Individual credit development strategy of Vietcombank from 2013 to 2018

Business market is potential with the risk of more intense competition has lead to Vietnam commercial banks need to change business strategy, find new investment opportunities, expan and

FROM 2013 TO 2018

Group No : 6 Group members : Nguyen Quoc Toan

Nguyen Van Cuong Nguyen Thi Le Khanh

Le Thanh Vinh Nguyen Duc Thang

Vo Van Tam Thanh

HCMC 12/2012

HCMC, 25th of Dec, 2012 Performers The authors

Group 6 – Class GaMBA01.C0211

INDEX

THE BEGINNING 1

CHAPTER 1.BRIEF THEORY 5

1.1 OVERVIEW OF INDIVIDUAL CREDIT PRODUCTS OF COMMERCIAL BANKS 5

1.1.1 Individual credit concept 5

1.1.2 Characteristics of individual credit 7

1.1.3 The role of individual credit in the economy 8

1.1.4 Current individual products in Vietnam 9

1.2 LITERATURE REVIEW OF STRATEGY AND STRATEGIC PLANNING 10

1.2.1 STRATEGY AND STRATEGIC MANAGEMENT: A DEFINITION 10 1.2.2 The role of strategic management 12

1.2.3 Business strategies in reality 13

1.2.4 Competitive Strategy – Strategic Business Unit (SBU) 14

1.2.5 PROCESS OF PRODUCT STRATEGIC PLANNING IN CORPORATION 16

SUMMARY OF CHAPTER 1 28

CHAPTER 2 ANALYSIS AND EVALUATION PATTERNS OF INDIVIDUAL CREDIT ACTIVITY IN VIETCOMBANK 29

2.1 INTRODUCTION ABOUT JOINT STOCK COMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM (VCB) 29

2.1.1 History of the formation and development of VCB 29

2.1.2 Organizational structure, operating 30

2.1.3 Vision, mission and business mission of VCB 31

2.1.4 Business lines of the VCB: Include 31

2.1.5 The business strategy (SBU) of VCB: 32

2.1.6 Income statement of VCB: 33

2.2 SITUATION ANALYSIS ABOUT VCB’S INDIVIDUAL CREDIT

ACTIVITIES PERIOD FROM 2009 - 2011 34

2.2.1.Credit activities of the VCB 34

2.2.2 INDIVIDUAL CREDIT DEVELOPMENT ACCTUAL SITUATION IN VCB 35

2.3 ANALYSIS ON OUT ELEMENTS IMPACT TO INDIVIDUAL CREDIT ACTIVITY OF VCB 45

2.3.1 Analysis on general environment (Macro environment element) – Applied PEST 45

2.3.2 Analyze business environment: 57

2.3.3 Opportunities and threats 71

2.3.4 Matrix of External Factor Evaluation (EFE) 72

2.3.5 Competitive profile matrix (CPM) 75

2.4 ANALYSIS ON INTERNAL FACTORS AFFECT VCB’S INDIVIDUAL CREDIT ACTIVITIES 77

2.4.1 Human resources 77

2.4.2 Finance competency 78

2.4.3 Organizational Structure 79

2.4.4 Marketing Activity 79

2.4.5 Customer care 79

2.4.6 Research and develop individual credit product 79

2.4.7 Banking technology 79

2.4.8 Strengths and weaknesses of VCB on individual credit activity 80

2.4.9 Matrix for Internal Factors Evaluation (IFE) 82

2.5 EVALUATION ON SUCCESS AND RESTRAINTS OF CURRENT INDIVIDUAL CREDIT DEVELOPMENT STRATEGY 84

2.5.1 Business results 85

2.5.2 Management, business organization model and human resources for individual credit activity 85

2.5.3 Customer quantity and distribution channels 86

2.5.4 Technology and product 86

2.5.5 Individual customer marketing 87

SUMMERY OF CHAPTER 2 87

CHAPTER 3.STRATEGIC MANAGEMENT VIETCOMBANK’S DEVELOPMENT PLAN ON INDIVIDUAL CREDIT FOR PERIOD 2013 – 2018 89

3.1 VIETCOMBANK’S GOAL ON DEVELOPING INDIVIDUAL CREDIT 2013-2018 89

3.1.1 Particular targets: In order to have a clear and effective plan to develop individual credit, Vietcombank has set the following specific targets: 89

3.1.2 Core goals for 2018: 91

3.2 ANALYSE THE STRATEGIES OF DEVELOPING INDIVIDUAL CREDIT IN ORDER TO ACHIEVE THE TARGET 91

3.2.1 SWOT analysis: 91

3.2.2 Determine strategy of developing replaceable individual credit products 95

3.3 ANALYSE QSPM TO CHOOSE THE MOST APPROPRIATE STRATEGY OF DEVELOPING INDIVIDUAL CREDIT 95

3.4 SOLUTIONS TO IMPLEMENT STRATEGY OF DEVELOPING INDIVIDUAL CREDIT IN 2013-2018: 103

3.4.1 SOLUTIONS TO MOBILIZE SOURCES: 103

3.4.2 SOLUTIONS RELATING TO FUNCTIONS: 105

3.4.3 SOLUTIONS ON GENERAL MANGEMENT: 115

SUMMARY OF CHAPTER 3 122

CONCLUSION 123

APPENDIX 124

REFERENCES 132

LIST OF FIGURE AND TABLES I.FIGURE

Figure 1.1 : Porter’s Generic Strategies 15

Figure 1.2 : General strategic management model 16

Figure 1.3: 5 forces model of competition 19

Figure 2.2 : Chart of population of Vietnam by sex and age 55

Figure 3.1 Proposed model on Individual Credit Department at Head Office 117

Figure 3.2: Proposed model on Individual Banking Department at branches 117

II.TABLES Table 1.1 : External Factor Evaluation Matrix 22

Table 1.2: Competitive profile matrix 23

Table 1.3: Internal Factor Evaluation Matrix 24

Table 1.4 : SWOT matrix 26

Table 1.5 : Quantitative Strategic Planning Matrix 27

Table 2.1: Income statement of VCB (2009 – 2011) 33

Table 2.2: VCB’s outstanding loans classified by customers and business type 34

Table 2.3: Individual credit outstanding/ Credit structure by customers of VCB (2009 – 2011) 36

Table 2.4: Bad debt –VCB’s individual bad debt (2009 – 2011) 37

Table 2.5 : Individual credit fluctuation chart owed bad of VCB in the year 2011 38 Table 2.6 : Individual credit of VCB by product 38

(2009 – 2011) 38

Table 2.7: Outline of individual credit of VCB by product year 2011 39

Table 2.8: Individual credit of VCB by geographic area 43

(2010 –2011) 43

Table 2.9 : Outline of individual credit of VCB by geographic area 44

(2010 – 2011) 44

Table 2.10: Proportion of the population by age through period 55

Table 2.11 : Figures about the scale and operating efficiency of 12 banks by

31/12/2010 58

Table 2.12 : Individual credit Balance – Proportion at banks 2010 60

Table 2.13 : Individual credit Balance – Proportion at banks 2011 61

Table 2.14: The share of individual credit of banks (2009 – 2011) 64

Table 2.15: Branch and transaction outlet number of banks to Dec 31st, 2011 Error! Bookmark not defined Table 2.16: Income from individual credit of VCB (2009 – 2011) 69

Table 2.17: External Factor Evaluation Matrix of VCB 72

Table 2.18 : Competitive profile matrix of VCB 75

Table 2.19 : Finance competency of VCB 78

Table 2.20: Business efficiency of VCB 78

Table 2.21: Internal Factors Evaluation Matrix of VCB 82

Table 3.1 : SWOT analysis 91

Table 3.2 : Strategies built from SWOT matrix 94

Table 3.3 : The result of QSPM for group S – O 95

Table 3.4 : The result of QSPM for group S – T 99

Table 3.5 : The policy on product - market 105

LIST OF ABBREVIATIONS

2 The Joint Stock Commercial Bank for Forreign Trade of

Vietnam

VCB

3 Vietnam Joint Stock Commercial Bank for Industry and Trade Vietinbank

THE BEGINNING

The need of this thesis

Becoming the 150th member of the WTO is an important turning point in the

process of renewing Vietnam economy, opening to us many opportunities to access

leading financial markets, but also occurring many challenges when foreign banks

have licensed to trade equally with domestic commercial banks

Business market is potential with the risk of more intense competition has

lead to Vietnam commercial banks need to change business strategy, find new

investment opportunities, expan and diversify customer groups, the Joint Stock

Commercial Bank for Foreign Trade of Vietnam (VCB) is not beyond trend

VCB is one of commercial banks who is the leading bank in import and

export payment, wholesale lending and foreign exchange, Vietcombank's traditional

customer group is mainly large enterprises, while Vietcombank’s retail activities

field is not popular, especially individual credit However, generally, it has been

many changes, when other commercial banks have gradually grown in scale,

finacial resources, management methods and services, hence drawing VCB’s

traditional customer intensely

The development of retail banking services in general and individual credit

paticularly have seen as a choice of commercial banks with the trend of sustainable

development This choice is reasonable because, in fact, any commercial bank that

has established a strategy for the development of retail banking and individual

credit, will achieve success and can be seen as being part of the potential market as

in Vietnam, has a stable income, reduces risks and helps banks to have a long-term

sustainable development

However, the expansion of individual credit growth in the VCB has not

really changed dramatically, and individual credit services in VCB has not been

interest from customer compared to other commercial banks, especially the private

Formatted: Font color: Auto

joint-stock commercial banks and foreign banks Therefore, this is still a limited operation which needs to renewal in VCB

To fully understand the position, role, the importance of individual credit, to determine definitely objectives, the development direction in the future as well as to determine the execution path, this puts VCB into the world to seek new investment opportunities, change in business strategy and target customer groups, so it needs to have a strategy to develop individual credit activities of VCB in the period 2013 -

2018

To be able to compete with the active commercial banks in the country as well as foreign banks which have strong advantages in the field of retail banking services, Vietcombank has identified the parallel development strategy of wholesale coupled with retail, including individual credit which is one of the most important objectives

With these reasons above, Group 6 - Classes C0211 decided to choose the

topic "Individual credit development strategy of Vietcombank from 2013 to 2018”

to research.The need of this thesis

Becoming the 150th member of WTO is an important turning point in the process of renewing Vietnam economy, openning to us many opportunities to access leading financial markets, but also occurring challenges when foreign banks have licensed to trade equally with domestic commercial banks

Business market is potential with the risk of more intense competition has lead to Vietnam commercial banks need to change business strategy, find new investment opportunities, expand and diversify customer group, the Joint Stock Commercial Bank for Foreign Trade of Vietnam is not beyond trend

VCB is one of commercial banks who is the leading bank in import and export payment, wholesale lending and foreign exchange, Vietcombank’s traditional customer group is mainly large enterprises, while Vietcombank’s retail activities field is not popular, especially individual credit However, generally, it has been many changes, when other commercial banks have gradually grown in scale,

financial resources, management methods and services, hence drawing VCB’s traditional customer intensely

From the above objective conditions, Vietcombank has to find new investment opportunities, change business strategy and target customer group In order to be able to compete with other active commercial banks in the country as well as foreign banks which have strong advantages in retail banking services, Vietcombank has identified the development strategy of wholesale being coupled with retail activity, including individual credit is one of the most important objectives, as credit has always been a key activity of VCB Therefore, that is the

reason why Group 6 has decided to choose topic “Strategy of developing individual credit in the Joint Stock Commecial Bank for Foreign Trade of Vietnam” to

research

The objective of the topic

Synthesis and analysis of individual credit activities of commercial banks in Vietnam market

Analysis of the actual operation of individual credit area in VCB with the practical situation, market share, results, advantages, disadvantages, limitations and cause evaluation

Developing strategies and recommending solutions to apply strategic development of individual credit in VCB in the period 2013 – 2018

Product and research area

Product: Individual credit of VCB

Area: research base on analyzing practically and asses operation of

individual credit in recent years, and then recommend some strategy for developing

individual credit of VCB Objects and scope of the study

Objects : Individual credit filed begins to develop in the Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB)

Scope : The whole individual credit filed of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB)’s system

Research method

Using the method of dialectical materialism, combined with descriptive statistical methods, comparison, analysis, synthesis…in order to clarify the research; Collection methods, data processing: Secondary data was collected from the Annual Report, the disclosure table, statistical agencies, magazines and computer processing; expert interviews and VCB customers: the thesis will do interview a number of experts in the banking sector as senior officials of the State bank, VCB leadership and especially the VCB’s customer and staff in order to assess how important of the external and internal elements that affect to VCB’s strategy of developing individual credit

Practical significance of this thesis

Research solve the basic problems as follows:

Systematized rationale and developing individual credit strategy

Analyzing the situation of individual credit activities at the Joint Stock Commercial Bank For Foreign Trade of Vietnam, hence evaluating archieves as well as limitations exist in individual credit activities

Proposing the strategy to develop individual credit in the Joint Stock Commercial Bank for Foreign Trade of Vietnam from 2013 to 2018

Thesis structure

The structure of this thesis includes 3 chapters:

Chapter 1 :Brief theory

Chapter 2 :Analysis and evaluation patterns of individual credit activity in

Vietcombank Chapter 3 :Vietcombank development plan on individual credit for period

2013-2018

CHAPTER 1 BRIEF THEORY

Chapter 1 is going to present the basic content on individual credit and the relevant theory as a foundation for developing strategy of individual credit in VCB, including the introduction of strategic management, the steps of the strategic planning process The concepts and models in this chapter will be used for the next chapters

COMMERCIAL BANKS

1.1.1 Individual credit concept

Bank credit

According to The Law on Institution Credit in 2010 has been passed by the

National Assembly of the Socialist Republic of Vietnam: “Providing credit is agreement in order to institutions, individuals to use a sum of money or commit to use a sum of money or commit to allow of using sum of money base on principle of refunding by lending, discounting, leasing,factoring, bank guarantee and other credit activities”

There are many ways to define, generally bank credit has 3 elements:

- The transfer of right of using capital from owner to user

- This transfer has a certain time

- This transfer has a certain expense and risk

Individual credit

On the basis of the definition of "Bank credit" above and within the scope of this thesis, individual customers including individuals and households have a certificate of registration of the individual business, so Individual credit is a form of credit which commercial banks have the role as the transfer of the right to use their capital to customers as individuals or household use in a certain period of time and repay the principal and interest for the purpose of life serving or business services in the form of individual business households

Individual credit has grown for a long time in the world, but seems a relatively new concept in Vietnam market However, individual credit has quickly attracted many customers and has great potential for development The advantage is the large-scale market with a large population (about 89 million people), the majority of which is young, growing income and has needs for a variety of purposes Currently, the trend of consuming before paying aims to meet the spending needs for increasing life, especially in big cities Therefore, individual credit products of banks have been concerned by many customer This is the basis for banks boosting credit business filed confidently

1.1.2 Characteristics of individual credit

Individual credit is a type of credit which is different from business credit With the scope of this thesis research, there are some differences such as:

1.1.2.1 Scale of each small loans, number of large loans

The large individual customer number in the object of this type of lending is all individuals in society , from those with high income to low-and-middle income Credit demand is richness and diversified of individual customers

1.1.2.2 Specific risks of individual credit

 Risks due to asymmetric information

When evaluating loans, customer information is one of the important factors

to dicide of lending, besides rationality and legitimacy of capital requirements, solvency and secured assets

For individual customers, about personal assessment, the source of repayment, the purpose of the loan is often difficult to fully and clearly and it leads

to the risk of asymmetric information, which makes the evaluation of customer be inaccurate

 Operational risks

Due to the individual credit be small loans, but the number of loans is large,

so in order to be able to meet the customer needs to enhance the results of work which is required of serving quckily of credit officers Therefore, in the evaluation credit process, credit officials are often subjective, even taking advantage of lacked management and negligence of regulations to fraud to appropriate the property of customers, or collusion with customers causing loss to the bank

1.1.2.3 Individual credit makes more expense cost

Due to the characteristics of individual customers is the number of multiple and widely dispersed up, so in order to maintain and develop individual credit, it will be costly for:

- Expanding the network system, advertising, marketing in order to make advantages to individual customers in each area, or region

- Developing powerful human resources in order to serve customer quickly, accurately from the stage of receiving the dossier, the evaluation to decide for loan disbursement and debt collection

- Related expenses such as: cost management, stationery, electricity, water, telephone, supports for credit staff…

1.1.3 The role of individual credit in the economy

It can be said that most of the actors in the economy, either directly or indirectly, are entitled to all the benefits brought by the bank's activities Individual credit operations is not an exception when the following roles:

1.1.3.1 For the socio-economic

 Contribute to the dynamics for the economic sectors

Individual credit is the channel to support capital in order to people to cover the costs arising from satisfying life to luxury needs with expensive costs, to improve quality of life

 Contribute to social stability

As part of the credit generally, individual credit may also play a positive role

in society Credit individuals contribute to fully exploit the social idle funds and these funds flow smoothly and efficiently, from which surplus capital to the lack of capital, from the low to higher effective results

Individual credit helps to stimulate the economy, improve the efficient use of capital, boost domestic production

1.1.3.2 For bank

 Contribute to improve the brand for the bank

Due to a very large number of customer, so development of individual credit will help the bank's brand image be widely popular Through individual credit, besides providing credit to customers, it also helps facilitate the cross-selling retail banking products and services such as: savings, payment transactions, transfer salary account, issuing payment cards, electronic banking services The ability to provide package financial indivudual products and services satisfies the maximum

synchronization of customer demand will make the distinction for banks to compete with rivals, thus contributing to improve the brand for the bank

 Contribute to distribute risks

If the bank just concentrates to lend to corporate customers with large capital needs, for some reasons that business activities of these clients have difficulty and it will affect the repayment ability will influence major business activities of the bank Thus, with the principle of "avoiding all eggs in one basket", banks develop individual credit as distribution risks due to a large number of individual customers, the less amount of loans, the less influence of non-repayment to the business activities of the bank when few clients have risks

1.1.3.3 For individual customer

Individual credit helps customers more flexibility in solving problems satisfying their own needs Instead of accumulating enough capital at present to carry out their own plans, consumers will be tricky combination to satisfy current demand with the ability to pay in the present and the future That means they will consume in advance by selection of bank loans and accrued and return to the bank later

In addition, individual credit is also a channel for commercial banks funding

to production and business activities of the household to help them have conditions

to expand production scale and improve competitiveness in the industry With credit conditions easier rather than enterprise customers, individual credit is suitable with the form of small business, in accordance with the characteristics and business activities of this object

1.1.4 Current individual products in Vietnam

1.1.4.1 Individual loans

In Vietnam, as the development has not been longer, the individual lending products mainly developed in the width of traditional products, most applicable for all customers as:

- Lending for real estate: the needs of purchasing house/ land/ house in

project (martgage assets forming in future)/ building or reparing house

- Lending for individual business household adding capital

- Lending for purchasing car which is mortgaged by asset forming in future

- Lending for trust (without secured assets): lending for consuming,

overdraft

- Lending for securities business

- Lending for studying abroad: paying tuition fees and living fees of

student

- Lending for mortgaging valuable papers

- Lending for consuming

- ………

1.1.4.2 Individual guarantee

This type of banking provides customers (the guaranteed) guarantee services

at the request of a third party (the guarantee) in the areas of real estate transactions, production, sales,commercial such as:

According to Michael E Porter

Firstly, strategy is gaining competitive advantage which is both valuable and unique, including differentiating The core of competitive advantage is to choose

among routes other than that of competitors (this differentiation can either be making your activities different from your competitors or doing similar things with different methods)

Secondly, strategy is replacing and exchanging in competition The insight of strategy is doing what need to be done and not doing what need not

Thirdly: Strategy is about creating suitability among a Firm’s activities The success of a strategy depends on good practicing and its unification

Put in the simplest way, strategy is planned actions or activities done in efforts to achieve a Firm’s goals Hence, strategy is deemed as long term plans, plans that were set and followed by actions Whether the strategy is planned or done,

it has to yield expected results for the Firm’s goals

1.2.1.2 What is strategic management?

A definition by Fred R David : Strategic management can be defined as

the art and the science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives

The writers of this thesis defined strategic management as follows:

“Strategic management is the process of researching both the current and future contexts, postulating a Firm’s goals, suggesting, implementing and examining the decision process in order to accomplish those goals in such contexts”

1.2.1.3 Levels of business strategy

 Strategic management at corporate level: defines and clarifies the

Firm mission, objective and business activities

 Strategic Business Unit (SBU): plans to position products or specific

types of markets for a corporate business unit, to define business methods in order to achieve each unit goals, contributing to achieve its corporate objectives

 Functional strategy: define solutions and plans for each business area

1.2.1.4 Some definitions related to business strategy

 Mission statement : report about long term purpose to express

business statement of a company by using products and services that a corporation will provide for groups of customers It describes values and priorities of a company, determining general growing trend of that company

 Perspective objectives : are defined outcomes of each strategic period

that a company want to achieve as the same time as pursuing the general one Duration of long term goals usually is from five to ten years Those goals should be challenging and measureable They plays critical role in strategic planning

 Annual objectives : are milestones to be reached in order to achieve

long term goals They are important in strategic implementation

 O – Opportunities and T – Threats : these are factors of external

environment, beyond control of corporation and can be either useful

or harmful for the corporation In business strategic management, there is a need to formulate business strategy to take advantage of opportunities and avoid threats

 S- Strengths and W- Weaknesses : are internal factors of corporations,

within its control Strengths or weaknesses are determined by relationship with competitors

 Policies : are also important instrument to accomplish stated goals but

in narrower limitation They are more about functionality and flexibility than being business strategies

1.2.2 The role of strategic management

Strategic management aims to achieve goals set by an organization

“Management is to achieve organization objective through human resources”

Strategic management involves concerned parties on a widespread basis Strategic management involves short term development in long term context Strategic manegement involves both effectiveness and efficiency

1.2.3 Business strategies in reality

In reality, there are some common strategies:

1.2.3.1 Focus strategies

This type of strategies mainly improves the position of a company’s competitve edge with its existing products by increasing marketing activities or change of current market strategy without change of product It has 3 key strategies :

- Market penetration : occurs when a company penetrates a market in which

current products already exist by putting more marketing efforts

- Market development : involves expanding new geographical areas for current products or services

- Product development : increases turnover by enhancing or improvising

current products

1.2.3.2 Integration strategies

This type of strategies seeks ownnership or control over distributors, suppliers or competitors

- Forward integration : involves increasing ownership or control over

distributors or retailers Franchising is an effective way to implement this approach

- Backward integration : is a strategy seeking ownership or increased control

- Concentric diversification: adding new, but related, product or services (subtitutes or complimentary)

- Horizontal diversification: adding new, unrelated products or services for

present customers

- Conglomerate diversification: adding new, unrelated products or services (independent products)

1.2.3.4 Divestiture strategies

These strategies are used when a company needs to restabilize after effects of

a business cycle or to avoid a total downfall of the economy They include:

- Retrenchment : restructuring organization by cost and assets cutting and

put remaining resources in one or some areas

- Divestiture : selling a division of a company but ensuring that the

company can continue operating

- Liquidation : selling all of a company’s assets, in parts, for their net

worth

1.2.4 Competitive Strategy – Strategic Business Unit (SBU)

For efficient competition, a company need to realize opportunities and threats in business environment, as well as to build up and develop separated skills

to gain competitive advantage

According to Micheal E.Porter, there are basic competitive strategies as follows:

- Cost leadership Strategy : emphasizes on cost through a set of action

plans to implement this goal To achieve it, the firm should pay special attention on cost controlling

- Differentiation Strategy : is to differentiate its own products and services

by creating its own uniqueness perceived by the whole industry

- Focus Strategy: focuses on a group of specific customers, a set of

products or an area of market

Focus diversification was based on a hypothesis that a company can serve its one or two narrow strategic market segments more proactive and more efficient than its competitors, who serve a bigger one It wil result in the differentiation achieved by better meet the needs of a specific target or by reaching lower cost level when serving this target or by both Those competitive strategies of Michael

E.Porter was formulated to help a company surpass its competitors and increase market share, and also known as competitive strategies in red ocean

Figure 1.1 : Porter’s Generic Strategies

Source: Micheal E.Porter, What is strategy, Havard business review, Nov – Dec, 1996

Source: Nguyen Huu Lam (Edited) – Đinh Thai Hoang - Pham Xuan Lan (2007), Strategic

management, Thong ke Publishing Inc., page 21

Dif erentiatio Cost e dership

Dif erentiatio F cus Cost F cus

Broad target

Nar ow Target

Competitiv Adv ntage

Competitiv Ed e

1.2.5 PROCESS OF PRODUCT STRATEGIC PLANNING IN CORPORATION

1.2.5.1 Model of general strategic management

Figure 1.2 : General strategic management model

The process of strategic management can be divided into 3 stages: Formulating strategy, Implementing strategy and Evaluating strategy (Figure 1.2);

in which, formulating strategy is the first and the foundation ensuring an effective outcome of others

1.2.5.2 Formulating Strategy Process of Products

Like the general strategic management model of a corporate, formulating strategy process of products follows the same steps as in figure 1.2

 Define mission, objective and current product strategy of the

Company

In the context of temporary business nowadays, every single Company when establishing and operating contains its own defined mission and objective, though stated or not Nevertheless, in reality, the questions “What is our business?” or

“What is our mission?” can hardly be answered thoroughly The report of business mission statement is the nessesity in order to the previously stated questions It is a statement of the existance of a corporate, differentiating between an organization and another similar one A clarified mission statement is crucially necessary to form

objectives and plan strategies most effienciently

The term “objective” is used to imply some defined mission that a corporate strives to achieve There are long-term and short-term ones, which would be discussed shortly below:

- Short-term objectives: are mostly planned in the duration of a year and

they have to be very specific, listing all the oriented results with high level of details

- Long-term objectives: were usually implemented in more than a year

They are desired results which are suggested in a rather long time and are often set

in 7 topics: profit margin, productivity, competitive edge, job development, internal relationship, technology leader, corporate social responsibility

In term of product strategy, defining goals starts with doing some basic following steps:

- Determining product portfolio, including service or product types that is

in demand of market, to best meet customers’ need and corporate capability in each operating stage It ensures high productivity and allows corporate to accomplish the stated goals

- Developing new product, by practicing solutions to marketing new

products It is required that the new products should be accepted by market with high turnover and high profit margin

There is no consistent format for a mission statement, however, according to strategic management experts, an effective statement should includes these nine characteristics and should be able to answer the following questions:

1 Customers : who consume Company products?

2 What are the chief services or products of the Company?

3 Market : Where does the Company compete?

4 Technology : is technology of the Company most concern?

5 Concerning with ongoing, development and profitability

6 Business philosophy : what is the philosopy of pure belief, value, desire and priority of the Company?

7 Self-assessment : What are special skills and competitive advantage of the Company?

8 What is the corporate concern about social responsibility?

9 Employment treat: what is the Company attitude toward employees?

 Environmental analysis

(i) Analysis and Forecast about external business environment

(i.1) National economy (General environment) – Applying PEST analysis :

Including 5 basic factors :

- Economicfactors: of GDP forecast, inflation, interest rate, monetary

policy, unemployment rate, balance trade, foreign exchange rate…

- Political factors: tax policy, special treats, policies against monopoly,

environmental law, government stability…

- Social factors: cultural and standard living aspects, traditions, population

growth rate, population mobility…

- Technological factors: Government and business R&D, legal patents,

innovation, technological transfer, automation…

- Environmental factors: pollution, energy and fuel shortage, natural

resources diminishing

(i.2) Internal competitive environment (Practice environment) – Apply

Michael Porter’s five forces model

- Including 5 factors: competitors, customers, suppliers, new entrants and

subtitutes

- The relationship among these factors was described by Michael E

Porter’s five forces model of competition, creating a context of competition in a business as follows:

Figure 1.3: 5 forces model of competition

(i.3) Outcome of analysis and forecast about business environment

- After considering effects of all factors in business environment, there will

be a a report summing up the weighted score of opportunities and threats in order to give solutions or prevention in the formulating of strategy

- An External Factor Evaluation Matrix (EFE) is generally used to rate

strengths and weaknesses of external forces that affect operation of a business

(ii) Analyze and assess a corporate (internal factors)

Internal scenery of a Company includes all of its factors and internal system Solutions to reduce weakness and enhance strengths will be given based mainly on that in order to optimize advantages of the Company

Key internal factors include:

- Marketing : all of company products, services; diversification of products;

emphasis on sale of some products; ability to collect necessary info about market; product base; distributor channel; pricing strategies, promotion and advertisement campaign, after sales services…

- Finance and Accounting : ability to raise short term and long term capital,

company resources, cost of capital in comparison with the industry and competitors, tax policies, membership fee, working capital, flexibility of capital structure…

- Manufacturing, skills and technology : pricing and supply chain,

relationship with suppliers, inventory checking, arrangement of manufacturing tools and equipment, technological productivity, cost and technology base in comparison with industry and competitors…

- Human resources : management board, skills and ethics of employees,

rewarding scheme, staff mobility and resignation…

- Corporation values : code of conduct, hall of fame, corporate culture,

ceremonies…

An Internal Factors Evaluation Matrix (IFE) is generally used to rank

internal strengths and weaknesses that affect the operation of the company

 Analysis of alternative strategies

In light of practical experiences of strategic planning, many tools and models are applied such as SWOT analysis, BCG, IFE matrix, EFE matrix, IE, SPACE matrix, key strategy matrix

Each of matrixes has its own pros and cons Hence a strategic planner should use one or combination of several matrixes to analyse base on company facts

Within the limitation of this thesis, we shall consider applying SWOT analysis to formulate alternative strategies Strengths – Weaknesses – Opportunities – Threats (SWOT) analysis has the basis of existing data from EFE and IFE matrixes It is a critical tool that allows experts to develop 4 set of strategies as follows:

- Strengths – Opportunities (SO) strategy: using internal strengths to take advantage of opportunities

- Weaknesses – Opportunities (WO) strategy: improve internal weaknesses

by taking advantage of opportunities

- Strengths – Threats (ST) strategy: make use of company strengths to avoid and reduce effects of outside threats

- Weaknesses – Threats (WT) strategy: use as defense to internal weaknesses and prevent from outside threats

The application and combination of those strategies will be mostly based on the current situation of the company

1.2.5.3 Tools for strategic planning

There are 3 stages that form a business strategy and each of them uses different tools:

 Inserting stage

(i) External Factors Evaluation Matrix (EFE matrix)

This matrix allows strategic planners to summarize and assess information

on economy, society, culture, population, geography, politics, government, laws, technology and competition EFE is set up in order of these 5 steps:

Step 1 : Construct a portfolio of decisive factors to the success of the

business that a company is doing, including both opportunities and threats (at least 5 factors)

Step 2 : Evaluate the importance of each factor on the rank from 0,0 to 1,0

(in ascending order), totaling up to 1 This ranking bases on characteristics of the company business

Step 3 : Rate from 1 to 4 for each factor on the resistance level of the

company In which, 4 is good reaction, 3 is above average, 2 is average and 1 is low reaction

Step 4 : Define total of importance for each factor (by multiplying scores at

Rating (b)

(ii) Competitive Profile Matrix

This matrix is an extended version of EFE matrix with more details of importance of each factor, meaning of each figure and total score of importance Competive profile matrix is different from EFE matrix in which some decisive factors are also taken into consideration Total score of assessment among competitors will be compared with one sample

The competitive profile matrix shows comparison between a company and its competitors based on factors that affect competitiveness of companies within an

industry; thereby it helps strategic managers to detect strengths and weaknesses of the company and to define competitive advantage as well as what needs to be improved

There are 5 steps in making a competitive profile matrix:

Step 1: Constructing a portfolio of 10 factors with high importance level

affecting competitiveness of companies in an industry

Step 2: Ranking the importance of each factor from 0,0 (not important) to

1,0 (very important) This ranking shows the corresponding importance of each factor for its affection and competitiveness Total score of all factors should be equal to 1,0

Step 3: Defining weighted score from 1 to 4 for each factor based on the

company capability in terms of the factor, in which, 4 is good, 3 is above average, 2

is average and 1 is weak

Step 4: Multiplying the weight and rating of each factor to get total score Step 5: Adding up all scores to get the aggregate score of the matrix

Table 1.2: Competitive profile matrix

No Successful

factors

Rating Weight Rating Weight Rating Weight

(iii) Internal Factors Evaluation Matrix (IFE)

This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas

The IFE matrix is developed similar to the same 5 steps of EFE matrix:

Step 1: Selecting internal factors with critical role in internal analysis system,

including strengths and weaknesses (at least 5 factors)

Step 2: Weighting the importance of each factor from 0,0 to 1,0 (in

ascending order) totaling up to 1 The mentioned importance bases on its affection

on the company, regardless being strength or weakness

Step 3: Rating each factor from 1 to 4 for its representation of internal

characteristics 1 is the highest weakness, 2 is the lowest weakness, 3 is the smallest strength and 4 is the biggest strength

Step 4: Determining weighted score of importance for each factor (by

multiplying outcomes in step 2 and 3)

Step 5: Sum the weighted scores for each variable to determine the total

weighted score for the organization

Table 1.3: Internal Factor Evaluation Matrix

Key Internal

Factors

Weight (a)

Rating (b)

 Combination stage: Applying SWOT matrix

SWOT analysis is a tool combining strengths (S), weaknesses (W), opportunities (O) and threats (T) to formulate 4 types of strategies:

- SO strategies: utilize the company’s strength to take external opportunity

- WO strategies: take advantage to external resources in order to

overcome the weakness This weakness hampers the company to exploit opportunities; therefore, it needs to be improved as soon as possible

- ST strategies: ultilize the company’s strength to overcome external

threats

- WT strategies: also known as denfensive strategies to overcome

weaknesses and reduce threats A company facing both external threats and internal weaknesses might be very risky There are chances it can become target for M&A activities, retrenchment or bankruptcy

There are eight steps involved in constructing a SWOT Matrix:

- Step 1 : Rank internal strength

- Step 2 : Rank internal weakness

- Step 3 : Rank external opportunities

- Step 4 : Rank external threats

- Step 5 : Match internal strengths with external opportunities and mention

the result in the SO Strategies cell

- Step 6 : Match internal weaknesses with external opportunities and

mention the result in the WO Strategies cell

- Step 7 : Match internal strengths with external threats and mention the

result in the ST Strategies cell

- Step 8 : Match internal weaknesses with external threats and mention the

result in the WT strategies cell

A SWOT Matrix is described in the following cells

Table 1.4 : SWOT matrix

1

2

…

SO Strategy Use strengths to take opportunities

ST Strategy Use strengths to avoid or reduce external threats

WT Strategy Limit weaknesses and abstain threats

After completing SWOT matrix, we can summarize those combinations

 Decisive stage : Applying QSPM

Quantitative Strategic Planning Matrix utilizes information from 3 matrixes

in stage 1 (info collection and systematisation stage) and 1 matrix in stage 2 (combination stage), thereby, a subjective assessment about all alternatives can be given

Those selected strategies which are put in QSPM are not necessarily all the findings from stage 2

To develop a QSPM, we need 6 steps:

- Step 1 : List S,W,O,T factor from EFE, IFE matrixes

- Step 2 : Classify those factors in accordance with EFE, IFE matrixes

- Step 3 : Research matrixes in stage 2 and determine all aternative

strategies

- Step 4 : Determine total attractiveness score (TAS) for each factor : score

from 1 to 4, in which 1 means not attractive, 2 means barely attractive, 3 means rather attractive and 4 means highly attractive

- Step 5 : Calculate total attractiveness score (TAS) for each row by

multiplying classified score in step 2 to attractiveness score in step 4

- Step 6 : Sum up TAS in each strategy

The most attractive strategy is the strategy with the highest score in step 6

Table 1.5 : Quantitative Strategic Planning Matrix

Key factors

AS Weight Alternative 1 Alternative 2 Alternative 3

SUMMARY OF CHAPTER 1

In chapter 1, the thesis has briefly reviewed about personal credit and literature review of business strategy, introduced some definitions of business strategies as well as generalized a process of strategic planning of a company and a product

To develop a possible business strategy, strategic planner should combine core objectives, mission and aspect of the company with technological analysis of internal and external environment, using analysis tools such as EFE, IFE, SWOT and QSPM…

On the basis of literature review of chapter 1, the thesis will come into more details, analyzing facts about personal credit activities of VCB, factors of business environment and internal factors that affect those activities Given the outcome, the competitive advantage of VCB in development of personal credit will then be determined

CHAPTER 2 ANALYSIS AND EVALUATION PATTERNS OF INDIVIDUAL CREDIT

ACTIVITY IN VIETCOMBANK 2.1 INTRODUCTION ABOUT JOINT STOCK COMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM (VCB)

2.1.1 History of the formation and development of VCB

Introduction about Joint Stock Commercial Bank for Foreign Trade of

Trading Name: Vietcombank

Head office: 198 Trần Quang Khải Street, Hoàn Kiếm District, Hanoi,

Vietnam

History of the formation and development of VCB

Previously known as Bank for Foreign Trade of Vietnam, and now is The Joint Stock Commercial Bank for Foreign Trade of Vietnam (VBC) starting operation on 01/4/1963, the Bank for Foreign Trade of Vietnamese officially operate as a Commercial Joint Stock Bank on 02/6/2008 30/6/2009, stock of VCB (VCB stock code) was officially listed on the Ho Chi Minh Securities Trading department

VCB has now become a multifunction-bank which has multi-sector activities, provide customers with a full range of the top financial services in the field of international tradesectors; in traditional activities such as treasury, capital mobilization, credit, project financing, foreign exchange and derivative services, card services,electronic banking …

VCB has the advantage of clarity in the application of advanced technology

in automatic processing of bank services, product development, e-services based on

high technology Such as: VCB Internet Banking, VCB Money, SMS Banking, VCB Cyber Bill Payment, attracting customers with the convenience, fast, safe, effective.

VCB has over 12,500 employees, with about 400 branches/transaction outlet/representative offices/domestic customer and foreign customer members, including the Head Office in Hanoi, one So Giao Dich (critical brand), 78 branches and more than 300 transactions outlet across the country, three subsidiaries in Vietnam, two subsidiaries in foreign countries, one representative office in Singapore, five joint ventures company.Besides that, VCB also developed a system Autobank with 1,700 ATMs and 22,000 point card payment acceptable (POS) across the country Banking activities are supported by a network of more than 1,300 correspondent banks in 100 countries and territories

With wisdom and enthusiastic, the generation VCB’s staff has been and will always effort to build VCB worthy with its position as the "leading bank for Vietnam Prosperity"

2.1.2 Organizational structure, operating

Structure of VCB operating: refer Appendix 1

Preliminary management apparatus, operating

Board of Management: is the highest managing parts of the VCB, which has

07 members, including the Chairman of the Board of Management, 01 members of the Board which also holding role of CEO, 01 members of the board chair which also holding role of Supervisory Board

Board of Supervisors has 06 members, including 01 head of board, 03 members in charge full time and 02 members in charge part time

CEO of VCB is the law representative, and who is responsible to the Board

of Management and the law for VCB’s daily operations according to the mission and authority prescribed The Director-General is assisted by the Deputy General Director, Chief Accountant and Departments apparatus, professional boards

Commenting on the current organizational structure of the VCB

The model structure currently of VCB is divided into many departments, each departments perform separate functions but there is a mutual assistance Therefore, the monitoring and implementation are very complex requires many large personnel and management costs

Looking at the model structure of the financial corporations - banks in the world development according to to a separate block models to classify customers to get the appropriate policies for business, and also make the task of management more easy, strong, independent and highly professional However, the organizational model today is not building models for management of individual credit, it is the limitations of the development for VCB’s individual credit

2.1.3 Vision, mission and business mission of VCB

Strategic vision

Construction Joint Stock Commercial Bank for Foreign Trade of Vietnam become the Group financial investment bank multifunction based on application of international best practices, maintain a leadership role in Vietnam and became one

of 70 of Asia's leading financial institutions in 2015 -2020, with international scope

of activities

The VCB business mission

Always bring clients success

Ensuring the future in the hands of customers

The advantage in transactions and commercial activities on the market

2.1.4 Business lines of the VCB: Include

Main activities is financial services

The focus is commercial banking activities which with communication field

is wholesale banking (only serving corporate customers)

Retail banking activities

- Activities in the field of consumer

- Services real estate loans - mortgage loans, home loans

- Financial services for idividual customer …

- Insurance

- life insurance

- Non-life insurance, reinsurance

- Investment Bank

- Making business and investment securities

- Asset management activities / investment funds

- Consulting services to buy, sell, split, merger of companies

- Other financial services

Non-financial activities

- Making business and investment property

- Investment in construction and development of infrastructure projects

Credit activities

Include credit approval through the form of loans, discount commercial paper and other valuable papers, bank guarantees, financial leasing, and other forms prescribed by the State Bank

Payment and treasury services

Including open account, supply the means of payment in domestic and foreign, implementation of payment services in the country and foreign, implementation services revenue and expenditure, implementation of cash collection and distribution services, payment bills to customers