Chapter 3: The Remittance Market
3.1 What is remittance:
Generally, the term “remittances” refers to the transfers, in cash or in kind, from a migrant to household residents in the country of origin. The International Monetary Fund (IMF) has a broader definition about remittances, which includes three categories as follows:
(Akkoyunlu & Vickerman, 2000).
(i) workers remittances or transfers in cash or in kind from migrants to resident households in the country of origin;
(ii) compensation to employees or the wages, salaries and other remuneration, in cash or in kind, paid to individuals who work in a country other than where they legally reside;
and
(iii) migrant transfers which refer to capital transfers of financial assets made by emigrants as they move from one country to another and stay for more than one year.
Similar to the determinants of migrations, the analytical literature on motives for remittances (Solomolo, 2001) fall in four main approaches: (1) altruistic motive; (2) self-interest motive; (3) loan repayment; and (4) co-insurance. The altruistic motive suggests that the emigrant send remittances back home because he/she cares about the well being of his or her family in the home country. The self-interest motive drives the successful emigrant has savings, and an obvious place to invest, at least part of his assets, is in the home country buying property, land, financial assets, etc. The motive of loan repayment sssumes that the family invest in the education of the emigrant and usually finances the costs of migrating; the migrant repay the loan back to the family in the form of remittances once he/she settles in the foreign country and as income profile starts rising over time
This thesis focus on international remittances including all money sent from:
- Oversea Vietnamese to relatives in Vietnam to support meaningful consumer - Vietnamese workers in foreign countries to their home,
- Oversea Vietnamese to Vietnam for investments
- Oversea relatives of tourists to Vietnam for supporting tourists in Vietnam
- International students‟ relatives to Vietnam to support for these students in studying in Vietnam
The channel of inward remittance includes through banks, non-bank financial institutes, the business to provide financial services and international postal, and people bring foreign currency to Vietnam by themselves.
3.2 The Benefits from Workers’ Remittances
They provide balance of payments support and can contribute to economic growth and poverty reduction
A Stable Unrequited Source of Foreign Exchange: Remittances can be an important source of support to the country‟s balance of payments because of their nature as non-debt creating flows
Contribution to Growth: As unrequited receipts, remittances contribute to increasing the absorptive capacity of the recipient economy (consumption plus investment). They can therefore raise economic welfare and contribute to financing both physical and human capital investments, leading to enhanced productivity and higher growth rates
Complementing Nascent Financial Systems and Transfer of Knowledge: Remittances can provide a much-needed source of financing both informally and formally (through the banking sector), and thus promote both financial sector development and the growth of the private sector. This may be of particular importance in a developing-transition economy such as Vietnam. The professional and business background of a large number of Vietnamese migrants could bring additional benefits similar in part to those associated with FDI. By influencing the way part of the remittances are invested, migrants can transfer their entrepreneurial skills and technological knowledge to the private sector in their homeland, thus mitigating, and possibly more than compensating for, possible negative consequences of a “brain drain.”
Poverty Reduction: Remittances are expected to contribute importantly to poverty reduction as they are often received by lower-income groups and help improve their housing conditions, nutritional intake, health care, and education. In addition, by financing small businesses, remittances contribute to employment creation.
3.3 Outlook for remittance flows to developing countries, 2009-11
Recent trends Newly available data show that remittance flows to developing countries reached $328 billion in 2008, up 15 percent from $285 billion in 2007. These estimates are higher than our previous estimates of $305 billion in 2008 and $281 billion in 2007. All regions experienced stronger growth than our previous estimates. South Asia registered a 33 percent growth in remittance flows as India reported $52 billion in 2008, sharply higher than our earlier estimate of $45 billion. Remittances to East Asia and the Pacific rose 20 percent as China and the Philippines reported strong growth. In contrast, flows to Latin America and the Caribbean grew by a modest 2 percent in 2008, reflecting continuing weakness in the job market in the United States. After the latest data revisions for 2008, India, China and Mexico retain their position as the top recipients of migrant remittances among developing countries (see figure 1). The top 10 recipients list also includes Philippines, Poland, Nigeria, Romania, Egypt, Bangladesh, and Vietnam. In contrast, the top recipients in terms of the share of remittances in GDP include many smaller economies such as Tajikistan, Tonga, Moldova, Lesotho, and Guyana; in these countries remittances exceeded a quarter of the GDP, providing a lifeline to the poor.
The slowdown in remittance flows that became evident in the last quarter of 2008 has continued into the first half 2009. As the US job market weakness continues, officially recorded remittance flows to the Latin America and the Caribbean region have dropped significantly in the first half of 2009. In Mexico, remittance flows in 2009 year-to-date have declined by 11 percent compared to a year ago, after a 4 percent decline in 2008. Jamaica has registered a sharper 17 percent decline during the same period. The slowdown in the US construction sector, a major employment sector for migrants from Mexico, is believed to have affected remittance flows to Mexico with a lag of about 3 months .
Source: Central banks of the respective countries.
Figure 3: The top 10 recipients list
Risks to the outlook : There are three key sources of risk to the outlook for remittance flows. First, if the crisis were deeper and longer than currently projected, the decline in remittance and migration flows would be steeper. Unpredictable movements in the exchange rates pose a second source of risk. If the exchange rates of these remittance sources weaken, it would result in an even greater decline in remittance flows to developing countries. Finally, the political reaction to weak job markets in destination countries could lead to more tightening of immigration control
Table 1: Outlook for remittance flows to developing countries, 2009-11
Base case forecast Low case
e = estimate; f=forecast Source: : Authors’ calculation based on data from IMF Balance of Payments Statistics Yearbook 2008 and data releases from central banks, national statistical agencies, and World Bank country desks. Remittances are defined as the sum of workers’ remittances, compensation of employees, and migrant transfers – see www.worldbank.org/prospects/migrationandremittances for data definitions and the entire dataset.
3.4 Factors affecting the development of the remittance service industry
Most of the studies as regards the determinant factors of workers remittances have a microeconomic perspective. Variables that are mainly analyzed consist in migrant worker‟s and his family‟s socioeconomic characteristics on one hand, and his personal motives on the other.
According to Russell (1986), time passed abroad, income level of the migrant‟s family, job situation of other members of the family, education level, work experience and marital status of the migrant are among the main sociodemographic determinants of remittances.
Other factors such as the number of children, as well as their education level, and the economic situation of the migrant before migration are added later on by Ilahi and Jafarey (1999).
As far as the gender component is concerned, little work has been done but most of the studies point out a differentiation in remittance behavior between men and women (e.g. De la Cruz, 1995; Osaki, 1999; Tacoli, 1999; De la Brière, 2002). Women seem to remit more regularly, especially because of the traditional family configuration observed in some developing countries.
Among the macroeconomic factors affecting remittances number of migrants and their income level, the economic situation of both of the origin and the host country, exchange rates, interest rate differences between the worker ‐ sending and the receiving countries, the potential political risks at the origin country and the remittance infrastructure have already been underlined by Russell (1986).
3.5 The remittance service industry in Vietnam
There have been a variety of theoretical models adduced to explain the motives underlying remittance behavior, including altruism (Becker, 1974; Aggarwal and Horowitz, 2002), exchange (Cox, 1987) or self-interest (Lucas and Stark, 1985), insurance (Stark, 1991;
Gubert, 2002; Amuedo-Dorantes and Pozo, 2006), and consumption transfer (Quinn, 2005).
After conducting an empirical analysis for Vietnam overseas workers, Niimi (2008) suggests that the remittance phenomenon in Vietnam could be explained by a combination of several models including altruism, self-interest such as education investment, and the insurance purpose. Generally, remittances take place after migration since the net flow of migrants are from low wage to high wage areas (Massey et al., 1993).
According to the World Bank‟s report (Niimi, 2008), combination of government migration policies and the household registration system (ho khau) had strictly controlled migration flows in Vietnam in the past. Urban to rural and intra-rural migration were explicitly encouraged to redress imbalances in population density across the country (Dang et al., 2003). Until the early 1990s, officially organized migration was the most common form of internal movement observed in Vietnam (Guest, 1998; Dang et al., 2003). However, organized migration has been replaced by a more spontaneous migration phenomenon since the middle of the 1990s (Hardy, 2000) as the doi moi (renovation) program became the main driving force behind the apparent shift (Dang et al., 2003).
Remittances sent to the country which is one of the important sources of balance in the balance of foreign exchange in Vietnam. As reported by the World Bank announced in mid-July 2009, Vietnam ranked 10th among the countries receiving remittances, most of the world in 2008. With a total estimated value is 7.2 billion dollars. This increase is considered to be significant compared to 2007, when the amount of remittances sent back Vietnam also very
positive, reaching 5.5 billion dollars, an amount that the World Bank is equivalent to 8%
Vietnam's GDP.
Vietnam has over 3 million Vietnam settled abroad, concentrated in countries with high average income: United States (1.5 million), France (300,000), Australia (250,000), Canada (200,000) ... With policies to encourage Vietnamese overseas to invest in Vietnam like buying houses, the amount of remittances transferred to Vietnam will increase rapidly when the world economy recovered.
To attract the amount of remittances, banks and money transfer companies have launched several new products and channels such as delivery money at home, transfer money through the account or card or online or by phone. In addition to exploiting traditional markets like the U.S., Australia and some Asian countries, banks and money transfer companies also focus on promotion of new markets, potential foreign currency higher because many workers of Vietnam is working as the Middle East and Africa.
Authorities believe that remittances can only increase when there are system-wide pay
and create favorable conditions for people. Actually, for people who are traveling abroad or living in Vietnam as well is wishing to receive remittances from relatives. In many places in the world, of course what they want is to receive money in any transaction any convenient such as hotels, restaurants, supermarkets, etc. The banks have also launched into many points of transactions but not strong enough, according to observers. However, the amount of money which is sent back Vietnam by abroad workers constitute only a fraction of the remittances.
According to the U.S. daily newspaper Wall Street Journal, nearly two-thirds of the remittances received in Vietnam last time from the United States, where a overseas Vietnamese community is crowded.
Although investment policies have not been opened completely, the amount of remittances sent each year up to 3.8 billion. If this policy is more open, the volume of remittances will be bigger and bigger.
U.S. economy is experiencing a difficult period, unemployment increased, and these factors impact the amount of money which is sent back to Vietnam.
Labors working abroad can still send through the banking system and controls were from the original, but the other s do not believe in some banks should find reclining quick, discreet and more reliable , not to mention the cheaper commissions. This amount is not listed in any books or bank statistics state. The impact of remittances in Vietnam can be studied in terms of the monetary and financial markets, investment, the labor market, technology and product factors government policies factors and the social aspects of development.
Source: Directory of the statistics in Vietnam
Figure 4: Number of inward remittances in Vietnam from 2001 to 2008 The amount of remittance
0 1,000,000,000 2,000,000,000 3,000,000,000 4,000,000,000 5,000,000,000 6,000,000,000 7,000,000,000 8,000,000,000 9,000,000,000
2001 2002 2003 2004 2005 2006 2007 2008 Year
USD
Chapter 4: Case Study
4.1 The case company: ABC Money Transfer Company (ABCMTC)
4.1.1 The remittance business in ABC Money Transfer Company (ABCMTC)
The case company is a major Vietnamese Money Transfer Company. For confidential reasons, the company is called ABC in this thesis. Founded in 1992, ABC Commercial Bank, former Eastern Asia Commercial Bank, one of the leading joint stock commercial banks in Vietnam immediately launched the remittance services thanks to the good experiences and assistance from Phu Nhuan Jewelry JSC (PNJ), the 2nd biggest shareholders.
In order to specialize and enhance remittance services, ABC Money Transfer Company was established in November 2001, originally from the Money Transfer Department of ABC Commercial Bank.
ABC Money Transfer Company is recognized as the leader in money transfer services in Vietnam. In 2006, almost 16 percent of the total USD 4.8 billion overseas remittance volume into Vietnam went through ABC Money Transfer Company's system.
Beneficiaries can receive money at ABC Money Transfer Company‟s 103 transaction offices and local agent network spreading out in the whole country.
ABC Money Transfer Company especially manages a strong and experienced home-delivery team that is able to provide door-to-door home-delivery to beneficiaries in almost 60 provinces amongst the total 64 provinces of Vietnam .
ABC Money Transfer Company is the leading company in Vietnam's remittance market.
They offer a wide range of money transfer services to clients in various regions of Vietnam.
ABC Money Transfer Company also was the pioneer of home delivery service in Vietnam.
- ABC Money Transfer Company has the employees who are high experience and profession.
- ABC Bank‟s Account: immediately with full amount, no charges or fees.
- To other banks‟ Account in Vietnam: from 1 – 3 days, depending on the destinating bank‟s network and infrastructure. The fund amount will vary according to that bank‟s charges and fees
- No charges and fees for customers use counter pick up and home delivery services also.
- ABC bank possesses the second largest customers‟ base in Vietnam with over 2.8 million individual bank accounts
- ABC Bank is also considered as the leading bank in technology with nearly 400,000 subscribers for E-banking services
- ABC Bank is among the leading joint-stock commercial banks in Vietnam Resources
Distinctive Competencies
Capabilities
Cost Advantage or
Differentiation Advantage
Value Creation
- ABC Money Transfer Company has expanded its network recently to over 164 branches and offices across provinces in Vietnam
Source: Directory of the statistics in Vietnam
Figure 5: ABC Money Transfer Company’s market share in Vietnam in 2008
As the statistics, ABC Money Transfer Company was the second biggest market share in money transfer from other countries to Vietnam up to at the end of 2008. They accounted around 20% of remittance market in Vietnam with over 650 million USD of inward remittance.
Money Transfer Market
Agribank, 12.29%
ACB, 11.43%
Sacomrex, 12%
Incombank, 13.14%
ABCMTC, 18.03%
VCB, 20.86%
others, 12.26%
Source: ABCMTC
Figure 6: Revenues of ABCMTC from 2003 to 2008
With more opened policies on foreign currencies, encouraging remittance to Vietnam by the State and the increasing of investment demand in Vietnam, the amount of money which transfer through ABC Money Transfer Company grew very strongly in the recent years.
511
Sales of 7 months of 2009 against 2008 in ABCMTC
0
Source: ABCMTC
Figure 7: Sales of 7 months of 2009 against 2008
Generally for 7 months of early 2009, sales just reached more than 578 million USD which was less than the sales of the same previous quarter. Due to crisis, the amount has been downward in 2009.
Table 2: Analyzing Sales in ABCMTC in July, 2009 according to market Source: ABCMTC
No. Market July,2009 Percentage
of market
Jul, 2009 compare
with Jun,2009
I EUR 4,017,100 100% 40.7%
1 THIEN PHU 2,079,274 51.76% 77.4%
2 HOA LE 1,024,128 25.49% 32.1%
3 KIM NGUYEN 424,697 10.57% 8.5%
4 MIVICO 220,276 5.48% -35.5%
6 CHEQUEPOINT(SEC) 196,524 4.89% 72.9%
8 EVINS 72,201 1.80% 20.1%
II USA 56,827,382 100% 4.8%
1 HOA PHAT 22,207,840 39.08% 5.3%
2 OMNEX 15,278,333 26.89% 3.4%
3 THIEN PHU 11,912,610 20.96% 7.7%
4 VN USA ENTER 4,246,150 7.47% 0.0%
5 MINH HAI 1,112,825 1.96% 28.8%
No. Market July,2009 Percentage of market
Jul, 2009 compare
with Jun,2009
6 SG FINANCIAL 472,300 0.83% -8.8%
7 CONTINENTAL 564,593 0.99% 0.5%
8 ĐONG PHUONG 279,905 0.49% -2.9%
9 SAIGON USA 378,310 0.67% 3.4%
10 IMP GROUP 244,576 0.43% -22.5%
11 THAI BINH DUONG 100,100 0.18% 14.7%
12 U.S MONEY 27,540 0.05% -6.1%
13 MINH HAI ĐANG 0
14 EAST WEST BANK 2,300 0 -8.0%
III CANADA 9,669,586 100% 4.7%
1 HAI VAN 4,690,742 48.51% 6.7%
2 OMNEX 2,396,236 24.78% 17.6%
3 TRANSAIGON 962,086 9.95% -16.6%
4 THIEN PHU 384,704 3.98% 36.5%
6 A & VY MONEY 470,190 4.86% 12.0%
7 VIETSTRAVEL 120,888 1.25% -15.3%
8 THE LE A.T.M. 4,584 0.05% 13.0%
9 VN KING 171,386 1.77% -44.7%
10 BEN THANH GIFT 468,769 4.85% 10.4%
11 VINAFAST 0 -100.0%
12 LE VA KHANG 0 0
No. Market July,2009 Percentage of market
Jul, 2009 compare
with Jun,2009
IV Australia 2,735,526 100% 24.3%
1 ĐONG KHANH IMPORT 757,671 27.70% 76.9%
2 QUICK MONEY 471,737 17.24% -0.5%
3 THIEN PHU 373,497 13.65% 56.6%
4 KIM SON 381,778 13.96% 78.1%
5 ROS.HONGHOA 254,812 9.31% 57.2%
6 CHUCO 166,483 6.09% -31.1%
7 TOAN CAU 73,288 2.68% -42.8%
8 PHI LONG 234,943 8.59% -17.6%
9 HAI LAM 21,316 0.78% -27.8%
V Asian 6,984,850 100% 10.9%
1 BKK FOREX 4,923,745 70.49% 8.7%
2 BKK FOREX-DAB 1,790,019 25.63% 19.5%
3 MERCHANTRADE 253,190 3.62% -1.4%
4 PIB 9,535 0.14% 234.6%
5 PAY2HOME 8,362 0.12% -20.9%
VI Middle East 2,744 100% -38.0%
1 INSTANT CASH 2,744 43.43% -38.0%
VII Global 2,770,030 100% -15.9%
1 MONEY GRAM 2,575,925 92.99% -16.5%
2 COINSTAR 63,092 2.28% -1.3%
3 XPRESS MONEY 131,013 4.73% -9.9%
No. Market July,2009 Percentage of market
Jul, 2009 compare
with Jun,2009
Total 83,007,218 6.3%
The biggest market of ABCMTC is USA, and this is the main remittance market for Vietnam as well. ABCMTC has fourteen partners in USA, eight in EUR, twelve in Canada, nine in Australia, five in Asia, one in Middle East, and three for global services.
Partners have the amount of money which is deposited in ABCMTC for enough so that ABCMTC disburses to customers. There are four ways of disbursement to customers such at counter pickup, home delivery, account transfer, ABC‟s card. At the end of a month, partners make payment for ABCMTC. Partners transfer money to ABC‟s account. There are three kinds of payment as the following basing that partners use to count commission for ABCMTC:
- On the transfer times (fix fee) - On the amount of money - On charges on customers
4.1.2 ABCMTC’s strategy in remittance business
A. Clear strategies for future structure and good implementation in service expansion Firstly, the management needs to have a clear vision and objectives for the year. Then it has to translate sufficiently to subordinates and understand how they understand and apply in the real work. They should have policy direction and explanation through good process in implementation to guide everyone systematically. It will avoid the waste of time for each person or department find the way from beginning. The researcher finds that ABCMTC
should focus on process in term of supporting for employees and management. Along with each strategy and new policy or work, it is essential to have clear process or description to guide the achievements.
The company should guide clearly who is responsible for each activities and the way they are linked together to work effectively. The middle and department managers have importance roles to support for controlling with applying changes and improvements in the process
There are many other factors to formulate and implement good strategies, which the company should concern such as leadership development and cultures. The most challenge for ABCMTC needs to pay attention is how to apply new strategic implementation in the obsolete system and push it change to adapt to new market.
B. Development of training to enhance employees‟ values and corporate well
B. Development of training to enhance employees‟ values and corporate well