Service recovery for viettinbank trade finance operationsituation and solution for improvement

Then, linking the current overall strategies and solutions of VietinBank with the table of strengths and weaknesses of VietinBank‟s trade finance operation, the author suggests developme

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

HOANG PHUONG NGA

SERVICE RECOVERY FOR VIETINBANK TRADE

FINANCE OPERATION:

SITUATION AND SOLUTION FOR IMPROVEMENT

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

SUPERVISOR: DR NGUYEN THI PHI NGA

ACKNOWLEDGMENTS

First and foremost, I would like to show my sincere gratitude to my supervisor, Dr Nguyen Thi Phi Nga, who has supported me with her supervision, motivation, and thorough knowledge All kinds of her supports have enabled me to finish this thesis successfully

Also, I would like to give my great thanks to my family, my friends, and lecturers and staffs of Hanoi School of Business for their motivation and encouragement to

me in order to complete my study and my MBA degree as now

Thank you and wish you all happiness and success!

ABSTRACT

SERVICE RECOVERY FOR VIETINBANK TRADE FINANCE

OPERATION: SITUATION AND SOLUTION FOR IMPROVEMENT

Hoang Phuong Nga

MBA, 2007-2009

School of Business

Vietnam National University, Hanoi

Supervisor: Dr Nguyen Thi Phi Nga

August 2012, 92 pages

In the chapter one, this thesis provides fundamental concepts of service, customer service and service recovery The theory on service recovery strategies is also mentioned Up to now, there have been a lot of studies on service development but not many detailed and specific studies on service recovery Thus, the theory of service recovery is still under dicussion and controversy In addition, the author uses qualitative methodology through the case study of improving service recovery

to VietinBank‟s trade finance operation

Then, the study mentioned the overview of VietinBank in general and VietinBank‟s trade finance service in particular With the long history of development, VietinBank also has remarkable experiences on trade finance service After giving the overall picture, the author goes to in-dept analysis on current situation of VietinBank‟s trade finance operation as well as current status of strategies for VietinBank‟s trade finance service From the in-dept analysis, some strengths and weaknesses of service recovery activities in VietinBank are extracted The solution

for improving service recovery oF VietinBank‟s trade finance operation shall be given based on this table of strengths and weaknesses

Next, the thesis gives some recommendations to Service Recovery for trade finance operation in VietinBank First of all, the author mentioned overall strategies and solutions for the development of VietinBank, both quantitative and qualitative targets Then, linking the current overall strategies and solutions of VietinBank with the table of strengths and weaknesses of VietinBank‟s trade finance operation, the author suggests development strategies for trade finance operation They are: (1) strategies for product and service; (2) strategies for customers; (3) strategies for technology; (4) strategies for marketing and distribution channels; and (5) strategies for human resources management After having a relatively clear picture on strategies for the improvement of VietinBank‟s trade finance operation, the author gives some suggestions on detailed actions plan to perform five mentioned strategies Finally, the study gives some recommendations to State bank of Vietnam and VietinBank itself for the improvement of Service Recovery of VietinBank‟s trade finance operation

Khoa Quản trị kinh doanh

Đại học Quốc gia Hà Nội

Giảng viên hướng dẫn: Tiến sỹ Nguyễn Thị Phi Nga

Tháng 08.2012, 92 trang

Trong chương một, luận văn này cung cấp những khái niệm cơ bản về dịch vụ, dịch

vụ khách hàng và vấn đề khôi phục dịch vụ Đồng thời, luận văn cũng đề cập đến lý thuyết về chiến lược khôi phục dịch vụ Cho đến ngày nay, tuy có nhiều nghiên cứu

về việc phát triển dịch vụ, nhưng còn rất ít những nghiên cứu chi tiết và cụ thể về việc khôi phục dịch vụ Do vậy, những lý thuyết về vấn đề khôi phục dịch vụ, cho đến ngày hôm nay, vẫn còn chưa thống nhất và còn nhiều tranh cãi Bên cạnh đó, tác giả cũng sử dụng phương pháp mô tả định tính qua việc phân tích tình huống cụ thể là cải thiện việc khôi phục dịch vụ cho nghiệp vụ Tài trợ thương mại của Ngân hàng Thương mại Cổ phần Công thương Việt Nam (VietinBank)

Trong phần tiếp theo, nghiên cứu đề cập đến bức tranh tổng quan về VietinBank nói chung và nghiệp vụ thanh toán quốc tế của VietinBank nói riêng Với bề dày phát triển lâu đời, VietinBank đã có những kinh nghiệm nhất định về dịch vụ Tài trợ thương mại Sau khi có được bức tranh tổng thể, tác giả luận văn đi sâu vào phân

lược hiện tại của VietinBank cho sự phát triển của dịch vụ Tài trợ thương mại Từ những phân tích sâu được nêu ra ở chương hai, một vài điểm mạnh và điểm yếu của hoạt động khôi phục dịch vụ Tài trợ thương mại của VietinBank đã được tác giả rút

ra Từ những điểm mạnh và điểm yếu này, tác giả đồng thời cũng sẽ đưa ra một vài gợi ý về những giải pháp đẩy mạnh việc khôi phục dịch vụ cho nghiệp vụ Tài trợ thương mại

Tiếp theo, luận văn sẽ đưa ra những khuyến nghị và gợi ý cho vấn đề khôi phục dịch vụ cho nghiệp vụ Tài trợ thương mại của VietinBank Trước tiên, tác giả đề cập đến chiến lược và giải pháp phát triển tổng thể cho VietinBank, cả những mục tiêu mang tính định lượng và định tính Sau đó, luận văn sẽ kết nối giữa chiến lược

và giải pháp tổng thể với bảng tóm tắt điểm mạnh và điểm yếu trong nghiệp vụ Tài trợ thương mại của VietinBank để đưa ra những chiến lược cho vấn đề khôi phục dịch vụ của nghiệp vụ Tài trợ thương mại Những chiến lược đó là: (1) chiến lược

về sản phẩm và dịch vụ; (2) chiến lược về khách hàng; (3) chiến lược về công nghệ; (4) chiến lược về marketing và kênh phân phối; và (5) chiến lược về quản trị nguồn nhân lực Từ những chiến lược cho việc khôi phục dịch vụ này, tác giả sẽ gợi ý một

kế hoạch hành động cụ thể, chi tiết cho từng chiến lược trong năm chiến lược đã nêu trên Cuối cùng, luận văn đưa ra một vài khuyến nghị với Ngân hàng Nhà nước nói chung và VietinBank nói riêng cho mục đích cải thiện việc khôi phục dịch vụ của nghiệp vụ Tài trợ thương mại tại VietinBank

TABLE OF CONTENTS

ACKNOWLEDGMENTS i

ABSTRACT ii

TÓM TẮT iv

TÓM TẮT iv

TABLE OF CONTENTS vi

LIST OF FIGURES ix

LIST OF TABLE x

INTRODUCTION 1

1 Necessity of the thesis 1

2 Literature review 2

3 Objectives of the research 4

4 Research Methodology 5

5 Contribution of the thesis 8

6 Structure of the research 8

CHAPTER 1: THEORETICAL FOUNDATIONS 9

1.1 The concepts of service, customer service and service recovery 9

1.1.1 Service and customer service 9

1.1.2 Service recovery 10

1.2 Types of customer‟s response to the service failures 12

1.2.1 Types of customer actions 13

1.3 The reasons customers complain 14

1.4 The expectation of customers 15

1.4.1 Customers expectation of fair treatment 15

1.4.2 Companies‟ behavior 16

1.5 Service Recovery Strategies 17

1.5.1 Fail-safe your service – Do it right at the first time 18

1.5.2 Welcome and Encourage complaints 19

1.5.3 Act quickly 19

1.5.4 Treat customer fairly 21

1.5.5 Learn from recovery experiences 21

1.5.6 Learn from lost customers 21

1.5.7 Return to “Doing it right” 22

1.6 Service Guarantees 22

1.6.1 Benefits of Service Guarantees 23

1.6.2 Types of Service Guarantees 24

1.6.3 When to Use (or Not Use) a Guarantee 25

CHAPTER 2: SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN VIETINBANK 26

2.1 Overview of VietinBank and trade finance operation 26

2.1.1 History of VietinBank 26

2.1.2 Corporate Vision, Mission, Values and Ambitions 28

2.1.3 Trade finance operation of VietinBank 29

2.1.4 VietinBank‟s Trade Finance resources 36

2.2 Analysis of VietinBank‟s current situation of Service Recovery 39

2.2.1 How customers respond to service failures in VietinBank: 40

2.2.2 VietinBank‟s Service Recovery Strategies for Trade finance operation 44

2.2.3 VietinBank‟s Service Guarantees 49

2.3 Summary of strengths and weaknesses of service recovery activities in VietinBank 50

CHAPTER 3: RECOMMENDATIONS TO SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN VIETINBANK 53

3.1 Strategies and solutions for the development of Trade finance operation in VietinBank 53

3.1.1 Quantitative targets: 53

3.1.2 Qualitative targets: 53

3.2 Strategies and actions plan for improvement of Service Recovery for trade finance operation in VietinBank 54

3.2.1 Strategy for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 54

3.2.2 Actions plan for improvement of Service Recovery for trade finance operation in VietinBank in the period of 2012-2017 60

3.1.3 Recommendations for the improvement of Service Recovery in VietinBank 72 REFERENCES 73

ANNEX LIST 75

LIST OF FIGURES

Figure 1.1: Unhappy customers‟ repurchase intentions 11

Figure 1.2: Customer response following service failure 12

Figure 1.3: Types of failure respondents 14

Figure 1.4 Fairness and satisfaction 17

Figure 1.5 Service Recovery strategies 18

Figure 1.6: Causes behind service switching 22

Figure 2.1: VietinBank‟s Key Financial Index 29

Figure 2.2 Commercial banks in operation in Vietnam‟s market by 31st Dec 2011 31 Figure 2.3: Vietnam Trade finance market shares 2010 32

Figure 2.4: Banks in Vietnam, with whom trade finance customers are transacting 34 Figure 2.5: Number of VietinBank‟s trade finance customers over 2008-2011 34

Figure 2.6: Duration (years) that customers transacting with VietinBank 36

Figure 2.7: The reasons customers do not complain 41

Figure 2.8: The reasons customers complain 42

Figure 2.9: The expectation of customers when complaining 42

Figure 2.10: Customer‟s identification of other complaining ways to a bank 45

Figure 2.11: Does VietinBank offer you service guarantees for trade finance? 50

LIST OF TABLE

Table 2.1: Summary of positive points and negative points of service recovery activities in VietinBank 51

Table 2.2 Strengths and weaknesses of service recovery activities in VietinBank 52

Table 3.1: Quantitative targets of strategies and solutions for the development of trade finance operation in VietinBank 53

Table 3.2: Strengths and weaknesses of service recovery activities in VietinBank 54

Table 3.3: Weaknesses of service recovery activities of VietinBank and the strategies to improve them 58

sub-Table 3.4: Actions plan for service recovery of trade finance operation in VietinBank 61

INTRODUCTION

1 Necessity of the thesis

Vietnam foreign trade activities have recorded a sharp increase in volume for over a decade since 2000 From the time Vietnam opened door to the world market up to now, the import-export turnover of the country has risen by more than four times The steady increase in trade flow between Vietnam and foreign countries opens greater opportunities for commercial banks to provide trade finance services to domestic enterprises However, also as a result of international integration, a domestic commercial bank has to cope with fierce competition from foreign bank branches as well as other local banks in this field This challenge is not an exception for VietinBank, one of the four leading state-owned commercial banks of Vietnam Therefore, with an aim of enhancing competitiveness in this banking service, VietinBank carried out restructuring of its trade finance activities by the establishment of a center for centralized processing of all trade finance operation for all VietinBank‟s branches, called VietinBank Main Operation Center (VMOC) VietinBank was the first domestic bank in Vietnam to have this model of centralization of trade finance processing in 2008 In spite of that, international payment volume and market share of the bank in this sector has not shown much progress, counting only 11.05% in 2010 and 13.89% in 2011 and numbers of lost customers has been recognized due to service failure This leads to a big question: how to improve the bank‟s quality of services to keep traditional customers and increase its turnover and market share in this trade finance operation given its advantages of the centralization structure? There can be a variety of factors that can have impact on this question The role of service recovery is one of the most important factors that need to be considered to answer this question given the existing fact that the Bank has yet to formulate a service recovery policy for trade finance activities Realizing the importance of the role of service recovery for the

bank where the author is working, the author would like to choose this topic for the

MBA thesis, with the title “Service Recovery for VietinBank Trade finance operation: Situation and Solution for improvement”

Service recovery has been defined by many authors, as:

“the effort an organisation expends to win back customers goodwill once it has been lost due to service failure” (Fisk, Grove et al 2000)

“refers to actions taken by an organisation in response to some service failures”

(Zeithaml & Bitner, 2003)

“any situation where something has gone wrong, irrespective of responsibility”

(Palmer, 2001)

Service recovery has received attention for over 30 years within service management and service marketing In the 70‟s and 80‟s, service recovery was the plan for dealing with telecommunications problems or recovering particular services Companies adopted systems that produced „zero defects‟, to produce a high quality service and a cost effective production line approach Zero-defect is a definition of quality standard, indicating that if a requirement expresses what is genuinely needed, and then any unit that does not meet requirements will not satisfy the need and is no good Although the idea of zero-defect in services is simply an unattainable goal, it is implemented all over the world From the late 1970s, since

customer (it is often stated that it costs five times as much to attract a new customer

as maintaining one), managers are increasingly concerned with minimizing customer defections

The role of service recovery in the event of a service failure is recognised as “doing the service very right the second time” (Brown, Cowles et al 1996) In order to

understand service recovery, it is necessary to understand how the customer experiences the service and the impact of the service encounter on customer satisfaction Effective service recovery can improve the image of the firm and also reduce perceived risk to the customer There is one issue of great importance in

service recovery that we can not fail to mention: it is the “service recovery paradox”

The “service recovery paradox” states that with a highly effective service recovery,

a service or product failure offers a chance to achieve higher satisfaction ratings from customers than if the failure had never happened A little bit less academically, this means that a good recovery can turn angry and frustrated customers into loyal customers In fact it can create even more goodwill than if things had gone smoothly in the first place

Nevertheless not all service recovery efforts will lead to increased satisfaction ratings as several studies have already shown The key is to understand that there are certain situations when it is highly likely that a service recovery will lead to increased customer satisfaction Service recoveries that are likely to be efficient are obviously those where the service failure is perceived to be not systematic or that the company has little control over it But even in cases when there is a systematic failure and the company has control over the failure, there is a benefit when service recovery activities are put into actions to ensure that one can win back customers and that the source of failure is eliminated

Although having several decades of implementation all over the world, service recovery is fairly new, in comparison with other service marketing approaches In

at universities and has not been widely applied in all business sectors And because

of the fact that people feel like looking for polished, positive things like marketing communication tools, marketing mix strategies, public relations, customer relation management etc , which bring promising results to a business, there are little research by Vietnamese authors into service recovery Furthermore, inadequate understanding of service recovery has made people mistakenly consider service recovery as only for individual customers and as not designed for corporate customers of a bank

With regards to improve quality of trade finance service of a bank, what a bank needs is to carefully and fully study about service recovery to improve its skill of listening to customer, to keep and develop sustainable relationships with customers

It is also the reason why the author of this research doing current study on Service recovery with the case of VietinBank Trade finance operation

3 Objectives of the research

Due to the necessity of the issue and after the brief literature review above, the author defines the objectives of the research as following:

- To find out about the current service recovery activities for trade finance of VietinBank

- To evaluate the strengths and weaknesses as well as the efficiency of the current service recovery activities for the existing customers using trade finance products of the Bank

- To propose some recommendations to improve service recovery for VietinBank‟s trade finance operation

4 Research Methodology

4.1 Research methodology

The research process of this thesis can be expressed by the following chart:

Based on the general observation of the trade finance performance of VietinBank in terms of modest increase in trade finance turnover and almost unchanged trade finance market share in the last three years, the problem for the thesis is defined as the service recovery for trade finance of the Bank Next, data are collected from various sources, including desk research, qualitative and quantitative research to identify the current situation of service recovery for trade finance from the actual facts as well as from the point of view of the Bank‟s managers and also customers

in order to find out the strengths and the weaknesses of service recovery activities for this banking operation Finally, relying on the analysis of the problems, solutions will be set out on how to improve service recovery for trade finance of VietinBank to improve service quality, to keep traditional customers using the trade finance products, aiming at increasing the bank‟s trade finance revenue and market share

4.2 Data sources

Secondary data

The sources for secondary data include (i) the internal information and data of the Bank available from the Bank‟s website, relevant departments as well as internal documents like surveys, statistics, annual reports and ad-hoc reports of VietinBank

- Desk research

- Qualitative research

- Quantitative research

SOLUTIONS:

How to improve

service recovery for trade finance?

customers on trade finance solutions or instructions issued by the bank on this topic etc., and (ii) general information on the economy, market, service marketing research etc available on the Internet, published books, newspapers or magazines

Next, a quantitative survey is made in form of a questionnaire sent to 130 enterprise customers from 30 of Vietinbank branches locating in different areas

The selection of responders is based on convenience sampling The author sent the questionnaires (30 forms) to the customers that the author has contacted with Besides, the author sent questionnaires (100 forms) to trade finance staffs at VietinBank‟s branches, to whom the author has access and proposed those staff to deliver the questionnaires to the trade finance customers with people who feel it is convenient for the staff to contact in their daily job These are the customers who are using or have potential to use the bank‟s trade finance products The objective of the survey is to get customers‟ opinions to verify the evaluations on the matters in question which were obtained from secondary data and the qualitative research

In 130 delivered, 102 forms have been collected back, of which 98 forms were qualified The survey results used for analysis in the thesis were obtained from those 98 responses received from the customers The data processing was based on Microsoft Excel software

4.3 Research scope

According to the definition in Trade finance magazine, Trade finance is related to international trade: “While a seller (the exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document the goods that have been shipped Banks may assist by providing various forms of support For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading The exporter's bank may make a loan (by advancing funds) to the exporter on the basis

of the export contract.” There are also other forms in which banks may provide trade finance services for their customers, such as Documentary collection (in which, banks play a role of collecting payments from the importers to pay for the exporters based on certain arrangements or presentation of documents by the exporters), bank guarantees or some other new forms to Vietnam‟s market like factoring or forfaiting (purchase of account invoices/account receivables and advance funds for the seller and recourse to the buyer on due dates) etc

The concept of trade finance is also related to some banking operations such as credit and foreign exchange activities to facilitate trade transactions and covers a variety of new trade finance product types like risk participations or structured trade other than common traditional products of import/export letters of credit, documentary collections and international payment To narrow down the scope of research due to the limitations of time and space for the project, this study will focus only on the service recovery for Letter of credit for enterprises - being a traditional trade finance services for Vietnamese exporters and importers who trade with foreign enterprises, without looking deeply into every aspect of the related banking operations or all other or new types of trade finance products

In the thesis, the author uses reports/figures/facts in a period of 3 years from 2009 to

2011, related to the whole VietinBank trade finance system, including the Head Office and branches nationwide

5 Contribution of the thesis

The thesis can contribute in both theoretical and practical aspects as below:

- To introduce a comprehensive view of current service recovery activities for trade finance of a Vietnamese commercial bank like VietinBank;

- To bring out strengths and weaknesses, point out current outstanding issues of the current service recovery activities for the existing customers using trade finance products of VietinBank;

- To resolve the outstanding issues and improve service quality of trade finance operation in VietinBank, through positive solutions and recommendations which are practical to apply in the early future

6 Structure of the research

Beside the introduction and conclusion part, the thesis is divided into three chapters

as the following:

 Chapter 1: Theoretical Foundations

 Chapter 2: Service Recovery for trade finance operation in VietinBank

 Chapter 3: Recommendations to Service Recovery for trade finance operation in VietinBank

CHAPTER 1: THEORETICAL FOUNDATIONS

1.1 The concepts of service, customer service and service recovery

1.1.1 Service and customer service

There are several ways of defining “What is service?” Some mention that

a service is an intangible equivalent of an economic good; service provision is often

an economic activity where the buyer does not generally, except by exclusive contract, obtain exclusive ownership of the thing purchased while another indicates that services refers to a type of economic activity that is intangible, is not stored and does not result in ownership1 Valarie A.Zeithaml, an internationally recognized pioneer of services marketing who has devoted the last 20 years to researching, consulting and teaching service quality, services management and customer equity, provides a simple broad definition of service: Service includes all economic activities whose output is not a physical product or construction, is generally consumed at the time it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser.2

It is hard to say which of these definitions is better than another or the only one correct since service is a term with many meanings However, for the purpose of this thesis, Valarie‟s definition of service seems to be the best choice since its simple meaning mentions to all industries within the service sectors Following that, quite big corporations like AT&T (telecommunication), Marriott International (Hotels), American Airlines (transportation), IBM (computer manufacturers) or Bank One (banking services) are all considered service companies Their businesses are to do marketing and deliver services to customers By doing that, they are providing customer services

1 www.investorwords.com

Customer service is the service provided in support of a company‟s core products

Customer service most often includes answering questions, taking orders, dealing with billing issues, handling complaints, and perhaps scheduling maintenance or repairs Customer service can occur on site, over the phone or via internet; before, during and after a purchase, and typically charges no fees to the customers However, along with sales and marketing, customer service plays an important role

in an organization's ability to generate income and revenue

1.1.2 Service recovery

Definition

Using a good customer service system and having effective service design and communication form the foundation of corporation‟s service success However, in all business contexts, service failure is inevitable even for best or “world-class” corporation and it may occurs for all kind of reasons – the service may be unavailable when promised, be delivered late or too slowly, the outcome may be incorrect or poorly executed, or employees may be rude or uncaring These can bring about negative feelings and response from customers and therefore can result

in their leaving, telling other customers about their negative experiences etc…

Not only big but also small companies do know the importance of understanding customers‟ expectation when failure occurs and what to do to retain existing customers They must implement effective strategies of service recovery Service recovery refers to the action taken by an organization in response to a service failure It is not an action alone, it is a business process (a string of actions) that has

to be paid attention, created and implemented appropriately and regularly within an organization to gain organization‟s objectives

The impact of service recovery

Resolving customers‟ problems effectively has a strong impact on customer

be more loyal than those whose problems are not resolved Data from Figure 1.1 has verified this relationship

Actually an effective service recovery strategy has multiple potential impacts It can increase customer satisfaction and loyalty, and generate positive words of mouth A well-designed, well-documented service recovery strategy also provides information that can be used to improve service as part of a continuous improvement effort In the opposite, there are tremendous downsides to having no service recovery or ineffective service recovery strategies Poor recovery following

a bad service experience can lead to customers who are so dissatisfied they become

“terrorists”, actively pursuing opportunities to openly criticize the company Further, repeated service failures without an effective recovery strategy in place can aggravate even the best employees The costs in employee morale and even lost employees can be huge, but often overlooked, costs of not having an effective service recovery strategy

Figure 1.1: Unhappy customers’ repurchase intentions

Source: Report by the Technical Assistance Research Program – TARP Global, America

The Recovery Paradox

There is a fact that customers who are dissatisfied, but experience a high level of excellent service recovery, may ultimately be even more satisfied and more likely to repurchase than those who were satisfied in the first place Therefore, logically but not very rationally, companies should plan to disappoint customers so they can recover and gain even greater loyalty from them as a result This idea has become known as the Recovery Paradox

1.2 Types of customer’s response to the service failures

When there is a service failure, customers can respond in various ways (as illustrated in Figure 1.2) They can choose to take action or may simply do nothing Whether they take action or not, to some extent, the customers will decide whether

to stay with that service provider or switch to another competitor As we have already seen, those who do not complain are least likely to return For companies, customer passivity in the fact of dissatisfaction is a threat to future success

Figure 1.2: Customer response following service failure

Source: Ralph L.Day and E.Laird Landon, Jt., - “Towards a Theory of Consumer

Complaining Behavior”, in “Consumer and Industrial Buying Behavior”, Amsterdam:

1.2.1 Types of customer actions

If customers take action after a service failure, that action can be of various types An unsatisfied customer can choose to complain on the spot to the service provider, giving the company the opportunity to respond immediately This is often the best scenario for the company because it has a second chance right at that moment to satisfy the customer, keep his or her business in the future, and potentially avoid any negative word of mouth If they do not complain immediately, customer may choose

to complain later, to the provider via phone or in writing, or even to write or call the corporate offices of the company Again, the company has a chance to recover

However, some customers choose not to complain directly to the provider but rather spread negative word of mouth about the company to friends, relatives, and co-workers This can be extremely detrimental because it can reinforce the customer‟s feelings of negativism and spread that negative impression to others as well Further, the company has no chance to recover unless the negative word of mouth is accompanied by a complaint directly to the company

1.2.2 Types of complainers

People can be grouped into categories based on how they respond to failures Four categories of response types were identified in a study3 that focused on grocery stores, automotive repair services, medical care, and banking and finance services They are Passives, Voicers, Irates and Activists and the way they respond to services failures is illustrated in Figure 1.3:

Figure 1.3: Types of failure respondents

Consistent w/

complaining

Unconformable w/ complaining

Conformable w/

Less alienated

Somewhat alienated

More alienated

Source: Jagdip Singh, “A Typology of Consumer Dissatisfaction Response Styles” –

Journal of Retailing 66 No.1 (Spring 1990, p93-107)

1.3 The reasons customers complain

Four categories described in Figure 1.3 suggest that there are several types of customers and each type has their own reason to complain or not complain about service There are customers who are more likely to complain than others These customers believe that positive consequences may occur and there are social benefits of complaining They also believe they will and should be provided compensation for their service failure in some forms Furthermore, fair treatment and good service is their due, and in cases of service, someone should make good

situations or to punish the service provider A very small number of consumers have

“complaining” personalities, they just like to complain or cause trouble

In the opposite, people who are unlikely to take any action often see complaining as

a waste of time and effort and do not believe anything positive will occur to them or others based on their actions Some other people do not know how to complain, do not understand the process or may not realize there are avenues open for them to voice their complaints Personal relevance of the failure can also influence whether people complain or not If the service failure is not very important or has no critical consequences for the consumer, or if the consumer has little ego involvement in the service experience, then he is less likely to complain

1.4 The expectation of customers

When taking time and effort to complain, customers generally have high expectations They may expect to be helped quickly, to be compensated for their grief and for the hassle of being inconvenienced or just simply be treated nicely in the process

1.4.1 Customers expectation of fair treatment

Specifically, customers want several types of justice and fairness in handling their complaints: outcome fairness, procedural fairness and interactional fairness

Outcome fairness: Customers expect outcomes or compensation in the form of

actual monetary compensation, an apology, future free services, reduced charges, repairs…that match the level of their dissatisfaction They want to feel that the company has “paid” for its mistakes in a manner at least equal to what the customer has suffered They want to be compensated no more or less than other customers who have experienced the same type of service failure and also appreciate it when a company gives them choices in terms of compensation On the other hand, customers can be uncomfortable if they are overly compensated This may come when the compensation is too much and make a customer feel uneasy about the fact that they should or should not receive the compensation

Procedural fairness: In additional to outcome fairness, customers expect fairness

in terms of policies, rules, and timeliness of the complaint process They want easy access to the complaint process, want things to be handled quickly and preferably

by the first person they contact In some cases, companies actually ask the customer

“What can we do to compensate you for our failure?” Many times, what the customer asks for is actually less than the company might have expected Fair procedures are characterized by clarity, speed and absence of hassles Unfair procedures are when those customers perceive as slow, prolonged, and inconvenient Customers also feel it is unfair if they have to prove their case – when the assumption seems to be they are wrong or lying until they can prove otherwise

Interaction fairness: Above and beyond their expectations of fair compensation and

hassle-free, quick procedures, customers expect to be treated politely, with care and honesty This form of fairness can dominate the others if customers feel the company and its employees have uncaring attitudes and have done little to try to resolve the problem This type of behavior seems to be strange but can be explained by lack of training and empowerment It is easy to see that a frustrated, front-line employee, who has no authority to compensate the customer, may easily respond in an aloof or uncaring manner, especially if the customer is angry and/or rude himself

1.4.2 Companies’ behavior

Research suggests that customers are not generally happy with the way their complaints are handled or with the levels of outcome, procedural and interactional justice they receive Figure 1.4 illustrates the percentage of customers who felt they were fairly and unfairly treated on the three different dimensions of fairness It is also shown on the Figure of a majority of customers who are dissatisfied with the way their complaints are handled overall

Figure 1.4 Fairness and satisfaction

Source: Stephen S.Tax and Stephen W.Brown, “Recovering and Learning from Service failure”, Sloan Management Review, Fall 1998, p.80

1.5 Service Recovery Strategies

Not every company is providing poor service recovery but a lot of them have learned the importance of having excellent recovery - strategy for dissatisfied customers The excellent recovery strategy is said to be a combination of a variety

of strategies that must work together and tightly as shown on Figure 1.5

Figure 1.5 Service Recovery strategies

1.5.1 Fail-safe your service – Do it right at the first time

The best way of providing service is to do it right at the first time By doing this, companies do not have to recover anything since customers can get what they expect and company can save costs of recovering and compensation for mistakes they made as well Doing it right the first time then become the most important dimension of service quality across industry contexts

Service operation expert, named Dick Chase, has mentioned in the book “Make your service fail-safe” published in 1994 that services companies should adopt the Total quality management notion of poka-yokes to improve the most basic and fundamental of all service strategies – service reliability Poka-yokes are automatic warnings or controls in place to ensure mistakes are not made and can be devised in service settings to “mistakeproof” the service, to ensure in the proper order and in a timely manner Furthermore, poka-yokes can be devised to ensure that the tangibles associated with the service are clean and well maintained, and that documents are accurate and up-to-date Poka-yokes can also be implemented for employee

behaviors (i.e, checklists, role-playing and practice, reminder signs) and even for ensuring that customers to perform effectively

More fundamentally, it is important to create a culture of zero defections to ensure doing it right at the first time although everybody knows it is hard to perform this culture Within a zero defections culture, everyone from the employees to managers understands the importance of service reliability and aims to satisfy every customer They are appreciating the “lifetime value of customer” concept and are motivated to provide quality service every time to every customer

1.5.2 Welcome and Encourage complaints

Even when companies decide to perform zero defections culture, failures still occur Service recovery strategies therefore should have a critical component to welcome and encourage complaints

There are many ways to encourage and track complaints Customer research can be designed specifically to do this through satisfaction surveys, critical incident studies and lost customers research Less formally, employees can also get complaints via listening posts, discovering sources of customer dissatisfaction and service failure

on the front line They should be encouraged to report this type of information Parts of encouraging complaints also involve teaching customers how to complain, mostly through technology (email, toll-free call centers, live chat etc…) It is best to make the complaining process as simple as possible since the last thing a dissatisfied customer wants from the company is not to face a complex, or difficult

to access process for complaining

1.5.3 Act quickly

Companies must understand that complaining customers want quick response and they must be well prepared to act on complaints quickly Strategy of how to respond quickly to customers contains several recipes as indicated below:

 Take care of problems on the front line

Customers always want the first person who hears their complaints to solve their problems whether the complaints are reflected in person, over the phone or via Internet Therefore, an employee who (sometimes by chance) hears a complaint from a customer must considered himself as the owner of the complaint until he is sure it is solved

Another efficient way to speed up the handling of complaint is to call to customers, even to whom that employees take time to write a complaint, rather then send response in the mail This strategy works well for companies not only in terms of time but also in terms of costs since the costs of making phone calls were offset by the reduced costs and time involved with paperwork

 Empower employees:

Employees must be trained and empowered to solve problems on a quick and accurate basis as they occur Since a problem not solved can quickly escalate, employees must be well-trained and empowered to even anticipate problems before they arise and surprise customers with a solution For service employees, there is a specific and real need for recovery training Because customers demand that service recovery should take place on the spot and quickly, front-line employees need some skills (hearing customers‟ problems, taking initiative, indentifying solutions, improvising…), authority and incentives to engage in effective recovery Not only

in need of the authority to act, employees should not be punished for taking action and incentives are necessary in order to encourage employees to exercise their recovery authority

 Allow customers to solve their own problems

Another way that problems or complaints can be handled quickly is by building systems that allow customers to actually solve their own service needs and fix their own problems Typically this is done through technology Customers directly interface with the company‟s technology to perform their own customer service, providing them with instant answers

1.5.4 Treat customer fairly

As mentioned on item 1.4.1 previously, customers expect to be treated fairly in terms of the outcome and interpersonal treatment they receive Fair treatment is an essential component of an effective service recovery strategy

1.5.5 Learn from recovery experiences

“Problem-resolution situations are more than just opportunities to fix flawed services and strengthen ties with customers They are also a valuable – but frequently ignored or underutilized – source of diagnostic, prescriptive information for improving customer service”4 By tracking service recovery efforts and solutions, managers can often learn about systematic problems in the delivery system that need fixing By conducting root-cause analysis, the sources of the problems can be identified and processes modified, sometimes eliminating almost completely the need for recovery

1.5.6 Learn from lost customers

Another key component of an effective service recovery strategy is to learn from the customers who defect or decide to leave Frederick F.Reichheld has indicated in his Harvard Business Review March-April 1996 that formal market research to discover the reasons customers have left can assist in preventing failures in the future This type of research is difficult, even painful for companies Yet, this is essential for preventing the same mistakes and losing more customers in the future Lost customer research typically involves in-depth probing of customers to determine their true reasons of leaving This is most effectively done by depth interviews, administered by skilled interviewers or senior-level people in the company who truly understand the business The type of depth analysis often requires a series of “why” questions or “tell me more about that” questions to get at the actual, core reason for the customer‟s defection While a specific cause of customer defection will surely vary across industries and companies, some common

themes have been observed in academic research These themes and their subthemes are shown in Figure 1.6

Figure 1.6: Causes behind service switching

Source: Susan Keaveney, “Customer Switching Behavior in Service Industries: An

Exploratory Study”, Journal of Marketing 59 (April 1995, p71-82)

1.5.7 Return to “Doing it right”

The set of strategies shown on Figure 1.5 and leads directly back to the beginning: Fail-safe the service and do it right at the first time By integrating all the strategies, company will find less and less of a need for service recovery Yet, when those situations do occur, they will be prepared to impress the customer and keep their business anyway

1.6 Service Guarantees

Not like banking guarantee, service guarantee is a particular type of recovery tool which is defined as "an assurance of the quality of or length of use to be expected from product offered for sale, often with a promise of reimbursement"5 Many people still believe that services simply could not be guaranteed given their

intangible and variable nature and it may impossible to take returns or to "undo" what service has performed However, more and more companies believe that their guarantees for service will help maintain existing customers, attract new customers and gain tremendous benefits for doing so

1.6.1 Benefits of Service Guarantees

 A good guarantee forces the company to focus on its customers

To develop a meaningful guarantee, the company must know what is important to its customers - what they expect and value In many cases "satisfaction" is guaranteed, but in order for the guarantee to work effectively, the company must clearly understand what satisfaction means for its customers

 An effective guarantee sets clear standards for the organization

Companies must clearly define what it expects of its employees and communicate that to them The guarantee gives employees service-oriented goals that can quickly align employee behaviors around customer strategies

 A good guarantee generates immediate and relevant feedback from customers

It provides an incentive for customers to complain and thereby provides more representative feedback to the company than simply relying on the relatively few customers who typically voice their concerns The guarantee communicates to customers that they have the right to complain

 When the guarantee is invoked there is an instant opportunity to recover, thus satisfy the customer and helping to retain loyalty

 Information generated through the guarantee can be tracked and integrated into continuous improvement efforts

A feedback link between customers and service operations decisions can be strengthened through the guarantee

 Studies of the impact of service guarantees suggest that employee morale and loyalty can be enhanced as a result

 For customers, the guarantee reduces their sense of risk and builds confidence in the organization

Because services are intangible and often highly personal or ego-involving, customers seek information and cues that will help reduce their sense of uncertainty Guarantees have been shown to reduce risk and increase positive evaluation of the service prior to purchase

1.6.2 Types of Service Guarantees

 Satisfaction vs Service attribute guarantees:

Service guarantees can be unconditional satisfaction guarantees or service attribute guarantees; whichever provided to customers depends on industries companies are

in A consulting firm may offer its clients an unconditional guarantee for its services, and if clients are unhappy, they don't pay for the services Payment service providers may offer an unconditional guarantee to return fees to any client that is dissatisfied with its trust services In other cases, firms offer guarantees of particular aspects of the service that are important to customers Wells Fargo, for example, guarantees that customers will not wait longer than five minutes in a teller line If they do, they are given $5 In all of these cases, the companies have guaranteed elements of the service that they know are important to customers

 External vs Internal Guarantees

Guarantees don't have to be just for external customers Some companies are finding that internal service guarantees are also effective ways of aligning internal service operations For example, at Embassy Suites the housekeeping supplies department guarantees its internal customer, the housekeeping staff, which they can get supplies on the day requested If not, the supply department pays $5 to the housekeeper

 Characteristics of effective guarantees

No matter the type of guarantee, there are certain characteristics as indicated below that make some more effective than others:

- Unconditional: The guarantee should make its promise unconditionally, having no strings attached

- Meaningful: It should guarantee elements of the services that are important to the customer and the payout should cover fully customer‟s dissatisfaction

- Easy to understand and communicate for customers to understand what to expect and employees to understand what to do

- Easy to invoke and collect: There should not be a lot of hoops or red tape in the way of accessing or collecting on the guarantee

1.6.3 When to Use (or Not Use) a Guarantee

Before putting a guarantee strategy in place, a number of important questions should be addressed, and a guarantee is probably not the right strategy when:

- Existing service quality in the company is poor

- A guarantee doesn't fit the company's image

- Service quality is truly uncontrollable

- Costs of the guarantee outweigh the benefits

- Customers perceive little risk in the service

- There is little perceived variability in service quality among competitors

CHAPTER 2: SERVICE RECOVERY FOR TRADE FINANCE

Since 2008, VietinBank has developed an operations network comprising of 01 Head Office; 01 Representative offices (in Myanmar), 149 branches, more than 1.100 transaction offices, points of sales and savings offices nationwide Total number of employees has reached over 18,600 in 2011 and VietinBank has been ranked the 2nd bank in Vietnam in terms of nationwide branch network

Having correspondent relationship with more than 900 banks and financial institutions worldwide, VietinBank can now reach to every area in the world, including Africa

In order to be one of the most dynamic commercial banks in Vietnam, VietinBank

is providing a great variety of banking products and services for the whole economy, including lending, savings, leasing, guarantee, international payment, trade finance, foreign exchange, investment banking, securities, card services, etc…with the eagerness of serving thousands of customers in Vietnam

For the time of long history, VietinBank has gained a lot of acclaimed achievements and rewards Some of these breakthroughs are as follows:

 3rd place Independence Medal;

 03 stellar laborer awards;

 04 1st place labor medals, 18 2nd place labor medals, 54 3rd place labor medals;

 01 3rd place feat of arms medal;

 112 awards conferred by the Prime Minister;

 03 emulation flags and 1073 awards conferred by the Governor of the State Bank

 Among the top 20 leading businesses in Vietnam in 2010;

 Ranked among the top 10 in the Sao Vang Dat Viet 2010 awards;

2009 “Reputable securities trading" award granted jointly by the Vietnam Securities Association and the State Bank of Vietnam center for credit information;

The “1000th anniversary of Hanoi highlighted enterprises” award , as part of the 1000th anniversary of Hanoi;

The 2010 “Famous Vietnam brand and showcased businessmen” award;

The 2010 “national brand image” granted by the Ministry of Industry and Trade;

 The 2010 ISAQ award, granted by the Business Initiative Direction (BID) in New York;

The 2011 “famous Vietnamese brand name” for the Cremium line of credit cards and the E-Partner cards granted by the VIPA

In general, VietinBank has a long history going with the development of Vietnam From time to time, VietinBank has set up a wide-range branches system all over provinces of Vietnam And further, the brand of VietinBank has also set a strong and reliable awareness in Vietnamese people‟s minds

2.1.2 Corporate Vision, Mission, Values and Ambitions

Be Active, Creative, Professional, Devoted, Transparent and Modern

Create a work place where our employees can contribute the most to and receive the most from the Bank Each individual is respected as much as any prominent employee and is treated fairly based on their performance

Corporate Ambitions

To increase total assets by 20% yearly

To increase funds raised from the economy by 25% yearly

To increase loans to the economy by 20% yearly

Non-performing loan to be kept at below 3% yearly

To reach and maintain CAR of over 10% by 2012

Figure 2.1: VietinBank’s Key Financial Index

Objective Unit 2011 2010 2009 2008 2007

Total assets VND billion 460,604 367,730 243,785 193,590 166,112

Shareholders’ equity VND billion 28,491 18,200 12,572 12,336 10,646

Mobilized funds VND billion 456,503 234,204 163,170 120,752 102,191

Total loans VND billion 456,503 234,204 163,170 120,752 102,191

Before tax profits VND billion 8,392 4,638 3,373 2,436 1,529

After tax profits VND billion 6,259 3,444 2,573 1,804 1,149

Source: VietinBank’s annual report 2007, 2008, 2009, 2010, 2011

2.1.3 Trade finance operation of VietinBank

The role of trade finance operation as a banking service

Trade finance is defined as the provision of any form of financing:

- That enables a trading activity to take place and