chiến lược kinh doanh- nghiên cứu tình huống dịch vụ bảo hiểm doanh nghiệp qua môi giới và tái bảo hiểm nước ngoài của bảo hiểm bảo vi

Scope of work This research focuses on the strategic analysis, business strategy formulation and implementation; and applying the analysis and suggestions to fronting and broking corpor

Nguyen Huyen Trang

Nguyen Huyen Trang

Master of business administration thesis

Supervisor: PhD Nguyen Viet Anh

Hanoi - 2011

TABLE OF CONTENTS

ACKNOWLEDGMENTS i

ABSTRACT ii

TÓM T T iv

TABLE OF CONTENTS vi

LIST OF TABLES viii

LIST OF FIGURES ix

LIST OF ABBREVIATION x

INTRODUCTION 1

1 The problem 1

2 Scope of work 1

3 Objectives and aim 1

4 Research questions 2

5 Research methods and data sources 2

6 Significance 3

7 Limitations 3

8 Expected results 3

9 Thesis structure 4

CHAPTER 1: THEORETICAL FOUNDATION 5

1.1 Business strategy 5

1.1.1 Strategy 5

1.1.2 Concepts of business strategy 6

1.2 Strategic management 8

1.2.1 Vision and Mission statement 9

1.2.2 Strategy formulation 9

1.2.3 Strategy implementation 22

CHAPTER 2: FORMULATION OF BUSINESS STRATEGIES 24

2.1 The concept of service area 24

2.1.1 Insurance in general 24

2.1.2 Characteristics of fronting and broking corporate insurance 28

2.2 Introduction to Bao Viet Insurance 30

2.2.1 Introduction to Bao Viet Holdings 30

2.2.2 Bao Viet Insurance Corporation (Bao Viet Insurance) 34

2.3 Vision and Mission statement 36

2.4 Strategy formulation 37

2.4.1 External analysis 37

2.4.2 Industry analysis 48

2.4.3 Internal environment analysis 58

2.4.4 Choice of strategies 69

CHAPTER 3: IMPLEMENTATION OF CHOSEN STRATEGIES 72

3.1 Choosing strategic solutions 72

3.1.1 SWOT matrix for strategic solutions 72

3.1.2 The GREAT 75

3.2 Performing components of strategy implementation 75

3.2.1 Communication 75

3.2.2 Support 76

3.2.3 Tactics 76

3.3 Actions plan 76

3.3.1 Activities to strategic solution 01 - Improving clients discovery and services 76

3.3.2 Activities to strategic solution 02 - developing professional underwriting 78 3.3.3 Actions plans (for strategy of 5 years from 2011 to 2015) 80

3.4 Recommendations to Bao Viet Insurance 82

3.5 Recommendations to the Government 83

CONCLUSION 85

REFERENCES 87

APPENDICES 89

LIST OF TABLES

Table 1.1: Sample SCA identification process 20

Table 1.2: A complete SWOT analysis 20

Table 1.3: SWOT matrix 21

Table 2.1: 5-year base-line forecasting 37

Table 2.2: Vietnam Economic Activity 38

Table 2.3: Real GDP growth 39

Table 2.4: Foreign direct investment projects licensed in period 2000 - 2009 39

Table 2.5: Numbers of enterprises (2008 – 2009) 44

Table 2.6: Some figures of non-life insurers 50

Table 2.7: Competencies comparison 52

Table 2.8: Identification of sustainable competitive advantage 68

Table 2.9: Assessment of Weaknesses 68

Table 2.10: SWOT profile 69

Table 2.11: SWOT matrix for generic strategy 69

Table 2.12: GREAT model for generic strategy - 1 70

Table 2.13: GREAT model for generic strategy - 2 71

Table 3.1: SWOT matrix for strategic solutions 72

Table 3.2: GREAT model for strategic solutions 75

Table 3.3: Actions plan for 5-year strategies 80

LIST OF FIGURES

Figure 1.1: Generic strategies matrix 7

Figure 1.2: Strategic management process 9

Figure 1.3: Business environment 11

Figure 1.4: Five forces model 12

Figure 1.5: Value chain model 18

Figure 2.1: Structure chart – Bao Viet Holdings 32

Figure 2.2: Structure chart - Bao Viet Insurance Corporation 36

Figure 2.3: Baseline forecasting for 5 years 38

Figure 2.4: Exchange rate VND/USD 41

Figure 2.5: Interbank USD/VND 42

Figure 2.6: Typhoons and storms 47

Figure 2.7: Non-life insurers divided by owners 49

Figure 2.8: Market share - 2009 51

Figure 2.9: Financial figures of 4 giants – 2009 61

LIST OF ABBREVIATION

1 SWOT Strengths, Weaknesses, Opportunities, Threat

2 GREAT Gain, Risk, Expense, Achievability, Time bound

3 PEST Political, Economic, Social, Technological

4 SCA Sustainable Competitive Advantage

5 SCIC State Capital Investment Corporation

6 CEO Chief Executive Officer

9 R & D Research & Development

INTRODUCTION

1 The problem

“Tomorrow always arrives It is always different, and then even the mightiest company is in trouble if it has not worked on the future” - Peter Drucker, the

legendary management theorist, writer and consultant

Business strategies help organizations figure out the right ways to increase their competitiveness and compete successfully, especially in the under-systematic and changing market As the saying above, companies who applying appropriate strategies will create sustainable development On the contrary, companies with unsuitable strategies or without strategies will come to an end

Bao Viet Insurance is a big insurer in Vietnam at the moment However, nothing is ever built to last without its own vision and efforts, especially in doing business with foreigners In fast-changing environment, right strategies are of much more importance The study will help formulate and implement appropriate strategies for Bao Viet’s fronting and broking corporate insurance with the hope that this service will get and maintain its sustainable development

2 Scope of work

This research focuses on the strategic analysis, business strategy formulation and implementation; and applying the analysis and suggestions to fronting and broking corporate insurance of Bao Viet in order to suggest suitable business strategies f o r the company in terms of fronting and broking corporate insurance until 2015

3 Objectives and aim

In terms of objectives, the research helps review the theory of business strategies and helps give a clear view on industry and service area And then it will apply the theory of business strategies formulation, selection and implementation into the case of Bao Viet in order to figure out appropriate business strategies for Bao Viet’s fronting and broking corporate insurance

In terms of aim, t he suggested appropriate business strategy can help Baoviet remain the sustainable leading insurance company in increasingly complicated and challenging Vietnam insurance market

4 Research questions

For getting suggested business strategies for Bao Viet’s fronting and broking corporate insurance, it is vital to answer and make clear of the following research questions:

- What are business strategies?

- What is the way/process to formulate, select and implement the business strategies?

- What is the nature of industry and service area?

- How should Bao Viet do to formulate suitable business strategies for fronting and broking corporate insurance?

- How should Bao Viet do to implement the selected strategies into business and operation reality?

- What are recommendations to the company as well as Government in terms

of strategic performance?

5 Research methods and data sources

The qualitative (descriptive) methodology is applied to this thesis through specific case study A review of theoretical foundation is carried out to understand the process to formulate, and choose the right strategies; and then know how to apply them into reality

Both secondary and primary data collection are used for this research The theoretical foundation part deals with studying books, articles, online documents and other sources The secondary data are also collected from Bao Viet Insurance and its d ifferent departments; from State’s administration offices, from other insurance companies’, brokers’ and partners’ reports and websites (both local and foreign ones) The primary data are collected though interviews of managers, staffs, clients and partners from Bao Viet Insurance as well as from other insurance

companies, insurance brokers and partners Some in-dept interviews have been conducted with experts and managers from several companies regarding non-life insurance in order to complete the assessment, ranking, comparison and so on (the detailed results show i n tables of chapter 2 and chapter 3 and the detailed list of interviewees shown in Appendix C)

6 Significance

In terms of theory, the thesis will help understand more about business strategies formulation and implementation (vision and mission statement; external and internal environment analysis; recognition of opportunities, threats, strengths and weaknesses; and selection and implementation of the right business strategies in order to achieve company’s goals)

In terms of practice, the thesis should help suggest business strategic analysis and business strategies selection and implementation f o r Bao Viet, especially for fronting and broking corporate insurance This is also the reference for other firms and products/services, especially for insurance companies and insurance products/services, which need suitable business strategies for their development

7 Limitations

The thesis is directly applied to the case of Bao Viet Insurance, especially fronting and broking corporate insurance In so as to be applied to the cases of other products/services and other firms, it is necessarily required further researches

In addition, the thesis is also applied to the case of Bao Viet’s fronting and broking corporate insurance in the period of 5 years from 2011 to 2015 For different period’s appropriate business strategies formulation and implementation, further researches are also required

8 Expected results

The study reviews the process to formulate, select and implement suitable business strategies for the company And then the study successfully formulates and selects right business strategies for Bao Viet in terms of fronting and broking

corporate insurance Furthermore, the study suggests some appropriate measures for the company to implement the chosen strategies into business and operation reality

Chapter 2, Formulation of business strategies, presents the specific process to formulate the suitable business strategies for Bao Viet’s fronting and broking corporate insurance

Chapter 3, Implementation of chosen strategies, suggests recommendations

on the business strategies implementation

And, Conclusion part draws some significant points and results of the thesis

on the special attention to strategic responsibilities Thus, it is very important for them to master the strategic management, both theory and practices

This chapter is born to provide a whole and general picture on strategy, business strategy, and strategic management

1.1 Business strategy

1.1.1 Strategy

The word “strategy” derives from an ancient Greek word “strategos”, which

is the combination of the two: stratos (for army) and ago (for leading) A strategy may be accepted as a leadership plan

The concept of strategy can be said to borrow from the military with the birth

of “The Art of War” Coming back to the date somewhere around 320 BC when the Chinese military strategist S un Tzu wrote The Art of War, a work influenced not only on war-strategic minds but also on the thinking of many modern businesses, and then led to the thoughts of “art” being applied on modern business We can regard The Art of War as the start o f strategy and strategic management and a serious subject, the publication of overall framework and methodology for the formulation of strategy

There are a plenty of strategy concepts and views Some of them are commonly accepted and used as follows:

“A company’s strategy is the “game plan” management has for positioning the company in its chosen market arena, competing successfully, pleasing customers, and achieving good business performance Strategy consists of the whole array of competitive moves and business approaches that managers employ in running a company”

It can be known that strategy is both proactive (intended) and reactive (adaptive); is partly visible and partly hidden to outside view

According to Michael Porter, the essence of strategy is choosing to perform activities more differently than the rivals do Another term that Michael Porter mentioned is “strategic positioning” In the Article named “What is strategy”, he said that Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company It means performing different activities from rivals, or performing similar activities in different ways

1.1.2 Concepts of business strategy

The concepts of business strategy may have origins from strategy at different levels of business – ranging from overall business through to individuals working in it: corporate strategy, business unit strategy, and operational strategy There still exist a lot of definitions on business strategy

- Johnson and Scholes (Exploring Corporate Strategy): Business Unit Strategy is concerned more with how a business competes successfully in a particular market It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc

- Oxford English Dictionary: Business strategy is a plan for how a firm will compete, what its goals should be and what policies will be needed to achieve goals From the two definitions above, we can define that business strategy is a combination of strategic decisions and sustainable competitive advantage

establishment This is a master plan on how a firm will compete with others, on its goals and policies to achieve the set goals

In Michael Porter’s opinion, competition occurs at the business level The figure 1.1 shows Michael Porter’s three generic strategies They are called business-unit-level strategies: cost leadership, differentiation, and focus (cost focus and differentiation focus)

Figure 1.1: Generic strategies matrix

Source: http://www.marketingteacher.com/lesson-store/lesson-generic-strategies.html

· Cost leadership

Firms tend to manufacture or create the same products at a lower cost than their rivals By applying more and more effective methods in production, management, distribution… than others, firms can sell their products at a lower price a n d therefore, can gain profits However, according to Michael Porter, “rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers”

· Differentiation

Instead of low pricing, firms tend to produce the same products at a higher quality and differentiation than their rivals do Thus, they can set different, most of

the time higher price than others Differentiation strategy can focus on: attribute, customers service, or images

· Focus

In a small market or segment of market or fragmented market, we need to know about focus strategy A focus (or niche) strategy is widely used by small scale-of-economy companies However, the use of niche strategy is not only limited for small but also for all kinds of firms which neither follow a wide scope cost-leadership nor differentiation strategy Using cost focus, firms try to be the cheapest cost setter in their segment The same goes on with differentiation focus

Michael Porter also warned about strategy pursuit He mentioned that only one generic strategy should be followed for specific products/segment By not implementing some different types of strategies, firms can use only one best kind of

it and make use of their specific advantages or competencies, avoiding wastes for niche segment or market

1.2 Strategic management

In its widest sense, strategic management is about how the strategy is managed, about taking “strategic decisions” In theory, strategic management is the process by which leading management determines the long term direction and performance of the organization by ensuring that careful formulation, effective implementation of the strategy to be performed in order for the firms to obtain their goals Therefore, strategic management is a process, not an event

One popular way to understand strategic management is to see the strategy picture from the overall to the details The figure 1.2 below will help

Figure 1.2: Strategic management process

1.2.1 Vision and Mission statement

Vision i s an overall strategic view on what the future business will become and where the organization is headed It also means the provision of long term and overall direction/achievement with a sense of purposeful actions It does not specifically mention how to gain the long-term achievement

Mission statement is a more visible kind of vision More detailed, mission statement should be a clear representation of the organization’s purpose for existence It can contain meaningful and measurable criteria translating concepts such as moral position, social image, targets, core value… The intent of mission statement should be the first consideration for any strategic decision

1.2.2 Strategy formulation

Strategy formulation indicates an organization’s macro-environmental (overall) and micro-environmental (industry) threats and opportunities; identifies internal strengths and weaknesses, ranks these above; basing on ranked and priory

1.1 Vision / Mission Statement

1.2.1 Macro Analysis Model: PEST + DN

=> Opportunities & Threats

1.2.2 Micro Analysis Model: 5 Forces

=> Opportunities & Threats

1.4 Formulations &

Choices of Strategies

Model:

1.4.1 SWOT 1.4.2 GREAT

1.5 Strategy Implementation

Possible Chosen Strategies

1.3 Internal Analysis

ones to generate alternative strategies; and then decide the best strategies to apply in specific period

1.2.2.1 External environment analysis

In terms of symbol, external environment is like the surroundings or the atmospheres of the firms It contains things in different circles around and the firms have no or little influence on it

In terms of theory, external environment includes macro environment and micro environment Macro environment is the larger circle, in which all kinds of firms survive and develop Micro environment, accordingly, is the smaller circle inside the larger circle For particular industry, there are various factors affecting the operations of company

External environment analysis would help firms see their own threats and opportunities in the market

To look into and understand macro environment, it is known to apply PEST model PEST model is the model that analyzes macro factors, including but not limited factors such as Political, Economic, Social, Technological and Legal factors Going with more and more sophisticated economy, more and more factors have influence on companies With micro environment, it is known to apply Five Competitive Forces model of Michael Porter Five Forces divide industry into five different factors: Rivalry, among existing firms, Potential entrants, Suppliers, Buyers, and Substitutes Sometimes Government is also mentioned as an additional factor

· PEST analysis

The circle below shows the four major forces of external environment For being the overall environment, it is obvious that there are a large number of macro factors In fact, there are also including but not limited others such as natural forces, demographic forces…

Figure 1.3: Business environment

PEST analysis details:

- Firms need to consider the state of a trading economy in both short and long terms

Economic Analysis

- Some sub-factors that need looking at: economic growth, long-term prospects for the economy, nation comparative advantages, government intervention, income, exchange rate, inflation, labor forces and costs, monetary/fiscal policies, infrastructure, interest rates, employment level, openness level…

- This kind of arena has a great impact on the overall business

Political/

Legal Analysis

- Firms should consider issues such as: political environment stability, government policy, legal framework, taxation and tariffs, government involvement, intellectual property protection…

- The influence of social/ cultural forces on business varies from country

to country, from area to area This is especially true in terms of doing business with global players

Social/

Cultural Analysis

- Factors include: living conditions, awareness to safety, social attitude,

integration mind-set, culture, social acceptations green issues…

- Technology is essential for competitive advantage, especially in the era

of globalization and integration

logical Analysis

Techno Points need to be paid attention: technology to a better standard of quality, new way to communication due to technology, new research and development, speed of technology-transferring, customization level, application level…

· Industry analysis:

The key figure of business strategy formulation is sticking a company or a business with its environment Seeing the figure below, we can find out the five forces originated by Michael Porter, which influence on the state of industry competition They are: intensity of rivalry among existing competitors, potential entrance, pressure from substitute products, bargaining power of buyers, and bargaining power of suppliers According to Michael Porter, the collective strength

of these forces determines the ultimate profit potential in the industry The goal of business strategy for an organization in an industry is to find a position in the industry where the company can best defend itself against these forces or can influence them in its favor

Figure 1.4: Five forces model

Source: http://www.12manage.com/methods_porter_five_forces.html

ü Intensity of rivalry among existing competitors

In most industries, companies are “mutually independent” Therefore, there comes rivalry However, it is not constant but can and does change The changing moves can be due to industry maturity, acquisition, and technological innovation

To deal with fluctuating rivalry, firms can improve matters through strategic shifts Intense existing rivals depend on the interacting structural industry characteristics such as:

- When there are a few firms in the industry, companies will have relative power Therefore, it is better for them to impose discipline or play a coordinative role like price leadership

- When a plenty of competitors exist in the industry (or there are pretty few companies with relative balance in size and resources), stability will

be created

The existing number

- Fast growth makes firms to improve results or effectiveness

- High fixed cost will push companies to fill capacity, this will, therefore, lead to price cutting

- In fact, it is value added, not the absolute proportion in fixed cost, which affects on fixed cost

High fixed cost

- High fixed cost also leads to increasing storage to ensure sale Hence, profits are keeping low

Differ- - When product is considered as commodity, buyers’ options will base

on price and service

- When there is differentiation, buyers have various likings and loyalties

to particular providers So, product is less competitive

entiation levels i n products - The matter of switching cost: if switching cost is high, companies will

improve cost or performance to attract more customers

- Capacity additions can disturb the balance of supply and demand

Capacity - Risks of capacity additions can be mentioned such as overcapacity,

price cutting, and so on…

- Specialized assets, fixed cost of exit, strategic interrelationships, emotional barriers, and government and social restrictions result in low liquidation values

High exit barriers - High exit barriers can cause companies’ applying extreme tactics to

maintain excess capacity This may lead to industry destruction

- Four kind of combinations:

Exit barriers Low High

Entry Low Barriers

High

Best High returns but risky

Barriers

o n e x i t and entry

- The most usual case is that entry and exit barriers go together This case may show the substantial economies of scale, proprietary technology, and so on

ü Threat of entry

Besides rivalry among existing firms, companies also deal with threat of new entrants The elements that influence on threat of new entrants are: barriers to entry,

expected retaliation, the entry deterring price, properties of entry barriers, and experience and scale as entry barriers And then we can go to each element in details

- Economies of scale decreases unit costs, thus, it causes the increase in volume produced per period Economies of scale entry barriers appear at economies to vertical integration, or operating of successive stages of production or distribution

- Product differentiation forces newcomers to invest on building a brand name, which are risky because of being unrecoverable

- Capital requirements, especially if it is for costly, risky and unrecoverable up-front advertising and R&D

- Access to distribution channels: new firm must convince channels to accept its products through favors, which reduce profits

- Cost disadvantage independent of scale, which can be the following factors: proprietary product technology, favorable access to raw materials, favorable locations, government subsidies, and experience curve

Sources

of barriers

to entry

- Government policy

- Properties of entry barriers: there are two kinds of properties of entry barriers: entry barriers change beyond company’s control; and entry barriers that are influenced by strategic decisions

- Entry barriers in view of economies of scale:

+ Large scale; and then low costs will lead to tradeoffs with other valued barriers as well as actions of developing proprietary technology

+ Technological change that can create less flexibility in adapting to modern technology

Entry barriers

- Experience: is a more ethereal entry barrier than economies of scale Experience is through copying, attracting rival’s staffs, investing on the latest technology/know-how Some limits to experience: new experience

curve due to new technology; pursuit of low cost…

ü Pressure from substitutes:

Substitutes are other products that can perform the similar function as the product in the industry

It is often downstream or indirect, as a substitute product replaces a buyer industry’s one

- It is the matter of collective industry actions with similar arguments

- Threat of substitutes is high if:

+ it improves price-performance tradeoff with industry products + buyer’s switching cost to substitutes is low

+ substitute products are manufactured by industries earning high profits

The threat of substitute products

- Industry profitability can suffer from high threat of substitutes (by placing a ceiling on price)

ü Bargaining power of buyers:

- Powerful customers can create competition by forcing to reduce prices, demanding better quality, and playing rivals off against each other

- Customers are powerful when they have negotiation leverage

- The buyer power goes the same rules with wholesalers and retailers It

is all about influencing purchasing decisions

- Bargaining power of clients is high in case:

+ Few purchasers or each one who buys a large volume + The purchased products express a significant fraction of their costs or purchases, or standardization, or undifferentiating

+ Few switching costs + Low profits

+ Threat of backward integration + Customers are less price concerning when buyers’ product quality is affected by industry’s product

The threat of substitute products

- Companies can use strategic decision to make segments selection in

order to get less powerful clients

ü Bargaining power of suppliers:

- Suppliers have power by increasing prices or reducing quality

- What cause high bargaining power of providers is opposite to those creating powerful customers, in details:

+ Suppliers providing to more buyers with less fragmentation

+ Sellers do not need to compete much with their own substitutes

+ The industry is an unimportant buyer of the seller group

+ Products are differentiated or contain switching costs

+ Threat of forward integration

Powerful providers

- Factors influencing on seller power are usually uncontrolled; however, companies can also impact on this to some extent through strategy

1.2.2.2 Internal environment analysis:

Besides understanding the external environment, it is vital for firms to understand themselves as a whole through internal environment analysis Therefore, internal analysis helps companies evaluate factors of all belonging relevant areas in order to extract the firms’ strengths and weaknesses

In order to get internal environment analysis, it is commonly known for us to use the model of value chain

· Value chain

Figure 1.5: Value chain model

First suggested by Michael Porter, value chain is described as the internal processes and/or activities a company performs in order to create, market, distribute and support for its products/services There are two major categories of value chain: primary activities and supporting activities Therefore, value chain analysis needs to

be seriously considered in way of determining the organization’s strengths and weaknesses

Primary activities directly impact on creating outputs and on sales and sales supports

after-Supporting activities:

zational infra-structure

Organi-: dealing with activities to operate every organization, organizational infrastructure duly impacts on an organization’s operation with a wide range of support systems and functions such as planning, organization, planning, leading, financing, quality control…

Human resource mana-

: dealing with activities relating to workforces of firms (choosing, recruiting, training, leading, motivating…) All organizations’ activities are seriously influenced by their own human, especially in

gement service sector

Technology deve-

lopment

: dealing with activities concerning know-how, information processing, software, hardware, electronic tools (email, e-signature…) that supporting firm’s performance

Others (Accounting, R&D…

: dealing with activities concerning direct or indirect supporting to primary activities in terms of smoothing the operations Other supporting activities can be: Accountings, Research & Development…

Primary activities:

Inbound logistics

: mentioning material handling and warehousing, with invisible service it involves all the preparations and processes/procedures for establishing and maintaining this kind of service

Operation : transforming the inputs into the final product/service It involves all

the actions to form a provision of service

Outbound logistics

: order processing, distribution, time of transaction, maintaining existing relationships, keeping contacts…

Marketing : communication, branding, channel management, public-relations…

S a l e s a n d after-sales

: mentioning ways to get contracts and customers satisfaction after contracts (such as: installation, repairs, servicing, consulting…)

· Sustainable Competitive Advantages identification process

After value chain analysis, we use the model of Sustainable Competitive Advantages (SCA) identification process to evaluate factors extracting from value chain Criteria in SCA identification process comprise: it is valuable or not; it is rare

or not; it is costly to imitate or not; the gap is big enough or not; and coinciding with Key Success Factors Marks are from 1 to 5 with 5 is the best, 3 is medium, and 1 is the worst After remarking, only factors with mark from 3/5 are chosen as strengths

Table 1.1: Sample SCA identification process

Valuable Rare Costly to

imitate

GAP is big enough

Coincide with KSF Distinctive

competencies

Yes No Yes No Yes No Yes No Yes No

Remark

Leaders:

R&D: focus invested,

Operation:

Space & energy

saving, health care

‘filter’ will give a more careful view on the organization’s strengths and weaknesses

in light of opportunities and threats presented by the environment All elements of opportunities, threats, strengths, and weaknesses will be ranked based on level of importance and/or influence Managers now can complete SWOT analysis by withdrawing conclusions about the attractiveness/unattractiveness of the firm’s current status and the need for further strategic actions

Table 1.2: A complete SWOT analysis

A SWOT matrix (or the combinations of two: one from external environment and one from internal environment - out of four boxes above) shows that organizational strategies must be originated from a proper fit between firm’s internal and external environments It is like an intersection among macro environment, micro environment, and internal performance

Table 1.3: SWOT matrix

Strengths S – O: explore Strengths to

seize Opportunities

S – T: explore Strengths to outpace Threats

Weaknesses

W – O: overcome Weaknesses to seize Opportunities

W – T: overcome Weaknesses to outpace Threats

1.2.2.4 Strategy selection:

After SWOT analysis, the next obstacle is choosing the most suitable strategy to implement The way of this selection process requires some criteria The three most important criteria need to be considered in the process of strategy choice are: suitability (the match among the overall environment, industry environment and firm performance); feasibility (the practice of strategy: whether firm can make use

of its own resources to implement strategy Resources can be funds, human, time, outside supports…); and acceptability (whether the strategy is accepted by firm’s stakeholders – shareholders, employees, customers, as well as others – authorities, society, common senses )

In order to carry out strategy selection, GREAT model is widely applied When having a list of potential strategies, GREAT model is used to choose the most appropriate one Once completing the selection of the generic strategy, GREAT is also used to evaluate and select the strategic solutions and/or strategic actions GREAT stands for Gain, Risk, Expense, Achievability and Time bound Each criterion is weighted under its importance to and/or influence on the firm The

marks are from 1 to 5 with 5 is the best, 3 is medium, and 1 is the worst Firm normally pursues the strategy with highest marks

Table 1.4: Sample GREAT model

Scale: 1-5

Generic/Functional Strategies Criteria Weight

Strategy that has been carefully formulated would be going in vain if it cannot

be duly implemented Strategy implementation puts chosen strategy into actions There are three components of strategy implementation: communication, support, and tactics

- Communication: strategy and needed requirements must be clearly understood through out all relevant employees It helps employees link all tasks to the right organizational direction Therefore, it makes tasks meaningful and also eliminates useless tasks to get effectiveness It also helps employees with visible guidance for making decisions and directing their activities to strategy However, it

is not wise to announce all things of strategy because communication always has both advantages and disadvantages Just some factors in strategy communication can be public, such as: nature, political impact, expectation, motivational aspect, and decisional aspect of strategy

- Support: affected employees will not implement strategy without organizational support The support includes proper organizational structure (functional, geographic, divisional, strategic business unit, or matrix organizational structure), reinforcing policies (policies are broaden, general guides to actions that

direct aims attainment, thus they must be periodically evaluated to assure that they are supporting the strategy), organizational leadership ( the ability to affect opinions and attitudes of others to make a coordinated effort in order to obtain a directed goal), and motivational systems (tools consist of: incentive pay plans that stick pay with performance; and non-monetary rewards such as recognition, status, and attention)

- Tactics: strategy needs to be translated into regular objectives (short-range objectives), financial resources allocation, and functional strategies (marketing, finance, production…) Tactics are shown in details at actions plan

Strategy evaluation is essential to the success of the company’s strategy formulation and implementation As a special type of organizational evaluation, strategy evaluation emphasizes on monitoring and evaluating the strategic management process to make sure of what is supposed/ assumed to occur as a result

of the process does occur in the fact, and making timely and proper changes in the formulated strategy and/or in strategy implementation if the process is not going, or the results are not as expected

CHAPTER 2:

FORMULATION OF BUSINESS STRATEGIES

2.1 The concept of service area

2.1.1 Insurance in general

2.1.1.1 The concept of insurance

Life is uncertain We cannot foresee with confidence what the future will be

On one hand, human are threatened with diseases, accidents and deaths On the other hand, property owned by man is exposed to various hazards, natural and man-made Once human life is gone or a person is disabled, there leads to a loss of income to the household When it comes to property, damage is either partial or whole loss in income to a person or firm

Risk has the element of unpredictability Death/disability or loss/damage could occur anytime These above can be mitigated through insurance Insurance is, therefore, the protection against loss The insurance company, or the Insurer, assumes the risk by employing the law of large numbers and the principle of risk spreading The law of large numbers is that the losses of a few can made good by contribution from many others

To the easiest imaged sense, insurance is all about the “pooling” Many people put an amount of money into that “pool” with other people to cover In case they have curtain kinds of risk, saying their property is damaged by a fire, the “pool” exists to help pay for the lost property as well as the costs to repair it A small amount of their money is “pooled” to reduce the risk of them being financially impacted if, for example something valuable to them is damaged, destroyed or stolen It can also include pooling money to reduce the risk of someone being financially impacted if they are injured at work or in a car accident To these broad terms, insurance is an activity of a group or a community sharing risk And, therefore, insurance is a community service People in this community pool their

premiums by paying a small amount of money, and claims would be covered for those insured with insurance company

In case claims appear, it is very necessary for pool-managers (or insurance companies) to make sure that their pools have enough money to handle claims The pool becomes the financial capacity of insurance company

In terms of theory, according to Irving Pfeffer, insurance is a method to reduce the uncertainties of a party called the Insured, through transfer of specified risks to another party, called the Insurer, at least parts of economic loss which the Insured suffers

In Law on insurance business of Vietnam, “insurance business means the activity of an insurer with the objective of profit whereby the insurer accepts risks

of an insured person on the basis of the purchaser of insurance paying an insurance premium in order for the insurer to pay insurance proceeds to the beneficiary or to indemnify the insured person upon occurrence of the insured event”

2.1.1.2 Terminology

* N o n -life insurance or general insurance means: the types of insurance products being property insurance, civil liability insurance and other insurance products which are not life insurance General insurance also means to cover the risk of the financial loss from any natural calamities eg Flood, Fire, Earthquake, Burglary, etc… the events which are beyond the control of the owner of the goods for the things having insurable interest with the utmost good faith by declaring the facts about the circumstances and the products by paying the stipulated sum, a premium and not having a motive of making profit from the insurance contract As mentioned above, this study does not cover insurance in general or life insurance

* Reinsurance business means: the activity of an insurer for profit whereby the insurer receives an amount of the insurance premium of another insurer in order to undertake to indemnify the liability for which insurance has already been accepted

* Insurance agency activities means: introducing and offering insurance, arranging the entering into of insurance contracts and other tasks aimed at implementing insurance contracts as authorized by an insurer

* Insurance broking activities means: the supply of information and consultancy to a purchaser of insurance regarding insurance products, insurance conditions, insurance premium levels, insurers, and tasks related to negotiation, arrangement and implementation of insurance contracts at the request of a purchaser

of insurance

* Insurer means: an enterprise established, organized and operating in accordance with the provisions of this Law and the provisions of other relevant laws

in order to conduct insurance business and reinsurance business

* Insurance premium means: an amount of money which the purchaser of insurance must pay to the insurer within the time -limit and by the method agreed

by the parties to the insurance contract

An insurance premium is not like paying for a typical service or product because:

- Insurance companies are selling the customer to cover what is insured

by the insurance policy For example if the customer’s insured property is accidentally lost, stolen or damaged and the customer makes a claim

- The cost of paying a claim is not certain at the time the insurance policy (coverage) is sold

- Insurance companies do not know what misfortune any of their customers may encounter Therefore, insurance companies may not know exactly how often a customer may make acclaim

- Insurance companies usually offer insurance cover for 12 months at a time and insurance premiums usually need to be paid and renewed every 12 months

* Wordings means: the standard and basic documents for specific types of insurance (For instance: health care insurance has Bao Viet Care wordings, Aon

Care wordings, Inter Global wordings; property insurance has ABI wordings, Munich Re wordings…) Wordings are created by local or global insurers and no one can alter any words in the standard wordings Any further alterations will only

be given in terms of endorsements

* Renew/ renewal means: to continue; to replace as with a new policy

* Reserves: means the reserve for incurred but not reported claims is calculated based on specific formula agreed by the Ministry of Finance It is extracted from retained premiums and management judgment

* Underwriter means: the insurance company; a party assuming risk; the person performing underwriting function

* Underwriting means: the way insurance companies work out the risk Not all risks are the same Insurance companies need to consider many things when they are pricing the risk of a person/firm who wants insurance for something valuable to them Below are some of the things insurance companies may look at when they are working out how to match up the amount of premium customers pay to the risk that these customers have:

* Non-life insurance shall include:

- Property insurance and business interruption insurance

- Engineering insurance (contractors’ all risks, erection all risks, machinery breakdown, professional indemnity on architects and engineers…)

- Insurance for goods in transit by road, sea, river, rail and air; marine cargo insurance

- Aviation insurance

- Motor vehicle insurance

- Fire and explosion insurance

- Marine hull and ship-owner’s civil liability insurance (hull and P&I)

- Public and products liability insurance

- Credit and financial risks insurance

- Business damage insurance

- Personal accident and health care and workmen’s compensation insurance

- Agriculture insurance…

2.1.2 Characteristics of fronting and broking corporate insurance

Fronting and broking corporate insurance deals with global insurers/reinsurers and broking insurance companies

2.1.2.1 Fronting insurance

In terms of fronting service, fronting is a procedure among Insured, Fronting insurer and Reinsurer, in which a primary insurer acts as the insurer of record by issuing paper (such as a policy, endorsements…), but then passes the entire or partial risk to a reinsurer in exchange for a commission In most of cases, an insurer may want to issue coverage to policy-holder, but he cannot do directly Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not The reinsurer in this scenario is often an independent insurance company that cannot sell insurance directly in a particular country The fronting activity is apparent The insurer issuing the policy effectively

is on the risk in name only, with all parties of full awareness that the reinsurer is the real party in interest

In Vietnam, the reinsured rate (or ceded rate) can go from 50% up to 99% of insured value Vietnam legal framework does not allow 100% reinsured rate

Some popular global reinsurers having fronting service with Baoviet are: Allianz, Zurich, Chubb, Royal Sun, Nippon Koa, XL…

2.1.2.2 Broking insurance

Insurance broker is an intermediary who represents the insured other than the insurer This independent agent tries to search for the best insurance coverage at the most reasonable premium for its clients through comparison shopping

In terms of broking service, broking is a procedure among Insurance broker, Insured, Insurer, and/or Reinsurer in which broker receive client’s demand and then find out the insurer for this service through comparing the merits of competing insurance companies based on the quotation slips sent from insurance companies In some cases, insurance companies can become co-insuring with agreed shared rate, and/or in order to assure the safety of the insurance program, client and broker request for the reinsuring structure with globally reputed reinsurer, once, there will also be the participation of reinsurer

In Vietnam, currently there are some foreign and local insurance brokers The foreign players can be named: Gras Savoye Willis, Aon, Marsh, Pacific, Jardine…, most of revenue from brokerage comes from foreign brokers, about 76% T h e domestic players are: A Dong, Dai Viet, Viet Quoc…, which accounts for only about 24% revenues

The brokerage rate is to be fixed to maximum 15% of insurance premium Agents a r e a c t i n g the same with brokers but with limited rights and authorities The agency rate is not fixed and always lower than the brokerage rate (15%)

Sometimes, clients come to Bao Viet by themselves, or Bao Viet finds clients through searching After the first contact, most of the services are given to a broker

or an agent for further actions This will help service more professional and reduce procedures and actions and save some kinds of resources (paper work, time, consulting cost…) for the insurers This action can also strengthen the relationship between insurer and broker

2.2 Introduction to Bao Viet Insurance Corporation

2.2.1 Introduction to Bao Viet Holdings

BaoViet Insurance Corporation is a member company of BaoViet Holdings Established in 15 January 1965, BaoViet has now become the leading Finance – Insurance Group in Vietnam w i t h the nationwide network throughout 64 provinces With enormous financial capability and master of domestic market, BaoViet is the only enterprise in Vietnam doing business in both life and non-life insurance BaoViet was acclaimed as one of the biggest 25 enterprises in Vietnam

as well as a long-standing, trustworthy insurer to all organizations and all people from a variety of social strata

In the date of 31 May 2007, BaoViet launched its Initial Public Offering (IPO) and officially became a multi-business group In 15 October 2007, BaoViet Holdings completed Joint Stock company registration with the participation of various strategic partners (State Capital Investment Corporation - SCIC and Asia – Pacific HSBC Insurance Holdings Limited), to form BaoViet Finance – Insurance Holdings

During its formation and development stages, BaoViet had the honor of being ranked as Special State-owned Enterprise; being granted th e T h i r d -rank Independent Medal by the Party and the State, and many other awards from prestigious organizations both in and out of Vietnam Besides, in August of 2001, BVQI (UK) also issued certificate of international quality management ISO 9001:2000 to BaoViet

In business, BaoViet’s growth rate of premium revenue has increased over 20% in the past 5 years In 2007, BaoViet total business revenue reached VND7,800 billion, increasing 13.5% to 2006 Total profit before tax reached VND492.37 billion Total assets were more than VND16,500 billion

In personnel, BaoViet is the sole enterprise in Vietnam having a large-scale network of about 40,000 dedicated agents, attracting more than 5000 employees all over the country

In organizational structure, being Finance – Insurance Holdings operating in multi-sector with insurance is the core; BaoViet is organized under the model of parent company with the following members:

· Non-productive unit: BaoViet’s training center

· Subsidiaries:

- BaoViet Life with 61 dependent provincial branch companies;

- BaoViet Insurance with 66 dependent provincial branch companies;

- BaoViet Fund Management Company;

· Affiliates:

- Vietnam International Assurance Joint Stock company;

- BaoViet Securities Company;

- BaoViet Bank;

- BaoViet Invest;

- BaoViet Resort (going to be established);

And other 16 affiliates

Lines of business:

- Life Insurance (over 80 product lines)

- Non-life insurance (over 40 products lines)

enhance cooperative ability but also to diversify risks and increase its solvency capacity

Figure 2.1: Structure chart – Bao Viet Holdings

Source: 2009 Bao Viet annual report