Improving competitiveness through financial solutions a study of vietnam posts and telecommunications (vnpt)

51 CHAPTER 3: PROPOSAL OF FINANCIAL SOLUTIONS FOR IMPROVING COMPETITIVENESS OF VNPT IN VIETNAM .... In this context, in order to remain as one of the leading telecommunications companies

THÔNG VIỆT NAM (VNPT)

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020

THÔNG VIỆT NAM (VNPT)

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS HOÀNG ĐÌNH PHI

HÀ NỘI - 2020

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The author confirms that the research outcome in the thesis is the result

of author’s independent work during study and research period and it is not yet published in other’s research and article

The other’s research results and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Date: November 2019

I would like to give great thanks to all my respected lecturers during

my two years of study at HSB It is whole-heartedly appreciated that their great advice proved monumental towards the success of this study I wish to thank all my colleagues and all my friends whose assistance was a milestone

in the completion of this project I would like to recognize the invaluable assistance that you all provided during my study

Finally, I must express my very profound gratitude to my parents and to

my sister for providing me with unfailing support and continuous encouragement throughout my years of study and through the process of researching and writing this thesis This accomplishment would not have been possible without them Thank you

Hanoi, November 2019 Duc Anh Nguyen

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DECLARATION i

ACKNOWLEDGEMENT ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vi

LIST OF TABLES viii

LIST OF FIGURES ix

ABSTRACT 1

1 Rationale 1

2 Literature review 2

3 Research objectives 7

4 Research scope 7

5 Research methods 7

6 Structure of the dissertation 8

CHAPTER 1 BASIC THEORY ON FIRM’S COMPETITIVENESS AND THE ROLE OF FINANCE IN IMPROVING COMPETITIVENESS OF ENTERPRISES 8

1.1 CORPORATE COMPETITIVENESS 8

1.1.1 Theories of competitiveness and competitive advantage 8

1.1.2 Methods of measuring and analyzing competitiveness 12

1.1.3 External factors affecting competitiveness 20

1.2 THE ROLE OF FINANCE IN IMPROVING ENTERPRISES COMPETITIVENESS 22

1.2.1 Taxation 22

1.2.2 State investments on supporting industries 23

1.2.3 Enterprises’ financing policy 23

1.2.4 Enterprises’ investment policy 24

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CONTEMPORARY FINANCIAL SOLUTIONS FOR IMPROVING

COMPETITIVENESS DURING 2014 - 2018 26

2.1 BRIEF OVERVIEW OF VNPT 26

2.1.1 History and development of VNPT 26

2.1.2 Characteristics of VNPT activities 26

2.1.3 Business performance of VNPT in comparison with its competitors 28

2.2 THE COMPETITIVENESS OF VNPT DURING 2014 - 2018 37

2.2.1 Evaluation of VNPT’s competitiveness using Pyramid Model 37

2.2.2 Evaluation of VNPT’s competitiveness using 5-Forces model 44

2.3 EVALUATION ON VNPT FINANCIAL SOLUTIONS FOR IMPROVING ITS COMPETITIVENESS DURING 2014 – 2018 50

2.4 EXTENDING THE ANALYSIS 51

CHAPTER 3: PROPOSAL OF FINANCIAL SOLUTIONS FOR IMPROVING COMPETITIVENESS OF VNPT IN VIETNAM 54

3.1 DEVELOPMENT ORIENTATION OF VNPT IN THE NEAR FUTURE 54

3.1.1 Opportunities and challenges to VNPT 54

3.1.2 Development orientation of VNPT 56

3.2 RECOMMENDED FINANCIAL SOLUTIONS FOR IMPROVING COMPETITIVENESS OF VNPT 58

3.2.1 Diversifying sources of capital 58

3.2.2 Improving VNPT’s credit and inventory management 59

3.2.3 Making investment decisions effectively 61

3.2.4 Innovating financial management team 61

3.2.5 Creating a diverse and flexible price policy 62

v REFERENCES

APPENDIX

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1 AAG Asia - America Gateway

2 ABC Antecedent - Behavior - Consequence

3 ADSL Asymmetric Digital Subscriber Line

4 AFTA ASEAN Trade-in Services Agreement

5 ATM Asynchronous Transfer Mode

6 EOQ Economic Order Quantity

7 FTTC Fiber to the Curb

8 FTTH Fiber to the Home

9 GDP Gross Domestic Product

10 ICT Information and Communication Technology

16 MRP Materials Requirements Planning

17 NGN The Next Generation Network

18 ODA Official Development Assistance

19 OECD The Organization for Economic Co-operation and

Development

20 R&D Research and Development

21 ROA Return on Assets

22 ROE Return on Equity

23 ROS Return on Sales

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26 VNPT Vietnam Post and Telecommunications

27 VTF Vietnam Public Utility Telecommunications

Service Fund

28 WDM Wavelength Division Multiplexing

29 WEF World Economic Forum

30 WTO World Trade Organization

31 xDSL Digital Subscriber Line

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Table 2.1 VNPT financial indicators 2014 - 2018 32 Table 2.2 Comparison in price of the same service provided by VNPT, FPT, Viettel 2019 35 Table 2.3 VNPT’s business result 2014 - 2018 (Unit: Million VND) 39 Table 2.4 VNPT’s Accounting Balance Sheet 2014 - 2018 (Unit: Million VND) 40 Table 2.5 Strengths and weaknesses of VNPT’s competitors in the postal sector 45 Table 2.6 Strengths and weaknesses of VNPT’s competitors in telecommunications sector 47

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Figure 1.1 Firm's Sustainable Competitiveness Pyramid 19 Figure 2.1 Organization chart of VNPT 28 Figure 2.2 Market share of postal providers by revenue 2016 29 Figure 2.3 Market share (by subscriptions) of terrestrial fixed-line telephone service providers 2016 29

In Vietnam, telecom market has transformed from monopoly based to competition-based approaches in the last two decades In 2007, Vietnam was recognized as the world’s second fastest growing telecom market by the International Telecommunications Union Recently the market has about 70 operating telecoms companies, approximately 47% of those was granted licenses to provide telecommunications services whereas the rest established network infrastructure (Vietnam News, 2017) In general, it can be seen that the reforms have lifted the overall competitiveness of the telecom sector.

Initially, there was only one service provider in Vietnam, namely the Vietnam Post and Telecommunications General Corporation (now the VNPT Group), who laid the first stone for the development of the telecommunications sector in Vietnam VNPT remained its monopoly for years, managing all the infrastructures and all types of basic telecommunications services in Vietnam However, the rapid growth of telecom sector in Vietnam changed the landmark The governmental decree

in October 2003 gave all telecom provider the freedom to establish network and provide telecom services in Vietnam As a consequence, VNPT lost

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their monopoly position In addition, for the past few years, while commitments concerning Vietnam’s telecom sector has been made in its Bilateral Trade Agreement with the US and within the ASEAN framework, more and more service providers began to emerge in the market and has been threatening the leading position of ringleader of the industry The competition from foreign companies such as Telstra (Australia), Alcatel and France Telecom (France), Siemens (Germany) has also become stronger Although VNPT has currently been one of the top-five domestic telecom companies in Vietnam1, its market share is only 17.5%, much lower than other competitors, compared to Mobifone (31.8%) and Viettel (43.5%) (Vechi, 2015)

In this context, in order to remain as one of the leading telecommunications companies in Vietnam, it is very much essential for VNPT

to push much more effort on improving its performance and gain competitiveness in the market One of the most important solutions to enhance the competitiveness is from financial perspective For these reasons, the topic

“Improving the competitiveness through financial solutions: A study of Vietnam

Posts and Telecommunications (VNPT)” has been chosen for this master

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According to Michael Porter (1990), the leading researcher on competitiveness and competitive strategies, the concept of competitiveness can be understood as the company’s ability to obtain the market share and generate higher profit than its current average profit Under mercantilism, according to Krugman (1994), competitiveness is a different name of productivity, considering the rate of growth of one enterprise compared to the others in the same industry

In deeper research, according to the UK Department of Trade and Industry (2001), competitiveness is the capacity to supply the right goods and services of the right quality, at the right price and at the right time On the other hand, Chikan (2008) defined the competitiveness of an enterprise is its capability to sustainably satisfy the requirements of customers at a profit

In addition to the concept, Reiljan, Hinrikus & Ivanov (2000) took the conflict of interest approach to competitiveness They also identified three different levels of competitiveness as (i) ability to survive, (ii) ability to develop, (iii) superiority Of which, ability to survive is the lowest level of competitiveness, which is the capacity to adapt passively to the competitive environment without any significant change or development The medium level of competitiveness is ability to develop, in which an enterprise is considered to be competitive if they can actively respond to changes in the competitive environment, thus improving their qualities and efficiency Superiority is the highest level of competitiveness, in which an enterprise is considered competitive if their operations are more efficient, faster development or better qualities than other competitors, thereby influencing

on the competitive environment

Regarding the determinants of corporate competitiveness, Buckley, Pass & Prescott (1988) indicated that competitiveness has 3 dimensions including potential, process and performance, whereas Waheeduzzaman and

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Ryans (1996) identified competitiveness as a buildup of many other disciplines (i.e comparative advantage, price competition, strategic and management, including historical and socio-cultural disciplines) According

to Vlachvei et al (2017), dynamic capabilities, flexibility, agility, speed, and adaptability are recognized as the most important sources of competitiveness

in the business environment In addition, Anca (2012) emphasized that there

is a close relationship between the various levels of analysis of competitiveness (i.e product, firm, industry, organization, etc.) In particular, the quality of a product will determine whether an enterprise can survive competition, whereas a firm’s performance will determine if an industry or country can compete internationally According to Michael Porter (1990), there are five forms of competitive advantage any firm may possess, including human resources, physical resources, knowledge resources, capital sources and infrastructural resources

Although there are unsettled arguments from different schools of thought, most researchers agree that competitiveness is a complex concept due to the differences in definition and methods of measurement Overall, the concept of competitiveness focuses on 3 major aspects: (1) Different parties (including individuals and organizations) compete with each other in order to improve their position in the market; (2) Competition between the parties aims to obtain specific benefits such as market share, a certain group

of customers, potential benefit in order to generate higher profits or maximize the firm’s value; (3) The participants might use different approaches (via price, product, brand, marketing, quality of human resources, financial resources, capital resources etc.) to beat the competition

Regarding the competitiveness in the telecommunications sector, there

is also a number of studies from various perspectives Trauth E & Pitt D (1992) traced the movement towards competitions in two different telecom

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markets (the United States and the United Kingdom), and found out there are

3 major pressures for changes in the industry (i.e technological, industrial and economic pressures) The research also stated that the continuing strength of the competitive social project in telecommunications cannot be denied They suggested that different countries should progress along different telecommunications policy paths

In the study on competitive trends in the telecommunications industry, Fletcher & Kolle (2017) has identified the 4 trends as areas of competitive

competence First trend is digital customer service, in which telecoms

companies invest in digital technologies that remove the need for staff, and also invest in bots to simple recurring tasks that do not need a high-touch customer engagement Second trends in telecoms industry is to invest in

security and encryption as a service, which leverage digital trust (i.e

security and privacy) is considered as a competitive advantage, and also

invest in platforms for billing and payments Third trend is to sell services not data, in which the companies invest and explore in connecting devices to

form value added services in the smart home and smart office space The

fourth is content exclusivity, which implies the trend that the companies are

likely to offer different digital services at reduced or zero rating In this trend, the companies are also aware of erosion of net neutrality and potential brand damage from negative user awareness

Wilson P & Gibbons (2014) suggested that the most successful enterprises are those that continually search for and find ways to create new value They emphasized that value is not price driven but the value in the process and purse growth They also indicated three rules that drive long-term superior performance in competition for telecommunication enterprises, including: (i) Better before cheaper (i.e Do not compete on price, compete on value); (ii) Revenue before cost (i.e Drive profitability

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with higher volume and price, not lower cost); (iii) there are no other rules (i.e Do whatever you have to in order to remain aligned with the first two rules)

In a different approach, Grzybowski (2004) used panel data for the 15

EU countries from 1998 – 2002, and found out that the competitiveness of mobile telecommunications industry is significantly influenced by the regulation policy implemented throughout the liberalization process of fixed telephone lines Also, the implementation of the number portability for mobile services has a positive impact on competitiveness

In Vietnam, there are several studies on corporate competitiveness in Vietnam Tran Van Tung (2004) analyzed the economic and national competitive advantage and competitive strategy of the company Vu Trong Lam (2006) systematized the concept of corporate competitiveness in the process of international economic integration in Vietnam and suggested some solutions to improve the international competitiveness of the company in Vietnam

Some researches focused on the competitiveness of telecommunications industry and companies in Vietnam such as Bui Xuan Phong (2007), Nguyen Dang Quang & Tran Xuan Thai (2008), Nguyen Duc Kien (2011), Tran Thi Anh Thu (2012), CIEM (2006) However, most of them evaluated the overall competitiveness of telecommunication industry or a telecom company and proposed some general solutions to improve the competitiveness of the industry or company Few studies focused deeply on the field from financial approach and evaluated the performance of improving the competitiveness through financial solutions This can be seen

as a research gap for further studies in the dissertation

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3 Research objectives

Though the literature review shows that competitiveness in telecommunication services is not a new topic, researches on the competitiveness in telecommunication industry from financial solutions approach are still a few This is the research gap available for further research

In this dissertation, first of all, the study aims to clarify basic theories

on corporate competitiveness and financial solutions for improving competitiveness of enterprises

Second, this study evaluates the competitiveness of VNPT through the comparison between enterprises in the industry Also, the actual performance of improving the competitiveness through financial solutions in VNPT will be focused

Third, some financial solutions for improving competitiveness of VNPT in the future will be analyzed and recommended

4 Research scope

The main research object of the dissertation is the competitiveness performance of VNPT and financial solutions to improve its competitiveness Therefore, the study will focus on analysis of evaluation criteria, factors affecting the competitiveness of VNPT Some comparisons among major service providers will be analyzed Research scope ranges from 2014 to 2018

The research basically uses secondary data from official annual reports, financial statements of companies, General Statistics Office, and other topic-related articles, journals and academic research

5 Research methods

The dissertation uses traditional qualitative approach to analyze theoretical concepts Besides, the dissertation employs statistics,

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comparison, analysis, synthesis, interpretation and induction to evaluate the competitiveness of selected companies and show the actual performance of improving competitiveness through financial solutions

6 Structure of the dissertation

The dissertation consists of 3 chapters:

Chapter 1: Basic theory on firm’s competitiveness and the role of finance in

improving competitiveness of enterprises

Chapter 2: Analysis of VNPT competitiveness and its contemporary

financial solutions for improving competitiveness during 2014 - 2018

Chapter 3: Proposal of financial solutions for improving competitiveness of

VNPT in Vietnam

CHAPTER 1 BASIC THEORY ON FIRM’S COMPETITIVENESS

AND THE ROLE OF FINANCE IN IMPROVING

According to the surplus value theory, competition is a rivalry among capitalists in order to seize favorable conditions in production and consumption of goods to achieve super profits In the deep study on capitalist competition, K Marx discovered that the fundamental of competition is adjusting the average profit rate among sectors Industries with high profit margins will attract more investors than the others Meanwhile, Samuelson (1948) mentioned the competition in the relationship

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between market and product consumption, in which enterprises compete for their market share to dominate the competition Under mercantilism, competitiveness is a different name of productivity, considering the rate of growth of one enterprise compared to the others in the same industry (Krugman, 1994)

If competition is the battle between enterprises in the same environment to increase their value, the competitiveness is about the ability

to win the competition and create competitive advantage According to Michael Porter (1990), the leading researcher on competitiveness and competitive strategies, the concept of competitiveness can be understood as the company’s ability to obtain the market share and generate higher profit than its current average profit In the whole industry, the average profitability of the industry would be increased as a result of the competition

In deeper research, according to the UK Department of Trade and Industry (2001), competitiveness is the capacity to supply the right goods and services of the right quality, at the right price and at the right time On the other hand, Chikan (2008) defined the competitiveness of an enterprise is its capability to sustainably satisfy the requirements of customers at a profit

In addition to the concept, Reiljan, Hinrikus & Ivanov (2000) took the conflict of interest approach to competitiveness They also identified three different levels of competitiveness as (i) ability to survive, (ii) ability to develop, (iii) superiority Of which, ability to survive is the lowest level of competitiveness, which is the capacity to adapt passively to the competitive environment without any significant change or development The medium level of competitiveness is ability to develop, in which an enterprise is considered to be competitive if they can actively respond to changes in the competitive environment, thus improving their qualities and efficiency

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Superiority is the highest level of competitiveness, in which an enterprise is considered competitive if their operations are more efficient, faster development or better qualities than other competitors, thereby influencing

on the competitive environment

Although there are unsettled arguments from different schools of thought, most researchers agree that competitiveness is a complex concept due to the differences in definition and methods of measurement Overall, the concept of competitiveness focuses on 3 major aspects: (1) Different parties (including individuals and organizations) compete with each other in order to improve their position in the market; (2) Competition between the parties aims to obtain specific benefits such as market share, a certain group

of customers, potential benefit in order to generate higher profits or maximize the firm’s value; (3) The participants might use different approaches (via price, product, brand, marketing, quality of human resources, financial resources, capital resources etc.) to beat the competition

1.1.1.2 Level of competitiveness

Competitiveness can be divided into 4 levels, depending on the circumstances, they are: (1) National level; (2) Industry level; (3) Enterprise level; (4) Product level

Competitiveness at national level is the capacity of a nation to produce goods and services that not only maintains and increase real GDP but also meets the demand of international market in the long-run According to the World Economic Forum (2018) (WEF), there are eight determinants of competitiveness at national level, including: (i) level of trade openness (i.e tariff and non-tariff barriers, import and export policy), exchange rate, foreign direct investment); (ii) the role of government (i.e governance, size of government, fiscal policy, tax system, inflation); (iii) financial stability (i.e credit ratio, financial risk, investment and savings);

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(iv) technology (i.e technology capacity, technology transferring, R&D); (v) infrastructure (i.e transportation, telecommunication, electricity, water); (vi) management level (i.e business management, human resource management); (vii) labor (i.e number of labor, efficiency and flexibility in the labor market); (viii) legal institutional level

Competitiveness at the industry level is the capacity to create and maintain profits and market share in the domestic and international markets Industrial competitiveness can take place within the industry, between

industries in the same country, or the same industry in different countries

Competitiveness at enterprise level is the capacity of the companies to maintain and expand their market share and profits Fafchamps (1995) indicated that the competitiveness of enterprises is their ability to create products with the average variable cost lower than its price in the market, while OECD Competitiveness Outlook Report (2018) referred the competitiveness of enterprises to the ability to generate the relatively high income on the basis of using factors of production effectively This definition confirmed the links between competitiveness of enterprises and their competitive advantage relating technology and product quality In short, competitiveness at enterprise level concerns the outstanding ability of enterprises via factors of production, cost reduction and product quality in order to achieve market share and profit

Competitiveness at product level is understood as the superiority of goods and services compared to the others in the same industry The outstanding level is assessed by the consumers regarding products’ quality, innovation, customer services, etc There are 4 factors influencing the competitiveness at product level, including (i) comparative advantage; (ii) national economic growth; (iii) economic environment; and (iv) business activities

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These various aspects are not separate but facilitate each other For example, competitiveness at product level is the basis for creating the competitiveness at enterprise level and national level A product or service trusted by customers will generate higher profit for the companies, then improving the competitiveness at product level and contributing to competitiveness at enterprise, industry and national level

In a nutshell, competitiveness can be considered at many different levels However, according to the research objectives, the criteria and discussions in this dissertation will only focus on analyzing and assessing the competitiveness at enterprise level, thereby implying specific solutions

to enhance the competitiveness for enterprises in telecommunications and especially VNPT

1.1.2 Methods of measuring and analyzing competitiveness

1.1.2.1 Determinants of firm’s competitiveness

There are various criteria of assess the competitiveness of an enterprises Pass & Prescott (1988) indicated that competitiveness has 3 dimensions including potential, process and performance, whereas Waheeduzzaman and Ryans (1996) identified competitiveness as a build-up

of many other disciplines (i.e comparative advantage, price competition, strategic and management, including historical and socio-cultural disciplines) According to Vlachvei et al (2017), dynamic capabilities, flexibility, agility, speed, and adaptability are recognized as the most important sources of competitiveness in business environment In additions, Anca (2012) emphasized that there is a close relationship between the various levels of analysis of competitiveness (i.e product, firm, industry, organization, etc.) In particular, the quality of a product will determine whether an enterprise can survive competition, whereas a firm’s performance will determine if an industry or country can compete

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internationally According to Michael Porter (1990), there are five forms of competitive advantage any firm may possess, including human resources, physical resources, knowledge resources, capital sources and infrastructural resources

However, due to the fact that the main objective of this study is to give financial solution to improve the enterprise’s competitiveness, this dissertation will approach from the financial perspective The author will focus on several financial factors as the basis to analyze the actual performance of competitiveness improvement of the selected company in the next chapter

From a financial perspective, the criteria for measuring the competitiveness of enterprises consists of: (1) market share; (2) profitability; (3) product quality; (4) price; (5) branding

a Market share

Market share is the portion of a market controlled by a particular company or product This indicator reflects the competitiveness of an enterprise based on its outputs Market share indicates how well a company compete in the market

The bigger the market share of an enterprise, the stronger its competitiveness Market share is measured by the ratio of revenue or quantity of products consumed by the enterprise in a certain period of time

to the total revenue or sales volume in the market This indicator can be estimated by the following formula:

tpi = x 100%

where tpi is the market share of the enterprise i;

DI is the revenue or sales volume of the enterprise i;

D is total revenue or sales volume in the market

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This formula indicates the competitive position of the company’s goods or services at a specific point of time However, it is difficult to calculate this indicator in several circumstances (e.g the company’s market share is too small; or the company export goods and services; the company supply special kind of services)

Due to the nature of competitiveness measurement, this indicator is estimated at a specific time in the past It is difficult to observe the change of competitiveness over time Therefore, researchers prefer to consider the change of market share over a certain period of time, usually from 3 to 5 years

In the case that market share and market share growth cannot be calculated, the revenue growth rate will be used instead The revenue growth rate is estimated for enterprises at all times The formula is as follows:

rt = ( -1 ) x 100%

where rt is the revenue growth rate of the enterprise i;

Dt is the revenue or sales volume of the enterprise at the current period;

Dg is the revenue or sales volume of the enterprise at the original period

The revenue growth rate reflects the changes in the output of the enterprise However, this indicator cannot estimate the position of the enterprise in the market

b Profitability

Profitability of an enterprise can be measured by its revenue, profit and rate of return

Revenue is the total benefits that an enterprise can earn from their

daily production and business activities in a period of time Revenue also can contribute to the owner’s equity This is an important source of finance for businesses to cover up business expenditure and reinvestment Higher

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revenue refers to a good financial capacity of the business Revenue of the enterprise includes sales of goods and services, revenue from financial activities and other revenues

Sales of goods or services is determined by the following formula:

Dtt = ∑

where Dtt is the revenue or sales of goods or services at the current period;

Qt is quantity of goods or services sold in a period of time

gi is selling price of product i

In addition to the sales, it is important to determine the net income of the enterprise which is estimated by deducting the sales deductions The net income shows the real income that an enterprise earns in a period of time

Profit is the difference between the company’s revenue and cost

Profits of the company can be divided into different parts, including: (i) net profit from operating activities; (ii) profit from other activities This indicator is affected by the business expenses (i.e cost of goods sold; general, selling and administration costs, research and development cost, etc.) and the selling price of goods and services

Profit is an important financial source to ensure the stability and constant growth of enterprises The companies use profit to reinvest and expand the scale of business This indicator implies the performance of business

In addition to the profit index, rate of return is used to assess the

efficiency of operating activities Rate of return indicates the competitive potential of enterprises and represents the efficiency in operating activities

of an enterprise The lower the rate, the more competitive environment and vice versa There are several rates of return, including return on sales, return

on assets, return on equity

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Return on sales (ROS) is a financial ratio used that shows how efficiently an enterprise is able to generate operating profit from its sales In other words, it measures a company’s performance by analysing what percentage of total company revenues are actually converted into its profits Return on sales is equal to net income divided by total sales

ROS =

Return on assets (ROA) is equal to net income divided by total assets

It measures the profit per dollar of assets Also, this measure gives analysts

an idea as to how efficient a company’s management is at using its assets to generate earnings

ROA =

Return on equity (ROE) is equal to net income divided by total equity

It measures the profit per dollar of book equity This is a ratio that provides investors with insight into how efficiently a company is handling the money that shareholders have contributed to it In other words, it measures the profitability of a corporation in relation to stockholders’ equity

ROE =

The higher return represents the higher profitability of the company

In order to have a common standard to determine product quality standards, the International Organization for Standardization (ISO) has

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issued a number of standards, such as ISO 9000, ISO 9001, ISO 9002… on quality management systems According to ISO quality concept, product quality is the sum of the characteristics of the product to meet the demands This is understood as the core of a brand or trademark

Product quality is a qualitative indicator To evaluate this measure, the analysts need to compare them with the set and predefined standards

d Price

Price of a product is the quantity of payment given by customers in return for one unit of goods or services A price is determined by both production costs and demand for the product A price may be influenced by

a monopolist or imposed on the company by market conditions

Price is a very important factor of the company’s competitiveness It plays a decisive role in market share and profitability of enterprises With the same quality, products with lower price will be more competitive than the high-priced products This is also directly related to customers’ interests

In fact, it is impossible to fully evaluate product quality through its price This is because of the fact that a high-priced product is unlikely to be completely good and vice versa Therefore, depending on the specific conditions and circumstances of the markets, the price can or cannot be used

as a measure of competitiveness

e Branding

Nowadays, enterprises not only compete with each other via their finance, technology, productivity or product quality, but also via their prestige and trade mark However, not every enterprise in the market pay enough attention on building their brand According to Pham Duc Binh (2018), there are 80% Vietnamese companies only focused on the operating activities and short-term performance, not on marketing and building their own trademark The competitiveness based on branding and trademark

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benefit the companies in the long run Companies who copy products or imitate famous branding may confuse customers and damage those who own the trademark However, the copycats will normally quickly suffer the failure or even bankruptcy Therefore, successful enterprises in the industry are those who can create brands for themselves as a symbol to identify and distinguish them from the others Enterprises with prominent brands will be more competitive

A good brand keeps themselves up with the modern pace of industry Instead of standing still, they design and develop their brand based on customers’ interest and the market trend

1.1.2.2.Theoretical framework to analyze firm’s competitiveness

There are many theories applied to analyze the competitiveness However, the most popular models are 5 Forces model and Diamond model

of Michael Porter Firm's sustainable competitiveness pyramid by Assoc Prof Dr Hoang Dinh Phi (2006) also gives valuable insight to determine factors that can influence firm’s competitiveness Depending on the specific circumstances and stages, different models will be chosen for competitiveness analysis

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Figure 1.1 Firm's Sustainable Competitiveness Pyramid

Source: Assoc Prof Dr Hoang Dinh Phi (2006) According to Assoc Prof Dr Hoang Dinh Phi (2006), the competitiveness of a business is usually assessed, compared and determined annually through 4 groups of indicators The first group includes basic competencies in terms of governance, technology, human resources, finance, production, marketing, sales, and culture, etc The second group includes productivity, quality, price and value The third group is market share The fourth group is profit

The 5 Forces model, according to Porter (1980), contains the key sources of competitive pressure within an industry The 5 key forces include (i) bargaining power of suppliers, (ii) bargaining power of customers, (iii) threat of new entrants, (iv) threat of substitutes, and (v) competitive rivalry within the industry This model provides a full analysis of the forces affecting businesses from competitors, suppliers, potential competitors,

Profit CSR Environ.Protect

Market Share (Domestic, Exp., Brand)

Product/Service & Value for Users (Productivity, Quality, Price)

Invest & Develop Fundamental Capabilities (Corp governace, security, technology, finance, human, marketing, train, culture, etc.)

In this dissertation, competitiveness pyramid model and 5 Forces models will be the most relevant models to analyze the competitiveness of VNPT

1.1.3 External factors affecting competitiveness

Businesses can’t control external factors but must respond to them These political, economic, social, technological, environmental and competitive factors are represented by the acronym PESTLE This is a mnemonic which in its expanded form denotes P for Political, E for Economic, S for Social, T for Technological, L for Legal, and E for Environmental It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating a certain idea/plan The framework has undergone certain alterations, as gurus of Marketing have added certain things like an E for Ethics to instill the element of demographics while utilizing the framework while researching the market

All the aspects of this technique are crucial for any industry a business might be in More than just understanding the market, this framework represents one of the vertebrae of the backbone of strategic management that

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not only defines what a company should do but also accounts for an organization’s goals and the strategies stringed to them The importance of each of the factors may be different to different kinds of industries, but it is imperative to any strategy a company wants to develop that they conduct the PESTLE analysis as it forms a much more comprehensive version of the SWOT analysis

Political factors: These factors determine the extent to which a government may influence the economy or a certain industry For example, a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change Political factors include tax policies, Fiscal policy, trade tariffs, etc that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent

Economic factors: These factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects For example, a rise in the inflation rate of any economy would affect the way companies price their products and services Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns, etc It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis

Social factors: These factors scrutinize the social environment of the market, and gauge determinants like cultural trends, demographics, population analytics, etc An example of this can be buying trends for Western countries like the US where there is high demand during the Holiday season

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Technological factors: These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably This refers to automation, research and development, and the amount of technological awareness that a market possesses

Legal factors: These factors have both external and internal sides There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislations For example, consumer laws, safety standards, labor laws, etc

Environmental factors: These factors include all those that influence

or are determined by the surrounding environment This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture, etc Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets, etc

1.2 THE ROLE OF FINANCE IN IMPROVING ENTERPRISES COMPETITIVENESS

Finance plays an important role in policy and decision making in enterprises which influencing directly on their competitiveness and profits Financial factors include taxation, state investments on supporting industries, enterprises’ financing and budgeting, enterprises’ distribution policies

1.2.1 Taxation

Taxes is the inseparable part of business investment which has a direct impact on business policies and enterprises’ performance An appropriate tax system will give business good financial resources and help enterprises

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beat the competition in the long run Taxation effects on the production and cost of goods sold in enterprises, thereby influences on the selling price of goods or services As a consequence, it effects on the competitiveness of enterprises

If the company’s products and services are subjected to high tax rates, its cost of goods sold is high, thus the selling price is also high If the company maintain the selling price to compete with other competitors in the industry, its profit will decline On the other hand, if the company increases the price, it will be difficult for its products to compete with the others To some extent, it will also influence the company’s revenue and profit

1.2.2 State investments on supporting industries

Supporting industry plays a big role in increasing competitiveness for enterprises With the characteristics of Vietnam's telecommunications industry heavily dependent on technology and logistics chain, an enterprise does not have enough resources to invest in supporting industries, therefore the investment from the government is very important to motivate businesses to participate in the industry, which will help to reduce the cost pressure

1.2.3 Enterprises’ financing policy

Capital sources play an important role in determining the survival of enterprises In order to have a good production and business efficiency, right from the beginning, enterprises need to have capital to invest and use capital

so as to be most effective The more capital turnover, the more beneficial for the business which will help them to beat the competition

In financing policy, capital structure is the most important one which represents the proportion of short-term and long-term assets If an enterprise uses too much long-term capital to finance short-term assets, it will be a waste of long-term debt interest expenses It is due to the fact that short-term

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assets do not bring more value to the business On the other hand, if an enterprise uses too much short-term capital to finance long-term assets, it will be riskier for businesses It is because of the fact that long-term assets are more capital intensive and the investment time is longer, while short-term loans are only used for a short period of time, they will not meet the demand for long-term assets Therefore, it will result in short-term debt and may lead to financial distress

Sources of capital can also be divided into internal and external sources Internal sources such as shareholders’ equity, self-raised funds are limited, while external sources can be raised from many different parties in the economy External source is indispensable to serve the production and business process when internal sources are not enough

However, which source is better for enterprises largely depends on the financial performance and the financial manager’s character and strategy Because the cost of capital and the ease to access the sources will differ one

by one Thereby, it will influence on the company’s financing policy

1.2.4 Enterprises’ investment policy

Investment policy is the most important part in business which decides whether the company win or lose in competition Investment policy involves the amount and the use of capital in different parts of business, i.e what kind of goods and services the company should create, which activities should be focused

Depending on the specific conditions and circumstances, each enterprise will have a plan to use capital in ensuring the general demand for its business capital A strategy commonly used by businesses is the close coordination between the duration of the source of capital and the duration of investments Operating activities and long-term assets must be secured by long term capital Regarding short-term assets, although the use time is short

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and always renewed, to ensure continuous business operations, a certain amount of short-term assets should always be financed by net working capital This capital is actually a part of long-term capital resources used by enterprises to finance short-term assets Net working capital is determined by the formula:

Net working capital = Long-term capital - Long-term assets

where long-term capital sources include long-term debt and equity

Net working capital greater than zero represents that the long-term is used to fund long-term assets, while the remainder is used to finance short-term assets This is essential in the financing policy to maintain the stability

of business operations of enterprises On the contrary, net working capital is less than 0, indicating that the company has a part of long-term assets funded

by short-term capital Usually, such capital structure is not safe for businesses

1.2.5 Enterprises’ distribution policy

Distribution policy helps to ensure the harmonization of the interests

of different parties within businesses, including shareholders, employees and managers This helps to encourage shareholders to invest in businesses, encourage employees to work for enterprises

In addition, profit distribution also ensures a reasonable rate of return for reinvestment in order to expand business scale without additional costs and time for raising and using funds Profits can also be extracted to establish R&D fund which plays an important role in creating new products and enhancing the quality of product To win the competition, the R&D fund should be focused A company with a good distribution policy has have certain advantages in competing with other businesses

2.1.1 History and development of VNPT

VNPT stands for Vietnam Posts and Telecommunications This is the first in Vietnam which provide service in the Posts & Telecommunications sector With over 70 years in the telecommunications market, VNPT has also played an important role for Vietnam to get into the top 10 highest posts telecommunications growth rate nations

Initially, VNPT is a state-owned corporation In January 2006, Vietnam Posts and Telecommunications Group (the parent company) was established by the Decision No 06/2006/QD-TTg signed by the Prime Minister From then, on the basis of restructuring, VNPT officially became Vietnam Posts and Telecommunications Group The group has changed its model from an old Corporation to a state-owned key economic group The main difference from the previous version is the linkage between its member units which is organized with holding - subsidiary company structure

Recently, VNPT focuses on developing the telecommunications - IT network infrastructure, mobile - broadband products and other utilities This significantly contributes to Vietnam's economic development According to the report of VNR 500 in 2018, this is the 19th largest enterprise in Vietnam

2.1.2 Characteristics of VNPT activities

VNPT activities are diversified, focusing on:

(i) providing telecommunications and information technology products and services;

(ii) providing media products and services;

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(iii) providing site survey, consultancy, design, construction, installation, maintenance services for telecommunication, information technology and media buildings;

(iv) manufacturing, importing, exporting, and supplying telecommunication,

IT and media materials and equipment

However, there are 2 main activities, including telecommunications and information technology, and posts

In the areas of Telecommunications and Information Technology, VNPT provides various IT products and services, such as voice, data, internet, other value-added services deployed on an advanced network infrastructure and other IT solutions

In the field of Posts, VNPT is a key service provider with a network across the nation The group is popular among consumers in many postal services including: mail, parcel, consignment, domestic and international Express Mail Service (EMS), newspaper and magazine distribution, …

VNPT organization is withholding - subsidiary company structure The parent corporation structure itself acts as a holding company and provides subsidiaries for each of its business departments Parent company (VNPT) is the one-member state limited liability company, with 100% capital from the government Parent company assist their subsidiaries by using their resources to lower operating capital cost More than 51% capital from subsidiaries is owned by the parent company

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Figure 2.1 Organization chart of VNPT

2.1.3 Business performance of VNPT in comparison with its competitors

a Market share

With the disruption of monopoly in the postal service market in 1994,

a number of foreign express delivery companies are allowed to provide international express delivery services in Vietnam To get back the market,

in 1995 Vietnamese government allowed Viettel and SPT to provide post and telecommunications service In 1997, there are 5 companies allowed to provide internet services This alarmed VNPT the increasing pressure in the competition

In responding, VNPT has built a set of specific development goals for each year in terms of network development, service and technology However, the enterprise only focused on adapting to the competitive environment in ASEAN Trade in Services Agreement (AFTA), Vietnam-US Trade Agreement and Vietnam's commitments to World Trade Organization

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(WTO) without intensive evaluation on their competitors However, the disagreement in the vision of the enterprise’s leader has limited its competitiveness

Overall, although VNPT is still one of the biggest posts and telecommunications in Vietnam, but their position is no longer dominant Their market share compared with the others in the industry is as follows:

Figure 2.2 Market share of postal providers by revenue 2016

Source: Ministry of Information and Communications (2018)2

Figure 2.3 Market share (by subscriptions) of terrestrial fixed-line

telephone service providers 2016

Source: Ministry of Information and Communications (2018)

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Latest data available on the Ministry of Information and Communications (2018) is only updated to 2017