INTERNATIONAL BUSINESS CASE STUDY

VIETNAM AND THE CONSUMER FINANCIAL MARKET

Nguyễn Trần Gia Bảo K224081106

Đặng Huỳnh Tú Anh K224081104
Nguyễn Minh Quân K224081121
Trần Lê Khánh Tùng ​K224081126

I. Introduction

This presentation will focus on two primary areas:

1. A comprehensive analysis of the risks and rewards associated with financial

investments in Vietnam.
2. A strategic assessment of Vietnam's competitive position in the consumer
finance industry, utilizing Porter's Diamond framework."

For the first question, we will conduct a thorough review of relevant reports and data to
identify the key political, economic, natural, cultural, and legal factors that influence
financial companies' investment decisions in Vietnam. We will then highlight the most
significant factors and explain their implications for entering the Vietnamese market.

In addressing the second question, we will apply Porter's Diamond Model to examine
Vietnam's competitive advantage in the consumer finance sector. This analysis will
involve evaluating factors such as factor conditions, demand conditions, related and
supporting industries, and firm strategy, structure, and rivalry.

II. Discussion and Presentation

● We identify the beneficial and risky factors, supported by empirical data, that
influence financial companies' investment decisions in Vietnam.

a. Natural
- Topography
Benefit

● Diverse Landscapes: Vietnam's varied geography (mountains, rivers, coastline)

can attract tourism and investments in different sectors, boosting the economy.
 ● Strategic Location: Proximity to major trade routes enhances trade opportunities,
benefiting financial services linked to exports.

Risks:

● Natural Disasters: Regions prone to flooding or landslides may deter investment

and increase insurance costs, impacting financial stability.
● Infrastructure Challenges: Difficult terrains can hinder transport and
communication, complicating business operations and financial transactions.

- Climate

Benefits:

● Agricultural Opportunities: A favorable climate for agriculture can boost the

agribusiness sector, leading to increased lending opportunities for banks.

Growing at 2.5 to 3.5 percent per year over the past three decades, the agricu
sector has supported economic growth and ensured food security. It contribut
percent of GDP and 29 percent of employment in 2021

● Renewable Energy Potential: Investments in renewable energy (solar, wind) can

attract financial resources and create green investment opportunities.

Risks:

● Climate Change Vulnerability: Increased flooding, droughts, and extreme

weather can lead to economic instability, affecting loan repayments and
increasing risks for financial institutions.
● Insurance and Liability: A higher frequency of climate-related events can lead to
increased claims, affecting the insurance market's profitability.
 - Natural Resources

Benefits:

● Resource Wealth: Abundant natural resources (like oil, gas, minerals) can attract
foreign investments, boosting the financial sector through increased capital
flows and investment opportunities.

Located in Southeast Asia, the Socialist Republic of Vietnam has an abu

wealth of natural resources including coal, bauxite, oil and gas dep
copper, hydropower, and timber. The main mineral exports in the countr
coal and petroleum. The Vietnamese Ministry of Natural Resources
Environment manages mining projects. The protracted war in Vie
hindered the exploitation of the natural resources in the country. The m
and quarrying industry employed 0.7% of Vietnam’s workforce and acco
for 9.4% of the nation’s Gross Domestic Product (GDP) in 2003

● Export Revenue: Exporting natural resources can enhance the national revenue,
providing funds for infrastructure and financial services development.

Risks:

● Market Volatility: Dependence on commodity prices can lead to financial

instability if prices fluctuate significantly, affecting government revenues and
economic growth.
● Environmental Regulations: Stricter regulations on resource extraction can
increase operational costs for companies, impacting profitability and,
subsequently, their ability to service debts

- Population

Benefits:

● Young Workforce: A large, youthful population can drive economic growth and
consumer demand, benefiting sectors like retail, banking, and services.
● Growing Middle Class: An expanding middle class can lead to increased
financial inclusion and demand for banking products, insurance, and investment
services
Risks:

● Urbanization Challenges: Rapid urbanization can strain infrastructure and

services, leading to potential economic disparities and social unrest, which can
destabilize the financial system.
● Demographic Imbalances: An aging population in the future could lead to labor
shortages and increased pension liabilities, impacting long-term economic
stability.

b. Political

Benefits

1. Regulatory Support for Growth:

○ Investment-Friendly Policies: Strong political will can lead to policies that
encourage foreign direct investment (FDI). For example, Vietnam's
 commitment to integrating into global markets (e.g., signing trade
agreements like CPTPP and EVFTA) boosts investor confidence and
stimulates financial activities.
○ Financial Reforms: Political commitment to reforming the banking sector,
such as improving regulations and enhancing transparency, can lead to
increased stability and growth. For instance, ongoing reforms in
state-owned banks can enhance their efficiency and profitability.
2. Infrastructure Development:
○ Public Investment: A government focused on economic development can
allocate resources for infrastructure projects, which are crucial for the
financial sector. Improved infrastructure (like transportation and
technology) facilitates business operations and attracts investments,
benefiting banks and financial institutions.
3. Support for Innovation:
○ Fintech Growth: Political will to embrace technology can promote the
fintech sector, leading to innovative financial products and services.
Vietnam has seen a rise in digital payments and online banking, supported
by favorable regulations, enhancing financial inclusion and market
growth.

Risks

1. Political Instability:
○ Uncertainty: Changes in government or policy direction can lead to
uncertainty, which may deter investment. For instance, unexpected shifts
in regulations or government policies can create a volatile environment
for financial markets, increasing risks for investors.
○ Corruption and Bureaucracy: If political will does not prioritize
transparency and anti-corruption measures, it can lead to a lack of trust in
financial institutions, discouraging both domestic and foreign investment.
2. Regulatory Overreach:
○ Inconsistent Policies: Aggressive regulation or sudden changes in
financial policies can create challenges for financial institutions. For
example, strict lending regulations imposed without notice could limit
banks’ ability to operate effectively, impacting their profitability and
stability.
 ○ Market Distortion: Government interventions in pricing (such as interest
rates or currency controls) can lead to market distortions, affecting the
operations of financial institutions and creating risks for investors.
3. Limited Economic Freedom:
○ State Control: High levels of state control over the economy can restrict
competition and innovation in the financial sector. This can result in
inefficiencies and limit the development of a robust financial services
market, stifling growth opportunities

c. Economic

Benefits of Investing in the Vietnamese Market

● Large and Growing Market: Vietnam boasts a large population with a rapidly
growing middle class. This demographic shift presents a substantial market for
financial services.

Vietnam’s middle class population – currently at 10% – is believed to be the f

growing in Southeast Asia. The middle class earning USD 714 a month or mo
Vietnam will double to 33 million people, about a third of the population, bet
2014 and 2020, according to Boston Consulting Group. Meanwhile, market res
firm Nielsen has estimated that the number of middle class Vietnamese will rea
million by 2020 and 95 million by 2030. This would require Vietnam to grow at
7% per year, raising the average income level to over USD 7,000 (or USD 18,0
purchasing-power parity terms) by 2035 (compared with USD 2,052 – or USD
in PPP terms – in 2014). The aforementioned report also noted that over th
decade, the number of millionaires in Vietnam has tripled. As of 2016, Vie
boasts the world’s fastest growing percentage of ultra-high-net-worth individ
which they define as those having a net worth of at least USD 30 million.

● Favorable Economic Policies: The Vietnamese government has implemented a

series of economic reforms to attract foreign investment and stimulate growth.
These policies, such as trade liberalization and privatization, create a conducive
environment for financial institutions.

Economic reforms have further stimulated expansion by promoting

 liberalization, private enterprise, and increased foreign investments.
1986, Vietnam’s economic transformation has been noteworthy, shifting
a centrally controlled economy to an emerging market. The ‘Renova
policy (Đổi Mới reform) initiated in 1986 catalyzed economic reform
integration with global trends, transforming Vietnam from one of the w
poorest nations into a lower middle-income country. In September 202
United States entered into a comprehensive strategic partnership with Vie
underscoring the nation’s growing global stature and economic influence
partnership, alongside strong economic growth and expanding
opportunities, has contributed to the rapid growth of Vietnam’s middle
solidifying its emergence as a dynamic economic force in the region
beyond.

● Rising GDP and PPP: Vietnam's GDP has been steadily increasing, indicating a
strong economic foundation. Additionally, its Purchasing Power Parity (PPP)
has been on the rise, suggesting that its citizens have more spending power.

Despite navigating complex economic challenges, the Vietnamese eco

maintained a positive growth trajectory in 2023. As of 2023, Vietnam's no
GDP is estimated to be 437 billion USD, growing at 5.05%. This resilien
further evidenced by the significant increase in foreign direct investment
in Vietnam during the same year. Total FDI reached 36.6 billion USD, a r
32.1% from the previous year. There were 3,188 newly licensed projects, a
increase year-over-year. Energy, manufacturing, and real estate were the m
investment sectors.
(Data from world bank)
● Increasing FDI: Foreign Direct Investment (FDI) has been flowing into Vietnam,
contributing to economic growth and job creation. This trend can provide
opportunities for financial companies to support FDI-related activities.

Foreign direct investment into Vietnam dropped 1.2 percent from a year e
to USD 19.74 billion in 2021. However, the Foreign Investment Agen
Vietnam reported that the total FDI pledges i.e., new, adjusted capita
share purchases by foreign investors, reached 31.15 billion USD in Dece
2021.

Further, approximately 1700 projects received investment licenses with a

registered capital of over US$ 15.2 billion, a volume decrease of 31.1 pe
YoY, however up 4.1 percent in value YoY.

As with previous years, manufacturing and processing led with

investment capital of US$18.1 billion and accounted for 58.2 percent of
registered investment capital. While electricity production and distrib
attracted a small number of new projects, they were large-scale, and
ranked second with an investment capital of US$5.7 billion and accountin
18.3 percent of total registered investment capital. This was followed by
estate and wholesale and retail at US$2.6 billion and US$1.4 b
respectively.

FDI disbursement in Q1 2022 stood at US$4.42 billion, an increase o

percent compared with the same period last year. As with previous tr
Singapore led the list followed by South Korea, Denmark, and China..
(Data from world bank)
 ● Potential for High Returns: Given the market's growth potential, financial
companies can potentially achieve high returns on their investments.

Risks Associated with Investing in the Vietnamese Market

● Economic Instability: Vietnam's economy is still developing and subject to

fluctuations. Factors such as political instability, natural disasters, and global
economic downturns can pose risks to investments.
● Regulatory Challenges: The regulatory environment in Vietnam can be complex
and subject to change. Financial companies need to navigate these regulations to
ensure compliance and minimize risks.
● Currency Fluctuations: The Vietnamese Dong is subject to fluctuations, which
can impact the profitability of investments.
● Limited Financial Infrastructure: The financial infrastructure in Vietnam is still
developing, which can present challenges for financial companies operating in
the market.
● Corruption and Inefficiency: Corruption and bureaucratic inefficiencies can
hinder business operations and increase costs.

Economic System and Indicators to Consider

● Mixed Economy: Vietnam's economy is a mixed economy, combining elements

of both market and command economies. While the market plays a significant
role, the government still maintains a degree of control over certain sectors.
● Economic Indicators:
○ GDP: A measure of the total value of goods and services produced within
a country.
○ PPP: A measure of the purchasing power of currencies in different
countries.
○ Inflation Rate: A measure of the increase in the general price level of
goods and services.
○ Foreign Debt: The total amount of money owed by a country to foreign
creditors.
○ FDI Growth: The rate of increase in foreign direct investment.

Economic Transformation and Challenges

● Economic Transformation: Vietnam has undergone significant economic

transformation in recent decades, transitioning from a centrally planned
 economy to a more market-oriented one. This transformation has led to rapid
economic growth and development.
● Challenges: Despite its progress, Vietnam still faces challenges such as income
inequality, poverty, and environmental issues. These factors can impact the
overall economic environment and investment climate.

Benefits of Understanding Vietnamese Culture

 ● Improved Relationships: Understanding Vietnamese culture can enhance
relationships with local partners, clients, and employees. Cultural sensitivity can
lead to greater trust and cooperation.
● Effective Communication: Cultural awareness can help avoid misunderstandings
in communication. Knowing local customs and etiquette can improve
interactions and convey respect.
● Tailored Products and Services: Understanding local preferences and values can
enable financial companies to develop products and services that better meet the
needs of Vietnamese consumers.
● Attracting Talent: Cultural sensitivity can help attract and retain top talent in
Vietnam. Employees who feel valued and understood are more likely to be
motivated and productive.

Risks of Cultural Misunderstandings

● Failed Negotiations: Cultural differences can lead to misunderstandings and

breakdowns in negotiations. A lack of understanding of cultural norms can
hinder progress and lead to unfavorable outcomes.
● Damage to Reputation: Cultural missteps can tarnish a company's reputation in
Vietnam. Negative perceptions can impact customer trust and business
opportunities.
● Reduced Efficiency: Cultural differences can create challenges in teamwork and
decision-making. Misunderstandings can lead to inefficiencies and delays.
● Legal and Ethical Issues: A lack of cultural awareness can increase the risk of
legal and ethical issues. Failure to comply with local customs and regulations
can result in fines, penalties, and damage to a company's reputation.

Legal Considerations for Financial Companies Investing in Vietnam

Investing in the Vietnamese market requires a thorough understanding of the country's

legal framework. Compliance with local laws and regulations is essential to mitigate
risks and ensure successful operations.

Benefits of Understanding Vietnamese Law

● Reduced Legal Risks: Adherence to Vietnamese laws and regulations can

minimize the risk of legal disputes, fines, and penalties.
 ● Enhanced Reputation: Compliance with local laws demonstrates a commitment
to responsible business practices, enhancing a company's reputation in the
market.
● Facilitation of Business Activities: Understanding the legal framework can
streamline business operations and facilitate interactions with government
agencies.
● Protection of Investments: Compliance with Vietnamese laws can help protect a
company's investments and assets.

Risks of Non-Compliance

● Legal Disputes: Non-compliance with Vietnamese laws can lead to legal

disputes, which can be time-consuming, costly, and damage a company's
reputation.
● Fines and Penalties: Failure to comply with regulations can result in significant
fines and penalties.
● Business Restrictions: Non-compliance may lead to restrictions or limitations on
business activities.
● Reputational Damage: Legal issues can tarnish a company's reputation,
impacting customer trust and business opportunities.

Risk of Increasing Non-performing loan (NPL)

If a sizable percentage of the loans that HC extends become bad (i.e., the borrowers
stop making payments), it can result in losses and have a detrimental effect on the
profitability and stability of the business. They directly result in financial losses, which
lower profitability and may have an effect on capital sufficiency. Concerns regarding
the company's capacity to efficiently manage its loan portfolio may cause shareholder
confidence to decline.Moreover, there can be consequences like harm to one's
reputation and higher borrowing rates. High non-performing loan (NPL) levels are
constantly monitored by regulators, which may result in more scrutiny and regulations
as well as the need to reallocate operational resources to debt recovery initiatives.
Effective NPL management is essential to the operational stability and financial health
of international financial institutions

Anti-Money Laundering (AML)

Financial companies must take anti-money laundering (AML) compliance seriously,

especially in view of the significant changes brought about by Vietnam's updated
AMLLaw of 2022. The reputation and overseas financial operations are seriously
jeopardized by noncompliance with these restrictions. With significant revisions
including expanded definitions of money laundering activities, increased reporting
requirements for digital wallet providers, and improved client information verification
and risk assessment procedures, the amended law, which goes into effect on March 1,
2023, signals a greater emphasis on preventing money laundering activities. Tight
adherence to AML legislation not only preserves the integrity of the nation's financial
system but also plays a critical role in bolstering confidence among foreign investors,
particularly in light of Vietnam's expanding economy and compliance with
international norms.

→ By placing a high priority on AML compliance, these businesses reduce legal and
regulatory risks and enhance the general stability and reliability of Vietnam's financial
industry
Market competition
The consumer finance sector in Vietnam may already have
established players. foreign financial companies will face competition from both
local and international financial institutions, potentially leading to price wars or
reduced profit margins.
There are some outstanding competitors foreign financial companies need to
compete if they want to be successful in Vietnam market:
Risks Benefits
Increasing Non-performing loan (NPL) Market Growth
Financial compliance (Anti-M Increasing FDI
Laundering (AML)
Market competition High return
Economic transformation and Challeng

How do these factors affect financial companies investing in Vietnam?

1. Increasing Non-performing Loans (NPLs)

● Financial Losses: NPLs can lead to direct financial losses as companies struggle
to recover outstanding debts.
● Reduced Profitability: Increased NPLs can lower profitability, affecting a
company's ability to generate returns for investors.
● Reputational Damage: A high NPL ratio can tarnish a company's reputation,
making it more difficult to attract new customers and investors.

2. Financial Compliance (Anti-Money Laundering (AML))

● Fines and Penalties: Non-compliance with AML regulations can result in hefty
fines and penalties, eroding a company's financial health.
● Legal Issues: Violations of AML laws can lead to legal proceedings, potentially
damaging a company's reputation and operations.
● Reputational Risk: Failure to comply with AML standards can damage a
company's reputation, making it difficult to attract and retain customers and
partners.

3. Market Competition

● Reduced Profit Margins: Intense competition can drive down profit margins as
companies strive to attract and retain customers.
● Increased Operational Costs: Competition may necessitate increased spending
on marketing, technology, and other areas to remain competitive.
● Pricing Pressure: Competitive pressures can limit a company's ability to raise
prices, impacting profitability.
4. Economic Transformation and Challenges

● Regulatory Changes: Economic transformation often involves regulatory

changes that can create uncertainty and increase compliance costs.
● Infrastructure Development: Challenges in infrastructure development can
hinder business operations and increase costs.
● Economic Fluctuations: Economic downturns or instability can impact consumer
spending and creditworthiness, affecting a company's financial performance.

Benefits

1. Market Growth

● Increased Customer Base: A growing economy and rising population can lead to
a larger customer base for financial services.
● Expanded Revenue Opportunities: As the market expands, financial companies
can generate higher revenues through increased lending, deposit-taking, and
other financial services.
● Long-Term Growth Potential: A growing market offers significant long-term
growth potential for financial institutions.

2. Increasing FDI

● New Business Opportunities: FDI can create new business opportunities for
financial companies, such as providing services to foreign investors and their
subsidiaries.
● Increased Demand for Financial Services: FDI can stimulate demand for various
financial services, including corporate banking, trade finance, and investment
banking.
● Economic Stability: Increased FDI can contribute to economic stability, creating
a more favorable environment for financial institutions to operate.

3. High Return

● Attractive Investment Opportunities: The potential for high returns can make
Vietnam an attractive investment destination for financial companies.
● Increased Profitability: High returns can enhance a company's profitability and
strengthen its financial position.
● Investor Satisfaction: High returns can satisfy investors and attract additional
capital, supporting a company's growth.
Leveraging Benefits To effectively leverage these benefits, financial companies should:

● Tailor Products and Services: Develop products and services that meet the
specific needs of the Vietnamese market, including both domestic and foreign
investors.
● Build Local Expertise: Invest in developing local expertise to understand the
unique characteristics of the Vietnamese market and regulatory environment.
● Form Strategic Partnerships: Collaborate with local businesses, government
agencies, and other stakeholders to gain access to new opportunities and mitigate
risks.
● Adopt Innovative Technologies: Utilize technology to improve efficiency,
enhance customer experience, and develop new financial products.

2. Use Porter's National Competitive Advantage model to analyze Vietnam's

competitive advantage in the consumer finance sector?
Porter's National Competitive Advantage model, also known as the Diamond Model,
consists of four key determinants that shape a country's competitive advantage in a
particular industry. Here, we can analyze Vietnam's competitive advantage in the
consumer finance sector using these determinants:

1. Factor Conditions
- Skilled labor: Vietnam has a growing pool of skilled labor, including finance
professionals, which is crucial for the consumer finance sector.
Information from 10,400 job seekers on mywork showed that: the majority of workers
looking for jobs had a university or higher degree (accounting for 65.16%), followed
by college degree (accounting for 21.17%). The rate of unskilled workers looking for
work decreased slightly.

- Technology: The new generation of Vietnam is adapting to new technology

rapidly (With the population of 100 million people, the number of phone users
accounts for a high proportion). Additionally, the country has been investing in
technology infrastructure, which supports the growth of fintech companies in the
consumer finance sector.

2. Demand Conditions
- Demand for consumption increase: The demand for consumer finance in
Vietnam is on the rise due to increasing disposable incomes, urbanization, and a
growing middle class. Consumers are increasingly seeking loans for personal
consumption, home purchases, and education. The cultural shift towards consumerism
and the desire for improved living standards are driving this demand.

3. Related and Supporting Industries

- Banking system: Vietnam's financial services sector is supported by a
developing banking system, a burgeoning fintech ecosystem, and a variety of service
providers such as payment processors and credit bureaus. These related industries
enhance the efficiency and accessibility of consumer finance products. The
collaboration between traditional banks and fintech companies is creating innovative
solutions tailored to consumer needs.
- Technology Infrastructure: As mentioned, Vietnam has the necessary
technological support for consumer finance operations.
- Retail Sector: Vietnam has a vibrant retail sector with a wide range of goods and
services, including motorbikes, electronics, and household items. This provides
opportunities for consumer finance companies to collaborate with retailers and offer
installment loans for these products.
4. Firm Strategy, Structure, and Rivalry
- Competition: The competitive landscape in Vietnam's consumer finance sector is
characterized by a mix of local and international players. This competition fosters
innovation and efficiency as firms strive to differentiate their products and services.
Regulatory support from the Vietnamese government has also encouraged the growth
of the sector, leading to a more dynamic business environment.
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