Introduction
Aviva is one of the best insurance companies in the world. Specifically, the company has witnessed tremendous success in European countries such as the UK, Italy, France, and Poland. Additionally, the company has acquired a sizable market in several Asian countries such as India, China, and Indonesia. However, despite the company having such a strong brand, it has been unable to penetrate extensively into the Vietnamese market. Aviva has one of the highest charter capital in the country but it has not achieved significant success in Vietnam (Sit, 2018 n.p). The failure of the company is attributed to poor analysis strategies in the context of Vietnam. Most probably, the company assumes that its strong global image will automatically attract customers. This working paper discusses the background of the problem (poor planning strategies), conducts a literature review of the subject, analyzes the strengths and inconsistencies, and provides suggestions in a report.
Background and Restatement of the Research Question
Aviva entered the Vietnamese insurance market for the first time in 2011 through a joint venture with VietinBank. That means that the company has been in operation for approximately eight years. However, in 2017, VietinBank sold its share of 50 percent, making the firm to change its brand name from Aviva Vietnam Life Insurance to Aviva. As the name of the company suggests, the firm mainly offers life insurance services. At the time of changing its brand name, the firm announced its long-term goal of transforming into a complete digital-integrated insurance company in the country. One of the strategies of the company is to partner with VietinBank to provide what is popularly referred to as bancassurance services. To demonstrate the partnership, the company signed a long-term distribution agreement with VietinBank. The priority of the company is to invest in information technology infrastructure and digital capabilities. The firm believes that the digital platforms are crucial in attracting customers.
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Concerning Vietnam, Vietnam Economic Times (2018 n.p) points out that the country has one of the fastest growing insurance markets. The growth of this market is attributed to the rising living standards and an increase in the middle class population. As a result, several insurance companies such as Sun Life Financial Inc. from Canada are in a frenzy to gain a considerable share of the market. Vietnam News (2018 n.p) reports that in the first half of 2017, the total revenue accrued by insurance companies in Vietnam rose by 21 percent year-on-year to about US$ 1.8 billion. Of the total collected, the revenue received from life assurance was VND 27.83 while that collected from non-life assurance premiums was about VND 19.34 trillion. Vietnam Economic Times (2018 n.p) also points out that apart from witnessing the high and sustained growth rate, the insurance companies also realized an improvement in their financial status in the first half of 2017.
Although many experts see potential in the insurance market of Vietnam, there are numerous challenges. The first challenge is that many Vietnamese people do not believe that it is worth spending on life insurance. Despite there being an increase in the citizens’ awareness, many people do not understand the importance of purchasing life insurance. Secondly, many people in the country continue to see insurance as an investment. It is the reason why most people still prefer to save their money in banks, real estate or even in gold, which have more returns. Thirdly, many insurance companies base their services only in big cities forgetting that over 70 percent of the population lives in rural areas.
The objective of any firm particularly when it enters a new market is to put strategies in place to attract customers. Asia Asset (2018 n.p) asserts that customers form the most crucial factor for any company. Aviva prioritizes the development of digital platforms in Vietnam and forgets that most people in the country have not begun to respond positively to the issue of life insurance. Secondly, Aviva focusses so much on developing partnerships with prominent banks such as the VietinBank, which mostly operate in big cities. Nevertheless, a significant number of people live in the rural areas. The Aviva brand may be popular among the urban populace but those individuals who reside in the rural areas may not be aware of it. Even if people in the cities are aware of the existence of Aviva, the company has put in place little efforts to attract people to subscribe to their premiums.
Literature Review
Foo et al. (2017 p.1) try to investigate why firms seeking to expand may fail to expand in the US and China. Particularly, the authors investigate why some foreign investors withdraw their funding for startups in the two countries. To provide an overview, there was an exponential increase in venture capital investments in China year-on-year from 2009. Many investors began to switch from the US to China for various reasons. The first reason was that there was an increase in demand for venture capital funding. Prominent universities such as Peking University and Tsinghua began to host venture competitions with the objective of selecting startups that had the best ideas for funding. The venture capitalists would offer as much as US $100, 000 for a 25 percent stake in the startups. The rapid growth made the founders and investors to be overconfident. The emergence of highly successful companies such as Xiaomi and Alibaba made foreign investors to get interested in China the more. As a result, valuations began to rise almost tenfold, making some of the Chinese startups to be in the same range as those in the Silicon Valley despite the Chinese startups not having relative market stability or infrastructural support as their counterparts in the Silicon Valley.
Foo et al. (2017 p.1) analyze the venture capital flow from 1995 to 2015 to establish how the capital flow impacts the investment process, valuation and exit of investors from the market. The authors argue that overvaluation both in the US and China has been the cause of failure of many business startups. Specifically, the authors posit that excess capital and overvaluations in the market affects the process of making decisions for both startups and venture capitalists, making them to come up with unwise and non-conservative investments. Perhaps this study explains the scenario in Vietnam; the insurance market in the country could be overvalued.
Nguyen (2016 p.1) examines the how the Vietnamese insurance market looks like. The author points out that domestic insurers have been offering non-life insurance premiums for a long time although currently life insurance is becoming popular. Perhaps the most significant aspect of Nguyen’s (2016 p.3) study is about the impact of the Association of Southeast Asian Nations (ASEAN) on the Vietnamese insurance market. The nations have formed the ASEAN Economic Community (AEC) aimed at liberalizing the region’s market. Nguyen (2016 p.6) points out that insurance companies from countries such as Singapore, Malaysia and Thailand have already entered the Vietnamese insurance market. The presence of such firms in Vietnam most likely affects the operations of Aviva considering that they started their operations earlier.
Brown and Balasingham (2013 p.2) investigate the impact of bad financial leadership in insurance companies. The two authors assert that prominent insurance companies in the past such as the Albert Life Assurance Company in the UK failed because it did not develop a forecast of the upcoming market situations. Additionally, the authors posit that many insurance companies have failed in the past because they refused to adapt their operations to the prevailing conditions. Also, they did not conduct a conclusive study of the market conditions before making important decisions. This study gives valuable insights on the situation of Aviva in Vietnam.
Strengths of the Studies
The study conducted by Foo et al. (2017 p.4) seems to have a stronger explanation of the craze of companies to invest in Vietnam because of the positive indicators that there is a lot of potential in the country. Since everyone seems to be interested in investing in the country, Aviva does not also want to be left out. The rush affects the need to conduct a conclusive investigation in regard to the true situation of the market. In the background of this working paper, it was highlighted that a significant number of Vietnamese has not yet embraced the idea of life insurance hence there is a probability of the insurance market being overvalued. The strength of Nguyen (2016 p.3) study is that it reveals the specific dynamics that affect the operations of the Vietnamese insurance market. That means that the study gives a clear overview of the external market forces that affect the operations of Aviva. Brown and Balasingham (2013 p.2) study’s strength is that it provides specific examples of prominent insurance firms that failed because of not conducting an analysis of the prevailing conditions. Overly, the Foo et al. (2017) seems to be the strongest study.
Weaknesses of the Studies
All the studies seem to be descriptive hence there is a challenge of obtaining crucial figures for comparison of successful firms and those that perform poorly. Most of the studies are general and do not give the general situation in Vietnam. The assumption of the studies is that the Asian market operates virtually in the same manner. That means that there is a limitation in literature review concerning the specifics of the Vietnamese insurance market. Although Nguyen (2016 p.6) attempts to state that there is stiff competition from the AEC insurance companies, the study does not state the degree of the competition, an approximate number of the insurance providers, and the best-performing insurance providers.
Models and Theories Which Explain and Identify Solutions
The most prominent analysis strategies that have been developed include the SWOT analysis and the Porter’s five forces industry analysis. The SWOT analysis is an acronym for strengths, weaknesses, opportunities and threats. Strengths and weaknesses refer to the internal factors that either influence a company positively or negatively while opportunities and threats are external factors that affect the operations of a company. According to Hunt (2014 p.12) the strength of a company may include factors such as extensive sources of capital and skilled human resource. In regard to Aviva, their main advantage is capital. Examples of weaknesses include issues such as bad leadership or internal conflicts. Opportunities refer to gaps that exist in the market, which a company can use its strengths to maneuver its competitors. An example of an opportunity may include an unexploited market. Threats include factors such as competition, legal barriers and unfavorable political environment.
The five factors that make up Porter’s generic structure include competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of customers (Hunt, 2014 p.14). While the SWOT analysis gives a general analysis, the Porter’s generic model attempts to delve into the specifics. The five factors are self-explanatory. A company such as Aviva needs to do a comprehensive analysis of the Vietnamese insurance market in all aspects to find the most appropriate way of converting its strengths into action as well as spotting opportunities.
Solutions Developed
Two suitable solutions that Aviva can use to improve its penetration into the Vietnamese insurance market include, (1) Conducting an analysis of the competitors, and (2) Analyzing the insurance purchase habits of customers
Analysis of Competitors
As earlier mentioned, the creation of the AEC makes competition for the insurance market in Vietnam to be very stiff. Aviva needs to find out what the domestic and regional insurance firms are doing to be able to come up with an effective plan of countering their strategies. Perhaps Aviva is relying on its global brand forgetting that the market dynamics in Vietnam are differently from those of Europe and that the local insurance firms solve the needs of the local people in the best way.
Analysis of Customers
Most people in Vietnam have not yet fully embraced the idea of life insurance. There is need for Aviva to teach them the importance of purchasing life insurance premiums. The company can use its joint ventures to attain this objective. Additionally, since a significant number of people live in the rural areas, Aviva needs to develop strategies of attracting this population. Most insurance companies operate in urban centers but Aviva can use the rural population as an opportunity to maneuver their competitors. Lastly, Aviva needs to conduct their own market evaluation to find out whether there is over evaluation so that they can adjust accordingly.
Conclusion
Summarily, Aviva, despite being a prominent global brand, has failed to gain a significant share of the Vietnamese insurance market because of poor analysis of the market. Evaluators must have overvalued the insurance market because of the perception that people’s living standards in the country were improving. Aviva must have ignored to conduct an analysis of the various aspects of the market, more specifically, competition and customer purchase habits. It is vital that the company finds out the threats posed by its competitors as well as the needs of customers to gain a sizable share of the market.
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