Strategy choices for ntuc income to enter vietnam life insurance market

10

R ESEARCH B ACKGROUND

Vietnam is considering a market with great potential for insurance business to develop in the future This is firstly justified by the remarkably high and stable economic growth along with increasing income per capita in the recent years From 2004 to 2007, the Gross Domestic Product (GDP) grew over 8% annually, while the economic growth rate stays above 7.5% per annum Secondly, Vietnam is a country with young and vibrant population, 31% is aging from 0-14 years old (GSO, 2006) Thirdly, the insurance penetration rate is still very low as compared to other countries in the regions There are currently 7 operating life insurers in the country and only about 7% (or approximately 6 million) of the total population covered by life insurance; life insurance premium is accounted for only 0.87% of total GDP So there opens a very big room for future development.

With opening up of its insurance market since 1996, more and more foreign insurers are getting access to the highly lucrative insurance market in Vietnam The access to Vietnam insurance market is not merely a response to international binding commitments such asGATS or WTO Vietnam has been opened her market to foreign insurers since the late of1990s with presence of three wholly foreign owned insurance companies and nearly 20 representative offices Foreign companies can be now easier to access Vietnam insurance market in the form of joint ventures (with local or other foreign companies) or their own subsidiaries in order to enter Vietnam and diversify their clientele There are currently nine (9) life insurance companies those have been licensed to do insurance business in Vietnam, eight out of them are wholly foreign invested insurers In addition, a range of foreign life insurers,including some large Asian-based life insurers (principally from Singapore, Taiwan, China and South Korea), have set up representative offices in Vietnam and are working toward gaining operating licenses Investors from regions like Asia, US and Europe are also actively lobbying the Vietnamese government for access to the local insurance market Upon the country's accession to the World Trade Organization, foreign insurers expect to be allowed to establish more wholly owned units and to benefit from progressively declining limitations on their scope of business.

For the case of NTUC Income, it is a well established insurance company in Singapore with

38 years of operation in both life and non-life insurance businesses Since the establishment of its Representative office in Vietnam in 1996, NTUC Income has been actively finding the local potential partner(s) for an insurance venture in Vietnam It has proposed and studied various venture proposals such as strategic partnership, joint venture, and a wholly owned subsidiary At the moment, NTUC Income is consolidating the base for an access to Vietnam insurance market That’s why this research is proposing to do in an attempt to provide a both academic and practical view on how the best NTUC Income can enter Vietnam life insurance market The present research will analyze the market situation and conduct company internal analysis to serve a base for proposing different strategies ranging from mode of entry to operational strategies such as product mix, distribution channels, HR development, use of information & technology, ect.

The contemporary proposals were fitted into the operating overall corporate strategy at the time being for overseas expansion However, after sorting out the form for market presence, how the company can compete in this market and best leverage its own strengths and competencies is the question that can be answered Even this research is to do for the completion of MBA program, conclusions and recommendations shall be made at highly practical and executable to NTUC Income in particular and other companies involving in the market in general.

Though this research is an MBA thesis and in service of graduation completion in dual with contribution to company’s strategy, the research has been facing some limitations Firstly, this research is mainly used for the purpose of one particular company – NTUC Income – who is entering Vietnam life insurance market, so that some of its recommendations or suggestions may or may not be applicable to other companies or the market as a whole Secondly, this research is to deal with strategic management but with only two out of three elements, namelyStrategic Analysis and Strategic Choice (nothing to do with Strategy implementation) so it hardly provides comparison in measurements or statistics Thirdly, the target group is very small as it limit to only life insurance companies (6 operating insurers), so it can’t have many interviews as well as questionnaires for primary data.

P ROBLEM S TATEMENT

Vietnam life insurance market shaped its initial form in 1996 as the first life insurance company was established, it is Bao Viet Life insurance company Since the year 1999, it lifted to an increasingly higher level of development with the penetration of many foreign insurance companies such as Manulife, AIA, Prudential, ect The life insurance market is still at its initial development with low insurance penetration rate and few players Hence, it is apparent that Vietnam life insurance market is of great potential for development Vietnam life insurance market has been formed by different types of business establishments such as foreign, joint venture, and domestic entities But there are still existing many problems and pressing issues that need to address by many related parties in the market, including insurance regulator, insurance companies, agents and brokers, policyholders, and general public. Understanding the market conditions is significant to insurance company, especially foreign insurers who want to tap on Vietnam market.

NTUC Income has been in Vietnam for more than a decade and have conducted many studies and market researches on life insurance business in Vietnam as well as different models for market entry Now it wants to be physically present in Vietnam in the form of a licensed company in insurance business That’s why the company is also finalizing the best workable market entry strategy (ies) and strategic choices for proposed company in Vietnam to best leverage its existing competencies and strengths as well as to avoid pitfalls in the local Vietnam market That’s the reason why this research is posed to conduct so as to propose and analyze strategic choices for NTUC Income to enter Vietnam life insurance market However, it is needed to note that the present research is not to pursuit the implementation of strategy in reality after the company has licensed and established, it will only propose a strategy for an NTUC Income’s new life insurance company in Vietnam.)

R ESEARCH O BJECTIVES

From the market situation and NTUC Income expansion strategy, this research will try to:

(1) to have a comprehensive understanding about the life market situation: development history, market composition, market size, growth rate, current market trends, success factors, ect;

(2) to identify any existing or emerging issues and to forecast the market trends (next 5 years) of life insurance business;

(3) to make suggested corrections/recommendations for VN life insurance market from those can aware of pitfalls and best leverage its strengths;

(4) to propose a strategy for NTUC Income to enter Vietnam Life insurance market based on its unique strengths and the real market situation;

(5) to the justify the choice for mode of market entry by NTUC Income and to propose strategic choices for the proposed company of NTUC Income in Vietnam.

S COPE OF THE RESEARCH

In order to meet the objectives of the study, this research will basically look at two key parts, that are (1) market situational analysis and (2) strategic choices for NTUC Income to enter Vietnam life insurance market However, before any practical analysis and proposed strategies are made, the author will also gather information and put in personal hypothesis in relating to Vietnam life insurance market, theoretical review and NTUC Income overall business strategy.

1.) The market analysis (limited to life insurance market only):

- The development history of Vietnam life insurance market

- The market composition (life insurers, Government insurance regulator; and policyholders)

- List the product ranges from each company and assess and compare their success with one another;

- The distribution channel currently dominated by companies; any problems in current distribution system and outlook for future; the advantages and difficulties in the distribution system using the tied agents versus potential for bancassurance and e- commerce/telemarketing;

- How the company use information and technology in their operations and business activities; what may be the trend for selling insurance in the future with consideration to the wide use of internet.

- Recommendations or suggestions for the overall market development;

2.) Strategy for NTUC Income to enter Vietnam

- What are strengths and competencies of NTUC Income?

- What may be difficulties for NTUC Income to expand into Vietnam?

- Propose strategic approaches for NTUC Income in Vietnam in terms of: management structure and organization; product; market target/segmentation; distribution channels: use of I.T, ect.

- A Projection on future development for NTUC Income in Vietnam in the next 3-5 years.

D ESK REVIEW

The desk review has been conducted since the ideas of this MBA thesis is just starting in mind of the research author The desk review is a collection of existing literature relating Vietnam insurance market and the strategic intention of NTUC Income for its expansion overseas, especially into Vietnam The following documents have been reviewed:

- Yearly insurance market reports by Association of Vietnamese Insurers (2000-2007)

- Yearly insurance market reports by Ministry of Finance (2000-2007)

- Strategy for Development of Vietnam Insurance market (2003 – 2010), Government of Vietnam;

- Nguyen Thi Hai Duong, Solutions to Development of Vietnam Life Insurance Market, Doctorate Dissertation, NEU, 2006.

- NTUC Income’s “Overseas Expansion Strategy”, 2005

- NTUC Income’s Feasibility Study on Vietnam Life insurance market, 2005- 2006;

- NTUC Income’s Insurance Cooperative of Future, 2005

Apart from that, the author also consolidated the academic knowledge and theories by studying various sources of books, magazine, websites, and specialist business reviews on strategy, strategic management, strategic planning, business strategy, ect A great collection of books and articles relating strategies are under reviewed including:

- B H Liddell Hart, Strategy (1967) Basic Books.

- Benjamin Tregoe and John Zimmerman, Top Management Strategy (1980) Simon and Schuster.

- Fred Nickols, Competitive Strategy & Industry Analysis, The Basics a la Michael Porter 2003.

- Fred R David, Strategic Management: Concepts and Cases, Ninth edition Prentice Hall.

- George Steiner, Strategic Planning (1979) Free Press.

- Harvard Management Update, Corporate Strategy: A Manager’s Guide, 2000

- Henry Mintzberg, The Rise and Fall of Strategic Planning (1994) Basic Books.

- Joan Magretta, Why Business Models Matter Harvard Business Review, 2002

- Johnson and Scholes, Exploring Corporate Strategy

- Kenneth Andrews, The Concept of Corporate Strategy, 2 nd Edition (1980) Dow-Jones Irwin.

- Michael Porter, "What is Strategy?" Harvard Business Review (Nov-Dec 1996).

- Michael Porter, Competitive Strategy (1986) Harvard Business School Press.

- Michael Porter, How Competitive Forces Shape Strategy, HBR, 1979.

- Robert E Johnston and J Douglas Bate, The Power of Strategy Innovation: A new way of linking creativity and strategic planning to discover great business opportunities. AMACOM.

- Robert S Kaplan and David P Norton, Having Trouble with Your Strategy? Then map It. Harvard Business Review, 2000.

- Articles and postings from newspapers and online forum specialized in insurance

R ESEARCH M ETHODOLOGY

This proposed research is a QUALITATIVE Research Hence, the methods used in the proposed research is more likely to look at the attitudes, knowledge and arguments of participants Based from the information collected, researcher(s) will compiled and analyze to produce the results (without formal measurements) that can test the hypothesis or known knowledge.

This research report is the result of analyzing both primary and secondary data The secondary data and information is the review and analysis on the existing documents and literature The literature review will draw some basic assumptions for analysis to answer to the research objectives The literature review will be presented in detailed in the next chapter of this research report The primary data will be collected through direct (field) survey and/or interview or even fresh or happening relevant events (for case analysis) The tools to collect such data will be presented with more details in the next part.

As it is a qualitative research, the following methods shall be applied for data collection:

1.) In-dept interview (with interview guide)

The In-dept interviews are conducted on One-on-One Interview basis It is a personal interview with a single respondent to understand underlying motivations, beliefs and feelings on a particular subject of concern (set forth by researcher to meet research objectives)

The semi-structured questionnaires will be designed so as they can be both used for face-to- face interview and/or as a survey form for respondents to fill out Because this is a qualitative research, the majority of questions in the questionnaire form will be the open-ended questions to reserve the room for respondents to write down more If there is a face-to-face interview used this questionnaire survey form, the interviewer will be asking and writing down The semi-structured questionnaire used in this research can be applied to collect information and data by three ways:

- Face-to-face interview (to fill in the questionnaires)

- Delivering the Questionnaires as a survey form to targeted respondents Respondents will answer and fill in the form by themselves

- Telephone interviews: this method is used for the case that respondents hardly can return the questionnaires survey form that they have received before from the Researcher.

This method is used to as a supplemental tool to justify the data, information that have been known through literature review or interviews Mini case studies will be used to prove one or two fact, argument or researcher’s opinion It is included in one or 2 A4 pages only.

For each method used to collect data, it is expected to have the numbers of participants as follows:

1.) In-dept interviews: 20 (managers from life insurance companies, banks, I.T or software solutions firms; 1 rep from MOF/insurance; 1 rep from AVI, 5 others from NTUC Income)

2.) Questionnaires: 35( including insurance agents, policyholders; interested public, ect,These will be distributed to 25 local people and 10 others to NTUC Income members)

All the interviews will be taken notes or/and recorded for later analysis.

S TRUCTURE OF THE R ESEARCH R EPORT

This research report is comprised with 5 chapters as it main contents Apart from these chapters, the research report includes other parts such as Acknowledgement, Executive

Summary at the very beginning It is also includes the Conclusions, References Sources, and Appendices at the ending part of the thesis report There are five chapters are presented briefly below for a quick content capture.

Chapter 2: Theoretical Framework and Literature Review

Chapter 3: The situational analysis on Vietnam life insurance market

3.1 The History of Life Insurance Market 3.2 External Analysis on Vietnam Insurance market 3.3 The Current Trends and Issues of Vietnam Life insurance market

Chapter 4: Strategy analysis for NTUC Income to enter Vietnam

4.2 NTUC Income’s Strategy in Vietnam

4.3 Proposed business strategy for NTUC Income in Vietnam

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C ONCEPTUALIZATION OF S TRATEGY

The concept of strategy has been borrowed from the military and adapted for use in business.

A review of what noted writers about business strategy suggests that adopting the concept of Strategy from military into business was easy since it required a modest adaptation In business, as in the military, strategy bridges the gap between policy and tactics Together, strategy and tactics bridge the gap between ends and means This part of the review will look at various definitions of strategy for the purpose of term clarification However, it is needed to note that, the review is only touched on terms used for business but military.

Strategy is a term that comes from the Greek strategia , meaning "generalship." In the military, strategy often refers to maneuvering troops into position before the enemy is actually engaged or in short, the deployment of troops Once the enemy has been engaged, attention shifts to tactics: how to employ the troops for the war game So when we refer strategy to use in business world, what we need to do is just to substitute "resources" (business) for “troops” (military).

George Steiner, a professor of management, conceptualized in his book Strategic Planning

[1979] that strategy entered the management literature as a way of referring to what one did to counter a competitor’s actual or predicted moves Steiner also pointed out in his notes that there is very little agreement as to the meaning of strategy in the business world Some of the definitions in use to which Steiner pointed include the following:

 Strategy is that which top management does that is of great importance to the organization.

 Strategy refers to basic directional decisions, that is, to purposes and missions.

 Strategy consists of the important actions necessary to realize these directions.

 Strategy answers the question: What should the organization be doing?

 Strategy answers the question: What are the ends we seek and how should we achieve them?

Meanwhile, Henry Mintzberg in his 1994 book, The Rise and Fall of Strategic Planning, pointed out that people use "strategy" in several different ways, the most common being these four:

1 Strategy is a plan, a "how," a means of getting from here to there.

2 Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy.

3 Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets.

4 Strategy is perspective, that is, vision and direction.

Mintzberg argued that strategy emerges over time as intentions collide with and accommodate a changing reality Thus, one might start with a perspective and conclude that it calls for a certain position, which is to be achieved by way of a carefully tailored plan with decisions and actions over time to reach the finally expected outcome This pattern in decisions and actions defines what Mintzberg called "realized" or emergent strategy.

Backward to 1980, Kenneth Andrews presented this lengthy definition of strategy in his book, The Concept of Corporate Strategy:

"Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities. (pp.18-19)."

Andrews also drawed a distinction between "corporate strategy," which determines the businesses in which a company will compete, and "business strategy," which defines the basis of competition for a given business Thus, Andrews and Mintzberg seemly shared the view on

"position" as a form of strategy

Benjamin Tregoe and John Zimmerman, of Kepner-Tregoe, Inc., in Top Management

Strategy [1980], defined strategy as "the framework which guides those choices that determine the nature and direction of an organization." Ultimately, this ends up to selecting products (or services) to offer and the markets in which to offer them

Referring to a guru on strategy, Michael Porter, in his 1996 Harvard Business Review (What is Strategy?) article and in an earlier book (Competitive Strategy, 1986), Porter argued that competitive strategy is "about being different." He added, "It means deliberately choosing a different set of activities to deliver a unique mix of value." In short, Porter argued that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors In his book,

Competitive Strategy [1986], Porter defined competitive strategy as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there." Thus, Porter seemed to embrace strategy as both plan and position However, it should be noted here that Porter writes about competitive strategy, not about strategy in general.

Michel Robert took a similar view of strategy in, Strategy Pure & Simple [1993], where he argued that the real issues are "strategic management" and "thinking strategically." For Robert, this boils down to decisions pertaining to four factors:

1 Products and services 3 Market segments

However, Robert claimed that decisions about which products and services to offer, the customers to be served, the market segments in which to operate, and the geographic areas of operations should be made on the basis of a single "driving force." (as listed below) This is similar view as Tregoe and Zimmerman that several possible driving forces exist but only one can be the basis for strategy The 10 driving forces cited by Robert are:

1 Product-service 6 Sales-marketing method

What, then, is strategy? Is it a plan? Does it refer to how we will obtain the ends we seek? Is it a position taken? Just as military forces might take the high ground prior to engaging the enemy, might a business take the position of low-cost provider? Or does strategy refer to perspective, to the view one takes of matters, and to the purposes, directions, decisions and actions stemming from this view? Lastly, does strategy refer to a pattern in our decisions and actions? For example, does repeatedly copying a competitor’s new product offerings signal a

"me too" strategy? Again, just what is strategy?

Strategy is all these—it is perspective, position, plan, and pattern Strategy is the bridge between policy or high-order goals on the one hand and tactics or concrete actions on the other Strategy and tactics together straddle the gap between ends and means In short, strategy is a term that refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends.

Strategy, then, has no existence apart from the ends sought It is a general framework that provides guidance for actions to be taken and, at the same time, is shaped by the actions taken. This means that the necessary precondition for formulating strategy is a clear and widespread understanding of the ends to be obtained Without these ends in view, action is purely tactical and can quickly degenerate into nothing more than a flailing about.

However, when there are no "ends in view" for the organization at large, strategies still exist and they are still operational, even highly effective, but for an individual or unit, not for the organization as a whole The risks of not having a set of company-wide ends clearly in view include missed opportunities, fragmented and wasted effort, working at cross purposes, and internecine warfare

Same decisions, albeit different definitions

S TRATEGIC M ANAGEMENT AND S TRATEGIC P LANNING

As defined by Fred R David in Strategic Management, 9 th Ed., “Strategic management is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.” David also noted that the term strategic management and strategic planning are used synonymously The latter term is often in used in business world, whereas the former is often used in academics This is important note as it helps to avoid the confusions which may have in reading between strategic management and strategic planning However, strategic planning is claimed to be only referred to strategy formulation, while strategic management is a whole process from strategy formulation, implementation, and evaluation From this it can be said that Strategic management involves intuition and creativity (synthesis), while the strategic planning is merely analysis This view is also asserted by Mintzberg in his Harvard Business Review: The fall and Rise of Strategic

Planning as he said “strategic planning has been really strategic programming, the articulation and elaboration of strategies, or visions that already exist.

As Johnson and Scholes (Exploring Corporate Strategy) defined in a broadest sense, strategic management is about taking “strategic decisions” for organization or a business unit The decisions concern business direction, market segmentation and scope of business, required resources and competitive advantages, environment factors, as well as meeting expectations of business stakeholders

In practice, a thorough process of strategic management has three main components as show in the Figure 2.1 below:

Figure 2.1: Main component of Strategic Management

This is about analyzing the strengths of businesses’ position and understanding the important external factors that may influence that position The process of Strategic Analysis can be done with helps of a various tools such as: SWOT or IFE and EFE, PEST, or 3C A careful internal analysis and environmental scanning will effectively help the choice of strategy options to the best of company’s capacity and direction.

This process involves understanding the nature of stakeholder expectations (the “ground rules”), identifying strategic options, and then evaluating and selecting strategic options.

When a strategy has been analysed and selected, the task is then to translate it into organizational action This is often the hardest part in strategic management

Pertaining to the purpose of this Thesis research, the author is going to propose strategic choices or options for NTUC Income to enter Vietnam insurance market That’s why, the thesis research is touching on only two components: Strategic Analysis and Strategic Choice.The Implementation of strategy would be the next step when the proposed company got operating license and be ready to operate in Vietnam In that case, a detailed business plan is needed to translate the overall strategic choices/options into tactics for implementation.

PEST A NALYSIS

PEST analysis is concerned with the environmental influences on a business.

The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business.

Identifying PEST influences is a useful way of summarising the external environment in which a business operates However, it must be followed up by consideration of how a business should respond to these influences In fact, environmental analysis should be continuous and feed all aspects of planning.

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses The following are some of considerations should be taken into account:

- Political environment; legal framework; government organisation/attitude;

- Governmental view on culture and religion;

Marketers need to consider the state of a trading economy in the short and long-terms This is especially true when planning for foreign market entry:

- (Un)Employment rate; skills of workforce; labor costs;

- Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

The social and cultural influences on business vary from country to country It is very important that such factors are considered Factors include:

- Attitudes to foreign products and services?

Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:

- How does technology affect the create and deliver products and services?

- Telephone and Internet policy and the popularity of them?

- How is distribution changed by new technologies e.g buying motor insurance through website,

- Does technology offer companies a new way to communicate with consumers e.g banners, Contact Center, automated (telephone/internet interactive) response system?

Of course, once political, economic, social and technological factors are identified (which is the first step), the next step is to create a business strategy or strategies that will take advantage of these trends and changes, while minimizing risk to the company from those trends and changes.

P ORTER ’ S F IVE F ORCES M ODEL

Porter’s Five Forces Model is one used for analysis of an industry or pure competition within a market It is likely the best model to be used in decisions of entry or change within a market, and should always be considered during the business planning stage in a company life cycle

Porter’s Five Forces Model states that risk-adjusted rates of return should be constant across firms and industries, however, is disputed in various studies Different industries can experience different levels of profitability

The Porter’s Five Forces model propose that an industry is influenced by five forces An executive can use the model to understand the industry competitive landscape, to determine how and where the firm should operate The model is also used to analyze the attractiveness of an industry structure

Porter’s Five Forces Model is also known as Porter's Competitive Forces model, probably one of the most often used business strategy tools It has proven its usefulness on numerous occasions Porter's model is particularly strong in thinking in a competitive mindset - from external forces to inside the company

Figure 2.2: Porter’s Five (Competitive) Forces Model

The Porter’s Five Forces Model Competitive Forces analysis is made by the identification of 5 fundamental competitive forces:

New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete The threat of entry in an industry depends on the height of entry barriers that are present and on the reaction entrants can expect from incumbents If entry barriers are low and newcomers expect little retaliation from the entrenched competitors, the threat of entry is high and industry profitability is moderated Entry barriers are advantages that incumbents have relative to new entrants There are seven major sources: (1) supply-side economy of scale; (2) demand-side benefits of scale; (3) customer switching cost; (4) capital requirements; (5) incumbency advantage independent of size;(6) unequal access to distribution channels; (7) Restrictive government policy.

Powerful suppliers capture more of the value for themselves by charging higher prices,limiting quality or services, or shifting costs to industry participants.

A supplier is powerful in such a case as: position of sellers, number of existing suppliers, monopoly of suppliers, concentration of suppliers, differentiation in inputs, threat of forward integration, shifting cost to purchase, ect.

Powerful customers – the flip side of powerful suppliers – can capture more value by forcing down prices, demanding better quality or more service (thereby driving up costs), and generally playing industry participants off against one another, all at the expense of industry profitability Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reductions.

The power of a customer group depends on: position of buyers, product (in)differentiation or standardization and availability of substitutes, low switching cost to purchase, price sensitivity, brand identity, ect.

A substitute performs the same or a similar function as an industry’s product by a different means Videoconferencing is a substitute for travel Plastic is a substitute for aluminum E- mail is a substitute for express mail Substitute products or services limit an industry’s profit potential by placing a ceiling on prices If an industry does not distance itself from substitutes through product performance, marketing, or other means, it will suffer in terms of profitability – and often growth potential In emerging economies, for example, the surge in demand for wired telephone lines has been capped as many consumers opt to make a mobile telephone their first and only phone line.

Rivalry among existing competitors takes many familiar forms, including price discounting,new product introductions, advertising campaigns, and service improvements High rivalry limits the profitability of an industry The degree to which rivalry drives down an industry’s profit potential depends, first, on the intensity with which companies compete and, second, on the basis on which they compete.

While the Porter’s Five Forces model in regards to decision making, is to collect, analyze and present data for the decision maker, Porter identifies three generic strategies to address industry rivalry Strategies can be formed on three levels - corporate, business unit and functional or department level The Strategies are cost leadership, differentiation and competitive advantage The best decision will position the firm to leverage strengths and defend against adverse effects of the five forces.

M ARKET ENTRY STRATEGIES

The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via following four mechanisms:

Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required Most of the costs associated with exporting take the form of marketing expenses.

Licensing essentially permits a company in the target country to use the property of the licensor Such property is intangible, such as trademarks, patents, and production techniques.The licensee pays a fee (known as royalty) in exchange for the rights to use intangible property and possibly for the technical assistance Licensing has potential to provide a very large ROI since it is required little investment on the part of licensor.

There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include connections and distribution channel acess that may depend on relationships.

Such alliances often are favorable when:

 the partners’ strategic goals converge while their competitive goals diverge;

 the partners’ size, market power, and resources are small compared to the industry leaders; and

 partners’ are able to learn from one another while limiting access to their own proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, government intentions.

Foreign direct investment (FDI) is the direct ownership of facilities in the target country It involves the transfer of resources including capital, technology, and personnel Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment However, it requires a high level of resources and a high degree of commitment Following table provides a summary of the four mode of foreign market entry.

Table 2.1: Mode of foreign market entry

Limited sales potential in target country; little product adaptation required

Distribution channels close to plants

Trades barriers & tariffs add to costs.

Exporting High target country production costs Liberal import policies High political risk investment Speed of entry

Maximizes scale; uses existing facilities.

Limits access to local information

Company viewed as an outsider

Licensing Import and investment barriers

Legal protection possible in target environment

Low sales potential in target country.

Licensee lacks ability to become a competitor.

Able to circumvent trade barriers High ROI

Lack of control over use of assets.

Knowledge spillovers License period is limited

Import barriers Large cultural distance Assets cannot be fairly priced High sales potential

Government restrictions on foreign ownership

Local company can provide skills, resources, distribution network, brand name, ect.

Overcomes ownership restrictions and cultural distance

2 companies Potential for learning Viewed as insider

Difficult to manage Dilution of control

Greater risk than exporting & licensing Knowledge spillovers

Import barriers Small cultural distance Assets cannot be fairly priced High sales potential

Greater knowledge of local market

Can better apply specialized skills

Can be viewed as an insider

Higher risk than other modes

Requires more resources and commitment

May be difficult to manage the local resources.

V IETNAM LIFE INSURANCE INDICATORS

Relating to the situation of Vietnam life insurance market, the various sources urged that Vietnam life insurance market is facing with many challenges, albeit the great potential for development (Hai Duong, 2006; MOF report 2005, 2006; AVI market report 2005, 2006,

2007) At macro level, the Government of Vietnam has been modifying its legal framework to meet with commitments with WTO as well as various Agreements it acceded to Some indicators for the development of Vietnam insurance market has made in the Strategy (or Master-Plan) for Development of Vietnam Insurance market 2003-2010 including total insurance premium increased by 24% per annum; an projected increase of 28% per annum for life insurance sector; and the insurance industry can create 150,000 jobs by 2010 Apart from that, the foreign insurers are also encouraged to invest in Vietnam, broaden the scope of business, raise capital, ect Of course, there are still many factors may negatively affect the life insurance market included the rising inflation rate and interest rates, the poor understanding of the public about insurance; and a lack of supporting infrastructure, ect.

Despite of the young market and some associated issues, there is a big potential for the market to develop in the future (India PRwire, 2006) Those trends may include the WTO accession by Vietnam, the increasing foreign investment, the improved living standard of people, the demand for risk management and retirement, young population of Vietnam, and the low insurance penetration rate, ect., (Hai Duong, 2006; Phung Dac Loc 2006, Le Song Lai, 2005, Lam Hai Tuan, 2006)

From the insurers and customers sides, There are potential for insurers to tap in Vietnam but they need to innovate themselves in terms of products and distribution channels Insurance companies should diversify their distribution channels to meet the various demands of customers and make it convenient for customers to shop (Phung Dac Loc, 2006) Apart from that, the traditional products should be modified and companies should design new investment-linked products to meet the higher need of customers for both protection and investment elements (Phung Ngoc Khanh, 2006) Companies are also of headache with the agency system as there happened the fraudulent actions and churnings made by insurance agents (Loc: 2005, Lai: 2005), this will not only affect the reputation of that particular company but also the whole market as the truth of the public placed on insurance companies has been deteriorated Companies should not only focus on training for their salesman, but also need to educate public about insurance (Loc: 2005).

NTUC I NCOME ’ S BUSINESS INTENTIONS IN V IETNAM

For NTUC Income Insurance to expand in an overseas market like Vietnam, the company has designed supporting documents that shall serve as the standard guidelines and directives for its officers to implement Company has its own Strategy for Overseas Expansion (2005) to state how it will do business in overseas and what are the internal strengths, Insurance Cooperative of Future (Tan Kin Lian, 2006) shows how the company can best utilize its resources and I.T in insurance business operations Apart from that, we have the information and data collected form our periodical market researches as well as our feasibility studies conducted in 2004 and 2006.

From the review on both theoretical framework as well as market and company conditions, some hypothesis for this study can be drawn out as follows:

1.) Vietnam insurance market is of huge potential and open to foreign insurers to tap in;

2.) There are many issues in the management of insurance companies in Vietnam now including agency management, choice of distribution networks, and products;, ect.,

3.) Little attention to I.T investment and customer services;

4.) NTUC Income can well fit into Vietnam life insurance market based on its overall strategy as well as strategy for overseas expansion, its strengths and unique competencies.

34

O VERVIEW OF V IETNAM L IFE I NSURANCE M ARKET

Since the introduction of reform or Doi Moi in 1986, the Vietnamese economy has increasingly been opening in recent years Export value has accounted for more than half of GDP and import-export turnover has seen an average growth rate of 20% per annum Foreign investment accounts for about 40% of the total investment of the country.

Following the accession to WTO membership by end of 2006, the Vietnamese Government has been taking active measures to reform and restructure the economy to be in compliance with the commitments to WTO and other Agreements acceded by Vietnam This will create a lot of opportunities and well as challenges for enterprises operating in Vietnam and ones who are entering this economy Vietnam now is not only to open to foreign enterprises to come in but also it is changing its own form by a strong schedule for the equitisation process of state- owned enterprises All these efforts will aim to generate the country’s healthy and transparent investing environment to both local enterprises and its foreign counterparts.

In addition, special attention is being given to the review and removal of laws and regulations that are not in conformity with general international regulations and commitments; and new laws are being made to create a level playing field for both domestic and foreign investors and enterprises.

The Vietnamese economy, supported by buoyant consumption and investment, maintained its rapid growth rate in 2006 with more than 8% Private consumption grew by 12.9% and government consumption grew by 8.0% Total investment climbed by 24.6% to reach 35.5% of GDP Of this, 56% originated from the state sector, with the domestic private contributing27% and foreign investment adding 17% On the supply side, industry and services, together accounting for nearly 80% of GDP, were the main sources of growth Growth created jobs for an estimated 1.6 million people in 2004, lowering the unemployment rate in urban areas from 5.8% in 2003 to 5.6% in 2004.

Vietnam has made solid progress in its macroeconomic performance and in improving its business climate The further opening of the economy over the next 2 years to be in compliance with ASEAN Free Trade Area commitments and WTO accession is expected to spur growth in trade and investment and will be instrumental in improving the efficiency of domestic enterprises

The 5-year socio-economic Development Plan (2006-2010) has a target of 7.5-8.0% annual average GDP growth Despite the hit by world economic depression booming worldwide in

2007, Vietnam government still target its economic growth at the lowest of 5% per annum. This is showing a big potential and internal strength of the economy for future development.

Overall, as Vietnam emerges to become a fully-opened economy, its prospects for rapid growth and poverty reduction remains sanguine Resilient domestic business confidence and a rise in foreign direct investment are expected to support this robust growth.

Table 3.1: Projected Key Economic Indicators for 2005 – 2007

Growth rate of per capita GDP (% per year) 6.3 5.3 6.2

Gross domestic investment (% of GDP) 36.1 37.1 37.7

Current account balance (% of GDP) -5.6 -5.8 -6.6

Source: Asian Development Bank (ADB) - Key Indicators 2005

Relations between Singapore and Vietnam have grown considerably over the last decade The two countries share a close relationship encompassing cooperation in diverse fields such as trade and investment, technical cooperation, arts and education, tourism, medicine and sports.

By developing closer connections between Vietnam and Singapore, each country will be able to take advantage of the other’s competitive advantages

To date, a number of key initiatives have been concluded between the two countries In March

2004, both countries signed the Joint Declaration on Comprehensive Cooperation Framework in the 21 st Century, marking an important milestone in laying the foundation for the enhancement of the long-term and more comprehensive relations between Singapore and Vietnam

Business Initiatives have been made between the two countries They will help facilitate access of Singapore companies into the Vietnamese market, further enhancing the strong economic and trade linkages between the two countries, provided that Singapore is one of Vietnam’s major trading partners and is also its top foreign investor

3.1.2 Development History of Vietnam Life Insurance Market

Table 3.2: Key development milestones of Vietnam insurance market

Pre-1976 There were a number of insurance companies operating in South Vietnam.

In the north the state provided for all needs until 1963, when Bao Viet was established principally to cover marine cargo risks.

1993 Decree 100/CP was issued heralding the development of an insurance market.

1994 The state-owned Vietnam National Reinsurance Company was registered with a capital of VND 40bn (USD 2.6mn).

1996 The Ministry of Finance signed an order converting Bao Viet into the

Vietnam Insurance Corporation and at the same time the company was granted a composite insurance license (the first life insurance company is set up by Bao Viet).

1999 Prudential UK, Bao Minh-CMG and Chinfon-Manulife received operating licenses.

2000 - Insurance Law No 24/2000/QH 10 was approved at the eighth session of the 10th legislature and came in to effect on 1 April 2001.

- The Association of Vietnamese Insurers began operation.

- AIA received its operating license.

2003 The Ministry of Finance published the Master-plan for the Development of Insurance market to 2010.

2005 Licenses were granted to Ace Life, New York Life and Prevoir

Vietnam New York Life subsequently relinquished its license.

2007 Vietnam became the 150th member of the World Trade Organization.

The Vietnam life insurance market only officially debuted and recognized in 1996 when Vietnam Insurance Corporation (Bao Viet) set up its own subsidiary to operate in life insurance business Backing to history, however the first life insurance products had been offered to Vietnamese people in the Southern part of Vietnam by Hung Viet Company in early years of 1970s But due to the war and later political change for the South and the whole united country, the Company dissolved Hence, the Vietnamese people have no idea about life insurance then till early of 1990 when some foreign companies set up their Representative offices in Vietnam The first life insurance company set up by Bao Viet was a new milestone to the development of Vietnam life insurance market This was also considered an initial move taken by the government of Vietnam to develop a composite insurance market.

After Bao Viet has set up company and extended its business, some big foreign life insurers like New York Life, NTUC Income, AIA, Prudential, Manulife, ect., have also set up their Representative offices in Vietnam to look for opportunities to enter this young and potential insurance market

In the late of 1990s, some foreign insurance companies have been licensed to operate in Vietnam This sign can be seen as a big move to the market since 4 foreign companies/joint venture have been licensed to operate within few months around end of 1999 and early 2000. These newly licensed companies comprised Chinfon – Manulife (joint venture, wholly foreign owned), Prudential (wholly foreign owned), AIA (wholly foreign owned), Bao Minh – CMG (joint venture, between local and foreign partners) This showed that Vietnam insurance market is of great potential; Vietnam government is ready to open to foreign insurers to tap in; and the commitments of government to development its insurance market.

In 2005, the government of Vietnam granted operating licenses to three other foreign life insurance companies, namely New York Life (U.S), ACE Life (U.S), and Prevoir (French). Amongst these three companies, ACE life and Prevoir started to introduce its products to the markets by end of 2005, while New York Life decided to withdraw from Vietnam market explained by the change in the regional development strategy.

After Vietnam acceded to be WTO member by end of 2006, many industry experts have predicted that market will be more competitive with more foreign players will be landing in.This is in conjunction with the policy of government to attract more direct foreign investment(FDI), open the economy according to international and bilateral commitments, and bring more competitive and quality benefits to its citizens As end of 2007, there are 9 licensed life insurance companies in Vietnam This can be showed in the table below:

Table 3.3: List of Life insurance Companies in Vietnam (as of Dec 2008)

No Name of Company Nationality Year to be licensed

1 Bao Viet Life Vietnam 1996 State-owned Equitized in 2007

2 Manulife Canada 1999 100% foreign capital joint venture (Manulife - Chinfon)

Manulife bought back all stakes from Chinfon in JV in 2001

3 Prudential UK 1999 Wholly foreign owned

Japan 2000 JV between Bao Minh and CMG; From 2006 became wholly foreign owned by Dai-I-chi

Dai-i-chi Life acquired Bao Minh-CMG joint venture in 2006

6 Prevoir French 2005 Wholly foreign owned Established a strategic partnership with VNPT for its distribution

7 ACE Life U.S 2005 Wholly foreign owned

8 Cathay Life Taiwan 2007 Wholly foreign owned Officially operated since August 2008

9 Great Eastern Singapore 2007 Wholly foreign owned Officially operated since September 2008

10 Korea Life Korea 2008 Wholly foreign owned Not yet officially operated*

* Information and statistics in the chart is as of December 2008

3.1.3 General business operations of licensed insurers in Vietnam

Over ten years of formulation and development, Vietnam life insurance market is now composing of 7 operating life insurance companies (as of December 2007) In addition to that, there are three newly licensed insurers who are going to official business operation by end of

T HE C URRENT T RENDS AND I SSUES OF V IETNAM L IFE INSURANCE MARKET

Chapter 4: Strategy analysis for NTUC Income to enter Vietnam

Based on the aim of the proposed study is to analyze strategic choices for NTUC Income to enter Vietnam life insurance market, the author has reviewed various sources relating to the term “strategy” They included writings on strategic management, generic strategy, corporate strategy, strategic planning, competitive strategy, operational strategy, market entry strategy, business (unit) strategy, ect, Many works done by famous strategy academics and practitioners have been collected and carefully reviewed in an attempt to gain a more thorough understanding about the above mentioned terms (in different cases) as well as to avoid the confusion in the use of terms in this study

54

O VERVIEW OF NTUC I NCOME

Based on the aim of the proposed study is to analyze strategic choices for NTUC Income to enter Vietnam life insurance market, the author has reviewed various sources relating to the term “strategy” They included writings on strategic management, generic strategy, corporate strategy, strategic planning, competitive strategy, operational strategy, market entry strategy, business (unit) strategy, ect, Many works done by famous strategy academics and practitioners have been collected and carefully reviewed in an attempt to gain a more thorough understanding about the above mentioned terms (in different cases) as well as to avoid the confusion in the use of terms in this study

T HE I NTERNAL A SSESSMENT OF NTUC I NCOME

Entering an overseas market is always a big venture from any enterprises as it requires a great deals of research, analysis, and investment as well as implementation resources In order to proposing the proper entry strategy, both external and internal analysis are needed to conduct for the company The external analysis has been made in the Chapter Two of this Thesis report, in this part of the Chapter the author will conduct an internal analysis on NTUC Income to provide an insight into its strengths as well as weaknesses The box below summarized the strengths and weaknesses of the NTUC Income Basing on these identified internal

 Technical expertise (actuarial, underwriting, training, insurance management)

 Solid financial strength, the only insurer in Asia with “AA” Standard & Poor’s rating

 Long term commitment to insurance business in Vietnam

 High use of IT platform for business excellence

 Foreign funded with modern management philosophies

 New brand, lack confidence from consumer

 Initial investment may yield low results, affecting competitive edge

 Initial operations may not be large

 Lack experienced insurance subject- matter expert and training

 Bridging culture gaps for Vietnamese workers and consumers

Generally, it can be seen that NTUC Income is very strong in its market expertise and experience supported by very strong financial capacity with rating AA by S&P’s Further to that it is the pioneer enterprise in Singapore to apply widely IT platform in its business to enhance its competitiveness.

However, it will definitely face a lot of difficulties in starting a business in Vietnam market as it new to the market The new comer into this market will have to face with the following challenges: a To compete against more established local insurers b To compete with foreign insurers from advanced markets who are entering the local market, e.g Prudential, AIA, Manulife, Dai-i-chi, etc., c To learn and adapt to the market and business conditions in the local

So in order to stay successfully in the market, NTUC Income should be innovative in its product design, marketing, customer service Further to that it should be active in adapt to the local market practice and conventions.

S TRATEGY OPTIONS AND CHOICE OF S TRATEGY BY NTUC I NCOME IN V IETNAM

As mentioned in Chapter II of this Thesis, there are four typical market entry strategies for a company to enter an overseas market These four strategies possess its own advantages and disadvantages as stated thereto

For an insurance company operating on the cooperative principles like NTUC Income, it is looking out to the overseas market with the following two main considerations:

 Looking for partner(s) with shared vision or values

An emerging market will give the company a plenty of room for development The new comers are also facing less competition from the market players since there are only few companies operating in that market Besides, the host country or the insurance regulators may encourage the development of the market by attracting the foreign investment in the industry.

NTUC Income wants to work with organizations who have the shared vision or operating principles with it The shared vision or business directions between or amongst parties may imply that both can work toward:

 Providing insurance services to the mass public, especially the people with lower income;

 Being willing to work on win-win cooperation whereby the joint venture or the strategic partnership may be the form of incorporation;

 Committing to long term development

In consideration of suitable entry strategies for NTUC Income, there are two strategies are picked up for its more feasible and suitable for entering the Vietnam insurance market:

(2) 100% foreign owned company (where involves the local partner in form of strategic partnership)

For the insurance market of Vietnam, there have been bitter experience for many partners to the joint venture in insurance business There are at least three insurance joint venture inVietnam in both life and general insurance business have been transformed, acquired, or restructure to become one-entity owned companies They can be named such as Bao Minh – CMG (acquired by Dai-i-chi Life in 2007), Incombank-Asia insurance company (Incombank bought the shares holding by JV partner – Asia insurance Co and changed the Company named to Vietinsco), Allianz insurance The main problems arising out of such failure joint venture are conflicts in management powers shared by partners

For NTUC Income, stepping aside the failure of its market predecessors is important for its development and can help it to avoid the problems that incurred to the market previously This part of the Thesis report will look at the two entry strategies that are proposed for NTUC Income for its consideration and choice.

(1) Joint Venture established with local partner(s)

NTUC Income may leverage the strengths of a local partner in its proposed business in Vietnam The list of partners for choice including: Vietnam Cooperative Alliance, Central Credit Fund, Vietnam General Confederation of Labour, and a local commercial banks.

If NTUC Income goes into the joint venture in Vietnam, it shall bear the following advantages and disadvantages:

- Local partner may have more influence on the process of getting license

- Local partner has customer base and distribution network in place

- Can leverage the infrastructure of the local partner for its operation network Less investment required;

- Difficulty in management of the proposed company due to the unclearly shared powers;

- Maybe hard to train the local as they have their own network in place

Considering partners for the joint venture, NTUC Income gives the top priority to the VietnamCooperative Alliance (VCA) and the Central Credit Fund (CCF) as they have many similarities and the shared vision for providing insurance services to the public in Vietnam.Additionally, either of the two organizations has a large customer base and nation-wide network of branches

The Strategy for Joint venture will be very much influence by the partner to it, so it is proposed to the introduction of simple products, the use of technology and educating people about the working and benefit of insurance

Setting up the joint venture in insurance business in cooperation with VCA and/or CCF means that the business target is to provide low cost insurance to the mass public of Vietnam where most are middle and low income people Hence, the business strategy for this proposed joint venture is expected to achieve the following results:

 offer suitable and good value products to meet the needs of the customers and educate them on their needs

 operate at lower cost by using technology

 overcome the problems faced by the traditional methods, e.g the tied agency

The target market of the proposed JV is the cooperative sector (CCF branches are also members to the VCA) It is clear that the insurance market remains positive with a huge potential for development especially in the cooperative sectors and rural areas.

Currently, there are 17,000 cooperatives, of which 8,458 (50%) are agricultural cooperatives. The remaining is shared by cooperatives in other sectors, such as industry, transportation, commerce, fishery, credits, services, electricity and construction Its current membership is estimated to be at least 14 million In addition, there are also over 100,000 cooperative members who are SMEs and 300,000 cooperation groups, which are in simple form of cooperative and may possibly become cooperatives in the near future At the moment, these cooperatives and cooperation groups attract and create jobs for 25 million, have economic relationship with around 60% of Vietnamese population.

The decision on establishment of 100% foreign owned company are thoroughly analysed and consulted with both market decision makers and market players Especially, there has been a lot of advice and concerns from Insurance commissioners, MOF, about the failure of joint venture in the young insurance industry of Vietnam This is worth for us to consider as form of incorporation is also a criteria concern for approval of license from MOF.

Setting up a wholly foreign owned subsidiary instead of the JV will help NTUC Income to avoid the risk of conflict in management amongst partners to the JV, which has been warned by many market participants as well as insurance commissioners

Though NTUC Income can set up its own subsidiary in Vietnam (with 100% capital pooling), the proposed insurance company still can leverage on the distribution networks of the potential partners for JV These potential partners, VCA and CCF, can become the strategic distributors for the proposed company if they are still interested in providing insurance services to the public, especially the middle and low income people.

That’s why the Company with 100% capital invested by NTUC Income will be the recommended form of incorporation for the insurance company in Vienam The next part will have an insightful look at the strategy for the proposed Company for insurance business in Vietnam

P ROPOSED BUSINESS STRATEGIES FOR NTUC I NCOME IN V IETNAM

4.4.1 Legal Conditions for Setting up Insurance company in Vietnam

The regulatory body for the insurance market in Vietnam is the Ministry of Finance (MoF) as authorized by the government of Vietnam All insurance business activities conducted by licensed insurance companies and operations of the Representative Offices must abide to the Law on Insurance Business, Decrees promulgated by the Government and its guiding documents issued by MoF

Legal framework and requirements for 100% foreign owned insurance company

With regard to the establishment of the foreign insurance company in Vietnam, Decree 45/2007/ND-CP stipulating that: A foreign insurance enterprise investing in the establishment of an insurance enterprise with one hundred (100) per cent foreign owned capital or a joint venture insurance enterprise between a foreign insurance enterprise and a Vietnamese enterprise must satisfy the following conditions:

 The foreign insurance enterprise has permission from the competent body of the foreign country to conduct insurance business in the sector in which it is proposed to conduct business in Vietnam;

 The foreign insurance enterprise has been legally operating for at least ten (10) years pursuant to regulations of the country where it has its head office, calculated up to the date of lodging the application file for grant of a license;

 The foreign insurance enterprise had total assets of a minimum vale equivalent to two billion USD in the year prior to the year of lodging the application file for grant of a license;

 The foreign insurance enterprise has not committed a serious breach of the law on insurance business or of other laws of the country where it has its head office for a period of three consecutive years up to the year of lodging the application file for grant of a license.

Decree No 46/2007 establishes the minimum legal capital for a life insurer at VND

Within a period of 60 days from the date of license issuance, the Company shall deposit a sum of money from its paid- up chartered capital in a commercial bank licensed to do business in Vietnam The deposit shall be interest-bearing account according to the agreement with the bank The amount of deposit shall be equal to 5% of the legal capital.

4.4.2 Overview of the Proposed Company

NTUC Income will set up a 100% wholly owned life insurance company initially The legal capital of VND 600 billion (US$33 million) will be borne solely by NTUC Income This comprised the following investments:

 Fixed capital = 25% (covering rental fees, office, IT infrastructure, etc.,)

The nature and scope of business will be to conduct life insurance business and related activities within Vietnam, which includes mainly life insurance, health insurance, accident insurance, and personal injury insurance etc in the long term The Company will focus on using VCA distribution network as the main channel of distribution for its life insurance products and services in the first 5 years To broaden the distribution capabilities subsequently, the Company can consider alternatives including Bancassurance channel, IT infrastructure based e-commerce and telemarketing whenever feasible.

Furthermore, we would also expand into asset management business when business environment and regulations permit.

Figure 4.1: The Company’s Scope of Business for the First 5 Years

Where regulations permit, the Company can provide the following categories of financial products and services:

4 Other related activities in accordance with the Law of Insurance

The Company set up to provide life insurance products and related services to both individuals and organisations in Vietnam pursuant to the laws and regulations of Vietnam However, the proposed Company will focus on the cooperative sector in its first place, so the targeted market for the Company shall be the Cooperative sector However, it shall also not exclude the non-cooperative individuals from taking part in insurance plans.

NTUC Income uses the multichannel of distribution where the VCA network and the traditional tied agency systems should be the dominant channels for marketing its products and services The two systems can best leverage its strengths and also to overcome the limits that one may have during the market experience The former is for mass distribution with target to cooperatives all over the country and they can best introduce the group products to the cooperatives While the later can approach in traditional manner to individual leads as other markets players are doing Apart from those two main distribution channels, the company can also head to the newly developed selling channel that is through the banks, the so-called bancassurance. a VCA distribution network

VCA will set up an affiliated business company to distribute the insurance products through its distribution network The target market for VCA distribution network is the 17,000 cooperatives all over Vietnam However, most of the cooperatives are in the countryside areas and operating in agriculture-related fields

The recruitment and training for officials who are in charge of different areas, introducers and agents who are staff of PCA, members and employees in cooperatives and cooperative groups will be the responsibility of the affiliated organisation, with NTUC Income providing the technical expertise.

Apart from joining in the Insurance company as a strategic distribution partner, VCA is also given an option to buy into the share of the Company if they are interested This will allow VCA to have the rights to involve in profit/loss sharing and/or management of the Company to its certain extent b Tied Agency Systems

The tied agency system will be another main channel of distribution channel where their main marketing outlets are in cities, townships and new urban areas Those areas are more potential for one-on-one sale as inhabitants are better-off than those in rural and remote areas.

4.4.3 Detailed Strategies for Operations of Proposed Insurance Company

83

K EY F INDINGS AND I MPLICATIONS

The present Thesis research is a quantitative report, so the data collection and the presentation of data are rather quantitative results Again, the quantitative research method will less focus on the statistics or numeric presentation than qualitative one It is about the interpretation of information, data collected from interviews and/or discussions Even, the research findings can be interpreted or analysed with inference to the attitude or expression of research participants.

For the purpose of information and statistics collection serving the purpose of this Thesis report, the author has been conducting more than 20 in-dept interviews with leaders from insurance companies, Representative Offices, Insurance Association, insurance commissioners, and from NTUC Income Further, there are 35 questionnaire forms have been sent to relevant stakeholders for their input information As the life insurance in Vietnam is newly developed and there are few companies (less than 10) in the market, so the number of in-dept interviews and questionnaire surveys are reasonable and enough to look into the pros and cons of the market

Following are the summary of key findings from interviewsand questionnaires:

1 Vietnam insurance market is big potential for development: This comment has been made by almost all interviewees for this Thesis report 98% of interviewees said that the life insurance market is potential for future development The reason for this comment is justified by the low insurance penetration rate and there are only few life insurance companies operating in Vietnam Considering the entry of NTUC Income into Vietnam market, this will be a good sign for a start-up as the market is very potential.

2 New comers will face competition from established companies in the market, however they can leverage on the professional expertise and regional market experience to excel: Almost all of interviewees said that foreign insurance companies entered the

Vietnam insurance market can faster to gain a position in the market as they can bring in international or regional expertise while adapting to the opening Vietnam economy They also added that the business environment is now very much different with the past few years, especially after Vietnam’s accession to WTO Vietnam’s legal framework and business transparency have been much improved to meet with international integration.

3 If NTUC Income wishes to enter Vietnam insurance market, it would better to come in with 100% owned company or must find a very strong local partner to look for long term success: This view has been expressed critically by both companies’ leaders and commissioners This can be justified by the failure of the past joint venture in Vietnam such as Bao Minh – CMG, Incombank-Asia, BIDV- QBE, etc., Even when interviewing the representatives from Ministry of Finance, such commissioners frankly said that the state administration of insurance (referring to MoF, author’s word) prefers the form of foreign owned company to the joint venture it is said the JVs hardly committed for long term by both or many parties and often arose management conflicts.

4 The quality of agency force is not very good and a high turnover rate of agents: This is a pressing of the market that makes headache to both insurance companies and the commissioners also 70% of the interviewees raised their concerns for the quality of agents Their concerns are not only the service that agents are extending to customers but also the high level of turnover rate that costs companies a lot Nearly 80% of the people participated in the questionnaire surveys also shared their view on the quality of agency force serving in the life insurance companies in Vietnam The worries are expressed by even agents themselves, especially the agency managers This finding is concluded from the input provided by companies’ leaders, agency force management, and also the representative from Association and training institutions This finding will consolidate the market situation analysis in the Chapter 3 of this Thesis report.

5 The distribution channels will be diversified and companies will pursue a multi- distribution channel approach: This is the trend to meet the development of the market.

Besides, the companies are seeking the distribution alternatives so that they are not totally dependent in the tied agency force that is providing non-satisfactory service This finding is drawn from very strong viewpoints made by insurance companies’ leader, association executive, and the commissioners Companies now are developing other channels of distribution such as e-commerce, cooperation with the bank for bancassurance, general agency, etc.,

6 The competition is becoming fiercer with the landing of foreign insurers and financial institutions: In the recent years, there are more foreign insurers interested in the Vietnam life insurance market The Vietnam life insurance market is started with only one company in 1996, there are 10 licensed life insurers as end of 2008, of which 09 life insurers are foreign invested companies In addition to those licensed companies, there are about 30 representative offices keen on insurance business in Vietnam Hence, there will be more foreign insurers to be licensed to do business in Vietnam in the coming years, especially after Vietnam’s accession to WTO Apart from the competition amongst direct insurers, the existing insurance companies have to face with competition from banks and financial institutions with their innovated products This has been raised by almost all interviewees as the banks are now offer attractive interest rates combining with insurance options Many banks offer saving account with high interest rates and more importantly it is more flexible than the insurance policy This pressure will urge the insurance companies to be more creative in their product design so that they can offer the product that best meet the demand of customers and can be competitive to both insurers themselves and the banks as well.

7 Companies will be more focusing on human development and use of technology widely in the business operation and process: As the economy is on the rise of international integration, the quality of human resource is always at top of priority from enterprises. Top executives of insurance companies involved in the interviews expressed that they are now very much concerned about the quality of human resource, especially when there are more competition in the market and customers are more demanding about the service. This is presented through the very high level of educational attainment from employees of companies Even the agency force is also selected with priority to higher educational level With the increasingly high quality of human resource, the use of IT in the business process and operations has become a critical part in business activities of life insurance companies IT now has been widely applied by insurance company in internal and external communications (email, website, commercials, etc.,), especially in the Contact centers or Service Points of Companies Interviewees affirmed that they can hardly work if there is interruption to Internet connection or software crashes

8 The public is still lack of knowledge and understanding about life insurance: Even the market has been in formation and development for than 10 years, the understanding of general public about the true value of life insurance is still inadequate The lack of awareness of insurance is more exacerbated in the countryside or rural areas, where the level of educational achievement and living standard is lower There are 30 out of 35 participants in the questionnaire survey confirmed that “the public has low awareness/understanding about life insurance” The Companies’ leaders are concerned about this in the sense that they are facing difficulty in marketing and sales of their insurance products since the nature of life insurance is not well perceived

Amongst many arguments and comments made by interviewees and survey participants, the above-concluded findings are most typical and drawn out basing on the majority of answers from research participants.

R ECOMMENDATIONS

This Thesis report has been touching on both external and internal business environments for NTUC Income to enter the life insurance market of Vietnam The choice of market entry strategy has been presented in the previous Chapter of the Thesis report, it is in the form of a wholly foreign owned company

This part of the Thesis report will try to propose some recommendations with regard particularly to the entry of NTUC Income into Vietnam and also for the Vietnam life insurance market as a whole.

5.2.1 Recommendations to NTUC Income business in Vietnam

Basing on NTUC Income’s strengths and weaknesses as well the business environment in Vietnam, the following recommendations are made to NTUC Income for its proposed business in Vietnam:

1 Being firm and consistent in its approach to market entry in the form of wholly foreign owned company with local strategic distribution partner This form of incorporation is the most recommended one by both licensing agency and present market players as well This form of establishment will require more initial capital investment, but the company can avoid JV’s problem/conflicts that may easily come up from power-sharing and cultural issues.

2 To better compete with well established companies in the market, NTUC Income should be innovative in product portfolio and customer service: NTUC Income Singapore is always praised for its radical innovation in product mix and recognized for its outstanding customer service The company should build upon this strengths and extend its suitably to its Vietnam business.

3 Using VCA as a strategic distributor, but it also needs to develop other channels such as tied agency, bancassurance, and telemarketing: This is to meet with the trend of multi- distribution and also can best utilize and leverage on its resources

4 The company should continue to extend its value as a cooperative insurance: This means that NTUC Income in Vietnam can offer the low-cost insurance to the mass public, especially those in the rural areas and with lower income NTUC Income Singapore has been very successful in offering simple product and low-cost insurance to the mass public, this has brought to NTUC Income million of policies every year NTUC Income in Vietnam can learn from that experience to tap in the country-side market other than the crowded cities.

5.2.2 Recommendations to improving the whole insurance market in Vietnam

The Insurance market of Vietnam is administered by Ministry of Finance for and on behalf of the Government That’s why the role and the level of power of MoF are significantly important to the development of the market However, the healthy development of the market is not only at the hand of MoF but affected by insurance companies’ practice and the insurance association’s activities This part will, basing on analysis made in the previous parts of this Thesis report, reach beyond the matter of NTUC Income’s market entry and propose some recommendations for a healthier and transparent insurance market of Vietnam.

1 The Government, particularly the Ministry of Finance, should timely supplement and modify its law and regulations on insurance business to meet with the requirement of international and regional integration: The change or consolidation to the legal framework regulating the insurance business activities will enhance the government supervision on insurance business and also create clear and transparent business environment for foreign investors Additionally, the market practice and conduct of companies will be well regulated and can largely minimize the fraudulence in the market to protect both insurers and policyholders.

2 Cases of insurance fraudulent practice, e.g cheating, churning, and deceiving either customers or company, should be better investigated and legally handled: Only by strongly handling the case of insurance fraudulence, shall the benefits of company and/or customer be protected Market experience has shown some case of fraudulent practice involving both insurers and policyholders as claimant So the legal framework should be strengthened to properly punish such unhealthy market practice.

3 Ministry of Finance (MoF) should consider to allow the Association of Vietnamese Insurers to provide trainings and grant Certificate/Diploma to agency force, staff of insurance companies: This is not only the administration and supervision of market but this assignment to the Association can lay the common ground for quality of agents and staff of insurance companies The fact now is that the insurers train their own agents or staff, so there may be different in teaching and learning that leads to the inconsistency in quality of agents and staff from different companies Besides, the Association can be more active in their link with other countries’ associations to exchange knowledge and experience

4 The Association should produce the common standard forms such as life insurance application, policy form, etc., and common guidelines that the existing companies shall follow to ensure the consistency and standardization of form and format for any insurance transaction especially between company and policyholders: This effort will not only need the devotion of the Association but also the government where by the MoF should legalise it and make the companies to follow If the market has the common forms and guidelines, there will be the clear base for resolving any disputes between insurers and customers.

Those are few recommendations made to the macro level in an effort to push the market in a healthy development track The MoF, the Association, and even the companies can take the points and consider to put into action any of them The healthy market environment will benefit all parties, whereby NTUC Income is not an exception when it is coming in.

The present Thesis report covers three main parts: situation analysis of Vietnam life insurance market (using PEST model), Internal analysis on NTUC Income, and strategy choice of NTUC Income to enter Vietnam.

Generally, the Vietnam economy is now more welcomingly favorable to foreign investors who are interested in doing business in this opening country The opening of the Vietnam’s economy has been made in the past decade and evidently recognized internationally after becoming the 150 th member of WTO in 2006 The insurance market of Vietnam now comprises of more than 30 companies operating in general and life insurance businesses, of which there are 10 life insurance companies (as of December 2008) Nine out of ten life insurers operating in Vietnam are wholly foreign owned companies This is also a critical sign to show that Vietnam is open and attractive to foreign investors.

With regard to the interest of NTUC Income in Vietnam market, the Company has been keen on the insurance market since 1996 as it is one of the earliest companies landing in Vietnam to set up the Representative office in Hanoi It has been very active in cooperation with local organizations for potential venture in insurance business For over a decade in Vietnam, it has carefully studied the market in each stage of market development Many proposals have been made for the insurance business in Vietnam, such as Joint ventures, strategic partner in distribution – exclusive distributor, etc However, basing on the market experience as well as the development of market, a wholly foreign owned company is proposed instead of a joint venture Thesis’s analysis identified the issues and challenges of the market, by which NTUC Income can better avoid the pitfalls and design an appropriate strategy

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