Factors market impact business results of the state owned commercial bank in ho chi minh city

22 2.4.2.2 Factors affecting the business results of the state–owned commercial bank according to market orientation: ..... 1.3 Object and scope of research The study focused on the stu

OPEN UNIVERSITY MALAYSIA

ASSIGNMENT

FACTORS MARKET IMPACT BUSINESS RESULTS

OF THE STATE OWNED COMMERCIAL BANK

IN HO CHI MINH CITY

Associate professor: Dr NGUYEN THE KHAI

Prepared by: NGUYEN DUY MINH

HCMC AUGUST 2014

ACKNOWLEDGEMENTS

First of all, I would like to express my deepest gratitude to My lecturer – Dr.Nguyen The Khai, who spent a lot of time and effort imparting knowledge about the subject – Business Research Methods to me;

Second of all, I really appreciate all the help which I get from my Colleges of Finance and Customs located at B2/1a, 385 street, District 9 They are persons who

have been a useful source of support and ideas for me to develop this paper;

At last, I really take this chance to express my thankfulness to my wife, Thai Tran Van Hanh, who spends much time not only reading and correcting my draft with

great care but also giving a lot of valuable suggestions to me

SEMESTER 2014 BMBR5103 – BUSINESS RESEARCH METHODS

ASSIGNMENT (60%)

CONTENTS

CHAPTER 1: OVERVIEW 4

1.1 The necessity of the Assignment 4

1.2 Objectives of the Assignment 4

1.3 Object and scope of research 5

1.4 Research methodology 5

1.5 Layout of the assignment 6

1.6 Novelty of assignment 7

2.1 Overview of market–oriented business result 9

2.1.1 The concept of business result 9

2.1.2 The concept of market orientation 9

2.2 The relationship between business result and market orientation 11

2.3 Research models relates to business results according to market orientation 14

2.4 Research factors in accordance with orienting market impact on business results of state–owned commercial banks 17

2.4.2 Factors in accordance with market orientation impact business results of the system's state–owned commercial banks 22

2.4.2.1 Actual business results of Vietnam's banking system 22

2.4.2.2 Factors affecting the business results of the state–owned commercial bank according to market orientation: 24

2.5 Recommended models and hypotheses 29

CHAPTER 3: RESEARCH METHODOLOGY 33

3.1 Research Process 33

3.2 Research Methodology 34

3.2.1 Qualitative Research 34

3.2.2 Quantitative Research 34

3.3 The Sample 35

CHAPTER 4: RESEARCH RESULT 37

4.1 The inspection 37

4.2 Database description 43

4.3 Correlation coefficient analysis 44

4.4 Regression method 49

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 61

5.1 Conclusions from the research 61

5.2 Recommendations 61

5.2.1 Customer orientation 61

5.2.2 Competitor orientation 62

5.2.3 Interrelation, cooperation between functional units 63

5.2.4 Profit orientation 63

5.2.5 Response sensitivity 63

5.3 Limitations of the research and the coming study orientation 64

REFERENCE 66

APPENDIX 68

CHAPTER 1: OVERVIEW 1.1 The necessity of the Assignment

The Vietnam became a member of the WTO Organization on 07/11/2006, which opened a route of opening of Vietnam's banking system Therefore, Vietnam's banking system shall perform its obligations and comply to operation principles in commercial service For example, according to most–favored–nation (MFN) – defined in the

General Agreement on Trade in Services, (GATS), Vietnam has obligation to treat

equally to all countries, if Vietnam gives preferential conditions to one country they must spend that incentives for all member counties According to principle of National treatment of equal treatment obligations between domestic and foreign enterprises, particularly in the banking sector, Providers of foreign banking services can enjoy equal privileges with providers of Vietnam banking services or foreign credit institutions licensed to operate in Vietnam will b treated equally with domestic ones etc

By November, 2011, after 5 years joining the WTO, Vietnam has removed any limits on the right to accept deposits in Vietnam dong from Vietnam entities This required Vietnam banking system in general and state–owned commercial banks in particular should catch up with the trend, or creating customer demand to improve operational efficiency and competition capacity according to market principles

From the practical study on "The market–oriented factors that affect to business results of the state–owned commercial banks in the Ho Chi Minh City” to

provide recommendations for improving business results to state–owned commercial banks according to market orientation

1.2 Objectives of the Assignment

The Assignment focuses on 2 main objectives:

– Identify market– oriented market factors that have impact on business results

of the state–owned commercial banks in Ho Chi Minh City;

– To propose recommendations for improving business performance through market–oriented factors for the state–owned commercial banks in Ho Chi Minh City;

However, with limited time, Assignment only offer research model and run a number of variables on the basis of SPSS software to analyze and to give research way

to develop the assignment in the next assignments

1.3 Object and scope of research

The study focused on the study’s object of market–oriented factors that have impact on business results of the state–owned commercial banks1 in Ho Chi Minh City including:

The survey was conducted on the hierarchical management and direct sales staff

of the state–owned commercial banks in Ho Chi Minh City;

– Director/Deputy Director of Transaction Department/Branch

– Head/Deputy Head of Business Unit of Transaction Department/Branch – Head/Deputy Head of Transaction office

– Credit expert/Officer/Credit Support/Teller

These are objects that have strong impact on strategy planning and implementation of market–oriented activities as well as those who interact directly with customers Moreover, the knowledge and experience of these above objects are suitable for research goals

qualitative and quantitative research methods

– In the qualitative study stage, basing on theory of market orientation, students used qualitative research methods to explore and find out the factors needed

to impact business results in the field of banking and finance These methods include group discussions, in–depth interview some senior leaders of the banks in Ho Chi Minh City, as well as expert opinion collection method based on the market –oriented factors affecting to business performance The goal of qualitative surveys to calibrate scales measuring relationship business results and the market –oriented factors The scales applied in research are scales of (Narver, JC and Slater, SF, 1990), (Deng, S and Dart, J., 1994), (Gray, B., et al., 1998) and (Wua, SF and Cavusgil, T., 2006)

– Stage 2, quantitative research, which was carried out by quantitative research methods used to test the scale of the market–oriented factors affecting to business results that have been explored and found during qualitative study period

– Formal questionnaire after adjusting scale in qualitative research phase is applied to conduct direct quantitative survey with respondents Next students start measuring the impact of these factors to the business results of some State–owned commercial banks The qualified questionnaire will be entered directly on SPSS software to create analysis data for the research project The scales used in this study was assessed through Cronbach’s alpha reliability coefficient SPSS 17 and Excel 2013 is used to analyze the data

1.5 Layout of the assignment

Chapter 2 introduces the theoretical basis on market oriented factors, business performance and measuring methods for these factors to improve business results and to propose research model and hypotheses of the assignment It also provides an overview

of researches on the impact of market orientation to business performance in the enterprise

Chapter 3: Research Methodology

Chapter 3 introduces the methodology, research process and preliminary quantitative research results to calibrate scale On the theoretical basis presented in Chapter 2 and preliminary quantitative research results, the study proposes calibration scale and formal questionnaires to measure market–oriented factors affecting business performance of State–owned commercial banks in Ho Chi Minh City

Chapter 4: Research results

This chapter presents analytical methods, analysis process and official quantitative research results to verify scale and study model as well as hypotheses The results of research are saved on SPSS 16 software and Excel 2013 version

Chapter 5: Conclusions and Recommendations

The final chapter of the thesis summarizes the main results of the study, the contribution and the implications for improving business performance in the State–owned commercial banks according to maket–orientation and at the same time give the limitations of the study and direction for further research

1.6 Novelty of assignment

The concept of market orientation is not a new concept which has been research by the world and Vietnam researchers for over 50 years in most fields from manufacturing to service, from business organizations to non–profit organizations However, partly due to the slow equitization process of the State–owned commercial banks compared with the life history of this concept, no study for the Vietnam State–owned commercial banks in general and in Ho Chi Minh City in particular has been conducted

The assignment is not aim to build a new theory of market orientation, business performance in the financial and banking sector, but focus on the market–oriented factors really affecting to business results in State–owned commercial banks in Ho Chi Minh City, then to propose recommendations to help the bank improve business results during the integration period

CHAPTER 2: THEORETICAL FOUNDATIONS OF MARKET–ORIENTED

FACTORS AFFECTING TO BUSINESS RESULT

2.1 Overview of market–oriented business result

2.1.1 The concept of business result

Business Result is defined as the achievement of the enterprise’s goals and is a

measure of business performance in each period Business result is measured by achieved profit, growth, market share, sales and other strategic goals (Homburg, C et al., 2007); (Yeniyurt, S., et al., 2005) (Hughes, M., et al., 2007) in their study give 2 ways to measure business result such as: customer performance and product performance In which, customer performance is often measured by customer attraction and customer retention (Hansotia and Behram, 2004); (Jayachandran, S., et al., 2004); (Chandon, P et al, 2005) Therefore, according to (Hughes, M., et al., 2007) performance measurement is based on what effect the enterprise create to create the attraction, retention, the reuse of the customer and create loyal customers Meanwhile, the product performance is measured by the success of the enterprise relying on sales and market share of product/service provided into the market

Business effectiveness is defined as the degree on which achieved objectives based for addressed issues In contrary to the performance, effectiveness is determined without taking into account cost While performance means “correct performance”, effectiveness means “doing right work”

2.1.2 The concept of market orientation

Market orientation is one of the most important concept of modern marketing

(Pandelica, A et al., 2009) This term was first known in developed countries from the years of 1957 – 1960 but only understand academically and theoretically (McKitterick, 1957); (T Levitt, 1960); (Deng, S and Dart, J., 1994)

Baker and Sinkula in a 1999 study showed that market orientation is a guideline for handling information obtained from the market of the enterprise At the same time,

they also considered how this factor will be used in business strategy (Baker, WE and Sinkula, JM, 1999) Meanwhile, Jaworski defined market orientation as a combination

of the upcoming actions and activities related to the production, dissemination and coping with market information Market orientation leads to an outward focus that directed mainly to customers and competitors (Jaworski, BJ and Kohli, AK, 1993) Furthermore, market orientation will define value of the response to customer (Kohli

AK, et al., 1993) or the existence of market orientation based on the continuous assessment of enterprise capacity and interact with the customers’ and competitors’ feedback (Baker, WE and Sinkula, JM, 1999)

According to Lafferty et al, market orientation has 5 schools (Lafferty, B and Hult, G., 2001):

School of approach towards decision making, market orientation is a decision–

making process of the enterprise, which emphasizes the commitment of the executive board on sharing information with functional parts The strong linkage in the organization will create clear communication, a sustainable combination and high–leveled commitment (Shapiro, 1988) However Sapiro only stopped at the level of decision making, rather than showing the combination to create value for customers and not mentioning competitive factors on the market while the competition is one of the important factors of the principle of market orientation

Behavior school of Kohli and Jaworski considered “market orientation” as a

term to develop the application of marketing idea (Kohli, AK and Jaworski, BJ, 1990) Accordingly, market orientation is defined as a process of creating the market information relating to current and future customers’ need; the synthesis and popularity

of such information to the departments; planning and implementing synchronous coordination among functional departments within the enterprise to respond to the market opportunities Thus, market orientation include (i) Creating information, (ii) Spreading information and (iii) Responding to customer demand

School of approach towards enterprise’s culture of Narver, Slater said that

market orientation is a kind of business culture which can create a foundation for better value generation for our customers and the enterprise’s success (Narver, JC and Slater,

SF, 1990) This culture is a combination of three components: (i) customer orientation,

(ii) competitor orientation and (iii) The interfunctional coordination Strategy–focused approaching school of Ruekert, baseing on the study of Kohli & Jaworski and Narver

& Slater to focus on analysis of economic unit rather than analyzing individual markets According Ruekert external environmental factor which has biggest influence to the market orientation is the client (Ruekert, 1992)

School of approach according to customer orientation of Deshpande and his

colleagues considered market orientation similar to customer orientation They also refuted the factor of competitor orientation in concept of orientation market factors and recognized the interfunctional coordination suitable with customer orientation and is one part of a customer–oriented Deshpande’s research team also considered customer orientation is one part of the overall corporate culture (Deshpande, R., et al., 1993)

2.2 The relationship between business result and market orientation

Market orientation is always valuable to enterprise because it will guide them to

create superior value for customers (Slater, SF and Narver, JC, 2000) and has been proved to have positive impact to the enterprise’s business operation results (Jaworski,

BJ and Kohli, AK, 1993); (Baker, W.E and Sinkula, J.M., 1999); (Baker, W.E and Sinkula, J.M., 1999) Furthermore, a good business result always shows a deep and insight understanding about customers of the enterprise (Clark, KB and Wheelwright, S

C, 1993)

Narver and Slater, in a study in 1990, also said that market orientation is (i) to meet the customer's change (ii) to meet the competitors’ change and (iii) the interfunctional coordination is pivotal for the enterprise’s success (Narver, JC and Slater, SF, 1990)

Market orientation is an element of the enterprise’s culture and it is base for necessary and effective activities in order to create better value for customers as well as the enterprise’s success

Factors used to measure market orientation are interpreted as follows:

Customer orientation and Competitor orientation includes all activities such as

gathering information about customers and competitors in the target market and disseminating this information to each functional department

Customer orientation is to understand the customers’ need to continuously create

superior value for customers (or, according to (T Levitt, 1980) continuously create

"offered products") Market–orientation requires the salesperson to understand the customer's value chain (Day, SG and Wensley, R., 1988), not only at the moment time but also in the future time according to the market change

A salesperson create value for a customer only in 2 ways: increasing benefit to customers bigger than the cost that the customer spend and reducing customer’s cost compared to benefit that customers receive Further customer benefits should be understood not only to be the immediate cost and benefits of direct customers but also

be a customers' customer Therefore, the businessman is required to know about both pressures in economics and politics at all levels of the distribution channel With support of the work’s standard frame, a salesperson can understand who is the potential customers now and in the future, what customers expect today and in the future as well

as what customers feel at this time and can feel the latter to satisfy their need

Competitor orientation is explained as a salesperson can understand the strengths

and short–term weaknesses and three behavioral components of market orientation (for example: (Houston, 1986); (Kohli, AK and Jaworski, BJ, 1990) To survive long term from the current competitive situation, the enterprise must think about further prospect

To prevent their competitors from surpassing in creating added value for customers, the enterprise must be persistent in creating and providing added value for customers, this requires suitable investment and strategy (Anderson, 1982) emphasized that a long–term investment perspective should be interpreted as a market orientation

The Interfunctional coordination is a combination of the enterprise’s resources to

create superior value for target customers Any stages in the customers’ value chain create opportunities for salesperson to provide value to customers So any individual in any the enterprise’s functional units can also potentially contribute to the creation of value for customers (Porter, 1985), and this effort is a specific effort of all functional

units not from any one unit separately (Webster, 1988) This was also shared by M.Porter when he came Vietnam that one of the biggest weaknesses of Vietnamese enterprise is too internal competition

The interaction among the enterprise resources in creating added value for customers has a close relationship with both market orientation and competitor orientation Starting from the nature of creating superior value for customers, the mutual dependence of the marketing function with other functional units must be coordinated systematically according to the enterprise’s marketing strategy (Wind, Y and Robertson, TS, 1983)

Once the functional units in the enterprise do not have good tradition of interaction, supporting and leader must implement the way to erase the barrier between functions The achievement of interfunctional coordination and other factors requires the unit arrangement and the creation of the functional independence of each unit so they can perceive their own advantages in cooperation with the others If the enterprise reward for any unit, which contributes to the creation of superior value for customers, self–interest will attract all unit to participate fully (for example: (Ruekert, RW and Walker, OCJr, 1987A) (Ruekert, RW and Walker, OCJr, 1987b); (Wind, Y and Robertson, TS, 1983) To develop interfunctional coordination effectively, Marketing departments or any supporting ones shall express their sympathy and enthusiasm to the knowledge and need of all the departments in the enterprise (eg (Anderson, 1982))

In terms of conceptualization, market orientation is a high–order construct concept, which consists of many components, in which most of authors based on three fundamental components stated by JC Narver and SF Slater in 1990 as discussed above However, basing on the business environment in the banking sector, and on the results of many

domestic and foreign studies, we can add 2 other factors into this study: profit orientation (Deng, S and Dart, J., 1994) and sensible response (Gray, B., et al., 1998), namely:

Profit orientation, this factor is probably paid attention by most of enterprises

However, most of them only focus on short–term benefit not on long–term interests of the sector as well as economic benefits and social benefits Profit orientation requires the enterprise to define profit target according to customer groups, for each

product/service line as well as different business units in the various business areas

Sensible response, to survive and develop sustainably, the enterprise need to

focus on collecting information, analyzing and forecasting of the changes from macroeconomic environment, from sector’s environment to the enterprise’s internal environment and especially changes in more and more diverse customer demand to implement suitable responses timely The global financial crisis starting from 2007 and continuing complexly to now is a big challenge for Vietnam's banking system, especially state–owned commercial banks, which are considered as less sensitive with the change

2.3 Research models relates to business results according to market orientation

Currently, there are many researches about the impact of market orientation on business performance of enterprises all over the word Some typical research models are as follows:

– Research 1: An in–depth study of the relationship between market orientation

and business performance ("A meta–analysis of Relation between Market Orientation and Business Performance: Evidence from five Continents"), Cynthia Rodriguez Cano, Francois A.Carrillat, Fernando Jaramillo (2003) The objective of this study was to clarify the relationship between market orientation and business performance relationship is positive and constant throughout the world One of the unique contributions of this study is that the sampling was carried out in 23 countries throughout 05 continents The effect diminishes with objects such as business (profit and non–profit), type of industry (manufacturing and services), social and economic development (GDP, HDI and measuring individual culture by Hofstede) Stronger correlation of the relationships between market orientation and business performance has been explored toward non–profit organizations compared with profit ones and production compared with services

Research model of Cynthia Rodriguez Cano and his colleagues focused on

testing the relationship between market orientation and business performance, the authors offer the hypothesis as follows:

 There is a positive relationship between market orientation and business performance

 The relationship between market orientation and business performance in collectivist cultures is more strongly individualistic culture

 The relationship between market orientation and business performance in the non–profit organization is stronger business organization

 The relationship between market orientation and business performance in the service sector is stronger manufacturing sector

 The relationship between market orientation and business performance as measured by MRTOR scale is greater scale MARKOR

– Research 2: The effect of market orientation on the profitability of the

business ("The Effect of a Market Orientation on Business Profitability", John F.Slater C.Narver & Stanley, 1990) The aim of authors is to develop a consistent way of measuring market orientation and analyze its impact on the profitability of the business First the author discussed the relationship between sustainable competitive advantage and market orientation and the reasons why market orientation is business culture and this culture generate superior value for customers efficiently, most performance The authors also hypothesize about the 4th component of market orientation In addition, the author expects the relationship between market orientation and profitability

of business operations as well as the relationship between the control 8 variables and profitability

The hypothesis given by the author is the more market–oriented, the more possible profitability of the business is, in the condition the other factors are constant

– Research 3: Measuring market orientation: Synthesis and generalizations

("Measuring Market Orientation: generalization and Synthesis", Rohit Deshpande & John U.Farley, 1997) The study was carried out uniformly and

through many countries in order to generalize and retest the measurement tools of market orientation of enterprise developed by 03 different researcher groups in the late 1980s This based on the new research of the author over

82 managers from 27 companies in America and Europe The author has discovered that all three scales are reliable and consistent The scales seem to

be generalized globally, both in terms of reliability and performance prediction Finally, the author has compiled a scale to measure 10 variables based on a more detailed definition of market orientation as "the set of processes and activities directly multifunctional creating and satisfying customers through reviews price needs on an ongoing basis”

– Research 4: Improving the efficiency management of enterprise in the

hospitality sector according to market orientation, Lai Van Tai and Hua Kieu Phuong Mai, 2007 to assess the level of management according to the

market orientation of tourism hotel businesses in Ho Chi Minh City and also determine the effect of each market orientation component on business performance of enterprise

In which Lai Van Tai and Hua Thi Kieu Mai tested the following hypotheses:

 There is a positive correlation between customer orientation and business performance;

 There is a positive correlation between orientation competitor orientation and business performance;

 There is a positive correlation between the interaction of the functional units and business results;

 There is a positive correlation between profit orientation and business performance;

 There is a positive correlation between response sensitivity and business results;

Regression analysis results of this study show that, in the hospitality sector, of the components of market orientation, sensitive response is component having the most

significant impact on business results, while customer orientation, competitor orientation and interaction between the functional units have weak effects and unstable

2.4 Research factors in accordance with orienting market impact on business results of state–owned commercial banks

2.4.1 Overview of the banking system in Vietnam 1

The development process of Vietnam's banking system since 1975 can be divided into the following stages:

Period 1975–1985: After 1975, the National Bank of Vietnam in the South has been nationalized and merged into the State Bank system of Vietnam, performed the same task that unified currency throughout the country, issued a new kind of money, revocated old money in both the South – North in 1978

From 1986 to 1990: This is the infancy of the initial reforms, as prerequisite for the formation and development of a system of Vietnam Bank to be more comprehensive and fundamental

From 1991 to present: This is the stage that Vietnam's banking system has a lot

of transformation gradually indirection of a modern two–tier banking system through the following major milestones:

– Since 1991, when the Bank Ordinance took effect, branches, representative offices of foreign banks began to establish in Vietnam During this period, four joint venture banks of four state–owned commercial banks with foreign banks were established in Vietnam The joint–stock commercial banks began

effect from October 1, 1998; established House Development Bank of Mekong Delta (Decision No 769/TTg, dated 18.09.1997) This is also the year when the financial crisis in East Asia happened, which had a negative impact on Vietnam's banking system, after this period, a number of joint–stock banks operating weak were rearranged From more than 50 joint–stock commercial banks, by the end of 2004 only left 37 banks;

– 2000: Restructuring finance and operation of state–owned commercial banks and the joint–stock commercial banks In particular, there was companies in the commercial banks;

– 2001: Bilateral Trade Agreement Vietnam–the United States was signed In this agreement, Vietnam has committed to open banking and finance market under a certain route;

– 2002: Liberalization VND lending interest rates of credit institutions – The final step fully liberalized credit market interest rates on both input and output;

– 2004: Amending the Law on Credit Institutions Vietnam;

– During this period, there was a very important event affecting Vietnam's banking system in particular, the financial system in general, which is Bilateral Trade Agreement Vietnam – the United States was signed Under this agreement, banking and finance markets Vietnam has been gradually opened for business of the United States and by 2010, the financial institutions of the United States are treated as equal members of the Vietnam financial institutions These are good conditions for Vietnam's financial market development, but also a huge challenge for domestic financial institutions, especially commercial banks;

– June 16, 2010: the XII National Assembly formally adopted the Law on the State Bank of Vietnam and the Law on Credit Institutions and has taken effect since January 1st 2011 Law the State Bank in 2010 had a number of important changes compared to the one in 1997, which clarified the legal

status of state–owned banks, as well as defined the functions and duties of state–owned bank as the central bank, performed the functions of state management in the field of monetary and banking operations, confirmed close relationship between two important functions of a central bank: implementing monetary policy and monitoring the safe operation of the system of credit institutions Meanwhile, compared with the old Law, significant changes in the Law on Credit Institutions 2010 is stipulating that the credit institution must not operate any business other than banking activities, which means that the capital raising activities similar to bank of non–bank institutions in the field of securities, finance investment services would be terminated since the beginning of 2011

According to the Law on Credit Institutions Vietnam in 1997, which was amended in 2004 and 2010, the system of Vietnam credit institutions include:

– Credit institutions are enterprises established under the provisions of the Law

on Credit Institutions and other provisions of law for banking activities; – The bank is a type of credit institution having right to perform all banking activities and other business activities being concerned The nature and operational objectives, the types of banks include commercial banks, development banks, investment banks, policy banks, cooperative banks and other types of banks;

– Non–bank credit institution is a kind of credit institution that performs some banking activities such as regular business content, but must not receive money deposits or provide payment services Non–bank credit institution include finance companies, leasing finance companies and other non–bank credit institutions;

– Foreign credit institution is credit institution established under foreign law; – Cooperation credit institution is organization that trades currency and does banking services and is established by organizations, individuals and households voluntarily for banking operations with the main aim of mutual

assistance, developing production, business and life Cooperative credit institution include cooperative banks, people's credit funds and other forms; – The types of credit institutions (as owner): Credit institution is established under the laws of Vietnam including state credit institutions, shareholding credit institutions, cooperative credit institutions, venture credit institutions, credit institutions with 100% foreign capital There is also a branch or representative office of a foreign bank in Vietnam;

There are 45 banks and 53 branches of foreign banks in Vietnam currently, including:

– 06 large commercial banks, in which 04 largest banks, each bank has chartered capital of over $ 1 billion and total assets of 15–25 billion dollars, Agrinbank is the largest bank (excluding Mekong Delta Housing Development Bank and policy bank) Among them the Joint Stock Commercial Bank for Investment and Development of Vietnam equitizated

on April 30, 2012

– 34 private equity commercial banks, in which 3 biggest banks are in order: Eximbank, Sacombank and ACB, while other banks are small (chartered capital from 3,000 billion to 5,000 billion and mainly be back pitch of the enterprises

– 53 branches of foreign banks and banks with 100% foreign capital

– 5 banks with foreign partnership

– There are also 18 finance companies, 12 financial leasing companies and 1,202 people's credit funds

In Vietnam, the banks (commercial) is allowed to participate in all activities of investment securities, buys controlling stake in another bank establishes financial and non financial companies, deposit–taking, lends gold, products and trades gold, whereas non–financial companies are also allowed to establish banks (Vietnam Credit Law in 2010), while in the developed financial markets, such as the United States, the purpose and function the ability of the organization to be specified as follows: while in the

developed financial markets, such as the United States, the purpose and function of above organizations to be specified as follows:

Commercial Banks: The purpose of the commercial banks in addition to pay for

the sale of goods and services (by check or online) is to attract deposits of numerous customers (especially individual customers) and lend customers (business or personal)

to trade and consume

Investment banks: The purpose of the investment banks is that finance

companies help businesses raise capital by selling shares or bonds (debentures) on the market, investment banks must not receive the consignment (deposits) Investment activities in shares, bonds and other financial instruments are risky activities, so investment banks must use their own capital (equity capital is contributed by shareholders, that is the main capital of the risks investors) to invest in the stock market (stocks, corporate bonds, etc.) However investment banks are mainly in charge of issuing stocks and bonds for companies being in need of capital to expand operations

To do this task, investment banks have underestimated the ability of production and development of companies that want to issue shares and must be able to mobilize other financial companies to associate and guarantee minimum value of securities This is activities that hide high risk

Insurance companies: There are 2 types of insurance, (i) health insurance or

accident insurance collectively referred to as non–life insurance (non–life) base on the law that large numbers of people use the contribution to buy premium (premium) to to pay for the victims and the rest to cover expenses for the company's operations and make profitability for stake members (ii) Life Insurance (life insurance) is the form that people save money The companies attract money contributed by individuals to invest (usually financial investments) in order to increase total assets of above donations and pay under the contract fixed prior as the contributing person is at limit certain age

Pension Fund: Total assets are mobilized to the fund forming huge financial

resources in many countries If people know the right management, it not only solves retired problem but also raises capital for development, because the pension fund, in principle, is the same as life insurance is saving money form of the public The

difference is that pension fund, is usually held no profit purposes, is operated as an independent fund from hired management, operate under the direct supervision of the Board of Directors designated by the Government, business owner or union The organizations of pension fund in different country are not the same In Vietnam, pensions based on worker’s working years and last salary (known as defined benefits) and the payment of retirement can be a burden for the budget or company if it is carefully considered, especially the number of people working for the government or company lives longer and young working population is declining

Other financial companies (excluding financial companies introduced above): Include companies primarily act as brokers for financial companies They may be intermediate to sell securities in the secondary market for customers, selling insurance contracts to insurance companies for commission, offering credit card, leasing financial etc…

2.4.2 Factors in accordance with market orientation impact business results of the system's state–owned commercial banks

2.4.2.1 Actual business results of Vietnam's banking system

Interest rate in Vietnam was high rate level in late 2011 and continued higher in the first 4 months of 2012, deposit rate of up to 14% – 16%, while lending rate sometime at 20% – 22 % To control and overcome this situation, the State Bank of Vietnam began to apply the interest rate ceiling of 14% from the end of September

2011 The ceiling interest rate then continuously adjusted decreasing according to inflation developments closely down to 8% at the end of 2012, from June 2013 until now; the ceiling interest rate is 7% per year

Lending rates also decrease gradually, but the rate of decline is slower than deposit rates in the early stages by introducing a cap on deposit rates, many banks still mobilize over ceiling and race interest rate to solve liquidity problems However, from the second half of 2012, when the State Bank conducted strict supervision measures, and required commercial banks to reduce lending rates of existing loans to a maximum

of 15%, interest rate to new loans decline markedly This is also a time when banks began to realize the sharing difficulties with manufacturing businesses to maintain operations themselves and tend to narrow the ratio of net interest income (NIM)

Figure 2.1: The Evolution of ceiling deposit rates up to now

Source: SBV

Although much lower interest rate, deposit growth remained strong over 20% as banks race interest rate, push up interest rates and appeal depositors, while other investment channels such as real estate, securities have difficulty In contrast to the mobilization and credit in 2013 remains low growth compared with the previous year, reaching 8.91% by the end of the year This is mainly due to (i) the interest rate is too high from the end of 2011 and until 2013 under the impact of tighter monetary policy, it has led business operations of many businesses get stuck, leading to an increase in dissolution and outage corporate rate, so the demand for a loan to expand production and corresponding declines; and (ii) the bad debt ratio increased due to declining repayment capacity of the business and consequent of the hot credit growth in the previous year, so the banks are more careful in new lending

Consequences of mobilization increased more than credit is excess liquidity phenomenon in the banking system, especially in large banks Do not push up credit growth, many banks have stepped up investment in valuable papers (bonds, government treasury bills and government guaranteed) in order to partially offset the decline in interest income from credit activities However, bond rates can not fully compensate for the rate of credit interest income while still accounting for a large share of the income

structure of banks (70% – 80%) In addition, bad debt increased from 3.2% in 2011 to over 8% by the end of 2012 and in 2013 was 7% had made provision for the cost of banking risks increase

The main reasons outlined above made profit of the banking system in 2013 significantly reduced in this context In this context, the advantageous situation belongs to the banks that are large, have strong financial strength and good risk management systems

When the system falls into the difficult situation, the negative issues were gradually revealed Typically in 2012 and 2013, a series of violations of the bank staff, typically at Agribank, Vietinbank and a number of other joint–stock commercial banks

in lending, deposits, related to fraud and misappropriating assets cases and cross–ownership relationship among banks and between bank and business, making mistakes

of a few senior officials of the bank be affect the whole system systems Currently, the relevant banks continue to deal with the aftermath of this incident

State Bank also stabilizes the foreign exchange market and reduces dollarization through (i) require all commercial banks to finalize gold mobilization before June 30,

2013, (ii) lowering foreign currency deposit interest rates to 2%/year, (iii) strengthening

of foreign currency reserves, and (iv) indirect exchange rate stability through effective inflation control in 2012 In the early months of 2013, State banks pledged to stabilize the foreign exchange market and commitment of VND discount (if any) below 3%, and this was realized when the exchange rate stabilized in both 2013

According to statistics from State Bank, the total banking industry profit in 2013 was 28.600 billion Situation of bleak profit in 2012 ended the golden years of the banking crisis rates Most banks are declined profit very sharply, even the big banks like Vietcombank, Vietinbank, BIDV, did not have significant growth over the previous year, despite being the leader of the whole sector in profit

2.4.2.2 Factors affecting the business results of the state–owned commercial bank according to market orientation:

Customer Orientation: The State retains the power to govern in the majority of

shares of the bank Most of the state–owned commercial banks have advantages in

terms of capital size, with total chartered capital of 04 large banks December 31, 2010 was 64 037 billion, led by Agribank with 21 042 billion Traditional customers of this block are the state corporation; however lending state owned businesses is potential bad debt risk than other businesses According to statistics from State Bank of Vietnam, of 2.5% bad debt of the whole sectors in 2010, up to 60% of the bad debt belonged to state–owned enterprises

(Source: Vneconomy.vn)

(Source: Vneconomy.vn)

As in the above table, the volume of credit market of this block declined significantly over the period 2007 – 2013 in spite of still accounting for the largest proportion 04 private banks, BIDV, Agribank, Vietcombank and Vietinbank accounted for 47.2% of total outstanding loans of the whole sector in 2013 If additional Mekong Delta Housing Development Bank (MHB), the total market share of the credit state–owned commercial bank group is 49.3% However, this figure was much lower than the 74.2% in 2005 Mobilizeation market share also declined from 74.2% to 47.7% during the period 2005–2013

Joint–stock commercial bank block had flexible operation and gradually controlled market share of state–owned commercial banks Joint–stock commercial banks having more diversified shareholder structure focused on lending activities small and medium enterprises and operated retail banking The market share of this sector has increased rapidly in recent years due to occupy the commercial banks from the state, accounting for 37.1% credit market share of the whole sector in 2013 with a total charter capital up to 151 590 billion

In the current situation, the economic downturn in Vietnam has no signs of prosperity; production and business situation of state owned enterprises remained stagnant, control of credit sources for this object as well as restructuring target customer strategies are essential and required urgently for state–owned commercial banks

Competitive orientations: In recent years, Vietnam's financial market is

becoming increasingly more active participation because of the various types of banks and non–bank financial institutions Currently, the number of banks allowed to operate increasingly along with the introduction and more powerful development of non–bank institutions, while idle funds in population and economic institutions is limited So the competition in this sector is quite fierce and greatly influenced the profitability of banks, especially in the context of the today difficult economy

Table 2.7 Number of banks:

(Source: State Bank of Vietnam)

Profit orientation: Mobilization and lending are two key operations of the bank

Most of the profits earned by the bank are interest rate difference between these two activities However, credit growth situation to a record low in 2013 has shown that this

is a very difficult period for the banking system in general and commercial state banks

in particular

(Source: State Bank of Vietnam)

With a credit growth rate of 6.45% on December 20, 2013 marked the bottom of the lowest growth credit crisis in over 10 years If compared to 53.89% in the heyday of credit in 2007, 2012, 2013 and forecasting that 2013 will be very difficult period for the banking system

Sensible response: In the context of the economy is developing rising and stably,

people's income is guaranteed and stable, cumulative demand of people is higher, from which the amount of money deposited in banks increase or ability to raise capital increase On the other hand, when the economy is high and grows stably, the demand for capital increases Conversely, when the economy fell into recession, real income of workers reduces and increasing volatility, which will reduce customer confidence in the stability of the currency even more when income is low, the amount of idle money in the economy will decrease, the amount of money that people have deposited into the banking system was at risk of being withdrawn In this situation, it requires the banks to have to respond promptly and effectively to the difficulty in raising capital and strengthen customer confidence in the banking system

All the business activities, in which, the bank's operations must be governed by law The activities of the commercial banks are governed by the law of credit institutions and systems of laws of another state, specifically in each period to comply with regulations on interest rates, reserve, lending limits, etc…

The most recent Circular 02/2013/TT–SB (regulations on asset classification, deduction, risk provisioning methodology and the use of risk provisions for dealing with risks in the organization's activities credit, foreign bank branches) in which, the credit balance including issuing credit cards, cash payments, according to the sheet commitments, the amount of purchase and Trust to purchase corporate bonds unlisted

or unregistered listed, trustee credits, and deposits at credit institutions Accordingly, the banks will have to classify loan and provision for additional items Especially in the context of bad debt all system are extremely high and unpredictable force banks to have significantly increased the amount of provision and impact on profitability

Thus, in order to protect good business results, the banking system not only has solutions to respond to the needs of customers, competitors, but also to adjust, adapt

quickly to fluctuations in the background economic and macro–economic policies of the state

In summary, in the current situation, with the system of state commercial banks, customer's belief is lower; credit market, mobilization of private commercial banks are dominate, while major credit consumer group of state commercial banks – state owned enterprises operate inefficiently and rather slow change with the impact of the external environment which has a significant impact on the efficiency of the business operations

of state commercial banks So when planning development strategies, bank sectors need

to have the proper attention to the market–driven factors

2.5 Recommended models and hypotheses

Based on the above research overview and current status of characteristics of state–owned commercial banks, students found that research models and scales of John C.Narver & Stanley F.Slater (Narver, JC and Slater, SF, 1990) with 03 elements (i) customer orientation, (ii) competitor orientation and (iii) the interaction between the functional units are used to study the effects of 03 factors affect the business results of the state–owned commercial banks in Ho Chi Minh City, however with the desire and expectation to explore other factors also impact on business results, students take on 02 new factors such as “profit orientation” (Deng, S and Dart, J., 1994) and “response sensitivity” (Gray, B., et al., 1998) in this research model Two factors were also studied and tested by Gray and his colleagues, model 05 factors affecting business results as shown in Figure 2.2

Figure 2.2: Research model

Customer Orientation

As well as business forms in general, business results of the state–owned commercial banks were also measured from the most basic criteria such as profitability, growth, market share, etc This result comes from customers that the bank wants to serve, on the basis of research, understanding of customer’s needs in a scientific manner, often committed to satisfying maximum customer’s needs before, during and after the transaction Therefore, the hypothesis for customer–oriented factors will be:

– Hypothesis 1 (H1): Customer Orientation impacts in the same direction with business results at the state–owned commercial banks;

Competitor orientation

In addition to fierce competition with the private commercial banking sector equity, commercial banking state in the next time will be faced with a series of foreign banks because of banking system opening schedule from WTO commitments This will greatly affect the business results of state commercial banks due to a priority will be limited and have to share the market share with competitors On this basis, the business

results are good or bad from locating the target customers, as well as strategic research

of competitors’ strategy in a system way and timely or not Therefore, the hypothesis for factors competitor orientation as follows:

– Hypothesis 2 (H2): Competitor orientation impacts in the same direction

with business results at the state–owned commercial banks;

The interaction between the functional units

The 3rd and final factors that Stanley F.Slater and John C.Narver confirmed in

1990 having an impact on business results was the interaction between the functional parts of the business (Narver, JC and Slater, SF, 1990) A business which the departments are aiming to serve customers, a business which employees can share resources with each other, open in the exchange of experience, the performance work will increase certainly Therefore, the hypothesis for the interaction factor between the functional units is:

– Hypothesis 3 (H3): In the state–owned commercial banks, the better

interaction between the functional units, the higher business results increase;

Profit orientation and sensitive Response

As have been demonstrated by numerous studies as well as practical, business performance is affected by many different factors, of which there are 03 factors in accordance with market orientation introduced above Following the model with 03 factors of Narver and Slater, there are many researchers trying to discover, develop more new factors affecting business performance of enterprises so far Deng and Dart

1994 has proven the fact that the enterprises control profit from the different customer groups, from different product lines, from different business units, etc also contribute

to increase performance business activities (Deng, S and Dart, J., 1994) Not stopping

at this 4th element, the team of Gray (1998) have discovered that in order to improve business performance, the enterprises need dynamic business and need a quick solution promptly to changes in prices, changes in customer demand, the strategy of competitors

and with changes of business environment (Gray, B., et al., 1998) So the desire to test the 02 factor “profit orientation” and “sensitive response” effect of how the business results in the banking sector, hypotheses 4 and 5 are proposed as follows:

– Hypothesis 4 (H4): profit orientation impacts in the same direction with

business results at the state–owned commercial banks;

– Hypothesis 5 (H5): The better sensitive response of state–owned commercial

banks is; the higher business results are

In summary, through many different researches from different occupations, different types of enterprises and research across many countries at different times demonstrated Pandelica’s judgment that market orientation is one of the most important concept of modern marketing thought Market orientation requires business to focus on the fundamental operation developed by two researchers Narver and Slater is customer orientation, competitor orientation, and the interaction between the functional parts and the other activities complemented by Deng, Dart, Gray, etc… These businesses need timely response with business environment as well as more attention to the control and profit orientation for enterprises These are very important factors affecting the business activities of enterprises today

CHAPTER 3: RESEARCH METHODOLOGY

Chapter 2 presents the theoretical basis and proposes research model and 05 hypotheses Chapter 3 aims to introduce research methods serving scale testing target, testing research models and proposed hypotheses In which, the third chapter is priority

to clarify three following main contents: (i) research methodology, (ii) study scale construction method, (iii) Sampling method and survey data

3.1 Research Process

Process research is done according to the following flowchart:

Objectives of the study

Group discustion

This study was carried out through two steps:

(1) Qualitative research in order to adjust and complement the component scale about customer orientation, competitor orientation, the interaction between the functional units, profit orientation, sensitive response and business results;

(2) Quantitative research to collect and analyze survey data, as well as inspect scale, test theoretical research models and hypotheses

3.2 Research Methodology

3.2.1 Qualitative Research

Preliminary studies were built and calibrated through qualitative methods, expert discussions, the direct sales force or who are undertaking the important position at the bank The objective of this research phase is to develop questionnaires and adjust scales

to suit the financial and banking sector in Vietnam

In theory, qualitative research was conducted through direct discussions with bank management of branches and transaction offices of the state–owned commercial and joint–stock commercial banks in Ho Chi Minh City

During the discussion, participants noted the comments of the actors, the factors that may affect the business results according to the brainstorming method (Brainstorming) Next, the students reset information and suggest reordering the results

to the participants discussed again to come to agreement on information exchanged in the interview These comments were recorded primarily on the specific deployment information, the observed variable of previous research has suggested

Finally, based on the feedback from the banking leaders, students conduct a revision of the questionnaire to suit the environmental conditions and the banking sector

in Vietnam

3.2.2 Quantitative Research

The results of qualitative research are used to calibrate the quantitative questionnaire The questionnaire after being corrected after serves the official survey of

the subject Research is done formally through quantitative methods using to collect technical information directly from questionnaires sent directly to the object of study The purpose of this study is to reaffirm the value factor and scale reliability of the factors affecting the market orientation and business results serve testing theoretical model target

The objects for prospecting are the director/deputy branch manager, head/deputy customer relations branch, director/deputy director transaction offices and credit professional working at 05 state commercial banks in Ho Chi Minh City

5–level Likert scale was used to measure the value of variables Information collected from this quantitative study is used to measure the composition of the factors that impact on business results market orientation in 05 state–owned commercial banks active in the area of Ho Chi Minh

The analytical methods are used to assess these factors include: Testing Crondbach’s alpha scale Finally, to test the relationships in the research model, a regression model is used to test the relationships between the factors in the model studies mentioned in Chapter 2

3.3 The Sample

Methods for determining the sample size in quantitative research formally define under the principle of experience, survey data should be observed 42 variable with the sample size in accordance with at least 140 samples (28x5) (Hoang Trong and Nguyen Mong Ngoc Chu, 2008) This subject was studied on 280 samples taken at random

The number of sample generated by the method of developing germ (Nguyen Dinh Tho, 2011) is sent directly to the initial elements working in state–owned commercial banks in Ho Chi Minh City, in which each element will initially receive 10

to 15 survey forms, and then these elements will send the survey to other objects in their units

The total number of cards obtained 280 ones, is conducted data entry, and serves process analysis to reports Compared with the expected sample size of 280, the study

can be considered to ensure the reliability of the sample size

Chapter 3 presents the research methodology, identifies research sample, and building factor scale affecting business performance of the state–owned commercial banks Following chapter 4 will present the research results of testing Cronbach's alpha coefficient, testing theoretical models and research hypotheses based on regression method

CHAPTER 4: RESEARCH RESULT

The research process needs to specify the content and role of each instrument in the analysis of research result including:

– Descriptive statistics;

– Variance analysis;

– Scale inspection;

– Regression: Hypothesis test

The survey result was obtained by giving 280 survey sheets to staffs working at the state–owned commercial banks in Ho Chi Minh City The 280 valid sheets were

aggregated into the survey data for the research named the factors affecting business performance of the state–owned commercial banks in Ho Chi Minh according to market orientation

According to the expected model, the observed variables measured for each expectation scale of the study model were synthesized into 06 factors In particular, the measuring scale was set from 1 to 5 levels with level 1 reflecting the phenomenon

“Absolutely un–happened” and level 5 reflecting the phenomenon “extremely high level" The analysis results used by testing averagely one sample on SPSS average 1

showed the reliability of 95%; all 06 factors in initial research model differed with neutral value In particular, the difference in agreement degree was at very high level

and increasing from C, D, E, F and B respectively For A factor alone, it was evaluated

with high disagreement degree level than other factors

4.1 The inspection 4.1.1 Cronbach’s alpha inspection

According to the concepts, factors was defined in details by bases from C.Narver