Kim long securities corporation formulation of business development strategies in the context of the global financial crisis

The role of business strategies in modern business environment Description of the formulation process of a strategyAnalysis of business environment of a firm (external environment)Internal analysis of an enterprise (internal environmental analysis)KIM LONG SECURITIES COMPANY’S BUSINESS DEVELOPMENT STRATEGIES

TABLES OF CONTENTS

LIST OF ABBREVIATIONS 5

LIST OF FIGURE AND TABLE 6

CERTIFYING STATEMENT 8

ACKNOWLEDGEMENTS 9

ABOUT THE AUTHORS 9

INTRODUCTION 10

I Justification of the necessity of the capstone project 10 II Research objectives and applicability 12 III Scope of the research work 12 IV Approaches 13 V Research methodology 13 VI Structure 13 CHAPTER I - THEORETICAL BACKGROUND 15

I Definition of Securities Terms 15 1 Securities 15

2 Securities Company 15

3 The roles of securities companies 15

4 Business operations of securities companies 16

II Fundamental issues of strategy and modern business strategy 16 1 Viewpoints about strategy 16

2 Typical features of a strategy 18

3 Types of business strategy 19

3.1 Classification of business strategy by levels 19

3.2 Classification of business strategies by content 19

3.3 Classification of business strategies by process 20

III The role of business strategies in modern business environment 20

1 Description of the formulation process of a strategy 20

2 Identification of corporate mission and objectives 21

2.1 Identification of corporate mission 21

2.2 Identification of strategic objectives 22

3 Analysis of business environment of a firm (external environment) 22

3.1 Impacts of external environment on business strategy 22

3.2 Evaluation of the environmental impacts 26

4 Internal analysis of an enterprise (internal environmental analysis) 27

4.1 Analysis of the value chain of an organization 27

4.2 Analysis of financial situation 28

5 Strategy formulation and selection 29

6 Formulation of strategy by level 31

6.1 Business strategy 31

6.2 International business strategy 31

CHAPTER II – KIM LONG SECURITIES COMPANY’S BUSINESS DEVELOPMENT STRATEGIES 32

I An overview of Kim Long Joint Stock Company 32 1 Development history 32

2 Development process and important turning-points of the company 32

3 Organizational and management structure of the company 33

II Analysis of corporate strategy and governance 35 1 External environment analysis 35

1.1 Macro environment 35

1.1.1 Economic environment 35

1.1.2 Technological environment 37

1.1.3 Social and cultural environment 38

1.1.4 Political and legal environment 39

1.1.5 Global environment 40

1.2 Analysis of sector environment 42

1.2.1 Situations of sector environment 42

1.2.2 Summaries of opportunities and challenges in the sector environment 45

1.3 Five competitive forces 47

1.3.1 Threat of current competitors 47

1.3.2 Threats of potential competitors 51

1.3.3 The company’s customers 51

1.3.4 The company’s suppliers 52

1.3.5 Substitute products 52

2 Internal environment analysis 52

2.1 Vision, Mission, motto and objectives of KLS 52

2.2 Business performance results of the most recent three years 54

2.3 Key financial indicators 56

2.3.1 Analysis of some financial indicators 57

2.3.2 Booked value of the Company 58

2.4 Business activities 58

2.4.1 Brokerage – Dealing 58

2.4.2 Securities proprietary dealing 59

2.4.3 Underwriting 59

2.5 KLS share prices 60

2.6 Personnel policy 61

2.6.1 State of human resources in the period (2008) 61

2.6.2 Workforce and expertise as of June 2009 62

2.6.3 Compensation policy 63

2.6.4 Personnel training and attraction policies 63

2.6.5 Recruitment procedures and attraction schemes 63

2.6.6 Training schemes 64

2.7 PR and Marketing 64

2.8 Analysis of sustainable comparative advantages 65

2.8.1 Resources and potential 65

2.8.2 Formulation of core competencies 69

3 Formulation of KLS key business strategies via SWOT matrix 71

CHAPTER III – STRATEGIC MEASURES & RECOMMENDATIONS 75

I Strategic measures 75 1 Strategic options 75

2 The target of diversification strategy 75

2.1 Mitigated risks 75

2.2 Increased corporate value and competitiveness over key competitors .76

2.3 Strengthened resources 76

3 Specification of strategic measures 77

3.1 Competitive strategies 77

3.2 New products design 78

3.3 Marketing strategy 79

3.4 International business strategy 82

II Recommendations 85 1 To the Kim Long securities corporation 85

1.1 Consolidation of risk management system 85

1.2 Improvement of the organization for the strategy implementation 86

1.3 Reform of the administrative structure 86

1.4 Proper assessment and allocation of resources 86

1.5 Improvement of the steering information system for the implementation of the strategy 87

1.6 Strict inspection 88

1.7 Staff training, recruitment and appointment of quality personnel .88

2 To the macro environment 89

3 To the Industry environment 89

III Obstacles in the course of the studies and future orientation 90 1 Sensitivity of the data 90

2 Time for studies 90

CONCLUSION 91

BIBLIOGRAPHY 92

I Books 92 II Other Publication 92 III Websites 93 APPENDICES 94

I Names and Responsibilities of Group's Members 94

II Names of Organization and Individual Instructors to the capstone project 95

LIST OF ABBREVIATIONS

SWOT Strengths, Weakness, Opportunities, Threats

LIST OF FIGURE AND TABLE

Figure 1.1 Business strategy formulation procedure 22

Figure 1.2 Michael Porter's model of five competitive forces 26

Figure 1.3 Value chain of an organization 28

Figure 1.4 KLS's organizational chart 35

Figure 1.5 VnIndex in 2008 44

Figure 1.6 The number of listed companies 51

Figure 1.7 Demonstration of KLS share prices in 2008 61

Figure 1.8 KLS share price fluctuation over the HASTC Index 61

Figure 1.9 Workforce by expertise as of June 2009 63

Figure 1.10 Risk management flowchart 85

2 TABLE Table 2.1 Analysis of SWOT matrix of the company 29

Table 2.2 Change in concentrated growth strategy 30

Table 2.3 Changes in integrated growth strategy 31

Table 2.4 List of shareholders who keep over 5% of chater capital of the company 36

Table 2.5 The securities indices of different countries in the world in the year 07 & 08 42 Table 2.6 Scale of Vietnam stock market 43

Table 2.7 List of 10 securities companies owning the highest charter capital in Vietnam Stock Market 48

Table 2.8 Comparison of broker market share in 2008 of some companies 50

Table 2.9 The number of KLS’s customers calculating from the end of 2008 52

Table 2.10 Business performance results of the most recent three years 55

Table 2.11 Key financial indicators of the most recent three years 57

Table 2.12 KLS’s 2008 Staffing 62

Table 2.13 Tangible resources 66

Table 2.14 Intangible resources 68

Table 2.15 Criteria to define core competencies i .69

Table 2.16 Outcome of combination of sustainable criteria 70

Table 2.17 Comparison of some of KLS's targets with those of its competitors and the whole securities industry 71

Table 2.18 KLS’s SWOT analysis……… 73

Table 2 19 Proposed composition of KLS sales towards 2015 ……….78

Hanoi, June 20th, 2009

We want to convey our sincere gratitude to the in Vietnam for your guidanceduring our course of studies Besides, we acknowledge the kind support of KimLong Securities Corporation in providing us with data and meeting with us so that

we have a practical insight of its strategic planning At university, we thank theprofessors and doctors, who provide us with skills and knowledge on corporategovernance during our whole course The knowledge is fundamental backgroundfor the elaboration of our capstone project, and useful for our application in real

work Finally, we are particularly thankful to the valuable tutoring from Sir Sean

Mc Gough – PhD in our completion of this research work.

ABOUT THE AUTHORS

I Justification of the necessity of the capstone project

In 2007, foreign and local investors saw a boom of the stock market in Vietnamafter seven years of its operations The capitalized value of the securities market,whose composition includes state bonds, represented over 50% of the country'sGDP1 The daily dealing value of the registered exchanges reaches over USD100million The initial number of four securities companies established in 2000increased twenty-fold in 2007 Such surge in the number of securities companies atthe time was a catalyst to make the local bourses more active and sturdy, thuscreating numerous choices for investors

The emergence of new securities companies, however, adversey influenced theoperations of existing securities businesses as it caused shrinkage in their marketshares In addition, the removal of the protective barriers to the local financialservices as a consequence of the country's increasing regional and global integrationprocess posed enormous challenges to domestic securities firms Many of thesebusinesses were exposed to being taken over, merged or backing out from themarket unless they became more competitive to challenge their new foreign rivals.2

At the turn of 2008, the whole world was shocked by the global financial crisis.After a series of financial scandals in the US and the rest of the world, onSeptember 15, 2008 Lehman Brothers – an old-aged American bank with a 158years' operational history collapsed, which marked the biggest bankruptcy ever inthe US3 The catastrophe of numerous take-overs, mergers and other bankruptciesthroughout the world due to mortgage-related losses was looming Thesedevelopments cast doubt on global financial administrators, institutions, researchersand policy-makers of what had been considered in the past few decades as the

1 State Securities Commission, 2007 Annual Report

2 Report of the Working Division on Vietnam WTO admission /Part II – Figure of commitments on services, the list of MFNS exemptions as provided for in Article I

3 http://money.cnn.com/galleries/2009/fortune/0905/gallery.largest_bankruptcies.fortune/ (June, 7 th 2009)

positive side of the new financial management and control theories and approaches.The situation also caused them skeptical about the growth of the financial markets,the interaction among different market segments, and the intergration of regionaland global economies and stock markets

The year 2008 ended leaving the developments of the global financial crisis in thestage so-called “the end of a start ” Stock markets worldwide were all tumbling,which caused hundreds of people to lose their jobs and be destitute

The US and global financial crisis also adversely affected the economy of Vietnam,and particularly its stock market The VnIdex suffered a deep consecutive fall of65%4 in its value from the beginning of 2008 A great many domestic and foreigninvestors backed out from the market, and made it almost unliquid

Rough statistics by the end of 2008 showed that most of local securities firms were

in severe losses Those businesses formed in 2006 and 2007 were in stagnantoperations due to the gloomy domestic bourse Their key services such as securitiesproprietary dealing, and underwriting were less profitable due to the large drop inthe price of the majority of listed shares over the initial value of the investingcompany and booked value of the listed companies

In this context, the quest for, and development of a sustainable and strategicinstrument to promote business operations of small and medium, and newly-established securities companies is essential

Efficient business strategies contribute to stable and sustainable development of asecurities company while acting as effective instruments to stabilize and boost thegrowth of stock markets given the prevailing global financial crisis

In summary, all of the above stands well justify our choice of the research titled

“Kim Long Securities Corporation - formulation of Business Development

Strategies in the context of the global financial crisis”, which is significant to the

performance of the Company and the domestic stock market as a whole

4 Report of State securities commission of Viet Nam 2008

II Research objectives and applicability

This research work is significant in practice It depicts comprehensive insight ofKLS’s operations and development trends in the context of the prevailing globalfinancial crisis and severe competition among securities companies The capstoneproject is targeted to securities companies, and participating organizations andindividuals on the securities market - a growing sector that is central interest oflocal and foreign investors

The capstone project provides KLS with a full picture of its business performance

in recent years, an analysis of its business strategies and proposed measures towards

a downsized administrative structure and streamlined investment All of theseefforts are steered towards the ultimate goal of mitigated risks, increased corporatevalue and strengthened resources for KLS in the context of ongoing global adversedevelopments

Beyond these, the paper can be used as a reference for other studies or researchwork on the administration of market builders, and KLS’s business efficiency in thepast period Moreover, the study is theoretically valuable and gives insight of thenew business strategies and operational management modalities of securitiescompanies, which are in great difference from their traditional strategic analysis andapproaches

III Scope of the research work

Despite the many lessons on business performance of securities companies drawnfrom the 2008 global financial crisis, our research work, due to certain constraintsand obstacles, concentrates only on KLS’s business development strategies, whichare in central interest of its Board of Management and other securities firms.Subsequently, the capstone project content is adhered to studying the factors thataffect KLS's sustainable growth from strategic points of view and given the globalfinancial crisis

IV Approaches

 Conduct surveys and collect information for summary and analysis, using

logical approaches;

 Hold field visits for assessment and comparative studies;

 Conduct consultation with international experts on management of financial

companies and groups, and securities firms;

 Organize interviews with domestic and foreign specialists, and the

Management securities companies to get their consultation ideas forimprovement of the capstone project's recommendations;

V Research methodology

In elaborating the whole capstone project, the dialectical and historical materialism

is utilized in combination with other approaches such as analysis, statistical work,group survey, scientific abstractionism and illustrative models

In analyzing the company's financial performance, cross-sectional and time-seriestechniques, trend analysis, common-size statements and financial ratio analysis aretapped

In other analyses, five forces, SWOT models, and several other theoretical modelsare to be presented in Chapter I and used

VI Structure

This research includes three chapters Chapter one presents the theoreticalbackground and new approaches of the capstone project Chapter two is the core ofthe whole paper It provides an analysis and assessment of current performance ofKLS in view of the operations of the entire securities service It also looks intosome issues of KLS's business strategies and governance, through which constraintsand the roots of such constraints can be identified The last Chapter gives an overallbriefing of the research work, puts forth measures and recommendations, and points

out arising problems and obstacles that prevent the authors from fulfilling theircapstone project to the desired quality.

CHAPTER I - THEORETICAL BACKGROUND

I Definition of Securities Terms 5

1 Securities

Securities are evidence that certify the holder’s legal rights and benefits over therelevant part of assets or capital of the issuer Securities shall be in the form ofshare certificates, book-entries or electronic data that include

(a) shares, bonds, fund certificates;

(b) rights to purchase shares, warrants, call options, put options, future contracts,

and groups of securities or securities indices

2 Securities Company

Theoretically, a securities company is an intermediary financial institution thatperforms services on the stock market for listing and issuers and investors Asecurities company as defined in the laws is a limited liability joint stock companyestablished in accordance with the laws and regulations of Vietnam to conductbusiness operations described in the business license issued by the State SecuritiesCommission.6

3 The roles of securities companies

 To develop regulations for mobilization of fund for issuers

 To enhance efficiency of investments and contribute to reduced time

consumption and mitigated risks via their consultancy services

 To contribute to formulation of stock markets and regularization of prices

 To contribute to increased liquidity of financial products

 To provide information to administrative authorities for their control of the

stock market

5 Securities Law No 70/2006/QH11, Chapter 1, Article 6

6 Securities Law 70/2006/QH11

4 Business operations of securities companies

a. Securities brokerage

Securities brokerage is the service in which a securities company acts as anintermediary to carry out securities buying or selling orders on behalf of itscustomers

b Securities depository

Securities depository is the receipts of securities deposited by customers,safekeeping of customers’ securities, and delivery of securities to customers andgiving assistance to customers to exercise the rights related to their ownership of

securities

c Underwriting

Underwriting is the service in which the underwriter commits to the issuer tocompleting the procedures prior to a securities offering, to buying a part or all thesecurities of the issuer for resale or to buying the remaining undistributed portion ofsecurities from the issuer; or to assisting the issuer in distribution of securities to thepublic

d Securities investment advisory

Securities investment advisory is the service in which securities companies provideinvestors with information such as securities analysis results, publication of analysisreports and securities-related recommendations

II Fundamental issues of strategy and modern business strategy

1 Viewpoints about strategy

From the traditional viewpoint of Michael Porter7, a strategy can be defined as “thestudy to identify the most suitable competitive position for an industry, and majorscope of activities where competition is present” Strategy, according to him,emphasizes the point of competition

7 Porter,M.E (1981) The contribution of Industrial Organization to Strategic Management New York:

Wiley.

Alfred Chandler – a professor from Harvard University8 has another idea.

“Strategy", in his view, "is to define long-term key goals of a company, action

programs and allocation of necessary resources to achieve those goals”

James Quinn9 from Dartmouth University defines “Strategy as the model or plan of

an organization to integrate steering goals, corporate policies and priority order ofactions in a unified entity”

William F Gluek10 is of the view that “Strategy is a unified, comprehensive andintegrated plan designed to ensure a firm's achievement of its business targets”.Planning-based strategy development approach is no longer in fashion Practiceshows that detailed plans that are formulated formally sometimes fail, andcontingency plans, therefore, are needed in the business operations of a company Inthis regards, traditional viewpoints show certain weaknesses Strategy, in its nature,

is a science and a tactic in achieving targets Such nature, however, is notemphasized in the above viewpoints

In such context, newer concepts of a strategy gradually replace the traditional ones.Endeavours have been made to reflect the nature of the term "strategy" in theseconcepts while ensuring its compatibility with the changing business environment.With this approach, the modern concepts do not emphasize the projection andplanning aspects but rather the selection of strategies that respond to the targets setout by an organization

It is obviously uneasy to give a clear definition of a strategy Yet this problem can

be solved if attention is paid to each strategy’s factors, which are meaningful forany organization In any circumstance, these factors depend strictly on the currentsituation of each enterprise, member organization as well as organization structure

It is necessary to separate the definition of a strategy and the strategy formulationprocess in order to have a unified definition with the assumption that we had a

8 http://www.news.harvard.edu/gazette/2007/05.17/27-chandler.html (June, 10, 2009)

9 Quinn, J., B (1980) Strategy for change: Logical Inscrementalism; Homewood, Illinois, Irwin

10 Lawrence R Jauch and William F Gluek(1989) Business Policy and Strategic Management

consistent strategy with goal, orientation and could face with changes in afluctuating environment

5 Typical features of a strategy

It can be seen that the concepts of a strategy are varied Yet, a strategy, from anyangles and at any time, has some most typical features that reflect the nature of thebusiness strategies of an enterprise specified below:

 A business strategy must clearly define the key goals to be achieved in

specified periods and must grasped at all aspects and levels of the productionand business activities of an enterprise

 Business strategies must be reflected in a continued process from

development to achievement, assessment and review, and adjustment of theset goals

 A business strategy must ensure optimal mobilization and full exploitation of

the firm’s resources like manpower, capital, technique and technology; andensure that the firm's advantages are promoted and opportunities are grasped

to gain comparative advantages in the market

 A strategy is an instrument that sets out long-term objectives of an

enterprise; and

 A business strategy defines the clear scope of competition of an enterprise The essence of this characteristic is to identify clearly the business scope of anenterprise This is an important step of an enterprise in reflecting businessenvironment, positioning strategies, allocating resources and administering itsinvestment portfolio Two basic questions raised are:

What are we trading in? and What should we trade in?

This is a relatively complex problem since the market segmentation has a greatimpact on identification of organizational structure of a company

 A business strategy creates interaction between opportunities and threats of a

company, and between its strengths and weaknesses, from which itscompetitiveness is built

This feature highlights a key aspect of strategy – the long-term sustainablecompetitive advantage of a firm over its major competitors in the involving businesssector It is a modern approach to make a research on competition status of anenterprise

6 Types of business strategy

6.1 Classification of business strategy by levels

The common level-based classification of a strategy is:

 Company (overall) strategies are the strategies formulated for the whole

company in all the sectors that it deals in The objectives of the strategies ofthis type demonstrate the ultimate goal that the company is pursuing from itsoverall performance, directions and measures to achieve the goal

 Business (sectoral) strategies are designed for a niche specialized business

sector When a company deals in one business sector, its business-levelstrategy is identical with its company-level strategy

 Functional strategies are the strategies of specific service of a company such

as financial, marketing, and personnel, etc Functional strategies aresupportive in achieving the success of business and company strategies

6.2 Classification of business strategies by content

Based on contents of strategies, French administrators divided business strategiesinto the following types:

 Commercial strategies are strategies applied in all trading activities of a

company from purchase of supplies to distribution and consumption of itsoutputs

 Technological and technical strategies

 Financial strategies

 Human strategies describe directions and ways to mobilize and use human

resources for successful implementation of the above strategies

6.3 Classification of business strategies by process

Business strategies include

 orientation strategies that indicate major orientations on a firm's targets, its

directions and ways to achieve such targets The strategies are built upon theanalysis of the internal and external environment of an enterprise They steerthe key strategic options of a firm

 action strategies that comprises of action alternatives of an enterprise in a

specific situation and expected adjustments of the strategies Actionstrategies can be selected from the ones formulated in the development oforientation strategies, or from the strategies established during theperformance of orientation strategy

III The role of business strategies in modern business environment

In modern business environment, strategies play an increasingly important role inthe existence and growth of an enterprise

Strategies are a tool to reflect collectively all the long-term goals of an enterprise.These goals are the ultimate targets that the firm wishes to achieve in its businessperformance Specification and documentation of such targets in the form ofstrategies helps every member of the enterprise be fully aware of where they want

to go, and what they need to do Consequently, this contributes to theaccomplishment of the firm's targets

1 Description of the formulation process of a strategy

Although there are various viewpoints of the various formulation approaches of astrategy, a normal process is composed of the following steps:

21

Formulation (Decision on what to do)

Implementation (Achieved results)

Identification of opportunities

and threats

Identification of material,

technical, financial &

managerial resources of the firm

Human values and

determination of the leadership

Affirmation of non-economic

responsibilities to the society

STRATEGIES

OF THE COMPANY:

Types of objectives and policies to identify the Company and the business fields of the Company

Structure of the enterprise and

Figure 1.1 – Business strategy formulation procedure

7 Identification of corporate mission and objectives

7.1 Identification of corporate mission

Before looking into this issue, a question raised is what are the objectives andmission of an organization?

Corporate objectives of an organization are considered as reasons for its existence.The approaches of strategists, therefore, to target issues will steer the formulation of

a strategy and influence its content

The regular formulation of a mission statement is a continuous process that has sixsteps:

Step 1: Initiate initial idea of a business mission

Step 2: Assess external environment and review internal conditions

Step 3: Re-define the idea of a business mission

Step 4: Rewrite the mission statement of the company

Step 5: Organize the implementation of the mission statement

Step 6: Review and revise the mission statement

The highest leader of the Company Strategic- Organizational Characteristics

Human Resources

In writing the mission statement, it is necessary to take into account not only thewishes of the owner, the leaders, but also the internal and external factors of thecompany.

7.2 Identification of strategic objectives

A company's objectives present clear orientations that it pursues, and influences itsbusiness performance For example, the increase of 15% in the company’s marketshare requires various actions to enhance its productivity Corporate objectives arealso good incentives For instance, to achieve the revenue of one billion in the nextyear can be a challenge to an enterprise Finally, a company's objectives are used as

an instrument for assessment and control It allows the company to check whetherthe planned business outcome is consistent with its requirements like whether thedelivery of the commodity can be contracted within two weeks This allows the firm

to take rational actions to get the desired outcome such as improved production andstorage and reduced order and delivery time, and raised sense responsibilities atwork

Target has also central role that is the result of comparison For each enterprise,target can be long-term, medium or short-term Economists assumed that anenterprise fixes its targets in eight main sectors as follows:

Market position; Renovation; Capacity; Financial and logistics source; Profits; Personnel development and efficiencies; Employee attitudes and efficiencies; Social responsibilities;

The absence of one of the eight foregoing sectors shall lead to serious consequences

to the whole enterprise In order to fix short-term targets and not to harm long-termones, a balance between these targets is required

8 Analysis of business environment of a firm (external environment)

8.1 Impacts of external environment on business strategy

External environment includes factors that may affect the performance of targets of

an enterprise The analysis of the external environment comprises of macroenvironment and sector environment (micro) The analysis of such factors shall help

an enterprise identify its position and environmental properties, the existence age,determine influences of the external environment and its targets, then be able tomake decisions in planning of strategy

Macro environment:

Macro environment includes various factors that have indirect impacts on activities

of an enterprise through its influences on factors of the sector environment, ofwhich there are 5 factors considered by administraters as those that influence moststrongly, that is: economic, institutional, legal, technological, social and naturalfactors

 Economic factors: have great influences on enterprises and the most

frequently movable factor, the most difficult factor to forecast among macroones Its movement always contains both opportunities and challengies forenterprises, of which the following moving trends are the most prominent:

- GDP and GNP trend: directly affects the growth rate of the economy, the

growth of disposable income of the population It shall make changes inconsumers’ needs, consumption market scale, affecting demand-supplybalance of products

- Interest: is a factor that have impacts on consumption saving and investment

trends; make consumption needs rise up or slide down, stipulate or limitinvestment in production expansion

- Inflation rate: affects prediction possibilities of investors, high inflation rate

shall make prediction more difficult, investment more risky, bringing aboutreduced investment, production and having impacts on sector competition.Balance of payment, exchange rate: affect the market and external economicrelations of an enterprise; sometimes result in the change in economic state

 Social, population, custom, preference factors, etc directly affect

consumption needs of the society

 Natural factor: is an important factor in human life, at the same time is an

input supply for many production sectors Natural factor is considered as theleast varible factor However, in the past decade, the natural environment hasbeen seriously deteriorated This may have great impacts on movement trend

of enterprises

Sectoral environment:

Sector environment closely attaches activities of an enterprise, factors of theoperation environment shall decide the investment environment, competitionstrength and profits in the sector According to professor Michael Porter, the context

of the operation environment is subject to influnences of five competitive forces:risk of penetration of potential competitors, competition strength of companies inthe sector, power of buyers, power of sellers and threats of alternative products

Figure 1.2 – Michael Porter's model of five competitive forces 11

11 M.E Porter, Competitive Strategy (New York: Free, Press, 1980

Threat of new entrants

Bargaining

power of

suppliers

Threats of substitutes

Bargaining power of customers

Competitive rivalry within the industry Density of competitors

- Threat of New Entrants: are companies that are currently not participating in

competitive rivalry within but are likely to penetrate into the industry Theirappearance shall increase competitive intensity, decrease profits within theindustry The penetration capacity of potential entrants will depend on theextent to which there are barriers to entry The higher penetration barriersare, the easier it is for other companies to enter this industry and vice versa.According to Joe Bain12, there are three major barriers hindering thepenetration namely Brand loyalty of customers, absolute cost advantages,and economies of scale If an enterprise has suitable strategies to enhancepenetration barriers in to the industry, the penetration threat of latent entrantsshall be restricted

- Existing players:

Existing players are regular pressure and direct threat to companies The moreaggressive the competition of existing players within the industry is, the moreprofit-making capacity, their existence and development are threatened It is suchlatent competition that existing companies within the industry keep enhancinginvestment costs with an aim to differentiating their market-access products,services or reducing their prices The competition intensity within the industry oftendepends on the following factors:

The number and capability of companies within the industry:

The number and capability of companies within the industry decides competitionnature and intensity within the industry In the industry with big companies ofequivalent capabilities, the competition tends to be fierce and much more inclines to

a price war In the event of only a few influenced companies prevail; they tend tohave connections with each other to control the market, which makes lessinfluenced ones reluctantly follow playing rules set out by the prevailing

12 J.E Barriers to New Competition (Cambridge, Mass: Harvard University Press, 1956) For a review of the modern literature on barriers to entry, see R,J Gilbert, “Mobility barriers and value on Incumbency” in R Schmalensee and R.D Willing, Handbook of Industrial Organization, (Amsterdam,, Holland 1989),I.

Market demands: Demands for products and services of companies greatly affectthe competition intensity When product demands tend to increase, companies find

it easier to protect or expand their market shares, thus the competition appears lesssevere Conversely, when the demands tend to decrease, companies shall beindispensably involved in a fierce war with other companies if they want to protecttheir market shares and expand the market

The costs are higher and higher, which makes companies more difficult to leave theindustry, thus they have no other choices other than involving in a decisive battlefor existence This makes the competition intensity higher and higher, esp forindustries at maturity or degeneration stages In the event of low withdrawalbarriers, the competition intensity tends to drop

Apart from the foregoing factors, the competition intensity also depends on otherssuch as the differentiation of products, services among companies within theindustry, the growth rate of the industry, entry betting, and fixed costs, etc

8.2 Evaluation of the environmental impacts

To evaluate the environmental impacts, quantitative assessment of the impact ofenvironmental factors on operations of companies is widely used, in which factorsare synthesized through a five-step procedure:

Step 1: Make a list of factors decisive to the sucess of companies

Step 2: Assess the importance of each factor to the industry

Step 3: Identify the weight of each factor in relation wiht responsive capability of

companies’ current strategies or the importnace to the companies

Step 4: Scale the marks of each factor

Step 5: Calculate the total marks

The total marks shall reveal impacts on the environment on companies, therebyidentifying opportunies and challenges companies are now facing This is the basis

to formulate business strategies to ensure the suitabilites of the strategies and themobilization environment

9 Internal analysis of an enterprise (internal environmental analysis)

The capabilities of an enterprise is a basic factor to decide what it can do, whetherits strategies can be sucessfully performed To ensure the feasibility of strategies,during their formulation, it is necessary to assess the current situation, to determinestrengths and weaknesses, from which differentiative capacity or the competitiveadvantages of the enterprise can be identified The internal analysis is conducted inthe following aspects:

9.1 Analysis of the value chain of an organization

Supportive

activities

Infrastructure

Strategic targets

Information systemHuman resourcesAdministration of materialsResearch & Development

Main

activities

Marketingand sales

Production After-sale

services

Figure 1.3 – Value chain of an organization

The value chain is the synthesization of activities of an enterprise in order toincrease the value The value chain of an organization is constituted from twogroups of activities – main activities and supportive activities

Main activities are those that are closely attached to products and services of the

enterprise They include purchasing and management activities of input factors,marketing activities, service activities and after-sale customer care activities.Consideration is made whether these activities contribute to cost saving andimproved quality of products and servies, which best satisfies customers’ demands.The more the activities are saved, alongside with increased quality and satifaction

of customers’ demands, the higher the value chain of the company is evaluatedwith its advantages in competion

Supportive activities contribute to better operations of the company and its more

effective performance They comprise of personnel management, technologicaldevelopment and purchasing

9.2 Analysis of financial situation

An important and indespensable part seems the results of the company’s busineesperformance through its financial standards Through data of the analysed financialstandards, we can clearly distinguish how its financial capability and financialplanning and mangement work is conducted

Apart from the above-mentioned factor, internal analysis includes such issues assustainalbe value, internal control, and control of investment risks that will beanalyzed and evaluated by activity

Upon the completion of the internal analysis, a table of strengths and weaknesses ofthe companies shall be synthesized This is the final stage, and the results of theinternal analysis The table of strengths and weaknesses is developed in alignmentwith the table of opportunies and challenges in the environmental analysis

The combination of the two tables – opportunies and challenges, and strengths andweaknesses builds up a SWOT matrix, which is the ultimate results of theenvironmental and internal analysis, and foundation for the formulation of the firm'sbusiness strategies

Table 2.1 – Analysis of KLS's SWOT matrix 13

On the basis of the SWOT matrix, the company is able to identify strategies to bringinto full play its advantages, and make full use of the opportunities, and avoidchallenges from the environment

13 http://www.sciencedirect.com/science (June, 8th 2009)

10 Strategy formulation and selection

Strategies are a system of key policies and measures to implement and coordinateprograms of action, supportive organization and fulfillment of targets in the mosteffective way Company strategies cover the entire operations of firm that aretargeted to the most effective competition, predominance in the market, andsustainable growth Company strategies can be selected from the followingstrategies:

Concentrated growth strategy: To pursue this strategy, the company’s strategies

must focus on product renovation or the market while leaving other factors intact.The company strives to tap any opportunities of its current products, and services orthe operating market

Table 2.2 – Changes in concentrated growth strategy 14

Current implementation

or new

Current or

Concentrated growth strategy enables the company to direct all its efforts to theactivities that it has comparative advantage, and tap its prominent strengths todevelop its business However, concentrated growth strategy tends to missopportunities to expand the market, fail to take advantages of its prominentcharacteristics, or grasp development opportunities of other professions

Integrated (aligned) growth strategy: With this strategy, the Company shall take

measures to undertake the production of inputs or consumption of products Thecompany can implement frontward integration (in reverse order) or backwardintegration (in clockwise order) (total or entire integration, internal or externalintegration)

Table 2.3 – Changes in integrated growth strategy

14 http://epress.anu.edu.au/anzsog/centrelink/mobile_devices/ch03.html (June, 7 th 2009)

Current implementation Current Current New CurrentIntegrated growth strategy enables the company to reduce costs and save on marketexpenditure, control the quality better, make use of business opportunities and bemore active in developing business methods This strategy can be applied to capableenterprises that are able to grasp opportunities in line with their long-term targets

Diversification strategy: In this strategy, companies shall take measures to develop

new products and services to conquer new markets for increased efficiency Theycan exercise concentrated and composed diversification strategies without relating,

in terms of technologies, to their current products and services Diversified strategymakes full use of the surplus financial resources, creates new competitiveadvantages, and restricts risks It also requires companies to improve theirmanagerial capacity, and calculate benefits and costs of their growth in thisdirection

Downsizing strategy: The strategy plays an important role in the restructure of

companies when offering new services It is implemented when business activitiesthat they are pursuing have little prospect for long-term development, andunsuitable economy or appearance of new and valuable opportunities Downsizingstrategy focuses on cost cutting, and investment capital recovery

Mixed strategy: A company, at the same time, can apply different strategies It can

accelerate its growth in one sector while cutting down on another These activitiesare all aimed to achieve successful implementation of the company's overall goal inthe execution course of its business strategies

The choice of one from the foregoing strategies depends on a company’s capacityand the conditions of the involving environment From the SWOT analysis, thecompany can select the most business strategy that fits its operation most

11 Formulation of strategy by level

11.1 Business strategy

For sole-sectoral companies, their level strategy is identical with company strategy.For multi-sectoral companies, each of their business sectors needs a separatebusiness strategy Due to the different characteristics and the environmentalconditions of each sector, strategies designed for each sector are certainly not thesame

11.2 International business strategy

An international business strategy addresses two issues – oversea marketpenetration for expansion, and competition Competition in the international market

is similar to a great extent to the competition in the domestic markets The degree ofcompetition and complexity of the business strategy in the international markets ismuch higher than in local ones

CHAPTER II – KIM LONG SECURITIES COMPANY’S BUSINESS DEVELOPMENT STRATEGIES

I An overview of Kim Long Joint Stock Company

 Securities proprietary dealing;

 Underwriting for issuance of securities; and

 Securities investment consultancy

12 Development process and important turning-points of the company

Kim Long Securities Joint Stock Company was established officially on August 1,

2006 under the Certificate of business license No 0103013382 issued by HanoiPlanning and Investment Department on August 1, 2006

The company was issued with the license of establishment and securities businessoperation on October 6, 2006 according to Decision No 18/UBCK-GPHDKD with

15 Source: Kim Long Securities Company

ng

Shareholders Meeting

Shareholders Meeting

Management Board Management

Management Board Management

P.R and Marke ting

l consulta ncy

Resear

ch and analysi

s

Foreign Custome r

ment

Adminis tration

Board of Branch Directors

Board of Branch Directors

the charter capital of VND 18,000,000,000 and four major areas of operations –Securities Brokerage, Securities Proprietary Dealing, Securities InvestmentConsultancy, and Securities Deposit

Kim Long Securities Joint Stock Company was recognized as a member of Ho ChiMinh City Securities Trading Centre on November 21, 2006 when the companyofficially started its operation in the Vietnam Stock Market

On November 27, 2006, Kim Long Securities Joint Stock Company became theofficial member of Hanoi Securities Trading Centre and had its first securitiestransaction in Hanoi

Kim Long Securities Joint Stock Company officially completed the increase in itscharter capital from VND 18,000,000,000 up to VND 315,000,000,000 on April 27,

2007

On January 22, 2008 the Company received Decision of accepting post registration

No 29/QD-TTGDHN issued by the director of Hanoi Securities Trading Centre Kim Long Securities Joint Stock Company officially increased its charter capitalfrom VND 315,000,000,000 to VND 503,630,600,000 under Decision No 129/QD-UBCK issued by The State Securities Commission

13 Organizational and management structure of the company

Organizational and management structure of the company is organized inaccordance with the regulations of the enterprise law with specific models asfollows (Figure 1.4 below)

From the Figure, we can see that the Shareholders Meeting is the highestcompetence organ of the company, which is comprised of all shareholders whohave the rights to vote or person that granted authority by the shareholder

The Control Board is the second Board in this structure This Board includes threemembers elected by the Shareholders Meeting On behalf of The ShareholdersMeeting, the Control Board has the right to control relevant issues under the law.The Board of Management is the third Board This Board includes five memberswith five years' term The Board of Management has a full authority to exercise all

34

the rights in the name of the company, excluding the competences delegated to theShareholders Meeting.

Figure 1.4 – KLS's organizational chart16

The General Director Board is appointed by the Board of Management and consistfour members The General Director is the Head and responsible for managing alldaily operations of the company according to his assigned functions Three DeputyDirectors provide support in expertise to the General Director

16 Source: Kim Long Securities Company

The last Boards are the functional Boards and Departments and Branch of thecompany in Ho Chi Minh City These are under direct management and control ofBoard of Directors.

Table 2.4 – Shareholders in ownership of 5% or higher of KLS's charter

capital17

Share Volume of Shares

IV Analysis of corporate strategy and governance

1 External environment analysis

13.1 Macro environment 13.1.1 Economic environment

Overall macro-economic conditions

The year 2008 was full of turbulent changes and unforgettable events marked by theprevailing global economic crisis, which cast gloom on many economiesworldwide, and Vietnam is not an exception The country's economy saw two

17 Source: Kim Long Securities Company

different economic extremes in 2008 – the anti-inflation campaign at the beginning

of the year and anti-decline stimulus at the end of the period

While struggling to cool down the overheating economy in the first few months ofthe year, the Vietnamese Government had to seek measures to remedy the rapidlycooled-down national economic growth in the second half of the year During theheating growth period, the inflation rate sometimes surged over 25% coupled withworld record-high oil price increases With danger of intensified bubble growth,fiscal tightening measures were promptly taken to ease the heat before the economicturbulence goes beyond Government control

Whereas the measures have yet taken their effects, their "shocking" nature causedimmediate responses The local real estate market experienced an unexpecteddecline and downswing The liquidity of the stock market was deeply undermined,which lead to an immediate deep fall of the VnIndex

In addition, sharp increase in trade deficit in the early period of the year spread realconcerns of the balance of payments The tension reached a climax in May 2008when concerns of the balance of payments were associated with worries of thesafety of the local banking system that bears in it liquidity risks, and doubts aboutbad debts and the burst-out of the domestic real estate bubble Eroded liquidity ofthe banking system has boosted the borrowing and general interest rates to recordhigh, sometimes even over 20% Credit increases of the economy declined towardszero The economy was steered from overheated to abruptly curbed to keepeverything under Government control

By mid 2008, the economy became more stable when cooling-down measuresstarted to take their effects The exchange rate was curbed, investors' confidencetowards the macro-economic environment was improved However, wheneverything seemed to be in good tracks, the global financial storm and economiccrisis rushed in Vietnam, though situated off the center of the financial crisis as thecountry's financial system is not constituted of the assets, which are players of thecrisis, was unavoidably affected The tumble in global demands resulted in adverseand direct impact on the country's exports

Moreover, the global decline in prices of fundamental commodities was attributed

to the national reduced exports value The downward trend in remittance was alsoobserved in external funds such as FDI and ODA

By the end of 2008, the Vietnamese Government was forced to take strongermeasures to proactively tackle the impact of the global economic downturn.Domestic demands had signs of overcooling down whereas inflation started itssharp downswing in the fourth quarter, staying negative in three consecutive monthssince September This picture was in complete contrast with the developments ofthe early period of the year Trimmed demands would consequently pull down thedomestic production capacity

Despite clear signs of sharp drop in interest rates, the growth of corporatesupportive credit remained an unsolved problem This was attributed mainly to theshrink in capital demands from businesses due to their concerns of difficult delivery

of outputs

Facing obstacles as such, it was essential that the Government take a steering role instimulating the economy Institutionally, the Government needs to introducefundamental amendments in order to shift from the anti-inflationary efforts todownturn-free stimulus This approach is considered proper under newcircumstances, and contributes to the recovery of the national economy and stockmarket In practice, however, there remain numerous challenges to the localeconomy and the entire business community, particularly the listed companies due

to the obstacles in the issuance of increased capital and slowed-down privatization

13.1.2 Technological environment

In recent years, science and technology is the central interest of many countries inthe world It is considered one of the keys to success in applying in production andsupport of services The fact has promoted rapid creation of hundreds of thousands

of inventions and replacement of applied machinery and equipment Vietnam hastaken the advantage from such trends to grasp the most advanced scientific andtechnological applications in various fields, with strong attention to those applicable

in finance, banking and securities service

Furthermore, the training and R&D schemes for hi-tech products are positionedfocal in the national development policies

To date, the country's financial system has been equipped with the latestinternational-standard electronic payment systems Its stock market, thoughestablished recently, has been introduced with remote-transaction models, andtargeting non-bourse transactions according to American and other developedcountries' standards

The aggressive information and technological advancements have created plenty ofopportunities and utilities for organization and individual customers to minimizetheir time consumption and make full use of the investment opportunities On thecontrary, the negative side of such growth, is the inefficient utilization of capitalbecause companies, while fail to tap on the older versions of software, have to rushfor new versions to stay competitive to their rivals and up to fashion

13.1.3 Social and cultural environment

Some latest studies show that the cultural environment of Vietnam has becomericher and more diversified, more dynamic and active, more encouraging andseducing, and offering more opportunities and challenges than ever before18

Opportunities - Vietnam cultural environment is rich and diversified Such richnessand diversity provides Vietnamese people with added value for their comprehensivedevelopment Cultural identities and values, on the one hand, deliver positiveeffects on the business environment The smooth and fruitful trade partnershipsbetween Vietnam and other nations are results of the flexibility and openness ofsuch diversified environment The values, on the other hand, expose certainnegative influence on the business environment, particularly the financial service.Leaders of financial companies in Vietnam are in active in habits, subjective andemotionally partial in decision-making rather than provide justifiable judgments theerd mentality on the stock market is another headache for financial analysts andstrategists

18 Associate Professor, PhD Ho Si Quy, Presentation at the third International Workshop on Vietnamology

on December 5

Generally, the cultural environment of Vietnam is favourable for long-term growth.Whereas, constraints such as sluggishness and poor discipline of a number ofcompanies and businesses, and herd mentality need to be improved for moreefficient integration and fruitful growth

13.1.4 Political and legal environment

This is a great opportunity for Vietnam to assert its position in the global marketand

it lays foundation for the attraction of foreign direct and indirect investments,particularly to the capital market – stock market, an advanced, sensitive andsentimental market

Legal environment

Before its admission to WTO, the legislative system of Vietnam bore the constraints

of duplication and nonalignment To meet the requirements of the WTOmembership, the country has made every effort to improve its legal framework, andsuch improvements have been recognized by the involving negotiating parties