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... to teach and inform the Chinese public about their existing products. The latter option is probably the most expensive of the two but creates a great opportunity for Sun Life Financial to differentiate themselves from the rest of the players on the Chinese insurance market. Opportunities: o With a population over 1. 3 billion people, China is the largest country in the world. Naturally, this offers a great opportunity for Sun Life Financial.
All these people can in the future be prospective customers. o China has an extremely fast growing economy that is attractive to many foreign companies. Even more important to Sun Life Financial is the fast growing Chinese insurance market. This means numerous opportunities for Sun Life Financial to gain a substantial market share in the insurance market in China can be observed, since China is an untapped market with endless possibilities.
o Social security is decreasing in China. The state no longer provides for its citizens throughout their lives. This offers an opportunity for Sun Life Financial to replace the function the Chinese state has fulfilled all these years. The people of China have to arrange their own future security now and Sun Life Financial offers the products and services that fit these criteria. Threats: o Even nowadays China suffers from a high level of bureaucracy. Bureaucracy is a large, complex administrative structure that can obstruct Sun Life Financial in obtaining licenses and in the products they are allowed to offer on the Chinese insurance market.
Especially foreign businesses will have to face the Chinese bureaucracy when entering the market. The problem with bureaucracy is that it is almost impossible to avoid. It will cost Sun Life Financial extra funds and time and it should therefore always be taken into account when strategies are determined and planned. o China is a country in which corruption and piracy still exist.
Research shows that the main challenges Americans face when doing business in China are: Red Tape & Bureaucracy (67 %) Human Resources (56 %) Transparency (43 %) Bankruptcy (42 %) Permission to enter market (38 %) This study shows that two out of three American companies that do business in China face red tape and bureaucracy. The study also shows that companies have difficulties finding adequate staff. Furthermore it shows that about 40 per cent will face problems with regards to transparency, bankruptcy and gaining permission to enter the Chinese market. o China is one the largest countries in the world.
Within China itself regional differences are great. This makes it hard for Sun Life Financial to apply the same strategy throughout the country. China is well-known for its large cities like Beijing and Shanghai but also for its large rural areas. Sun Life financial will have to take this into account in order to be successful throughout the entire country. It will also have to put extra effort into reaching all the public, including the farmers who live in the rural areas. o When in a joint venture agreement it is not only agreed to share expertise but also to share risk.
More aspects will have to be shared like profit, decision-making etcetera. When two parties are involved in the decision-making process it will be slowed down and be a more complicated process. Naturally, there is always a possibility that the parties do not agree with each other. 2. 3. 3: PEST Analysis A PEST analysis is a scan of the external macro-environment in which Sun Life Financial operates. It is expresses in the factors Political, Economical, Social and Technological. It can be used as part of an environmental scan. In this case it will be used to analyze China and the Chinese insurance market.
Political: On October 1, 1949 Moa Zedong proclaimed the Peoples Republic of China in Beijing. Chinese communist leaders installed a new political and economical system after the Soviet system. According to the CIA communism is a system of government in which the state plans and controls the economy and a single - often authoritarian - party holds power; state controls are imposed with the elimination of private ownership of property or capital while claiming to make progress toward a higher social order in which all goods are equally shared by the people. The Chinese Communist Party is the sole player in the political field led by president Hu Jintoa.
Eight other small political parties exist, however these are all controlled by CCP. The Chinese Government has always been subordinate to the Chinese Communist Party (CCP); its role is to implement party policies. The primary organs of state power are the National People's Congress (NPC), the President, and the State Council. Under the Chinese Constitution, the NPC is the highest organ of state power in China. It meets annually for 2 weeks to review and approve major new policy directions, laws, the budget and major personnel changes. These initiatives are presented to the NPC for consideration by the State Council after previous endorsement by the Communist Party's Central Committee.
Although the NPC generally approves State Council policy and personnel recommendations, various NPC committees hold active debate in closed sessions, and changes may be made to accommodate alternate views. When China became a member of the World Trade Organisation the government was forced to completely open up the Chinese market by the year 2005. This would result in the freedom for foreign companies to operate in any city or state throughout China. However, the Chinese government tries to control as many aspect of international trade as possible resulting in many restrictions and regulations. Economical: As of 1978 the Chinese economy started to become more market-oriented because of increasing influence of non-government organisations and individuals. The authorities changed their approach and permitted small enterprises and allowed international trade and investment.
The result was a quadrupling GDP since that year, 1978. However, the purchasing power per capita remained low; 10 per cent of all citizens lives below the poverty line. Year Economic Growth Rate 1995 10. 2 % 1996 9. 7 % 1997 8. 8 % 1998 7. 8 % 1999 7. 1 % 2000 8. 0 % Source: china today. com Economic development is proceeding much more rapidly in coastal and urban areas than in the rural hinterland, widening regional economic disparities. State-owned enterprises dominate China's economy. Reform of inefficient companies is a high priority, but could boost unemployment.
Industry accounts for nearly half of national output, and service sectors (including commerce, construction, and transport) about one-third. China has attracted $ 177 billion in foreign investment since the late 1970 s, and hopes to attract much more in the near future. China's State Statistical Bureau reported $ 42. 35 billion in direct foreign investment in 1996, up 12. 2 % over 1995 investment. Major investors include Japan, the United States, Singapore, and Taiwan. Industry and commerce constitute the basis of the Chinese economy, but agriculture employs the majority of the labor force. About 60 % of the labor force is engaged in agriculture and forestry.
About 25 % work in industry and commerce, 5 % in construction and mining, 5 % in social services, and 5 % in other areas. Important Chinese industries include textiles, garments, machinery, cement, iron and steel, coal, and oil. Women comprise over 40 % of the labor force, but this excludes the large number of women engaged in agricultural and household work. Social: Both in population and in surface China is an enormous country. This leads to many geographical differences. For instance the country knows may different languages; Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect), Yue (Cantonese), Wu (Shanghaiese), Mini (Fuzhou), Milan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects and minority languages.
China also knows many different ethnic groups; Han Chinese 91. 9 %, Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, By, Korean, and other nationalities 8. 1 %. Since the country is officially atheist there are not many different religions, small minorities are Buddhist, Muslim or Christian. Over 70 per cent of the Chinese population is aged between 15 and 64 years. Around 21 per cent is aged younger and eight per cent is aged older than this majority group. Chinas one-child policy was established in 1979 to limit the fast paced population growth. It limits couples to only have one child.
Fines, pressures to abort a pregnancy, and even forced sterilization punished a second or subsequent pregnancies. However, exceptions to the rule exist, because it has always been restricted to ethnic Han Chinese living in urban areas. Citizens living in rural areas and minorities are not subject to the law. However, the rule has been estimated to have reduced population growth in the country of 1. 25 billion by as much as 300 million people over the past twenty years. This rule has caused a disaster for female infants; abortion, neglect, abandonment, and even infanticide have been known to occur to female infants. The result of this family planning has resulted in the disparate ratio of 118 males for every 100 females (105 males are naturally born for every 100 females).
To reduce such differences, China has recently allowed some parents of a female to try for a male as their second child. Now that millions of sibling-less people in China are now young adults in or nearing their child-bearing years, a special provision allows millions of couples to have two children legally. If a couple is composed of two people without siblings, then they may have two children of their own, thus preventing too dramatic of a population decrease. Many years after the rule has been established China finally realizes and faces the true consequences. Technological: Under the planned economy science and technology had contributed greatly to national construction, but were separated from the economy.
In 1981 it was determined that new policies for developing science and technology in the future should stress their service to the modernization construction and that progress of science and technology should go hand in hand with the economic and social developments. China adopted a series of major measures to coordinate the development of science and technology with the economy, and marked results were made in economic, scientific and technological fields. Since this decision China has always been one of the world leaders on the field of science and technology. Products are cheaper and readily available to the population living in the urban areas. China is one of the nations most prepared for the new information technology era.
A high percentage of all people living in the cities have access to internet, enabling them to use these new technologies like internet banking and online shopping. This technology offers firms new manners to communicate with their (prospective) customers. The newest, innovative products will reach China first. 2. 3. 4: The Attractiveness of the Chinese Insurance Market: Sun Life Financial decided to internationalism their business into China, because of the fact that the Chinese insurance market is attractive. The market has just recently opened up for foreign companies, leading to a big market potential. Other reasons for the attractiveness are Chinas large population and Chinas growing economy. However, the Chinese insurance markets has negative aspects as well, including a high level of bureaucracy and severe restrictions on the types of products and services that are legally allowed to offer.
With 1. 3 billion people China has the worlds largest population, which is about 20 per cent of the entire global population. As a result of the Communist system put into place in 1949, China remained an untapped marketplace throughout the years. Naturally, this applies to the Chinese insurance market as well. Since the insurance market is opened for foreign insurance companies to enter, companies like Sun Life Financial would like to establish market presence.
Chinas economy has been growing rapidly over the past years and economists predict this growth will continue in the near future as well. Moreover, the Chinese life insurance market is considered to be one of the insurance markets with the largest growth rates in the next 10 years, which is due to low penetration in the insurance market. The Chinese insurance market belongs to the largest growing markets existing, offering great opportunities for Sun Life Financial. Since the communist regime was put in place China has been known for its high levels of bureaucracy. In practice it could means that licenses and permits needed to operate on the Chinese insurance market can take a lot of time and effort for a foreign company like Sun Life Financial to obtain.
However, as mentioned in the PEST analysis, China has joined the World Trade Organization (WTO) and the high level of bureaucracy is expected to decrease. This applies to the high restrictions on the products or services allowed to be offered as well, meaning that in the future the government will have a decreasing influence on Chinese business. The Chinese insurance market is attractive to foreign companies like Sun Life Financial because of the endless opportunities it offers, since high profits and market shares are relatively easy to obtain compared to other markets. If Sun Life Financial invests enough funds in its joint venture agreement, Everbright will in return provide their expertise on how to avoid and deal with the local and national authorities. 2. 3. 5: Strategies and city choice Generally, Sun Life Financial bases their strategy on the following points: 1. Aggressively expand the wealth management business. 2. Strategically grow higher return protection business lines. 3.
Achieve superior shareholder returns while maintaining financial discipline. 4. Leverage strong brands across multiple product offerings. 5. Capitalize on distribution strengths 6. Pursue expansion in key strategic markets. It needs to be examined whether the decision to enter the Chinese market contradicts or coincided with Sun Life Financials overall business strategy.
China was one of the countries on the list of expanding their business in Asia to, but when trying to do so they had to adjust their aggressive approach into a more subtle one, due to the Chinese government. The Chinese government has not opened its wealth management business to foreign companies so far. The second internal strategic priority can be preserved when trying to enter the Chinese market in the growing higher return protection business lines, which Sun Life Financial is focussing on in China at the moment. Concerning Sun Life Everbright, as the joint venture in China is called, Each partner would owned 50 %and contribute $ 18 million as an initial capital start-up. In year four, it was predicted that each partner would need to contribute an additional $ 3 million. Sun Life Financial projected that the operation would show a profit in seven years.
In the circumstance that profits were 10 % lower than expected, both sides would need to provide an additional $ 1. 5 million in capital, with the first profit year being pushed back. This meant that expanding their business into China would conflict with the third internal strategic priority. Leveraging strong brands across multiple product offerings would coincide when operating in China, since the Chinese insurance market is divided into life insurance and general insurance. Life insurance was again divided into group insurance or individual insurances. six general classifications for insurance products in China can be identified, wich are personal life, property, liability, agricultural, reinsurance and foreign insurance.
This would give enough options to coincide with the fourth internal strategic priority. When operating in China the sixth internal strategic priority would definitely coincide, because Chinas life insurance market is widely considered to be one of the insurance markets with the largest growth rates over the next 10 years, due to low penetration. This means a lot of opportunities for Sun Life Financial to pursue expansion within this key strategic market. three different entry strategies can be outlined for Sun Life Financials entry into China. The Minimalist approach: This approach calls for the selection of a less advanced city, focusing on traditional insurance products and containing the capital investment. The idea with this approach is to maintain a presence and shift gears when restrictions are dropped and the marketplace becomes more favorable.
The advantage of this strategy is that awareness among potential customers of the existence of a company for providing traditional insurance products can be created. Once the restrictions are dropped you immediately start in a favorable position. The disadvantage is that profit will only be gained when the restrictions are dropped and when they do, one will still be located in a less advanced city, where people have less capital to spend. The Full Speed development: This strategy involves the selection of a high-growth city, building a large agency force and developing a full portfolio of products in the eventuality that regulations would change. The advantage of this development is that one will be located in a high-growth city and when regulations change, provides the immediate start in a good position, since the city has high population and a high GDP rate.
The disadvantage is that a lot of money will need to be invested in building a large sales force and develop a full portfolio of products without having the certainty regulations will change. The Model Citizen: This plan calls for selecting a city based more on co-operation, with a focus on building government relations. This option also calls for capital containment and the slow development of new insurance products beginning with the traditional portfolio. This is the safest option when looking at these 3 strategies, because initially not too much money is invested, but awareness and relations are built, as well as beginning with the traditional portfolio. Six cities, read markets, were about to be opened for foreign companies. Dalian and Chongqing are the traditional domestic players, Tianjin a central player and Shanghai, Shenzhen and Guangzhou the leading foreign players.
Comparative Data - Six Cities Number of Total GDP GDP% GDP per Capita Population Households (RMB billions/ Increase over (RMB ' 000 s/ City (in millions) (millions) US$ billions) Previous Year US$ 000 's) Chongqing (+ region) 30 2, 9 143, 5 / 1 Shanghai 14 4, 6 368, 8 / 44, 3 10, 1 26, 3 / 2, 5 Tianjin 9 2, 8 134, 1 / 16, 2 9, 3 14, 9 / 1, 8 Guangzhou 6, 6 1, 9 184, 4 / 21, 1 13 28, 0 / 3, 8 Dalian 5, 4 1, 7 93, 5 / 11, 3 12, 2 17, 3 / 2, 1 Shenzhen 3, 8 0, 3 128, 9 / 15, 5 14, 5 34, 0 / 4, 1 Average 11, 5 2, 4 175, 5 / 21, 1 11, 3 20, 8 / 2, 5 Considering the Comparative Data for all 6 cities one can discover many differences among the cities. Population is the highest in Chongqing, Shanghai and on a third place Tianjin. But when looking at the number of households it is the highest in Shanghai and again high in Chongqing and Tianjin. The total GDP is the highest in Shanghai and this time Guangzhou on a second place. The GDP per capita is the highest in Guangzhou, closely followed by Shanghai. However, due to government relations and market attractiveness, Sun Life Financial had to narrow these 6 cities down to Shanghai, Guangzhou and Tianjin in order to start its insurance sales operations.
Comparative Data - Three Cities Life Insurance Retail Sales % of Salary % of Salary Average Premium Consumer Spent on Life Spent on Salary (RMB) Spending (RMB) Good (RMB) Premiums Retail Sales Shanghai 11, 425 478 1, 325 4 % 12 % Tianjin 8, 238 188 535 2 % 6 % Guangzhou 13, 118 384 803 3 % 6 % Sun Life Financial had hired a consulting company to do a complete investigation on the 3 chosen cities. As a result Shanghai had the largest market and the strongest market growth. Along with Guangzhou, both were estimated to lead Chinas economic growth, while Tianjin would be in line with the national average. Shanghai and Guangzhou were equal in terms of market development and Guangzhou was the clear leader for purchasing potential. The government was seen to periodically loosen and re-tighten its controls, making for uneven operating conditions. The government had made progress but was not always successful at reducing corruption in business nor keeping its state-owned enterprises in check.
Many foreign business people were critical of China for its level of bureaucracy in obtaining the appropriate licenses and being heavily restricted as to the types of products and services allowed to be offered for sale. As well, corruption and piracy still existed. As of early 2000, China was not yet a member of the World Trade Organization (WTO). The WTO comprised 145 countries, with the responsibility to set standards for international trade and commerce. Through its pending membership, expected to take place in 2001, observers felt that China would be further opened up, where potential growth could be harnessed. However, the membership also meant pressure on the countrys tight political controls.
Chinas entry into the WTO called for the government to completely open up the market by 2005, permitting foreign companies to operate in any city or province. Some speculators believed that the Chinese government would ultimately control that decision, even after 2005. 3: Results, conclusions and recommendations looking at the results from investigating the potential cities to operate in China, we choose Guangzhou out of the three final cities. Although Guangzhou is second largest, after Shanghai in several aspects we made this decision. We believe a market niche for Sun Life Financial cam be for here, since other international insurance companies will not be likely to take a similar decision to start up their company or joint venture in Guangzhou. It is most likely the government is most willing to accept them in Shanghai. Financial figures, like the average salary and GDP, dont differ a lot considering Guangzhou and Shanghai.
The only difference could be the local governmental support, however, Sun Life Financial is already active in China with a representative office in Beijing, which has built up a joint venture agreement and some political contacts giving Sun Life Financial a huge advantage concerning perception by the government. Since Sun Life Financial wants to aggressively expand the wealth management business and wants to achieve high profit and high returns for shareholder. We expect this to happen most likely and most easily in Guangzhou. Other international financial companies who want to enter China will probably enter in Shanghai, because it has the least regulations and therefore higher expectations. Following from this we expect a high competition in the financial sector in Shanghai and a better investing environment for the region of Guangzhou and herewith we advise Sun Life Financial to start in Guangzhou. 4: Bibliography The New Strategic Management Ron Sanchez, Aim Here web web white paper of 2000 issued by China American Merchants Association
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