International Marketing Case Study Doc 3917

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Equitization and Reform:Credit Suisse in Vietnam

Brittany Culver Erik Gracey

Jo-Petter Iverson

International MarketingMerlin Simpson



December 11, 2007

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Executive Summary

Vietnam’s economy is a dynamic environment capped by the recent accession

into the WTO. The accession is the last stage in a long process of reforms initiated over

twenty years ago. While still significantly influenced by The Communist Party, Vietnam

is moving toward a liberal market economy. The regulatory environment has improved

tremendously, creating an incentive for foreign investment. Aside from certain

government owned entities, such as railroads and air-traffic, by 2010 foreign investment

will be able to account for one-hundred percent of invested capital in a Vietnamese

company.

Vietnam is an emerging market and a perfect opportunity for Credit Suisse to

continue its recent dominance of emerging-market global banking. Credit Suisse is a

world renowned financial institution, having satisfied investors, government, and

individuals, while aiding in economic growth through sound consulting in financial

liberalization. Brady Dougan, CEO of Credit Suisse, has repeatedly emphasized the

importance of developing emerging markets.

The Vietnamese government has identified their need of help in liberalizing their

economy. The rise of the Ho Chi Minh Stock exchange and the commitment by the

Vietnamese government to equitize its state owner enterprises has created an intriguing

business environment ready for Credit Suisse’s services. The emerging and unpredictable

marketplace has the high risk and high return investors demand. The government has the

demand, Credit Suisse has the capacity, and Vietnam provides the opportunity, the only

thing left to do is develop a strategy.

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Background

History

The current state of Vietnam is a result of a long process of conquest, revolution,

and reform. Vietnam is traditionally a Confucian society, dominated by several large

empires over the course of its history. The recent conquest of Vietnam occurred under

colonialism in 1858 by the French, and was a part of French Indochina by 1887

(Karrnow, 1997). Vietnam was taken over the Japanese during World War Two, than

transferred back to France after Japan’s defeat. Vietnam declared its independence and

won it in 1954 by defeating the French.

The country was thereafter divided into the communist north and the non-

communist south. The infamous Vietnam War brought the country back together, but at a

price. The war caused massive damage to the economy and general public. In 1986 the

Doi Moi renovation policy committed the government to increase economic liberalization

through export promotion strategies (Karrnow, 1997). Vietnam has enjoyed constant

economic growth since the Doi Moi reforms, resulting in increasing living standards

(Karrnow, 1997).

Geography

Vietnam is located in Southeast Asia bordering the gulf of Thailand, Gulf of

Tonkin and the South China Sea. On land it borders China, Laos and Cambodia (CIA,

2007). The terrain of Vietnam is low and flat in the north and the south. There are Central

highlands and mountains in the north and northwest. The climate is tropical in the south

and monsoonal in the north with a hot rainy season from May to September and warm

and dry season from October to March. There are also occasional typhoons between May

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and January that can cause extensive (CIA, 2007). Vietnam has extensive natural

resources in the form of timber, natural gas, oil, and minerals (CIA, 2007). Its geography

is well suited for economic growth considering the natural resources and close proximity

to the emerging markets of Thailand and China.

Population Statistics (CIA World Factbook)

As of July 2007, the estimated population of Vietnam is 85,262,356 (CIA, 2007).

The age structure is: 0-14 is 26,3%. 15-65 years is about 67,9% and 65 years and up is

about 5,8%. The Languages in Vietnam ordered in descending importance are

Vietnamese, English, Chinese, local dialects, and French. The literacy rate is 90% for the

total population, 94% for males and 89% for females. Human development statistics are

much better than in neighboring Cambodia and Laos, with 6.19 deaths per 1000

population in 2007. The sex ratio is .982 males per female. The life expectancy is 71,07

years.

There are several ethnic groups in Vietnam. The main ethnic group is the Kinh

(Viet) at 86,4%. The remaining 13.6% is made up of more than 55 ethnic groups creating

a plethora of diversity. The majority of Vietnamese do not have a denominational

religion, although nearly all are spiritual in some way. The biggest religious groups are:

Buddhism at 9, 3%, Catholic 6,7% and Muslim at .1%. In between there are also several

other local religions, such as Cao Dai and Hoa Hoa.

Economic Statistics

Current Statistics

GDP (purchasing power parity) $262.5 billion

GDP (official exchange rate): $48.43 billion

GDP - real growth rate 8.20%

GDP - per capita (PPP) $3,100

GDP - composition by sector agriculture: 20%

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industry: 41.9%

services: 38.2%

Labor force: 44.58 million

Unemployment rate 2%

Population below poverty line 19.50%Household income or consumption by percentage

share Lowest 10%: 2.9%

highest 10%: 28.9%

Inflation rate (consumer prices): 7.50%

Investment (gross fixed): 32.3% of GDP*Source (CIA, 2007)

Year GDP per capita(PPP) constant$USD

GDP, billions of New Dong(nominal)

GDP, billions of New Dong(adj.)

Change inGDP(adjusted)

Inflation

2000 2,037 441,646.000 273,666.000 6.8% -1.7%2001 2,200 481,295.000 292,535.000 6.9% -.4%

2002 2,365 535,762.000 313,247.000 7.1% 4.0%

2003 2,553 613,442.488 336,242.808 7.3% 3.2%

2004 2,784 713,071.948 362,092.796 7.7% 7.7%

2005 3,025 806,854.877 389,243.583 7.5% 8.0%

2006 3,255 889,461.775 417,905.534 7.4% 7.0%

2007 3,503 982,013.527 448,646.166 7.4% 6.0%

*Source (worldbank, 2007)

Culture

The culture in Vietnam has very deep roots. Vietnamese culture is rooted in the

Southeast Asian water-rice cultures similar to Cambodia, Laos, Thailand, and India

(Vietnam Embassy, 2007). Vietnam has been under the influence of Buddhism,

Confucianism and Taoism, which were conciliated and Vietnamized, contributing to the

development of the Vietnamese society and culture over several thousand years (Vietnam

Embassy, 2007). The recent culture in Vietnam is a hybrid of the old and new. The

influences of France, the U.S., and now world trade have created a culture grounded in

tradition, but open to foreign influence.

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The Vietnamese have absorbed much of their drive for economic growth from

China, from this they have gotten their culture of financial duty. Vietnamese culture

places a high emphasis on education along with self betterment. Some cultural trends

have emerged out of the communist influence of the USSR. Dissent or criticism is

uncommon in Vietnam, especially towards the state. The penalties for dissent can be

extremely high. The dynamic situation in Vietnam necessitates a cultural shift towards

even greater openness if economic growth is to be achieved.

Political Situation

Vietnam is a one-party state with the power exclusively to the communist party of

Vietnam (CPV). The CVP have the responsibility for all changes and regulations made.

The National Party Congress is the CVPs highest organ but the decisions are made by a

14-member politburo which is currently led by CPV General Secretary Nong Duc Manh,

the State President Nguyen Minh Triet, and Prime Minister Nguyen Tan Dung. The

government answers to the national assembly, which is elected every five years

(Vietnam, 2007)

Even though the Vietnamese government has shown willingness to make

economic progress the progress made in the fields of civil and political rights are still

limited. And access is denied to outside independent human right monitors. The death

penalty is still used for many crimes such as economic crimes. Even though the

government denies the existence of any prisoners of conscience, many people are

imprisoned under vaguely defined “national security” provisions (Vietnam, 2007)

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Economic Reform and Liberalization

In 1986, The Sixth National Congress of the CVP, Faced by shortage of food,

three digit inflation, chronic trade imbalance and deteriorating living standards, initiated

an overall economic renovation policy commonly known as the “Doi Moi” (VinaTrade,

2007).

This reform initially aimed at changing the economic priority from heavy industry to

three other major economic projects. These were; production of food, production of

consumer goods and production of exports. Another goal of the government was to

reduce state intervention in business. The reform’s focus on overhauling the business

sector was to open trade with the outside world to encourage foreign and domestic

investment (VinaTrade, 2007).

The initial reform was expanded by the national congress of the party held in

1991, 1996, 2001 and 2006. It was important to the Vietnamese government that the

economy worked under both the market mechanism and state management. The

expansions created necessary changes to amend the original Doi Moi to the current

political and economic environment. Another important change that came out of the

reform was trade liberalization. Prices and domestic trade were liberalized, the double

price system was abolished and the prices were determined by the market. Even though

trade has been improved, there are several resources that are price controlled by the

government such as electricity, water, gasoline and seaports (Vtrade, 2007).

Import and export restrictions have been vastly reduced. Vietnam has moved

from state monopoly to freer trade and export oriented policies. Important to Credit

Suisse, the banking system received an overhaul. The banking system was changed into a

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two-tier system that separated the central state bank from commercial banks and opened

the way for private banking. This resulted in the interest rate and foreign exchange

controls have been greatly reduced. In order to fight inflation, the government started to

issue bonds and treasury bills, and in late 2000 the Ho Chi Minh Stock Exchange was

established to mobilize private savings for investment (Vinatrade, 2007).

The next step in Vietnam’s reform will take place in 2007 as Vietnam will be

accepted into the WTO. The easing of trade restriction will make Vietnam a more

appealing investment, potentially capitalizing on investors’ fear of investing in China

(Chandler, 2006). The total FDI rose from 28 projects worth $140 million in 1988 to

6,900 projects in 2006 worth $64.4 billion. In 2005 FDI enterprises contributed 16% to

GDP and half of the export value (VinaTrade, 2007)

Legal Environment

Although the new WTO regulations are easing the difficulty of doing business in

Vietnam, the country still ranks high in barriers (Doing Business, 2007). Currently

licenses are not given to small foreign businesses. After getting the license the office has

to be “opened” within 90 days, and must be registered with the local people’s committee.

Reports must be made every 6 months. Joint Ventures are preferred by the state and are

subject to favorable treatment if a State Owned Enterprise is the partner. It is important to

note that lengthy contracts will not be read, and if they are will not be understood. If the

contract is signed it may not be enforced in a court (Foreign Affairs, 2007).

Regulatory Standards in Vietnam

To become a foreign investor within Vietnam, investors must apply for a license

through the Ministry of Planning and Investment (MPI) in Hanoi (WTO, 2006). Once an

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international license has been approved, the MPI monitors and regulates the performance

of licensed projects. To evaluate license proposals, foreign invested projects are

classified into two separate categories: Group A or Group B. Group A requires the

approval of the Prime Minister, and includes a multitude of investment projects with

investment capital exceeding US$40 million.

Group B includes projects approved by MPI, and with certain investment capital

depending on the location of the investment activity. Project applications for both groups

must include application forms, the charter of the foreign invested enterprise, feasibility

study and environmental impact assessment, corporate documents related to the legal and

financial status of the parties in the project, and any additional documents related to

technology, trademarks, or land use (WTO, 2006, 41) Throughout this process, the

foreign company is still only applying for a license for a Joint venture into an investment

with a domestic partner.

Credit Suisse would also be required to apply for a separate license through the

Ministry of Finance of the Socialist Republic of Vietnam. Credit Suisse must be careful

to adopt a legal ownership structure. “With respect to foreign commercial banks, foreign

credit institutions are only permitted to establish presence in Vietnam with a commercial

joint venture bank with foreign capital contribution not exceeding fifty percent of

chartered capital” (WTO, 2006).

The strict and intricate laws to obtain licenses to invest in Vietnam coupled with

monetary investment limitations for a foreign entity, creates a rigid business atmosphere.

The result of the rigidity of the environment can be seen in the amount of JV with

domestic identities. Vietnam and the communist influenced government have recently

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understood the negative implications of the harsh investment laws on their growing

economy

In response, on January 11, 2007, Vietnam joined the World Trade Organization,

to create a more fair trade and investment environment for domestic and international

investors. By agreeing to conform to WTO standards, Vietnam agreed to a broad range

of trade standards. These standards include: trade without discrimination, and treating

foreign and nationals equally; creating a freer trade environment with lowered trade

barriers, a more predictable trade environment, the promotion of fair competition, all to

encourage development and economic reform (WTO, 2006).

While Vietnam did sign the WTO agreement in the beginning of 2007, it does

take a few years for a government to implement new trade standards throughout their

current system. In compliance to their agreement, Vietnam will have fully implemented

the majority of WTO standards by 2010. This includes new regulations that will allow

one hundred percent capital contribution investment by a foreign entity in Vietnam

(WTO, 2007, 36).

Role of the Vietnamese Government

Communism and SOEs

Even while technically defined as a socialist form of government, the Communist

Party still remains the dominant political force. The party selects future leaders and

senior government officials and gives them extensive political and ideological training.

This strong Communist influence makes the situation more difficult for foreign investors

to enter the Vietnamese market. Since communism fundamentally lies in the

unchallenged strength of the government, any international investors with a large stake in

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any one investment could be seen as a threat to power. This has led to the majority of

businesses within Vietnam being State Owned Enterprises (SOEs).

In Vietnam, the process of equitization includes changing an SOE into a

stockholding company where shares are held in private ownership. The 3,000 SOEs

currently equitized represent about 12% of previous state-owned capital (SCIC, 2007).

Even while the communist government has made this important step to conform to WTO

and Doi Moi standards, they have still retained ownership of forty-six percent of the

shares of the newly equitized firms. Another thirty percent are held by the managers and

employees of the firms, leaving only twenty four percent available for outside investors.

Of the 3,000 newly equitized firms, only twenty attracted foreign investment. The

Vietnamese government has pledged to continually equitize SOEs, leaving only a few

business sectors completely in the government’s control. These include railways,

airports, the media, tobacco, and defense equipment. Even with this pledge, the

Vietnamese government sends mixed messages to private investors, by allowing them

freer trade regulations, but still imposing a forty-two percent corporate income tax, the

highest corporate income tax in the area (Doing Business, 2007).

While the benefits of equitization may seem apparent, many Vietnamese oppose

the privatization of SOEs. SOEs have some advantages over private firms, in that they

have easier contract application, land and credit access, in addition to subsidized loans.

However, once all of the intended SOEs are equitized, laws regulating SOEs will no

longer be in effect, except for those business sectors kept in government control.

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Credit Suisse

Our Vision

The vision of Credit Suisse is to become the world’s premier bank, renowned for

its expertise in investment banking, private banking and asset management, and most

valued for its advice, innovation and execution (Credit Suisse, 2007).

Out Mission

In order to achieve our vision, Credit Suisse will set new standards: new standards

in partnering with our clients and new standards in providing them with innovative and

integrated solutions (Credit Suisse, 2007)

Reasons for Worldwide Success

Since its start in 1856, Credit Suisse has combined traditional values along with a

lasting drive for innovation to continually enhance the Credit Suisse brand.

Headquartered in Zurich, Switzerland, Credit Suisse is a leading financial services

company providing clients with investment banking, private banking and asset

management services.

Credit Suisse’s asset management services offer many different investment

products, many are alternative investments. They also manage portfolios, mutual funds

and other investment methods for institutions, governments, corporations and private

individuals. Credit Suisse has offices in eighteen countries that focus specifically on asset

management, but is operated globally on an integrated network.

Credit Suisse’s private banking services provide “comprehensive advice and a

broad range of investment products and services tailored to the complex needs of high-

net-worth individuals globally” (Credit Suisse, 2007). In addition, Credit Suisse provides

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asset and liability management to these clients including alternative investment products.

This includes wealth management and booking platforms in addition to their banking

services to business and retail clients.

Credit Suisse also offers investment banking services that include securities

products and financial advisory to corporations, government and institutional investors.

Operating in 57 locations across 27 countries, Credit Suisse specializes in “innovative

solutions, drawing on expertise from across the full spectrum of products: debt and equity

underwriting, sales and trading, mergers and acquisitions, investment research,

correspondent and prime brokerage services” (Credit Suisse, 2007).

Credit Suisse is currently active in over 50 countries, and is one of the few truly

integrated banks, providing institutional and private clients with rapid and effective

service. “Credit Suisse’s business model is the response to constantly changing client

needs in an industry that is driven by globalization and rapid technological

developments” (Credit Suisse, 2007).

Reasons for Success in Vietnam

With the recent privatization policies for Vietnam’s State Owned Enterprises, the

market will be more monetarily fluid. Investment regulations have also recently changed

due to implemented WTO standards. The business environment in Vietnam is full of

opportunities. Credit Suisse’s expertise and seasoned business model for emerging

markets was a key factor in identifying the Credit Suisse as a good match for Vietnam.

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emerging markets in Asia, the first is Pakistan, the other Vietnam. Credit Suisse has

initiated a fund specifically for purchasing or partnering with foreign companies in

emerging markets; the fund is currently worth $6.7 billion (Credit Suisse, 2007).

Credit Suisse has acknowledged the importance of the Vietnamese market for

over a decade. While most of its competitors began operations in Vietnam in the early

90’s, Credit Suisse waited until the government initiated much need reforms. Credit

Suisse has acted as a consultant to the process of Vietnam credit rating, conducted by

Moody’s, S7P, and Fitch since 2001 (VietNamNet, 2007). In 2005, Credit Suisse stepped

up its commitment in Vietnam by acting as the guarantor in Vietnam’s successful

issuance of $750 million worth of international bonds (Credit Suisse, 2007).

Currently, Credit Suisse is working on a $1 billion loan to Vinashin, a state owned

shipbuilding company and is also advising some of Vietnam’s largest SOEs on

equitization strategies (VietNamNet, 2007). Credit Suisse obtained an SSC license from

the government allowing it to buy and trade domestic securities in the Ho Chi Minh and

Hanoi stock exchanges. The growing footprint of Credit Suisse in Vietnam necessitates

the need to establish a Vietnam branch.

After Credit Suisse secured the loan to Vinashin, the PM of Vietnam, Nguyen Tan

Dung told Credit Suisse CEO Oswald J. Gruebel, “I hope leading CEOs and

consultancies will be much involved in the Vietnamese market, and I wish you every

success in Vietnam’s economy’’(VietNamNet, 2007). The government of Vietnam is not

alone in recognizing the importance of Credit Suisse in the development of emerging

markets. The Credit Suisse brand name is one of the most credible in the industry. Credit

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Suisse has received many awards in 2007 in the global banking community, here are just

a few:

-Global Investment Bank of the Year -Best Leveraged Finance House-Best High Yield Bond House

-Best Leveraged Finance House-Best Emerging Markets Debt House-Best Investment Bank in Vietnam

- -Best Investment Bank in Indonesia

-Best Equity Underwriter -Best Debt Underwriter -Best Long-Term Partner -Best Overall Investment Bank

The variety of awards illustrates the credentials of Credit Suisse, a brand name that gives

the company a competitive advantage in the highly saturated market of global banking.

Weaknesses

The Credit Suisse Group has witnessed a decline in its net interest margin over the

past few years. The group's net interest income has declined from $6,166.9 million in

fiscal year 2004, to $5,387.4 million in 2006 (datamonitor, 2007). The net interest margin

of the group has declined from about 0.91% in fiscal year 2004 to 0.59% in 2006. This

was mainly due to an increase in interest expense in the group's institutional securities as

a result of higher short-term borrowing costs and higher financing liabilities. The decline

of interest margins deceases the company’s bottom line.

The other weakness identified by Credit Suisse on their website was the relative

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weak performance of asset management over fiscal year 2006. The income from

continuing operations before taxes from asset management division declined by 49.5% to

touch $416.8 million in fiscal 2006, down from $825.4 million in fiscal 2005. This is

primarily due to the rising operating expenses of this division. The operating expenses of

this division increased by 31% to touch approximately $1,929.8 in fiscal 2006 from

$1,472.8 million in fiscal 2005. The cost to income ratio stood at 82.2% in 2006

compared to 64.1% in 2005. Declining margin from this division indicates the existence

of cost inefficiencies and gives the company a competitive disadvantage.

Opportunities

The opportunities open to Credit Suisse are a result of strong growth in Vietnam

18

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and reflect the needs of the market and consumers. The current business environment in

Vietnam is alluring to global banks. The financial sector in Vietnam has grown

considerably, due to reforms and high GDP growth rates since 1998. The growth in the

financial sector necessitated the creation of stock exchanges in Vietnam.

The Ho Chi Minh Stock Exchange (HOSE) has grown dramatically, albeit

erratically since its innaguration in 2000. Due to the government regulations and the

listing of companies on HOSE in Vietnamese Dong, Vietnamese stocks had remained

largely inaccessible to foreign investors (Economist, 2007). WTO accession in 2006

liberalized HOSE by allowing foreign banks to gain access to SSC licenses for the

purpose of buying and trading stocks listed on HOSE (Hochiminhcity, 2007). Since the

reform, foreign investors are now piling in to what remains a fairly small market. Its total

worth has risen from $400m in early 2006 to around $22 billion (Economist, 2007).

The HOSE stock exchange represents a significant opportunity to Credit Suisse.

Vietnamese companies have the potential to grow very rapidly, a demand identified by

the financial banking sector as very important to investors worldwide. A 2007 survey of

300 senior executives conducted by Ernest & Young shows that 83% of participants are

looking to emerging markets for strategic investments (Credit Suisse, 2007).

In spite of recent achievements, Vietnam’s process of transition to a market

economy is still ongoing. State Owned Enterprises (SOEs) still represent a substantial

part of the economy. The process of SOE reform, whose centrepiece is

“equitisation”, the partial divestment and transformation of SOEs into

joint stock companies, represents a prime opportunity to serve as the

equitizaition consultant to the Vietnamese government (European

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Commission, 2007, 6).

SOEs today account for 39% of both GDP and industrial output and

35% of non-oil exports (European Commission, 2007, 6-7). While the

SOE sector is becoming more profit-oriented and its economic

performance has improved overall, it is consistently outperformed by

the non-state sector, not least as a result of ineffective corporate

governance (European Commission, 2007, 6-7). The EC also noted that

SOEs account for the lion’s share of Vietnam’s non-performing loans,

resulting in contingent liabilities for the government estimated at 8%

of GDP, and thus weaken the position of the banking sector. The

inefficiency of SOEs was a driving force behind the revamped

commitment in 2001 by the Vietnamese government to speed up the

equitization of SOEs (Credit Suisse, 2006). Being the emerging market

leader in: merger & acquisition advisory, debt & equity underwriting,

and especially Initial Public Offering (IPO) services, Credit Suisse would

be an excellent consultant.

Threats

The main threats to Credit Suisse are its competitors. Credit Suisse is not the only

company aware of the promise in Vietnam. Unfortunately, there are many other banks

operating in Vietnam, including most of Credit Suisse global competitors. Although there

are many competitors in Vietnam, the threat to Credit Suisse is not as significant as it

could be. The strategy of Credit Suisse’s competitors seems to be, offer a broad range of

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services in the hopes of creating demand for at least a few of them. Credit Suisse will not

attempt to compete in this matter. Credit Suisse will focus on a strategy of specialization

focusing on the demands of the market, such as equitization.

Credit Suisse’s three main competitors are Deutsche Bank, HSBC, and Morgan

Stanley (Datamonitor, 2007). HSBC and Deutsche Bank entered the market early in

1993, while Morgan Stanley entered last year. All three offer a broad variety of services

like: import/export finance, trade finance, insurance, securities, account services, and

personal banking. So far, Credit Suisse’s competitors have been content to compete with

the same services, stressing brand loyalty as the difference. The specialization strategy of

Credit Suisse could shake up the market by inducing its competitors to follow suit.

Political Risk

The political risk in Vietnam has been significantly reduced by economic and

political reforms, but is still a threat to the company. The potential for risk exists because

of the central control of the government. Power is concentrated into the hands of very

few. The CVP is still under the overwhelming influence of the ruling elite and the

military (business monitor international, 2007). The CVP enacted a new law this year

denying a large sector of the Vietnamese economy the right to strike (business monitor

international, 2007).

The CVP is also engaged in an ongoing dispute with ethnic minorities in the central

highlands, most notably the Montagnards. Like many ethnic minorities in LDCs, the

Montagnards measure lower in every economic statistic than the majority Kinh Viet

people. The Montagnards have suffered tremendously. After fighting on the U.S. side in

the Vietnam War, 200,000 Montagnards were killed, many in public executions

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(Washington Times, 2006). The Montagnards have since been moved from their ancestral

land, living in extreme poverty in reservations with little access to public services. The

Vietnamese government has routinely denied the existence of any conflict and has

blockaded the central highlands from foreign press (Washington Times, 2006).

The Montagnards have adopted more violent forms of protest in the last five years

including direct attacks on Vietnamese military and police. It is difficult to grasp the

extent of the violence in the highlands. Vietnam is listed as one of the worst counties in

freedom of the Press. The current situation is an appalling civil rights abuse, but not a

direct threat yet to the business sector in Ho Chi Minh City. However, recent conflicts

have proven to be extremely disruptive to Asian LDC economies, most notably in

Myanmar and Sri Lanka.

Environmental Risk

There are environmental risks affecting the global banking environment and the

environment in Vietnam. The global banking environment has been hit by poor forecasts

for the short-medium term. The performance of the global banking industry is forecasted

to decelerate, with a compound annual growth rate anticipated at 3.5% for the five-year-

period 2006-2011 (Datamonitor, 2007). The decline in growth takes into account many

unfavorable factors such as, new global banking regulations, mortgage uncertainty and

interest rate volatility. Environmental risks inherent to Vietnam are climate related risks:

monsoons, typhoons, flash-floods, and tropical diseases pose relative threats to Credit

Suisse (CIA World Factbook, 2007). The sum of the environmental risk adds another

dimension of needed hedging to ensure a successful business venture.

Target Market

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As stated in their description of services, Credit Suisse targets their investment

banking services to corporations, government, and institutional investors. As a successful

international bank, it was decided to have the target market be the same entities for

foreign investment into Vietnam. These would include corporate investors defined as

companies that invest, or acquire control of other companies; and, institutional investors

that are banks, insurance companies or retirement funds and financially sophisticated

hedge funds (Credit Suisse, 2007).

Credit Suisse identifies the importance of marketing to an established customer

base. These clients are already aware of the reputation of the company and have an

established business relationship with Credit Suisse. These clients typically understand

the emerging markets and therefore are informed consumers, likely to respond to a

successful marketing strategy.

In addition, it was also decided to target the countries and governments that are

currently the main contributors into Vietnam. Taiwan, South Korea, Japan and Hong

Kong are the top four governments that are currently investing into Vietnam (Economist,

2007). By targeting these governments, Credit Suisse will be able to explain the benefits

of investing in the emerging market since they are already familiar with current trade

trends and regulations. The abundance of funds flowing through the Vietnamese market

as a result of the equitization of SOEs will be a target of Credit Suisse. Domestic

investors will have a new incentive to invest in the economy as more securities become

available on the Ho Chi Minh Stock Exchange.

Product

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Having established the needs of our target market, Credit Suisse will develop

products that are synergistic in nature, while taking into account the current business

environment. The market at this time is too saturated to make private banking worth the

extra cost. Therefore, Credit Suisse will focus on asset management and investment

banking.

In Investment Banking, Credit Suisse currently offers securities products and

financial advisory services to corporations, governments and institutional investors

(Credit Suisse, 2007). Operating in 57 locations across 26 countries, Credit Suisse’s

investment banking business specializes in innovative solutions, drawing on expertise

from across the full spectrum of products: debt and equity underwriting, sales and

trading, mergers and acquisitions, investment research, correspondent and prime

brokerage services. Investment banking in Vietnam will be very similar to this model, but

will focus specifically on the services relevant to equitization. Necessarily, Credit Suisse

will emphasize its competitive advantage in merger and acquisitions, debt and equity

underwriting, and investment research.

In its asset management business, Credit Suisse offers products across the full

spectrum of investment classes, ranging from equities, fixed income and multiple-asset

class products, to alternative investments such as real estate, hedge funds, private equity

and volatility management (Credit Suisse, 2007). Credit Suisse’s asset management

business manages portfolios, mutual funds, and other investment vehicles for a broad

spectrum of clients ranging from governments, institutions and corporations to private

individuals.

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Asset management in Vietnam will be a prime focus for the company as its asset

management performance is one of the company’s biggest weaknesses. The market for

asset management is huge in Vietnam, both domestically and internationally. The

domestic market is comprised of the government, public and private businesses, and even

individuals interested in a manager for their respective portfolios. The volatility of the

market necessitates a professional manager with a successful track record in high

risk/high yield market worldwide. Credit Suisse is that manager.

In addition to management services, Credit Suisse will offer two introductory

products. The demand for emerging market funds is large for investors that can afford the

risk involved. Credit Suisse will begin by offering two mutual funds to meet the demand.

The funds will both be comprised of small amounts of equity from Vietnam’s most

successful listed companies. One of the funds will target the needs of the domestic

market. This fund will be comprised of riskier securities, as the investment regulations

are less stringent domestically. The international fund, also available to domestic

investors, will be a fund hedged to decrease the risk. The foreign fund will be more

expensive due to the higher cost of conforming to international banking regulations, like

the new Basel Accords enacted to inform potential investors of the risks to their privacy

and portfolios (Credit Suisse, 2007). Credit Suisse will monitor the success of these funds

closely with the goal of offering more products in the near future.

Place

Ho Chi Minh city is located on the southern tip of Vietnam. The city is the

financial capital of the country, and boasts the first Stock Exchange of Vietnam which

opened in 2001, and is now one of Asia’s most dynamic stock markets. With over

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300,000 businesses populating the city, it is also seen as the economic center of Vietnam

(Economist, 2007). The modern business sector is composed of many large enterprises in

different industries including: technology, electronics, information processing, light

industrials, and agro-products (Economist, 2007). The city has fifteen industrial ports,

and the Quang Trung Software Park, and the Saigon Hi-Tech Park. The computer

company Intel invested one billion dollars into their plant located in the heart of Ho Chi

Minh City.

The city accounts for twenty percent of the national Gross Domestic Product and

thirty percent of industrial product value (Economist, 2007). Ho Hi Minh City also

contributes about twenty-one percent to the national revenue per year. In addition to the

thriving economy, higher education is more developed in Ho Chi Minh City than

anywhere else in Vietnam. Fifty universities are located within the city, with over

300,000 enrolled in the universities. The universities include the University of

Polytechnic, University of Information Technology, Faculty of Economics, the

University of medicine and the University of Banking (Economist, 2007).

Ho Chi Minh City is the best place to launch Credit Suisse. Credit Suisse wants

to be in the financial hub of any city they enter. Ho Chi Minh City is the overwhelming

financial center. It is also the intellectual center. As evidenced by the higher enrollment

rate, Ho Chi Minh City has most of the countries young minds.

Promotion

To promote the entrance of Credit Suisse into the Vietnamese market, it has been

decided that two promotional activities will be undertaken. Each activity will address a

different sector of the defined target market through a multitude of events.

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Soccer

Soccer is a social institution within Vietnam. It is the most popular sport, and

children are taught to play from their youth. Vietnam has two major soccer teams, the

Vietnam National Football Team, and the V-League (vietnamnet, 2007. The National

Football Team is a large team that is very popular within the nationals. However, the V-

League sponsors youth through adult leagues, and is a more successful team in different

tournaments. In Vietnam last year, the V-League sponsored the Tiger Cup, and also

played in the King’s Cup. The adult V-League team made it to the quarter-finals in both

of these tournaments.

It has been decided that Credit Suisse will help sponsor the V-League, and its

programs for youths and adults alike. By showing the local community that Credit Suisse

is interested in their community through supporting local youth soccer teams, Credit

Suisse will gain a positive reputation among locals. Also, by supporting the adult V-

League teams, Credit Suisse will be able to get their name out to the domestic and foreign

viewers of the tournaments.

This has proved successful in the past with Credit Suisse, as the host a seven day

rugby tournament in Hong Kong, and is very popular internationally and domestically

(Credit Suisse, 2007).

Asian Investment Conference

The Asian Investment Conference (AIC) is an international event sponsored by

Credit Suisse (Credit Suisse, 2007). Held in Hong Kong every year, the conference is

seen as the leading event for foreign investors to discover tomorrow’s opportunities and

issues facing Asia. Leading international corporate, governmental, and private investors

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travel to Hong Kong to participate in seminars and meet with other investors to talk over

trade and investing contract in a mediated forum.

In addition to the highly regarded investment conference, Credit Suisse sponsors a

seven day rugby tournament, called The Sevens. The Sevens is a very popular event

domestically and internationally, and attracts viewers all over the globe. Credit Suisse

sponsors the entire event and their logo can be seen throughout the entire event. Credit

Suisse successfully combined the professional goals of their conference with the

important cultural ties to their investors, to provide an influential conference highly

regarded by many powerful investors.

It is at the AIC that credit Suisse will announce their entrance to the most recent

emerging market in Asia: Vietnam. To gain interest into this market, it was decided that

the opening speaker of the conference will be the Prime Minister of Vietnam. The

opening speech at the AIC has in the past been filled by presidents, prime ministers and

Nobel Prize winning economists (Credit Suisse, 2007). In addition, since the conference

is based around the opportunities within Asia, multiple seminars and lectures regarding

the upcoming Vietnamese economy will also be included. This will inspire investors to

either invest in Vietnam and their newly privatized SOEs, or inquire for more information

regarding the economic status of Vietnam. Either way, Credit Suisse sees both of these

options as a benefit, as investors will have more information regarding the Vietnamese

Economy, and will see Credit Suisse as a leader in this emerging market.

Price

To determine the price of investments within the Vietnamese economy, many

factors needed to be accounted for. Bidding, personal consultation, operating leverage,

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market volatility, additional fees, and the basic market price of the product are all

determinants of the price for international investments. It is impossible to analyze past

pricing due to privacy laws. Credit Suisse’s pricing will remain a complex package

based on current interest rates, future discounts, management services, products offered,

and a number of other factors unknown at this point in time.

Market Entry Strategy

The success of the venture is highly dependent on the ability of Credit Suisse to

secure a joint venture partnership. The WTO laws concerning banking and other financial

sectors allow for 100% foreign owned branches staring April 1, 2007 (WTO, 2007, 36-

40). WTO laws concerning the securities sector are more stringent, not allowing 100%

foreign ownership until 2012 (WTO, 2007, 36-40). Credit Suisse will operate as a hybrid

bank, offering common financial services and securities, thereby denying Credit Suisse

sole ownership of its branch in the first year of operation.

A partnership would also be advantageous to Credit Suisse if the partner could

provide access to government securities or help to lessen start-up costs. The best potential

partner for Credit Suisse is a government holding company named State Capital

Investment Corporation or SCIC. SCIC was created in 2005 to help with the equitization

of SOEs. SCIC’s primary objectives are to facilitate SOE reforms and improve efficiency

of the government’s capital resource utilization (SCIC, 2007). SCIC also manages a

massive portfolio covering different sectors, such as financial services, energy,

manufacturing, telecommunications, transportation, consumer products, health care, and

information technology.

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It is obvious from the company description on the SCIC website that there is goal

compatibility between SCIC and Credit Suisse. Credit Suisse would benefit by partnering

with one of its largest customers, the Vietnamese government. SCIC would also provide

unquantifiable access to market data and would greatly reduce regulatory hurdles. SCIC

could benefit by partnering with one of the market leaders in equitization. SCIC has

proved to be much less efficient than Credit Suisse in managing its equity. The ROE for

SCIC is near 11%, whereas Credit Suisse is consistently over the 20% mark (Credit

Suisse et al, 2007 & SCIC et al, 2007). A business partnership between Credit Suisse and

SCIC would be an asset to both companies.

Credit Suisse will attempt a 20% stake in SCIC. WTO regulations mandate that

no foreign firm can take more than a 30% stake in a Vietnamese state owned banking

entity (WTO, 2007, 42). Credit Suisse negotiators must be aware that the Vietnamese are

known for stalling negotiations to put pressure on the other side. This is one of the

reasons it took ten years of negotiation for Vietnam to accept WTO regulations. Credit

Suisse must remain honest and focus on the synergies inherent in the deal. SCIC will be

keenly aware that Credit Suisse must have a partner to enter the market. This necessitates

the need of a back-up plan highlighting different potential partners so that Credit Suisse

has some bargaining power. Credit Suisse must also consider compromising down to a

10% stake, but any less would jeopardize the financial goals of the company.

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31

Cost Forecast



The cost forecast above is our best estimate at the costs of implementing this venture. It isalso the culmination and climax of our presentation.

*Sources: (Doing Business in, 2007)*Sources for Energy: (Electricity of Vietnam, 2007), Needs based on 100,000 square

foot, type “A” office building.

Start-Up $130.08

Contributed Capital $54,000,000

Licenses $2,010.12

Property $20,000,214

Wages $6,500,000

Energy $110,000

Cost of Revenue 15% of revenues

Total ~$100,000,000

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References

Chandler, Clay (2006) Vietnam Vrooom Asia's second-fastest-growing economy takes

the global stage. Retrieved December 3, 2007 from

http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393174/in

dex.htm

Country Profile: Vietnam (2007). The Economist. Retrieved November 2, 2007 from

http://www.economist.com/countries/Vietnam/profile.cfm?folder=Profile

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Karrnow, Stanley. (2007). Vietnam: A History. Penguin (Non-Classics)

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http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393174/index.htm


http://www.csfb.com/

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http://www.credit-suisse.com/investors/doc/apac_forum_ib.pdf

http://www.csfb.com/about_csfb/awards/index.shtml


http://www.doingbusiness.org/ExploreEconomies/?economyid=202


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CIA. (2007) CIA World Fact Book. Retrieved September 30, 2007 from

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http://www.scic.vn/index.php?lang=en








http://www.scic.vn/index.php?lang=en








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