when there is a systematic failure and the company has control over the failure, there is a benefit when service recovery activities are put into actions to ensure that one can win back customers and that the source of failure is eliminated Although having several decades of implementation all over the world, service recovery is fairly new, in comparison with other service marketing approaches In Vietnam, the theory of service recovery has not been given to lectures and subjects at universities and has not been widely applied in all business sectors And because of the fact that people feel like looking for polished, positive things like marketing communication tools, marketing mix strategies, public relations, customer relation management etc , which bring promising results to a business, there are little research by Vietnamese authors into service recovery Furthermore, inadequate understanding of service recovery has made people mistakenly consider service recovery as only for individual customers and as not designed for corporate customers of a bank With regards to improve quality of trade finance service of a bank, what a bank needs is to carefully and fully study about service recovery to improve its skill of listening to customer, to keep and develop sustainable relationships with customers It is also the reason why the author of this research doing current study on Service recovery with the case of VietinBank Trade finance operation Objectives of the research - To find out about the current service recovery activities for trade finance of VietinBank - To evaluate the strengths and weaknesses as well as the efficiency of the current service recovery activities for the existing customers using trade finance products of the Bank - To propose some recommendations to improve service recovery for VietinBank‟s trade finance operation Research Methodology 4.1 Research methodology The research process of this thesis can be expressed by the following chart: Based on the general observation of the trade finance performance of VietinBank in terms of modest increase in trade finance turnover and almost unchanged trade finance market share in the last three years, the problem for the thesis is defined as the service recovery for trade finance of the Bank Next, data are collected from various sources, including desk research, qualitative and quantitative research to identify the current situation of service recovery for trade finance from the actual facts as well as from the point of view of the Bank‟s managers and also customers in order to find out the strengths and the weaknesses of service recovery activities for this banking operation Finally, relying on the analysis of the problems, solutions will be set out on how to improve service recovery for trade finance of VietinBank to improve service quality, to keep traditional customers using the trade finance products, aiming at increasing the bank‟s trade finance revenue and market share 4.2 Data sources Secondary data The sources for secondary data include (i) the internal information and data of the Bank available from the Bank‟s website, relevant departments as well as internal documents like surveys, statistics, annual reports and ad-hoc reports of VietinBank on marketing activities for trade finance, the minutes of seminars or workshops with customers on trade finance solutions or instructions issued by the bank on this topic etc., and (ii) general information on the economy, market, service marketing research etc available on the Internet, published books, newspapers or magazines Primary data Primary data for the thesis are obtained from qualitative research and quantitative research Deep interviews were made with nine officials of the bank, three of them are trade finance managers at Head Office level, the other three are branch managers and the other three are branch trade finance staffs The objective is to find out key issues of service recovery situation for trade finance of the bank from the managerial and operational points of view Next, a quantitative survey is made in form of a questionnaire sent to 130 enterprise customers from 30 of Vietinbank branches locating in different areas The selection of responders is based on convenience sampling The author sent the questionnaires (30 forms) to the customers that the author has contacted with Besides, the author sent questionnaires (100 forms) to trade finance staffs at VietinBank‟s branches, to whom the author has access and proposed those staff to deliver the questionnaires to the trade finance customers with people who feel it is convenient for the staff to contact in their daily job These are the customers who are using or have potential to use the bank‟s trade finance products The objective of the survey is to get customers‟ opinions to verify the evaluations on the matters in question which were obtained from secondary data and the qualitative research In 130 delivered, 102 forms have been collected back, of which 98 forms were qualified The survey results used for analysis in the thesis were obtained from those 98 responses received from the customers The data processing was based on Microsoft Excel software The questionnaire form and survey results are shown in Annex No and 4.3 Research scope According to the definition in Trade finance magazine, Trade finance is related to international trade: “While a seller (the exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document the goods that have been shipped Banks may assist by providing various forms of support For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading The exporter's bank may make a loan (by advancing funds) to the exporter on the basis of the export contract.” There are also other forms in which banks may provide trade finance services for their customers, such as Documentary collection (in which, banks play a role of collecting payments from the importers to pay for the exporters based on certain arrangements or presentation of documents by the exporters), bank guarantees or some other new forms to Vietnam‟s market like factoring or forfaiting (purchase of account invoices/account receivables and advance funds for the seller and recourse to the buyer on due dates) etc The concept of trade finance is also related to some banking operations such as credit and foreign exchange activities to facilitate trade transactions and covers a variety of new trade finance product types like risk participations or structured trade other than common traditional products of import/export letters of credit, documentary collections and international payment To narrow down the scope of research due to the limitations of time and space for the project, this study will focus only on the service recovery for Letter of credit for enterprises - being a traditional trade finance services for Vietnamese exporters and importers who trade with foreign enterprises, without looking deeply into every aspect of the related banking operations or all other or new types of trade finance products In the thesis, the author uses reports/figures/facts in a period of years from 2009 to 2011, related to the whole VietinBank trade finance system, including the Head Office and branches nationwide Contribution of the thesis - To introduce a comprehensive view of current service recovery activities for trade finance of a Vietnamese commercial bank like VietinBank; - To bring out strengths and weaknesses, point out current outstanding issues of the current service recovery activities for the existing customers using trade finance products of VietinBank; - To resolve the outstanding issues and improve service quality of trade finance operation in VietinBank, through positive solutions and recommendations which are practical to apply in the early future Structure of the research Beside the introduction and conclusion part, the thesis is divided into three chapters as the following:  Chapter 1: Theoretical Foundations  Chapter 2: Service Recovery for trade finance operation in VietinBank  Chapter 3: Recommendations to Service Recovery for trade finance operation in VietinBank CHAPTER 1: THEORETICAL FOUNDATIONS 1.1 The concepts of service, customer service and service recovery 1.1.1 Service and customer service There are several ways of defining “What is service?” Valarie A.Zeithaml, an internationally recognized pioneer of services marketing who has devoted the last 20 years to researching, consulting and teaching service quality, services management and customer equity, provides a simple broad definition of service: Service includes all economic activities whose output is not a physical product or construction, is generally consumed at the time it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser For the purpose of this thesis, Valarie‟s definition of service seems to be the best choice since its simple meaning mentions to all industries within the service sectors Following that, quite big corporations like AT&T (telecommunication), Marriott International (Hotels), American Airlines (transportation), IBM (computer manufacturers) or Bank One (banking services) are all considered service companies Their businesses are to marketing and deliver services to customers By doing that, they are providing customer services Customer service is the service provided in support of a company‟s core products Customer service most often includes answering questions, taking orders, dealing with billing issues, handling complaints, and perhaps scheduling maintenance or repairs Customer service can occur on site, over the phone or via internet; before, during and after a purchase, and typically charges no fees to the customers However, along with sales and marketing, customer service plays an important role in an organization's ability to generate income and revenue 1.1.2 Service recovery Definition Using a good customer service system and having effective service design and communication form the foundation of corporation‟s service success However, in all business contexts, service failure is inevitable even for best or “world-class” corporation and it may occurs for all kind of reasons – the service may be unavailable when promised, be delivered late or too slowly, the outcome may be incorrect or poorly executed, or employees may be rude or uncaring These can bring about negative feelings and response from customers and therefore can result in their leaving, telling other customers about their negative experiences etc… The impact of service recovery Resolving customers‟ problems effectively has a strong impact on customer satisfaction, loyalty and bottom-line performance A customer who experiences service failures, but is ultimately satisfied based on recovery efforts by the firm, will be more loyal than those whose problems are not resolved Actually an effective service recovery strategy has multiple potential impacts It can increase customer satisfaction and loyalty, and generate positive words of mouth A well-designed, welldocumented service recovery strategy also provides information that can be used to improve service as part of a continuous improvement effort In the opposite, there are tremendous downsides to having no service recovery or ineffective service recovery strategies Poor recovery following a bad service experience can lead to customers who are so dissatisfied they become “terrorists”, actively pursuing opportunities to openly criticize the company Further, repeated service failures without an effective recovery strategy in place can aggravate even the best employees The Recovery Paradox There is a fact that customers who are dissatisfied, but experience a high level of excellent service recovery, may ultimately be even more satisfied and more likely to repurchase than those who were satisfied in the first place Therefore, logically but not very rationally, companies should plan to disappoint customers so they can recover and gain even greater loyalty from them as a result This idea has become known as the Recovery Paradox 1.2 Types of customer’s response to the service failures 1.2.1 Types of customer actions Figure 1.2: Customer response following service failure 1.2.2 Types of complainers Figure 1.3: Types of failure respondents Passives Voicers Irates Unlikely Actively Unlikely Activists Respond to the More likely provider Spread negative Less likely Less likely More likely More likely word of mouth Complain to a Unlikely Less likely More likely More likely third party Personal Against Consistent w/ Unconformable Conformable w/ values/norms complaining complaining w/ complaining complaining Feel alienated Less alienated Less alienated Somewhat More alienated from the alienated marketplace 1.3 The reasons customers complain Figure 1.3 suggests that there are several types of customers and each type has their own reason to complain or not complain about service There are customers who are more likely to complain than others These customers believe that positive consequences may occur and there are social benefits of complaining They also believe they will and should be provided compensation for their service failure in some forms Furthermore, fair treatment and good service is their due, and in cases of service, someone should make good In some cases, they feel a social obligation to complain, to help others avoid similar situations or to punish the service provider A very small number of consumers have “complaining” personalities, they just like to complain or cause trouble In the opposite, people who are unlikely to take any action often see complaining as a waste of time and effort and not believe anything positive will occur to them or others based on their actions Some other people not know how to complain, not understand the process or may not realize there are avenues open for them to voice their complaints Personal relevance of the failure can also influence whether people complain or not If the service failure is not very important or has no critical consequences for the consumer, or if the consumer has little ego involvement in the service experience, then he is less likely to complain 1.4 The expectation of customers 1.4.1 Customers expectation of fair treatment Specifically, customers want several types of justice and fairness in handling their complaints: outcome fairness, procedural fairness and interactional fairness 1.4.2 Companies’ behavior Research suggests that customers are not generally happy with the way their complaints are handled or with the levels of outcome, procedural and interactional justice they receive Figure 1.4 Fairness and satisfaction 1.5 Service Recovery Strategies Figure 1.5 Service Recovery strategies     Fail-safe your service – Do it right at the first time Welcome and Encourage complaints Act quickly Treat customer fairly most banks mainly resort to basic banking services, namely accepting deposits and lending money for a margin, then in the modern time more banks tend to focus on pushing up trade finance loans to mitigate credit risk This fact comes from the argument that trade finance loans are often self-liquidating since all sales proceeds are to be collected by the lending bank and then applied to pay off the loan Trade finance often links to an actual trade transaction, then can be self-liquidated with goods at the back, becomes less risky and easier to manage than standard loan products Moreover, trade finance transaction may generate significant income in form of service fees and charges from every knot of its business operation such as Letter of Credit (L/C) issuance fees, L/C amendment fees, guarantee fees, remittance fees, export letter of credit advising fees, etc… Additionally, trade finance transactions can be used to connect with other banking products like lending and foreign exchange trading to form a trade finance package service for import-export customers This is a common practice of almost every bank all over the world As import enterprises, importers need credit to buy raw materials, goods, machinery for their production from oversea, while in the opposite site, exporters with limited access to working capital often require financing from the banks to process or manufacture products through export document discounting The documents are often discounted before exporter receives payments from his business partners Through the discounting, the banks will advance funds for the exporters to accelerate the production process and exporters then have to sell foreign currency obtained from the export proceeds to banks for Vietnamese Dong (VND) to cover the expenses in local currency Based on this practice, a bank who can design trade finance promotion packages which comprise of soft lending interest rate, favorable exchange rate and moderated trade finance fees will be able to attract customers, increase trade finance turnover and diversify its income VietinBank trade finance operation in a highly competitive market Market players Figure 2.2 Commercial banks in operation in Vietnam’s market by 31st Dec 2011 No Bank types Number of banks State-owned commercial banks 5 Policy Banks Joint stock commercial banks Joint venture banks Foreign bank branches Foreign bank representative offices 100% foreign invested banks 35 50 51 Market share Figure 2.3: Vietnam Trade finance market shares 2010 Source: VietinBank market review report, Jan 2012 We can see the biggest competitor of VietinBank in trade finance is VietcomBank Besides VietcomBank, BIDV is always going ahead VietinBank within a nearer reach thanks to its advantage of having biggest state-owned corporations as its customers According to the survey result shown on Figure 2.4 below, EximBank, ACB and TechcomBank represented for joint stock 10 commercial bank group and HSBC done for foreign bank branch group are also formidable competitors that VietinBank should not neglect Figure 2.4: Banks in Vietnam, with whom trade finance customers are transacting Customers and classification Most of trade finance customers are large-sized state-owned companies running business mainly in import sector and have the high value of equity of over 10 billion VND Import activities of the customers concentrate on several business areas such as soybean meals, machinery and equipments, steel, oil and gas and consumer goods On the other hands, export activities are more likely for export of agricultural products, wooden furniture, seafood and textile Although the number of trade finance customers of VietinBank and their activities in importexport are quite large, it does not mean VietinBank can boast import-export turnover from their trade activities This comes from a finding from my survey that, in Vietnam, most import-export companies keep transactions with more than one bank for trade finance services This also leads to a situation that one bank‟s existing customers may either withdraw its current service to choose another bank or even stop transacting with a bank to swap to another Most banks now face a challenge to increase its trade finance turnover by not only attracting new customers but also keeping the existing customers and preventing them from sharing the transactions with other banks This is a threat and also an opportunity for every bank in the fight to get more business and hence increase turnover and profit However, the survey also discloses another finding that most of VietinBank trade finance customers (nearly 67%) are loyal customers with history of transaction reaches over to over years This will decide a strong point of the bank since the cost and also effort of maintaining loyal customers will be less challenging than attracting new ones The recognizable reason is the advantage of VietinBank as a state-owned bank, to be nominated to serve a lot of big state-owned corporations who keep the leading role in the economic leading industries, such as Petrovietnam Oil and Gas Group (Oil and Gas), Vietnam Posts and Telecommunications Corporation (VNPT), and Vietnam national Coal, Mineral industries holding corporation limited (Vinacomin)… Figure 2.6: Duration (years) that customers transacting with VietinBank 11 2.1.4 VietinBank’s Trade Finance resources  Centralized model of processing: VietinBank Main Operation Center (VMOC) was established in April 2008, become the first trade finance centralized processing center of a Vietnamese commercial bank in Vietnam The Center is set to be specialized in: - centralized processing of international settlement and trade finance for customers from over 150 branches and 1000 transaction points covering almost all provinces and cities nationwide; - mobilizing short, medium and long-term financing sources from financial institutions to facilitate VietinBank‟s trade finance activities and help improve the balance of bank capital; - extending consultancy services on international payment and trade finance solutions for branches and customers; - providing other local banks with Insourcing services related to international payment and trade finance With three years of operation under the new processing model, all trade finance transactions are gathered for processing at the only one Center, helping to mitigate risk and improve the quality of transactions The Center has been also giving consultation to the Board in making policy to develop a comprehensive trade finance operations  Human Resources: In terms of human resources in head offices working on trade finance (The Center), when established in 2008, total number of employees was only 40 and now has been ascending to more than 150 people including 01 PhD, 46 Master degrees and 107 bachelors Employees at VMOC almost have a very young age with the average of 30 We are all graduated from high-grade universities of Vietnam and overseas, with qualification of English language at level C and upper Most of us have experiences and necessary skills in trade finance Moreover, the turnover rate of the Center‟s human resources is not high (just only less than 2% per year) In terms of human resources in branch offices working on trade finance, VietinBank has more than 150 branches all over the country Each branch has about 3-4 staffs working on trade finance Therefore, VietinBank has over 450-600 branch staffs working on trade finance throughout the branches system Moreover, Vietinbank also has staffs with trade finance skills in oversea branches  Technical Background: All technologies used in VietinBank are from famous top providers in the world, includes: - The SWIFT Alliance Access server: contains all SWIFT components required to connect to SWIFTNet, giving access to SWIFT messaging services; - PC Connect: A secure SWIFT message-entry system PC Connect enables remote branches to manually prepare Facility information messages in offline mode It connects to the Alliance Access server to send and receive messages It can operate as a multi-station system in a local area network environment, or as a single-station, stand-alone system; - AS400 server system, operating with Trade Finance module, Remittances module of World Bank modernization project; - Support systems: Scan-Imaging, fax with authenticated secret codes, internet banking… for data transmission; - Performance management software for transaction tellers; - Computers and other office facilities 2.2 Analysis of VietinBank’s current situation of Service Recovery 2.2.1 How customers respond to service failures in VietinBank Types of customer actions: VietinBank‟s customers seem like seeing no problems complaining or responding to the bankers about service failures This is the best scenario and also a strong point for VietinBank since we 12 have a second chance to satisfy customers and keep them transacting with VietinBank in the future However, some people choose not to respond to the bank‟s officer because they think it may waste their time and effort while nothing good may occurs (see more in Figure 2.7 below) But it does not mean these people not respond to any other person or party because the survey result discloses that over 83% of respondents tell their relatives, friends, family or other parties about the failure they have faced when utilizing VietinBank‟s service Figure 2.7: The reasons customers not complain Source: Author‟s survey Types of complainers VietinBank‟s customers seems to be the mixture of Activist and Voicers groups who actively respond to the service provider when failure occurs, more likely complain to a third party about the errors, have personal values consistent with complaining and feel less alienated from the marketplace The reasons customers complain Figure 2.8: The reasons customers complain Source: Author‟s survey The expectation of customers Figure 2.9: The expectation of customers when complaining Source: Author‟s survey Behavior of VietinBank’s staff against customer’s complaint We have to admit that most of VietinBank‟s employees are treating complainers not in a courteous way Time of handling things is also vital to a complainer 2.2.2 VietinBank’s Service Recovery Strategies for Trade finance operation VietinBank performs no recovery strategy but implement recovery activities sporadically and asynchronously  First of all is the rule of “Do it right the first time” 13  Second step is to welcome and encourage complaints  Third step of the strategy is to act quickly  Next steps of the strategy are to treat customers fairly and to learn from recovery experiences  The last step of the strategy is to learn from lost customers Limited coordination and corporation between processing and sales departments This is a remark made by the interviewed managers from both the Trade processing center and the branch levels There are always several departments in the bank that may be directly involved in service recovery for trade finance such as Corporate Banking department at branches, Trade Processing Center, ALCO department, Financial Institution department…at head office The Trade Processing Center (VietinBank Main Operation Center), ALCO department and Financial Institution department are the back-office departments who have supportive function of processing trade finance transactions for all VietinBank branches nationwide, release internal regulations on interest rates, and are in charge of correspondent bank relationship Meanwhile, Corporate Banking department in branches are playing the role of a front-office department who would directly deal with customers and take care of them through customer services activities The close coordination among these departments is highly important for service recovery to be efficient However, it is not always favorable since the back-office and front-office are separate departments basing in different locations 2.2.3 VietinBank’s Service Guarantees Similar to service recovery strategies, VietinBank not make any commitment to trade finance customer on quality of the service To better serve the customers, service standard and policies have set and to be implemented internally by VietinBank employees But the formal commitments to customers have never been officially announced 2.3 Summary of strengths and weaknesses of service recovery activities in VietinBank Table 2.2: Strengths and weaknesses of service recovery activities in VietinBank No Strengths – Positive points Weaknesses – Negative points Experience due to long history Market share Clear corporate vision, mission & Behavior of staffs against complaint values Lots of loyal customers Obvious services recovery strategy Centralization level of processing Available ways of complaining for customers Human resources “Act quickly” attitude Technical background Internal policy for complaining customers Learning from abandoning customers Coordination & corporation between processing & sales departments Obvious services guarantees 14 CHAPTER 3: RECOMMENDATIONS TO SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN VIETINBANK 3.1 Strategies and solutions for the development of Trade finance operation in VietinBank 3.1.1 Quantitative targets: Criteria 2012 2013 2014 2015 2016 2017 Trade finance service fee (bil 776,88 854.56 940 1.034 1.137 1.251 VND) Trade finance market share 15.27 16.79 18.46 20.30 22.33 24.56 (%) 3.1.2 Qualitative targets: - To improve quality of all traditional trade finance services - To encourage Research and Development activities for modern international banking services that have been popular worldwide but have not been developed in Vietnam - To maintain and intensify capital mobilization activities to satisfy capital demand of foreign currency of VietinBank and customers - To diversify trade finance services to meet the demand of corporate customers - To diversify field of action by providing trade finance services for smaller commercial banks in Vietnam 3.2 Strategies and actions plan for improvement of Service Recovery for trade finance operation in VietinBank 3.2.1 Strategy for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 3.2.1.1 Strategies for product and service  To create a marketing information system includes data about market, competitors, customers, trade finance services and create legal framework in order to cooperate with 10 foreign financial institute in providing modern international banking service like risk participation, factoring, LC discounting, etc…  To continue deployment of capital mobilization with short-term, mid-term and long-term through LC refinancing, GSM-102 and ECA-covered financing  To research and execute proper trade finance services to timely meet customers‟ new requirements in daily changing market (CNY payment, cross-border payment with China…)  To research and create trade finance supportive programs for market and industry  To make the most of first-class bank advantages by running a centralized processing center to intensify providing in-sourcing services to smaller commercial banks  To improve marketing activities on trade finance 3.2.1.2 Strategies for customers  To target on certain key industries to serve  To determine segments of target customers on the basis of industries, geography, customers‟ attachment to VietinBank… and design proper policies, marketing method to best serve each segment  To maintain existing customers and strongly attract new potential customers to develop customer data base in a sustainable way To research and deploy new market segments  To consider smaller joint stock commercial banks, finance and leasing companies and branches of foreign banks in Vietnam as target customers with lower level of economic scale, capital, technology for Insourcing service 3.2.1.3 Strategies for technology  To increase applications of technology to satisfy product and service development need and to manage operation risk 15  To invest on hardware infrastructure, security, software improvement to ensure of stable operating to gain annual business targeting growth; To use all necessary resources to concentrate on product development to satisfy market‟s need and compete with direct competitors (VietcomBank, BIDV) and other indirect competitors until the bank complete the deployment of the two new systems – CBS and IB; to invest on mobile banking system; to cooperate with powerful communication service providers  To build a comprehensive, modern, safe and stable information technology system To upgrade technology infrastructure to improve operation processing, management and decision making  To promptly deploy IT solutions like CDEM, CRM, Trade Portal, Internet Banking, Trade finance… To develop an oversea remittance web-based system 3.2.1.4 Strategies for marketing and distribution channels  To focus on developing and dominating markets hare in dynamic and fast-developing provinces such as Hanoi, Ho Chi Minh City, and Da Nang; in large cities/towns, trade and commercial centers; industrial zones, export processing zones, open economic zones; and country zones with developed commodity production  To develop distribution channels for serving customers; effectively and optimally exploit reasonable distribution channels based on Internet or Call Center…  To build Vietinbank‟s sales culture; focus on improving operational skills, marketing skills, serving attitudes, customer care, and customer service to sales forces  To build and perform comprehensive and professional marketing plans and operations from Head office to branches 3.2.1.5 Strategies for human resources management  Standardize human resources of Vietinbank from Head office to branches  Build professional and specialized staffs (separation from front-office staffs and backoffice staffs)  Build teams of specialists in serving different kinds of customers  Gap generation solution: due to the history, Vietinbank has now had some of staffs and managers from very different generations (Baby-boomer: from 1946 to 1964, Generation X: from 1965 to 1980 and Generation Y: after 1980) From the Table of strengths and weaknesses of service recovery activities of VietinBank, from the general strategy and the strategy for the improvement of service recovery for trade finance operation of Vietinbank, the author then analyzes and suggests some sub-strategies to improve weakesses of service recovery activities of VietinBank Table 3.3: Weaknesses of service recovery activities of VietinBank and the sub-strategies to improve them No Weaknesses – Negative points Sub-strategies to improve weaknesses Low market share in trade finance sector To improve by overall strategy of VietinBank set in the beginning of each strategy period (11.05% in 2010) To improve by Training strategy, focusing on soft skill training (communication skill, negotiation skill, listening skill…), at least 03 courses on soft skills each year for trade finance staffs from the bank‟s branches in North/Central/South areas of Vietnam Behavior of staffs against complaint: most of VietinBank‟s employees are treating complainers not in a courteous way, 70% of the employees try to transfer the case to another person in charge or only take detailed notes of the occurred failure without apologizing for it while more than 14% of them question the customers about the fault in an impolite 16 way Obvious services recovery strategy: To improve by overall strategy of VietinBank performs no recovery strategy VietinBank, regular revision of strategy for but implement recovery activities service recovery of trade finance services sporadically and asynchronously There is a limitation of available ways of complaining for customers The customers have only one way to complain by going directly to the bank staffs “Act quickly” is not a typical attitude of VietinBank‟s staffs against customer‟s complaint since not nearly 50% of the case is to be handled quickly when occurred There is no internal complaining customers Learning from abandoning customers: VietinBank has had nor clear policy for the cases of losing customers or reattracting lost customers neither a strategy for learning from lost customers Coordination & corporation between processing & sales departments is limited since the two departments are separate and located in different locations Obvious services guarantees: VietinBank not make any commitment to trade finance customers on quality of the service policy To create more ways/channels of complaining for customers such as: telephone hotline (easyto-remember phone numbers), email hotline (sogiaodich@vietinbank.vn), complaining function through internet banking (Trade Portal) To improve by Training strategy The bank can create regular “Act-quickly” course with training and role playing activities, using actual cases study of VietinBank on service recovery This course will be supposed to be held times annual for trade finance staffs from the bank‟s branches in North/Central/South areas of Vietnam To improve by setting internal policies at the beginning of each year Some policies may be adopted such as setting time-limit for solving a complaint, rewards, fee discount if needed, percentage of compensation for customers when complaint is right and customers must bear some losses… To improve by training strategy Customer service Dept of VMOC shall make regular reports on complaints history (quarterly), collect some typical complaining cases and share in host server These cases then will be edited and used for training courses and regular operating examinations annually To improve by communication policies - Via official letters throughout VietinBank branches system - Telephone hotline/email hotline sources - Short talks on soft and operating skills - Tele-conference calls/official emails for branches for typical cases study in order to avoid the similar failure cases  By the beginning of each year, VietinBank shall set and notify publicly a specific package of policies for service guarantees Also, the marketing & PR Dept should communicate and keep others informed of these policies for both internal and external customers (customers, staffs, managers…) for 17 3.2.2 Actions plan for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 Action plan to perform the strategy of Vietinbank‟s trade finance center, with the mission that “Vietinbank provides trade finance services and products professionally, modernly, safely, efficiently in order to meet various kinds of demands from customers” 18 Table 3.4: Actions plan for service recovery of trade finance operation in VietinBank For human resource management Activities Resources - Current recruitment program - Foreign consultants - Investment amount on HRM Regular training & - Current training and coaching (in Vietnam & abroad) coaching – main activities of programs - Foreign HRM strategies consultants - Investment amount on HRM Improving the quality and quantity of recruitment Gap generation solution - Current human resources - Foreign consultants Respon-sibility/ HR - HRM department - Trade finance center Expected Time Schedule objectives Numbers of staffs - 2012 – 2017: increasing in trade finance about 20 staffs for trade center reach 300 to finance center per year 2017 - HRM department - Trade finance center - Staffs reach DCTS certificate that certifies staffs on document checking for interna-tional trade finance services - Change in training style - Practical training - 2012 – 2017: at least one staff per year getting DCTS certificate - 2012 – 2017: at least 02 abroad training & 03 local training on trade finance services & new services/ products and soft skills for staffs of both Head office and branches - HRM department - Trade finance center Proper positions for suitable generations (Generation Y in front, Generation Y and Baby boomer in back…) - 2012 – 2017: no older generations in back office 19 Evaluation Regular examination on operation and foreign languages to sort and rank staffs, then putting in the proper duties in order to increase productivity and efficiency - At least 07 staffs getting DCTS certificate - All staffs over one-year experience of trade finance center being trained on operation and skills of trade finance cervices 20% to 50% older generations move to back office For IT and technology development Activities Resources - Existing programs - Investment amount for IT development - Foreign consultants on IT and trade finance operation - Current system Upgrading or purchasing new TF - Investment amount for IT system development - Foreign consultants on IT and trade finance operation Purchase of ScanImaging, Trade Portal and Internet Banking programs Building human duties management system, document management 24/24 Respon-sibility/ HR - Trade finance center is the key - Cooperating with IT center and E-banking department Expected objectives - Support to increase output, processing speed for current services/ products - Being a basis of new product develop-ment - Trade finance center is the key - Cooperating with IT center and E-banking department - Applying webbased technology - Being able to transfer data via web - Online & remote transaction processing - Increasing processing efficiency - Current system - Trade finance - Building efficient - Investment center is the key human duties amount for HR - Cooperating management development with IT center and system & - Foreign HRM department document consultants on management 24/24 HR and trade - Applying system finance on Head office and operation branches 20 Time Schedule Evaluation - 2011: buy and operate new Scan-Imaging programs (done) - 2012: bidding for Trade Portal program providers (on the go) - 2013-2015: complete to operate Internet Banking system - Complete purchase of these programs - Complete application of these programs - 2012: upgrading or purchasing new TF system - 2014: applying new system - Complete purchase or upgrade system - Complete application of system - 2016: completing - Complete building - Completing application Building data system of market, customer, competitor and trade finance services/ product infor-mation - Current system - Investment amount for IT & market research development - Foreign consultants on IT, market research and trade finance operation - Trade finance center is the key - Working with IT center, market research section, and sales forces from Head offices to branches - Completing to build data system - Complete applying system - Using system from Head office to branches - 2014: completing - 2015: using system throughout Head office and branches - Head office and branches start to use data system of market, customer, competitor and trade finance services/ product information For services/products development Activities Resources - Existing Setting cooperation with 06 foreign relationships with foreign banks banks - Strategy for cooperation development - Foreign consultants - Current system Operating new service of monetary - Foreign & valuable papers consultants buying and selling Improving marketing, Respon-sibility/ HR - Deputy CEO managing relationship - Trade finance center is the key - Working with Relationship department - CEO - Trade finance center is the key - Working with relationship, Credit and Debit department - Current system - Trade finance - Investment center is the key Expected objectives - Be supported to build legal framework and start to operate modern international banking services/ products: risk sharing, debt buying & selling - Complete operation - Working with other potential banks - Improving GSM102 for branches 21 Time Schedule Evaluation - 2012 – 2017: each year, completing to make agreement and cooperate with one foreign bank - Complete making agreements - Using new international services/ products - 2012 – 2017: each year, completing to make agreement and cooperate with one potential bank - Complete making agreements - Start to operate new service - 2012 – 2017: each year, completing to make - Complete improvement - Completing application amount for IT development - Foreign consultants Finding for long- - Current system - Investment term funds for amount for IT & domestic investment projects trade finance development on the basis of - Foreign exploiting other consultants countries’ L/C programs (ECA) branding and operating GSM102 program Signing agreements on crossborder payment with some Chinese banks CNY payment operation under China’s pilot on payment Research to build supporting programs for trade finance according to markets and for commo-dities to Current agreements - Foreign consultants - Current CNY payment program - Foreign consultants - Current payment program - Foreign consultants - Working with IT and customers that center import produces from USA agreement and cooperate with at least 05 new customers - Trade finance center is the key - Working with IT center, market research section from Head offices to branches - ALCO department - Branches - CEO - Trade finance center is the key - Working with market research section - Branches - Trade finance center is the key - Branches - Completing to build program - Finding for longterm funds - Using program from Head office to branches - 2012 - 2017: operating under demands of Head office and branches, credit balance USD400mil-500mil per year, increasing longterm funds - Finding out long-term funds - Using ECA of at least countries - Signing agreements with Bank of China, UOB - 2012 – 2017: signing agreements with 03 banks of China - Completing signing - Start to perform crossborder payment with China - Serving customers with the demand of doing businesses with Chinese, decreasing USD payment pressure Markets: Laos, Cambodia, Myanmar, Africa, Germany… - Commo-dities: rice, coffee… - 2012 – 2015: performance under customer‟s demands on CNY payment - Performance under actual demands of customers - 2012 – 2017: each year, completing supporting program in one market and for one commodity - 2012: for Germany (done) - Setting supporting programs in various market and for various commodities - Trade finance center is the key - Branches 22 customers Insour-cing: providing trade finance services to other local commerc-ial banks - Current trade finance services - Foreign consultants Activities Resources Complete current opera-tional procedures/ processes, build new processing programs for new services/ products Tend to centralization and professiona-lization on transact-tion processing, marketing, operation and postcontrol Build and conduct compre-hensive marketing policy for trade finance - Trade finance center is the key - Branches Providing trade - 2011: with ADB (done) finance services to - 2012 – 2017: with at least ADB and other 02 other local commercial local commercial banks banks For policies and procedures of trade finance services development Respon-sibility/ HR - Deputy CEO - Trade finance center is the key - Working with IT center - Branches Expected objectives Compete full operational procedures/ processes for all current operations - Current duties - Foreign consultants - Trade finance center is the key - Working with IT center - Branches - Current marketing policy - Foreign consultants - Deputy CEO - Trade finance center is the key - Working with marketing deparment - Branches - Current procedures/ processes - Foreign consultants Time Schedule Providing trade finance services other local commercial banks Evaluation - 2012 – 2017: complete the improvement and building of operational procedures for all current operations Each operation has a complete and comprehensive operational procedure Focus on centralization and separation in marketing, selling, back-office processing and post-control - 2012 – 2017: complete central-ization Each duty has a separated and complete processing program Build and conduct compre-hensive marketing policy for trade finance - 2012 – 1015: complete marketing policy - From 2015 on: using and improving Build and conduct comprehensive marketing policy for trade finance 23 3.1.3 Recommendations for the improvement of Service Recovery in VietinBank 3.1.3.1 Recommendations to State bank of Vietnam (SBV) SBV should separate the function of leading from monitoring to make sure of the transparence in all kinds of banking, including trade finance operation The legal framework and regulations system on trade finance should be synchronous, common and no conflicts among others in order to make easier in operating trade finance service of commercial banks SBV should also cooperate with commercial banks, financial organizations and State to push the process of restructuring in banking industry And, SBV can give an overall strategy on trade finance service development throughout the banking system so that banks in the market can avoid some kinds of competition in vain among themselves 3.1.3.2 Recommendations to VietinBank First and foremost, VietinBank should improve their own financial capacity and efficiency in management and operation in order for the development of all duties in general and trade finance services in particular Human resource management is the key figure in terms of trade finance development Therefore, VietinBank should invest properly in human resource for improving and boosting the trade finance services In addition, to some extent, the success of any strategy is also depending on the communication of this strategy The communication should be conducted both vertically and horizontally Horizontal communication works within each department, sector or team in the trade finance operation of VietinBank And vertical communication works when there is cooperation or connection among departments, sectors and teams in the trade finance operation of VietinBank Doing well on vertical and horizontal communication also helps further in human resource management and development for VietinBank generally and the trade finance operation particularly 24 ... Strategies and actions plan for improvement of Service Recovery for trade finance operation in VietinBank 3.2.1 Strategy for improvement of Service Recovery for trade finance operation in VietinBank... Theoretical Foundations  Chapter 2: Service Recovery for trade finance operation in VietinBank  Chapter 3: Recommendations to Service Recovery for trade finance operation in VietinBank CHAPTER 1:... current service recovery activities for the existing customers using trade finance products of the Bank - To propose some recommendations to improve service recovery for VietinBank‟s trade finance operation