A study on enhancing the competitiveness of Vietnam bank for Agriculture and rural development

VIETNAM NATIONAL UNIVERSITY, HANOI
SCH O OL OF BUSINESS
- H S B -
Ngo Thi Ha
A STUDY ON ENHANCING THE CO M M PETITIVEN ESS
OF VIETNAM BANK FOR AG RICU LTU RE
AND RURAL DEV ELO PMEN T.
: -v > -,r.r A HA N O I
M ajor: Business Administration
Code: 60 34 05 A - l o / $
M ASTER O F BUSINESS A D MINISTRATION THESIS
Supervisor: Dr. Vu Xuan Quang
Hanoi-2010
ABSTRACT ii
TÓM TẮT iv
TABLE OF CONTENTS vi
MS I OF FIGURES AND TABLES viii
IN PRODUCTION 1
1. The thesis title 1
2. The thesis necessity 1
3. Objectives 2
4. Method 2
5. Data sources 2
6. Significance 3
7. Limitations 3
8. The thesis structure 3
INTRODUCTION 1
CHAPTER 1. THEORETICAL FOUNDATION OF COMPETITIVENESS OF
AGRIBANK 4
1.1 Competition of Commercial banks 4
1.1.1 The concept of competition 4

1.1.2 Characteristics in competition of commercial banks 5
1.1.3. Elements affect competition of commercial banks
6
1.1.4. Competition instruments of commercial banks 9
1.2 Competitiveness of commercial bank 12
1.2.1 The concept of competitiveness 12
1.1.2.1 The concept of competitiveness of businesses 12
1.1.2.2 The concept of competitiveness of a commercial bank 12
T A B L E O F C O N T E N T S
ACKNOWLEDGMENTS i
vi
1.3 Value chain and the process to identify competitive advantage 13
1.3.1 Value chain 13
1.3.2 Process to identify sustainable competitive advantages 14
1.4 C'riteria and indicators for evaluation of a commercial bank' competitiveness

16
1.4.1 Financial capacity 16
1.4.2 I luman resources 18
1.4.3 Technological capacity 20
1.4.4 Products and serv ices 21
1.4.5 Marketing and Sales 22
CHAPTER SUMMARY 23
CHAPTER 2. THE COMPETITIVENESS OF AGRIBANK

24
2.1 The development of the Vietnamese banking industry 24
2.1.1 Banking system in Vietnam 24
2.1.1.1. State Bank of Vietnam (Central Bank) 24
2.1.1.2. State-Owned Commercial Banks (SOCBs) 25

2.1.1.3. Joint Stock Commercial Banks (JSCBs) 26
2.1.1.4 Foreign Owned Banks (FBs) 28
2.1.2 The competition of banking system in Vietnam 28
2.1.3 The local commercial bank system and the issue of international integration

30
2.1.3.1 The schedule of integration of the local banking system

30
2.1.3.2 Commitments on the opening of the banking sector in integration process 31
2.1.3.3 Achievements of and challenges facing the banking sector 32
2.2 The competitiveness of Agribank 36
2.2.1 An overview of the incorporation and development of Agribank

36
2.2.1.1 Commencement 36
2.2.1.2 Milestones 37
2.2.2 The status of activitiesof Agribank 39
2.2.2.1 Major products of Agribank 39
2.2.2.2 Business performance in 2008
40
2.2.3 The competitiveness of Agribank 47
2.2.3.1 Agribank "s SWOT analysis 47
2.2.3.3. 2 The competitiveness of Agribank in comparison with competitors

50
vii
CHAPTER SUMMARY 67
CHAPTER 3. RECOMMENDATIONS FOR ENHANCING THE COMPETITIVENESS
OF AGRIBANK 68

3.2 Agrihank's development orientations until 2015 70
3.2.1 Agribank's development targets until 2010 and the vision for 2020Error! Bookmark not dcf
3.2.2 Application of the SWOT model for enhance of competitiveness

72
3.2.2.1 Promotion of strengths 72
3.2.2.2 Mitigating weaknesses
72
3.2.2.3 Seizure of opportunities 73
3.2.2.4 Warding off threats 74
3.3 Recommendations for enhancing Agribank's competitiveness 75
3.3.1 Strengthening of financial power 75
3.3.2 Completion and synchronous development of Information Technology for the whole
system 75
3.3.3 Continued consolidation and promotion of HR 76
3.3.4 Diversification of traditional products and development of new ones

77
3.3.5 Improvement of service quality
78
3.3.6 Completion of distribution channel system 79
3.3.7 Improvement of Promotion and Advertisement 80
3.3.8 Additional recommendations to the Government and the SBV 81
CHAPTER SUMMARY 82
CONCLUSION 83
BIBLIOGRAPHY 84
APPENDIX 85
Vlll
GLOSSARY OF ABBREVIATIONS
ACB Asia Commercial Bank

Agribank Vietnam Bank for Agriculture and Rural Development
ATM Automated Teller Machine
BIDV Bank for Investment and Development of Vietnam
CAR Capital Adequacy Ratio
CB Commercial Bank
Cl Credit Institution
FB Foreign Bank
FI Financial Institution
GDP Gross Domestic Product
JB Joint-venture Bank
JSCB Joint Stock Commercial Bank
ROA Return on Asset
ROE Return on Equity
SCB : Saigon Thuong tin Joint Stock Commercial Bank
Sacombank
SB State Bank of Vietnam
SOCB State-owned Commercial Bank
Techcombank Technology and Commerce Joint Stock Commercial Bank
VCB Bank for Foreign Trade of Vietnam
VIETINBANK Industrial and Commercial Bank of Vietnam
WTO W'orld Trade Organization
IX
Figure 2. The basic model of Micheál Porter's value chain 13
Figure 3. Overview of Opportunities and Threats 14
F igure 4. Overview of The competitiveness of Agribank
47
LIST OF FIGURES
Figure 1. Elements affect competitiveness of commercial banks 8
x
LIST OF TABLES

Table 2-1. Market share of SOCBs 26
Table 2-2. Customer segments served by types of banks
29
fable 2-3. Agribank' financial status in the years 2004-2008 40
fable 2-4. Agribank's structure of deposits in the years 2004-2008 41
Table 2-5. Agribank's break-down of deposits by economic sectors

42
fable 2-6. Status of lending by economic sectors in the years 2004-2008

44
Table 2-7. Owners' equity and total assets of CBs as at Dec. 31st 2008

53
Table 2-8. Owner ‘s equity scale of some Commercial banks in the region
54
Table 2-9. ROA, ROE of CBs in 2008 55
fable 2-10. CAR and ratios of NPLs of CBs in 2008 55
Table 2-11. Local CBs with foreign-held stakes 57
Table 2-1 2. Changes in the market share of capital mobilization of local CBs in the 2004 -
2008 period 57
fable 2-1 3. Changes in the market share of credits of local CBs in the 2004 -2008 period58
Table 2-14. Market share of Vietnam's major banks in 2008 58
fable 2-15. Sustainable competitive advantage of AGRIBANK 63
Table 2-1 6. The competitiveness of AGRIBANK in comparision with other banks

64
Table 3-1. Factors to be adopted by CBs in the new trend of competition

69

TABLES
Table 1-1. Owner's equity of some of the world' leading banks in 2008

16
LIST OF CHARTS
Chart 1. Agribank's break-down of deposits in the year 2008 by economic sectors

43
Chart 2. The break-down of Agribank's loans by economic sectors in the years 2004-2008
44
Chart 3: International Settlement throughput in the years 2004-2008

46
XII
IN T R O D U C T IO N
1. The thesis necessity
Finance and banking arc always considered to be the bone of one country ‘s
economy. The rapid development of banking in Vietnam has demonstrated that
banking is still a "fertile land". It has great potential and creates many opportunities
and challenges as well to investors. In the intergration process, all of the
Vietnamese banks have to exploit their intrinsic power and develop to compete with
many and many huge competitors in conformity with international standards.
The report pointed out that the competitiveness of Agribank, as other State-
owned Commercial Banks (SOCBs) in comparision with joint stock commercial
banks and foreign banks is weak. Agribank is one of the banks with largest total
assests but gains only a small market share, irrelative with its potential.
To enlarge market share and win the higher market position, Agribank is
required to implement growth strategy by restructuring and investing in
strengthening of financial power, completion and synchronous development of
Information Technology for the whole system, continued consolidation and

promotion of HR and diversification of traditional products and development of
new ones.
Finally, many graduation thesis on Agribank have been made but they are
focus only on one problem and not too well schooled. So, the author want to
provide an overall picture of the competitiveness of the Vietnamese State Owned
Commercial Banks in general and Agribank in particular.
2. Objectives
The main objectives of the thesis are to (a) review the theory of competition,
(b) provide an overv iew of the Vietnamese SOCBs and the competition in banking
industry, (c) present Agribank and analyze its business environment to point out
Agribank's current strengths along with weaknesses, and (d) select the most
appropriate solutions to enhance the competitiveness of Agrihank in the integration
process.
3. Method
Case study method has applied in the thesis to enhance the competitiveness of
Agribank. The thesis has been finished hv combining literature and pratice through
three major steps:
First, the theories of competition are reviewed. The study focuses on strategic
analysis process and criteria for evaluation of CBs' competitiveness
Second, based on the research of banking industry in Vietnam, key factors
that influent to a bank's activities and are identified.
Finally, the case study of' Agribank is analyzed, which combined at desk
research, interviews with some key managers. This analysis is the basis of
suggesting recommendations to enhance competitiveness of Agribank.
4. Data sources
The main sources which theoretical issues and secondary data collected are
books, newspapers, internal and external reports and internet. The primary data was
collected by interviewing both Agribank managers and operational officiers.
Finally, my personal experience in banking industry, especially in Agribank Hanoi
plays an important role in performing this thesis. It provides me a throughly

understanding of part icular issues in the Vietnamese banking industry.
5. Significance
Providing the theory of competition, competitiveness and a throughly
understanding of the impacts of business environment to banking industry, the
thesis is significant in enhancing the competitiveness for Agribank. This theoretical
approach and can be applied in cases of other SOCBs.
6. Limitations
I he major competitors of Agribank considered in the thesis are other SOCBs,
JCBs. Although VCB and Vietinbank has equiti/ied but the state still gains more
than a half of share. Thus, they can be considered as SOCBs. Among JCBs, four
banks - ACB. Techcombank, Eximbank and Sacombank - had been chosen to
compare with four largest SOCBs (Agribank. VCB. Vietinbank and BIDV) because
of their largest total assets and maket share. Finally, the operation of these banks is
retail banking, not investment banking and other financial services.
7. The thesis structure
The thesis is presented into three chapters, not including the introduction part
and the conclusion part.
Chapter 1 deals with the theoretical framework for competition and
competitiveness of a commercial bank
Chapter 2 provides a general overview of Vietnamese banking sector, and
status of Agribank ‘s competitiveness in the integration process. The chapter also
presents Agribank and analyzes the environment, industry to works out
opportunities and threats Agribank might face along with its strengths and
weaknesses
Chapter 3 Solutions and recommendations to enhance the competitiveness of
Agribank are also suggested in this chapter.
8. Suggestion for future research
Business environment or influencing factors changes more and more rapidly.
Technological advances, customer's lifestyle, macroeconomic policies and the
international economical integration.etc creates both opportunities and challenges to

the banking sector in general and Agribank in particular. The thesis could be more
throughly if further research with more competitors such as other joint stock
commercial banks and foreign banks be undertaken.
3
CHAPTER 1.
THEORETICAL FOUNDATION OF
THE COMPETITIVENESS OF COMMERCIAL
BANKS
1.1 COMPETITION OF COMMERCIAL BANKS
1.1.1 The concept of competition
Competition is a symbol attached to market economy; it only appears in
conditions of market economy. Nowadays, most nations recognize that competition
is a market force to promote production and business development and increase
labor productivity, effectiveness of organizations; it is also an important element to
clean up social relations. Results of competition will define position, and decide
firm existence and development of each organization. Therefore, both organizations
try their best to find out a suitable strategy to win the competition.
In the 20th century, many competition theories were introduced, including
those by Michael Porter, J.B Barney, P. Krugman, etc. Out of those, Michael
Porter's "competitive advantage" and “comparative advantage'’ theories were
notable ones. He argued that competitive advantage was the intrinsic power of a
business or a nation while comparative advantage was represented by natural
resources, labor and environmental conditions which facilitated the business or
nation in production as well as trade. Michael held that competitive advantage and
comparative advantage were closely linked and mutually supportive with
competitive advantage developing on the basis of comparative advantage and
comparative advantage being promoted thanks to competitive advantage. 1
As a result of competition, actors identify their strengths, weaknesses as well
opportunities and threats at present and in the future, thereby adoting an appropriate
course of action when taking part in competition.

1 Micheál Porter (1996), "Competitive strategypage 30-3 1
4
Competition is thus a rivalry between individuals, groups and economic
entities with similar functions via actions, efforts and measures designed to prevail
in a race and to achieve their targets. These targets may include market share, profit,
safety, or reputation, etc.
However, not all acts of competition are healthy, perfect and help actors
acquire their desired outcome. In practice, in order to gain an upper hand in their
business, actors have gone to unhealthy lengths to harm their opponents.
Competition itself is not a mutual destruction but its outcome is totally opposite.
1.1.2 Characteristics in competition of commercial banks
The same as any kind of unit in the market economy, commercial banks
always face keen competition, not only from other commercial banks, but also from
all credit organizations operating in the market with their aims is to contend for
customers, increase credit market share, as well as supply the economy with more
banking service. However, in comparison w ith other competition of other economic
organizations, competition among commercial banks has specific characteristics as
follows:
CB is a special type of business that trades in money with the ultimate goal of
seeking profits. A CB also attempts to take all possible measures to provide high-
quality products and services to customers at the most competitive pricing and
expenses while striving to ensure the utmost accuracy, reliability and convenience
to attract customers and expand market share. Therefore, competition in commercial
banking is also a rivalry to win customers, backed by the ability of CBs to meet
customers' demands. CBs seek to create competitive advantages, increase
profitability, promote reputation and strengthen their standing by offering high-
quality and differentiated products and services.
Given the specificity of the banking industry, competition in this area contains
certain unique features:
- First, as the banking industry is directly linked to all sectors and areas of the

socio-economic life, it is important for CBs to have a diversified variety of products
as well as an extensive and inter-connected network of outlets in order to serve
customers in various areas.
- Second, as a money-related business, banking operations require:
+ The qualifications of banking staff, represented by knowledge, professionalism,
operational expertise, advisory ability and communicative skills; these are the most
important factors that determine the quality of banking products and services.
+ Prompt, accurate, convenient, confidential and highly secure services; this is
impossible without a solid infrastructure and a modern technological system. In
addition, due to the huge amount of customer data, CBs are supposed to have an
adequate information storage and management system while ensuring convenience
in retrieval.
CBs are at the same time supposed to attach importance to the promotion of
reputation and brand.
- Third, in order to earn out monetary business, a CB is to act as a capital-raising
intermediary. The bulk of a bank's capital resources come from deposits and only a
minimal portion is contribution from equity. As such, a bank is required to possess
managerial professionalism and powerful financial capacity as well as an ability to
effectively control and prevent risks if it wishes to be profitable.
- Last, the business material of a bank is money, a tool employed by the
Government for the purpose of macro-economic governance. That’s why the
operations of CBs are under a tight control of the Government. In addition to
general provisions of the law, CBs' business activities are also governed by a
separate legislation applicable to CBs and as well as the SBV’s monetary policy.
1.1.3. Elements affect competition of commercial banks
■ Objective elements: There are four elements affect competitive capacity of a
commercial bank, these are objective elements and they can be described in below
figure 1.
S Factors from commercial hanks, which have just participated
in the market: Commercial banks have just entered in the market with important

advantages such as: (i) open new potential; (ii) have motive and desire to take over
6
market share: (iii) refer to experience of current commercial banks; (iv) have full
statistics and forecasts about the market, etc. Like this, regardless of strength of a
new commercial bank, current commercial banks have seen risk of shared market
share; besides, new commercial banks have strategies and strengths that current
commercial banks cannot have information and strategies to tackle.
S Factors are rivals o f current commercial bank. These are
standing worries of commercial banks in doing business. Competitors affect
business strategies of commercial banks in the future. Additionally, present of
competitors promotes banks to pay attention to renew technology, upgrade quality
of services to win the competition.
S Pressure o f customers. One of important characters of bank
industry is that all producing or consuming individuals and organizations, even if
other banks both can be buyers of banking services, both can be seller of banking
services for banks. Sellers who use way of consigning money, opening an account
or lending want to receive higher benefits; meanwhile, buyers (borrowers) want to
pay smaller fees. Therefore, banks have to face contradiction between effective
operations and customers keeping as well as having capital as cheap as possible.
This causes many difficulties for banks in direction as well as operation mode in the
future.
S Appearance o f new services. Appearance of many intermediate
financial organizations threat advantages of commercial banks when providing new
financial services as well as traditional services. These intermediaries provide
customers different products and create more diversified choices for customers,
more extensional bank market. This will reduce development speed of commercial
banks, reduce market share. Nowadays, people said that, when commercial banks
are stronger due to practice in competing, commercial bank system would be
stronger and have better rally after shocks of the economy.
7

New
co m m ercial banks
v
Figure 1. Elements affect competitiv eness of commercial banks
* Subjective elements. Besides objective elements affecting competitive
capacity of commercial banks, in fact, inner elements of commercial bank system
also affect competitive capacity of these banks. 1'hey include: (i) management
capacity of executive board of the bank: (ii) capital scale and financial situation of
commercial banks; (iii) banking services supply technology; (iv) quality of bank
officers; (v) organization structure; (vi) reputation and prestige of commercial
banks;
Besides, characteristic of products and characteristic of customers are elements of
commercial banks that rule competitive capacity in operating of commercial banks.
As follows:
S Characteristic of the products. As shown above, competition in
operations of commercial banks is ruled by characteristics of their operations. The
main product used in operations of commercial banks is money, that is social and
high sensitive product, only a small change (interest change) can affect operations
of commercial banks in particular and social activity in general. This characteristic
leads to keen competition among commercial banks. Competition among
commercial banks is synchronized drive of banks in a field when supplying
customers with high quality service in order to affirm position of the bank in
comparison with other banks in the same operation field. This means that the high
sensitive business product has upgraded competition in operations of commercial
banks.
8
S Characteristics of customers. Customers of commercial hanks are
not loyally ones, they are easy to be attracted and to change dealing nexus. Loyalty
of customers depends on treatment of commercial banks, and the most important
element is direct interest gaining from dealing nexus with the bank. Customers can

immediately change nexus with the bank if they find out bigger benefit (to selling
product) and lower interest (to buying product). Therefore, competition of banks is
also multiplied because customers are easy to change nexus w ith the bank.
These above characteristics are considered elements of commercial banks,
which create high competition of bank trading, since, contributes to create inner
force for commercial banks. If a bank can bring into play strength of these above
elements, and find out information about new rivals, be careful with current rivals,
meet higher and higher demands, competition will be not concerned.
1.1.4. Competition instruments of commercial banks
■ Competing by quality
In the present modern economy, when science and technology develop very
rapidly, products are more plentiful; it creates convenience for consumers to choose
and put producers in front of fierce competitive pressure and in order to win,
producers have to research and apply many methods and different competitive
instruments. An important instrument, which is usually applied at present, is to
upgrade quality of services. However, to some industries, “quality" has qualitative
nature, not quantitative nature and it is defined by appreciation of customers using
that service. Therefore, improving quality of products means that gradually meet
demands, requires of customers.
To commercial banks, in order to compete by quality, they have to build
good technology strategies and human resource strategies, besides combining
suitable market strategies and business strategics. Only by doing so. service
products provided by commercial banks can meet right and full demands of
customers.
* Competing by price
Price reflects value of the product; price plays an important role in decisions
of customers. To commercial banks, price is interest and fees applied to supply
services. In defining interest and fees, commercial banks always face paradox: if
9
commercial banks pay attention to competitive capacity to enlarge market share,

they have to give out priority interest and fees for their customers; however, this
will reduce income of commercial banks, even if banks can make a loss. 11'
commercial banks only pay attention to income, they have to give out interest and
fees which meet demands of increasing income, however, this can lead to losing
customers, reducing market share, because after all. customers always pay attention
to supreme object in doing business in the market is to maximize benefits, to do so.
they need reduce input fees. This means that competing by price is becoming
poorest method, because it reduces benefits of commercial banks. From this
paradox, assessing by market price will help commercial banks to keep customer,
maintain and develop the market. In fact, using price element to compete is only
suitable when entering a new market and in order to well handle this instrument,
commercial banks often introduce lower interest in comparison with interest of
rivals to attract customers and take over the market.
Interest and fees are signal to reflect fluctuation of the market, are parameter
for commercial banks to catch liquidity of customers as well as competitive
capacity of rivals in the market. Therefore, defining interest in the market is very
important, but inspecting feedback of customers is very necessary for banks to
introduce competitive interest and fees. Sometimes, interest and fees of commercial
bank (inly bring about a small benefit, break-even, even if make a loss. When they
really scoop the market, it is the time for commercial banks to take back fees of
competition.
■ Competing by distribution system
Consuming products is the last period of business process. Consuming
products are non-price competition, and attracts customers. Characteristics of
banking services are dying, they are hard to store, and so building distribution
channel (sale network) becomes an important matter of banks. Distribution area is a
direct mean to introduce services with customers, and helps banks to exactly
understand demands of customer, in order to actively improve, complete their
sen ices, to create favorable conditions for providing sen ices to customers.
In order to enlarge retail market share, banks develop distribution methods

w ith many sen ices:
1 0
* Traditional media distribution. Including: (1) System of branches; (2)
Agency Banks (applied to commercial banks without branches).
* Modern distribution area. Since 1980. modern distribution areas with many
advantages are become common tendency. Including:
(1) Branches are fully automated. I his distribution area is fully implemented
by machines, under control of electronic devices. It has big advantages of dealing
fees and operational speed, to meet diversified demands of customers.
(2) Branches with little officers. Branches with little officers have an
important position in banking system, especially with mobile branches. Advantages
of those branches are low fees, flexible operation.
(3) Electronic banking. This distribution area uses telephone line or
computers. It supplies customers with many advantages, saving fees and time,
operates at any time, in any place. Dealings are implemented by electronic means
including: (i) payment machines at sale places (EFTPOS), customers can rapidly
pay by cards at sale places; (ii) Automated telling machine (ATM), operating 24/24
hour, provide customers services such as cash drawing, credit transfer, balance
research and many other services;(iii) Tel Banking, by switchboard operators or
voicemails, customers can easily operate with the bank.
(4) Banks via internet. It is divided into two types: (i) Banks via I.AN (local
area network). Operation principle of this system is that customers have accounts at
the bank, have computer connecting with the bank and registering with the bank in
order to be provided access code and password. Customers can use their computer
to access to file server of the bank to do dealings, find information; (ii) Banks via
internet. This is higher level banking model. Customers only have computer
connected to internet and they can do dealings with the banks without coming to the
bank. Besides function of account checking, customers can use many online
services such as borrowing, buying insurance contracts, investing securities,
transferring, open L/C, open guaranteed letters, etc.

Besides competing by quality instrument, price instrument and well organizing
service distribution network, commercial banks also apply non-price instruments to
improve competitive capacity by promoting sale support (advertisement,
promotion).
11
1.2 COMPETITIVENESS OF COMMERCIAL BANK
1.2.1 The concept of competitiveness
/. 1.2. / The concept of competitiveness of businesses
According to the WEF’s report on global competitiveness (1997).
competitiveness was understood as the ability of a business to maintain its position
permanently and willfully on the competitive market, ensuring a rate of return
which is required to finance the business's objectives while meeting its own
additional goals.2 Competitiveness can be divided into three levels:
- National competitiveness: the capacity of an economy to secure sustainable
growth, magnetize investment, maintain socio-economic stability and improve
people's living standards.
- Corporate competitiveness: the capacity of a business to maintain and expand its
market share in both local and foreign competitive market. Corporate
competitiveness is indicated by a business's efficiency, profitability and acquired
market share.
- Product and service competitiveness: measured by the market share of a
product/service on the market. The competitiveness of a product/service depends on
its competitive advantages including quality, uniqueness and technological content.
L 1.2.2 The concept of competitiveness of a commercial bank
A commercial bank is also a corporate, thus the competitiveness of a
commercial bank is the capacity of a business to maintain and expand its market
share in both local and foreign competitive market. The competitiveness of a
commercial bank is indicated by a business's efficiency, profitability and acquired
market share.
/>1 2

1.3 VALUE CHAIN AND THE PROCESS TO IDENTIFY COMPETITIVE
ADVANTAGE
1.3.1 Value chain
The term 'Value Chain" was used by Michael Porter in his book "Competitive
Advantage: Creating and Sustaining superior Performance" (1985). The value chain
analysis describes the activities the organization performs and links them to the
organizations competitive position. '
Value chain analysis describes the activities within and around an
organization, and relates them to an analysis of the competitive strength of the
organization. Therefore, it evaluates which value each particular activity adds to the
organizations products or services. This idea was built upon the insight that an
organization is more than a random compilation of machinery, equipment, people
and money.
Primary Activities
ftvte- 1%5
Figure 2. The basic model of Porter’s Value chain
’ http://w\vw.themanager.org/models/valuechain.htm
1 3
Only if these things are arranged into systems and systematic activates it will
become possible to produce something for which customers are willing to pay a
price. Porter argues that the ability to perform particular activities and to manage
the linkages between these activities is a source of competitive advantage.
He distinguishes between primary' activities and support activities. Primary activities are
directly concerned with the creation or delivery of a product or service. They can be
grouped into five main areas: inbound logistics, operations, outbound logistics, marketing
and sales, and service. Kach of these primary activities is linked to support activities which
help to improve their effectiveness or efficiency. There are four main areas of support
activities: procurement, technology development (including R&D), human resource
management, and infrastructure (systems for planning, finance, quality, information
management etc.). The advantage of value chain is this model allows the firm to

understand the parts of its operations that create value and those that do not.
1.3.2 Process to identify sustainable competitive advantages
Process to Identify Sustainable Competitive Advantages
Figure 3. Process to identify sustainable competitive advantages 4
14
4 Robert K. Hoskisson,Michael A. Ilitt.R. Duane Ireland, (2008), "Competing for Advantage", page 105-107
First. Resources are a firm's assets, including people and the value of its brand
name. They represent inputs into a firm's production process, such as capital
equipment, skills of employees, brand names, financial resources, etc
Resources can be devided into 2 types, tangible and intangible resources. Tangible
resources can be mentioned such as financial resources, technological resources, etc
while intangible resources includes human resources, innovation resources, reputation
resources.
Second. Capabilities are the firm’s capacity to deploy resources that have been
purposely integrated to achieve a desired end state. Capabilities emerge over time
through complex interactions among tangible and intangible resources and often are
based on developing, earn ing and exchanging information and knowledge through
the firm's human capital
Third, Core competencies are resources and capabilities that serve as a source of a
firm's competitive advantage to distinguish a company competitively and reflect its
personality. They emerge over time through an organizational process of
accumulating and learning how to deploy different resources and capabilities. Core
competencies activities that a firm performs especially well compared to
competitors and activities through which the firm adds unique value to its goods or
services over a long period of time. Operationally, for a capability to be a core
competency, it must be valuable and big gap or nonsubstituable from a customer’s
point of view; unique and inimitable from a competitor's point of view. Valuable
capabilities help a firm neutralize threats or exploit opportunities. Rare capabilities
are not possessed by many others. Costly-to-Imitate capabilities may be historical
such as a unique and a valuable organizational culture or brand name. It also may be

social complexity such as nterpersonal relationships, trust, and friendship among
managers, suppliers, and customers.
Finally, a sustainable competitive advantage is achieved only when competitiors
have failed in effort to duplicate the benefit of a firm's strategy.
1 5
1.4 CRITERIA AND INDICATORS FOR EVALUATION OF A
COMMERCIAL BANK’ COMPETITIVENESS
1.4.1 Financial capacity
CBs' financial capacity is indicated by the following criteria
■ Charter capital and owner’s equity
Charter capital
In theory, charter capital and owner's equity play a very important role in banking
activities. A large charter capital and owner's equity enables a bank to establish its
market reputation and win public confidence. Low charter capital means poor
financial strength and inadequate resistance to risks.
S Owner's equity
- Owner's equity scale
Statistic shows that, owner 's equity of Vietnamese CBs is too low. Vietnam
Agriculture and Rural Development Bank with owner ‘s equity is considered the
biggest one, but only about 400 millions USD, lower than CBs of other countries
(see Table 1 -1).
Table 1-1. Owner’s equity of some of the world' leading hanks in 2008
Unit: mil. USD
Bank Owner’s equity
Citigroup 112.537
JP Morgan Chase
107.211
IISBC
98,226
Mitsubishi I JFJ Financial Group 83.281

BNP Paribas 56.610
Mizuho Financial Group 52,243
Source: websites o f banks
l b
- The ratio o f Owner's Equity/ Total assets
A bank's equity is also measured using the ratio of Owner's Equity/ Total
assets. This ratio of the Vietnamese banking industry is approximately 8.9% in 2008
and being accelerative.
■ Liquidity
In accordance with international standards, a bank's liquidity is measured by
the ratio of currents assets to current liabilities. This criterion gauges a bank's
ability to meet customers' demand for cash. As depositors' demand is limited, the
bank's reputation will suffer remarkably and may end up in bankruptcy.
A bank's liquidity is usually measured using the following ratios:
S Loan/Capital. The lower this ratio should be. the better liquidation of
the bank and vice versa. According to Report on Analysis of Banking
Industry of Vietnam, this ratio should be 70% to 80%.
S Liquid assest/ Total assest. The higher this ratio should be, the better
liquidation of the bank and vice versa. According to Report on
Analysis of Banking Industry of Vietnam, this ratio should be 30 to
40%
■ Profitability
Profitability is a measure of a CB's business performance. It is analyzed using
the following parameters:
ROE (portion of profit per capital) demonstrates the ratio of return to a single dollar
of equity. This index of CBs of other countries is always over 15 %
ROA indicates the rate of return on total assets and provide an indicator of the
bank's governance and its ability to convert assets into net income.
- ROA index of banks of Asia-Pacific region (including 52 commercial banks of 10
countries) is 0.94%

S ROE= After tax income/ Equity (Return on Equity)
S ROA = After tax income/ Total assets (Return on Assets)
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