CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY FOR BIDV IN THE 5-YEAR-PERIOD FROM 2011 TO 2015 Phi Anh Dzung Nguyen Thi Thu Hang Pham Thi Lien Nga Tran Van Nam Class: GaMBA 01.N04 HA NOI 2011 GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY FOR BIDV IN THE 5-YEAR-PERIOD FROM 2011 TO 2015 Group Number : 12 Student’s name: Phi Anh Dzung Nguyen Thi Thu Hang Pham Thi Lien Nga Tran Van Nam HA NOI 2010 Group No 12 ACKNOWLEDGEMENTS We pledge that the report “Building business strategy for BIDV in the 5- year-period from 2011 to 2015” is our own research. All contents and results of the report are true and have not been published in any other researches. Data and figures used in the report are accurate and their sources are all clearly stated. i Group No 12 TABLE OF CONTENTS Page Title page ACKNOWLEDGEMENTS.
i TABLE OF CONTENTS.ii LIST OF ABBREVIATIONS. v LIST OF TABLES. vi LIST OF FIGURES, GRAPHS.1 CHAPTER 1: THEORIES ON BUSINESS STRATEGY. Business strategy – Definition, roles and attributes.
Roles of business strategy. Process for business strategy building. Main objectives and missions. Analysis of environment.
Analysis of external environment. Analysis of internal environment – core competencies. Analysing and evaluating results. Develop matrices to choose the business strategy.
External Factor Evaluation matrix (EFE). Internal Factor Evaluation matrix (IFE). Competitive Profile Matrix (CPM). Great strategy matrix.17 Conclusion for Chapter 1.
18 CHAPTER 2: BIDV’s BUSINESS ENVIRONMENT SITUATION. The establishment and development of BIDV. Structure and Organisation. BIDV’s business performance 2007 – June 2010.
Banking service performances. 24 ii Group No 12 2. Areas need to be improved. BIDV’s business environment analysis and assessment.
External environment analysis. Industrial environment analysis. Challenges and Opportunities analysis. Internal environment analysis.
BIDV’s core value. Strength and weakness assessment. Business strategy matrix development. Internal factors matrix.
External factors matrix (EIF). Competitive profile matrix.50 Conclusion for Chapter 2. 51 CHAPTER 3: BIDV’S BUSINESS STRATEGY AND SOLUTIONS TO IMPLEMENT UP TO 2015. BIDV’s objectives up to 2015.
Basis to set objectives. Vision, mission, core value. Choosing suitable strategies by Great model. Solutions to implement business strategy for the 5-year-period from 2011 to 2015.
Financial management solutions. Improving asset quality. Improving the effectiveness of subsidiaries, joint-ventures and associates’ operation. Restructuring income structure.
Boosting retail banking services. Strategic management solutions.1 Implementing strategic management activities. Organizing the Bank as a Financial – Banking conglomerate. Marketing management solutions.
Diversifying product/service portfolio. Improving current quality service.63 iii Group No 12 3. Setting customer strategies. Operational management solutions.
Developing human resource solutions. Roadmap to implement. VCB and Vietinbank’s success after privatisation. Suggestions to regulatory authorities and the Government.
Suggestions to the Government. Suggestions to the State Bank of Vietnam (the SBV).75 iv Group No 12 LIST OF ABBREVIATIONS ACB : Asia Commercial Bank ALCO : Asset/Liabilities Management Committee AGRIBANK : Agriculture Bank ATM : Automatic Teller Machine BIDV : Bank for Investment and Development of Vietnam BIC : BIDV Insurance Company CAR : Capital Adequacy Ratio CPI : Consumer price index CIC : Credit Information Center CPM : Competitive Profile Matrix EFE : External Factor Evaluation matrix FDI : Foreign Direct Investment GDP : Gross Domestic Product HR : Human resources IFE : Internal factor environment matrix NPL : Non-performing loan M&A : Mergers and acquisitions POS : Point of sale R&D : Research & development SBV : The State Bank of Vietnam SOEs : State-owned enterprises SMEs : Small and medium enterprises VAS : Vietnamese accounting standards VCB : Joint stock Bank for Foreign Trade of Vietnam Vietinbank : Joint stock Bank for Industry and Trade of Vietnam WB : World Bank WTO : World Trade Organization v Group No 12 LIST OF TABLES Table 1.1: External factor evaluation matrix.2: Internal factor evaluation matrix.3: Competitive profile matrix.1: BIDV’s core indicators.2: Fund mobilization by currencies (%).3: Fund mobilization by tenors.4: Fund mobilization by customer groups.6: Service incomes structure in 2010 (Billion dong).7: Major macroeconomic indicators.8: Growth rates of credit expansions, fund mobilizations in banking system and GDP growth rate of Vietnam (%).9: Numbers of banks in Vietnam, 1991-2010.10: Banks’ income structures 2006 – 2009 (%).11: Market share by groups of banks 2005 – 2009.12: Internal factors matrix.13: External factors matrix.14: Competitive profile matrix.16: SPACE matrix of BIDV.1: BIDV key targets for the period from 2010 to 2015.3: The comparison of suggested strategies.4: GREAT model to choose a suitable strategy.57 vi Group No 12 LIST OF FIGURES, GRAPHS Figure 1.2: Process for business strategy building.4: Michael Porter’s Five Forces Model.1: BIDV’s strategy position.51 vii Group No 12 INTRODUCTION The globalization and the integration of Vietnamese economy have occurred more and more rapid. As an undeniable economic law, the evaluation of impacts of these processes on banking operations, generally, and the restructuring State-owned banks, particularly, is of the most concern of strategic planners, especially in a developing country as Vietnam. Having played a significant part in the development of Vietnamese economy, in current years, State – owned banks’ roles and positions on the market have been declined remarkably as a result of the fierce competition of joint-stock commercial banks and joint-venture banks.
Although various banks have been aware of the fact and self-restructured in terms of their capital and operation, they could not identify all of their weaknesses in professional knowledge, management skills and financial capacity. Illustrations of their inefficient operations are that credit has grown considerably but credit risk has not been evaluated and controlled tightly; inadequate risk management; monotonous products/services; low-quality services; and that products and services are of low practical uses. To increase competitive capacities to develop and integrate, it is urgent that State – owned banks shall confront with their own weaknesses. As a result, renovating State – owned banks is critical to form a strong, efficient and safely operating banking system and to shape prestigious and competitive state-owned players on both domestic and foreign market.
BIDV and AGRIBANK are two state–owned commercial banks that have not been privatized, though BIDV is at final preparation stages for this process. As a result of impacts of the globalization, peer pressures from joint-stock commercial banks, and objectives of safe, efficient and sustainable development, BIDV shall perform firm measures to complete the privatization and to locate its position on the market. Moreover, 2010 is the key year to accomplish BIDV’s plan for the period from 2006-2010 and prepare prerequisites for a new strategic period 2011-2015. 1 Group No 12 Therefore, “Building business strategy for BIDV in the 5-year-period from 2010 – 2015” is of great concern and is chosen as subject of our thesis.
The business strategy for BIDV in the period 2011-2015 is set based on the analysis of the bank’s competence and business environment and aims to help BIDV adapt with fluctuations after the global crisis and the domestic economic stagnation and overcome its current weaknesses to ensure the efficient, safe and sustainable development. The business strategy looks forward to structure a bank that can develop safely, flexibly and sustainably based on the combination of the positive business performance in long-term, the necessary stability and the management in accordance with international best practices. Therefore, the thesis is supposed to have practical use in preparing preconditions for BIDV to operate and become a strong financial – banking conglomerate in the future. The capstone consists of three chapters as follows: CHAPTER 1 : THEORIES ON BUSINESS STRATEGY CHAPTER 2 : BIDV’s BUSINESS ENVIRONMENT SITUATION CHAPTER 3 : BIDV’S BUSINESS STRATEGY AND SOLUTIONS TO IMPLEMENT UP TO 2015 2 Group No 12 CHAPTER 1: THEORIES ON BUSINESS STRATEGY 1.
Business strategy – Definition, roles and attributes 1. Definition An organization’s strategy aims to achieve the conformed ability to gain competitive advantages and the external environment in which the organization is doing its business (Le et al. (2009)) Hence, in order to make strategic decisions, organizations shall often discover new opportunities, prevent potential threats, overcome current weaknesses and exploit strengths in new fields.1: Business strategy Opportunities Strengths Exploit, Discover develop Business Internal Strategy External Overcome Prevent Weaknesses Threats (Source:Le T. (2007), Strategic Management, Statistical Publishing House, Vietnam) Business strategy may be defined differently as scholars examine it from different viewpoints.
Chandler (1962), who is one of the founders of theory on this subject claimed that business strategy concerns “the determination of the basic long- term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”. Quinn (1980) suggested a more general definition that “strategy is the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole” In recent years, when socio-economic context has changed tremendously, Johnson and Scholes (1999) proposed a new definition as “Strategy is the direction and scope of an organization over the long-term: which achieves 3 Group No 12 advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations” Above definitions describe business strategy in different aspects. However, in terms of levels, business strategies are classified into three groups: corporate strategy, business unit strategy and operational strategy. Corporate strategy refers to the overall direction on the firm’s growth and management of both business operations and product lines.
Business unit strategy is concerned in business units and focuses on competitive advantages of the firm’s products/services in specified industries or market segments. Operational strategy concerns with business unit’s targets to achieve the firm and the business unit’s objectives by maximizing the resource utilization. Therefore, as doing its business successfully, an organization shall make and implement strategic decisions simultaneously, among which are urgent in a specific time period or a specific context. Hence, strategic management is essential.
Wheelen and Hunger (2005) summarized that strategic management is a set of management decisions and activities to define the long-term performance of an organization. It consists of simultaneously activities as follows: environment analysis, strategy formulation, strategy implementation and strategy evaluation. Hence, strategic management concerns with integrating internal functions and focuses on external environment and strategy. Roles of business strategy Business strategy enables the firm to identify its objectives and directions to do business.
Strategy helps to grasp business opportunities and to figure out solution to overcome potential threats on the competitive market. Business strategy assists the firm to enhance the efficiency of resource utilization, to gain competitive advantages and to ensure its sustainable development. Hence, strategic management plays an important part to take advantages of above strategy’s roles. 4 Group No 12 According to Le et al (2007) there are five basic tasks of strategic management.
They are defining strategic vision – describing the future company image, providing long-term direction; setting objectives – interpreting strategic vision into targets; establishing strategy to attained expected objectives; implementing and managing chosen strategies effectively and efficiently; evaluating the results and amending if necessary. A close relationship among these tasks is maintained to carry out successfully the firm’s strategies. Therefore, theoretically and empirically, an organization shall achieve better performance if it applies strategic management. By attaining the alignment of the external environment and strategies, the firm’s structure and processes make positive impacts on its performance.
As examined within different types of organization with different scales and industries, advantages of strategic management are clarifying the firm’s strategic vision, concentration on strategically important activities and improving the awareness of the quick change of the external environment. Attributes From the above viewpoints, business strategies have attributes as follows: + Business strategies shall identify clearly essential objectives which need to attain in a specific period and shall be fully aware of at every aspects and any levels of the firm. + Strategy is a tool to set long-term objectives of the firm. + Business strategies shall ensure the maximization of resource utilization such as consumption of labors, capital, technology within the firm, the exploitation of strengths and the grasp of opportunities to gain competitive.