High performance organizations in the Vietnamese banking industry

By Professor André de Waal, Hai Duong and Vu Ton (HPO Center)

Since Vietnam joined the World Trade Organization (WTO) in January 2007, the country has faced a number of challenges to comply with WTO requirements. One of these challenges was to reorganize Vietnam’s banking sector so it would comply with WTO commitments, entailing that banks from other countries are now allowed to do business in Vietnam with the same rights and privileges as local banks. This spurred Vietnamese banks on to improve their competitiveness and increase their performance as otherwise they would inevitably lag behind foreign competitors. The research described in this paper was aimed at finding the factors that make Vietnamese banks excellent. Using the HPO framework (Waal, 2007) made it possible to not only identify the factors that have a direct correlation with the performance of a Vietnamese bank, but to also establish the characteristics that make the difference between a leading bank and a lagging bank. These characteristics are a unique strategy, excellent process management, continuous improvement of core competencies and products and services, management that applies fast decision and action taking, employees which are flexible and resilient and who are involved in important business processes, and a diverse and complementary workforce.

Keywords: high performance organizations, competitive performance, banking industry, Vietnam

INTRODUCTION

Vietnam’s economy continues to grow strongly, with GDP in 2006 growing 8.2 percent (IMF, 2006) and in 2007 at 8.4% (General Statistics Office of Vietnam, 2007). Both the industry and service sectors (which include trade, hospitality and tourism, banking, education, real estate, and consulting services) contributes 40 percent to the total country GDP while the portion for agricultural sector (where 57 percent of the total population is employed) was merely 20 percent (Nguyen, 2005). The increase in the service and industry shares of the GDP is largely a consequence of the expansion of the private sector (Citigroup, 2007). At the end of 2005, the population of Vietnam was 83.1 million (World Bank, 2007). Seventy percent of this population is living in rural areas versus 30 percent living in urban areas (General Statistics Office of Vietnam). Most of the citizens in rural area have limited access to banking service except for loan services, and only eight percent of them has a bank account. Overall, 95 percent of the country’s population is in the labour force. However, quality of the work force is an issue, there is a shortage of high quality human resources especially in the banking and financial sectors (Nguyen, 2005).

Since Vietnam joined the World Trade Organization (WTO) in January 2007, the country has faced a number of challenges to comply with WTO requirements. One of these challenges was to review Vietnam’s policies in the banking sector so these would comply with WTO commitments, while at the same time implementing bilateral agreements such as the ASEAN Free Trade Agreement (AFTA) and Bilateral Trade Agreement (BTA) (Le Xuan Nghia, 2006). This resulted in a rigorous restructuring and reform program in the Vietnamese banking sector, which spurred the Vietnamese banks on to do everything in their power to improve their competitiveness and increase their performance as otherwise they would inevitably lag behind foreign competitors. This is all the more important as, because of the WTO regulations, banks from other countries are now allowed to do business in Vietnam with the same rights and privileges as local banks.

The Vietnamese banking industry can currently be divided into four categories: 7 state-owned commercial banks (SOCBs), 35 joint stock banks (JSBs), 37 foreign owned banks (FBs), and 6 joint venture banks (JVBs). Because JVBS have a market share in terms of lending or deposit of below 2 percent and because they exhibit the characteristics of both partnering banks, it was decided to focus the research on the Vietnamese (SOCBs and JSBs) and foreign owned bank…

Read the full article ‘High performance organizations in the Vietnamese banking industry’ published in Journal of Transnational Management in PDF.