Building the strategy to develop international payment services in Vietnam Joint Stock Commercial bank for industry and trade

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM BUILDING THE STRATEGY TO DEVELOP INTERNATIONAL PAYMENT SERVICES IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR IND

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

BUILDING THE STRATEGY TO DEVELOP INTERNATIONAL PAYMENT SERVICES IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR

INDUSTRY AND TRADE

Group Number: 09

Class: GaMBA01.X0310 Student’s name: Mai Khac Chinh

Tieu Thanh Long Pham Kieu Van Dinh Thai Lam

HANOI: 2011

C3 _ VietinBanlc=> >

CONFIRMATION OF VIETNAM JOINT STOCK COMMERCIAL BANK FOR

INDUSTRY AND TRADE HUNG YEN BRANCH

We Vietnam Joint Stock Commercial Bank For Industry And Trade - Hungyen Branch confirm that we agree the research group including the members

mentioned below to be allowed to get access to the internal documents, data as

Well as contact with the operation fact to study about the strategic orientations of Vietnam Joint Stock Commercial Bank For Industry And Trade serving the research purpose of the group to complete the MBA course:

1 Mai Khac Chinh

2 Tieu Thanh Long

3 Pham Kieu Van

4 Dinh Thai Lam

Hungyen, November 30" 2011

DEPUTY DIRECTOR

fle — Nguyen Thi Ven

NTRODUCTION

1 The necessity of topic

In the trend of strongly internationalizing international economy, Vietnam’s economy is step by step integrating the regional and international economy On

January 11" 2007, Vietnam officially became the 150" member of World Trade

Organization (WTO) This was an important event which opened the opportunities as well as the challenges to Vietnam’ economy so that it integrates in the international economy deeply and widely, continuously promoting the industrialization and modernization of country

The development of foreign trade and international investment require the non- stopping development of payment, currency relation and international banking services The commercial banks play role as the bridge connecting the above economic relation Export-import payment is one of the important professions of commercial banks The good operation of export-import payment activity of commercial banks contributes to the promotion of business of Vietnam’ enterprises,

in particular, and Vietnam’s foreign trade, in general The export-import payment brings the great benefits to the commercial banks External the service fees, commercial banks also develop other professions such as foreign currency profession, export-import financing profession, and_ international guarantee

profession, etc

Besides, since April 1°' 2007, to implement the process under the commitment when Vietnam joined WTO, the foreign banks are able to establish the sub-bank with 100% foreign capital in Vietnam This brought the Vietnam’s commercial

banks in general and state commercial banks in particular in great threats and challenges of competitiveness in Vietnam The competitive pressure for State commercial banks is not only from the foreign banks, but also from the joint stock commercial banks Therefore, although the market share of state banks still

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dominates the market, the decrease of market share in this bank block is considered

as a dispensable movement

Facing to this pressure, in order to survive, develop in competitiveness and do well the role of economy’s bridge, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), one of the big commercial banks, considered the export-import payment activity as one of the important tasks in upcoming years To survive and develop, Vietinbank need to build a strategy The building of suitable strategy has extremely important meaning; the timely strategy direction and adjustment is the foundation for great benefits of enterprise

Understanding the importance of building the business strategy of enterprise as well

as the development of Vietinbank in the integration, our group did research and chose the topic: “Building the strategy to develop international payment services in Vietnam Joint Stock Commercial Bank for Industry and Trade” to be research target and hope to choose a right direction for Vietinbank in the future

International payment services can be considered as a strategic business unit (SBU)

of VietinBank because of the following reasons:

- VietinBank just established an International Payment Transaction Office for international payment services which is located in Cua Nam Street, Hanoi This Office is independent and fully functional as both cost and profit center

of VietinBank

| - VietinBank_has fully delegates authority and responsibility The International

Payment Transaction Office to a senior executive who reports directly to the

| General Director of VietinBank

2 Purposes of research

- Systematize the theories and methodology about business strategy of

enterprise

- Build the business strategy for international payment services

- Define target and propose solutions to develop that SBU

3 Scale of research

- The theories about business strategies of enterprise

- Building the international payment service product business development in Vietinbank and solutions, detailed methods to implement the business strategy

4 Method of research

Group does research based on the knowledge to evaluate all the results of international payment service product business of Vietinbank Otherwise, we also use methods of statistic, analysis, predictability and collection based on the collected data to analyze the service business of bank and propose the business strategies for Vietinbank in integration condition

5 Structure of report

External the introduction, conclusion and reference, main content of the report

includes 3 chapters:

- Chapter |: Several basic theories on business strategies

- Chapter 2: Real situation about activities of doing business the international payment service products in Vietinbank

- Chapter 3: Targets and solutions to develop the international payment service products business in Vietinbank

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CHAPTER 1: INTRODUCTION OF BUSINESS STRATEGY AND

INTERNATIONAL PAYMENT SERVICE 1.1 General introduction about business strategy

1.1.1 Definition of business strategy

Business strategy is researched by a lot of economist and they have bought out many definitions of the term “business strategy” like:

Business strategy is the art:

- Alain Threlart assumes that “The strategy is the art that enterprise uses against competition and wins”

- M.Porter thinks that “The strategy is the art setting up steady competitive advantages to defend”

- Hence, those authors believed that business strategy is a type of art to compete in market and develop enterprise

According to concept in management aspect, business strategy is a type of plan

- G.Arlleret thinks that “Strategy is defining ways and means to reach established targets through policies”

- D.Bizrell and the author team assert that “Strategy is likely a general plan directing and orienting enterprise towards expected goals It is the basis to form policies and operating methods”

- Gluecl assumes that: “Strategy is a consistent, comprehensive, and genera kind of plan which is designed to ensure performance of enterprise’s goals

According to concept of combining unity:

- “Business strategy is the art of combining and controlling activities to get long-term goals of enterprise”

- Chandler considers strategy consists of defining long-term basic goals of company; selecting measures or action process; distributing essential forces and carrying out those targets

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In business, “Business strategy is the art of designing, organizing means to reach long-term goals of company and it connects with changes of business and competitive environment”

1.1.2 Attributes of business strategies

- Business strategy identifies basic goals and management direction of enterprises in each period

- Business strategy is oriented in order to ensure the continuous and constant development for firms in highly fluctuated financial environment

- Business strategy is the guarantee for the maximum mobilization and optimal combination of exploitation and utilization of firm’s resources in current and future Therefore, it can encourage competitive advantages in long run

- Business strategy of firms is reflected during the continuous process from the building plan step to implementation step and supervision step

- Business strategy is often the offensive strategy It is established and built

up on the basis of detecting and taking advantages of business opportunities, competitive advantages of firms to gain the highest operation efficiency

- Business strategy is built up through a long period of time (3.5 to 10 years) Therefore, business strategy has characteristics of long term tactic and is specified

in short term strategies, which are also called plans

1.1.3 Role of business strategy

According to modern business strategy, it is incapable to hedge changes of market without specific and flexible business strategy, which is really offensive Only by this way, firms can detect worthy opportunities or risks in order to give out

suitable policies Lack of business strategy, firms is unable to run its business

effectively, even lead to bankruptcy Therefore, business strategy has really important role in the operation and development of a business:

- Business strategy helps business determine clearly its purpose, direction as

a basis for its all business activities

- Business strategy helps business reach financial chances and, simultaneously, have active measures to overcome risks and threats from competitive market

- Business strategy contributes to the increase of the efficiency of using resources, consolidates competitive position of firm, ensures for its constant development in the future

- Business strategy creates solid base for giving policies and determining suitable business activities to market fluctuations

1.2 Process of building business strategy

1.2.1 Analysis of business environment

Analysis of business environment of firms is the process of considering different environmental factors and determining influential level of opportunities and threats to firm The expectation is based on reliable analysis and assessment basis in order to take advantages of opportunities or to be active with financial and

business risks to firm

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Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

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1.2.1.1 Macro environment

Economic environment:

Macro environment is a really important factor which can not be ignored by strategy planners It changes create different opportunities as well as threats to each firm in different fields Environmental positions of macro environment are the main decisive factor and become the power of the whole economy:

- Growth rate of economy indicates the economic variation by the time Marx says that economic circle includes 4 steps: Crisis - Recovery — Depression and Flourishing When the economy is in the depression or crisis, income of residents decreases, consumption decreases and production is loss This is a difficult period to firms Vice versa, in the economic upward, enterprises have many opportunities to expand their scale and develop

- Interest rate: is one of monetary factors and is the typical factor which every firm makes concern Both high or low interest rate affect directly to business and market demand because it is the contributing factor of firm’s cost Interest rate fluctuation is influenced dramatically by the monetary policy of the Government

- Exchange rate: always has direct effect on activities of enterprises with foreign elements such as import — export enterprise, enterprises using direct or indirect foreign input or output The change of exchange rate directly affects the company competition in the international market

- Inflation: is always threat to business activities One of bad effects inflation

to the whole economy is that it can decrease the stability of the economy and reduce

economic growth In long run, inflation reduces investment efficiency of firms and

brings hidden risks, thus, businesses develop slowly, growth rate of economy is negatively affected

Politic and legislation environment:

Politic and legislation factors affect developing strategy of enterprises in different directions They may be opportunities to this firm but in contrast, be disadvantage to other firms Stable politic brings good condition for developing

economy, vice versa, unstable politic will have negative influences on economy Besides, running in an economy which are adjusted by strict law system, enterprises may face both advantages and disadvantages because a clear and full law system will create healthy competitive environment and be a foundation for an attractive environment in the future One of the typical trends in recent years is the redirection

to deregulation The eradication of exhibitions and regulations makes the import barrier become lessen and creates an intensive competition in some fields of industry In addition, the policy of encouraging various economic elements to include actively in business activities is the risk for state owned firms but the great opportunity for private enterprises because they can participate in the market more conveniently and easily

Technical environment:

Technical progressions have influence on many aspects of the whole society These impacts are through products, technical process and new materials Directions and fluctuations in technology may be chance for enterprises which are able to mobilize capital quickly and effectively, but vice versa, it is threat for firms fixed with old technologies and slow to adjust One of the most important effects of changing technology is on barriers of import and export and the restructuring thoroughly sector’s structure as well as on the creation of new jobs

According to M Porter, technological change is not important to

technological benefit itself, but it is important if it impacts on competitive

advantages and sector’s structure On the other hand, the development of technology will shorten product circle, thus, firms should pay attention to the trend

of technological innovation Every firm has relation with many different and related kinds of technology Its business activities also have that various relation Therefore, an technology is very important to competition if it impacts on firm’s competitive advantages or on structure of financial sectors

Cultural and social environment:

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Cultural values and social attitude build up the foundation of society, thus, it yften results in changes in conditions of technology, politic — legislation, economy and human Cultural and social environment may affect on strategic decisions such as: selecting fields and item of goods, selecting brand name, color, form distribution channels Social change in concept of life meaning and consumption meaning also orings opportunity as well as threats to firms

Natural environment:

In comparison with economic, politic, cultural, social, technological factors,

effect of natural factor is very difficult to expect The fluctuation of natural factors such as climate change, flood or disasters is always hidden risks to enterprises, especially those which have direct relation to natural environment like agricultural enterprises

International environment (globalization):

In the condition of strong globalization happening all over the world recently, the internationalization is not an option but an inevitability Issues of globalization affect dramatically on operating and business activities of enterprises

in every aspects such as output market, input sources, finance, human resource Globalization brings many great benefits for enterprises, however, it also consists some complex issues due to graphical scale and differences of cultures, societies and politics

1.2.1.2 Business sector environment

Business sector environment includes all factors which directly influence decision making of firms in one sector A business sector consists many firms which have supplement or substitute products or services, so the concern is how firms analyze and expect competitors in its business sector in order to identify opportunities as well as risks The following is a popular model of Michael Porter with 5 competitive forces Five main factors affect to company’s operation as: potential rivals, suppliers, customers, current rivals and substitute products The below table will indicate the affection of these factors to company

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Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

Figure 1.2: Michael Porter’s five forces model Right of customers:

Customers are consumers of firm’s products, services Customers can put pressure on firms by requests of discount or requirement of higher quality products, better services Therefore, these requirements of customers may be factors to reduce profits of enterprises in the sector However, the high or low ability to pressure of customers depends on the correlation between business forces and their customers The relationship between them may become threats or chances for enterprises in the sectors of economy

Customer pressure depends on the following factors:

Concentration of customers: in a field, the higher the quantity of customers

is, the more competition they deal with

Ratio of purchasing activities: measured by the ratio of amount of money for shopping and total expenditures of customers The higher this ratio is, the higher pressure customers put on firms

The difference of products and transfer cost of this supplier to other, paid by customers The higher the shipping cost, the lower the pressure customers have on firms

Level of information about products and customer services

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Threat of merge: have bad effect on price and profits of enterprise These enterprises must take actions to prevent customers from merging

Authority of suppliers:

Suppliers are able to pressure on firms through price of input, quality or payment methods In specific, suppliers can create threats to firms when they increase selling price of goods or decrease input quality Vice versa, with supportive suppliers, firms may have opportunity of price deduction or higher quality of goods

Authority of suppliers depends on:

- Quantity of suppliers: If suppliers are concentrated while firms in sector are diverse, the pressure of suppliers on firms is very high That is the reason why firms never depend on one supplier only

- Number of substitutes for products, services of suppliers: The more substitute of goods and services, the lower the pressure of suppliers is

- Costs of changing suppliers: If this cost is high, the pressure of suppliers on firms is high, obviously

- Ability of integration: the higher this ability is, the lower the pressure of suppliers on firms

Analysis of competitors within business sector Companies within a business sector or in the same field of business are considered as competitors or rivals Each field has specific competition problems

The competition becomes more severe in the international scale, within all fields

Therefore, organizations should have relevant information of their competitors

through different ways in order to support for business planning and making suitable business strategies Moreover, it is needed for enterprises to determine and identify both current competitors and new ones, due to their threats to business activities of organization

Competitive intensity in industry: Competition in industry will increase when:

- There are many competitors or the competitors have equal strength

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- The industry is slowly developing or going down

- Fixed cost or storage is high

- It is difficult to make change or transferring cost is low

- Strategic interest is high

- There are many obstacles when a company wants to leave industry

Analyzing potential new rivals

Potential competitors are those who now do not appear in industry but possibly join in industry The more new companies are, the more difficult the old face up in getting market share and gain profit Therefore, the higher threat from new potential entries is, the bigger impact on interest of firms is, and vice verse As

a result, information about potential rivals is so significant for enterprise to plan

Strategy

The threats from potential competitors depend on:

- The customers’ loyalty towards brand name of products of the firm in industry

- Cost advantage of the firms in industry since they have experience in the familiar sector

- Approaching material sources

The bigger factors of barriers against industry joining are, the more difficulty they cause to the goal of potential competitors in joining industry

The substitute products

They are the goods which like products of the firms in industry can meet the needs of customers The more similar the substitutions are to products of enterprises

in industry, the greater threats are to the enterprises This probably restricts price, sales and impacts on profit of enterprise If there are few substitutions, enterprise will have chance to increase price and get more earnings Thus, enterprises should aim to take advantage of this aspect

Competitive environment:

In order to from a long-term orientation or strategic decision, the managers have to comprehend clearly strategic status, nature of company, competitive conditions it has to cope with, measures to matching forces and capacity for those conditions

So as to assess competitive climate of an industry, it must clarify the key issues on:

- The outstanding economic features of industry;

- The competitive forces in industry, character, strength of each;

- The motivations causing changes in industry and their impacts;

- The companies in the strongest and weakest positions in industry, who possibly creates next moving in industry;

- The primary factors for successful competition, industry attractiveness in term of profitability over average

1.3 Setting up matrixes to select business strategy

1.3.1 Externai factor evaluation matrix (EFE)

EFE matrix evaluates external factors, synthesizes and summarizes main

opportunities of external environment which impact on operation of enterprise Then corporate managers can assist reaction level of enterprise to chances, threats and give arguments whether external factors are advantages or difficulties for enterprise The steps to set up this matrix are:

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- Step 1: Make a list of factors as key opportunities and threats which are considered as great impacts on success of enterprises in business sector/industry

- Step 2: Assign weight to each factor, depending on influencing level on industry

- Step 3: Assign a rating to each factor up to reacting level of enterprises to the factors

- Step 4: Multiply weight of each factor by its rating to define the weight score of each factor

- Step 5: Evaluate effecting level of factors

13.2 Internal factor evaluation matrix (IFE)

Internal factors are appropriated as such importance in business strategy and targets which enterprise establishes After judging internal factors, the strategic managers ought to build up matrix from these factors aiming to assess ability of reaction and argument on strengths and weaknesses As a result, enterprise can explore maximum strengths and prepare to face up weaknesses and look for method

to improve the weaknesses There are five steps to set up IEF matrix:

- Step 1: Make a list of factors as basic strengths and weaknesses impacting

on companies or their targets established

- Step 2: Assign weight to each factor, depending on influencing level on industry

- Step 3: Assign a rating to each factor up to reacting level of enterprises to the factors

- Step 4: Multiply weight of each factor by its rating to define the weight score of each factor

- Step 5: Evaluate effecting level of factors

The IFE and EFE are most clear pictures to show out company’s business

environment, company’s internal and external factors as follows

GaMBA01.X0310 - Group 9 Page 15

Tablel.1: Internal and external factors evaluation matrixes

Table 1.la EFE matrix

Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David Table 1.1b IFE matrix

Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

1.3.3 SWOT matrix SWOT stands for thee English words: Strengths; Weaknesses: Opportunities’ Threats SWOT analysis helps enterprise consider all changes that it can take advantage as well as understand every shortcomings of enterprise SWOT analysis between enterprise and its rival is such a useful tool to support us to find out issues and make decision on management, organizing and business

Strengths: Are capacity of enterprise to carry out essential points well

Weaknesses: Are problems needing to be overcome because they prevent enterprise from success on the work

Opportunities: Are trends, motivations, events and ideas that enterprise possibly applies

Threats: Are pressures outside controlled reach, which enterprise should take

count or create the ways to limit their impacts

Using strengths to explore opportunities

Using strengths to avoid threats

Cutting down weaknesses to explore opportunities

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- Minimizing threats and avoiding risks

SWOT matrix of M Porter analyses opportunities and threats of external environment toward operation of enterprise as well as its strengths and weaknesses

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Source: Strategic Management and Competitive Advantage: Concepts, Prentice HallJay

Steps of setting up SWOT matrix:

- Step 1: Selectively make a list of opportunities and threats of external environment from the table of general external environment

- Step 2: Selectively list strengths and weaknesses of internal climate from the table of synthesizing and analyzing corporate internal climate

- Step 3: Build up possibilities basing on combining factors as strength, weaknesses, opportunities and threats There are 4 ways of combination:

¥ Combination of SO: Utilize strengths to explore opportunities from

external business climate

¥ Combination of ST: Utilize internal strengths to reduce and watch for

impacts of threats from external environment

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Vv Combination of WO: Take advantage of external opportunities to make good internal shortcomings of companies

v Combination of WT: Is the defensive strategy which tries to overcome

weaknesses and reduce (or avoid) external threats

1.4 Business strategy selection

The selection of trading strategy decides the success or failure of each business The strategy decides the future of business or the business will lose the market position to competitors In nay period, growth or crisis, trading strategy has

to be set up and selected basing on the harmony coordination among strength, weakness of business, opportunities and challenges of trading environment

Before selecting trading strategy, business has to consider following factors:

- Evaluate accurately the current strategy of business to make foundation for selecting trading strategy in the future as well as affirming strategy

- Re-consider results of techniques analyzing strategy

- Consider main factors affecting directly to strategy regarding as: strength of sector and business; objectives of managing director; financial sources Financial sources usually cause pressure to selecting strategy

Strategy implementing: Strategy forming or setting up is not enough for employees of an organization, they have to take action to implement strategy This

is the process of putting different strategies into reality The measures 0 carrying out different levels are cemented to strategy setting up

Evaluating effectiveness of established strategy: The final stage of strategy management is evaluating strategy All strategies depend on future changes because internal and external factors all change regularly Three primary activities of this stage are: (1) Reconsider factors as basis for present strategies; (2) Measuring achievements and (3) Perform adjustment The evaluating Stage is so essential since present success does not ensure the future

1.5 Product life circle model

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Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

Figure 1 1 Product Life Cycle [Eng 2]

In this model, there are four stages in the lifecycle of a product: Introduction, Growth, maturity and decline which any product has to go through Characteristics

of each stage as follows:

Introduction: This is the initial stage of the product Products are new to the market Consumers are unfamiliar with the existence of them Reasonable strategy for this stage is that the manufacturer should focus on researching products to meet consumer tastes, concentrating on production and branding

Growth: This is a period of strong growth of the product For this stage, it is necessary to promote the expansion of production in order to capture as much market share as possible, because in this stage, other competitors also begin to seeing the attractiveness of the market and join This is the stage in which the demand is greater than the supply

Maturity: the saturation stage is the stage where the number of products provided in the market is extremely abundant Prices tend to decline and the market

is in favor of the demand, it means that the profit per product will slow down and tend to decrease The strategy of this phase is to research to add value or different values for the product to compete

Decline: This is the recession stage of the product Product is no longer

attractive and the profit per product falls fast Feasible strategy is that the

manufacturer needs to focus on research and bring new products to start a new cycle Manufacturers have two trends either to develop product to a new step or conduct descending scale and phase out products from the market

The model of the product lifecycle helps companies have strategies which are reasonable in their operation strategy in each stage of business from which it can help maximize profits and reduce risks in business activities

CONCLUSION OF CHAPTER I The chapter | presents theoretical foundation and definitions of basic terms to set up base of establishing business strategy for enterprise

The theories and methods are; understanding of strategy, steps of setting up strategy, measures of assessing and analyzing to select business strategy, performance and evaluation of effectiveness of strategy

All above theories and methods will be applied to analyze operating environment and build up business strategy for VietInBank which in the capstone project report

is concretized as Business strategy to international payment service of VietInBank

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CHAPTER 2: REAL SITUATION ABOUT ACTIVITIES OF DOING BUSINESS THE INTERNATIONAL PAYMENT SERVICES IN

VIETINBANK

2.1 Introduction of Vietinbank

2.1.1 Establishment and development history

Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) VietinBank was established in 1988 after being separated from State Bank of Vietnam Being one of the four largest State-owned commercial banks of Vietnam, VietinBank’s total assets account for over 20 percent of the market share of the whole Vietnamese banking system

VietinBank has developed an operations network comprising of 01

Transaction Centers, 149 branches, 527 transaction offices, 166 savings offices, 02 Representative offices, 04 Subsidiaries, 03 administrative units and 1042 Automatic

Telling Machines (ATMs)

Being diversified with 06 independent accounting subsidiaries such as VietinBank Leasing Company, VietinBank Securities Company, Ltd., VietinBank Asset Management Company, VietinBank Insurance Company and 03 non-profit making units: VietinBank Information Technology Center, VietinBank Card Center and VietinBank Training Center

Being the founder of the following Financial Credit Institutions:

- Saigon Bank for Commerce and Industry

- Indovina Bank (the first joint-venture bank in Vietnam)

- Vietnam International Leasing Company — VILC (the first financial leasing

company in Vietnam)

- Vietinbank Insurance Company Ltd

It sas established correspondent relationship with 850 banks, financial institutions of 90 countries and territories all over the world Being the official member of:

- Vietnam’s Banker Association

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- Asian Banker’s Association

- Society for Worldwide Interbank Financial Telecommunications (SWIFT)

- Visa International Services Association

Being the first bank in Vietnam to apply modern technology and e-commerce in its banking operations

2.1.2 Organization structure and products

2.1.2.1 Organization structure

With about 23 years of development and operation in financial sector, Vietinbank now becomes one of the 4 biggest commercial banks in Vietnam with agents and branches in all provinces of Vietnam To be efficient in operation Vietinbank needs to have a clear organization structure with clear defining jobs for

each section in the bank Details about Vietinbank structure can be seen as below

figures:

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Source: Vietinbank Head office

Figure 2.1: System organization of VietinBank

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Figure 2.2: Structure of the organizational structure and operating

Source: Vietinbank’s website

Figure 2.3: Structure of the executive apparatus of the transaction offices,

Branch level 1, Branch level 2

With clear operation for each section in both head-quarter and branches Vietinbank has opportunities to become the best commercial bank of Vietnam with most comparative products and services

2.1.2.2 Products and services

- Issuance of promissory notes, bonds .etc

Lending and investment:

Short-term loans in VND and foreign currencies

Medium and long term loans in VND and foreign currencies

Financing export and import negotiation of export documents

Co-financing and loan syndication for large projects, long payback period Loans funded, mandated under the program: Taiwan (SMEDF); Vietnam Germany (DEG, KFW) and the framework credit agreement

Overdraft, consumer loans

Contributing to joint ventures with other credit institutions and financial institutions in the country

Investment in capital markets, money markets in the country

- Transfer of national and international

- Western Union Money Transfer

- Billing, collection, payment order, check

- Expenses paid for through corporate accounts, through ATM

- Payment Remittance .etc

- Buying and selling foreign currencies (Spot, Forward, Swap .)

- Purchase and sale of valuable papers (government bonds, treasury bills, commercial paper .)

- Income and expenditure in VND and foreign currencies in cash .etc

- Safe for rent; kept preserved gold, silver, precious stones, valuable papers, patents of inventions,

Cards and Internet Banking

- Issue and payment of domestic credit card, international credit cards (VISA, MASTER CARD .)

- Free ATM card, cash card (Cash card)

- Internet Banking, Phone Banking, SMS Banking

Other activities

- Exploitation of life insurance, non-life

- Investment Advisory and Financial

2.1.3 Vision and Mission

Mission: Mission of Vietinbank is to become a leading financial banking group in Vietnam, operate in multi sector to provide standard-quality products and

services, and improve the value of life

Vision: Become a leading, modern and effective financial banking group in Vietnam and international

Core Value

- Comprehensive and continuous renovation;

- Creative, active, professional, whole-hearted, obvious, modern

Slogan: Improving the values of life

2.2 Business environment for international payment services of Vietinbank

2.2.1 External environment analysis

2.2.1.1 Macro environment

Political:

Parties in international payment methods come from many diffrent countries and business feilds So, international payment is much affected by political environment in countries A slight fuluctuation in political environment or society may cause big difficulty for international commerce and for international payment also Political risk in international payment come from unstable in politic of concerning countries Normally, the main unstable factors are : suddent changingin

tariff, quotar, exchange rate, import- export rules These nonforecated changes force

parties of payment contract cannot finish their responsibilities lead to cancel of services and cause lost for involved parties Besides, crisis, strike, war or coup in involved countries also cause risks for payment progress

Legal system of Vietnam is not perfect, but Government and Congress is trying to build and perfect legal environment, facilitating and encouraging enterprises in general and banks in particular to develop in equally competitive environment In the upcoming years, the significant changes in economy, law and State management will affect the banking-finance system

In process of opening economy according to the commitment with WTO,

Vietnam is removing step by step the regulations, elimination to the activity scale of foreign banks Vietinbank is one of banks directly affected in competition to expand market share Besides, the promoting integration process in regional and international economy of Vietnam’s enterprises, and removing the domestic protectionism policies also cause significant effects on the bank industry in general and Vietinbank in particular

Economic:

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International environment: According to the committed process of opening banking-finance service of Vietnam within WTO, Vietnam has to open the banking- finance strongly in the upcoming years The commercial banks of Vietnam in general and Vietinbank in particular have faced to the severe competition, not only

in the domestic market, but also the the foreign bank system in all aspects Many studies have shown that: the international integration in banking field brought the big opportunities and challenges for commercial banks of Vietnam

Coupled with the implementation of opening policy and international economy integration of Vietnam, the foreign banks have more and more freedom in field and scale in Vietnam Their diversification of service products, technology and experience in applying banking services promote the reform to restructure the financial system of Vietnam and care more about banking services In aspect of integration and innovation, that Vietnam joined AFTA and WTO brings the main effects as follow:

- Liberalize trade and investment, remove barrier and protectionism

- Foreign capital investment in Vietnam increases quickly

- Policy reform is implemented deeply and widely in all levels and fields

- Competition among enterprises, fields, service products of Vietnam and other countries increases day by day, equivalent to the integration level of Vietnam in regional and international economy

Domestic environment: Vietnam’s economic growth in recent years was at high speed in region; the income of citizens is improved much more than that in 1990s In 1990s, personal income was only 300 USD In 2010, personal income reached 1.024 USD Therefore, demand for international trade of Vietnam increased, leading to the growth of the international payment through banks Import and export value are the most important factors which affect to LC service From 2006 until now import and export value of Vietnam have increased gradually, even when the whole economy has been suffering from financial crisis, Vietnam import and export value

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were affected slightly, these values recovered in 2010 and will increase in 2012 onward because of open policy of Vietnam

Source: Statistic data of General Statistic Office

Figure 2.4: Import and Export value of Vietnam from 20006 to 2010 Increase in import and export value will be the big chance for commercial

bank to develop their LC service and it’s also the chance for Vietinbank to expand the bank’s market share and profit in this field

Interest controlling: In front of changes of currency market, series of policies

on interest of State Bank have brought the positive results in order to stabilize and develop currency market, facilitating banking activities and effective allocation of funds of Vietnam’s economy

Exchange rate: At present, in order to stabilize interbank exchange rate and keep balance the international balance of payment, State Bank has implemented the more dynamic exchange rate policies by changing interbank exchange rate and updating the domestic economic situation Besides, it met the demand for foreign

currency of commercial banks, State Bank, and banned the foreign currency business

in the free market This helped enterprises easily approach the foreign currency source at acceptable rate, contributing to the export-import activity promotion

GaMBA01.X0310 - Group 9 Page 28

Inflation: Inflation in Vietnam in recent years has reached the alarming level at more than 10% This caused many negative effects on the economic life of Government, stagnating the national economy Besides, the increasing price strongly affected the life of people, especially the poor Inflation decreased the growth speed

of GDP, because it made the people become poorer, restricting production of enterprises However, the Government has implemented many timely solutions in order to restrict inflation such as implementing demand stimulus package, narrowing public investment, supporting agriculture industry development and export, etc Thanks to this, inflation of Vietnam is not so serious that leading to the depression

Technology:

Vietinbank always focuses on investment, innovation and modern banking technology application to reserve the business management and advanced network development Vietinbank is one of the leading banks in applying Silverlake technology in Vietnam, which is the most advanced technology applied in many countries With completed IPCAS and SWIFT system, Vietinbank is able to supply the modern banking products and services to all domestic and international customers, of which international payment service is safe and accurate

Social and Natural environment:

Social situation is also an important factor, including: population, intellectual level, personal income, customs With the population over 83 million, Vietnam is an attractive market for the domestic and international commercial banks

Export products of Vietnam mainly are agriculture products Therefore,

natural environment affects a lot the export activities of enterprises

2.2.1.2 Micro environment

Competition of rivalry:

Until the end of 2010, the Vietnamese financial system of Vietnam

comprises 5 commercial banks, 6 joint venture banks, and 9 banks of 100% foreign capital, 39 joint- stock commercial banks, 44 foreign brands, 10 financial companies and 998 credit funds All these financial organization are providing LC

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service with this competition Vietinbank is suffering from big competition of these banks and credit funds So, competitors of Vietinbank can be divided into 5 groups

as the followings:

Group of commercial banks and state own banks includes: Vietnam Foreign Trade bank (Vietcombank), Bank of investment and development of Vietnam (BIDV), Vietnam bank for Agriculture and Rural development (Agribank), Bank of Housing Development in Me kong delta These are banks which were established and developed in the same period with Vietinbank, some ones even have longer history of development than Vietinbank as BIDV: have larger scope and operation scale, high capital potential, traditional customers relationship with big customer groups like corporations or big mother companies Therefore, this is really rival group to Vietinbank

Group of joint stock banks: There are currently 36 joint stock banks in both cities and countries These banks were established after the group of state owned

banks and have quite small of scale of operation, which are almost concentrated in

citizens However, in recent years, some joint stock banks have very rapid development with suitable direction in the future It cannot be denied that such banks are potential competitors to Vietinbank Competitive advantage of these banks is the small scope and scale of operation, which can be easily changed and adjusted to the diversified demands of customers; flexible in operation mechanism

Group of foreign banks, joint venture banks and foreign branches These are experiential and skillful banks, then, they have advantages in supplying modern banking products and services However, because of the limited scale of operation, this group is not a current dangerous competitor for Vietinbank Despite of that, Vietinbank should be cautious with this group because it promises a very quick development in the next open future

Group of financial and insurance companies: In recent years, these

companies have grown rapidly with the introduction of series of domestic insurance companies and other foreign insurance companies, financial companies, investment

funds The growth of this group indicates that the market share of raising capital of banks will be reduced Instead of depositing in only banks as before, currently, customers have many other alternatives such as investing in stock market, buying insurances, authorizing investment

Group of postal saving companies is dangerous competitors of banks The system of postal companies is easy for agricultural residents to approach rather than banks Thus, they are competing directly to banks

Threat of entrance of potential banks:

According to the open roadmap of banking system since the participation into WTO, since April 12007, banks with 100% foreign capital are entitle to establish and till January 1‘, 2011, foreign branches will be treated fully, in other words, will be able to act as a Vietnamese bank Together with the born of some

100% foreign capital banks in Vietnam since the end of 2007 as HSBC, ANZ,

Standard Chatered Bank, Shinhan Vietnam and Hongkong Vietnam Bank, joint stock banks also dramatically develop, especially in big cities or industrial districts, which put more and more pressure in banking field The market participation of groups of foreign banks, joint venture banks and foreign branches is expected as the superior in skills, advanced banking technology, advantages in supplying modern banking products and services By time, this is also a hard rival for Vietinbank, especially this group expands their business in the future

Pressure from customers:

Main customers for international payment services in Vietinbank are: the State owned enterprises, Non-state owned enterprises, cooperatives, households and

individual

To state owned enterprises: Main customers of Vietinbank are Pertolimex, Vietnam Coal and Mineral, Viettel etc With long-term history of cooperation, these state owned enterprises have the loyalty to Vietinbank service

For small and medium enterprises, their loyalty to Vietinbank services is not very high they can easily change to using other banks, with these customers

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Vietinbank need suitable policy to keep customers loyalty and expand the banks activity to new customers

Due to the development of the investment policy and enterprises law, together with the expansion of SMEs in the context of global, there are many enterprises are apporoaching global market To Vietinbank, the bank has commitment with Vietnamese SMEs Association in 2007 to support for enterprises of the association to reach to the world market With this commitment Vietinbank will be the agents for SMEs in making payment with foreign partners Then SMEs have become potential customers for Vietinbank in developing international payment methods Besides, the bank also provide guidance for SMEs about international trade policy and other related issue

Threat from supplier products:

Suppliers in banking are quite diversified They may be share holders funding the bank or companies in charge of the system as Banknet, SWIFT or maintaining ATM The number of the suppliers is not enough As a result, pressure from supplier wining a contract is raised

Controlling original document is one of the most important factors to LC process Documents for payment have been sending via DHL service DHL is the most prestigious express agent in Asia and the relationship with Vietinbank for years This supplier can support Vietinbank in urgent cases and also ensure the safety of transportation

Threat from substitute products:

There are 6 types of international payments: Remittance, Open account,

collection, authority to purchase, letter of credit, Cash against documents Three

main types of payments now are using in Vietnam are: Collection, LC and remittance Using ration of these methods can be show as below figure

bể |mportLC ti ExportlLC ~ Collection & Remittance

Source: The State Bank of Vietnam

Figure 2.5: International payment methods in Vietnam Although LC is the method with highest profit for banks because of its high safety, but LC is also the most expensive payment method to exporter and importer then they will change to remittance or collection to reduce payment fee for each transaction On the other hand, LC is the method that requires both importer and exporter to submit many kinds of document with strict and long process To expand this activity each bank need to establish a professional officer to support customers in completing these documents

2.2.1.3 External factors evaluation matrix

Bank system is business unit, therefore, during the period implementing the business strategy; it is under a lot of pressure from 5 forces in industry environment, especially in the unstable period as at present To see clearly the effect of each business environment factor on developing international payment services of commercial bank, it can be used method calculating points for each factor for that factor quantification The calculating point method bases on the opinions of experts

in banking-finance industry From those opinions, we have table collecting the external environment factors, which affect Vietinbank’s international payment activity as follow:

Table 2.1: EFE Matrix

Legal framework for banking industry 0.15 3 0.45

Export-import growth and the demands for international | 0.1 4 0.4

3 payment products

5 Business network widening 0.2 3 0.6

6 Inflation, interest rate, exchange rate development 0.1 2 0.2

7 Expansion of free trade agreements (BTA, AFTA, | 0.2 4 0.8

8 Market entrance of foreign banks 0.15 3 0.45

Total 1 3.15

Through the table analyzing external environment factors to see the effects

on the LC service of Vietinbank:

(1): International economic integration helps bank penetrating in the

international market, having chance to approach new capital, receiving experience

from the most modern banks over the world The international changes also lead to

the unstable currency policy International economic also help to expand import and

export value then increase both number and amount of each international payment

transaction

(2): That the economy grows at high speed leads to the high demand for

international payment services

(3): Banking-finance experts evaluate that inflation strongly affects bank

industry

(4): Exchange rate affects the industry in general and Vietinbank in particular

at medium level

(5): Stable politic — legal environment and State policies will attract the

foreign investment and oversea remittance, creating foreign currency for bank