EXTERNAL
PEST analysis
Political
At the first, Bao Viet insurance is a total 100% state owning company that has been equitization, in which the State holds 65% charter capital and is also the largest shareholder. After equitization, the company grew bigger and raises competitiveness in domestic and international. However, there are few problems also, as the State holds the majority of capital, which has created barriers to the development Bao Viet. The reason is the state fixes the salaries of its managers.
In 2007, Vietnam joined the WTO, beisdes the positive affects, there can be some challenges for Bao Viet and other insurance companies. Follow commitments, foreign insurance enterprises do not need to set up insurance businesses in Vietnam can also exploit the insurance market in Vietnam. This commitment has strong influence on some types of non-life insurance and limited foreign groups and projects with foreign investment capital in Vietnam.
In 2009, the State management mode is on an improved with the promulgation of “Decree 41 on administrative sanctions in the field of insurance business and a number of other ones” (Lan Huong, 2009). In addition, the government also issued orders to tighten licensing the establishment of insurance enterprises. From there, it will create a more stable environment.
According to Trinh Thanh Hoan, Director of insurance Management and Supervision Department, “in 2010 management agencies will continue to improve and promulgate legal documents on the insurance business”. “In the future, we will offer a minimum fee, no business will be lower than that, that policy ensure no bankruptcy, on the other hand ensure customers' interests”, Hoan stressed (ATPvietnam, 2010)
Economical
These are few economic figures in 2009: GDP growth of 5.2%, on average in the area but is the lowest in a decade. Inflation was maintained at less than double digits, 7%. Poor rate fell 11%, faster than the roadmap commitments to achieve the Millennium Development Goal (MDG). However, because of global economy crisis, insurance industry still suffered losses. In 2009, the total losses of the overall insurance market are “264 billion, down 105.9 billion compared with 2008” (ATPvietnam, 2010)
Rising interest rates caused many customers want to finish their contract soon to get the money to put into the banks. However, factors of macroeconomic stabilization and recovery in 2010 are the favorable conditions for the insurance industry. Bond market is expected to be active by increasing interest rates. Bao Viet insurance also set a target revenue growth in the original premium of 15% this year compared with 2009, profit before tax 300 billion VND (Van Lam, n.d) Comments on the accelerated plan of insurance companies after a difficult year, insurance industry experts said that in the current context, if you will not move, you will be setbacks. By 2010, the insurance market would welcome additional participation of a number of new insurance companies, including companies of the leading insurance enterprises of area and the world.
Monetary policy in 2010 will be operating very flexible, ensuring harmonization of goals. If too tight, it would make business difficult, leading to difficult to achieve 6.5% growth and it involves many implications for social security. But if it’s further easing will be hard to ensure targets inflation at 7% a year (Kim Chi, 2009)
Social – cultural
Currently, the people of Vietnam still mainly use investment forms a "traditional" as savings deposit, real estates, buy gold, hard currency investment capital ... other channels such as insurance, bonds, stocks ... have not been "activated." Vietnamese people are seldom thinking about the risks and did not want compensation from life insurance that they calculate principal factors affecting savings and investment. Because of cognitive, psychological and consumption as well as saving habits of Vietnamese customers, it also partly affect the life insurance market in Vietnam.
Technology
Vietnam insurance companies are necessary to apply information technology to enhance business efficiency, especially when the door is immediate integration. Although elements of information technology applications can not play a decisive role to the success or failure of every business, but in the trend of globalization today, if the application of information technology on business activities not make good, it will definitely pull back in compare to competitor. This may be an indirect factor that businesses fail in the marketplace.
In 2003, Bao Vietnam spent about $ 6 million, equivalent to 70% of the company's profit in 2002, investment in IT (Thanh Tung, 2003). Bao Viet has invested application of information technology in management and business. Bao Viet insurance is the first non-life insurance company builds insurance and accounting management software BVPROP BVACCOUNT. At the same time they have adopted standard quality management system ISO 9001:2000 that helps tight control of insurance processes and internal controls to ensure quality of service provided to customers and business efficiency (Vinasme, 2009)
On February 1st, 2010 in Hanoi, Baoviet Insurance Corporation Vietnam held a ceremony to sign a contract to buy the Insure J software with the joint-alliance contractors Bravura Solutions and SSP. Project implementation is divided into two phases. In the first phase expected to take 14 months and completed in early 2011. In phase 2, IT experts of the Baoviet Holdings and non-life professionals from Baoviet Insurance Headquarter will deploy the application and training at Baoviet Insurance branches nationwide.
Porter 5 forces
After becoming a member of WTO, since 2008, foreign insurance companies have provided some insurance products across the border into Vietnam. This give the signal an unequal competition for local firms because they can not know information about the "weapons" of abroad opponents while insurance companies are operating in foreign countries know very well Vietnam market.
Under WTO commitments, the following five years after accession, Vietnam will allow branches of foreign insurance companies are operating in Vietnam. Domestic enterprises will hardly compete with foreign enterprises on their financial capabilities as well as their expertise.
However, the strength of law is the most important thing for insurance enterprises in Vietnam because the insured will be protected the legitimate rights and interests before the law Vietnam instead of having the barrier of language, lawyers, sources of law and stand trial abroad (Truong Nam, 2009)
- Threat of substitutes (investopia)
This one is pretty straight forward, for there are plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services. Whether it is auto, home, commercial, health or life insurance, chances are there are competitors that can offer similar services. Companies focusing on niche areas usually have a competitive advantage.
Based on habits and culture of Vietnamese people, there are also other substitutes. Those are savings deposit, real estates, buy gold, hard currency investment capital. Vietnamese customers prefer those investment methods than buy a insurance contract.
The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. A good insurance underwriter has chances to be enticed away by larger companies who looking to move into a particular market.
The individual doesn't pose much of a threat to the insurance industry. Large corporate clients have a lot more bargaining power with insurance companies. Large corporate clients like airlines and tourisms companies pay billions VND a year in premiums. Insurance companies try extremely hard to get high-margin corporate clients.
- Rivalry among competitors
The insurance industry is becoming highly competitive. First, there is competition among insurance companies about products, service quality, human resources, distribution channel development and level of information technology applications. Second, there is competition between insurance companies operating in Vietnam with the business of insurance in foreign countries to offer insurance products within the framework agreed in the WTO. Finally, it is the competition among insurance companies with financial services such as savings deposits, securities, and real estate business.
The difference between one domestic insurance company and another is usually not that great. From there, the situation of unfair competition between businesses has raised, such as reduce costs and expand insurance conditions, increase deductions, etc… These actions led to the distortional development of market, loss of business for themselves as well as the consumer market. The fully aware of the nature and impact of unfair competition with Vietnam's insurance industry is now very necessary.
Task 2: Global political change
Influences policies and decision-making within Bao Viet
On 7/11/2006, Vietnam officially joined the WTO. This opens up new opportunities for Vietnam to expand markets, attract investment, and take advantage of technology to develop. When Vietnam becomes a WTO member, the goods will enter the Vietnam market. Enterprises in Vietnam in general and Bao Viet in particular will continuously improve product quality, reduce costs to improve competitiveness in order to develop and exist. Meanwhile, Bao Viet will have to change the policies and business strategies to compete with foreign companies.
A restriction of domestic insurance companies is the distribution channel of insurance products that is increasingly less effective. Many life insurance companies have not focused properly selected and used agents, non-life insurance are still keep the way to exploit mainly from staff insurance, competition fees, don’t have a professional agent system. Identify this problem, Bao Viet has several policies to improve the quality of agents. For example, each month, the company spent between 10 -12 million buying gifts, bonuses, timely encouragement of good agents, many agents who are exploiting high value contracts.
In the end of 2007, Bao Viet associated with HSBC to create a new joint venture form, bancassurance, with the desire to take advantage of the experience, technology, new products and systems of strategic partners to develop the distribution channel of insurance products, improve their brand reputation. That is a great improvement of their business strategy.
From the date 01/7/2008, the new organizational model has been applied in the Group, including: the General Assembly of Shareholders, the Board (with the function of assisting the Committee) and the Control Board into functional blocks. Organizational model that defines the structure of governance clearly defines the responsibilities and relationships of the parent company and subsidiaries, through which the corporate governance will medium closely, ensuring effective for businesses, but non-administrative orders.
This is an important "milestone" of Bao Viet enterprises after switching from 100% state-owned to the joint-stock model. On 19/1/2010, Bao Viet has changed their logo. The old logo of Bao Viet includes the message that the main activity of Bao Viet is non-life insurance. But now, they have expanded the scope of operation and growth in life insurance, securities, banking, etc … so the brand identity system also needs to be renewed to match.
Evaluate the effectiveness of Bao Viet before and after WTO accession and suggest the improvement
Time for Vietnam to join WTO coincides with the time of Bao Viet’s equitization. After Vietnam joins the WTO, competition in the market are very high. The company found that the model of state companies are no longer appropriate, so the company decided to switch to the model joint-stock Corporation. So in this report, the effectiveness in business of Bao Viet insurance before and after equitization will be focused. Bao Viet official equitized on 05/31/2007. Before 2007, Bao Viet was just a small insurance company with the only activity on non-life insurance. Now, they become a large group, Insurance – Finance Group with plenty of activities.
Total capital before 2007 was 1500 billion VND, while total capital in 2010 is more than 6000 billion VND, up 4 times in compare to 2007. According to the financial reporting in 2009, revenue from insurance activities is estimated at 7593 billion in 2009, about 103.12% of the plan. In 2009, Bao Viet Insurance maintained its No. 1 position on the market non-life insurance with total revenues expected to reach 3973 billion, growing 8.5% compared to 2008. About the distribution channel, until the middle of 2006, Bao Viet had about 25.000 agents. Also, Bao Viet is "nest" of nearly 2.500 officials and employees compare to 5.000 employees and 34.000 agents in 2010. From these figure, we can easily see that the effectiveness in Bao Viet business after equitization. Besides, Bao Viet has few good changes in personnel management. They have created a motivated environment for their employees by stock bonus policy. Through this policy, business executives make the company's value increasing. Without such policy executives, the executives and employees for their own benefit will go against the interests of enterprises.
Before equitization, Bao Viet is a 100% state-owned company. Even they knew that they had to change in order to compete against other competitors, but there are many weak senses of "mechanisms" that Bao Viet cannot overcome. As state enterprises, policy recruitment, promotion, salaries, operating costs ... under the provisions of the State are affected by the "unwritten law" that dominated state-owned company. After equitization, State will hand the decision authority to the board of Director, it means that the Board of Director will have to decide every issues in their company. According to the data about financial status of Bao Viet before and after equitization, Bao Viet had sound policies in switching as well as business management.
However, the increasing in agents has also negative aspect. Because of the rapid increase has resulted in problems, as mentioned above, the working quality of agents is less and less effective. Even Bao Viet has brought out a policy to improve the quality of agents but it met a small amount of agents in compare to 34.000 existing ones. So, in my opinion, Bao Viet should have more attention in improving the quality of agents to avoid negative image to customers. In my opinion, Bao Viet should develop a scientific, accurate and logical recruitment process to recruit qualified personnel and in accordance with job requirements. Meanwhile, they should organize periodically training courses in professional skills. In addition, competitions for professional knowledge and other social issues are good idea. Through behavior ability of employees, Bao Viet can reward to encourage, the other hand; can draw current weaknesses for timely improvement.
Conclusion
In this report, I identified the internal factors that include Vision, Mission, Objectives, Stakeholder analysis and the external factors that are Five Forces analysis and PEST analysis. By using 5 forces and PEST analysis, the external environment factors (Political, social culture, etc…) that affects to the business of Bao Viet. In the second part, how the effects of WTO accession as well as equitization of Bao Viet on their decision-making and policies are mentioned. Then, the differences between before and after equitization are analyzed, about total capital, distribution channel, and the policy aspects. I also point out the improvement on the quality agents and how improve it.
Reference
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