vietnam national university, HANOI
school of business

Do Thi Mai
IMPROVING COMPETITIVENESS of
PETROLIMEX JOINT- STOCK INSURANCE COMPANY Major: Business Administration
Code: 60 34 05 Master of business administration thesis Supervisor: Dr. Tran Phuong Lan

Hanoi - 2011
vi

2.1.2 Non-life insurance industry in Vietnam 20
2.1.3 Key success factors in non-life insurance industry 25
2.1.4. Factors affecting non-life insurance enterprise’s competitiveness 27
2.2. Overview of PJICO 29
vii

2.2.1. Introduction of PJICO 29
2.2.2. PJICO’s business activities 33
Unit: VND billion 35
2.3. Application of models to analyze PJICO’s competitiveness 39
2.3.1. Application of PEST & Five Forces models to analyze factors affecting
PJICO’s competitiveness 39
2.3.2. Application of Value Chain model to analyze and evaluate PJICO’s
competitiveness 51
2.3.3. PJICO’s competitive position in comparison with its main competitors 76

CHAPTER 3: CONCLUSIONS AND RECOMMENDATIONS 80
3.1. Conclusion of PJICO’s Competitiveness 80
3.1.1. Summary from internal analysis and competitiveness comparison 80
3.1.2. Assess to the real PJICO’s strengths & weaknesses – the core
compentencies 85
3.2. Solutions for PJICO to strengthen its competitiveness & to achieve its
objectives 89
3.2.1. PJICO’s strategic vision and objectives 89
3.2.2. Solutions for improving PJICO’s competitiveness until 2017 90
3.3. Recommendations 106
3.3.1. Recommendations to Government 106
3.3.2. Recommendations to Association of Vietnamese Insurers 107
3.3.3. Recommendations to PJICO 108



LIST OF FIGURES

Figure 1.1: Value chain 14
Figure 2.1: Market premium and loss 2006-2010 22
Figure 2.2: Non-life insurance premiums by business lines 23
Figure 2.3: Market share of Non-life Insruance Companies 2010 31
Figure 2.4: Insurance Premium Income 2005-2010 35
Figure 2.5: PJICO’s Product Portfolio in 2010 36
Figure 2.6: Vietnam’s GDP 42
Figure 2.7: Vietnam’s savings and current account balance (in % of GDP) 43
Figure 2.8: Vietnam’s inflation and exchange rate 43
Figure 2.9: Some Vietnam’s economic figures 44
Figure 2.10: Value chain of PJICO ……………………………………………… 52

Figure 2.11: Process of new product design 53
Figure 2.12: Underwriting process 59
Figure 2.13: PJICO’s process of reinsurance 62
Figure 2.14: Survey process for non-life insurance products of PJICO 64
Figure 2.15: Claims handling process for non-life insurance products of PJICO 65

x

LIST OF ABRREVIATION

PJICO
Petrolimex joint-stock insurance company

struggling as well as fast-developing stage. Going along with this context, each and
every participant in this market needs to focus more on their real competitiveness to
achieve further growth and sustainability; and PJICO is one of these players.
Moreover, until now, there has not been a complete and thorough analysis on
PJICO’s competitiveness and the ways to improve the real competitiveness.
Therefore, the thesis is born to conduct analyses on PJICO’s competitiveness and
suggest possible solutions to strengthen its competitiveness in order to stand and
develop in Vietnamese non-life insurance market in the future.
2. Objectives
The objectives of this study can be listed as follows:
 Give the overview on concept of competitiveness
 Provide some analyses on macro and industry environment of insurance
market
 Conduct a thorough study on PJICO’s competitiveness
 Recommend the possible ways to improve the current competitiveness so
as to help PJICO be stable and progressive in the insurance market.
3. Research Questions
Based on the problem and objectives listed above, some research questions are
given and discussed:
a. What is competitiveness?
b. Method and process to analyze competitiveness of a firm?
c. The way to conduct macro and industry environment analysis of
insurance market?
2

d. The way to conduct internal environment analysis of an insurance
company?
e. What are suggestive solutions to improve the competitiveness of PJICO
to the year 2017?
Answering these above questions shall help the author fulfill and reach the

to PJICO in certain period to the near future until 2017. Thus, it may not wholly
express and reflect the business environment as the whole and in other periods.
8. Thesis Structure
The study includes four parts as below:
a. Introduction
b. Chapter 1: Literature review and overview of non-life insurance market
c. Chapter 2: Research and applications of models to analyze PJICO’s
competitiveness
d. Chapter 3: Conclusions and recommendations

4

CHAPTER 1: THEORETICAL FOUNDATIONS
Day by day, firms have been facing increasing numbers of challenges, changes and
competitors. Indeed, being successful is requiring new perspective and practice on
competitiveness.
1.1 Definition of competitiveness
In spite of its significance, the concept and definition of competitiveness is widely
controversial. Up till now, there has been no generally accepted definition of
competitiveness as well as no mutually accepted definition to explain it. In the
simplest terms, competitiveness is the ability to compete. It has become the name of
the game where economic strength of a country or an industry or a firm is described
with respect to its rivals in the global market economy, in which goods and
resources can move freely throughout territorial borders.
In other terms, competitiveness is a broad concept. According to Beckley, “A firm
is competitive if it can produce and services of superior quality and lower costs than
its domestic and international competitors. Competitive is synonymous with a
firm’s long run profit performance and its ability to compensate its employees and
provide superior returns to its owners”. The Organization of Economic Cooperation
and Development (OECD) defines competitiveness as “the ability of companies,

 Coping with Changes in Demand
 Flexibility and New Product Introduction Speed
 Other Product-Specific Criteria
1.2 Sources of competitiveness
The identification of sources of competitiveness has been supported by known
perspectives on competitiveness. According to Dr Ajitabh Ambastha and Dr. K.
Momaya, select connotations of firm level competitiveness from literature review
provide richer and comprehensive views on sources of competitiveness.
Table 1.1: Selected connotations of firm level competitiveness:
No.
Source
6

1
Brand and reputation
2
Culture and system
3
Human resources
4
Technology & IT applications
5
Value creation
6
Customer satisfaction
7
Market share
8
Productivity and new product development
9

macro environment; and Michael Porter’s five competitive forces model (Rivalry,
Potential competitors, Customers, Suppliers, and Substitute) is mostly used to
analyze industry environment.
1.3.1 PEST analysis
PEST stands for Political, Economic, Social and Technological factors. However,
the number of PEST analysis is unlimited. Other country-specific factors can be
added to perform macro environment.
 Economic factor:
 Economic growth/ growth rate
 Inflation
 Monetary policy and exchange rate
 Government intervention
 Government spending
 National income
 Unemployment rate, and others
 Political factor:
 Legal framework
 Regulations and tariffs
 Taxation
 Political stability
 Intellectual property and consumer protection, and others
 Technological factor:
 Technology transfer
8

 Impact of changes in Information Technology on economy and
industry
 New discoveries and development
 Capabilities of application and customization, and others
 Social –cultural factor:

10

However, the strength of rivalry also reflects the basis, or the dimensions on which
rivalry occurs. Once competitors compete on the same basis, it will have a major
influence on profitability.
In rivalry, price war is the destructive factor to profitability as price competition as
it helps transfer profits from an industry to its own customers. Price reduction also
interrupts buyers from product feature and service.
Price war happens if:
 Products/services are identical and for customers there are few switching
costs; thus rivals can have price cut to attract more clients.
 High fixed costs and low marginal costs, then players can cut price below
their average costs
 There are still many rooms for capacity expansion. This capacity
expansion disturbs industry supply – demand balance, then often leads to
overcapacity and price reduction.
 The product/service goes decline. This urges producers to cut price in
order to sell out product.
Not like price war, competition on other dimensions such as product feature,
customer service, delivery convenience, brand image, or promotions harm less to
profitability than price. Parallel, players can also improve value creation compared
to substitutes, or higher barriers to entry.
Another tragedy is whether rivals compete on the same dimensions. When most of
the players target to meet the same needs compete on the same dimensions
(attributes or basis), zero-sum competition is often visible, where one’s gain is
others’ loss; and then profitability is driven down.
Competition can increase average profitability or be positive when each player aims
to serve different customer segments, with different mixes of price, products,
services, features, or brand identities. Such positive rivalry can not only support
higher average profitability but also cause industry expansion, as the needs of more

entrance to the industry. The barrier is especially high if fund is required
12

for uncovered expenses. Huge funding requirements will constrain
newcomers, and vice versa.
 Incumbency advantages independent of size: existing players always
have advantages to potential entrants (such as technology, geographic
locations, brand identities, experience…). And entrants have to try to
surpass such advantages.
 Unequal access to distribution channels: Certainly, newcomers have to
seek for placement channels. The more placement channels the
incumbents keep, the harder entrance to an industry will happen.
Especially when barrier to distribution access is high, newcomers have to
cooperate to bypass distribution channels or create their own ones.
 Restrictive government policy: Government can directly influence on
potential entry through tools such as restrictions, requirements,
regulations, taxation, subsidies…
Besides barrier to entry, expected retaliation also impact on the entry or exit to an
industry. Potential entrants will be limited by expected retaliation if:
 Existing players have replied tough to newcomers previously.
 Incumbents have resources that can limit entry (such as borrowing power,
redundant productive capacity, available distribution channels…)
 Current firms can and intend to do price reduction to fill excess capacity.
 Slow industry growth makes new entrants obtain market only by taking it
from the existing participants.
 The power of suppliers
Power of suppliers is high when they can charge high prices, limit service or
quality, or shift costs to industry participants. Suppliers are powerful when:
 The supplier group is more concentrated that the industry itself.
 In terms of revenues or profits, suppliers do not depend much on the

ceiling on prices. This threat is considered high when:
 Substitutes have attractive price.
14

 Low clients’ switching cost to the substitute.
Sometimes, industry changes can make substitutes attractive. And leading
management should pay enough attention in these changes.
1.4. Models to analyze firm competitiveness
1.4.1 Value chain analysis
According to Michael Porter, value chain indicates the whole production chain from
the input to the output of final product/service by the end-user. There are two kinds
of activities in the value chain. One kind is called supporting activities, which
concerns the stream of production, where firms use its inputs, integrate and process
them, then produce or create its outputs. The other kind is called primary activities,
which are activities going across firms, where the outputs of one step become the
inputs of the next step.
Visible objectives of value chain can be mentioned:
 Optimizing the overall activities of companies
 Managing and coordinating the entire chain from initiate inputs to final
products/ services to end customers
 Developing a sustainable competitive chain
 Establishing choices and processes to support the relationships between
suppliers and customers…
Figure 1.1: Value chain

Source: www.manage12.com
15

Supporting activities include: firm infrastructure (finance, accounting…), human
resource management, technology development, and procurement.




4/5
3. Factor 3





4/5
*KSF: Key Success Factors
Strengths with marks from 3/5 to 5/5 are considered as long-term strengths; whereas
short-term strengths are those with marks from 0/5 to 2/5. In contrast, weaknesses
with marks from 3/5 to 5/5 are short-term weaknesses; whereas long-term
weaknesses are those with marks from 0/5 to 2/5.
For the core competencies extracting from the sustainable competitive advantages
model, some possible solutions would be given based on improving strengths and
enhancing weaknesses, in order to improving competitiveness of the company.
16

CHAPTER 2: RESEARCH AND ANALYSIS
APPLICATION OF MODELS TO ANALYZE PJICO’s
COMPETITIVENESS
2.1 Overview of non-life insurance industry in general and in Vietnam
2.1.1. Non-life insurance industry in recent years
 Non-life growth is still weak in industrialized countries, but strong in
Asia
In non-life insurance sector, premiums rose by 2.1% in 2010. Soft pricing still
showed slow growth in Europe and the US, while the strong economic rebound

solvency standards.
19

Table 2.3: Asia Pacific Non-life markets at a glance, 2008 - 2010

Source: Swiss Re
 Key concerns and conclusions of world’s non-life insurance:
 The increase in interest rate, assets management is still existing problem
of insurance industry
 The recovery of insurance companies’ financial states after recession
period
 There are some breakthroughs in insurance industry: risk management
focus, bancassurance
 Too many regulations that authority can apply for insurers, which can
distort development
 Different development stages and different market segments among
countries, especially Asia