A handful of foreign multinationals such as AIG, Prudential (UK), ING, and Manulife, already have a sizeable share in a number of Asian markets and generate a significant proportion of their global profit from this region. However large their current market positions, these players still only occupy a small share of the overall Asian market, but their future growth potential remains very significant. Total market share of all foreign players across Asia is 25 percent in 2008, and we see this increasing to 30-35 percent within the next 10 years.
The leading multinational players share a number of characteristics. They all have big positions in the "first generation" of Asian markets that have been open to foreign companies (for example, Hong Kong, Singapore, and Taiwan), while some have been first movers in emerging markets such as Indonesia, the Philippines, and Thailand. They have built most of their operations organically, with only a handful of acquisitions over the years. All of them have built sizeable Asian management teams which are headquartered in Hong Kong.
Landgrabbing in China and India
The top priority for these multinational leaders is rapid expansion in the large, emerging, landgrab markets, meaning China and India, which promise the strongest potential for growth over the next decades. As matters stand, their current presence in these markets is very small compared to their overall Asia business, mainly because they have been constrained by regulations. However, significant deregulation has started, and, as such, the potential for growth is now mainly constrained by their execution capacity. Large Insurance Companies In US
For example, in India the market is currently open for joint ventures to operate freely, and in China licenses for previously restricted cities are being granted at an accelerated pace. Given the large scale of these countries, the multinationals need to place their bets in a few key geographies as well as move into the vastly underpenetrated hinterland. For instance, ICICI-Prudential, through a bancassurance tie-up with 10 regional rural banks, has access to about 10,000 rural and semi-rural bank branches in five Indian states.
The challenge cannot be overstated. A few decades ago, when the first multinationals entered Asia, they were often the only ones blazing the trail and played a large role in developing the industry. They were seen as the most desired employers by agents and staff, and their brand names carried significant premium to the local companies. Today, the competitive landscape is quite different. Due to the enormous growth prospects in Asia, many more multinationals are frantically entering these markets, even if they have had very little presence in Asia before.
In China, there were 23 multinational life joint ventures as of December 2007, and many more are applying for their joint venture license today. In India, there were 18 joint ventures in operation in mid-2008, all competing ferociously across the country. For the few large multinational players who have been providing the main foreign presence in other parts of Asia for decades, the challenge they face in developing their presence in these countries is unprecedented in their history in Asia.
While the challenge is large, these large multinationals do have a significant advantage over their fellow foreign entrants: a strong Asia management bench and long experience of operating in the Asian market environment. Over the past decades, these MNCs have built up a management team that has been successfully operating across many Asian countries. Given their tested operating models and their experience in penetrating high-growth markets, they do have an advantage over less experienced peers, who are mostly betting on a few key hires, or sometimes, counting on their local joint-venture partners to develop their presence.
Capturing Share from Local Incumbents in Mature Markets Such as Japan and South Korea
Apart from landgrabbing in China and India, another growth opportunity for these MNCs is capturing share from the local incumbents in mature markets, especially in Japan and South Korea. In the past, MNCs have not been able to capture a large share of the domestic market in the life insurance business. However, these markets are now at an inflection point for the MNCs - while the local incumbents are fixing their large, legacy sales forces, new channels and products have opened up potential for other players to build market positions in these segments.
The strategy to capture share from the local incumbents is straightforward. Either these MNCs can outexecute the locals, or they need to develop niche segments. Both of these strategies can work. For example, in many markets the MNCs have an edge in recruiting, training, and infrastructure support since they are leveraging across Asia many of the best practices and tools they have developed. Furthermore, MNCs have been successful in building niche segments, such as The Hartford in variable annuities and AFLAC in medical insurance.
Protecting the Franchise in Established Geographies
The challenge in the more established geographies for the leading MNCs such as Hong Kong, Singapore, and some Southeast Asian markets, such as Thailand, is quite different. In these geographies, the large, foreign MNCs have to defend what they have already built up. In fact, because they were often first movers they have now reached the stage where they need to revitalize their organizations in the face of renewed competition. It is a role reversal - some of these MNC insurers, once seen as attackers and first movers in Asia, are now local incumbents targeted by local upstarts. Large Insurance Companies In US
In recent years, some of these MNC leaders have lost share across some of their strongest markets in Asia to local attackers and other MNC entrants. The MNCs need to ensure that the sales forces in these established countries do not get complacent and live off their accumulated book of business - that they continue to upgrade and attack the market. Product innovation is also important to keep up with developments in the market - these leading MNCs must not lose the competitive edge that made them successful in the first place.
Maximizing Synergies Across Asia
While it is not easy to capture synergies across Asia due to the differing landscapes, languages, and regulations, leading MNCs should use the advantage of their regional network by maximizing synergies across their operations. Historically, many of these companies have taken a very entrepreneurial approach and expanded quickly in each market, often as distinctive business units led by entrepreneurial managers. This business model worked well when the foreign entrant first established itself because it allowed a large degree of flexibility for country managers. But as the Asia headquarters of the leading MNCs built up, these MNCs have now developed into more complex-matrix organizations with myriad functional and geographic lines. In such organizations, some form of standardization and best practice sharing can yield important benefits.
Front-office synergies such as cross-regional training, proprietary selling tools and techniques, and common product development tools can give leading Asian MNCs an advantage over their less regional peers. Synergies across the back office are much harder to achieve, but when done properly, can yield substantial benefits. While not all processes can be operated centrally in the regional headquarters or back-office processing units, in critical areas such as underwriting, investment management, and risk management, building a strong central function can both lower cost and increase the quality of risk control in the various operating units. It is important to note though, that due to the huge differences between the various countries in Asia, capturing back-office synergies for the leading MNCs is only at an early stage. During this process, it is also common to hear lots of complaints from country managements on the inflexibility and bureaucracy from such an approach. At this stage, it is unproven to what extent these back-office synergies will give these MNCs a true cost and operational efficiency advantage over the local players.
Lastly, one of the most important advantages of these leading MNCs is their strong management team and their understanding of the opportunities in Asia. For example, leading MNCs in the region are much quicker to decide on mergers and acquisitions (M&A) opportunities, as well as capturing growing niches in certain markets compared to their less experienced peers. This strength in management is difficult to quantify - in fact, for some it may appear as a bloated regional management structure. However, when compared with other MNCs who have little local management presence in Asia, it is clear that the leading MNCs have built a much better starting position to capture the growth opportunities in these markets. To find out more, you can check out Large Insurance Companies In US.
