LV Thạc sỹ_Formulate strategy for Techcombank

Secondly, base on technical of Strategy Formulation process including SWOT and BCG analysis this study shall give out the suggestions to formulate Techcombank’s retail banking strategy i

I would like to express my deepest gratitude to my research supervisor, Ms NgoKim Thanh, for her intensive support, valuable suggestions, guidance andencouragement during the course of my study

I would like to express my sincere gratitude to all of my teachers at SolvayBusiness School and National Economics University for their teaching andguidance during my course

I would like to extend my thanks to the board of managers and my colleagues atTechcombank for their support and assistance during my research study

I am very thankful to all individuals for providing me with the necessaryinformation and supporting me with advice during the period of my data collectionfor this research study

Last but not least, I would like to express my loving thanks to my parents, my wife,

my sister for their love and encouragement throughout my studying

Acknowledgements 1

Executive Summary 4

Chapter 1 – Introduction 8

I.1 Background 8

I.2 Problems Statement 9

I.3 Research Objectives 11

I.4 Research Questions 11

I.5 The importance of the research 11

I.6 Scope of Limitation 12

I.7 Structure of Thesis 12

Chapter 2 – Literature Review 13

II.1 Theoretical framework 13

II.1.1 Corporate strategy & role of corporate strategy in organization 13

II.1.2 Corporate strategy formulation 14

Chapter 3 – Research Methodology 25

III.1 Research background 25

III.2 Research objective 25

III.3 Research methods 25

III.4 Data collection 25

III.4.1 Primary data 25

III.4.2 Secondary data 26

Chapter 4 – Research analysis 27

IV.1 Environment analysis 27

IV.1.1 The societal environment (PEST Analysis) 27

IV.1.2 Banking industry analysis (Five Forces Analysis) 33

IV.1.3 Opportunities and Threats 38

IV.2 Techcombank internal environment analysis 39

IV.2.1 Brief Information 39

IV.2.2 Business structure 40

IV.2.3 Internal Resources 48

IV.3 SWOT analysis 56

Chapter 5: Recommendations 58

V.1 Strategy selection 58

V.2 Vision, Mission and Goals 58

V.3 Recommendations in Detail 59

Human Resource 59

Technical 61

Risk Management 61

Products 62

Customer services 64

V.4 Timeline 68

Chapter 6: Conclusion, limitation and further researches 70

VI.1 Conclusion 70

VI.2 Contribution 71

VI.3 Further researches 71

VI.4 Limitations 71

Reference 72

Table of figures

Figure 1: Breakdown of staff graduate 10

Figure 2: Vietnam Inflation 31

Figure 3: Vietnam GDP 32

Figure 4: Organizational Chart of Techcombank 40

Figure 5: personal customer deposits (BLN VND) 43

Figure 6: Breakdown of personal customer deposits 43

Figure 7: Retail outstanding loans (BLN VND) 44

Figure 8: Number of issued card in 2009 45

Figure 9: Payment turnover via POS (VND BLN) 46

Figure 10: Structure of coporate customers 47

Figure 11: Deposits by economic institution (BLN VND) 48

Figure 12: Customer service circle 64

List of tables

Table 1: Corporate strategy formulation process 15

Table 2: SWOT/ TOWS matrix 22

Table 3: Opportunities and Threats of Techcombank 38

Table 4: Number of branches 40

Table 5: Charter Capital of Techcombank 40

Table 6: Finalcial Highlights 49

Table 7: Strengths and Weakness 55

Table 8: SWOT/TOWS matrix of Techcombank 56

Table 9: Timeline for Recommendations of Techcombank retail banking 68

Executive Summary

Today, integration into the world economic is the general trend of developingcountries to approach the developed countries economic For Vietnam, globalintegration is a right and important direction which is the premise for makingVietnam economic grows fast and stable

However, global integration also makes Vietnamese companies, especially JoinStock Banks – which deal with monetary, finance, credit … business – facing withmany challenges To overcome these challenges and take full advantage of chance,Join Stock Banks must analyze their strength and weakness to bring out the suitablestrategies for each period, phase of their development progress

According to State Bank statistical, there are only about 15 million bank accounts.It’s a very small amount in about 85 million Vietnamese people Therefore, foreignbanks like ANZ, HSBC, Standard Chattered… are focusing on developing retailsbanking in Vietnam International banks, only for retail banking, have thousands ofproducts/services But, local banks have very limited products/services, only about

200 The provision of new bank services is an internal requirement for local bankbecause, estimately, the cost for an ATM transaction is only 1/8 and an Internettransaction is only 1/12 in compare with traditional transaction (face to face)

"The best retail bank in Vietnam" title is the dream of many banks In order toachieve this title, each bank has its own strategies Taking advantage of the widenetwork, especially transaction offices, state-owned commercial banks havedetailed plans to push sales in retail segment, in which focus on credit area Theyare strengthening organisation structure and retail customer-relation staff andtransforming the transaction offices to be official retail banking units

In the near future, the retail service competition will have to delve into servicequality This creates pressures on banks to raise financial capacity, invest more intechnology, and diversify services and finding more customers Even thoughforeign banks currently still focus on high-level customers, in the long term, they

may push up service developments for lower income customers The race inVietnam retail banking would then become severer

Techcombank, with its objective to be the best retail bank in Vietnam, has built itsown strategy to obtain the proposed goal But, in the hard competition and unstableeconomic environment, bank strategy must be evaluated and adjusted to make itmore effective and make the bank success on their target

Firstly, this study aims to review company’s business, finance statement andorganization, to evaluate suitability of the current strategy in context of unstablechanging environment Valuating & Adjusting Strategy for Techcombank

Secondly, base on technical of Strategy Formulation process including SWOT and

BCG analysis this study shall give out the suggestions to formulate Techcombank’s retail banking strategy in order to improve Weakness to

reduce Threats from changing environment and to take full advantages ofStrengths to catch Opportunities

Chapter 1 – IntroductionI.1 Background

Since the economy changes from a command economy to a market-orientedeconomy, there has been a competition among companies to win more customers

by providing better goods or services Most of companies in Vietnam now becomeaware of the importance of “better taking care of customers” as one of their strategy

to grow in the competitive market Customer relation management activitiestherefore has been emphasized as a necessity for the existence and thrive of acompany

Under pressure of the competition on providing bank services and the rapidgrowing of information technology, year 2010 is considered as a “explosion year”

of retail banking services, intensification on approaching the personal customersand small enterprises

Vietnam trade banks have been focused on modernization, applied new technology

in to their systems to develop the retail market When moving to the retail market,banks will have a larger market, development opportunities and disperse theirbusiness risks

Vietnamese population is estimated to increase to 88 million by this year withhigher income The average density of using bank service in Vietnam is about 15-16%, higher in some big cities, about 32% Meanwhile, this density in Thailand orMalaysia is 70-80% In next 10 year, the estimate grow speed of Vietnam retailbanking is 30-40% This show that retail banking in Vietnam is a potential marketfor trade banks

According to financial experts’ assessment, the competition among local tradebanks are more and more severe to get their market share and attract customers.Beside, as Vietnam joined WTO, the government must follow the agreement toopen the bank industry to foreign banks It will increase the number of foreignbanks with strong financial power, diversified of services, new technologies andgood management Therefore, local banks will little by little lose their advantage on

scale, customers and distribution channels, especially after 2010, when mostlimitation for foreign banks are removed.

In that context, local banks cannot base on their traditional advantage as previouslyand most of them identify to develop their retail banking services as an important part in their strategy

The research object of this study is Techcombank – a local bank which has beenfounded in 1993 With its vision to become the best retail bank of Viet Nam,Techcombank is now serving about 600.000 individual customers, 25,000 Smalland Medium Enterprises (SMEs), providing many products and services to meet theparticular needs of this customer group at various stages in their lives whichultimately supports business activities locally and internationally The structure ofbusiness, together with changes in the world economy and the industryenvironment, has created difficulties and imposed threats on the company This will

be the main content of “Problem Statement”

I.2 Problems Statement

Currently, Techcombank has 2 main Banking services : personal banking services(retail banking service) and Corporate Banking services Techcombank Board ofManagement want to use retail banking services are key product of the bank Butthe size of the customers for this service is still very small, about 600.000, with thecontribution only about 20% to total revenue Techcombank Board of Managementwant to step up their retail banking services but they are on some difficulties

Retail banking services are under many pressures from external environment forces as well as inside bank

Macroeconomic issues such as political, economical, social and technology seems

not create favorable conditions for the development of Retail Banking Being theWTO member with many advantages but the fact shows that Retail Banking alsohave to cope with many difficulties such as the backward technology, lack of legalprocedure, few services Together with the serious lack of human resource,

management capacity, world economic turmoil in 2008, it is obvious that RetailBanking service in Vietnam in general also in Techcombank is facing many issues.

Micro economic forces inside the Retail Banking sector also impact to the bank business.

The bank business structures still cumbersome and inflexible to adapt with theunstable economy environment and operate effectively

The human resource increase in quantity but not much in quality The employeesworking skill, knowledge, professional are not fully meet the new requirements

From 2006 to 2009, the staff number increased from 1584 to 5028 while the ratio of staff hold a bachelor’s degree of higher only increase from 78% to 82% There is lack of policies to attract talented people to join and work for bank.

Human resource structure is not rational and backward in compare with foreignbank’s standards

Figure 1: Breakdown of staff graduate

Source: Annual reports

The risk management and internal audit activities still very weak and ineffective.Financial report, accounting system and information management systems are not

comply with International standards Irrecoverable debt ratio still high despite ofmany effort to recover.

Therefore, to improve its business, especially in retail banking sector, Techcombankshould consider reviewing its business, developing plan under strategy view

Techcombank direction to be the best retail bank is only within 2 years from

2008 to 2009 and there has not been any clear strategy for the company for this sector With the change in the world’s economic (short-term effect) and increasing in competition (long-term effect) which have very strong effects on bank’s retail business, there is an essential need to develop a strategy for bank

on retail banking for the period of 2010 – 2015.

I.3 Research Objectives

Below are objectives of the study:

- Identify current missions, objectives, strategies of Techcombank retail banking

- Analyze external & internal environment of Techcombank influence on its RetailBanking service

- Base on the result of above researches, the study will suggest a suitable strategyfor Techcombank retail banking service in the period 2010-2015

I.4 Research Questions

Below are the research questions that the study aims at answering

1 What is the current mission, objectives, strategies of Techcombank?

2 What is the status of external & internal environment of Techcombank? Base onthe environment analysis, point out what is the strong, weakness, opportunities,threats for the company?

3 What should be the suitable strategy for Techcombank retail banking?

I.5 The importance of the research

Bank is growing too fast, the Bank’s Board of Management seem to ignoreserious problems at the strategy level to flow target of growth as fast aspossible Therefore, the outcomes of this study aim to warn them about the

future risks as well as to support them to adjust the company’s strategy formore safe & stable statement in a changing environment.

I.6 Scope of Limitation

Because of the limitation of time and ability to get updated company’s information,this study just only focus on business activities of Techcombank in duration from

2004 to 2009

Bank services are very various including personal banking (retail banking) andCorporate banking services In this study, the concept of banking service isnarrowed to the field that bank business concerned: Retail banking

I.7 Structure of Thesis

This thesis consist of five chapters:

Chapter 1 describes the background, operational definitions, statement of

problems, the objectives and scope of the study, research questions, and researchframework

Chapter 2 presents the theoretical model, overview of Bank industry in the world

and in Vietnam, the related literature to understand the value chain of banks inVietnam

Chapter 3 presents research methodology with conceptual framework, sources of

data, sampling

Chapter 4 presents data analysis in with main parts are response rate, demographic

of firms and value chain management analysis, experts’ opinions summary andsecondary data analysis

Chapter 5 recommendations, Chapter 6 conclusions, discussions

Chapter 2 – Literature ReviewThe literature review was based on the concepts and theories of some well- known authors (Miles; Porter; Mintzberg,…) These relevant literature works were collected from lecture notes of professor of Solvay Business School and some other online sources (State Bank of Vietnam website, Techcombank website,…) and from friends and colleagues in MBM7 of researcher

II.1 Theoretical framework

The concept of strategy is not a new one It appeared from ancient history andstrongly adhered to wars, where strategy meant to win over the enemy, to keep theland from invasion, or even to expand the country successfully Later on, strategyhas not only become a war terminology but also been well connected to many otherfields including economy, politics and society In economy, strategy has becomevery important to business organizations

II.1.1 Corporate strategy & role of corporate strategy in organization

Corporate strategy

Corporate strategy is mainly about broad decisions for the total organization's scopeand direction When creating corporate strategy, managers should consider whatchanges should be made in the company’s growth objectives and strategy forachieving those objectives, the lines of business that company plan to involve, andhow these lines of business cooperate together Corporate level strategy includes

three components: (1) growth or directional strategy (what should be the growth

objectives, ranging from retrenchment through stability to varying degrees of

growth and how the company accomplish this), (2) portfolio strategy (what should

the portfolio of lines of business with regard to how much concentration or

diversification we should have), and (3) parenting strategy (how the company

allocate its resources – where should the company put special emphasis, and howmuch does the company integrate to different fields of business)

Roles of corporate strategy in organization

Many people start their business with a small amount of money but becomesuccessful thank to a correct strategy However, there are a lot of big firms but due

to applying a wrong strategy, become bankrupt in a short period It is obvious thatnowadays, strategy become more and more important in organization

- Corporate strategy can be seen as the direction for organization in the long termand the sound basis for all activities of organization Firms operate withoutcorporate strategy or unclear corporate strategies will lose the direction easily Theycannot link the current issues with the long-term view and see the business in oneside, not overall activities of enterprise

- Corporate strategy helps the organization to see and utilize the opportunities aswell as prepare to deal with threats in business environment

- Corporate strategy is the key for organization to best employ the resources,enhance the position of enterprise and sustain development

- Corporate strategy assists the board of managers to make decisions in accordancewith the move of market It will be the basis for RD & D, human resource, productdevelopment…

II.1.2 Corporate strategy formulation

It is useful to consider strategy formulation as part of a strategic managementprocess that comprises three phases: diagnosis, formulation, and implementation.Strategic management is an ongoing process to develop and revise future-orientedstrategies that allow an organization to achieve its objectives, considering itscapabilities, constraints, and the environment in which it operates Within the scope

of this thesis, the author will only concentrate on Diagnosis and Formulation phasewhich are summarized in table 3.1 below:

Table 1: Corporate strategy formulation process

Basic question Where are we? Where do we want to be?Output Understanding of the organization &

its environment, therefore, address thecritical issues

Corporate strategyrecommendations toensure success & addressthe critical issues

Process 1 Identify current mission, objectives

and (especially) strategies

2 Analyze data about external &

internal environment to evaluateperformance and identify SWOT

* External: competitive environment

(5-force model), societal environment(political/legal, technological,economic, socio-cultural) -> identify

opportunities and threats

* Internal: financial, marketing,

3 Define new mission,goals for the company

II.1.2.1 Diagnosis

Diagnosis phase include

- Reviewing the current key objectives and strategies of the organization.

- Performing analysis of the internal environment of the organization including

financial resources, physical resources, human resources, technological resources…

to identify major strengths and weaknesses;

- Analyzing the organization's external environment, including macro factors

(political, economic, social technological factors) and micro factors (rivalry level,threat of substitute, buyer powers, supplier powers, barrier to entry) in order to

identify major opportunities and threats.

- Identifying the major critical issues, which are a small set, typically two to five,

of major problems, threats, weaknesses, and/or opportunities that requireparticularly high priority attention by managers

Reviewing current missions, goal and strategy of bank

Before formulating a new strategy for the company, it is necessary to check whetherthe firm has any strategy or not In case company already have a business strategy,should evaluate the current strategy: its strong points, weak points and the necessity

to formulate a new strategy

External environment analysis

A scan of external environment in which the firm operates can be expressed in term

of societal environment analysis (political, economic, social technological factors)and industry analysis (rivalry level, threat of substitute, buyer powers, supplierpowers, and barrier to entry)

* The Societal Environment Analysis

The societal environment composes of general forces that influence the long-rundecisions of the organization They are economic, technological, political-legalsocio-cultural forces Therefore for Online Banking sector, its societal environment

is the situation of economic, technological, social and political force in Vietnam

 Political factors include government regulations and other legal issues and

define both formal and informal rule in which the firm must operate The

political factors can be online trading procedure, labour law, environmentalregulations, trade restriction and tariffs, political stability For Bankingsector, above factors have a very strong influence on company’s operationand development

 Economic factors affect the purchasing power of potential customers and

the firm cost of capital Economic factors are economic growth, interestrates, exchange rates, inflation rates… Managers must consider the state ofthe economy when formulating strategies In 2010, with the recovery of theworld economics, Vietnam Banking service can expect to increase theturnover

 Social factors include the demographic and cultural aspect of the external

macro environment These factors affect customer need and size of potentialmarkets Some factors include: health consciousness, population growthrate, age distribution, career attitude, emphasis on safety… Each of theseinfluences how management accomplishes its job Changes in socialenvironment can have major impact upon managerial decision making

 Technological factors can lower barrier to entry, reduce minimum efficient

service levels and influence outsourcing decision Some technologicalfactors include R & D activities, security, technology incentives… InInternet Banking sector, management must decide the appropriate level oftechnology for the company and how new level of technology should beintroduced

* Business Analysis: Analyzing Task environment

Porter (1985) states that corporation concerned mostly on the intensity ofcompetition within its industry The level of intensity is determined by majorcompetitive forces as threat of new entrant, rivalry, threat of substitutes, bargainingpower of supplier and bargaining power of buyer

 Rivalry is the intensity of the competitive environment consists of those

whom an organization must "compete" in order to obtain resources Hamel,

(1993) stated that knowing your rivals is a key ingredient in buildingeffective strategies, and analyzing the competitive environment is aunderlying challenge to management, in the traditional economic model,competition among rival firms drives profit to zero The intensity of rivalry

is different in each industry In Internet Banking business, the intensity ofrivalry is influenced by the following characteristics:

(1) A large number of firms increase rivalry because more firms mustcompete for the same customers and resources The rivalry intensifies ifthe firms have similar market share, leading to struggle for marketleadership

(2) Slow market growth causes firms to fight for market share In a growingmarket, firms are able to improve revenues simply because of theexpanding market

(3) High fixed costs result in an economy of scale effect that increasesrivalry When total costs are mostly fixed costs, the firm must producenear capacity to attain the lowest unit costs Since the firm must sell thislarge quantity of product, high level of production lead to a fight formarket share and results in increased rivalry

(4) Low switching cost increases rivalry When a customer can freely switchfrom one product to another, there is a greater struggle to capturecustomers

(5) Low level of product differentiation is associated with higher levels ofrivalry Brand identification, on the other hand, tends to constrain rivalry.(6) High exit barriers place a high cost on abandoning the product High exitbarrier cause a firm to remain in an industry, even when the venture isnot profitable A common exist barrier is asset specificity When the planand equipment required for developing a product is highly specialized,these assets cannot be sold to other buyers in another industry

 Threat of substitute: In Porter’s model, substitute products refer to products

in other industries To the economist, a threat of substitutes exists when aproduct’s demand is affected by the price change of a substitute product Aproduct’s price elasticity is affected by substitute products – as moresubstitutes become available, the demand becomes more elastic sincecustomers have more alternatives A close substitute product constrains theability of firms in an industry to raise price - The threat of substitute comesfrom products outside the industry The price of paper bag is constrained bythe price of poly bag The poly bag is substitute, yet they are not rivals inthe poly bag industry

 Buyer power: The power of buyers is the impact that customers have on a

banking industry Buyer affect an industry through their ability to forcedown the prices, bargain for higher quality or more service, and playcompetitors against each other Buyer are weak if buyers are fragmented (nobuyer has any particular influence on product or price) or producer threatenforward integration (producer can take over own distribution/ retailing) orproducer supply critical portions of buyers’ input or products notstandardized and buyer cannot easily switch to another product

 Supplier power: Definition for supplier in bank industry is diversified They

can be shareholders provide bank’s capital or Information Technologyservice provider, etc… Suppliers, if powerful, can exert an influence on theproducing industry, such as selling raw materials at a high price to capturesome of the industry profits Suppliers are powerful if suppliers areconcentrated, credible forward integration threat by suppliers or significantcost to switch suppliers Suppliers are weak if there are many competitivesuppliers while product is standardized, credible backward integrationthreats by purchasers or concentrated purchasers

 Barrier to entry/ threat of entry: It is not only current rivals that pose threat

to a firm in an industry but also the possibility of new firm enter theindustry In theory, any firm should be able to enter market and if free entry

and exists then profit should always be nominal In reality, however,industries possess characteristics that protect the high profit levels of firms

in the market and inhibit additional rivals from entering the market Theseare barrier to entry Barrier to entry are unique industry characteristic thatdefine the industry Barriers reduce the rate of entry of new firms, thusmaintaining a level of profits for those already in the industry From astrategic perspective, barriers can be created or exploited to enhance a firm’scompetitive advantage Barrier to entry arise from several sources:government regulations, patents and proprietary knowledge, economies ofscale

Internal environment analysis

The elements within the organization that are available to be used in theaccomplishment of its goals are organizational resources They are physical,human, technological and financial resources

 Financial resources: All organizations require resources to provide for

ongoing operations and to fund growth Retained earnings refer to theportion of net income which is retained by the corporation rather thandistributed to its owners as dividends This source of funds is ofteninadequate to fund the desired level of growth so other source must beutilized In order to secure needed financial resources, management can lookoutside the organization for sources of funds There are 2 general sourcesfor business: debt and equity Debt is the money that company borrows tofund its businesses Debt can include bank loan, lines of credit andcorporate bonds Equity is the money company get from selling the stock.When selling its stocks, the company is giving out its ownership In general,the major financial task confronting management are to acquire necessaryfunds by some combination of retained earnings, debt and equity andallocate the acquired financial resources for organizational use Theaccounting profession, through its record and procedures, provide

management with a financial perspective on how funds are being used andstrategy indicate the needs for financial resources for operation in the future.

 Physical resources: The physical resources of company include plant and

manufacturing equipment, distributing facilities and raw material.Management periodically evaluates the manner in which the physicalresources of company being acquired and utilized These resources are thetools for management to improve productivity and ensure profitability

 Human resources: The people who work in the organization are its human

resources In order to have effective business, company should recruit anddevelop necessary skilful workforce It is very important for any company

to manage well this resource The first task of human resource management

is to acquire the necessary staffs through recruiting or training The secondtask is to place the correct employee in the right jobs The third task is tomotivate effective performance which will lead to the high productivity Thefinal task is evaluating correctly the employee performance

 Technological resources: Technological resources refer to the level of

applied technology within the firm Management must decide theappropriate level of technology for the company in term of its goals andworkers’ skill From internal analysis, internal factors to the firm can beclassified in to strength (S) and weakness (W) A firm’s strength is itsresources and capability that can be used as a basis to develop thecompany’s competitive advantage The strengths can be a strong brandname, good reputation among customer, cost-advantage from proprietyknow-how… The absence of certain strengths can be viewed as weaknesses.For example, each of following can be considered as weakness: lack ofpatent protection, a weak brand name, poor reputation among customer,high cost structure

SWOT analysis

A firm should not necessarily pursue more lucrative opportunities Rather, it mayhave a better chance at developing competitive advantage by identifying a fitbetween the firm’s strength and upcoming opportunities In some case, the firm canovercome a weakness in order to preparing itself to pursue an opportunity

Table 2: SWOT/ TOWS matrix

WT

"Mini-Mini" Strategy

Strategies that minimize

weaknesses and avoid threats

II.1.2.2 Development

Development, the second phase in the strategic management process produces aclear set of recommendations, with supporting justification, that revise if necessarythe mission and objectives of the organization, and supply the strategies foraccomplishing them In development, we are trying to modify the currentobjectives and strategies in ways to make the organization more successful Thisincludes trying to create "sustainable" competitive advantages although mostcompetitive advantages are eroded steadily by the efforts of competitors

A good recommendation should be: effective in solving the stated problem(s),practical (can be implemented in this situation, with the resources available),

feasible within a reasonable time frame, cost-effective, not overly disruptive, andacceptable to key "stakeholders" in the organization It is important to consider

"fits" between resources plus competencies with opportunities, and also fitsbetween risks and expectations

There are three primary steps in this phase:

Identifying the directional strategy (grand strategy) for the company

It should be either

(1) growth strategy: company can be promoted internally by investing in expansion

or externally by acquiring additional business divisions or

(2) stability strategy (pause strategy): the organization wants to remain the same

size or grow slowly and in a controlled fashion or

(3) retrenchment strategy: the organization goes through period of forced decline

by either shrinking current business units or selling off or liquidating entirebusiness

Identifying the portfolio strategy for the company

After having the clear direction, it is the time to decide the portfolio strategy of the

company which pertains to the organization’s mix of SBUs and product lines thatfit together in such a way as to provide the corporation with synergy andcompetitive advantage

Define new mission, goals for the company

After analyse all aspect of the business and select which businesses the companyshould develop, it is necessary that the new corporate strategy should have a newmission and goals

Mission Statement

The new mission statement is the organization's new vision translated into writtenform It makes concrete the leader's view of the direction and purpose of theorganization This mission statement should be a short and concise statement ofgoals and priorities

Setting Goals

The major outcome of strategic road-mapping and strategic planning, aftergathering all necessary information, is the setting of goals for the organizationbased on its vision and mission statement A goal is a long-range aim for a specificperiod It must be specific and realistic Long-range goals set through strategicplanning are translated into activities that will ensure reaching the goal throughoperational planning

Chapter 3 – Research Methodology

This chapter will provide an overview of the methodology approaches and theresearch design that implemented for the study of external and internal environment

analysis of Techcombank Moreover, it also specifies the research targets togetherwith the processes and methods of collecting data for research from varioussources

III.1 Research background

As stated in the introduction, Techcombank has two business divisions: retailbanking and corporate banking In last few years, Techcombank has restructured itsorganization structure and built up the strategy to focus on retail banking services

It is foreseeable that bank should concentrate its activities within current sectionretail banking

With the underlined assumption that the scope of activities of bank is limited inretail banking both external and internal analysis should concentrate on this sector

III.2 Research objective

This research is targeted to identify current missions, objectives, strategies ofTechcombank, analyze external environment & internal environment ofTechcombank to find out what can be the suitable corporate strategy for the bank

on retail banking sector

III.3 Research methods

This research is implemented qualitative method

Qualitative research tends to deal with small samples and uniqueness, combinedwith open-ended interviews, as well as appropriate for the understanding of theproblem than quantifying it

III.4 Data collection

The information of this research will be generated in from the following sources:

III.4.1 Primary data

The information of this research will be generated in from the following sources:

Interviews

Primary data was obtained through interview in order to get information aboutbanking industry, especially on the customer side As the research is exploratory,descriptive, and explanatory, therefore, unstructured and in-depth interviews will be

a suitable way for researcher to collect 'a rich and detailed set of data' Throughinterviews, first, researcher aims to explore about customer needs and expectations

(about services, price…) Second, interview is also used as a tool, together with thesecondary data (company reports) to help the researcher to study about internalenvironment of the company

Interviews were conducted on Jun 06 - 18/2009, respectively Each interview takes

on average about 60 minutes to complete As researcher work in Techcombank,thus it is convenient to collect primary and secondary data from colleagues andother departments in Techcombank Regarding data about customers – Gap – thepersonal customers were selected for interviewing together with one retail bankingmanager

Key words generated through interviews were fully made into meaningful sentenceand then reviewed by interviewees Data was collected by written interview wasanalyzed, reconstructed and categorized The data were collected had beenconstructed in to meaningful sentences and studied with the use of literature review

III.4.2 Secondary data

Secondary data are the already collected data for some other purpose and includingboth raw data and published data The various usages of secondary data fromonline-newspaper enable researcher to access quite numerous amount of data thatotherwise, may difficult to obtain due to the limitation of time and budget

Furthermore, secondary data used in this study was achieved through Techcombankreports and some other sources The secondary data for desk research also based onliterature research which including the studying of selected books, articles, journal,magazine which are relevant to the topic and research objectives etc Anothersource for secondary data is from Internet research which mention about theavailability of relevant data on the Internet such as e-newspaper, reports, website oforganizations such as State Bank of Vietnam and HSBC, Ministry of Trade ofVietnam (MOT)… etc

Chapter 4 – Research analysisIV.1 Environment analysis

IV.1.1 The societal environment (PEST Analysis)

For the analysis of macro environment, PEST model analysis is used in order tofind out the factors which most influence the future development of the bankingindustry Source to do PEST analysis is secondary data

The growth rate can be attributed to the consistent economic policy of integratinggradually into the global economy in line with the situation in Vietnam In addition,Vietnam has maintained its macro-economic policy for 20 years, in which it hasreduced public debt and the inflation rate, ensuring a balance budget andcontrolling the amount of currency in circulation

Political stability is one of the main factors that has helped Vietnam pursue itseconomic development policy Since 1990, most other regional countries, exceptSingapore, have experienced political crises Meanwhile Vietnam has achievedpolitical stability – a factor that enable Vietnam go ahead with its renewal process.Banking industry has been strongly influenced by the political forces such as bankreserves requirement, currency controls, exchange rate The major political forcesaffect Vietnam bank industry are the country joining the World Trade Organization(WTO) and State Bank policies

After joining the world’s largest economic body, Vietnam has received equaltreatment like the other WTO members Vietnamese businesses now do not havebarrier while working with international companies The international trading willhave chance to increase quickly which will bring many opportunities for bankbusiness

As a WTO member, Vietnam has better opportunities to attract foreign direct andindirect investment sources, particularly in the bank sector and the field ofinfrastructure development The country will also have the chance to access newtechnologies and increase its management capacity

Apart from the huge opportunities from being a member of the WTO, the banksector also face many challenges in competition Beside the competition withdomestic banks, the competition pressure comes from foreign banks also increaseright in the local playing field when Vietnam opens up to banking activities underthe country's WTO commitments

State Bank of Vietnam (SBV) has major responsibility to manage monetarybusiness, credit, settle, foreign exchange and bank operations It acts like as acentral bank – the only bank can issue money, the bank of banks SBV is theorganization which control monetary policies and bring out financial regulations.Many SBV policies are not appropriate with international regulations, express bymany of banks law and under law regulations still inadequate There is exist thediscrimination treatment among financial companies, banks and between local andforeign banks That’s make unfair competitions That’s the challenge to modify,change the banks law to create a equalitarian competition environment in complywith WTO regulations On the other hand, opening financial market will bring morerisks to domestic market when there are any impacts from regional and globalfinancial market Meanwhile, SBV monetary control and bank operation supervisecapacity is limited State Bank of Vietnam (SBV) had enforced the Circular No.13

in 20 May 2010 conforming with the international regulations with a very strictdeadline for its implementation and some irrational terms SBV required the cap

of 80% on total deposit which can be used for commercial lending But it’s notreasonable

Firstly, there are no international regulations on such a restriction of loan proportion

of total capital raised Other countries do not have such a restriction because it isthe banks’ own business policy and strategy, they can keep a higher or lowerproportion, or even lend 100% of its total deposits (for low-profitable cases)

Therefore, the SBV’s strict regulation applied to all commercial banks at every time

is obviously unreasonable and causes great difficulties for lenders

Secondly, the regulation will drain credit supply, disable the asset and liabilitymanagement and make commercial banks’activities more complicated becausebesides 20% of total deposits, commercial banks cannot lend 15% of its total fundsraised in forms of non-term deposits by institutions and enterprises under the SBV’sregulation Taking the sum, 35% idle funds for risk provision is too much andunnecessary

Raising CAR to 9% is obviously closer with the international norms From 2008,the State Bank of Vietnam decided to apply Basel I issued by the Basel Committee

on Banking Supervision, which requires a minimum CAR of 8 % and plans toapply Basel II in 2012 or 12% CAR Currently, Basel II is a common practice ofbanks in many countries and even some local banks have already met thisrequirements

Raising CAR to 9% is a challenge for big banks not smaller ones For small banks,they have to raise the charter capital to at least VND3 trillion this year under theregulation meanwhile their risky assets cannot immediately follow, whichobviously help them raise their CAR

However, for big state-owned or partly private banks, the story is different Theywill find it hard to meet this requirement as when international standards inaccounting are applied, they will suffer higher bad debt ratio and will have to sparemore fund for provisions

After 4 months from the enforcing date, with these insufficient terms and facingmany protests were raised again this Circular, the State Bank of Vietnam (SBV)decided to adjust the contents of the Circular No.13 conforming with theinternational regulation in 27 September 2010 by the Circular No.19

The unstable situation above caused by the unpracticed in financial control ofstate bank and the weakness of the economic The unstable financial policystrongly effects to market and also trade banks

Economic forces

Vietnam banking industry depends strongly on the global economy

Monetary policy: In the year 2009, State Bank used primary interest as a tool tocontrol monetary supply The Bank issued ceiling loan rate equal 150%primary rate In the first quarter of 2009, the rate was 7% it means commercialbank cannot loan with rate over 10.5% and mobilizing rate was in range from 7%

to 8% This rate was not enough attractive to encourage people to deposit theirsaving money From June commercial banks started a rising rate competition,

at the end of the year mobilized rate maximum at 10.5% and bank systemhas to face with solvency problem State Bank has reacted by increasingprimary rate up to 8% from the first January 2010 This dynamic aimed toimprovement the ability of mobilizing of banks

Exchange rate: Because the domestic and international economic were facingmany extraordinary fluctuation, the exchange rate of VND with other currencycontinually vary In black market, foreign currency is supplied for unofficial tradethrough boundaries in addition with the cash using habit of many people make thiscurrency market very eventful Beside, the disparity between the buying andselling price for foreign currency in Vietnam banks are very high, that makeimport-export companies don’t want to sell to banks, but sell to black market.Right before the Traditional Tet Holiday (February 2010), State Bank has issued

an unexpected decision: Increasing exchange rate from 17.941 VND/USD to18.544 VND/USD, this was the second time the Bank increased the rate andwiden adjustment range for commercial bank within 6 months The black marketrate at April 2010 was around 19.400 and seem to have an uptrend in 2010 Thisdynamic of State Bank shows quite clearly the trend of black market exchangerate policy in the near future, which is the hot topic during years Due to thissituation, the foreign currency supplies for banks are scarce That makes difficultyfor banks in payments for import bills of import-export companies

Inflation: In the two months at beginning of the year CPI indicator was 3.35 %,increased 8.04% compared same period last year This increasing was not

much worried because of in these months CPI was influenced strongly by Tetholidays

Figure 2: Vietnam Inflation

CPI in March can effect to Government for adjust policy but the Government,

in term of reliving investor’s mind, has announced that inflation still be in itscontrolling In the positive scenario, CPI March shall be around 0.5 %, in thenegative one it shall be nearly 1% or more But even the negative scenariohappens; it is very difficult for Government to implement again credit tighteningpolicy Instead of that Government probably will try to control inflation bydecreasing common expenditure and closely control pushing expenses

GDP growth: GDP target designed by Government for 2010 modestly is 8% butaccording to Goldman Sachs, GDP of Vietnam can only reach 6% this year Apositive fact supported this forecast is that GDP in the first quarter firmlyincreases 5.7-5.9% compared the same period last year, much higher thegrowth of first quarter 2009

Figure 3: Vietnam GDP

FDI was estimated to increase 10% this year Total number shall be in rangefrom USD 22 billons to 25 billion in 2010 After crisis global investmentshall again increase while Vietnam has been appreciated as an upstarteconomy in South East Asia

Increasing FDI shall bring more works opportunities for banking industry Themore FDI capital flow in to economy the more money, financial fund have beeninvested as well as more jobs have been created

Socio-cultural forces

According to country investigation in compare with the 1999 result, density ofpeople under 15 years old reduced from 33% to 25% in 2009 While density ofpeople from 15-59 years olds increased from 58% to 66% Till 1/4/2009, there are43.8 million people with the age from 18-59, took 51.1% population With thehuge number of young people, there is a full of promise market for banks to expandtheir business However, there is a difficulty that many Vietnamese people have thehabit of using cash That will discourage people from using bank’s services

Technical forces

In the competition and integration process, Technology plays an important role inenhancing the development of banking sector Today, applying and developing

modern technology in banking services and products are more and more important

to improve operation, competition capacity of banks

In practice, bank’s services and products are high identity So, it’s an advantage for

a bank if it can introduce the different, high convenience in its services The need toapply modern technology in to bank business is a must

Determining correctly the role of modernizing banking technology is one of thebasic conditions to ensure the global standards are applied in local banks.Modernizing banking technology is a indispensable way when Vietnam joinedWTO Nowadays, banks compete by diversifying their services and productsaccompany with improve their services quality All these things are relate to bank’stechnology level

The development of inter-settle among banks, ebanks, banking IT security,… is thepremise and legal fundamental for expanding new technologies in banking sector.Many new modern bank products are introduced recently like phone banking,internet banking, smart card (credit, debit card),… These products make customersfeel very comfortable, more effective in their business

Many retail banking products and services with high technology rate wereemployed in some local banks It takes an important role for the developmentprocess on applying new technologies in retail banking Series of applications areimplemented like automatic bank account transfer frequency; automatic investmentfunctions which allow customers pay interest, loan partly or whole; multipurposebank account, …

IV.1.2 Banking industry analysis (Five Forces Analysis)

The source of data to conduct banking industry analysis is mainly from primarydata (interview)

To be able understand more about the environment of banks, Five Forces Analysiswhich developed by Porter (1985) will be conducted

The temporary impact of economic crisis will make banks facing the difficulties infinding new customers That lead to the competition intensity will be harder Butwhen it over, with the big potential market, Vietnam banks will focus on developthe market, finding new customers and the competition intensity can be reduced.Competition intensity among banks will rise when foreign banks come Theyalready have their own customers, almost are their countries’ organizations Foreignbanks don’t face with the issues that local banks do like limitation on stock loans,bad debts in property loans,… Further, they have advantage on starting their newbusiness with many choices; better technology, infrastructure, professional skill,…Moreover, foreign banks have their network globally To compete with these banks,local banks already built up their infrastructure, information technology, services,…with a good scale Another advantage of local banks is the good relation withdomestic customers Local banks have the good policies for their importantcustomers.

But it’s different with personal customers With the habit of using cash, personalcustomers always keep their money at home or always withdraw all the cash from

their bank accounts Most companies, organizations both state own and private ownpay employees salary through bank accounts to encourage non-cash payment andexplicit in people financial But most of point of sales(POS) which accept cardpayments are luxury restaurants, shops where not every people can come Even in

supermarket, payments by card always have problem with the POS devices In addition, the modern services like online banking, online payment,… still very basic and lack of function which encourage people do transactions through banks These inconveniences along with the cash using habit make people want to

use cash than keep in banks

Beside keeping money in banks, personal customers have many others choices asbuying foreign currency (USD), investing in stock market, insurance, gold,immovable’s, … in addition, there are un legal channels like taking part in atontine

Moreover, the bank’s interest rate not always attractive to personal customers Forexample, at this moment, when the gold price, USD price are varied on daily basis,the saving interest rate in many banks is only around 9-10% per year

Threat of Entry

As McKinsey forecast that the retail banking market in Vietnam can reach the grow rate at 25% in next 5-10 years This will make Vietnam retail banking market is one of the fastest growing market in Asia Although the economic crisis reduced the grow speed and make bad impacts to banking industry, but Vietnam banking market still not fully develop and have good potential Therefore, there are a lot of chances and business opportunities for banks in Vietnam market, especially in retail banking which will attract new banks join

in the market.

The competition pressure from new banks arise The easier for new banks to joinmarket, the harder the competition is The threats from new banks depend on thelevel of acceding barrier According to WTO commitments, banking industry will

be opened through a predefined schedule in 7 years Banking industry had manychanges when foreign financial organization can take the share holder in local

banks and the set up of new foreign banks with 100% foreign charter capital inVietnam

Right from 2006, Vietnam removed the limitations step by step about the shareholder ratio in local banks for foreign financial organization according to thecommitments in the trade agreement with American

Following commitments in ASEAN Framework Agreement on Services (AFAS),Vietnam has to completely remove the regulations about the controlling onfinancial contribution ratio, services and transaction value of foreign banks from2008

There were 5 foreign banks was allowed to set up in Vietnam However, looking tothe number of foreign banks having representative office in Vietnam and theforeign banks have share holder in local banks, the quantity of foreign banks with

100% foreign charter capital will be increased in near future So, the threat of entry from foreign banks are increased.

Beside the foreign banks story, the barrier for local banks was rise after thegovernment stopped giving permissions to establish new banks since August 2008.Aside from regulations about charter capital, continuous profitable, new banks mustunder very strict supervision by SBV However, that cannot prevent organizationwith good condition from joining the bank industry when government allows to set

up new banks again

Entry barrier also represent through market portion, target market which banks arefocusing on, brand name value as well as the customers quantity and loyalty Theseare very important because they make the main role of success for banks whichwant to join in Vietnam market

Once the current banks can build up strong trade mark with effective and differentproducts, services and good quantity of loyal customers, the switching cost for newbanks will be very high Hence, they must consider very carefully before deciding

to join or not In practice, while research Vietnam market, the switching cost is not