Impacts of external environment on Techcombank

In conclusion, the threat of new entrants in the Vietnam banking industry is considerably low to the reality that major banks have strong and trusted brands with dominant market position

INTRODUCTION

Vietnam Technological and Commercial Joint Stock Bank or Techcombank as known as Techcombank wasestablished in 1993 with initial capital of 200 million VND After 27 years since established, Techcombankcontinue developing and delivering the best products and services to its customers (Techcombank, 2019)This report will apply Porter’s Five Forces to evaluate the competitiveness in banking industry of Vietnam.Besides, the influences of macro factors on Techcombank will be pointed out by identifying 5 factors of PESTEL which are Political, Legal, Economic, Social and Technological Last but not least, the impacts ofmicro and macro environment on Techcombank and recommended strategies will be defined by using SWOT

PORTER’S FIVE FORCES

According to Chappelow (2020), Porter’s Five Forces is a framework which has the ability to analyze five competitive forces These forces play a critical role in determining weaknesses and strengths of an

industry, which helps the companies identify their corporate strategies The understanding of competitive level within any segment of the economy can be identified by applying Porter’s five forces Based on the result of this understanding, companies have the ability to increase their long-term profitability According

to this model, the level of competition in an industry depends on five forces which are (1) threat of new entrants, (2) bargaining power of suppliers, (3) bargaining power of buyers, (4) threat of substitute

products or service and (5) existing industry rivalry

By using Porter’s five forces, this report is going to elaborate the competitiveness in the banking industry

of Vietnam

1 Threat of new entrants

Based on Porter’s theory (1979), the seriousness of the threat of new entrants depends on the barriers to

enter a given industry The higher the entry barriers, the lower the threat to existing companies Six main sources of barriers to entry include economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels and government policy.

According to 47/2010/QH12 (2010), there are some required factors to establish a bank in Vietnam: 3000 billion VND capital, at least 100 shareholders including 3 founding shareholders All of them have to satisfy requirements about qualification and at least 3-year experience in profit-making business This requirement for founding shareholders is 5 years Moreover, founding shareholders must have at least 50.000 billion VND total assets and bad debt under 2% To sum up, conditions to open a bank in Vietnam are quite strict to Vietnamese people

Established banks may benefit from economies of scale and reach through their ability to provide a wide variety of low-cost goods, since they can spread their fixed costs of all its products and services per unit InVietnam, customers are getting used to major banks such as Agribank (more than 2300 branches and transaction offices), Vietinbank (151 branches and more than 1000 transaction offices) and banks with highreputation such as Vietcombank, VP Bank, Techcombank, BIDV All these four banks are in top 10

reputable Vietnamese commercial banks in 2019 (Vietnam Report, 2019) Consequently, new and small banks may face the problem that they need time and resources to learn about the market’s trend and get customers’ trust

Opportunities for new banks may be related to new technologies (Booth, 2011) Traditional banks must be aware of technologies from new entrants, especially wholly foreign banks, which have huge amounts of capital from parent companies For private commercial banks, those opportunities are limited due to the lack of capital

In conclusion, the threat of new entrants in the Vietnam banking industry is considerably low to the reality that major banks have strong and trusted brands with dominant market position

2 Bargaining power of supplier

Porter’s five forces analyze the amount of power suppliers (market of input) of a company has when they increase the prices of products or reduce the quality of goods or services These can lead to the decrease in industry’s profitable potential The power of suppliers depends on some factors including number and size

of suppliers, uniqueness of each supplier’s product and focal company’s ability to substitute (Porter, 1979)According to Lin (2014), main suppliers of commercial banks are customers or depositors, accounting services, legal services and financial markets Legal services related to contracts and other issues are provided by legal entities while the main responsibility of accounting firms is providing accounting

services related to preparation of financial statements, tax auditing and other accounting issues.

Each bank has a different type of funding composition In terms of major banks, the main fund comes fromcustomers’ deposits and long-term wholesale debt while regional banks raise funds from deposits,

“offshore funding” and securitization as well In contrast, the deposits of foreign banks are fewer and they raise funds more through the capital market (Deloitte, 2012)

In terms of Vietnam, the banking industry has to face a huge number of customers According to Forbes Vietnam (2019), up to the year 2019, 43 million Vietnamese people have at least one bank account, which makes up 63% Vietnamese adults Besides individual customers, the banking industry also receives funds from business companies Similarly, the number of companies in Vietnam is quite big: 714.755 companies

in 2018 and 138.1 thousand companies newly established in 2019 Moreover, the number of small and medium companies only accounted for 98.1% in 2019 (General Statistics Office, 2019).As a result, there are many suppliers of banking industry in Vietnam and the size of the majority of them is quite small.Because of the low switching cost, customer suppliers have the ability to choose and change different banks to satisfy their demand Consequently, the competitive interest rate becomes a pressure of banks Moreover, after a global financial crisis like Covid-19 situation, the popular source of funding for banks in Vietnam becomes deposits However, the crisis affects all the economy, which leads to the decrease in interest rate and in depositing demand In fact, interest rate of banks decreased 0.3-0.5 % and the amount

of deposits of economic entities in the first year 3 year 2020 reduced 3.23% compared to that in the end of

In the banking industry, suppliers are not concentrated and do not have much power However, in times of crisis like Covid-19, suppliers has medium threat to the profit of the industry

3 Bargaining power of buyer

The ability of customers or the market of output’s level of power is one of the five forces The power of the

buyer is defined based on number of customers, size of each customer order, differences between

competitors, price sensitivity, customer’s ability to substitute, customer’s information availability and switching costs (Porter, 1979)

Similarly to the suppliers, banking industry has a huge number of customers including individuals and households for retail banking and mortgage, and business for business borrowing Moreover, each

customer has different demands and uses of banking service for different purposes Based on that

knowledge, banks need to create and provide various specific services for each type of customer such as housing loans, car loans, loans for business, etc with special treatments (discounts, insurance, etc)

Furthermore, due to the sensitivity of price and low switching cost, banks have to provide competitive interest rates to keep the existing customers and attract new ones Especially in crises like Covid-19, the demand of loaning decreases with the demand of depositing, one of the pressures of banks is to adjust the interest rate For instance, to support the companies affected by Covid-19, “Big 4” banks of Vietnam which are Vietcombank, BIDV, Vietinbank and Agribank committed to reduce their interest rate up to 2.5%/ year In addition, other banks also provide support loans and decrease interest rates since April 2020.(Ngọc Bích, 2020)

As a result, buyers in the banking industry do not have enough power to bargain or change the price However, in special situations such as Covid-19, buyer’s power still has influence on the threat to profit of the industry

4 Threat of substitute products

According to Porter (1979), this force is all about the danger coming from other industries, whose commonproducts or services that customers may switch to alternatives To identify this threat, number of substitute products available, buyer propensity to substitute, relative price performance of substitute, perceived level

of product differentiation and switching costs must be studied

Delotte (2012) highlighted that financial intermediaries like finance companies, insurance companies, credit unions and fintech firms can be considered as substitute of commercial banks because of the similar products and services provided

Along with the purpose of reducing using cash too under 10%, the Fintech ecosystem in Vietnam starts developing significantly in recent years with noticeable products which are digital banking (Timo, VRED),payments (Moca, VNPay), Wealth Management (Finahy, Mobivi), etc In 2017, the exchangeable value of the Fintech market in Vietnam reached 4.4 billion USD and aimed to reach 7.8 billion USD in 2020 (Banking Review, 2019) 72% Vietnam population use smartphones and 64 million Vietnamese people use

the internet (We are social, 2019) and they are all potential customers of Fintech companies In addition, according to Resolution 41/NQ-CP (2016), Fintech companies are supported in having low profit tax (20%) Moreover, the development of Fintech in Vietnam is proofed by the representation of E-Wallet MoMo and money management app Finhay in top 100 global Fintech firms in 2019 (Forbes Vietnam, 2019)

Therefore, this industry is on its way to develop with numerous benefits from the government and Vietnammarket Since, the threat of substitutes to the banking industry are moderate to high that the banks ought to pay attention to invest in technology and other services to maintain their customers

5 Rivalry among existing competitors

The final force of Porter’s five forces model is the rivalry among existing competitors, which analyze the intense current competition in the market It can be considered as a form of using tactics such as price competition, product introduction and advertising slugfests This force is determined by the number and size of competitors, the industry growth speed, switching cost, concentration ratio of an industry and barriers to exit (Porter, 1979)

Vietnam’s banking industry can be considered as a high rival industry Despite the fact that threats from new entrants of this industry are not really high, the bargain power of suppliers and customers are

moderate and threats of substitute products are very high In Vietnam, there are 46 commercial banks including 31 joint stock banks, 4 state-owned banks, 2 joint venture banks and 9 wholly foreign owned banks and they are direct competitors of Techcombank Up to 2019, there are 5 banks have more than 30.000 billion VND owner capital and all of them have more than 15 years experience since established (Review of Finance, 2019) It can be said the competitors in the banking industry are very powerful and full of experience, which may increase the competition in the industry

Techcombank was one of the most successful commercial banks in 2019 with the profit before tax

increased 31.5% compared to that in 2018 (Techcombank Financial Report, 2019) However,

Techcombank must be aware of its competitors while they also developed in 2019 Some competitors may include Vietcombank, Vietinbank with profit before tax rose 26% and 83% respectively in 2019 Another noticeable competitor is VP Bank when in 2019, this bank developed significantly and reached the highest profit before tax in 27 years since it was established Moreover, Techcombank has to notice the

competitive advantage of this bank includes a digital bank: Timo, which does not require any fee from customers

Moreover, banks are hard to exit the industry due to No.17/2017/QH14 (2017), financial firms getting bankrupt are required to be under special control by the SBV and provide specific plans to solve the

problems Consequently, this enhances the rivalry within the industry.

PESTEL

According to Riley (2016), PESTLE analysis is a framework used in analyzing and monitoring the

external factors, which influence an organization’s performance In other words, this tool plays a critical role in assessing the key features of the macro-environment of a business PESTLE is an acronym of 6 factors: Political, Economic, Social, Technological, Legal and Environment

This report will elaborate each factor and its impacts on Techcombank

1 Political and Legal

First of all, Vietnam is a Socialist Republic country which follows a single party called the Communist Party of Vietnam It is independent, reunified and owned by the Vietnamese people As a result, Vietnam can be considered as a stabilized country The most powerful institution in Vietnam is the National

Assembly (NA), which has the responsibility to establish and amend the constitution of Vietnam Besides, the government’s duty is to control the operation of business in terms of laws and policies (Circular No.21/2013/TT-NHNN, 2013) In Vietnam, all the commercial banks and other financial firms are under

control of the State Bank of Vietnam (SBV) due to its functions and responsibilities in formulating,

implementing, and monitoring the monetary policy or maintaining currency reserves (SBV, n.d)

Organizations like Techcombank need to consider political factors when operating their business and these factors and decisions of the government may have both sides impacts on the firms

According to Samuel (1994), corruption is one of the worst factors that affect to the business and the industries within a country but it still exists in the majority of developing countries Vietnam is a country which has high rate of corruption with the point 37/100 and rank 96/180 in 2019 (Transparency

International, 2019) Aware of the alarming situation, Vietnamese government published 59/2019/ND-CP (2019) to control the corruption Moreover, commercial banks can be inspected by SBV to ensure the customers’ benefits Consequently, Techcombank has positive impacts when the government tightens internal control among commercial banks, which are avoiding bad competitions Besides, Techcombank needs to pay close attention to its operation and internal audit to stay away from illegal activities

Since 2020, the minimum wage in Vietnam increased from 1.490.000 VND to 1.600.000 VND (Review of Finance, 2019), which may lead to the increase in demands related to saving deposits and loans for

different purposes This can be considered as an opportunity for Techcombank and requires Techcombank

to have specific plan to seize this chance

Another decision of the government that Techcombank must be noted is the circular 18/2019/TT-NHNN (2019) about some changes in consumer loans Some noticeable points of this circular are financial firms are not allowed to call the debtors before 7AM and after 9PM and the maximum time to call the debtors is

5 times per day Techcombank should notice these new changes to deal with its debtors or when selling thedebts for other companies

The banking sector is heavily affected by two distinct forces: firstly, the perception by customers of an organization's level of compliance and compliance with laws and regulations is a necessity for the socio-political legitimation of banks, and secondly, how non-compliance is addressed (Nienaber, Hofeditz and Searle, 2014) In some cases, political and legal factors can become a threat for Techcombank’s operation For example, due to the effects of Covid-19 to the global and Vietnam’s economy, SBV decided to reduce the interest rate of every commercial bank including Techcombank (2020) Consequently, the capital of Techcombank can be decreased, which is a bad news

2 Economic

The globalization rate of Vietnam is the highest rate in the world (200%), consequently, the changes in the world economy have huge impacts on Vietnam’s economy (Review of Finance Vietnam, 2020) According to TTXVN (2020), the world economy is in the deepest recession due to the Covid-19 The

GDP of America decreased significantly 4.8% in Q1/2020 and in May 2020, there were 3.2 million American applied for unemployment benefits In the same period, the economy of Eurozone reduced 3.8%, manufacturing in German and French fell 9.2% and 16.3% respectively The economy of foreign countries, especially powerful countries in a depression situation leads to the reduction in foreign direct investment (FDI) of Vietnam Iqba, Ahmad, Haide and Anwar (2013) pointed out that FDI has the ability

to help the country receive the investment beyond its capacity to improve GDP and economic growth In terms of Vietnam, in the first 4 months of 2020, FDI of Vietnam was only equal to 84.5% of that in the same period of 2019, which was 12.33 billion VND As a consequence, GDP of Vietnam in Q1/2020 was 3.8% while that in 2019 was 6.5% (The World Bank, 2020) Moreover, the economic growth of Vietnam

in this year can be decreased 3-4% compared to its prediction of 6.5%

According to Sarel (1995), low inflation rate does not cause negative impacts on the growth of the economy while the adverse can It is recommended that the inflation rate should be maintained under the structural break (8%) to avoid pernicious influences Vietnam is in inflation: In the first quarter of 2020, CPI increased by 5.5% compared to the same period of 2019, which is the highest rise between 2016 and

2020 (GSO, 2020) Moreover, the GSO (2020) also reported that the inflation rate of Vietnam was 5.6%

in this period due to the dramatic rise of pork price: the maximum price was 90.000 VND/kg At present, the Government has had some solutions and decisions to reduce this price to manage the CPI However, GSO (2020) claimed that in the next two quarters of 2020, Vietnam still needs more than 30.000 tons of pork to satisfy customer demand, which leads to the shortage Besides, pork is a necessary commodity, which means its demand is inelastic and may have a negative impact on the customers As a result, Techcombank can face the problem of losing its customers in deposits and loans Despite the fact that theGovernment is trying their best to manage the CPI, inflation rate in 2020 is still predicted to be

unpredictable that Techcombank should be aware and prepare for different situations

In recent years, Vietnam enhanced the globalization: In November 2016, Vietnam took part in the World Trade Organization (WTO) Furthermore, Vietnam signed two noticeable trade agreements which are CPTPP, EVFTA Globalization brings various opportunities for Vietnamese firms The Prime Minister of Vietnam at that time pointed out that Vietnamese companies had had the ability to approach goods, services from foreign countries with the support tax Nevertheless, these companies must face the

challenge in the increase in the number of competitors with lots of competitive advantages in

technologies, HR, capital, etc (MOFA, 2016) The application of Basel II in banking industry was a requirement for commercial banks since 2020 due to its benefits in managing capitals, decrease risks (SBV, 2019) Techcombank was one of the first commercial banks in Vietnam allowed to apply this system and until 1/2020, there were 16 out of 35 commercial banks in Vietnam applied Basel II (Review

of Finance, 2020), which makes Techcombank have more competitive benefits Moreover, according to

Mr Thắng (2020), Techcombank has been preparing for this application for 2-3 years by training its employees to bring the best services to customers, which is another competitive advantage of this bank.Besides, Techcombank has to compete with others banks in terms of product Take loaning activities as

an example Loaning is an activity belongs to oligopolistic competition market There are some

enterprises provide this service in Vietnam market but there are few banks receive high profit through this activity and numerous customers In the first 9 months of 2019, Techcombank’s outstanding balance enhanced 28.5%, which was the highest rate among commercial banks Behind Techcombank was VIB bank with 28% increase, OCB bank and TPBank with more than 20% increase In the context of

competition in banking industry getting harder, Techcombank needs to find a way to create its values

3 Social

Stentoft and Mikkelsen (2016) emphases that traditions and norms are the roots of different cultures, whichmakes them play vital roles in doing a business Moreover, norms of the culture are not fixed by any laws, therefore, it is hard to work with social culture In terms of Vietnam, the culture of this country is created based on a great heritage of historical nature Different periods leave their marks on Vietnam’s cultural heritage in both positive and negative ways, which impacts on further generations

Along with the influence of Buddhist influence, the main belief in Vietnam can be considered as Buddhist and the traditional religions related to their ancestors Besides, Stentoft and Mikkelsen (2016) highlighted that in this country, the religion and the philosophy merges Confucianism has significant impacts and connection with Buddhist and Vietnam’s traditional religion, which leads to a little feudal view on the culture of this country

In addition, from Confucianism, people know that they have to understand the importance of justice and morality (Confucian Analects, XIV) Furthermore, the Vietnamese are loyal to their families and put this category above everything including their business Consequently, Vietnam can be considered as feminine society based on Hofstede’s scale

Based on the characteristics of Vietnam’s culture, Techcombank ought to have a strategy in managing its human resources For example, understanding the collectivists among employees, it will be a good choice for Techcombank to manage employees in a group and focus on enhancing HR relations In fact, according

to Ms Minh Dan, the HR Manager of Techcombank (2017), Techcombank focuses on training and

developing its employees with the philosophy that the company only successes when the employees succeed In 2019, Techcombank was in top 2 “Best workplace in Vietnam banking industry” and in top 10

“Best workplace in Vietnam” by Intage Vietnam & Anphabe in 2019 (Techcombank, 2019)