Credit

Constraints of marketing Legal aspects There are four legal aspects that can limit and constrain your marketing, these are the sales of goods act 1979, and this law means that all products must be ‘as described’ of ‘a reasonable quality’ and be suitable for everyday purpose and also any specific purpose agreed. E. g. a waterproof coat must be waterproof. Another legal aspect is the trade descriptions act this means that a product cannot be sold by misleading the buyer, in the way the product was made, what it is made of or where and when it was made.

E. g. You cannot say something is handmade if it is not, and a hair dryer made for drying hair, must actually dry hair. The consumer credit act 2002 protects consumer’s rights when they buy goods on credit. Traders who offer credit must have an OFT (Office of Fair Trading) licence, this deals with the method of calculating APR (Annual Percentage Rate) the form and content of the agreement, and lenders guidelines. When lending money, businesses much have interest rates clearly stated and cannot change them after you have signed up.

The Data Protection Act means that any information stored by marketers must only be used for the purpose stated when collected, it must be accurate and up to date, not kept longer than the period of time stated, and obtained fairly and lawfully. It must be kept up to date as if someone passes away you should not call asking for them. Also your information is protected from unauthorised use, and cannot be passed on to other companies without your permission. The information stored is available for your inspection and correction upon your request.

Voluntary codes A voluntary constraint is when a company voluntary says they will never do something or they will always do something. This could include signing a code of practice stating certain behaviours ethically, even though it cannot be legally enforced. The ASA (Advertising Standards Authority) overlook advertisements in the UK and have been controlling non-broadcast ads for nearly 50 years. They say adverts must be decent, legal, honest, and truthful. The ads online are also subject to these rules.

Most companies sign up to the ASA and then on follow their rules, if the rules are broken they are not breaking the law but the ASA will publicise this and show everyone what has happened and what they have done. 2397 ads were changed or withdrawn in 2009 by the ASA. E. g. The advert, for the Ford Ka’s ‘Evil twin’ featured a pigeon-bashing four wheeler that brought the wrath of animal rights activists across the country, meaning the advert never even made it to air in the UK. Pressure groups and consumerism

Pressure groups are groups of people who share the same interests in a business or product; these groups can persuade or force businesses to make changes to their products or services. E. g. cancer research focus on the particular smoking issue and attempt to reduce smoking. And Friends of the Earth are a multiple cause group who seek to influence the decisions made concerning the environment. Greenpeace seek to promote environmental issues to its members and supporters. Marketing must include promotion to get people intrested. Consumerism is ‘a social movement seeking to augment the rights of buyers in relation to sellers’

Vietnam’s banking system is dominated by five state-owned banks, with around 70% of system assets at end-2008. Around 38 private banks comprise roughly another 25%, with the balance substantially accounted for by a host of foreign banks. In recent years, the private banks, being more commercially oriented, have grown rapidly at the expense of the state-owned banks’ market share. The foreign banks have also grown, as opportunities improved for them after Vietnam entered a bilateral trade agreement with the US in 2001 and acceded to the World Trade Organization (WTO) in 2006. The Research Paper will examine the Vietnam’s banking sector as a whole, including general characteristics of the Vietnamese banking market.

It then analyzes the proportion in term of loan and deposit of state-owned, joint stock, joint venture and foreign banks. In the second part, the report lists opportunities for foreign banks to penetrate the Vietnam market under new legal requirement of the Vietnamese Government. They can establish 100% foreign bank entity, purchase stake in local banks or set up joint venture with Vietnamese partners. Finally, it will examine strengths and difficulties in terms of technology, expertise and experience, service quality, risk appetite, etc. f the foreign banks when operating in Vietnam market.

There are a lot of banks in Vietnam. Too many in fact. Currently there are five state-run commercial banks, 38 joint stock commercial banks, four joint-venture banks, 29 foreign bank branches, 45 foreign bank representative offices, five finance companies and nine finance leasing firms operating in Vietnam. Since 1992, Vietnam has moved to a diversified sys-tem in which state-owned, joint-stock, joint-venture and foreign banks provide services to a broader customer base.

However, the four main state-owned commercial banks – the Bank for Investment and Development of Vietnam (BIDV), the Bank for Foreign Trade of Vietnam (Vietcombank), the Industrial and Commercial Bank of Vietnam (Incombank) and the Bank for Agriculture and Rural Development (VBARD) account for around 70% of all lending activity. In a trade agreement with the United States signed five years ago, Vietnam fully committed to allow in foreign banks by 2010 at the latest, and to expose the banking sector to foreign competition. Under WTO entry rules the door may have to be opened even sooner than that.

This has prompted foreign banking groups to closely scrutinize the Vietnamese banking sector as a business opportunity in itself.  Vietnamese banking market is currently dominated by the five major State-Owned Commercial Banks (SOCBs), with 38 semi-private so-called joint stock commercial banks (JSCBs) gradually eating into their market share by better catering to the needs of small and medium-sized enterprises (SMEs) and retail clients. Years of lax monetary policy focused on supporting export-led GDP growth has flooded the banking system with money, pushing up redit growth to an annual average of 36. 4% over the past five years (2003-2007), hitting a peak of 54. 9% last year according to World Bank figures. High liquidity and a scramble for market share have resulted in a degree of aggressive lending, in particular to investments in the real estate and stock markets, which both experienced rapid downturns in 2007 and early 2008. State-Owned Commercial Banks: The five SOCBs – Agribank, Bank for Investment and Development (BIDV), Vietcombank, Vietinbank and Vietnam Development Bank – hold roughly two thirds of banking assets according to IMF sources.

The SOCBs are still encumbered by their previous role as instruments for implementing government policy. Indeed, the strong links between senior bank executives and the ruling Communist Party of Vietnam, and other state-owned enterprises (SOEs) have impeded much-needed corporate restructuring. Hence, SOEs still receive preferential treatment in loan allocation, resulting in the SOCBs running up high non-performing loan (NPL) ratios. The SOCBs are currently reporting NPL ratios of around 3%, but we are expecting this figure to rise to 5% before the end of 2008.

However, we carry doubts about the reliability of official figures and suspect the real ratios could be significantly higher. Joint-Stock Commercial Banks: The 38 JSCBs presently control roughly 20-25% of banking assets in Vietnam, but are quickly eating into the market shares of the larger SOCBs by providing superior services to SMEs and retail savers. The JSCBs are generally better managed and more profitable than the SOCBs, but suffer from low capitalisation, which has made them vulnerable to Vietnam’s domestic ‘credit crunch’, prompted by the SBV’s rapid tightening of its monetary policy.

Foreign Banks: HSBC and Standard Chartered and a number of other foreign banks are already present in the Vietnamese market through joint ventures with JSCBs. HSBC increased its stake in Techcombank to 20% in August and Standard Chartered raised its stake in Asia Commercial Bank (ACB) to 15% in May 2008, but foreign banks have been prevented from increasing their stakes by restrictions on foreign ownership of domestic banks. Vietnam currently limits the shareholding a foreign bank can take in a domestic counterpart to 20%, with the total foreign ownership limited to 30%.  Very Low Market Penetration There are only about six million bank accounts in Vietnam, five million of them for individuals which amounts to a penetration rate of about 6%. In reality, the effective potential market size is about 20 million or trebles the current penetration level. That is the size of the AB socioeconomic class in Vietnam. Even so, if we compare this to the internet and mobile penetration rate of 14% and 12% the number is rather low. The reason is simple: the distribution and infrastructure of banking services is very poor relative to the telecommunications industry, which has virtual national coverage.

By contrast, banks are almost unheard of in secondary cities and rural areas. With a low urban population of about 29%, banks simply don’t have easy access to over 70% of the population. There are other reasons, of course. Until recently the government had encouraged a cash economy by paying state employees in cash; there is a traditional distrust of banks; the banks themselves have done a poor job of providing services to the retailing public; and small businesses too are poorly served by banks unwilling to give them large loans unless they have the collateral to back it up.

Of course the banking industry is growing rapidly with both deposits and loans expanding at high, double-digit growth rates per annum. And some banks such as Vietcombank, ACB, Sacombank, and Techcombank are making a determined effort to court the retail market.  GDP Growth Credit growth in Vietnam has been expanding at a breakneck speed these last few years. Not surprisingly given heady GDP growth. Nonetheless, the sustained rate of increase over several years has raised eyebrows at international bodies such as the IMF and World Bank.

They like their credit growth at room temperature, rather than piping hot. Well piping hot is what they’ve got. In fact, the state-owned banks saw credit grow at an annual average rate of 24% over the past five years. Given the inability of some bankers to distinguish a good credit risk from a bad one (assuming they have a choice) this is not entirely a good thing. Hence the international sigh of disbelief that such stellar credit growth has been accompanied by a falling NPL ratio.

According to some economists a 7% GDP growth rate can accommodate an annual credit growth rate of about 14-20%, roughly a factor of two without generating a lending bubble. However, credit growth rates above that level for any extended period of time are unhealthy for an economy. Admittedly credit growth rates have been falling for the last year down to about 15% as the central bank has tried to rein in credit departments. So far this year in fact lending has expanded at only about 16% nationwide. Going forward the speed of credit growth may well start expanding again as WTO becomes a reality.

One bank has forecast that credit could grow at 35% per annum over the next five years given sufficient access to capital. While the better banks could probably cope with this, the temptation for others to take on too much risk is high.  Five state banks have carved up 70% of the loan market while forty-odd joint-stock banks and a host of foreign banks scrap for the remaining 30%. Compare this with the US where the ten biggest commercial banks control only 49% of the country’s banking assets, up from 29% a decade ago.

Thus, at the top tier, the market acts like an oligopoly, while beneath the surface there is a holy war going on as mite-sized private sector banks scrap for the rest. Since the market itself is growing so fast this may not seem so bad. The state banks are also slowly bleeding market share. Even so things look very lopsided. Enter the State Bank of Vietnam (SBV), concerned about the fragmented nature of the private sector banks. They will introduce new regulations to force another round of consolidation in the near future.

One way of doing this is to set high hurdles for any new established bank before it can get a license. All banks will need to have chartered capital of VND 1 trillion ($62. 8 million) which is exceeded by the existing capital of only the very biggest JSCB’s such as ACB and Sacombank. All other existing banks fall far short and will need to scramble for new capital or merge in order to meet the new requirements. And that is just the first round. From next year the SBV has circulated a draft proposal to raise the minimum capital level to about US$300 million.

And there you have the consolidation trigger. 50% of the JSCB’s face merger or takeover. They will also have to demonstrate experience in banking governance. Banks will need to commit to Basel 2 standards from 2010. One of the key issues is the regulation of key stakeholders, such as a bar on lending to stakeholders or their affiliates. This is to prevent corporations from using their own banks as private piggy-banks. Currently a corporate of family can own up to 40% of a joint-stock commercial bank.

The government still exerts strong control on the banking sector in two ways. Directly, through various regulations and restrictions which govern how they conduct business and strictly licensing the type of businesses they can enter; and indirectly through the interference of a myriad of agencies and ministries, both local and national, who want to have a say on how scarce credit resources are allocated. The state-owned banking system is trying to shift from directed policy lending to a commercial system. But the transition is proving slow and painful.

Given the legacy of state control at both national and local level it’s hardly surprising that the state-owned banks routinely complain about interference in their lending decisions and overall management. It seems that banking is too important to be left to bankers. The culture of social and political lending is still dominant amongst local officials and bureaucrats, as is the idea of consensus building and consultation before decisions are taken. To be fair, the problem has been recognized and things are getting better.

With the proposed re-organization of the SBV for example, fewer local branches should reduce the amount of day-to-day noise coming in to credit departments. Local authorities will have less leverage in leaning on banks without the local central bank office to back them up. And the recently announced decree allowing for 100% foreign-owned bank branches will finally set the stage for a level playing field for foreign banks. However, without eliminating limits on branch openings and mobilization of Dong deposits (currently limited to 350% of total capital for foreign banks) some painful shackles will remain.  Lending decisions in Vietnam are still based more on relationships than cash flow. The assessment of loan customers is usually driven by the relationship with the bank and the size of the collateral being offered. Cash flow driven assessment and qualitative analysis is reserved for large private sector customers only. Amongst the large banks only ACB bank uses DCF analysis across their entire customer base. The problem is partly due to outside interference in the decision making process and partly due to a lack of professional guidance.

The absence of IT infrastructure to support professional credit analysis is another major factor. Another issue is exposure. Most banks lend a lot of money to a fairly narrow base of customers. The top 30 state-owned corporations probably account for over half of the state banks lending books. The private sector joint-stock commercial banks (JSCBs) are no different. One of the legacies of state ownership is a severe shortage of capital at the state banks, a quality shared by private sector commercial banks as well.

Government restrictions on equity holdings combined with a bond market that hardly functions has made raising chartered capital very difficult for banks. Average capital adequacy ratios (CAR) in amongst Vietnamese banks stood at 4. 5% at the end of 2007. This compares with an average CAR of 13. 1% in Asia Pacific and 12. 3% in South-East Asia. Admittedly with large scale raising of capital this year this number is improving. With most of the state banks well below the minimum 8% capital adequacy ratio for Tier 2 capital, lack of access to the international capital markets has constrained their growth.

And this valuation is anyway based on a vary generous reading of their NPL’s. The JSCBs are in only a slightly better state with a handful able to cross the 8% hurdle rate. The rest are pitiful. And given that the domestic capital markets are still in the fledgling stages, raising new capital has been the biggest headache for all banks. The stronger JSCBs have responded partly by selling shares to foreign strategic partners. Further down the line, where profitability is lower and capital particularly skimpy the options are more limited. The SBV is chary of allowing smaller anks to raise capital from foreign investors. Going forward all of the banks have substantial appetites for raising further capital, to shore up their Tier 2 capital base to bring them over the 8% CAR hurdle by 2010.  Vietnamese banks make money from loans. And that’s basically it. Compare that to Western banks that make about a quarter of their income from fees – credit card fees, lending fees, arranging fees, etc. – and most have branched into wealth management. Well, not in Vietnam.

To be fair this is tied into the lack of availability of credit history: banks don’t like lending to strangers they know nothing about. The state banks are generally geared to the large corporate and state-owned sector, providing syndicated loans for utilities, infrastructure projects, heavy industry and property developers. JSCBs are geared mainly towards lending to small and medium sized enterprises (SMEs) and the wealthier retail customers. However given their low penetration and limited branch network they only reach a fraction of their potential customer base.

Car loans, mortgages and house improvement loans are retail staples. And small business loans using property as capital is the basic model for the SME market. In general, the Vietnamese banking model is best described as relationship-based rather than product-based as in international banks. If you were to believe the State Bank of Vietnam (SBV) statistics the non-performing loans problem has been largely dealt with since 2000. Amongst the state-owned banks, non-performing loans (NPLs) have fallen steadily from 12. % in 2000 to 8. 5%, 8. 0% and 4. 47% in 2005, 2006 and 2007, respectively. Under a new stricter definition, the official number in 2008 has risen to about 7. 7%. Overall, about half of the NPL’s are on the watch list, which is the second of five lending categories in the new SBV scoring system. The other half fall into the three categories below watch list which are of greater concern. For private sector JSCBs, average NPLs were said to be around the 1% level at the end of 2007. Of course few believe the official numbers.

International bodies carried out a similar exercise using Ernst & Young and found that NPL’s in the system using international accounting standard definitions came to about 15-20% of outstanding loans in the state-owned sector. This number is conservative due to limited data; a figure between 20-25% is probably a fairer estimate. In this respect the slow development of the banking industry is a blessing in disguise, things could be a whole lot worse. The worry is that the gap between the official version and the real picture is large and may indeed be growing.

Most NPLs are generated by state-owned enterprises (SOEs) refusing to pay their obligations to state-owned banks. Pre-equalization is a favorite time to write off or simply clear out these loans. That way SOEs can start their new life in the private sector unencumbered by debts. So apart from asking the government to honor the SOEs’ commitment and trying to seize collateral there is precious little banks can do. There is not yet an effective secondary market for bad debt, although attempts to kick-start one are ongoing.

There are very few NPLs sale and purchase transaction taking place. The Government’s Strategy After a long period of hesitation and hints of action the government has come up with a fast-track roadmap to liberalize the financial sector by 2010. Under the roadmap, the state will retain a controlling stake in the banks but its holdings will be quickly reduced to 51%. Foreign ownership will account for a maximum of 30% of total shares, while each strategic foreign institutional investor currently allowed to hold 10-20% at most.

The 20% limit may be eventually erased but the 30% cap will stay for the time being. Basel 1 will be in effect until 2010, when the stricter Basel 2 standards for corporate governance will be introduced. The government will have to introduce further legislation before then to force banks’ compliance, particularly at the ownership level. This may create some buying opportunities amongst the JSCBs as families are forced to reduce their stake.

In theory the central bank enjoys a wide remit. In practice it can’t do much without a legion of agencies and ministries throwing in their penny’s worth of advice. The central bank, the SBV, currently acts as the sole supervisory and regulatory body for the banking sector. It also owns the state-owned banks and sets interest rates. There is a clear need to separate the various roles of the SBV and give it increased autonomy in those areas such as monetary policy and regulation of the banking sector, which are clearly in its remit.

The SBV also needs to be free of its role as custodian of the state’s shareholdings in the banking sector. The SBV sees several key roles for itself in the future: compiling and executing monetary policy, ensuring stability of the credit institutional system, act as a regulator to the banking system. In order to achieve this it needs legislative backing to clearly define its relationship with the National Assembly, government and all government agencies. In simple terms stop the incessant interference from other parties so that the SBV can get on with the job.

After all, if the central bank is not allowed to set interest rate policy and regulate the banking sector without being leaned on, what hope is their for individual banks to lend money without getting the same treatment. Another issue is the lack of cooperation with the MOF on key issues such as bad debt and bank equitisation. MOF has often written off state-owned companies’ bad debt without consulting the banks. And the State Securities Commission (SSC), the stock market regulator often stalls on issuing licenses for banks to list. The two don’t play well together.

There are a myriad of regulations and decrees covering almost every aspect of the financial sector but we would like to look briefly at just three topics: progress removing restrictions from foreign banks, meeting international banking standards and the treatment of NPLs. With regard to meeting international banking standards, the government has appeared to follow WB recommendations to provide the necessary framework for an integrated financial system as required under WTO rules. And so in the last few years some of the necessary legislation has been pushed into place. On the NPL’s, the central bank issued Decision No. 93 to reclassify bad debts and risk reserves closer to international norms. So far, three state-owned banks (SOBs) claim to have successfully reduced their bad debt ratios to less than 5% in accordance with the new rules. Too successfully in fact, but more on this later. Overall the regulatory authorities are making an effort to converge with international standards in the financial sector, but with WTO membership and the 2010 deadline looming, time is not a friend. And foreign banks are still allowed to raise Dong deposits only to a ceiling of 350% of their chartered capital.

In effect this locks them out of the domestic deposit market and is the most important impediment for their expansion plans.  Banks need more tier 2 capital and bonds will provide the bulk of that. However with the bond market in its infancy there are still major constraints on the banks’ ability to raise sufficient capital quickly to reach the 8% capital adequacy ratio they crave. The infrastructure for developing the bond market is still not in place. HSBC is only now offering to provide a pilot rating scheme to enable potential investors to gauge the creditworthiness of various bond issuers.

Fitch and Moody’s have also dipped their toes in the market, rating Sacombank and BIDV respectively. However rating services are horribly expensive and there needs to be a domestic agency to offer these services at prices most banks can afford. Another key hurdle lies with interest rate guidelines in place at all maturities along the yield curve. This prevents risk weightings and effectively bars smaller or weaker banks from coming to the market to issue capital whilst compensating for the higher risk by offering higher coupons.  Non-Performing Loan Ratios to Rise, But Risks of Bank Failures Looms It is likely that there will be an increase in non-performing loan (NPL) ratios from the present 4-5% as an increasing number of companies and households default on their loans on the back of higher interest rates and slowing economic activity. A complicating factor in assessing the risk posed by deteriorating loan portfolios is that Vietnamese banks are currently applying a new system of internal credit rating schemes and debt classification systems in accordance with international standards.

Implementation has so far been diverse between banks, making intra-sector comparisons a complicated business. Consultancy Ernst & Young has estimated that the application of the new standards is likely to lead to an increase in disclosed NPL ratios of 2-3 times, i. e. to the IMF estimates of 15-20%. While the new standards will make the NPL figures more internationally comparable, the resulting increase in the ratios is likely to create uncertainty about the proportion which can be attributed to the new standards and how much is down to an actual deterioration of loan portfolios.

However, it can be believed that the effects on the overall economy from possible bank failures can be contained by larger JSCBs taking over smaller banks pushed to the brink by loan defaults and low capitalisation. Nonetheless, there might be possibility that the government or central bank will need to intervene to force mergers between banks and possibly also recapitalize those in worst health. Consolidation should be a positive for the banking sector by decreasing excessive competition and increasing capitalization levels.

Nonetheless, capital shortages, low technology and a shortage of skilled staff, especially at higher levels, will continue to inhibit the development of the banking sector. This will leave domestic banks exposed to the might of international banking giants such as HSBC and Standard Chartered, which are initially committing US$183 million and US$61 million respectively to their Vietnamese subsidiaries, placing them well in league with the larger JSCBs. Increased competition from foreign players will thus constitute a potent threat to domestic banks, which will be forced to improve services if they want to maintain their market share.

Further expansion will need regulatory approval from the State Bank of Vietnam. The IMF has, in its annual review of the Vietnamese economy, set improvement of financial supervision as a prime task for the government in its reform agenda. The government raising the foreign ownership ratio to 25% for individual banks and 35% in total in 2009-2010 in order to maintain foreign banks’ interest in holding stakes in domestic players, thus assisting in technology transfer.

With the current system in place, there is a risk of a severe divide between better-capitalised, more technically advanced and better-managed foreign banks and a still relatively undeveloped domestic sector suffering from both a shortage of capital and low efficiency. Vietnamese banks are still primarily focused on taking deposits and lending and thus completely inexperienced in asset management and other financial services tipped to be the main growth areas in the Vietnamese banking market going forward.

Domestic players, in particular the larger SOCBs, may have an advantage through their established branch network and client base, but this factor can be rapidly eroded as HSBC and Standard Chartered extend their operations. The threat from foreign banks will be particularly potent for the SOCBs, where reform has been slow in spite of the government’s intention to place them foremost in the queue in the so-called ‘equitisation’ process of transferring SOEs to private hands.

It is unlikely that the government will find takers for its offers of 10-20% stakes in SOCBs for strategic foreign players if it does not radically review its privatisation procedures. With the state-owned banks constrained by politicised decision-making and the private banks suffering from a severe lack of capital, HSBC, Standard Chartered and other regional players will gain the upper hand over time as their extensive experience, superior technology, and readier access to capital work in their favor.

It is unlikely that foreign players will dominate the Vietnamese banking sector in 10-15 years time, with the larger JSCBs being majority-owned by foreigners and the role of the once-impressive SOCBs reduced to supporting inefficient state-owned companies and agricultural households.

Conclusion

In Vietnam, there is only less than 10% of Vietnamese currently use banks for financial services, instead largely relying on extended families and neighbourhood associations for lending and saving. However, a rising number of younger Vietnamese are now using banks for financial services, opening up great expansion opportunities in retail banking.

The Vietnamese banking sector is a veritably good destination for early entrants as poorly-capitalised and inefficient domestic banks are ill-prepared for the opening of the banking market to foreign entrants as pledged in Vietnam’s accession to the WTO in January 2007. With bank penetration at less than 10% and the Vietnamese economy forecast to grow by an average 7. 8% annually over the next ten years, the growth opportunities are great for foreign players.

References

1. Johny K. Johansson (2006). GLOBAL MARKETING Foreign Entry, Local Marketing, & Global Management. McGraw-Hill, Fourth Edition, International Edition.
2. ISBN 007-124454-9. Vinacapital. Vietnam Equity Research. August 15, 2006 Fitch Ratings, Vietnam Special Report – Vietnamese Banks: Focus on Asset Quality – Three Stress Scenarios. February 25, 2009 at: www. fitchratings. com
3. Vietnamese Banks: A Home-Made Liquidity Squeeze? May 2008 Jaccar Equity Research, Vietnam. Banks and Financial Services. The Bubbles did not Burst but Turned Grey. May 18, 2009 at www. jaccar. net
4. Fulbright Research Project, The Banking System of Vietnam: Past, Present and Future. Nam Tran Thi Nguyen, 2001. at: www. iie. org/fulbrightweb/BankingPaper_Final. pdf retrieved on 27 Feb 2009.

You need to make product declslons. This means you need to decide what type of cakes you are going to make and sell. For example you can decide to open organic cake business which means you are going to make and sell organic cakes. On the other hand you can decide to make fancy and good looking little cakes for events such as birthdays, parties, etc. Or you can approach your cake business based on the type of cakes you are good at maybe everyone already knows how good your cakes are and you have already specialized in some types of cakes.

So your product ecisions are answering the question what kind of cakes am I going to make and market.  Market Decisions for your Cake Business The second step after you make your product decision is your market decision. This means you need to decide on your market – what market are you going to target with your cake business. Your market decision will depend on two major decisions: A. the product you already decided to sell and B. the size of your business. For example your target market will depend on the product type – the target market for organic akes and other cakes will be different. When defining your target market consider the geographical area of your market, the age of your typical customer, etc.

Financial Decisions for your Cake Business

Your finance decision is next. How much money do you need to create the product / cake you want and to market and sell those cakes to your market? You can start small with your own savings and credit cards or you can apply for a small business loan if you do not have the required money.

In any case you need to evelop good and detailed financial plan explaining all the required money you need to Invest in your cake business and the required cash for your cake business operations in the first months of business. Many small business owners fall not because they have bad ideas or they are not good managers but because of poor financial planning. When developing your financial plan for your cake business try to forecast your average monthly revenue, average monthly operating expenses and the profit margin you are able to make with your cakes. Think about these 3 major usiness decisions you need to make before you start your cake business. Go through each of them couple of times and go back and make changes and adjustments In order to minimize your business risk and Improve your chance of success with your cake business. business plan for a cupcake shop By violetrazavi What are the components of fair compensation and return?

Assignment: The importance of the concept of cash-flow for the business finance Definition: Cash flow is the movement of money into or out of a business, an account or an investment. Normally, when the cash inflow is greater than the cash outflow it is a sign of a good financial situation because cash flow is essential for the survival of a business or even to any individual financial condition. If the company can meet its obligations and keep a healthy inflow of cash it has a healthy situation and the management of the company can invest most of its time in developing the company.

There are 3 types of cash-flows: Operating cash-flows, which is the money received or spent as a result of a company’s normal business activities. Investment cash-flows, which is the money received or spent through investing activities and thirdly the financing cash-flows, which is the cash received through debt or paid out as debt repayments. Example: Imagine that you run a shoe factory. Having cash is necessary for your business to flow. If you have cash you can pay your suppliers, your employees and yourself on time and so keep the business flow.

Therefore if you, as an individual, receive your pay check, you can pay for all your expenses (e. g. housing, food, utilities, insurance, etc). Here we are speaking about operational cash-flow. Another way of creating cash is if you opt for purchasing and selling assets. This is normally a long term issue that can help your business grow and might lead to a net worth increase. This is called investment cash-flow. There are companies that are specialized in this area that manage funds that invest and divest in property.

Finally, a third option you have is financing cash-flows. This includes any cash which comes from loans or other types of other debt that allow you to finance your cash flow. It is also used to finance the down payments made of debts. Conclusion: Based on the above, one understands the importance of managing carefully the cash-flow and also having capacity to meet emergency situations in order to be protected from unexpected circumstances, be it in a business or personally.

To be able to run a company in a healthy way it is important to have a good and open relationship with your banks and secure lines of credit for certain times of the year when there is a delay in the cash inflows and also when there is a specific opportunity that requires cash. Companies that manage their cash flow in a positive way have a much stronger possibility of being successful. An example of an unexpected situation, and for which many are not normally prepared, is the sudden downturn in an economy just like what has happened in Portugal in the past three years.

The factors which have had the biggest impact in the financial viability of companies are the inflation rate and above all, the restrictions on access to cash (e. g. : loans). If a business is not able to manage its cash-flow carefully and is not capable of setting aside emergency reserves (access to loans), then in a situation like today it will not be able to finance its cash flows and might enter into default. In some cases more than the economic capacity of a company it is its financial situation that might lead to a bankruptcy.

We can then say that having cash is crucial for an entity to survive because companies with ample cash on hand can invest the cash back into the business and so generate more cash and profit. An old saying: “When the going gets tough, Cash is King! ” Bibliography: Marques, Manuel de Oliveira, “A Importancia do Correcto Entendimento do Conceito de Cashflow para a Analise e a Tomada de Decisoes Financeiras”, Estudos de Economia, vol. IV, n. 4, Jul-Sept 1984. Monica Alvares Ribeiro N? : 120499032

The tagline of HSBC—“world’s local bank” reflects HSBC’s positioning as a globe-pning financial institution with a unique focus on serving local markets. HSBC has served over 100 million customers through 9,500 branches in 85 countries. Therefore, HSBC must do a lot of research before segmenting to the international market. The first consideration of HSBC is that the bank works hard to maintain a local presence and local knowledge in each area. Its fundamental operating strategy is to remain close to its customers.

It can be seen from the tagline that HSBC actually devotes itself to serve local markets. Remain its local knowledge will make it easily understand local cultural and local fashion demand, then the bank will satisfied every customer need in each area. HSBC has demonstrated its local knowledge with marketing efforts dedicated to specific locations, such as “New York City’s Most Knowledgeable Cabbie”contest. The second consideration of HSBC is that local economy. HSBC undertook some “” Support Hong Kong” campaign to revitalize the local economy hit hard.

In that special period, only HSBC has occupied some market shares in the local economy, it can survive in the long term. Hence, HSBC delayed interest payments for personal-loan customers who worked in industries most affected by SARS. Also, the bank offered discounts and rebates for HSBC credit card users when they shopped and dined out. More than 1500 local merchants participated in the promotion. The third consideration of HSBC is targeting consumer niches with unique products and services.

A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. For example, HSBC found a little-known product area growing at 125 percent a year: pet insurance. Different customers has different need when they facing financing their assets. For instance, In Malaysia, HSBC offered a “smart card” and no-frills credit cards to the underserved student segment and targeted high-value customers with special “Premium Centers” bank branches.

What steps should Gabrielle take in these circumstances to make the loan and also minimize the risk of loss to Busy Bee? What advice would you give Simon with respect to this franchise opportunity? Simon was recommended by his father to arrange financing through a company named the Busy Bee Trust Company In order to pay for the franchise opportunity. Two possibilities may occur If the loan Is Issued and the business Is established. The hot dog stand may turn out to be a huge success enabling Simon to fulfill all of his obligations towards Busy Bee.

In contrast, Simony’s franchise business may not turn out to be as profitable as expected, resulting In Simon not being able to pay off the loan Issued by Gabrielle. Chances are that If the franchise opportunity does not turn out to be successful, Simon will not have enough assets on hand to pay off the loan. As mentioned in the case, Gabrielle is leaning towards providing the loan: however, she should only issue it if the risk to Busy Bee is minimized. Listed below are a few steps that Gabrielle can take in these circumstances to minimize the risk of loss to

Busy Bee: Gabrielle could issue a collateral loan for $20 000. A collateral loan is when something is put up as a security by the borrower which can be sold or repossessed in the event of a default. A chattel mortgage works in the same manner; except a chattel is personal property. There needs to be some form of security in order for Gabrielle to minimize the risk of the loan. The purpose of the collateral loan would be to reduce the risk for Busy Bee, since they would be able to get something of value in case a default occurred.

In this case, Simon could offer any collateral of his choice including his car. This would enable Busy Bee to have the right to take ownership of the car or sell it if the loan is not fulfilled by Simon. It is very important to get the assurance from Simon that he will be securing one of his assets or money to minimize the risk to the loan. Gabrielle could also tell Simon that the loan will be Issued only if he signs a guarantee contract. “A guarantee is a promise to perform the obligation of another person if that person defaults. ” By unshakable named the Busy Bee Trust Company in order to pay for the franchise opportunity. Two possibilities may occur if the loan is issued and the business is established. The out to be as profitable as expected, resulting in Simon not being able to pay off the loan issued by Gabrielle. Chances are that if the franchise opportunity does not turn As mentioned in the case, Gabrielle is leaning towards providing the loan; however, issued only if he signs a guarantee contract.

In 1998, Alan Greenshank was known as the wizard. He was the man behind the curtain who ruled everything. He was the Chairman of the Federal Reserve and he was a believer of no government interacting in Wall Street banking. However with being the Chairman of the Federal Reserve he had to uphold laws he didn’t exactly believe in. Allan Greenshank, Larry Summers, and Bob Reuben formed a trio of pro- business and anti-government support group with Summers being the enforcer. Brokenly Born was the head of the Commodity Futures Trading Commissions. She was like a visionary.

She knew that if they didn’t get government involved and regulate the banking systems it would eventually fail. She knew that some of these banking institutions were supporting these so called derivatives and no one knew exactly what they were. They were known as the black box because only the people who were in the deal knew what they were. She knew early on that those were bad but no one listened. Instead they felt she was the one who was wrong and needed to be stopped from stirring up these issues on Wall Street. In March of 2008, when the housing bubble burst everything started to crumble.

Wall Street had gambled very heavily on mortgages especially risky one. On March 10, 2008, a rumor about Bear Stearns started to surface and make people react and at that point stocks started to fall. The SCOFF called down to the report and bond guys asking what was going on and they told him that the rumor was they were running out of cash and might be in trouble. Bears former chairman Allan Greenberg knew that rumors true or false could kill the trust people and other financial institutions had in them. Those rumors were put out by CNN.

They broadcast that they only financial institution in the red as Bear Stearns and it was dragging down the rest of the financial institutions. With that happening more and more people were calling to sell their stock and taking their money out of Bear Stearns. Allan Greenberg called CNN and told them there was no problem. What Bears simply did was buy hundreds of thousands of mortgages then bundled them up and sold them to investor. So the bigger the housing market grew the more mortgages were bought and bundled up into securities and sold to investors. During 05-06 this market was booming.

Everyone was buying houses and eating mortgages they couldn’t necessarily afford. However by 07 that’s when they started to foreclose on some of these mortgages. After all they’re allegations people had no faith in them and every night when Bears would do their rollover repose to lenders and investors, usually they would stay but that night they were cashing in and Bears was losing money left and right. By the morning Bears stocks continued to fall leaving their 18 million dollar reserve to almost nothing. By pm they realized they didn’t even have enough money to open the next day. So they either needed to raise emergency capital or go under. Read which best describes what people could buy on credit in the 1920s?

Their last chance was to go to the Federal Reserve in New York. Tim Eighteenth was in charge. He is like the liaison between Washington and Wall Street but he works for the Federal Reserve System. So Eighteenth and his team went to Bear Stearns headquarters to look through all their paperwork and initially thought they should go under. By 2 am everyone trot lawyers to investors to other well-known banking companies were in Bears headquarters to see what could be done with the company. As they began to dig through all of the accounts they discovered they had so many toxic waste accounts.

They found billions in supreme mortgage loans and worse Credit Default Swaps. Now credit default swaps had been around for a long time. Before they called them derivatives and it was plenty of that going on in the ass’s with Alan Greenshank. Credit Default Swaps (derivatives) were like insurance policies. They were insurance policies on bonds. This is where they would insure investors that if the bonds failed they would pay them for the bonds. But either way it goes they still had to pay a premium for the insurance. Bears made over a 100 million on credit default swaps all over Wall Street and all over the world.

With all of the business and connections they had all over Wall Street and all over the world if they were to fail it would collapse a ton of other businesses as well. Eighteenth got the word that if it was more than what meets the eye with this company. So Eighteenth had no choice but to pick up the phone and call his boss Ben Aberrant because he knew what the failure of Bear going under would mean for the financial economy. However, the Federal Reserve Bank was prohibited from lending money to Bear to bail them out. So Aberrant called up Jaime Domino who was the CEO of JP Morgan and came up with a bailout plan.

They decided to give the money to JP Morgan and have them pass the money to Bear. But that plan failed. Since Bear was the only company to get that treatment it sent a message to the people that it was about to fail. At that time even Henry Paulson, the Secretary of Treasury, was starting to worry about the systematic risk. Paulson believed that it would take a hit but not like the one it did take. Paulson was the CEO of Goldman Cash two years prior to becoming the Secretary of Treasury so he thought he knew the market pretty well. It was not his idea to bail out Bear but after it started to fail he then got involved.

By March 14th hundreds of lawyers and accountants went to bears to pretty much pick apart the company but in the end no one wanted to take over Bears debt. But on March 15th JP Morgan made a shot gun deal that would give a 30 million Dowry to cover bears toxic assets. After that Paulson sent a message about moral hazard saying that if you bail out someone once what would stop them from making risky deals again. Paulson wanted to send a message to Bears that this would be a bailout that they would not like. So he had JP Morgan offer two dollars a share for Bears stocks.

Everyone at Bears thought it had to be some kind of misprint or error and when they found out it wasn’t they were all in shock. Paulson didn’t want anyone thinking that the government was some kind of safety net for them. And after seven days Bear Stearns were no longer. However, this was only the beginning. Paulson and Aberrant continued to tell the public that the problem had been “contained” to ease their minds but it wasn’t. People were getting mortgages on houses they couldn’t even afford. Throughout 08 toxic mortgages began to eat away at every banking system in America.

That’s when Fannies May and Freddie Mac, the largest mortgage lenders in the world stated to drop and lost 60 percent of their stock value. They held over 5 trillion dollars in mortgages. Everyone on Wall Street had a part in them. Now their failure would be a “systemic risk” Paulson and Aberrant knew that I t they went under this would be a major catastrophe and they needed to do something before it was too late. On September 7th, Paulson went on television firing the managers and announcing a government takeover. This sent a major shock wave to the people. They felt like if they could fail anyone could fail.

At that point no company that large could fail from the housing bubble. The next day someone else was in trouble. The investment bank Lehman brothers CEO Dick Full was the person who ran this company and inspired loyalty. He took them into risky loans and those investments were dragging them under. At this time Paulson wanted to make an example and decided not to bail them out. So Paulson told them to find a buyer but Full never thought the government would let them fail. But he was wrong. So a few days later Paulson and Aberrant met with the heads of the largest firms on Wall Street at the Federal Reserve.

They wanted to make sure they knew it would no longer be any more bail outs. Eighteenth said they need to figure out who was going to buy Lehman or Lehman would go bankrupt. By the next weekend Lehman thought they had a deal from either Barker or Bank of America but neither of them wanted to do the deal without out the same deal that was offered to Bear. But the government said no. It was clear that moral hazard overruled systemic risk and Lehman brothers failed. On September 15th Paulson made the statement about the failure of Lehman Brothers. He told the public it was terrible but wouldn’t hurt the economy too much.

As soon as he stepped away from the cameras he was told that the stock market was crashing. Lehman Brothers were more connected then Paulson believed and the systemic risk became a reality. Next was Alga on the chopping block. They also had all of these default swaps in the trillions from Lehman Brothers and now they didn’t have the money to pay on it. So they turned to Paulson and Aberrant. At this time moral hazard was out the window. They couldn’t afford to let Alga fail as well. Congress was called and they were told that they were told that the Treasury department was giving Alga 85 billion dollars. By now Aberrant called

Paulson telling him they needed to do something big or this would be the end of our financial economy. Aberrant told the Secretary of Treasury they needed a full scale financial bailout and they had to go to Congress. On September 18th 2008, Secretary of Treasury Henry Paulson and Chairman of the Federal Reserve Ben Aberrant arrived at the Nation’s Capital for a meeting with Senior Legislators. In the past few months they have bailed out one bank and let another bank fail. Aberrant and Paulson told Congress that unless they acted right now the entire financial system in this country and in the world would fail in days.

Paulson had a 700 billion dollar bailout plan from the tax payers to be used to bail out toxic mortgage securities that were creating problems from the banks as soon as possible. But that’s not the way it’s done in Washington. They had to send it up as a bill for that plan to be approved. Many of the conservative republican were upset and against it. They felt like it was Paulson and Bracken’s attempt at trying to bail out their friends on Wall Street and they weren’t having it. On September 29th the house voted and failed. By that time the stock market was under 500 plus points and was continuing to drop.

With the market crashing to over 700 points, Congress decided to revisit Paulson plan to bail out the financial economy. However, by this time another plan that got the government more involved was being introduced with capital injections. This was just a tee inns n o e bill that was already being put out. It you didn’t read it carefully you would have missed it all together. So they quietly injected 6 lines into the bill about capital injections and the revised bill was finally accepted. But before it could get going the financial crisis had found its way around the world to other countries.

Ireland, England, Iceland, and China who was the highest gross country became the almost no gross country. Paulson decided he had to do something so he called the Coo’s of the top nine largest banks to come to his office at the Treasury Department. He decided to give them all a capital injection of money to become a major stockholder. This was not a question of if they wanted to take it or not it was being requested that they were going to take it and they had no other choice. Paulson told them they had to sign the one page contract before they were to leave the city to go back to where they had come from.

No one really wanted to take this injection especially if they weren’t in financial risk from going under but they all knew that they really didn’t have a choice in the matter so they did what they were told and signed the contract and took the injection. This was a crisis no one thought would ever happen. It was almost like Brokenly Born had seen into the future and predicted this would happen. She told them from the beginning that things were going to fail and they have probably more than what she predicted. Still to this day she believes that things are going to get a lot worse before they get any better.

She thinks this crisis is far from over and they government is still not learning from the past. Allan Greenshank never thought he would live to say this but he admits now that he was wrong in what he believed and wished they would have all listened to Born more and maybe this crisis could have been prevented. He retired in 06 with the thought that this would never have happened. He is now a believer in government regulation. When Barrack Obama became President, he replaced Henry Paulson with Tim Eighteenth as the Secretary of Treasury and Ben Aberrant stayed on at the Federal Reserve until 2010.

By this time they had spent well over 250 billion dollars in trying to get this financial economy back to some order. This is only the beginning. They will eventually spend over a trillion dollars more to get things back in the right order and hopefully they will learn from their mistakes this time since they didn’t learn from the Great Depression. If it’s one thing we should take away from this is that history repeats itself and if you don’t make some drastic changes it will happen again and it will be worse than this time. Well at least that’s how Brokenly Born sees and she was right the first time.