Table of contents 1: Summary 2 2: Main Contents of the report 3-20 2.1: Introduction 3 2.2: Problem and the followed procedure 4 2.3: Sun Life Financial from strategic managerial viewpoints 4 2.3.1: Sun Life Financials strategic logic 6 2.3.2: SWOT analysis 10 2.3.3: PEST analysis 13 2.3.4: The attractiveness of the Chinese insurance market 17 2.3.5: Strategies and city choice 18 3: Results, conclusions and recommendations 22 4: Bibliography 23 1. Summary This report looks into the Chinese insurance market for Sun Life Financial in order to evaluate whether it is wise for the company to enter the Chinese market and if so, where to enter. To research whether Sun Life Financial is internally ready to enter the Chinese market or not, there was chosen to use the strategic logic theory. The Chinese government imposes foreign companies to form joint ventures if they want to be active in the Chinese market. In this way, domestic companies will benefit from business development as well. Sun Life Financial strategically chose to form an alliance with Everbright, because of Everbrights established distribution network and good relations with the government. Sun life Financials business concept consists out of already developed products in other markets, adapted to Chinese customers.
The biggest potential customer base can be found in urban areas where people tend to be more westernised and richer. The products in these areas will be offered by means of personal selling carried out by a specially trained sales force. The organisation concept shows that Sun Life Financial can use their management expertise, financial strength and extensive customer service experience to support their business concept. Furthermore, it could use Everbrights established distribution channels and local market expertise. Both parties have an equally share in the joint venture. Stakeholder development with the government is the most important core process to be undertaken by Sun Life Financial, since in the future they would like to make a strategic move into the wealth management business and pensions. The SWOT analysis shows that potential strength and weaknesses balance each other out, but according to our opinion, the strengths are stronger than the weaknesses. Opportunities are based on a big market potential, whereas threats are mainly due to the communistic history of the country. From the PEST analysis one can conclude that political factors are still a bit unstable (bureaucracy and market restrictions), the other factors have seriously improved. The Chinese insurance market is highly attractive because of the fact it is a nearly untapped market with high growth potential.
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In addition, market shares and profits can be obtained relatively easy. Entering the Chinese market now, would mainly mean that Sun Life Financial is coinciding with the general strategies of the overall companies. The Chinese government decided to open up six different cities, from which three are not attractive to Sun Life Financial at all. From the three cities that seemed attractive, Guangzhou looks most attractive to enter the Chinese market to us. It has the highest GDP growth and a relatively high percentage of households, which means the biggest market potential. Moreover, average salary is higher in this city.
2. Main contents of report 2.1: Introduction Sun Life Financial is an insurance company established in 1865, in Montreal, Canada. Since 1890 they have been internationalizing their company by expanding to numerous countries all over the world. Since the establishment, Sun Life Financial has managed to diversify their activities into different industries successfully. Nowadays, Sun Life Financial is one of the strongest players on the insurance market. Sun Life Financial is still interested in setting up their business activities in new untapped markets.
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China is one of these untapped markets with great opportunities since it opened up two geographical market areas in 1992. Due to the Communist regime China was not open to foreign companies. Soon after this decision Sun Life Financial decided to open a representative office in Beijing. The Chinese government required all foreign companies to have a joint venture agreement with domestic companies in order to maintain domestic involvement in Chinese business developments. As a result Sun Life Financial set up a joint venture agreement with the China Everbright Group. The China Everbright Group has been founded in 1983 and has been reported to make vast profits through the years. Sun Life Financial now faces several dilemmas.
Among others, it has to decide on an entry strategy, choose a geographical market and watch their financial situation closely. This report will closely examine Sun Life Financials strategy to enter the Chinese insurance market. In order to come to accurate conclusions several key questions will be answered. First of all Sun Life Financial will be studied from an internal perspective by examination of their business concept, organization concept and how these are linked together. Secondly, China will be examined and assessed as a business environment. The same goes for the more specific Chinese insurance market. The report will assess whether Sun Life Financials choice to enter the Chinese insurance market is a correct one.
To conclude the report several entry strategies will be examined and assessed. Several Chinese cities will be discussed and a decision will be made regarding the best location to enter the Chinese insurance market. The joint venture between Sun Life Financial and the China Everbright Group is discussed and several advantages and disadvantages will be explained. 2.2: Problem definition and the followed procedure Two interesting problems, arising from the Sunlife Financial case, can be derived: – Whether it is the right time for Sun Life Financial to enter the Chinese market. – The best entering strategy Before discussing these two problems, we first of all look at Sun Life Financial from two strategic managerial viewpoints, a resource-based and a competence based viewpoint. Furthermore the Strategic logic, with the different elements, will be discussed look to get a better understanding of Sun Life Financials structure. To investigate whether it is the right time to enter the Chinese market a SWOT and PEST analysis are conducted. Then we looked if Sun Life Financial has already the right internal priorities, which it can use for operating in China.
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We summed up several entry strategies Sun Life Financial can use for the several cities in China and how to get or maintain good relations with the (local) government. At the end we come to a conclusion and a recommendation for Sun Life Financial. 2.3: Sun Life Financial from strategic managerial viewpoints When looking at Sun Life Financial while implementing the resource-based view, we can see that Sun Life outscores in two main aspects of the company: The question of value: Investigates whether Sun Life Financial has the resources to respond to opportunities and threats in the companys environment. We dont have the latest accounting figures available for revision, but we had the opportunity to look at a few figures dated 1999. Back in 1999 Sun Life Financial was a financially healthy company with revenues of $14.7 billion. Its net income contribution was $164 million in 1999. The cost estimation of the joint venture with China Everbright shows that Sun Life Financial had to contribute $18 million as an initial start capital and adding in year 4 an additional $3 million. When taking into account a possible risk of taking 10% less profit then expected, Sun Life Financial has to input an additional $1.5 million.
Knowing all of the above mentioned figures it could be seen that Sun Life Financial has a possible cost of $22.5 million. These costs are 13.7% of the total revenue from the 1999 figures. Of course it is a management decision of how much capital they reserve for possible environmental opportunities and threats, but concluding from the above figures we see that there is enough capital left for backing-up the Chinese operation. The question of organisation: Researches whether Sun Life Financial has the organisation, management and employees to exploit the full potential of its resources. Sun Life Financial has shown with its deployed organisation structure and management in other countries it already is a big market player that it has the potential to set the same quality standards in China. It Already provides training programs for Chinese employees, agents and managers because Sun Life Financial already noticed in an early stage the Chinese market hasnt got a lot of experience when it comes down to insurance products. Next to the fact that this selling of insurance is a combination of having the personal ability to sell with the appropriate cultural manner.
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When linking the defining characteristics of the competence-based perspective of strategic management to the organisation of Sun Life Financial, it turns out that Sun Life Financial believes China, particularly some major cities in China, has enormous growth potentials. The only condition is the Chinese government which has to adjust their regualtions concerning foreign investors. Since the financial market is relatively unknown with Chinese people, Sun Life Financial considers offering financial services as a challenge and an opportunity for value creation. In order to create market share Sun Life Financial is trying to adapt their financial services to the needs of Chinese people by developing sales training for their emplyees and Chinese distribution channels. To survive in the competitive environment they signed a joint venture agreement with the Chinese Everbright Group, which gives them a couple of advantages readily available. One can think of the existing distribution channels, high-level political contacts and the same aggressive strategy the companies deploy in their operations.. The Strategic Logic represents the shared ideas among people in an organisation about the organisations goals for value creation and the resources needed to achieve those goals.
Ways to coordinate resources in pursuing value creation goals, the distribution of value created to stakeholders have to be considerd in the strategic logic as well. Concerning Sun Life Financial all this can be related to an aggressive strategy with which they want to conquer the Chinese market. The resources needed to achieve an agressive strategy are widely known among the management. Sun Life Financial also tries to achieve superior shareholder returns while maintaining financial discipline, which is not yet stated in the goals of the joint venture with the Chinese Everbright Group. This last point could be an important matter to deal with in one if the upcoming meetings with the several board members. 2.3.1: Sun Life Financials strategic logic Applying this theory to the case one can discover different elements of the Strategic management, namely the business concept, organisation concept and core processes to put the two concepts into practice. The business concept identifies the customers to be targeted, the products to be offered and the key activities that are used to create value for the intended customers.
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Below these different key items of the business concept for Sun Life Financial will be defined. Market Preferences: Sun Life Financial was partly forced to serve customers in urban areas, since the Chinese government only opened up urban areas for foreign companies to operate in. On the other hand, these would probably be the areas where Sun Life Financial would have chosen to enter the market in case of free market entry choice themselves as well, since a bigger potential customer base can be found in these areas because of the fact that the people tend to be more westernised and richer there. Westernised people are likely to create a larger demand for insurances and other financial services. Another big target group are companies who provide several insurances for their employees. Most of the significant companies are situated in the industialised parts of China, which happen to be the urban areas as well. Current product offer: At the moment the Chinese government only allows foreign companies, thus Sun Life Financial, to be active in the protection business.
Because of this constraint, Sun Life Financial is currently limited to offer individual insurance, group life insurance and health insurance to the targeted markets in China, for which it is focussing on the higher return business lines. In the future when the Chinese government decides to open up more markets, Sun Life Financial will start to offer wealth management businesses and pensions in the Chinese markets. Especially the pensions will be interesting to offer, because the Chinese population is getting older looking at the demographical information about China. The Net delivered customer value represents the entire package of benefits and costs a customer takes into consideration when thinking about Sun Life Financials products, insurances. An important item is the product benefit of financial security in case of damage to whatever the customer is insured for. A valuable service item is the level of information and assistance the customer perceives when considering a Sun Life Financial insurance. The main costs for a customer will be the price of the service itself and the time and effort the customer will need to obtain the insurance of Sun Life financial.
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Key Activities: The most important key activity Sun Life Financial should perform well in order to achieve customer value is to convince potential customers of the value the insurance with Sun Life Financial has. This can be done through providing targeted customers with quality information and visits by sales agents. After having defined the business concept, an organization concept will have to be developed so that the business concept can be carried out. In order to launch business in China, The Chinese government forced Sun Life Financial to enter a joint venture agreement to keep domestic involvement in business expansion within the country. This would prove vital in the development of the organization concept, since it added more aspects to support Sun Life Financials business concept in China. Resources: Sun Life Financial itself has the financial strength and an effective customer service in other markets they are active in, which can be used to support the entrance of the Chinese market. They have extensive management expertise as well due to experience in other insurance markets, which again can be used in China.
The joint venture partner, Everbright, brought the essential resources of an established distribution network, local market expertise (including diminishing language barriers) and a favorable relation with the government. Everbright used to be a state-owned company in the past. Organisation Design: In general, Sun Life is organised in a regional task allocation system, dividing the company into several markets such as the Canadese, US and Japanese markets. The task allocation within the Chinese market was set up as a region as well (from the Sun Life Financial perspective), but here we can go more into detail about the task allocation between Sun Life Financial and Everbright. Within the joint venture in China, Sun Life Financial was allocated with the task of the day-to-day operations for the first five years and was obliged to provide the technologies it possessed. Sun Life Financial was allocated to provide management direction and training for sales agents as well.
Everbright had to share its distribution network, local expertise and to deal with the government to seek approvals. Authority distribution in the joint venture was equally shared between the two parties. Each party was allowed to appoint four board members. However, board level decisions have to be agreed upon by both parties parent companies, which was probably done to avoid one party obtaining more information than the other. For the joint venture to succeed it is vital the cooperation between the two parties goes smoothly and without friction. Controls and Incentives The most likely control mechanism implemented by the joint venture parties are product market controls, which indicate whether corrective actions should be taken by means of sales figures or market shares in the target markets. These controls express the level of satisfaction of customers. Another control that could be implemented is the effectiveness of the sales agents in terms of newly attracted customers.
These controls will only work when targets are set beforehand, in line with the strategic objectives. Incentives can be developed in order to reward good performance or punish bad performance. (e.g. A financial compensation for sales agents who meet the required quality level.) Now is defined how the business concept looks like and an organization concept is developed to support this business concept, Sun Life Financial had to put these concepts into practice on a sustained basis, which is done via determining the core processes of an organization. New product offer: Sun Life Financial has already decided on a new product offer for the future, which is to penetrate the Chinese market with their wealth management and pensions businesses when the Chinese governments opens up these markets for foreign companies. The target groups for these new product offers are the current working class people that are going to be too old to work in the future and rich people who have the financial capacity to invest money.
The net delivered customer value should be created in such a way that these people are convinced of the value of these products. For a major part the existing product offers net delivered customer value can be used for this purpose. Product realisation: For the distribution of these new products the existing distribution channels can be used, which are provided by the Chinese part of joint venture, Everbright. In addition, it is possible that extra sales agents have to be trained to specialise in marketing the new products. The IT-function within Sun Life Financial should be implemented in the Chinese operations as well in order to facilitate business operations. Stakeholder development: Employees, especially the sales agents working for Sun Life Financial are a valuable stakeholder for the company, since they develop essential skills to develop the Chinese market.
Therefore it is essential to train these people properly and keep their skills up-to-date, for instance in meetings where sales agents share experiences. Another major stakeholder are of course the customers. A relation with these customers should be built and maintained in order to convince customers of the value of the product and to create a good perception of Sun Life Financial. A good image can help to create customer loyalty, which will prove useful in future business development (in the wealth management and pension businesses.) The last important stakeholder to be mentioned here is the Chinese government. Sun Life Financial should try to create a better relation with the Chinese government try through their Chinese joint venture partner in order to push the government to a favorable opinion about Sun Life Financial. This might lead the government to open up other markets for Sun Life earlier.
Transformative processes: A big transformative process that probably needs to be implemented is to try to get rid of the bureaucratic thinking of the Chinese part of the joint venture. Business processes to encourage own initiative need to be set up, especially for the sales agents it will prove important to adapt to market needs. 2.3.2: SWOT Analysis When determining whether to enter the Chinese market or not is of vital importance to use every tool available to the company in trying to asses what the odds of succeeding are. A SWOT analysis is one of the tools to be used to asses the companys strengths, weaknesses, opportunities and threats. A SWOT analysis is a methodology of examining potential strategies, in this case when entering the Chinese insurance market. Since entering the Chinese market has proved to be quite risky a SWOT analysis can provide important information that can help in the decision making process. Strengths: o The most obvious and at the same time probably the biggest strength is the experience Sun Life Financial has in the insurance business. Sun Life Financial was set up in Canada in 1865. It was not long until the company began the internationalization process and entered numerous foreign markets like Nicaragua, Japan and China (until 1949, when the communist system was put into place).
Around 1900 Sun Life Financial started to diversify its investments. This experience is crucial when it comes to making management decisions and determining strategies. Furthermore, Sun Life Financial has a great deal of experience when it comes to internationalization and entering new markets.This will be of high value when entering the Chinese insurance market, since through the years the company had the chance to develop, apply and test many strategies. o A second strength is the representative office opened in Beijing in 1992. This office enables Sun Life Financial to establish a presence in China. Furthermore, this office can provide information to the international headquarter that can help determine the right approach and strategy. The representative office can help Sun Life Financial gain crucial contacts with local and national governments as well. Something that would be nearly impossible without this representative office.
o The existing joint venture agreement with the China Everbright Group can be considered a strength as well. A joint venture agreement provides all sorts of benefits for a company. In this case the China Everbright Group had to share its distribution network and its management locals expertise. Another advantage is that since Everbright is a Chinese company they have the ability to deal with the local and national governments. Weaknesses: o Sun Life Financial is a foreign company entering a new, already existing market. This can create several difficulties.
It will make relationships with local and national governments a lot more complicated, especially in China o A second weakness that has to be taken into account is that Sun Life Financial has no experience in the Chinese insurance market. This market is relatively new and dominated by Chinese insurance companies with more experience and knowledge concerning the Chinese insurance market. Obviously, they will not be willing to share any of their expertise unless there is a joint venture agreement, as in the case with Sun Life Financial. Chinese customers might be hesitant to trust a new foreign player on the insurance market in their country. It will take some time and effort to win the Chinese trust. o Sun Life Financial products and services are not fitted and adapted to the Chinese insurance market. This might create some difficulties as well. There are two options to solve this problem.
Sun Life Financial can either perform the necessary research and adapt their products and services, or they can decide ….
