vietnam national university, HANOI school of business Do Thi Mai IMPROVING COMPETITIVENESS of PETROLIMEX JOINT- STOCK INSURANCE COMPANY Major: Business Administration Master of business administration thesis Supervisor: Dr. Tran Phuong Lan Hanoi - 2011 vi TABLE OF CONTENT ACKNOWLEDGMENTS i ABSTRACT ii TÓM TẮT iv TABLE OF CONTENT vi LIST OF TABLES vii LIST OF FIGURES ix LIST OF ABRREVIATION x INTRODUCTION 1 1. The problem 1 2. Objectives 1 3. Research Questions 1 4. Scope of work 2 5. Methodology and data sources 2 6. Significance and expected results 2 7. Limitations 3 8. Thesis Structure 3 CHAPTER 1: THEORETICAL FOUNDATIONS 4 1.1 Definition of competitiveness 4 1.2 Sources of competitiveness 5 1.3 Models to assess and analyze industrial competitive environment 6 1.4. Models to analyze firm competitiveness 14 CHAPTER 2: RESEARCH AND ANALYSIS APPLICATION OF MODELS TO ANALYZE PJICO’s COMPETITIVENESS 16 2.1 Overview of non-life insurance industry in general and in Vietnam 16 2.1.1. Non-life insurance industry in recent years 16 2.1.2 Non-life insurance industry in Vietnam 20 2.1.3 Key success factors in non-life insurance industry 25 2.1.4. Factors affecting non-life insurance enterprise’s competitiveness 27 2.2. Overview of PJICO 29 vii 2.2.1. Introduction of PJICO 29 2.2.2. PJICO’s business activities 33 Unit: VND billion 35 2.3. Application of models to analyze PJICO’s competitiveness 39 2.3.1. Application of PEST & Five Forces models to analyze factors affecting PJICO’s competitiveness 39 2.3.2. Application of Value Chain model to analyze and evaluate PJICO’s competitiveness 51 2.3.3. PJICO’s competitive position in comparison with its main competitors 76 CHAPTER 3: CONCLUSIONS AND RECOMMENDATIONS 80 3.1. Conclusion of PJICO’s Competitiveness 80 3.1.1. Summary from internal analysis and competitiveness comparison 80 3.1.2. Assess to the real PJICO’s strengths & weaknesses – the core compentencies 85 3.2. Solutions for PJICO to strengthen its competitiveness & to achieve its objectives 89 3.2.1. PJICO’s strategic vision and objectives 89 3.2.2. Solutions for improving PJICO’s competitiveness until 2017 90 3.3. Recommendations 106 3.3.1. Recommendations to Government 106 3.3.2. Recommendations to Association of Vietnamese Insurers 107 3.3.3. Recommendations to PJICO 108 REFERENCES 109 APPENDICES 111 LIST OF TABLES Table 1.1: Selected connotations of firm level competitiveness: 5 Table 1.2: The five forces that shape industry competition of Michael Porter 9 INTRODUCTION 1. The problem Vietnamese non-life insurance market has been experiencing a challenging, struggling as well as fast-developing stage. Going along with this context, each and every participant in this market needs to focus more on their real competitiveness to achieve further growth and sustainability. Therefore, the thesis is born to conduct analyses on PJICO’s competitiveness and suggest possible solutions to strengthen its competitiveness in order to stand and develop in Vietnamese non-life insurance market in the future. 2. Objectives: The objectives of this study can be listed as follows:  Give the overview on concept of competitiveness  Provide some analyses on macro and industry environment of insurance market  Conduct a thorough study on PJICO’s competitiveness  Recommend the possible ways to improve the current competitiveness so as to help PJICO be stable and progressive in the insurance market. 3. Research Questions  What is competitiveness?  Method and process to analyze competitiveness of a firm?  The way to conduct macro and industry environment analysis of insurance market?  The way to conduct internal environment analysis of an insurance company?  What are suggestive solutions to improve the competitiveness of PJICO to the year 2017? 4. Scope of work In terms of theory, the thesis focuses on the concept of competitiveness, macro and industry environment analysis, and internal environment analysis of an enterprise. In terms of practice, the thesis focuses on reviewing the current insurance market in Vietnam, analyzing the external and internal environment of insurance market in order to assess the competitiveness of PJICO, and giving recommendations on possible solutions to improve its competitiveness to the year 2017. 5. Methodology and data sources This study uses the descriptive method for analysis through a specific case study of PJICO in the context of present Vietnam insurance market. The data are sourced through two ways:  Secondary data are collected from research of books, websites, teaching notes, reports, magazines and newspaper, and other available documents.  The primary data are collected chiefly through deep interviews with PJICO’s as well as partners’ and other players’ managers and key staffs. 6. Significance and expected results By scanning the specific theory on competitiveness and analyzing the impacts of business environment of non-life insurance market, the study helps PJICO in giving suggestive solutions to improve its competitiveness to the year 2017. Therefore, this methodology, information and analysis can be applied for other companies or other insurance companies or for the PJICO itself in other stages of development. 7. Limitations This thesis is conducted in narrowed scope of insurance market and the applications to PJICO in certain period to the near future until 2017. Thus, it may not wholly express and reflect the business environment as the whole and in other periods. 8. Thesis Structure: The study includes four parts as below:  Introduction  Chapter 1: Literature review and overview of non-life insurance market  Chapter 2: Research and applications of models to analyze PJICO’s competitiveness  Chapter 3: Conclusions and recommendations CHAPTER 1: THEORETICAL FOUNDATIONS 1.1. Definition of competitiveness Up till now, there has been no generally accepted definition of competitiveness as well as no mutually accepted definition to explain it. Competitiveness is a broad concept. According to Beckley, “A firm is competitive if it can produce and services of superior quality and lower costs than its domestic and international competitors. “Competitive” is synonymous with a firm’s long run profit performance and its ability to compensate its employees and provide superior returns to its owners”. Normally, three competitive levels are focused: country, industry, and firm level. This study is focused on firm-level competitiveness. 1.2. Sources of competitiveness Sources of competitiveness can be mentioned: Brand and reputation, Culture and system, Human resources, Technology & IT applications, Value creation, Customer satisfaction, Market share… 1.3. Models to assess and analyze competitiveness 1.3.1. PEST analysis PEST stands for Political, Economic, Social and Technological factors. However, the number of PEST analysis is unlimited. Other country-specific factors can be added to perform macro environment. 1.3.2. Industry analysis Michael Porter’s five competitive forces include industry rivals, buyers, suppliers, potential entrants and substitute products. The five competitive forces shall help define an industry’s structure as form the nature of competitive interaction within an industry. 1.3.3. Internal analysis According to Michael Porter, value chain indicates the whole production chain from the input to the output of final product/service by the end-user. There are two kinds of activities in the value chain. One kind is called supporting activities, which concerns the stream of production, where firms use its inputs, integrate and process them, then produce or create its outputs. The other kind is called primary activities, which are activities going across firms, where the outputs of one step become the inputs of the next step. Supporting activities include: firm infrastructure (finance, accounting…), human resource management, technology development, and procurement. Primary activities include: inbound logistics, production and/or operations, outbound logistics, marketing and sales, and service. A crucial analysis on the value created will help companies to identify its internal capacity or its core competencies, and then figure out the strengths and weaknesses of PJICO. 1.3.4. Core competencies assess After extracting the strengths and weaknesses of firm from value chain analysis, table of identification of sustainable competitive advantages to examine the long-term or short- term strengths and weaknesses, and then they would lead to the determination of core competencies for the company. The table is as follow: Strengths/ Weaknesses Valuable Rare Costly to imitate Big gap? Coincide with KSF Marks 1. Factor 1     4/5 2. Factor 2     4/5 3. Factor 3     4/5 *KSF: Key Success Factors For the core competencies extracting from the sustainable competitive advantages model, some possible solutions would be given based on improving strengths and enhancing weaknesses, in order to improving competitiveness of the company. CHAPTER 2: RESEACH AND ANALYSIS APPLICATION OF MODELS TO ANALYZE PJICO’S COMPETITIVENESS 2.1. Overview of non-life insurance industry in general and in Vietnam 2.1.1. Non-life insurance industry in recent years  Non-life growth is still weak in industrialized countries, but strong in Asia  For non-life insurance in the world: global premiums growing, but only slowly in the US and Western Europe  Developing countries: significant growth in many different markets  For South and East Asia: resilient despite the global financial crisis  Key concerns and conclusions of world’s non-life insurance: The increase in interest rate, assets management is still existing problem of insurance industry; The recovery of insurance companies’ financial states after recession period; There are some breakthroughs in insurance industry: risk management focus, bancassurance 2.1.2. Non-life insurance industry in Vietnam This part mentions some issues as follow:  Ownership structure of insurance enterprises  Non-life insurers in Vietnam  Market share  Premium income and growth rate  Market premium and loss  Non-life insurance premiums by business lines  Merger and Acquisition: there is a trend of foreign organizations’ participation as strategic partners into some insurance companies  Some significant points in non-life insurance market in Vietnam 2.1.3. Success factors in non-life insurance industry Human resources: Underwriting skills: For high demanding services from international insurers and specific services from local insurers, the underwriting factor is of much importance. Underwriting skills express the local insurers’ profession, readiness, understanding and flexibility. This factor also combines the local-understanding mind and global-standard mind as it would bring the core and sustainable value for insurance business. It is also the most significant part in human resources. Human resources also express in business culture, numbers of labors, qualification of labors on the whole… Reinsurance: The backbone of insurance activities is reinsurance activities. As risk coverage is larger and larger everyday, it is impossible for a single insurance company to cover 100% of their risks. They start to reinsure for the others (other insurance companies and other reinsurance companies). Reinsurance market is born and develops more and more. Sales and after sales services: Sales and after sales services involve timely services, the documentary and procedures for the services, and services at sites. They also include customer care and services, especially for the service company. Products development and Marketing: Marketing involves brand positioning; branding and promotional regularity levels (policies, programs, resources…); and future marketing and branding focus, PR… Premium price In the context of highly competitive market as non-life insurance industry in Vietnam, factor of premium price is of much importance. The reasonable premium price, along with best customer services can bring many contracts and clients to insurance company. Claims handling Claim handling is related to underwriting skills (including risks assessment and management), the better the underwriting is performed, the easier and prompter the claim is handled. Besides, claim matters also involve the numbers and volumes of claims; relations with loss-adjusters; volumes and timing of actual compensation payment; financial capacity, reserves, retention…; and so on. Information technology support In order to provide real-time services with good quality, insurance company needs a stable and thorough IT system. This IT system will help insurance company in all activities of providing services from the beginning to the end. Relationships This means the relationships with customers (large enterprises/corporations, local authorities…), partners (global reinsurers, insurance brokers, agents, other insurers…), and others. The relationship is also with clients: relationships show through elements such as: current clients, future clients, renewal volume, price discounting… The relationship is also with reinsurers (both local and global): relationships show through current relations, their concern, interest, priority and loyalty with specific local insurer, mutual contacting, future relationships… There are also relationships with local insurers, with authorities, with brokers and other partners. 2.1.4. Factors affect a non-life insurance enterprise’s competitiveness  Economic growth: Along with the economic growth, non-life insurance business will grow accordingly.  Natural disasters: Natural disasters have negative impact on non-life insurance. Every year, there are always typhoons and flooding hitting Vietnam, causing lots of damages. Due to these attacks, agricultural output and reconstruction efforts were badly influenced.  Imports and exports: The extent and pattern of imports in recent years shows that manufacturers are restocking to meet export orders. Rising inward shipments of steel, cotton, textile yarn and plastics suggest that inputs are being purchased to meet new export orders and capital investment purposes.  Foreign investment: foreign investment has positive effect on non-life insurance. Due to recession, foreign investment was gray lately. However additional capital was also registered increasingly.  Currency: The fluctuation of exchange rate also has much influenced on non-life insurance, as many of insurance contracts are at foreign currencies. Insurance firms operating in Vietnam faces risk if the Vietnamese Dong (VND) encounters further devaluations. The devaluation and the possibility of devaluation is a risk for government as well as companies which have lots of foreign transactions using foreign currencies, especially US Dollar.  Legal framework: Legal framework can cause positive or negative effects on non- life insurance due to the parallel improvement and development between the two.  Technology: As well as legal framework, technology also causes adverse influences on non-life insurance. In Vietnam now, it can be said that technology causes negative influence, since the development of technology cannot meet the requirements of insurance market.  Insurance awareness: Clearer awareness on non-life insurance goes with the increase in demand. From times to times, with the developing integration of international business, the awareness on insurance is going increase also. 2.2. Overview of PJICO 2.2.1. Introduction of PJICO Fields of Business:  Non-life insurance operation: - Accidents and Health Care insurance - Property Damage Insurance - Inland transit, marine and air cargo - Hull and P&I Insurance - Liability Insurance - Motor Vehicles Insurance - Fire and Engineering Insurance - Business Interruption Insurance - Reinsurance  Financial investment under the law of insurance dated 09/12/2000  Other services: Survey, investigation, claim… 2.2.2. PJICO’s business activities 2.2.2.1 Non-life insurance products of PJICO Since its establishment, PJICO has developed and underwritten almost types of non-life insurance, which are divided into 4 major groups:  Marine Insurance  Fire Insurance  Engneering Insurance  Miscelleous Insurance 2.2.2.2 Reinsurance Performance PJICO has successfully negotiated all 2010 reinsurance treaties for its main type of insurance: Marine, Fire, Engineering Treaties and new successful arrangements for the excess of loss reinsurance program in 2010 for Motor Vehicles. In addition, PJICO has been keeping closed contact with the long term reinsurance partners in the world such as Caises Central Reassurance (CCR), Munich Re, Korean Re, ACR, Best Re, Malaysian Re… Reinsurance activity has ensured the company finance in safety in insurance business. 2.2.2.3 Other activities [...]... good reinsurance team with experienced and high skilled managers Aside from achievements of reinsurance activities, the reinsurance still has to deal with some problems, including:  Not have reinsurance software so that all the works are managed manually It costs time so much to do risk profile, loss profile and sometimes data is not accurate  Awareness of reinsurance announcement necessity of PJICO’s... increasing number of big and complicated insurance claims  Insurance fraud is still high especially in the field of automobile insurance This matter scares and greatly influences on profit and business efficiency of non-life insurers and PJICO as well  Claims management in terms of automobile is not good because of statistic software  PJICO are still lacking of Call Center, Service Center, premium... pipeline insurance, D & O insurance, Health Care insurance at high level (Petrolimex) 4 5 6 Presenting insurance program and signing insurance agreement or insurance open cover contract Holding media events and implement valid insurance programs effectively Reporting and evaluating the results periodically + Banker Blanket Bond (VCB) + Comprehensive insurance agreement (VSC) - Calculating reinsurance... and distribution of PJICO include criteria: product development, premium, distribution channels and promotion activities  Insurance Products Development: PJICO has more than 80 insurance products for almost traditional types of non- life insurance PJICO has advantages in terms of retail products such as automobile insurance, motorcycle insurance, health care and personal accident insurance These are... Underwriting ability Reinsurance Reinsurance capacity Efficiency of reinsurance contracts Inward Reinsurance Reinsurance software Survey and Claims Handling Standardized Survey Process and Claims Handling Process under ISO 9001:2008 Survey & claims volumes Skills of claimants Fraud in compensation Claims Management Extra Services Financial investment activities Ensuring Safety and liquidity of capital Efficiency... Variety of investment portfolio Sound & professional investment strategy Corporate Governance Organizational Structure Efficiency of Board of Directors, Board of Supervisors and Management Team Sound long-term strategy Corporate culture Human Resource Management Number of labors Young workforce Qualification of workforce Training Fidelity and dedication of employees (brain-drain) Job description Professional... tax 10-15% annually  Developing PJICO’s brand to be one of the most famous and strong trademarks in Vietnam non-life insurance market  Making PJICO’s stock to become the top favorable stock among stocks of insurance companies listed in the stock- exchange  Creating a dynamic, transparent, opening and friendly business environment together with professional, ethical, innovative corporate governance system... personal insurance for pupils and students 4 Developing motorbike insurance to remain top 1 position in the market 5 Setting up more owned car rescue and repair centers Applying comprehensive IT system in insurance management due to a necessity of good statistic software for retail insurance products 6 - Negotiate and sign contract supplying health care and personal accident insurance for all staffs of Petrolimex. .. Bargaining power of buyers  Number of non-life insurance companies is huge compared to market and economic scale The customers have multiple choices  Almost all types of insurance are traditional, simple and easily copied so many insurance companies sell the same products  Switching costs of bargaining power to the customers have been lower and lower With the high power of customers in non-life insurance. .. units (insists of 100% shareholder-owned enterprises, jointstock companies, joint- venture or projects which have capital of the shareholders) - Holding seminar to attract attention of the shareholders and its units as well as other customers - Working face-to-face with some big and importance units of the founding shareholders such as PLC, Gas Petrolimex, B12, to popularize clearly insurance program . b. Economic factor: (1) Some significant points of the state in the economy (2) WTO commitments: Limitations on market access and limitations on national treatment In conclusion, economic. of authority. Thus, mistakes occurs. - At the stage of providing quotations and negotiating with big customers such as state- owned enterprises, contractors… PJICO itself and its staff have. the same products.  Switching costs of bargaining power to the customers have been lower and lower. With the high power of customers in non-life insurance industry, PJICO and other companies