Strategy choices for ntuc income to enter vietnam life insurance market

1 MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY NEU BUSINESS SCHOOL ********* NGUYEN KHAC CHIEN STRATEGY CHOICES FOR NTUC INCOME TO ENTER VIETNAM LIFE INSURANCE MARKET Master of Business Administration Thesis Supervisor: Tran Van Hung, Ph.D Hanoi, 2009 Table of Contents TABLE OF CONTENTS ACKNOWLEDGEMENTS LIST OF ACRONYM AND ABBREVIATIONS LIST OF FIGURES LIST OF TABLES EXECUTIVE SUMMARY CHAPTER 10 INTRODUCTION 10 1.1 RESEARCH BACKGROUND 10 1.2 PROBLEM STATEMENT 12 1.3 RESEARCH OBJECTIVES 12 1.4 SCOPE OF THE RESEARCH 13 1.5 DESK REVIEW 14 1.6 RESEARCH METHODOLOGY 15 1.7 STRUCTURE OF THE RESEARCH REPORT .17 CHAPTER 18 LITURATURE REVIEW 18 2.1 CONCEPTUALIZATION OF STRATEGY 18 2.2 STRATEGIC MANAGEMENT AND STRATEGIC PLANNING 22 2.3 PEST ANALYSIS .24 2.4 PORTER’S FIVE FORCES MODEL 26 2.5 MARKET ENTRY STRATEGIES .29 2.6 VIETNAM LIFE INSURANCE INDICATORS 32 2.7 NTUC INCOME’S BUSINESS INTENTIONS IN VIETNAM .33 CHAPTER 34 THE SITUATIONAL ANALYSIS ON VIETNAM LIFE INSURANCE MARKET 34 3.1 OVERVIEW OF VIETNAM LIFE INSURANCE MARKET 34 3.1.1 Socio-economic condition 34 3.1.2 Development History of Vietnam Life Insurance Market .36 3.1.3 General business operations of licensed insurers in Vietnam .39 3.2 EXTERNAL ENVIRONMENT ANALYSIS ON VIETNAM LIFE INSURANCE MARKET .43 3.3 THE CURRENT TRENDS AND ISSUES OF VIETNAM LIFE INSURANCE MARKET 52 CHAPTER 54 STRATEGIC CHOICES FOR NTUC INCOME TO ENTER VIETNAM 54 4.1 OVERVIEW OF NTUC INCOME 54 4.2.THE INTERNAL ASSESSMENT OF NTUC INCOME 55 4.3 STRATEGY OPTIONS AND CHOICE OF STRATEGY BY NTUC INCOME IN VIETNAM 57 4.4 PROPOSED BUSINESS STRATEGIES FOR NTUC INCOME IN VIETNAM 61 4.4.2 Overview of the Proposed Company 62 4.4.3 Detailed Strategies for Operations of Proposed Insurance Company 64 4.4.3.1 Organization 64 4.4.3.2 Marketing & Promotion Strategy 66 4.4.3.3 Distribution Strategy 66 4.4.3.4 Product Strategy 71 4.4.3.5 Operations Strategy .72 4.4.3.6 Human Resource Strategy 75 4.4.3.7 Information and Technology Strategy 78 4.4.3.8 Finance & Actuarial Strategy .80 CHAPTER 83 FINDINGS AND RECOMMENDATIONS 83 5.1 KEY FINDINGS AND IMPLICATIONS 83 5.2 RECOMMENDATIONS 86 5.2.1 Recommendations to NTUC Income business in Vietnam 86 5.2.2 Recommendations to improving the whole insurance market in Vietnam 87 CONCLUSIONS 89 REFERENCES 90 APPENDIX 91 Acknowledgements During the whole course of conducting this Master Thesis, I have owed to many individuals and organizations that have extended their support, encouragement, and patience to me from the ideas-shaping to the completion of this Thesis I am unable to convey my sincerely gratitude and thanks to each individual within the frame of this Thesis, I can only name some of all to whom I am indebted I would like to express my sincere thank and gratitude to Dr Tran Van Hung, my Thesis Supervisor, for his invaluable guidance and detailed comments on various versions of this Thesis for improvement and completion I also would like to give my special thanks to lecturers, management, and staff of NEU Business School for their valuable time and wisdom that they are willing to share and disperse to myself and other students of this prestigious MBA program My special thanks also go to leaders and senior executives of insurance companies, banks, the Insurance Association, and Insurance Administration and Supervision Department of MOF for their participation in interviews All the information and ideas that they shared are important source for analysis and forming an integral part of this Thesis Finally, my warm thanks are extended to family members, friends, and classmates for their continuous support and encouragement during the whole course of MBA program pursuit and the completion of this Thesis List of Acronym and Abbreviations AFTA ASEAN Free Trade Area ASEAN Association of South East Asian Nations AVI Association of Vietnamese Insurers BTA Bilateral Trade Agreement CCF Central Credit Fund GATS General Agreement on Trade and Services GDP Gross Domestic Product GSO General Statistical Office HR Human Resources IBNR Incurred but not reported IMF International Monetary Fund IT Information Technology MOF Ministry of Finance NTUC Income NTUC Income Insurance Co-operative Ltd ODA Official Development Assistance PEST Political, Economic, Social, Technological (Factors) POS Point of Sales SOE State Owned Enterprises SWOT Strengths, Weaknesses, Opportunities, Threats UNDP United Nations Development Program USD United States Dollars VCA Vietnam Cooperative Alliance VGCL Vietnam General Confederation of Labour VND Vietnamese Dong WTO World Trade Organization List of Figures Figure 2.1: Main component of Strategic Management 23 Figure 2.2: Porter’s Five (Competitive) Forces Model 27 Figure 3.1: Premium Income of 07 operating life insurance companies as of 2007 39 Figure 3.2: Product (buying/selling) trend in 2006 41 Figure 3.3: Vietnam’s GDP growth through the year 45 Figure 3.4: Annual consumer price inflation 2002-2006 46 Figure 3.5: Population of Vietnam from 1995 - 2005 .48 Figure 3.6: Age groups Vietnam population through the years (%) .49 Figure 3.7: Life expectancy of Vietnam population since 1950 (male and female) 49 Figure 3.8: Market share for mobile phone subscribers as of September 2008 .51 Figure 3.9: Market share of Internet services till September 2008 51 Figure 4.1: The Company’s Scope of Business for the First Years .62 Figure 4.2: Organisational Chart 65 Figure 4.3: Link between Economic Development and Insurance Market Development .71 Figure 4.4: Operations Strategy .73 Figure 4.5: Human Resource Framework 76 Figure 4.6: Human Resource-Employee Life Cycle 76 List of Tables Table 2.1: Mode of foreign market entry 30 Table 3.1: Projected Key Economic Indicators for 2005 – 2007 35 Table 3.2: Key development milestones of Vietnam insurance market 36 Table 3.3: List of Life insurance Companies in Vietnam (as of Dec 2008) 38 Table 3.4: Insurance/GDP with comparison to other regional countries 39 Table 3.5: The market sums assured in force for life contracts (2002-2006): 40 Table 3.6: The total assets of the life insurance industry in 2005 and 2006: 40 Table 3.7: Life company investments in local currency (VND) in 2006 40 Table 3.8: New premiums collected in local currency for period 2003-2006 for different product types 42 Table 3.9: Number of life insurance agents by companies (2000-2007) 43 Table 3.10: Key interest rates over from 2002 - 2006 46 Table 3.11: Percentage of Population Working in Different Industries (2005) .47 Table 3.12: The average gross monthly earnings for the financial services industry 47 Table 4.1: Projected number of agency force of VCA distribution 69 Table 4.2: Investment portfolio .82 EXECUTIVE SUMMARY In the past decade, Vietnam economy has been growing at stable and remarkable high rates of roughly 7-8% per annum Besides, Vietnam is staying firm in its commitments to international and regional integration All of her efforts are materialized with the big bang accession to WTO in 2006 and numerous bilateral agreements with other countries such as Singapore, China, the US, etc., The high growth of economy and a controlled inflation are creating a promising prospect for the bright business environment in Vietnam, especially to foreign investors With regard to the Vietnam life insurance market, it is a new market with few players There are many reasons to see that Vietnam life insurance market is promising and potential for growth and further development Firstly, the country has a very young population It is estimated that about 60% of Vietnam population is below 30 years old, in which 31% is aging from 0-14 years old (GSO, 2006) This is important to the overall economy and the life insurance market particularly Young population will produce a large number of people within the working age that is impetus for stable growth Further, young generation now are very much care for their future – retirement time, and they (very young, 0-14 years old) also are well taken care of their future by the parents such as education and decent living Secondly, the insurance penetration rate is very low in Vietnam It is estimated that only about 7% of the total population has been insured by certain form This is very low as compared to other countries in the region, Singapore, for example, each citizen has about three policies on average Thirdly, the market is still left with big room for development as there are only 10 life insurers (as end of 2008) Few licensed companies and operating mainly in the urban areas while 80% of Vietnam population lives in the countryside will be the lucrative opportunity for new comers to tap in this market NTUC Income saw the business opportunities of the insurance market in Vietnam, so it has been amongst the earliest foreign insurers to land in the country since 1996 It is believed that the rich regional experience and insurance expertise can help NTUC Income to move faster when it is officially licensed to business in Vietnam As a contribution to the process of business in Vietnam, this Thesis research is proposed to help NTUC Income to have an insightful analysis on the market and suitable entry strategy is suggested for NTUC Income to consider The Thesis is conducted to propose market entry strategy for NTUC Income to enter Vietnam life insurance market The Thesis comprises of five Chapters with very much details focusing on market situation analysis, Company’s internal analysis and entry strategy for NTUC Income into Vietnam Supporting to analysis is a thorough review of literature on strategy, strategic management, Vietnam insurance market reports and researches, etc, Amongst entry options for a foreign investor like NTUC Income, a wholly foreign owned form is recommended with regard to the characteristics of insurance business environment in Vietnam as well as the capacity of NTUC Income Entry strategy is assumed as a key to a market, however, in order to be successful with its insurance business in Vietnam NTUC Income also needs to differentiate themselves with its own values in couple with adaptation to Vietnam business environment Basically, the Thesis report helps to provide a skeleton of strategy on each specific area as follows: - Products: Simple products, with focus on the Endowment and Investment-linked products; low-cost products and more focused on the rural areas - Distribution: A main distribution channel for start-up is dependent largely on Cooperative network; besides, NTUC Income should involve other channels such as tied agency and bancassurance - IT application: leverage on its strengths in IT application Business process can be improved through applying IT platform for underwriting support, Contact Center, internal and external communications, etc, - Network of branches and POS: as it aimed at reaching out to the rural areas, so a large number of POS is required, NTUC Income can have this in place with Cooperative network in all provinces After proposing strategy for NTUC Income to enter Vietnam insurance market, the author also made some recommendations for NTUC Income itself and also the Vietnam market as a whole For NTUC Income, recommendations are made to urge that the Company should be firm and consistent in its approach as a wholly foreign owned company; innovation in offering products to public in which simple, low-cost and decent benefit characteristics should be combined; using Cooperative as a main distributor but it needs to develop alternatives such as tied 10 agency, bancassurance, and telemarketing; and lastly, extend its cooperative values to benefit the mass public of Vietnam While with the whole market of Vietnam, measures and solutions for improving of agency quality, eliminating the fraudulent practice, strengthening the legal framework, and consolidating the roles and functions of Insurance Associations should be the main suggestions or recommendations for the healthy development of Vietnam insurance market It is hoped that with the detailed strategy proposed in this Thesis and the interest of NTUC Income in Vietnam, NTUC Income would harvest fruitful results in its entry mode and business operation in Vietnam later on