Developing quality of brokerage service at 164821

UNIVERSITE LIBRE DE BRUXELLES NATIONAL ECONOMICS UNIVERSITYVietnam – French Community of Belgium Master Programmes MASTER IN BUSINESS MANAGEMENT THESIS DEVELOPING QUALITY OF BROKERAGE SE

UNIVERSITE LIBRE DE BRUXELLES NATIONAL ECONOMICS UNIVERSITY

Vietnam – French Community of Belgium Master Programmes

MASTER IN BUSINESS MANAGEMENT

THESIS

DEVELOPING QUALITY OF BROKERAGE SERVICE AT

VNDIRECT SECURITIES COMPANY

Prepared by

Vu Thi Anh Thu

Hanoi 2009

I would like to express utmost gratitude to my tutor, Dr Pham Thi Dinhh atdivision of Insurance of National Economics University for her advice andguidance during the period of writing this thesis

I would also like to thank VNDirect’s employees who provided me all usefulinformation and also supported me during the process

My gratitude also goes to all respondents for their time and willingness toparticipate in this study

Finally, my heartfelt thank is especially for my parents and my husband for theirmotivation and supports during my study at Vietnam – French Community ofBelgium Master Programmer

Hanoi, March 2009

Vu Thi Anh Thu

EXECUTIVE SUMMARY

Quality of service has been considered as an important and effective factor to thesuccess of any organization Therefore, all of organizations, particular serviceorganizations must attempt to develop quality of their services The purpose ofthis thesis is to measure, assess and analysis quality of brokerage service atVNDirect Securities Company by establishing and applying the appropriatemeasurement tools

The theories have been chosen to consider to deal with are service quality,customer service, customer satisfaction, measurement of service quality,conceptual models of service quality The SERVQUAL Model with 5dimensions was applied to see how customers satisfy with service performance

200 questionnaires with 26 attributes were developed to examine various aspects

of service quality for securities brokerage The collected data then analyzed byMicrosoft Excel and SPSS

Research results indicate that in general quality of brokerage service atVNDirect still do not meet the expectation of customers as they range from 3.28

to 3.76, in which Reliability and Empathy dimensions receive the lowest scoresand fall into the Scale of “ Nor Dissatisfied; Nor Satisfied”

From these weaknesses, recommendations are offered to increase the quality ofservice and promote customer satisfaction It is suggested that manager shouldfocus on information offered to customers, knowledge of securities brokers, andspeed of order processing, specific needs of customers More importantly, anintegrated Customer Relationship Management (CRM) should be applied for thedevelopment of service quality

TABLE OF CONTENT

ACKNOWLEDGEMENT i

EXECUTIVE SUMMARY ii

TABLE OF CONTENT iii

INTRODUCTION 1

1 Rationalize 1

2 Research Objectives 1

3 Scope of the thesis 2

4 Research Methodology 2

5 Thesis Structure 2

CHAPTER I: LITERATURE REVIEW 4

I.1 Service and Conceptual Model of Service Quality 4

I.1.1 Introducing service and service quality 4

I.1.2 Service quality model 5

I.1.3 Determinants of service quality 7

I.1.4 Service Quality and Customer Satisfaction 8

I.1.5 The SERVQUAL Model- Measurement of Service Quality 9

I.2 Introducing Concepts of Securities Brokerage Service 11

I.2.1 Definition and Functions 11

I.2.2 Classification of Securities Brokerage Service 12

I.2.3 Introduction of Vietnamese Securities Market 13

CHAPTER II: VNDIRECT AND ITS SECURITIES BROKERAGE SERVICE 16

II.1 Overview of VNDirect Securities Company 16

II.1.1 Company Background 16

II.1.2 Organization 16

II.1.3 Business activities 17

II.2 Overview of Securities Brokerage Service 19

II.2.1 Activities of Securities Brokerage Service 19

II.2.2 Securities Brokerage Service Performance 21

II.2.3 SWOT Analysis of Brokerage Service 26

CHAPTER III: ANALYZING AND EVALUATING CUSTOMER SATISFACTION OF SERVICE QUALITY 29

III.1 Data Collection of the Research 29

III.1.1 Sampling Size 29

III.1.2 Distribution of questionnaire 29

III.1.3 The formulation of questionnaire 30

III.2 Data Analysis from Questionnaires Collected 31

III.2.1 Method of analyzing 31

III.2.2 Analysis and Findings 33

III.3 Conclusion 41

CHAPTER IV: RECOMMENDATIONS FOR DEVELOPING QUALITY OF BROKERAGE SERVICE AT VNDIRECT 43

IV.1 Providing more information to customers 43

IV.2 Training stock brokers knowledge and skills in serving customers 44

IV.3 Continuing to up-grade information technology 44

IV.4 Understanding specific needs of customers 45

IV.5 Applying an integrated Customer Relationship Management (CRM) 46

CONCLUSION 49

REFERENCE 51

APPENDIX 1

Appendix 1: Vietnamese version of questionnaire on brokerage service at VNDirect 1 Appendix 2: English version of questionnaire on bokerage service at VNDirect 4

Appendix 3: Descriptives Statistics 7

1 Rationalize

After seven years’ foundation and challenges, the Vietnamese securities markethas gained initially encouraging results It is considered as a significant capitalsource for the economic development of Vietnam Enterprises have beenprovided more financial instruments for attracting long term capital to promotebusiness and production activities with reasonable fees; investors (individual andorganization) have more chances to make full use of their investment capital in asafety and efficient manner

Following the operation of Securities market, the introduction of many securities

companies has partly met the increasingly demand of investors Among allbusiness activities, Securities brokerage is the fundamental service that all thesecurities companies offer to the customers However, the mushroom growth ofthe securities companies leads to a fierce competition among securitiescompanies Accordingly, many attractive offerings have been given to attractcustomers so they can easily move to other companies regarding the best offers

As a matter of fact, service quality is considered one of the most critical factorsinfluencing the company’s business Securities companies should constantlyimprove its quality of brokerage service to keep existing customers as well asattract new ones That’s why the thesis with title “Developing quality ofSecurities Brokerage Service at Indirect Securities Company” is chosen Thestudy in this thesis will help to understand customer’s perception of servicequality and identify areas for further development

2 Research Objectives

This study aims to achieve the following objectives:

 First, describing securities brokerage service at VNDirect

 Second, understanding customer’s perception of service quality atVNDirect

 Evaluating the quality of VNDirect’s customer service basing on theproposed theories

 Third, proposing recommendations to develop quality of brokerageservice at VNDS

3 Scope of the thesis

 Target customers are individual local customers who have had transaction

with VNDirect.

 It focuses only on brokerage service, not other business activities

 Questionnaires are conducted in Ha Noi city

 Primary data: Survey is chosen as the research technique in this study

to measure the quality of brokerage service at VNDirect.Questionnaires are designed and delivered to customers for theirassessment of the quality of brokerage service at VNDirect Securitiesand also find out the customers’ needs Questionnaires are formulated

in accordance with the theoretical framework consisting of the ServiceQuality Gap and the SERVQUAL dimension Then the data isanalyzed with tools of Microsoft excel and software “StatisticalPackage for Social Sciences” (SPSS)

5 Thesis Structure

The thesis consists of 4 chapters:

Chapter I: “Literature Review”, this chapter discusses about the theoriesconcerning to service quality, service quality dimensions This chapter alsointroduces general concepts of securities brokerage service

Chapter II: “VNDS and its securities brokerage service”, this chapter gives anoverall picture of VNDS- its background, organization and business activities

More important, it will help to understand the situation of VNDirect’s brokerageservice.

Chapter III: “Analyzing and Evaluating customer satisfaction on service quality

at VNDS”, this chapter is a combination of customer’s survey on VNDirectservice quality and the theories in chapter I in order to conduct an analysis usingSPSS calculation

Chapter IV: “Recommendation for development of securities brokerage service

at VNDS”, this chapter generates recommendation basing on findings fromchapter 3 These recommendations may help the companies to improve areasregarding service quality

CHAPTER I: LITERATURE REVIEW

This chapter introduces the theories and models that are related to the researchedproblem This chapter will give the concepts of service, service quality gap andmeasurement and concepts of securities brokerage services in order to have anidea about the researched problem

I.1 Service and Conceptual Model of Service Quality

I.1.1 Introducing service and service quality

What is service?

Service is behavioral rather than physical entities, and has been described asdeeds, performances and effort Some definitions for the service as follows:Service is attitudes, process and functions ( Zeithaml & Bitner, 1996, P.50)

Service is an act or activity, necessarily immovable and intangible, suggested byone transaction party to another one that would lead to the ownership of noexternal object Service products may attach to physical goods or not ( Kotler &Amstrong, 1990, P.809)

Services include recognizable and necessarily immovable activities which meet aneed and its attachment to good sale or other services is not of necessity (Stanton,1986)

A series of intangible, activities through interactions between customers andservice employees or physical resources/goods and service companies which arepresented as a solution for customers’ problems ( Gronroos, 1990, P.279)

A service is a package of explicit and implicit benefits performed with asupporting facility and using facilitating goods ( Sasser et al, 1978)

Many definitions have been proposed for services, but all share the commoncharacteristics as intangibility and immediate consumption

Service quality

According to Jan Carlzon (2000), Service quality is a matter of knowing yourcustomers, designing service to meet customer’s needs, and finally managing theservice production and delivery process to customer

Word- of- mouth

Chakrapani C (1998) stressed that ‘There is a difference between customerexpectations and what the management delivers Therefore, the perceptions ofservice served may be different from what expected; as management may fail todeliver what customers want”

Service quality perception result from a compression of customer’s expectationwith actual service performance and quality evaluations are not made solely onthe outcome of a service delivered ( Roslina AB Wahid 2001)

In order to improve the quality of a specific service industry, it is necessary tomake a comparison between customer’s expectation about a service and theirperception of the way the service has been performed of that service industry

I.1.2 Service quality model

The service quality of a firm is tested at each service that customers receive.Customers always compare the perceived service with the expected service If theperceived service falls bellow the expected service, customers will disappointed.Parasuraman et al (1985) formulated the “Service Quality Model” that highlightsthe main requirements for delivering high service quality The model, shown infigure 1, identifies five gaps that cause unsuccessful delivery:

Gap 1, consumer expectation- management perception gap: management mayhave inaccurate perceptions of what customers actually expect It requires theappropriate management processes, market analysis tools and attitude

Gap 2, service quality specification gap: There may be an inability on the part ofthe management to translate customer expectations into service qualityspecifications This gap relates to aspects of service design

Gap 3, service delivery gap: guidelines for service delivery do notguarantee high-quality service delivery or performance Reasons for this includelack of sufficient support for the frontline staff, process problems, orfrontline/contact staff performance variability

Gap 4, external communication gap: customers’ expectations are affected bystatements made by company representatives and advertisements

Gap 5, perceived service- expected service gap: this gap occurs when thecustomer misperceives the service quality

Management perceptions of consumer expectations

Gap 5

Gap 3

Gap 2

External communications to consumers

Figure 1: Service quality model

Source: Parasuraman, Zeithaml, & Berry (1985)

In short, service quality perceptions result from a comparison between

consumer’s expectation and actual service performance; quality evaluations arenot made solely on the outcome of a service delivered

I.1.3 Determinants of service quality

It is necessary to identify determinants of service quality in order to measure,control, improve service quality Parasuraman et al’s (1985) identified ten detaildeterminants of service quality through focus group of studies: tangibles,reliability, responsiveness, communication, access, competence, courtesy,credibility, security, understanding customer These ten dimensions then purifiedand developed into 5 dimensions: reliability, assurance, responsiveness, tangiblesand empathy to measure service quality

Reliability: reliability is defined as the ability of a service company to perform

the promised service dependably, accurately and consistently (Zeithaml et

al 2006) In other words, reliability means that a company must deliver what itpromises- about delivery, pricing, service provision, promotion

 If the company fails to keep its promises, customer will doubt aboutcompany’s reliability As a financial service provider, Securities Companyshould not distort information or manipulate the truth to promote thecompany’s image or service Securities Company should providecustomers with accurate information and avoid mistake in orderprocessing

Assurance: Assurance is employee’s knowledge and courtesy and their ability to

inspire trust and confidence According to Zeithaml et al (2006), this dimension

is of critical importance for services in which customers face high level of risk orfeel uncertain about their ability to evaluate outcomes such as banking,insurance, and brokerage service

 In financial service, assurance is a determinant of service quality because

it is related to customer’s feeling of security They want to ensure a safeand confidential transaction Securities brokers need to possess a highlevel of expertise in their field They should equip with sufficientknowledge to be able to answer customer questions, analyze theinvestment risk and give the right advice Besides that, securities brokersshould serve customers in polite and friendly way They should servethem in a good manner and express pleasant attitude when talking withcustomers

Responsiveness: Responsiveness is defined as the willingness to help customers

and to provide prompt service (Zeithaml et al, 2006) This dimension emphasizes

on attentiveness and promptness in dealing with customers’ requests, inquiries,

complaints and problems According to Zeithaml et al, (2006), responsivenessmanifest in the length of time customers have to wait for assistance, answer toinquiries, solve to problems as well as the flexibility and ability to customize theservice to customer needs In order to excel on responsiveness dimension,companies are suggested to have a well- staffed customer service departmentsand responsive front-line staff in all contact positions as customers’ perceptions

on responsiveness may diminish

 Securities companies should make it easy and convenient for customers tocontact whenever they have queries or problems It is obviously that when asecurities company has a little or no regard for the customer’s time, they willleave the company

Tangibility: tangibility refers to the appearance of physical facilities, equipment,

personnel, and communication materials (Zeithaml et al, 2006)

 Physical evidence plays an important role in Securities Company becausecustomer will judge service quality through the physical evidenceavailable to them To attract customers and compete with others,Securities Company should emphasize on upgrading and applying newinformation technology to transactional activities

Empathy: Empathy is caring and giving an individualized attention and caring

from the service company to the customer

 Stock Broker should show efforts in understanding customer’s specificneeds Each customer bears the different risk tolerance Stock brokershould understand and offer customized services for their specific needs.Moreover, stock broker should keep in touch with customers by updatingnew service through email, phone call, brochures

I.1.4 Service Quality and Customer Satisfaction

Customer Satisfaction is increasingly recognized as a key factor for success inthe business environment and also a key issue to survive Company mustcontinuously understand and provide what the customer wants The studies haveshow that high levels of service quality can exert a positive influence oncustomer’s satisfaction (Parasuraman et al; 1988) To attain customersatisfaction, the companies need to achieve high quality not only by eliminatingthe causes for direct complaints but they need provide their service with excellentquality

Service quality (Q) and customer satisfaction are often treated together asfunctions of a customer’s perception (P) and expectations (E) Ghobadian,Speller and Jones (1994) stated that quality in a service business is ameasurement of the extent to which the service delivered meets the customer’sexpectations Therefore, practitioners often tend to use the terms servicequality and customer satisfaction inter changeably.

Service quality can be computed by the difference of customer’s perception andexpectation:

P – E = QWhen Q is a negative number, a service gap exists; on the contrast, when Q is apositive number, customer expectations are being exceeded

One of most common method for measuring service quality and assessingcustomer satisfaction is SERVQUAL model developed by Parasuraman,Zeithaml and Berry in 1985, and refined in 1988, 1991 and 1994

I.1.5 The SERVQUAL Model- Measurement of Service Quality

The SERVQUAL model developed by Parasuraman, Zeithaml and Berry, 1988,the most often used approach for measuring the service quality TheSERVQUAL scale is a survey instrument which claims to measure the servicequality in any type of service organization on five dimensions which aretangibles, reliability, assurance, responsiveness, empathy with 22 items Scores

of 22 items are recorded on a five- point Likert scale

Figure 2: Service Quality Determinant

Source: Parasuraman et al (1985)

TANGIBLES

1 An excellent company’s customer service centre will have modern and up to date equipment

2 The office and surroundings in a excellent customer service centre will be visually appealing

3 The staff of an excellent customer service centre will appear in neat and nice clothing

4 The brochures and related material at an excellent customer service centre will be visually appealing

RELIABILITY

5 When an excellent company’s customer service centre promises to do something by a certain time, it isdone so

6 When a customer has a problem the excellent company’s customer service is sympathetic and reassuring inits service

7 Excellent company’s customer service centre will provide their services at the time they promise to do so

8 An excellent customer service centre will perform the service right at first time

9 Excellent company’s customer service centre will insist on keeping its records accurately

RESPONSIVENESS

10 Staff of the excellent customer service centre will tell customers exactly when services will be performed

11 Staff of an excellent customer service centre will give prompt service to their customers

12 Staff of an excellent customer service centre will always be willing to help customers

13 Staff at an excellent customer service centre will never be too busy to respond to customer requests

16 Staff of an excellent customer service centre will always and continuously be polite

17 Staff at an excellent customer service centre will have the knowledge to answer the customers questions

EMPATHY

18 Excellent company’s customer service centre will give individual attention to their customers

19 Excellent customer service centers will have staff who give personal attention to customers

20 Excellent customer service centre will have opening hours convenient to all its customers

21 Excellent company’s customer service centre will have customers best interests at heart

22

Staff of the excellent customer service centre will understand the specific needs of their customers

I.2 Introducing Concepts of Securities Brokerage Service

I.2.1 Definition and Functions

Functions of Securities Brokerage Service

Providing information and consultant service to customers

Securities brokerage service will supply information to investors with facts toassist them in buying and selling stocks In the developed securities market, thebrokers must be skillful in judging the effect of market factors as well as inanalyzing past and present company and industry records Resources the brokersuse include market reports, industry reports, company reports and corporatefinancial statement Thus, besides providing simply service, the brokers must beable to assist customers with investing decision, to suggest a suitable investmentportfolio to mitigate risks and maximize profits

Brokers sometimes should act as a friend of investors They listen and answer allquestions relating to investors’ finance situation, and to some extent, they canhelp investors to find out a solutions

Providing financial service and assisting customers

The duties of securities brokers may vary from assisting them to open a tradingaccount, receiving sell/buy orders, approve the orders to transfer the matchingresults Moreover, brokers should continue to take care of their customers’accounts and update them with information relating to their stocks

I.2.2 Classification of Securities Brokerage Service

Basing on kind of service

Full-service brokers

A broker that provides a large variety of services to its customers, includingresearch and advice, retirement planning, tax, tip, etc…Commissions at full-service brokerages are much higher than those at discount brokers The full-service brokers will meet the customer’s demand and help them to address theirproblems Besides that, full-service broker offer other kind of service that thediscount brokers do not offer

There are several reasons to choose full-service brokers People use a full-servicebroker because they may not want to do their own research; they want advicefrom expertise or they don’t have time to do their own research

Discount Brokers

A brokerage which executes buy and sell orders at commission rates lower than afull-service brokerage, but which typically provides fewer services such asresearch and advice

Discount brokers are the economical way to go if you do not make your ownresearch and make your own investing decision Discount brokers are seriouslycheaper than full service broker

Basing on the activities of securities brokers

Commission house

Commission houses are firms that focus on the purchase and sale of investmentcontracts for the individual accounts of their customers In exchange for thisservice, the commission house charges a fee on each transaction that is known as

a commission This is slightly different from a general brokerage, in that thecommission house engages in transactions related only to customer accounts.Many brokerages also buy and sell contracts for their own account as well as forthe accounts of their clients

Because a commission house usually does not engage in building an in houseportfolio for the business, the firm depends on commission income to maintainand grow the business The most common approach is to debit a customeraccount each time that the commission house makes a purchase or sale that isrelevant to that account This method allows the investor to be able to assess the

amount of expense in each transaction and plan investment strategiesaccordingly

Two-dollar broker

A floor broker who executes orders for other brokers who cannot do itthemselves because they have more business than they can handle at thatparticular time

Registered floor trader

A register floor trader is a member of a stock or commodities exchange whotrades on the floor of that exchange for his or her own account The registeredfloor trader must abide by trading rules similar to those of the exchange specialistwho trade on behalf of others

I.2.3 Introduction of Vietnamese Securities Market

On July 1998, the Ho Chi Minh securities trading Center (HOSTC) and HanoiSecurities Trading Center (HASTC), was established by the decision number127/198/QQDD-TTg by the Prime Minister Two securities trading centers areorganized under the direct administration and regulation of the SSC with thefollowing functions and tasks:

 Organize, manage, operate the securities trading system

 Perform the functions of custody, clearing, settlements for securitiestransactions,

 Conducts examination, supervision the securities trading activities

After preparation stage, the HOSTC, the first securities trading centre, wasofficially opened on 20th July, 2000, and trading commenced on July 28, 2000which marked the formal launch of Vietnam securities market At the openingtrading session, only 2 stocks, Refrigeration Electrical Engineering Joint StockCorporation (REE) and Sai Gon Cable and Telecommunication Material JointStock Company (SAM) were traded on the market, with a total marketcapitalization of VND 444,000 million

On 8th March 2005, Hanoi Securities Trading Centre (HASTC), the secondsecurities trading centre, was formally brought into operation

On 8th August 2007, Ho Chi Minh securities trading Center (HOSTC) haschanged its name to Ho Chi Minh Stock Exchange (HOSE)

Up to now, Vietnam securities market has experienced more than 8 years ofoperation with much rises and falls and has considerably contributed to theeconomic progress of the country Up to present (March,2009), the total numbers

of securities traded are 180 stocks in HOSE and 177 stocks in HASTC

The period of 2000- 2005, when securities market is still a new concept for most

of Vietnamese, securities brokerage service is very simple At that time,brokerage service merely made transaction to customers

The period of late 2005- early 2007 marked the most spectacular development inthe securities market with the historic peak of VN- Index at 1170.6 points onMarch 12, 2007.The concept of securities market is known by every social class.There is a tremendous increasing in the securities accounts The demand foropening trading account is far exceed the capacity of securities companies In thisperiod, customers’ interest was ignored and the quality of brokerage service isvery poor There is a lack of qualified stock brokers

Vietnam’s securities market has entered into its gloomiest period since April,

2007 On February 24, 2009 VN-Index plunged to the 235 points which is equal

to VNIndex four years earlier The figure 3 shows the fluctuation of VNIndex

from the 2000-2009

Figure 3 VNIndex from 2000 to 2009

Source: VNDirect website

Securities Companies felt into the hardship period as they have to struggle tosurvive To attract customers and enhance competitiveness, Securities Companyhave launched many new services And in order to seize more market share, theyhave to reduce transaction fee and offer many other promotions They soonaware that enhancing quality of brokerage service is of the most importance toattract customers.

CHAPTER II: VNDIRECT AND ITS SECURITIES

BROKERAGE SERVICE

II.1 Overview of VNDirect Securities Company

II.1.1 Company Background

VNDirect Securities Company (VNDirect) was found in 07/11/2006 under thelicense 22/UBCK issued by the State Securities Commission in 2006 Its headquarter located at No1 Nguyen Thuong Hien Street, Hai Ba Trung District, HaNoi (The company moved its headquarter from 100 Lo Duc Street to NguyenThuong Hien Street since 17, December, 2008) As a full service broking houselicensed by the State Securities Commission in 2006, the Company offersservices in securities trading, custodian services, and corporate finance advisoryand underwriting services The company currently has about 120 staff, 90 staff at

Ha Noi head quarter and 30 staff at Ho Chi Minh branch

With initial registered capital of VND50 billion (US$3.5 million), after 1 year ofoperation, VNDirect has increased its shareholder capital to VND 300 billion(US$18 million) and VND 1400 billion (US$87.5 million) in assets Emerging asone of the new-established but dynamic securities companies, VNDirect hasdeveloped a wide network of branches and agents in all the big cities andregional hubs: Hanoi, Hochiminh City, Hai Phong, Nam Dinh, Ninh Binh, QuangNinh, Da Nang, Can Tho, and Vung Tau

Historic milestone

 07/11/2006 :VNDirect was licensed by State SecuritiesCommission

 08/05/2007 :VNDirect established branch in Ho Chi Minh City

 11/05/2007 :VNDirect increased its registered capital to VND

model As a small size company, one department can in charge of different tasks.Head quarter in Ha Noi and branch in Ho Chi Minh have the same organizationstructure They both report to Board of Management The company’sorganization is shown in the Figure 3:

Figure 4 VNDirect's Organization Structure

Source: Vndirect Securities Company

II.1.3 Business activities

Securities Brokerage Service

Brokerage team is organized into 2 main groups; one is taking care of localinvestors and the others taking care of foreign investors The foreign investorbrokerage group is further structured into 3 sub-groups based on the language ofclients: Chinese, Japanese and English These types of classifications allowtailoring service and products to better meet client needs

Board ofManagement

Board ofDirector

VNDS offers service brokerage for both retail and institutional clients through 3channels:

 Floor trading: Orders can be placed at VNDirect facilitates in Ha Noi and

Ho Chi Minh City as well as a nationwide network of agencies

 Telephone broker: Orders are handled in four languages: Vietnamese,English, Chinese and Japanese VNDirect also offers SMSDirect service,which enables customers to check the status of their account, receive ordermatching results

 Online trading from VNDirect website www.vndirect.com.vn Onlinecustomers can place orders, check order matching status and status of theirtrading account with VNDirect

VNDirect Brokerage services also offer other value-added services to theircustomers such as advanced payments, securities-backed loans, repurchaseagreements and market information

Research and Investment Advisory

VNDirect provides investors with analysis of fundamentals and relevant updatedinformation of companies and the stock market Research products covermultiple areas: Economics Research, Sector Report, Market Strategy, MarketInsight, and Equity Research Based on intensive research activities, investmentadvisory team provides clients with up-to-date information on marketmovements, new investment opportunities and in-depth research of qualitygrowth companies to make an informed investment decision

Corporate Finance Advisory

VNDirect team members have strengths with respect to market knowledge andtransaction experience in Vietnam VNDirect's client is spread across a widerange of industry coverage areas such as: consumer, energy & power, financialinstitutions, transportation, real estate, retail, information and communicationtechnology By combining financial valuation techniques and industry expertise,VNDirect is able to offer customers accurate valuations of business and assets.VNDirect offers finance service including:

- Mergers and Acquisitions

II.2 Overview of Securities Brokerage Service

II.2.1 Activities of Securities Brokerage Service

Opening securities trading accounts

One of the duties of brokerage service is to open trading account for customers.VNDirect Brokers will assist customers to open their account with free of charge.Customers will be provided a set of opening account instruction includingtelephone and online trading instruction

Executing customers’ order

After opening a trading account, investors can place their orders through 3

channels:

 Floor trading: This is the traditional method of placing orders Orders can

be placed direct at VNDirect facilitates in Ha Noi and Ho Chi Minh City

as well as a nationwide network of agencies They will file in the buy/sellorder and give them to brokers Brokers will then input those order intothe system At present, the floor trading method accounts for 20% of totalorders placing

 Telephone: Investors can place their orders by calling to brokers and tellthem their password The brokers will input customer’s order into thesystem At the moment, VNDirect has 10 lines with 10 part-time tele-brokers Telephone channel accounts for 40% of total orders placing

 Online: With online service, customers can place order, check ordermatching status and status of their trading account Their orders candirectly go to company’s system Online channel also accounts for 40% oftotal orders

Of three channels, online service is the most favor method of placing ordersbecause of its advantages It doesn’t require the involvement of securities brokers

in process of placing orders Therefore, the orders will be more precisely andreduce the risk for the securities company as the customers place their orders bythemselves Moreover, online trading method will reduce the administrationexpenses such as salaries for securities brokers, facilities expenses….VNDirectnow encourage customers to use online trading method by offer a lower rate of

trading fee with many advantages such as view order, check balance, checktransaction history…

Before placing buy/sell orders, investors must have sufficient fund (securities) intheir account

Trading method is based on the automatic order matching (AOM) trading.

AOM Trading performs the order matching process according to price-then-time,priority, without human intervention After traders of brokerage firm key in buy

or sell orders into the securities trading center’s terminals, the system queues theorders and arranges them according to a price-then-time priority Orders are firstgrouped according to price, with the best price taking precedence There are twomatching methods:

 Periodic Order Matching: Buy and sell orders are inputted in the tradingsystem and queued for matching at a specified time at a single price thatgenerates the greatest trading volumes for that particular stock Thismatching method is used to determine the opening price and closing price

of a particular stock

 Continuous Order Matching: The trading system continuously matches thefirst buy and sells orders in the queue, and at the same time, confirms eachexecuted transaction via the member’s terminal

There are 3 types of order: Limited order, At The Opening Order (ATO), At The

at the end of the opening session

 At The Closing (ATO) orders: Orders that are to be matched at the closingprice ATC orders receive higher priority than limit orders Partially filled

or unmatched ATC orders shall be automatically canceled at the end of theclosing session

Providing Custody Services

Client can be provided with all of security custody services, as follows:

 Transfer and settle securities: customer can use the Certificate ofstockholder for this service After filling in Security Deposit Application,

all the security trading orders will be carried out by entries of debit/credit

in the client’s account in VNDirect

 Receive securities entitlements: Securities entitlements like bonus andrights can be credited to customer’s account electronically Cash benefitslike dividends and interest will be forwarded to you directly and notthrough the depository

 Freeze or lock your account: Customer can request VNDirect to freezetheir securities to take out the loans in which the mortgage is securities.When completing financial obligation, client’s account will be unlockedimmediately for normal trading The custody service of VNDirect willhelp individual and institutional investors avoiding legal complication andadministrative cost

Providing Financial Assistance

To meet the capital needs of customers’ investment activities, VNDirectcooperates with Bank of Investment and Development of Vietnam (BIDV) toprovide the following finance services:

 Payment in advance: this service allows clients to receive moneyimmediately after the matching result

 Collateralized Loans: Clients can use the securities in their custodyaccount in VNDirect as the collaterals to borrow funds for investment inlisted securities

II.2.2 Securities Brokerage Service Performance

Number of customer accounts

After 2 year of operation, VNDirect has gained the initial encouragedachievements At present, VNDirect has reached to 14,000 securities accounts In

2007, at the high time of the securities market, there were 1,300-1,800 newopening accounts per month We can observe the high growth of VNDS byfollowing chart:

Dec- 07

Jan- 07

Feb- 07

Mar- 07

Apr- 07

May- 07

Jun-Jul-07

Aug-07

07

Sep- 07

Oct- 07

Nov- 07

Dec-Figure 5 Growth of securities accounts at VNDS in 2007 Source: VNDirect brokerage service department

However, due to the slowdown of Vietnamese securities market from early 2008

to present, the number of opening accounts has been reduced sharply, about

110-140 new opening accounts per month

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08

Figure 6 Growth of securities accounts at VNDS in 2008

Source: VNDirect brokerage service department

Besides looking into the number of opening accounts, we should also look into

the number of closing accounts There are many reasons for clients to close their

accounts, for example they prefer a convenient place such as near their home or

their office; however one of the reasons that customer decide to close their

account is the poor quality of service The number of closing accounts in

VNDirect is relatively low In half of 2008, when the stock market fell deeply

and newly established companies launched promotion programs to attract more

customers, each month only 20 - 30 customers close their accounts at VNDirect

Figure 7 Numbers of opening accounts and closing accounts

Source: VNDirect brokerage service department

Moreover, the percentage of institutional and foreign investors accounts is very

low Of 13,615 accounts, institutional investors make up only 38 accounts;

foreign investors make up 347 accounts As a result, the local individual

investors accounts for the majority of the total accounts These facts prove that

VNDirect hasn’t paid much attention to these 2 groups of investors

individual investorsforeign investorsinstitutional investors

Figure 8 Percentage of individual, institutional and foreign accounts

Source: VNDirect customer service department

Number of active trading accounts

Not all customers opening their accounts in VNDirect are active accounts Many

of them open their accounts without trading or trading irregularly As a result,VNDirect cannot receive trading fee from these accounts At the high time of themarket in 2007, about 12% were active However, when the market fell deeply,

only 4%-6% were active (Source: VNDirect Brokerage Service Dept) In addition

to the slump down of the securities market, the another reason is: the companyhasn’t provided with enough client’s care policies by giving timely informationand accurate advisory about securities market to promote them trade regularly

Market Share

As one of the newly established securities companies, VNDirect has attainedsome encouraged achievements VNDirect is one of the top 20th securitiescompanies has the largest market share Within the newly established group,VNDirect is considered as a leader in term of market share VNDirect accountsfor as much as 2% in term of brokerage market share (2.8% of Ha Noi securitiestrading center and 1.2% of Ho Chi Minh stock exchange) However, there is awide gap compared to the top leading securities companies such as SSI SecuritiesCompany (14.5%), Bao Viet Securities Company (7.9%), and ACB bankSecurities Company (6.1%)

90 Others

Figure 9 Securities Market Share

Source: APT Vietnam

Revenue from Brokerage Service

In 2007, Revenue from securities service reached more than 46 billion

(accounting for more than 14.37% of total revenue of the company) In the 2008,

revenue from securities brokerage service has been reduced to 34,6 billion due to

the slump down of the stock market However, brokerage service still plays

important part of company’s revenue as it accounts for 17% of total revenue

Source: VNDirect Accounting Department

II.2.3 SWOT Analysis of Brokerage Service

II.2.3.1 Strengths

Human Resource

Staffs play a primary role in determining quality of service and creating aprofessional and competitive environment of VNDirect Awareness theimportance of human resource for the development of the company, VNDirecthas paid much attention to recruitment and training staff at first VNDirect hasattracted talent staff who graduated from well-known domestic and abroaduniversities VNDS has provided specialized training to all staff withfundamental knowledge on stock and stock market Energetic employees withpractical experiences and well-trained knowledge are the powerful motive for thecontinuous development of VNDirect

Besides that, the Company’s management team includes of financial specialistswith ever extended knowledge, experiences, strategic vision, and long-termbusiness relationships in VN Stock Market Each member in the Board ofDirectors is running key positions in well-known financial institutions,companies and organizations in Vietnam

Technologies and Facilities

VNDirect is equipped with the modern infrastructure system and much ofprecious advantages: spacious trading floor with total area of more than 200m2,modern equipment and facilities, convenient location With 9 computers,customers can easily place their online orders; check their account status,matching status or search for information The trading floor is also equipped with

2 large screen showing HOSE real-time Quotes and HASTC real-time Quotes.Besides that, VNDirect has 2 VIP rooms with modern facilities to serve VIPcustomers

VNDirect always emphasizes the importance of upgrading and applying newinformation technology to transactional activities Most Vietnamese securitiescompanies now use local software because it is cheap, easy to install and easy touse However, the downside is that locally produced software can’t keep up withthe changes that constantly occur in the securities market because local software

is not entirely secure or flexible design Many others decide to use foreign-madesoftware This foreign software is expensive, difficult to use as it wasn’t designed

to meet the needs of Vietnamese securities market VNDirect’s current software

is the achievement of cooperation between VNDirect and FPT This software has

many advantages over the local made software This is a software solutionconsisting of front-office, back-office and other applications that can fully meetthe requirements of Vietnamese securities market today and the future.Moreover, in order to meet the requirement of constantly changes securitiesmarket, VNDirect sets up a business solution department with many IT experts.The duty of this department is to upgrade the software and develop manysoftware solutions to introduce new services for the need of customer’s demand.VNDirect is the leading company who introduced E-trading by developingeffective IT system.

II.2.3.2 Weaknesses

Lack of customer-oriented strategy

The local individual investors accounts for the majority of the total accountswhile the percentage of institutional and foreign investors is very low Of 13,615accounts, institutional investors make up only 38 accounts; foreign investorsmake up 347 accounts These groups of customers are very important as theyoften bring huge profits for the company However, VNDS hasn’t launched anymarketing strategy to attract these potential customers

Limited financial resource

Securities market requires continually upgraded equipment and moderntechnology Securities will have to spend large sum of money to buy modernsoftware, compatible to the systems of banks and Hanoi and Hochiminh Citytrading floor, pay top salaries to high qualified staff Large securities companieswith a strong affiliates (banks, insurance or foreign strategic partners) havesignificant advantage over the small and medium size ones It will be difficultiesfor VNDS to call up capital to expand its business and invest in moderntechnologies

II.2.3.3 Opportunities

Securities market depends on the pace of Vietnamese economy’s recovery aswell as the development in the global economy Stock market is believed to meetdifficulties in the short-time However in the long run, the country’s stock marketwill be rebound along with the recovery of the economy And Securities sector isstill in the early development stage, there will be a lot of opportunities forsecurities companies In fact the number of accounts opened so far remainsmodest (only more than 320,000 accounts for more than 80 million of people),

most in Hanoi and Hochiminh City Therefore, the market still promises manybusiness opportunities

II.2.3.4 Threats

Impact of global economic crisis

Vietnamese economy and the stock market will continue to face difficulties andchallenges in the current global economic context The global economic crisiswill slow the flow of foreign investment into Vietnam There will be foreignsecurities investors withdrawing their capital from the Vietnamese securitiesmarket and this will reduce foreign currency resources, lower stock values andhave an overall negative impact on the Vietnamese economy According toHSBC’s latest report, Vietnam’s stock market in 2008 was the worst performer inthe world as it lost a total of 65.9% its value Securities Companies are believed

to face difficulties in 2009 as they will continue to suffer losses event dissolve Inorder to survive, many of securities companies have to sell stakes to strongerpartners, allowing them to take advantage of partners’ superior capital resourcesand experience

Fierce Competition

2006 witnessed the stock market boom and there were few securities companies

At that time, they did not have to compete with each other to seize market share

At present, there are more than 90 securities operating in Vietnam Since theslowdown of the securities market at the end of 2007, there will be a fiercecompetition among securities companies to attract customers Large securitiescompanies with a strong affiliates (banks, insurance or foreign strategic partners)have significant advantage It will be easier for them to mobilize capital forbusiness expansion and invest in modern IT that will enable them to improve

their services and products It is estimated that about 40% of securities

companies will have to leave the playing field due to increasing competition Thecompetition will become stiffer as by 2012, 100% foreign owned securitiescompanies will be allowed to set up in Vietnam

CHAPTER III: ANALYZING AND EVALUATING

CUSTOMER SATISFACTION OF SERVICE QUALITY

Service quality has been defined as how well a customer’s needs are met, andhow well the service delivered meets the customer’s expectation It is clear thatthe better the quality of service, the greater the customer satisfaction Customersare the great source of information for management on how the organization canimprove quality of service Customer satisfaction is achieved when thecustomer’s needs and want are fulfilled Through customers’ survey, customerscan help management to determine which service area are most in need ofimprovement

In this chapter, a questionnaire was conducted to identify customer satisfactiontoward service quality in VNDirect The data collected will be analyzed to findout the areas needed to improve

III.1 Data Collection of the Research

In order to answer the core of the research problem “Quality of Brokerageservice at VNDirect”, the information from customers perspectives play animportant role Questionnaires were conducted to find out customer’s perceptionabout service quality at VNDirect The questionnaire is designed in accordancewith the theoretical framework consisting of the Service Quality Gap and theSERVQUAL dimensions

III.1.1 Sampling Size

At the moment VNDirect has about 13,500 trading accounts Unfortunately, anumber of them do not have transaction for along time So researcher decided tochoose active traders to hand out the survey Customers are selected at randombut he/she must be an active trader and have transaction with VNDirect at least 3months

III.1.2 Distribution of questionnaire

200 questionnaires were distributed to customers by email However, only 146 ofthe questionnaires are filled up completely

As the target respondents are Vietnamese, the questionnaires is designed into twoversions: one in Vietnamese and the other in English The questionnaires aredistributed to customers via email from October to November, 2008 .

III.1.3 The formulation of questionnaire

In order to improve and test the questionnaire, the researcher hand out the pilotquestionnaire to VNDirect’s employees who are familiar with stock market andquite understand the customer’s needs and asked whether the statements makesense and easy to understand And after refining some questions, the well-improved questionnaire was developed as follows:

Part I: This part consists of 5 dimensions with 26 attributes with an aim to find

out customer’s perception about quality of service at VNDirect

Reliability:

The research would like to divide this dimension in to sub-group of questions:

Group 1: The questions regarding to the accuracy, transparency and safety of

the service that VNDirect provides (Q5, Q6, and Q7)

Group 2: Information is very important in securities market as it has a great

impact at customer’s investment decisions Information that a securities companyshould provide including daily reports, monthly reports, annual reports, expert’sanalysis, news, market forecast… Information comes from various sources such

as trading floor, website, and stock brokers Up to dated, correct and transparentinformation will help customers in giving right investment decision Theresearcher want to know whether information that VNDirect provides is usefulfor customers or not (Q10) and which source of information should be improved

to gain customer’s reliability (Q8, Q9)

Group 3: Speed of order processing- Vietnamese stock market is at the initial

stage and use conventional method of trading Stock brokers receive customers’orders and then input them into the trading system It requires the involvement ofhuman being in processing the order Therefore, fast speed of stock brokers inprocessing customers’ orders is highly appreciated There are 3 channels toreceive customer’s order: at floor, through telephone, online service (Q11, Q12,and Q13)

Group 4: The ability to keep promises in sending order matching status quickly,

balance trading accounts on schedule