Construct business strategy for BIDV Quang Binh Within the period of 2013 - 2017

23 ANALYSIS OF BUSINESS ENVIRONMENT OF COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM - QUẢNG BÌNH BRANCH .... Vietnam bank for Investment and Development - Quảng

Construct business strategy for

BIDV Quang Binh Within the period of 2013 - 2017

CAPSTONE PROJECT REPORT

Ho Chi Minh City, 2013

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TABLE OF CONTENTS

Page

TABLE OF PICTURE 4

LIST OF TABLES 4

LIST OF CHARTS 5

LIST OF ABBRIVATIONS 5

PREFACE 0019258190399 7

1 Necessity of the study subject 7

2 Objective of the subject 8

3 Mission of the study 8

4 Object and scope of the study 8

5 Method of the study 8

6 Theoretical meaning and realistics 9

7 Structure of the study: 9

CHAPTER I 10

CHAPTER I 10

THEORETICAL BACKGROUND ON STRATEGY ESTABLISHMENT FOR ENTERPRISE 10

1.1 Concept of business strategy 10

1.2 Role of business strategy 11

1.3 Classification of business strategy 12

1.3.1 1.3.1 Classification of business strategy based on the strategy level 12

1.3.2 1.3.2 Classification of business strategy based on the strategy content 12 1.3.3 Classification of business strategy based on the strategy process 12

1.4 Process of business strategy establishment 13

1.4.1 Mission and target of the Enterprise 13

1.4.2 Analysis of environment outside the enterprise 14

1.4.3 Analysis of environment inside the enterprise (internal environment) 16

1.4.4 Models of strategic analysis 16

1.5 Primary competition strategy 20

1.5.1 Cost leading strategy 20

1.5.2 Product differentiation strategy 21

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1.5.3 Centralization strategy 22

1.6 Selection of the strategy 22

CHAPTER II 23

ANALYSIS OF BUSINESS ENVIRONMENT OF COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM - QUẢNG BÌNH BRANCH 23

2.1 General introduction about the Enterprise 23

2.1.1 Overview 23

2.1.2 Function, mission and business operation of BIDV Quảng Bình 24

2.1.3 Mission 25

2.1.4 Vision 25

2.1.5 Core value 25

2.1.6 Major products and service of BIDV Quảng Bình 25

2.1.7 Organizational structure of BIDV Quảng Bình 26

2.2 Analysis of business environment factors affecting operation of BIDV Quảng Bình 27

2.2.1 Macroeconomic environment analysis 27

2.2.2 Micro-environment analysis 37

2.2.3 Analysis of internal factors of BIDV Quảng Bình 47

2.3 Necessity to be establishing business strategy of BIDV Quang Binh 63

CHAPTER III 64

BUSINESS STRATEGY OF BIDV QUẢNG BÌNH IN PERIOD OF 2013-2017 64

3.1 Selection of strategy plan 64

3.1.1 Analysis of SWOT matrix 64

3.1.2 IE matrix 66

3.1.3 Selection of QSPM matrix strategy 67

3.2 Content of business strategy of BIDV Quang Binh from 2013 through 2017 70 3.2.1 General business mission 70

3.2.2 Contents of business strategy of BIDV Quảng Bình from 2013- 2017 70

3.3 Solutions for performing the strategy of BIDV Quảng Bình 71

3.3.1 General solution group 71

3.3.1.1 Customer-oriented solution group 71

3.3.1.2 Product marketing and promotion solution group 73

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3.3.1.3 Package banking product and service development solution group 73

3.3.1.4 Expansion of distribution channel network 74

3.3.1.5 Personnel solution group 74

3.4 Process of strategy performance 75

3.4.2 Pan for strategic solution implementation 76

3.5 Risks during strategy performance 79

3.6 Proposal 80

3.6.1 BIDV proposal 80

3.6.1.1 Construction of technological infrastructure, fundamental factors for deployment of bank product and service 80

3.6.1.2 Application of technology to risk management 81

3.6.1.3 Establishment of security policy of information technology system 82

3.6.1.4 Establishment of customer-oriented product and service development strategy 82 3.6.1.5 Modernization of professional procedures 83

3.6.1.6 Improvement of technological risk administration role 83

3.6.1.7 Establishment of reasonable salary policy 83

3.6.2 Proposal to Government, State bank and authorities 84

IN CONCLUSION 85

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TABLE OF PICTURE

Picture 1 1: Strategy administration model of F.David 13

Picture 1 2: External environment 14

Picture 1 3: Five forces model of M Porter 15

Picture 1 4: Steps for constructing EFE, IFE matrix and competitive image 18

Picture 1 5: SWOT matrix 18

Picture 1 6:: IE matrix 19

Picture 2 1: Headquarter of BIDV Quảng Bình 23

Picture 2 2: Organizational structure chart of BIDV Quảng Bình 26

Picture 3 1: IE matrix of BIDV Quảng Bình 66

LIST OF TABLES Table 1 1: Competitive image matrix establishment model 17

Table 1 2: EFE matrix establishment model 17

Table 1 3: IFE matrix establishment model 17

Table 1 4: QSPM matrix establishment model 20

Table 2 1: Number of credit organization in Quang Binh province in 2011 38

Table 2 2: Market share of BIDV Quảng Bình in comparison with its competitors 40

Table 2 3: Competitive image matrix 41

Table 2 4: Number of customers of BIDV Quảng Bình in 2007 through 2011 43

Table 2 5: EFE matrix of BIDV Quảng Bình 46

Table 2 6: Operational results in 2007-2011 and sive early months of 2012 52

Table 2 7: Capital mobilization and share of BIDV Quảng Bình from 2007 until 30 June 2012 52

Table 2 8: Debt balance, credit structure of BIDV Quảng Bình in period of 2007 – 2011, updating on early sixe months of 2012 54

Table 2 9: Pretax profit and appropriation for risk provision in period of 2007-201157 Table 2 10: IFE matrix of BIDV Quảng Bình 62

Table 3 1: SWOT matrix 64

Table 3 2: QSPM matrix 67

Table 3 3: Strategy selected according to preferental order 68

Vietnam bank for Investment and Development - Quảng Bình branch

BIDV Vietnam joint stock bank for Investment and Development

S&ME Small and medium scaled enterprise

CJS Commercial Joint Stock

I-M Industrialization – modernization

S&T Science and technology

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PREFACE 0019258190399

1 Necessity of the study subject

In early years of the twenty first age, Vietnam economy has remarkably changed into market economy and globally integrated, especially Vietnam becomes a full member

of WTO Therefore, to exist and develop, Vietnamese enterprises must well prepare for business and production operations in the future

Priorly, that is short-term plans for the coming targets and further the strategies must be established for long-term targets For the industry with high competitiveness and large initial investment, the establishment of development strategy is very important and especially meaningful for the enterprise’s operations

Bank industry is a special business section, has a paramount importance during development of country economy but is also sensitive for variances of domestic and international social-political-economic environment That is why operation of the commercial banks are always taken into account and strictly inspected Besides, competitive pressure inside the industry is more and more severe, together with that integration process of country economy has been widely and deeply happening Hence, each bank must establish its own strategy to stably operate and develop on the basis of opportunity maximization and risk minimization of integration process

Global competition and integration require commercial banks to ever renovate and develop all aspects such as capital, technology, organizational structure, management ability and operation quality of risk control system as well as to continuously increase its prestige and brand and have orientations to meet with increasing requirements and to attempt to become a modern bank having key and decisive role in monetary finance market, having high position in region, competitive strength and prompt adaption during integration and development

In such a circumstance, to success banks must well organize the establishment and administration of strategy Business strategy shows the competitive way and method that bank enterprises must apply Strategy administration is a way to direct the bank to a right route and adjust this in association with change of input factors

Successful establishment and performance of business strategy is an urgent requirement and is also a mission for existence and development of banks in general and

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BIDV Quảng Bình in particular Provide realistic situation, study group selected the

subject “Establishment of BIDV Quang Binh business strategy in period from 2013

through 2017” with aim to contributively improve business efficiency and bring BIDV

Quảng Bình to a new position in BIDV system in particular and in CB system of Vietnam

in general

2 Objective of the subject

Based on theoretical methods of the study, the group thoroughly analyzes and generalizes fundamental theory of business strategy as well as analyzes business environment of BIDV Quảng Bình, and then establishes business strategy for BIDV Quảng Bình in period of 2013-2017 and proposes some solutions to execute it in order to make BIDV Quảng Bình become one of the leading branch of BIDV system and in Quảng Bình province

3 Mission of the study

To generalize theories of strategy model; analyze business environment, internal and external environment impacting strategy establishment and propose business strategy for BIDV Quảng Bình in period of 2013 – 2017 and solution for performance

4 Object and scope of the study

Object of the study refers to theoretical matters on strategy administration, operation of BIDV Quảng Bình and some banks in Quảng Bình province affecting operation environment of BIDV Quảng Bình

Scope of the study is restricted to the bank industry and business strategy establishment for BIDV Quảng Bình in period of 2013-2017 Simultaneously, analysis data is mainly of BIDV Quảng Bình and some other banks in the same province together with analysis and statistics date of the State bank in period of 2006-2011

5 Method of the study

- Approach methods: using combined approach methods such as individual approach, historical approach, and quantitative and qualitative approach

- Data processing and analysis method: using description statistics, analysis and summary when evaluating operational results of BIDV Quảng Bình; employing analysis matrixes including EFE, IFE, SWOT, IE, QSPM

- Information sources: Using secondary information from newspaper, internet, report and fifty-five years history of BIDV Quảng Bình, and Quảng Binh state bank

7 Structure of the study:

Including three chapters

Chapter 1: Theoretical backgrounds on business strategy of the enterprise

Chapter 2: Analysis of business environment of BIDV Quảng Bình during 2007 –

2011 and updating until 30 June 2012

Chapter 3: Business strategy of BIDV Quảng Bình in period of 2013 – 2017 and

solutions of performance

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CHAPTER I THEORETICAL BACKGROUND ON STRATEGY ESTABLISHMENT FOR

ENTERPRISE 1.1 Concept of business strategy

The strategy is an overall action program to obtain a specific mission It is common knowledge that strategy of a certain organization refers to that organization must determine what mission it wants to reach, how to execute it and what resource must

According to Wiliam.J.Gluech: “Strategy is a plan of unitedness, comprehensiveness and coordinateness designed to ensure fundamental mission of the enterprise performed”

In “Concept on strategy administration”, Ferd RDavid stated: Strategy is means to reach long-term missions Business strategy may include geographic development, activity diversification, ownership, product development, market penetration, expense reduction, liquidation and joint venture

Strategy is also thought to be a collection of missions and policies as well as major plans to obtain those missions; it shows what section the enterprise are operating or will operate and which section it will belong to

In addition, business or competition strategy is defined according six following factors:

- Product market: Opportunity of the enterprise depends on its products, market that it serves, competitors that it faces or avoids and its integration level

- Investment degree: it is necessary to select either expansive investment, or product market penetration, or current position maintenance, or investment minimization for withdrawal or liquidation for the enterprise disintegration

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- Functional strategy: Competitive manner can concentrate on one or more functions including product strategy, price strategy, distribution, production, informatics technology, segmentation, and global strategy

- Strategic assets and ability: strategic ability indicates outstanding aspects

of the enterprise Strategic assets are resources strength of the enterprise in comparison with that of other competitors When releasing a strategy it is necessary to pay attention

to charge as well as possibility to create/ maintain asset and ability to serve as a ground for long-term competitive advantage of the enterprise

- Resources distribution: financial resources and non-financial ones such as plant, equipment, and human are all distributed Decision on distribution is a key factor for strategy

- Impact contracting between enterprises: only enterprises that obtain contacting impacts have outstanding advantage compared to ones that disregard or do not employ this contracting effect

- Generally, strategy is a collection of actions and decision that are closely associated in order to help an organization to achieve the targets And it must be established so as to make use of fundamental strengths including resources and ability of

an organization as well as regarding opportunities and challenges of environment

- Business strategy is considered as a principle and guideline in business Therefore, the prerequisite condition is about to have a business strategy or organize a good implementation of strategy to reach succeed in business

1.2 Role of business strategy

In the market mechanism, business establishment and performance has an importance for survival and development of the enterprise Role of business strategy for the enterprise is manifested on the following aspects:

- Planning role: Business strategy helps the enterprise to know its mission and direction in the future and serves as guidance for all operations of the enterprise It shows administers to consider and determinate which direction his organization should follow and when it can obtain the expected results

- Forecasting role: in an ever-changing environment, opportunities as well as threats always appear Strategy planning enables the administrator to analyze the

1.3 Classification of business strategy

1.3.1 1.3.1 Classification of business strategy based on the strategy level

Based on the strategy level, the strategy is classified into the following:

- Corporation-level strategy (Overall strategy) is the one established for the whole company in all sections that it involves in Mission in this strategy indicates that the goal to be achieved is overall considered on all operations that the company pursues

as well as shows direction and measures to reach that goal

- Business-level strategy (Section) is established for the specialized line In case the company takes part in only one section, the strategy is also a corporation-level one

- Function-level strategy refers to that of each individual function in the company such as finance, marketing, personnel, etc Function-level strategies can be considered as supporting one for successfully execute the corporation-level and business-level one

1.3.2 1.3.2 Classification of business strategy based on the strategy content

Depending on contents of the strategies, French managers classify the business strategy into the following:

- Commercial strategy;

- Financial strategy;

- Human strategy;

- Technique and technology strategy

1.3.3 Classification of business strategy based on the strategy process

Based in this way, the strategy includes

- Orienting strategy mentions significant orientations on mission of the enterprise, direction and measures to obtain them The strategy orients the fundamental

of orienting strategy

1.4 Process of business strategy establishment

Picture 1 1: Strategy administration model of F.David

1.4.1 Mission and target of the Enterprise

Mission is a statement of long-term nature on purpose It distinguishes this enterprise with others Such statements can be considered as an enterprise’s one on business philosophy, principles and reliance All determines operational field of the enterprise namely product category, basic service, fundamental customer group, market demand, technical sectors or their combination It overall contains expected achievement externally announced to be a public image that the enterprise wants to set up

Mission of the company needs to be employed and drafted as specific targets

- Lawful and political factors have been

increasingly affecting operation of the enterprise The

enterprise shall comply with regulations on

legislation, policies, rules, preferential regimes, and

procedures, etc

- Economic factors have direct influence

on potential attraction of strategies These are

economic growth, inflation rate, economic cycle,

variation of interest rate, share price, trend on value

of United States dollar, tariff system and tariff level, etc

- Social and cultural factors mainly affect aspects including concept of living standard, morality standard, business community and female labor force, change in consumption habit, etc Social factors that slowly vary are difficult for realization but have significant effect on most of decisions on products service, market and consumers

- Technical and technological factors have enormous effect on the enterprise; existence of many advanced technologies brings about both opportunities and threats for all industries and enterprises Development of new technologies can create new market, resulting in appearance of new products and then change of competitive relationship in the industry and making the existing products lag behind

The aforementioned factors impact the organization independently or in combination with other factor In addition, there are natural condition and international factors These are external factors of the enterprise and industry whose effect serves as objective factor

1.4.2.2 Micro-environment (Industry environment)

Picture 1 2: External environment

+ There are a few of suppliers for production industry;

+ There are a few of substitute products or service

+ There is an advantage of specialized products and services

+ It is able to agreeably integrate and close products

- Pressure from customers: customer is a common noun indicating people or organizations using products or services of the enterprise It is possible to divide customers into five objects including end-consumers, agent distribution, and agents, wholesale and industrial buyers Customers are main objects participating in consumption

of product, identification of customer objects and impacting on customers in order to determinate product and service market and necessary investment structure Customer demand is the most fundamental factor concerned by production and business operators to determine whether it is necessary to maintain long-term competitive advantage for that product or not The higher the pressure-from-customer possibility of customers is the larger the disadvantageous threat for the enterprise is Customers normally cause pressure on the enterprise in the following cases:

+ They purchase an enormous quantity

+ Many suppliers provide one same product, there are many choice

+ It is able to counter-integrate to own the whole or one part of production

Picture 1 3:Five forces model of M Porter

- Competitors: competitive degree of the existing competitors is shown in concentration level of the industry, withdrawal difficulty, fixed expense, reinforcement of the industry, capacity in excess, differentiation of products, conversion charges, characteristics of brand, diversification of competitors, selecting status in the industry

- Potential competitors: according to Michael Porter, potential competitors refer to enterprises that have not existed in the industry but can have influence on the industry in the future Threats from potential competitors are manifested in factors including absolute expense advantage, policy of Government, scale economics, capital requirements, characteristics of brand, and conversion charges of the industry, ability to approach distribution channel, possibility to be retaliated, and exclusive products

1.4.3 Analysis of environment inside the enterprise (internal environment)

Internal environment of the enterprise refers to what belongs to its own, directly associated with its operation, enabling realization of its strengths and weaknesses as ground for business planning and implementation Objects that are considered are main factors happening inside the enterprise and within its control Those factors include human resources, financial ability, marketing, informatics system and organization

1.4.4 Models of strategic analysis

1.4.4.1 Competitive image matrix

The analysis of external environment requires establishment of competitive image matrix to form the strategy The establishment of competitive image matrix aims to identify main competitors together with advantages and special weaknesses and simultaneously help the administrator define his enterprise position in competitive map

Sample enterprise Competitor 1 Competitor 2 Competitor n

Classifi cation

Import ance point

Classifi cation

Importa nce point

Classifi cation

Importa nce point

Class ificat ion

Import ance point

1 2 3 4=3x2 5 6=5x2 7 8=7x2 9 10=9x2

Listing out

1.4.4.2 External environment factor evaluation matrix (EFE)

EFE matrix allows the strategy administers to summarize and evaluate social,

cultural and economic information, population, geography, politics, law, technologies

and competition, etc Therefore, they can identify external opportunities and threats

affecting their companies

Table 1 2: EFE matrix establishment model

No Mainly external factors Important

level Classification

Important point

Listing out factors of external

environment

1.4.4.3 Internal environment factor evaluation matrix (IFE)

IFE matrix allows the strategy administrators to summarize and evaluate

important strengths and weaknesses of functional departments; simultaneously it serves

as a basis to determine and evaluation relationship between these departments

Table 1 3: IFE matrix establishment model

No Mainly external factors Important

level Classification

Important point

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Picture 1 5: SWOT matrix

Listing out factors of internal environment X X X

1.4.4.4 Steps for establishing an EFE, IFE matrix and competitive images

Picture 1 4: Steps for constructing EFE, IFE matrix and competitive image

1.4.4.5 SWOT matrix

This is an analysis model based on strengths, weaknesses, opportunities and threats that are combined to

determine the business strategy

for the company

- S-O combination

helps the enterprise to make use

of its strengths to grasp the

the enterprise should take advantage of opportunity to overcome weaknesses

- W-T combination: the enterprise shall surmount or minimize weaknesses

to avoid threats

1.4.4.6 IE matrix

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Picture 1 6: IE matrix

IE (Internal – External Matrix) indicates different capacities of an enterprise in a table of nine cells It depends on

two principal aspects:

- Total important points

of IFE matrix are shown on X axis

- Total important points

of EFE matrix are shown on Y axis

- The enterprise must

establish IFE and EFE matrix

serving as a basis to establish its IE

matrix

+ X axis indicates total

importance scores of IFE matrix, in

which total scores from 1,0 through 1,99 means internal weakness, total scores from 2,0 through 2,99 is at average, and from 3,0 – 4,0 refers to pow erful strength

+ Y axis shows total importance scores of EFE matrix, in which total scores from 1,0 – 1,99 is low, from 2,0 – 2,99 is average and from 3,0 – 4,0 is strong

- If the enterprise is in cells no I, II, IV: recommended to develop and construct

- If the enterprise is in cells no II, V, VII : recommended to hold and maintain

- If the enterprise is in cells no VI, VIII, IX : recommended to gain or reject

1.4.4.7 QSPM matrix

QSPM matrix can be employed to select and determine a business strategy; this matrix use date collected from the input stage in order to evaluate feasibility of strategies

mentioned in the combination stage Necessary steps for forming QSPM matrix are

- Listing external opportunities/ threats and internal strengths/ weaknesses of the enterprise; evaluating importance of each factor listed upon a certain score (from 1 to 4), in other words determining the importance evaluation weight of each factor for the enterprise

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- Selecting the outstanding strategies mentioned in the combination state; evaluating each strategy based on opportunities/threats/strengths/weaknesses listed upon score from 1 to 4

- Calculating all scores of each strategy by summing products between importance evaluation score of each factor and evaluation score of each strategy Comparison, evaluation and selection of the strategy depend on total scores of each strategy, the strategy of highest score are given priority

Table 1 4: QSPM matrix establishment matrix

No Major factors

Import ance level

Strategies Strategy 1 Strategy 2 Strategy n

AS TAS AS TAS AS TAS

Of which: AS is attraction score; TAS is total attraction score

1.5 Primary competition strategy

Michael Porter said that advantages of any enterprise always lie in two aspects: cost advantage and product differentiation By applying these advantages, companies will pursue three common strategies: costing leading, product differentiation and centralization

1.5.1 Cost leading strategy

This strategy is oriented to the aim that the manufacturer has low cost among the industry with a certain quality standard

And then the company shall sell products either at average price of the whole industry to obtain higher profits than its competitors or at lower price to get more market This cost leading strategy is usually applied to enormous market

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Enterprises that succeed in employment of the cost leading strategy have the following characteristics:

- Being able to successfully access the capital to invest production equipments It

is a barrier that many companies can not overcome;

- Being capable of designing products to increase production efficiency, for example, creating any certain detail to shorten erection progress.;

- Having high qualification in production;

- Having effective distribution channel

Any strategy including cost leading has latent risks With backing of modern technologies, competitors can have sudden turnings in production and remove competitive advantages of cost leading enterprises In addition, some companies pursue the strategy of narrow market concentration, which is not difficult to achieve lower cost level in their traditional communications, thence form a group controlling multiple-larger market share

1.5.2 Product differentiation strategy

This strategy aims to develop products or services having original and unique characteristics and evaluated higher than those of competitors Added value based on product uniqueness allows the enterprise to set up a higher price that is still accepted by customers They hope that such a higher price shall not only allow to cover incremental costs during supply of products, but also depend on different characteristics of products,

if the supplier increases the price, the enterprise can transfer that variance to customers because their customers can not easily find out the substitute

Enterprises that succeed in employment of the product differentiation strategies have the following characteristics:

- Having ability to study and approach the leading scientific achievements;

- Product research and development group (R&D) have high creativeness and skills

- Dynamic sales group has ability to impart strengths of products to customers successfully;

- Having reputation for quality and innovativeness

Risks attached to product differentiation strategy are the likely imitation of competitors or change in consumers’ taste Besides, many companies pursue concentration strategy to be able to achieve higher product differentiation in their market

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1.5.3 Centralization strategy

This strategy focuses on innovation of products or there is no change in other factors in market The company attempts to exploit all opportunities about the existing products, service and market

1.6 Selection of the strategy

In order to select the strategy for the enterprise, we must determine selecting criteria ensuring requirements: dependence on analysis results, evaluation of internal and external (IE matrix) factors and SWOT matrix, the strategy that is selected must be reliably conformable with environment condition, with policy of foreign affairs, management concept of Executive board and directorate, with financial capacity, material and human resources of the Enterprise

If strategic position of the enterprise lies in three blue cells of quick growth, the enterprise is recommended to select SO strategy in SWOT matrix If the strategic position lies in 3 yellow cells of selective growth or stable strategy, the enterprise should select only

ST and WO strategy in SWOT matrix chart If its position is in three red cells, it is recommended to select WT strategy in SWOT matrix table, orienting obtainment and gradual withdrawal or possibly flee to preserve forces

23 Hình 2 1: Trụ sở BIDV Quảng Bình

CHAPTER II ANALYSIS OF BUSINESS ENVIRONMENT OF COMMERCIAL JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM - QUẢNG

BÌNH BRANCH 2.1 General introduction about the Enterprise

2.1.1 Overview

Enterprise name COMMERCIAL JOINT STOCK BANK FOR

INVESTMENT AND DEVELOPMENT OF VIETNAM - QUẢNG BÌNH BRANCH

Transaction name Joint Stock Commercial Bank for Investment and

Development of Vietnam – Quang Binh Branch Abbreviated name BIDV Quảng Bình

Logo

Slogan Opportunity sharing and successful cooperation

Headquarter 189 Hữu Nghị - Đồng Hới city - Quảng Bình

province From early days of the North revival after resistance against the French colonialists, in 26th April 1957, government of Vietnam People's Democratic Republic signed decision

no 177/TTg regarding establishment of

Vietnam Construction Bank – forerunner of

BIDV – with mission to provide and

manage the State capital for country

construction work

In Quảng Bình, with requirement of

economic revival and development of the

province, in 26th April 1975 department of

capital construction allotment under

Finance service – forerunner of BIDV

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Quảng Bình was established In 20th April 1964 Quảng Bình Construction Bank, was established from the capital construction allotment group Right after being established, personnel of Quảng Bình Construction Bank had proactively participated in revival and rebuilding of the province and played a role in directly manage investment funds and distribute capital in fundamental construction sector

In 24th June 1981, Quảng Bình Construction bank was renamed Quảng Bình Investment and Construction Bank directly under Vietnam Investment and Construction Bank, full member of Vietnam bank system Its mission is to maintain capital allotment for investment and lend circulating capital and operational investment funds in the region

In November 1990, Quảng Bình Investment and Construction Bank was renamed Quảng Bình Investment and Development Bank, and all operations were moved from state subsidy mechanism to borrowing-for-lending mechanism, taking the initiative in seeking capital source and customers, linking self-financing with implementation of customer and region based business policies, seeking the effective projects to invest, moving all operations into multi-functional operation as per nature of a modern commercial bank, attaching credit supply to product and service diversification, strongly develop guarantee products, international payment, domestic payment, Overseas national currency exchange together with e-banking services based on modern technology, highest meeting with customer and market demand and turning to deeply and widely integrate the economy

In April 2012, Bank for Investment and Development of Vietnam finished capitalization and officially became a commercial joint stock bank according to permit no 84/GP-NHNN of the State bank regarding establishment and operation of Commercial joint stock Bank for Investment and Development of Vietnam, Quảng Bình bank for

investment and development was renamed Commercial Joint Stock Bank for Investment and Development of Vietnam - Quảng Bình branch thereof and operates under a joint stock form

2.1.2 Function, mission and business operation of BIDV Quảng Bình

According to Decision no 1153/QĐ-HĐQT dated 22 August 2012, BIDV Quảng Bình implements functions and missions including monetary business, capital and credit

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mobilization, opening payment account for customer, supply means of payment, providing banking services and other operations of a commercial bank such as cash management service, safe leasing, enterprise finance consulting, enterprise dealing and integration, investment consulting, providing insurance service and other services based

on legal regulation

2.1.3 Mission

To provide the best financial banking service, to be together and share with

customers; to construct a professional – challenging – friendly environment creating the

development opportunity for all staff; to become a pioneer and leading bank in activities

of social sustainability and community development

2.1.4 Vision

To become a multi-ownership bank, operating multi-sector in compliance with international practice and having quality equal to advanced banks in the region

2.1.5 Core value

Orientation towards customers – Innovation and development – Specialization and

Creativeness – Social responsibility – Quality and confidence

2.1.6 Major products and service of BIDV Quảng Bình

BIDV Quảng Bình provides most of a traditional bank’s products and services Apart from buy deposits and lending, BIDV Quảng Bình offers many modern products and services, supports service in clients’ companies or through fax and mail for distant

customers Its major products and services can be divided into seven groups, including:

Payment product and service group: providing domestic and international

payment and transfer

E-banking product and service group: Providing management service of

capital, revenue, automatic salary payment, internet banking, BSMS banking, BIDV at home, Vntopup, VNPay, etc

Foreign currency and spin-off group: foreign currency trading, currency

cross-exchange and capital dealing, etc

Funds service group: offering collection and payment, cash check and keeping,

etc

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Credit and guarantee product group: short-term, medium-term and long-term

lending, valid paper discount, discount on commercial set, various guarantee, credit card

issuing, L/C opening and other forms of payment commitment, etc

Capital mobilization group: receiving deposit account or call deposit in VND or

foreign exchange

Cross-selling and commission product group: Insurance products attached to

capital mobilization, crediting, lending assignation, agent receiving guarantee property for other organizations

2.1.7 Organizational structure of BIDV Quảng Bình

Picture 2 2: Organizational structure chart of BIDV Quảng Bình

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2.2 Analysis of business environment factors affecting operation of BIDV Quảng Bình

2.2.1 Macroeconomic environment analysis

Analysis P.E.S.T++: Politics – Economics – Society - Technology

2.2.1.1 Political Factors

The international community considers Vietnam as one of countries having stable security and political situation, which is premise for development of economy and trade and attraction of oversea investment According to EIU, there is hardly danger in political insecurity in Vietnam People have confidence in policies of the Party and State Political security, order, social safety and struggle against crimes have been increasingly strengthened

The Sixth Party Congress passed Eco-social development strategy for period 2011-2020 with three important breakthrough sections, completing socialist-oriented market economy, creating fairly competitive environment and administration reformation This breakthrough section is an important premise to boost the restructuring

of the economy, the conversion of growth model and the stabilization of macro-economy Implementation of these strategic orientations shall make contribution to create a fair and stable business environment for domestic and oversea enterprises as well as to speed up attraction of oversea investment

The government and State have bank encouragement policies Since implementation of open-door economic policy, the Government and State have been continuously improving Bank law system, for example, law on the State bank and on Credit organizations was issued in 1997 and better amended in 15th June 2004

Law and act construction program of the eighth term national assembly 2015) will take 85 law projects and 6 act plans as the main working program of parliament Some among these law projects has direct or indirect influence on banking operation, such as law on deposit insurance, Stock law (amended), public investment law, Enterprise law (amended) and bankruptcy law

(2011-Together with the investment incentives of Government, People’s committee of the province issued Decision no 21/2007/QĐ-UBND regulating investment incentive and assistance policy applied in Quảng Bình province This policy has come into effect

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since 27th September 2007, in which domestic and oversea investors receive highest incentives regulated by Vietnam State and investment incentive and assistance of Quảng Bình province In 9th May 2012 provincial people’s committee enforced Decision no 08/2012/QĐ-UBND on issuing Trade-Industrial development incentives in period of

2011 – 2015 Besides, with reference to other provinces’ experience and based on the provincial background People’s committee of Quảng Bình province brought forward preferential contents attracting the investors to Quảng Bình

In addition, the province has been positively implemented the administrative reformation program, improved operational quality of one-door section and expanded one consecutive door in order to create best condition for investors In 19th April 2012 Chairman of provincial People’s committee enforced Quảng Bình administrative reformation plan in period of 2011-2020, primarily pushing simplicity of administrative procedures, ensuring their simplicity, publicity and evidence, and create the most convenient condition for people, organizations and enterprises on all affairs In addition, Quảng Bình province established an investment promotion funds to take initiative in attracting all types of investment Therefore, it creates condition and opportunity for the enterprises and businessmen to update information, approach investment funds and fields

to be invested; it makes contribution to solve difficulties in land clearance; the enterprise

is supported in expenses with investment incentives, the provincial People’s committee is consulted about investment incentives, investment support polices, tariff reduction, duty rescheduling, compensation assistance; and the enterprises are assisted in preferential investment borrowing

The aforementioned solutions show that Quảng Bình province has been creating attractive investment environment for domestic and oversea investors Until 30th June

2012, in Quảng Bình there has been total 259 registered investment projects with a capital of approximate VND99.229 billion, in which 16 projects has been operated with registered funds of VND8.514 billion This is opportunity for BIDV Quảng Bình to expand lending and guaranty service for projects

2.2.1.2 Economics Factors

Vietnam is considered as one of countries in Asia having the economy of quick growth with average GDP growth rate of 6,6% per year in 2007-2011 In difficult

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situation of global economy, Vietnam has been attracting Foreign direct investment-FDI and disbursement is continuously stable, which makes contribution to stabilize the overall balance of payments However, under impact of financial crisis in 2008-2009 and following world depression, Vietnam export turnover reduced by 10% in 2009, GDP growth rate decreased from 8,5% (in 2007) to 6,8% and 5,9% in 2010 and 2011 respectively After recording 23% in 2008, domestic inflation reduced to 6,88% (in 2009) and 9,19% (in 2010), nevertheless according to Ernst & Young Vietnam inflation trend in 2012 will be reduced This organization anticipated Vietnam inflation rate is at 11,5%

Apart from national advantages and difficulties, economy of Quảng Bình is still considered as quick development, especially determining direction to early erase poverty and gradually establish factors to ensure stable development of economy

Chart 2 1: Economic growth rate of Quảng Bình in 2006 – 2011 (%)

Source: Report no.157/BC-UBND dated 2 nd December 2010 & no 152/BC-UBND dated 24 th October 2011 of Quảng Bình People’s committee

In period of 2006 -2011, Quảng Bình economy had relatively stable development, average growth rate reached 9,8% In this period, the economic growth rate is the highest until now, 1,26% higher than period of 2001-2005 In 2007, Quảng Bình economy had highest growth (11,64%) and reduced to 8,6% in 2011 In six early months of 2012, growth rate of Quảng Bình province reached 6,2%

Chart 2 1: Economic structure of Quảng Bình in 2011, and by 2015

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Resource: Quảng Bình Website (www.quangbinh.gov.vn)

Shift in economic structure and internal structure of each economic sectors has had

positive changes Density of agriculture, forestry and fishery reduced from 29,5% in 2005

to 21% in 2011, density of industry and construction increased from 32,1% in 2005 up to 38% in 2011 and service density increased from 38,2% up to 41% in 2011; density of animal husbandry is increased in agriculture; agricultural production is gradually attached

to market and processing Average GDP per capita has had remarkable growth, in 2005 GDP per capita reached VND 5,4 million and up to VND17,85 million in 2011

corresponding to USD 854 and narrow the gap with national GDP per capita (GDP per capita of the province from 53,6% in 2005 up to 56% in 2006 and 65-66% in 2011

compared to that of the whole country

In 23rd June 2011, Prime minister enforced Decision no 952/QĐ-TTg approving the overall planning of eco-social development of Quảng Bình province by 2020, in which it strives on getting out of poverty by 2015 and primarily become a developing province in region by 2012 It includes the following content

Average GDP growth in period of 2011 – 2020 will reach up to 12 - 13%, in which it will reach to 12% in period of 2011-2015 and to 13% in period of 2016 – 2020 By 2015 average GDP per capita will reach VND 28 – 30 billion (about USD1.400 – 1.600) and

by 2020 get VND 70 – 72 million (about USD3.500 – 3.700);

Density of industry – service and agriculture in the economic structure by 2015 gets 43%, 40.5% and 16.5% respectively; until 2020 corresponding economic structures are 44 - 45,0%, 41,0% and 14 - 15%; by 2012 export turnover is striven for getting about

USD155 – 165 million and by 2020 reaching about USD 260 - 270 million;

- Striving on achieving average growth rate of service industry at 12,5 - 13% in period of 2011 - 2020, of which it reaches 12 - 12,5% in period of 2011 – 2015 and up to

13 - 13,5% in period of 2016 - 2020

- Concentrating to exploit the potentiality and strengths of Phong Nha – Kẻ Bàng world heritage; diversifying types of tourism to make the tourism become a key industry By 2015 striving on attracting 1,1 - 1,2 million of tourists including 60.000 – 70.000 oversea tourists; by 2020 there are 1,4 – 1,5 million tourists including 90 – 100 thousand oversea tourists

With the above-mentioned criteria in period of 2011-2020, GDP growth rate of Quảng Bình will reach at high level compared to that of the whole country, average GDP per capita will be improved The economy is quickly grown; living standard will be increasingly improved to create convenient conditions for BIDV Quảng Bình to develop its products and services

According to statistics until 31st December 2008, in Quảng Bình province there were 1.609 enterprises, until June 2012 there has been 3.060 enterprises including 30 State enterprises and 2 oversea joint venture ones with total labor of 91.125 people Number of enterprises in Quảng Bình is annually incremental From 2006 until June

2012, number of new entrants increases treble compared to 2005, average number of new-established enterprises is 10.886, mainly small and medium-scale ones Apart from strong growth of enterprises, Quảng Bình focuses on developing projects

Increase in number of enterprises and investment projects results in increase in banking products and services including lending, payment, guaranty, hiring, card service and foreign currency exchange and dealing, which helps BIDV Quảng Bình to develop its business operations as a result of development of banking service demand from enterprises and financing demand for investment projects

2.2.1.3 Socio-cultural environment (Socio-cultural Factors):

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Socio-cultural environment includes standards and values accepted and respected

by one culture or a certain culture Socio-cultural factors enormously affect human lifestyle, demand and hobbies as well as influence business activities in selecting business field, target market, general strategies and decisions on overall missions

Vietnam has a culture of national characters; however, in recent years due to impact of integration progress many oversea cultures have penetrated into Vietnam, especially in big cities middle class and adults have been more affected on lifestyle and thoughts That impacts their consumption behavior, namely trend towards oversea commodity, interest in brand, product quality and value Vietnam education level has been increasingly improved; Vietnamese consumers require products having not only material value but also immaterial one, especially for banking products and services This factors need attention when development strategies of the Bank is established

Until end of 2011 Vietnam population has over 87,8 million people with 22 million households including, ranking second and third in ASEAN region Until 2011 68% population is not in rural region From 1999 until now average annual growth of Vietnam population is at 1,2% Number of Vietnam population opening bank accounts is still low, making up 20% With young population, it is said that Vietnam has “gold population structure” with rate of working age from 15 – 60 at about 55% - 60% of population, which is an advantage in economic development

Chart 2 2: Growth and structure of Quảng Bình population in period of 2006 -2011 and

for period of 2015 and 2020

Source: Quảng Bình annual statistics book in 2011 and Socio-economic development strategy until 2020

According to the study in 1st April 1999, Quảng Bình has 797.176 people, 834.513 people in 2006 and up to 853.004 people in 2011 Population is irregularly distributed,

Increase and shift in population structure and labor remarkably affect potential demand of banking service Quảng Bình is a poor province, people have not had habit of using banking service; what’s more, rural region makes up a large proportion Therefore, when the population structure has increasing change in urban region, demand in banking service will increases However, most of people live in rural region the approach and introducing the banking service to them are very difficult and expensive Therefore, this matter needs an effective solution

According to McKinsey market research in 20081 on people behavior towards banking services, young people (at age of 20-29) have opener attitude towards new banking service such as online banking compared to people at higher age Young people

in Vietnam in general and in Quảng Bình in particular will play an important role in quick development of retail banking market in the coming years If income per capita of Quảng Bình continues increasing to VND 28 – 30 million (about USD1.400 - 1.600) by

2015 and up to VND70 – 72 million (approximate USD3.500 - 3.700) by 2020 according

to the aforementioned forecasting demand on banking service will gradually increase

1 Report quotes: How young consumers could shape Vietnam’s banks

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Consumption customs of Quảng Bình people has been gradually moved from spending on essential demand to perfecting and improving both material condition as well as living condition Confidence in bakning system has been constantly improved

In recent years, the economy of Vietnam as well as that of Quảng Bình has high growth rate, resulting in people’s increasing income Therefore, they invest their income

to get profit or take borrowings to spend in advance Therefore, demand on banking products and service has been remarkably developing

The culture that Quảng Bình people like transacting with domestic bank serves as

an advantage for Vietnam commercial banks This is a “gold” opportunity for domestic bank to exploit while they have lower competitive capacity than oversea ones Therefore,

in a strategic manager’s opinion, this psychological factor should be thoroughly exploited

by commercial banks in the current period to attract customers’ interest and simultaneously they must improve product and service quality in order to keep customers

However, banking service is unknown to most of rural people It is difficult to make them use banking product instead of cash This factor restricts development of banking products for all banks including BIDV Quảng Bình

2.2.1.4 Technological environment (Technological Factors)

Recently, strong development of informatics technology and other high technological industries has been profoundly changing domestic economic, political and social living Informatics technology especially Internet makes Vietnam closer to the world, strengthen understanding and cooperation with other countries over the world This industry has annual growth rate of 20% with revenue of about USD 7 billion making

up 7% of Vietnam GDP, in which hardware industry accounts for above 75% and remaining is software and digital contents

Together with development of national informatics technology, Quảng Bình province established a science and technology development strategy by 2020 with aim to construct, develop and improve scientific and technological ability to advanced level in Southeast region, to make S&T become a foundation and motivation for socio-economic development and boosting I-M, to make contribution to improve business quality and productivity as well as competitive ability of the economy and enterprises within the

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region and ensure stable living standard In past years, Quảng Bình technological infrastructure had been remarkably improved Nearly 100% organizations connect Internet and most of them establish local network Use of telephone, Internet and mobile phone has increased year by year In 2011, number of internet subscribers in Quảng Bình

is 41.946 and of mobile subscribers is 544.233 Scientific and technological activities especially IT in Quảng Bình has been quickly developing IT studies have been more and more employed in life and operations

In period of 2006-2011, banking technology had been developed Most of banks are equipped with corebanking and payment system primarily conformable to international practice and standards E-banking system has been strongly developing together with development of e-commerce in Vietnam Many banks provide online payment service such as VNpay, ESpay, e-shopping, etc Credit card system like master, visa, credit, ATM and POS has been remarkably developed with average growth rate of 40%-50% in many continual years;

In Quảng Bình, banks are branches directly under headquarters; therefore, IT environment is also modernized throughout the country BIDV Quảng Bình must frequently update advanced IT, do research and development of its products and service meeting the increasing demand of customers and focus on investing technological foundation to develop new distribution channels such as Auto Bank, e-banking (internet banking, phone banking), card payment equipment (POS) in trade centers and stores

Development of science and technique and ebanking IT system as well as transaction law valid from 1st March 2006 has enormous impact on BIDV Quảng Bình, enabling BIDV Quảng Bình to employ modern banking services such as internet banking, home banking, etc Thank to IT system, BIDV Quảng Bình successfully implemented banking modernization, which is one factor creating stable development of BIDV Quảng Bình

e-In spite of developed banking technology, products and services are not diversified and restrictive to applications and scales compared to international market In addition, due to cash payment habit e-banking payment is still in potential period, its obtained profit has not been corresponding to initial investment

2.2.1.5 Natural environment

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Quảng Bình is located in the northern Central, bordering Hà Tĩnh province to the North and Quảng Trị to the south, Laos to the West and Eastsea to the East There are total seven administrative units including one city and six districts Đồng Hới is the center of the province with area of 8.065 km2, located in the North-South arterials on road, rail, air and sea It has Hon La port and some Chalo border gates to Laos, which is convenient for commodity circulation within the country or in regional countries Its terrain is narrow and sloped from the East to the west Mountainous area makes up 85%

of the whole province The coastal is 116,04 km long, with five river gates, Nhật Lệ and Gianh ports and Hòn La bay There are many beautiful sightseeing along the coast Continent terrace is 2,6 times wider than inland, which creates a large fishery field

It is potential in development of heavy industry and non-smoke sectors Large volume of sand with high silicon content is suitable for glass industry and lime stone of 1.400 million tons for development of cement factory Metal minerals like ore, lead, zinc have a volume of 500.000 tons on area of 59 km2 Gold is widespread in many places Volume of mud coal is 903.000 tons for processing micro-biological fertilizers Phosphorus has volume of 150.000 tons, etc Sea and mountainous combined tourism is potential

However, its area is narrow with all forms of terrains including mountains, highland, delta and coastal The climate is severe with two different seasons Rain season starts from September through March next year Average annual rainfall is 2.000- 2.300

mm Flood regularly occurs and even whirlwind Dry season starts from April through August with average annual temperate of 240C - 250C; highest temperature is at 390C -

400C (in July), lowest at 100C (in January), which has enormous effect on socio-economy development as well as banking operation

2.2.1.6 Consequences from macro-environment analysis

Through the aforementioned analysis of macro-environment of Vietnam as well as Quảng Bình, it is possible to conclude some following primary characteristics affecting the strategy planning of BIDV Quảng Bình:

- In the coming period, political mechanism of Vietnam in general and Quảng Bình in particular Legal system shall be completed to create a fair and absolute business

- Quảng Bình economy in period of 2011-2015 is anticipated to establish a stable status; inflation, interest rate and exchange rate shall slightly vary, which is convenient for stable development of BIDV Quảng Bình;

- Population has 853.004 people, estimated to increase to 906.000 people by 2020; rural people make up 70% of population and 30% is urban In the meanwhile, only 18% of population assesses banking service It indicates that retail banking market in Quảng Bình is very potential, and BIDV Quảng Bình takes this opportunity to boost development of retail banking service

- Together with technological development, e-commerce has been more popular and particularly attracting segment of young customers with high income in urban region Therefore, BIDV Quảng Bình should have production solution and customer policy conformable to social characteristics of population class

2.2.2 Micro-environment analysis

According to five forces model of Michael Porter, competitive degree of banking industry can be considered under five forces: (1) competitive degree among the existing banks in the same system; (2) arrival of new entrants; (3) Empowerment of customers; (4) empowerment of suppliers; (5) threats from substitute products and services Detail analysis of these five forces shows overall picture of competitive environment in banking industry in Quảng Bình province

2.2.2.1 Analysis of existing competitors

With the State and Party’s policy of finance and currency market development prescribed

in Resolution of the ninth meeting of central committee of the ninth-term party, banking industry has been increasingly expanded to quantity, scale, network as well as technology and capital Severe competition among banks is mainly attached to interest rate, network, products and customer care Advantages of commercial State banking block and

commercial joint stock banking block are similar through growth of joint stock banks and

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existence of oversea banks in Vietnam Besides, banking system is severely competed by financial organization such as financial companies, investment funds, development

assistance funds, insurance companies, and post offices, etc

Operation of credit organizations in Quảng Bình: in period of 2007-2011, CB system has three new entrants With these shifts, Quảng Bình CB system currently has three State CBs, seven joint stock CBs and three other credit organization In 2012 it received two new entrants, Liên Việt Bank and MB Bank With a system of second grade branches, transaction offices, saving funds through the province and skilled staff, banking system has been successfully meeting with demand in capital and banking service for enterprises and local people, contributing economic development of Quảng Bình province

Chart 2 1: Number of credit organization in Quảng Bình province in 2011

No Organization name

First grade branch

Second grade branch

Transaction office

Saving funds

I Commercial state bank 3 10 20 2

2 The Central credit funds 1 - 5 -

3 Local Credit funds 21 - 1 -

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Source: Quảng Bình state bank (2011)

As BIDV Quảng Bình is one of three large scaled and leading profit commercial

banks in Quảng Bình, its direct competors is determined including two capitalized SBs

-Vietcombank Quảng Bình và Vietinbank Quảng Bình (Agribank Quảng Bình is out of

question as this largest scaled bank exclusively for rural and agriculture which is not

main market segment of BIDV Quảng Bình, also BIDV Bắc Quảng Bình as it is in the

same BIDV system) and two CBs - Sacombank Quảng Bình and VPBank Quảng Bình

Operational network: BIDV system has two first grade branches in Quảng Bình

province with regulated operational region BIDV Bắc Quảng Bình operates in the region

from Lý Hòa pass to Quảng Trạch, Tuyên Hóa, Minh Hóa district, and BIDV Quảng

Bình implements its functions and missions in the region from Lý Hòa pass to Quảng

Ninh, Lệ Thủy district and particularly Đồng Hới city – Economic center of Quảng Bình

province Therefore, operational network of BIDV Quảng Bình is still thin compared to

its competitors as well as other credit organization At present Vietinbank Quảng Bình,

Sacombank Quảng Bình and VPBank Quảng Bình have advantage of large operational

network; especially Vietinbank Quảng Bình has a fully operational network in districts,

therefore it has many advantages to exploit local customers

Chart 2 3: Market share shifting in Quảng Bình bank system

Picture A: Market share of capital

mobilization

Picture B: Credit market share

Source: State bank

In period of 2007-2011, banks’ market share of capital mobilization and credit had

have remarkable shift State CB group played key role and had highest market share