TABLE OF CONTENTS

I. BUSINESS SERVICE INDUSTRY ANALYSIS...........................................................1

1.1. Market Structure................................................................................................................1
1.1.1. Operating Structure......................................................................................................1
1.1.2. Industry Concentration................................................................................................2
1.2. Conduct...............................................................................................................................3
1.2.1. Pricing.........................................................................................................................3
1.2.2. Advertising..................................................................................................................4
1.2.3. R&D............................................................................................................................5
1.2.4. Integration and merger activity....................................................................................5
II. A LOOK AT BANKING SERVICE IN VIET NAM.................................................7
2.1. Market concentration.........................................................................................................7
2.2. Main types of banking services..........................................................................................7
2.3. Pricing strategy analysis....................................................................................................8
2.3.1. Monopoly....................................................................................................................8
2.3.2. Price discrimination.....................................................................................................9
2.3.3. Intense Price Competition Market...............................................................................9
2.4. Factors affecting banking service operational strategies...............................................10
2.4.1. Economic environment..............................................................................................10
2.4.2. Reputation..................................................................................................................10
2.4.3. Transaction cost.........................................................................................................10
 BUSINESS SERVICE – BANKING SERVICE IN VIETNAM
I. BUSINESS SERVICE INDUSTRY ANALYSIS
Business services is a diverse industry broadly serving companies in five sectors: facilities
management, construction services, business process outsourcing, IT and digital services, and
outsourced public services. Client demand for quality and speed of services both in public
and private sector companies has led to robust growth in the industry. It has allowed other
organizations to focus resources on their core competencies and is thus helping to bring about
efficiencies in the broader economy.
I.1. Market Structure
I.1.1. Operating Structure
Most Business Service organizations are structured to reflect tiered-service
management. The most common framework divides work into four categories: (1)
transactional/administrative, (2) functional/programmatic, (3) specialist/consultative, and (4)
strategic. These are then used to determine where the work should be performed within the
company’s global footprint. Transactional work is generally located within one or more
transaction centers located in lower labor cost areas. Functional work, which requires in-
depth subject matter expertise, is generally located in service support hubs in closer proximity
to the customer. Specialist work is generally centralized in some form of COE, but some may
be needed locally to deal with country-specific institutions or requirements. A theoretical
Business Service framework, using the finance function as an example, is shown in the figure
below.

As you might imagine, working out agreements over the design of any business
service global footprint can be daunting. The cost savings and efficiency gains that have been
achieved over the past decade are a testimony to those leaders who have struggled to build
these worldwide networks.
 I.1.2. Industry Concentration
1.1.2.1. Accounting service
The Accounting Services profession group revenue is expected to grow by 8.3% to
$20.3 billion in FY2019-20 from $18.1 billion in FY2015-16. Technological change is
expected to be a key driver of revenue growth in the medium term.
The composition of accounting revenue is expected to change with slower growth
conditions bringing reduced demand for superannuation, contract and assurance services.
However, insolvency and restructuring services are expected to grab a bigger piece of the
revenue pie.
The number of accounting businesses is forecast to grow by 5.7% over the five years
from FY2016-17 to FY2020-21, while employment is expected to increase by 6.9% over the
same period, reflecting continued consolidation within the sector.
Capital expenditure by the private sector is a major factor affecting Accounting
performance, as accounting firms receive most of their income from the private sector. With
capital expenditure by the private sector expected to continue to decline throughout 2016-17,
growth in Accounting revenue may be hampered in the short term.
Total business numbers across all industries are continuing to grow after a recent
hiatus, indicating potential new sources of revenue for accounting firms.
1.1.2.2. Management consulting service
The USA was the largest country in the management consulting services market in
2016, accounting for about $240 billion or 38% of the global market. The UK was the second
largest market, accounting for about $70 billion or 11% of the global market. France was the
third largest market, accounting for about $35 billion or 5% of the global market. Germany
accounted for about 5% and $30 billion, while Spain accounted for 1% of the global
management consulting services market.
With the emergence of information communication and technology, the world is
rapidly moving towards the process of digitalization. Investor expectations, rising
competition, new regulatory pressures and increasing opportunities are putting organizations
under pressure to digitalize their processes and management.
Management consulting services firms are providing IT transformation services to
businesses, banks and other organizations to overcome challenges such as rising stakeholder
expectations and flat or declining budgets. Such services include identifying critical
technologies, setting an IT agenda, consolidating, standardizing and harmonizing IT solutions
across business divisions in a cost effective manner. Accenture Consultancy increased its
revenues from Communications, Media & Technology division by 16% from 2014 to 2015
due to increased demand for digital transformation for management services.
1.1.2.3 Marketing service
The 2017 ad volume, predicted to rise 4.3% to $552 billion, will push past the trillion-
dollar mark when combined with other marketing services. However, growth will be slower
than predicted, as countries such as China and Brazil both had growth revised downward. The
prior predicted growth of $22 billion has been trimmed to $20.5 billion.
 GroupM, a media investment management group posits the U.S. will be the leading
contributor to global ad growth, overtaking China for the first time since 2007. In all, the U.S.
market will be $178.8 billion in 2016 and $184 billion in 2017, nearly 95% of the total North
American ad spending.
Political, pharmaceutical and consumer packaged goods categories are strong
contributors to the thriving U.S. television advertising marketplace, which will grow 3.4% in
2016, instead of 2.3% as previously predicted.
Marketers across the world have been cautious since the recession in 2008. For this
reason, cost control has been tight, but the history of the present recovery cycle shadows the
general economy, so the situation may quickly improve.
1.1.2.4. Staffing
The staffing, recruiting and workforce solutions segment is one of the largest of the
business services industry. In 2014 there were 17,000 companies in the United States with
annual revenue totaling $130 billion, an increase of more than 5% over the previous year.
Temporary services connect workers with companies for generally short-term
assignments during peak business periods or to replace missing permanent workers. These
jobs are often in clerical, technical or industrial positions. Placement agencies recruit
employees for permanent positions. These positions can be for any role, including managers,
technical workers and even executives.
I.2. Conduct
The conduct, or behavior of firms also tends to differ across different service sectors.
Some charge higher markups than others. Some are more susceptible to mergers and
takeovers than others. In addition, the amount spent on advertising and research and
development tends to vary across sectors. The following section describes important features
in conduct of business services.
I.2.1. Pricing
Business service sectors have a monopolistic competition structure because:
1. There are many buyers and sellers.
2. Each firm in the industry produces a slightly differentiated product.
3. There is free entry into and exit from the industry
Example: Different banking services for business customers:
Remote Deposit Services
Controlled Disbursement Account
Payroll Services
End-of-Day Sweep Accounts
Price are not based on the market demand for the product but on the demand for the
individual firm’s product. Thus, in the long run, firms will produce a level of output such that
P>MC or P=ATC>minimum of average costs.
Example: Investment bankers have specific areas where their expertise is most
obviously used in Strategic Transactions (M&A consultation). When advising a client, they
are usually paid a success fee, which is tied to the size of the transaction, as well as the
 relationship with the client and the market forces. Exhibit below depicts a fee schedule that
an investment bank might offer, with a sliding percentage scale based on the size of the deal.
Investment bankers try to actually stimulate the decision to engage in a Strategic
Transactions. A significant part of an investment banker’s time is spent “pitching” client
companies on potential transactions. While the pitches make an argument for the capabilities
and résumé of the investment bank, the majority of this material is concerned with providing
the client company with intelligence, industry insight, transaction ideas, and information on
specific Targets. While part of the purpose of the pitches is to stimulate a specific transaction
in the hope that the investment bank that brought the idea will naturally be hired to help
execute it, pitching companies is part of a broader effort to provide general value to the
companies. In fact, active acquirers usually identify Targets on their own but when choosing
investment bank advisors, will often give the business to banks that have provided valuable
intelligence and general information over the prior months or years. Ironically, in many cases,
a bank can spend years pitching or “educating” a client for no fees and end up being paid an
enormous sum for a very small amount of work. In some ways, high investment banking fees
are really a method of rewarding investment banks for years of unpaid advice and
information.

Another pricing strategy commonly used is short-term price changes. Firms usually
offer their services at lower than normal prices to shift peak period demand to off-peak
periods.
Example: Reduced-rate long distance or cellular telephone service for business call.
I.2.2. Advertising
Since there are many products in business service sectors, the only reason firms have
any control over their price is that consumers view other firm’s products as poor substitutes
for it. For this reason, firms spend strategic amounts of budget on advertising to persuade
consumers that their products are better and distinguished from those offered by competitors.
 Calculus function: The maximizing advertising-to-sales ratio (A/R):
 Where EQ,P represents the price elasticity of demand for the firm’s product, E Q,A is the
advertising elasticity of demand for the firm’s product.
Linear programing in media selection:
Example:
Medium Audience Reached Cost per Ad Maximum Ads per
per Ad Week
TV spot (1 minute) 5,000 $800 12
Daily business 8,500 $925 5
newspaper
...
Let
X1 = number of 1-minute TV spots taken each week
X2 = number of full-page daily newspaper ads taken each week
 Maximize audience coverage = 5,000X1 + 8,500X2
Subject to:
X1 ≤ 12 (maximum TV spots per week)
X2 ≤ 5 (maximum newspaper ads per week)
800X1 + 925X2 ≤ 8,000 (weekly advertising budget)  X1, X2
Signs, advertising, and sales messages may convince customers that using various
services such as logistics services at off-peak periods has many benefits, including lower
prices. Example: TV commercials of the U.S. Postal Service reminding customers to “Mail
early for Christmas.”
I.2.3. R&D
Monopolistically competitive business services frequently introduce new products
into the market to further differentiate their products from other firms. These include not only
completely different product lines, but also new ones for currently served market.
Example: Corporate and investment banking additional products:
Corporate board advisory services
Customized wealth planning for liquidity events
Investments in R&D that create saving technological innovations
- Banking technology: Mobile banking, electronic funds transfer, electronic imaging
(allow depositing checks by personal scanner at home or taking a photo of the check and
sending it to the company), magnetic ink character recognition
- Wholesale/Retail technology: Point-of-sale electronic terminals, electronic data
interchange (EDI) and bar-code readers
I.2.4. Integration and merger activity
In the past, 1998 formation of Citigroup from Citibank and Travelers (mergers of equals:
a merger framework usually applied whenever the merger participants are comparable in size,
competitive position, profitability, and market capitalization (i.e., the total value of a firm’s
 shares), and so it is unclear whether one party is ceding control to another and which party is
providing the greatest synergy)
- Nations Bank and BankAmerica (1998) (horizontal merger)
- After the turmoil of the 2008 credit crisis, Lehman Brothers was liquidated, Bear
Stearns acquired by JPMorgan Chase Bank; Merrill Lynch acquired by Bank of
America.
- EU
- Main motives and rationalisations
- Risks associated

Source: Mergers and Acquisitions Involving EU Banking Industry. Facts and Implications
(2000)
- Recent trends

Source: www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/ma-trends-report.html
 II. A LOOK AT BANKING SERVICE IN VIET NAM
II.1. Market concentration
Up to 2017, only about 50 banks are rated as operating effectively and receiving the
majority of customers. They mainly belong to 2 groups: state-owned banks and joint stock
commercial banks.
State-owned commercial banks with impressive total assets still dominate the market,
and compared with state-owned commercial banks, no member of the joint stock commercial
banks can be close in size. The group has 4 members: Vietnam Bank for Agriculture and
Rural Development (Agribank), Bank for Investment and Development of Vietnam (BIDV),
Vietnam Bank for Industry and Trade (Vietinbank) and Bank for Foreign Trade Vietnam
(Vietcombank).
Agribank is regarded as the largest commercial bank in Vietnam with total assets of 1.2
million billion VND. However, the pre-tax profit in 2017 only reached nearly 5,018 billion
VND. BIDV has total assets of 1.17 million billion dong. Total profit before tax nearly 8,800
billion. Vietinbank ranked third in terms of total asset size with 1.095 million billion VND,
reaching 9,205 billion VND of total pre-tax profit. Although having the lowest total asset size
in the 4 state-owned commercial banks with 1.035 million billion VND, Vietcombank is the
market leader with total pretax profit of 11,337 billion VND.
II.2. Main types of banking services
There are various types of banking services to support businesses financially, varying from
banks to banks, but the majority mainly provide the following services:
- Loan
- Cash flow management: Help businesses manage cash flow efficiently
- Trade financing and guarantee: capital support solution for import-export enterprises
and issuance of guarantee to ensure the ability to pay for enterprises when necessary.
Loan is the subject of focus for it is the most common and thus most profitable service.
- Short-term loans: limited time in 12months, for businesses which don’t have frequent
demand for capital, have specific business plan and seasonal characteristic.
- Short-term Credit limit: business can withdraw money at credit limit level (maximum
time 12 months) for businesses with frequent demand for capital, high circulation and
reputation with Bank.
- Overdraft: allow business to consume more than the amount in their open payment
deposit account, to meet temporary working capital shortage demand without
complicated processes.
- Loans for new project: support capital in long-term for new business project in all
aspects, for SMEs with new business plan and need financial package
- Corporate bond investment: Optimization of financial options and restructuring of the
balance sheet of the business, mobilizing large capital, increasing the scale of investment
projects and expanding production and business.

Interest rates applied for loans to businesses by some banks in Vietnam

 Bank Interest rate Limited amount Time

Vietcombank 6.5% 100% demand Flexible

BIDV 6.5% Unlimited 5 years

Vietinbank 7% 70% 7 years

MBBank 7% 90% demand 15 years

TPBank 6.8% 85% demand Flexible

VIB 10.79% 70% demand 7 years

ACB 8% 10 billion 7 Years

Several local banks have decided to cut their lending rates in early 2018, especially
for loans in priority sectors, which is welcome news for business as it is anticipated to
facilitate them in access to bank loans.
In response to the central bank governor’s request to cut costs in order to lower lending
rates, a number of commercial lenders, including Agribank, Vietcombank, Vietinbank,
VPBank and BIDV, have recently trimmed their rates by 0.5 to 1 percentage point.
Specifically, Agribank has cut the rate on short-term loans from 6.5% to 6% and medium and
long-term loans from 8% to 7.5%.
Many analysts have said that it will be difficult for banks to lower their lending rates in
the future because they are still competing for deposits and a market share, making it
impossible for them to lower the deposit rates and consequently the lending rates. As such,
whether the recent rate cuts would become a clear trend and spread through the entire
banking system in the future remains uncertain.
Furthermore, bad debt remains a significant hurdle to rate cuts while the net interest
margin of local banks is rather modest compared with their regional peers, which also
discourages them from reducing lending rates. Therefore, many experts have called for
stronger action from both the government and the banking system in order to bring down
interest rates. The government needs to maintain inflation at 4% and take bolder measures to
tackle non-performing loans in a more effective manner.
II.3. Pricing strategy analysis
II.3.1. Monopoly
Vietnam is the 5th country in ASEAN have derivative market with Singapore,
Malaysia, Indonesia and Thailand as well as the 42th country in the world have this advanced
market. After 17 years, the stock market in Vietnam have reached the stability and need the
next step to suit for market economy. Derivative market is the final factor to fulfil stock
market picture.
 The Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) has
been made the exclusive financial institution to carry out settlements for derivative strading
transactions. Vietinbank is a large financial institution in Vietnam, known for a broad trading
network, high ratio of financial security, positive creditability and high quality of IT human
resources and facilities.
Thanks to becoming the 1st entering, Viettinbank has first-move advantage, obtaining a
competitive advantage by being first to market with service. Among other things, being first
typically enables a bank to establish strong brand recognition and customer loyalty before
competitors enter the market.
The new market and products are expected to help Vietnam’s securities market develop
firmly, increase the scale and quality of the market, diversify products and services and gain
access to international practices and standards.
II.3.2. Price discrimination
Banks offer many different loan service packages depending on the loan term, types of
business, conditions of business and their relationship with banks.
Example (Appendix)
VietinBank offer a minimum interest rate of 6% for short, medium-term loan, and a
minimum 9.5% for long-term loan. This is due to the risk that banks have to suffer, long-term
loan associated with the uncertainty of the whole economy: the fluctuation of interest rates,
economic downturns, risk of business customers’ insolvency,…. Moreover, long-term loans
also reduce the flow of bank capital that can be used to offer many other small, short,
medium-term loans. So, the higher interest rate can also be regarded as the opportunity cost.
Type of business is also a factor to discriminate the interest rate applied for
corporates. There are many industries that are offered special favorable interest rate loans- a
reduction of 0.5% annual interest rate loan for short, medium, and long-term loan. They are
business sectors, industries, enterprises under the Government's priority to encourage
development:
- Agriculture and rural development
- Export business
- Small and medium enterprises
- Supporting industries
- High-tech application enterprise
To strictly follow the Government's guidance on bank credit, banks should help
concentrate on promoting economic growth and creating conditions to actively promote the
process of restructuring the economy. Credit growth continues to be expanded rationally and
focused on development priorities areas.
Moreover, there are programs of providing loans at preferential interest rates to
enterprises with good financial status, healthy production and business operation.
It is also a common practice that all corporates who have long-term business
relationship with banks would receive a preferential interest rate and many special offers.
II.3.3. Intense Price Competition Market
Banks must compete in a market of intense price competition since interests rates are
controlled by the government as well as the market and other financial conditions. Therefore,
there is not much differentiation in prices among banks but what truly distinguishes them is
 customer service and brand loyalty. Good customer service can induce a higher number of
customers and their chances of coming back. Even in the event of fluctuations in interest
rates, customers still remain loyal to their favorite banks for the familiarity and other benefits.
Market conditions are not stable, extremely in the case of financial and economic
crisis, thus requiring banks to apply flexible pricing/ interest rates for the sake of both banks
and customers.
II.4. Factors affecting banking service operational strategies
II.4.1. Economic environment
If the economic is stable, it will create favorable conditions for the operation of banks,
as this is also a condition for the production process of the economy to be normal, which
ensure the ability to absorb capital and repay capital of enterprises in the economy.
When the economy has high growth and stability, there is a need to expand business
which results in an increasing demand for loans. This makes it easier for banks to expand
their services and the possibility of bad debts can be reduced because the financial capacity of
businesses is also improving.
In contrast, when the economic is unstable, it become the disadvantage for the
operation of banks such as reduced demand for loans; overdue debts risk and bad debts.
II.4.2. Reputation
Reputation is the token of safety, convenience and trustworthy that every business
take this into consideration when they first find a bank. Because there are many banks supply
service products of similar specifications, so there will be many options for the business to
choose, the one stands out will be the one has much reputation than others.
II.4.3. Transaction cost
In the market, there are many other banks which supply the similar service products
for businesses. Therefore, it is easy to find a new bank for companies.
In order to ensure safety and avoid risks when lending, commercial banks often set the
conditions and criteria for credit classification, then select the customers who can or cannot
lend. So, there is a limited number of corporates who can do business with banks.
Moreover, one of the most famous characteristics of banking service industry is
relationship-building, as financial service is one of the riskiest business in the economic
world, the banks and the companies have to know each other very well and their creditability,
they should have the long-term relationships to easily do business together.
Because the banking procedures are relatively complex, and the bank does not simply
supply the services to any customers come to them without investing their credit information
record and their economic operation ability.
The transaction cost in banking service is high so businesses hardly switch to other
banks due to the long-term business relationship built over years