What lessons can Asian insurers draw from western MNCs in the pursuit of overseas growth?
By Dr Gordon Perchthold, Associate Professor of Strategic Management (Practice) at Singapore Management University
Western multinational insurers (Western MNCs) began their second wave of internationalisation into Asia during the mid-1980s. Detailed academic research has uncovered a pattern over these three decades in which western MNCs make commitments to one or more countries in Asia, only subsequently (typically with the appointment of a new group CEO) to redirect their focus; reduce their investment level; or even divest all or part of their operations in the region.
Some of this is understandably the result of market conditions and business priorities changing over time. However, for many MNCs, with the next change of group CEO, because the sizeable opportunity of Asia remains, commitment levels return. Only about 20% of western MNCs have demonstrated sustained commitment to Asia across multiple decades. In the life sector, Prudential and New York Life represent the two extreme ends of the commitment spectrum.
So, can Asian-based insurers embarking on their own internationalisation learn from the experiences of their western counterparts? And can western MNCs learn from their actions as well?
Stay close to home
Firstly, research shows that MNCs are most successful when expanding into countries within their own region. Whether measured by revenue, assets, or employees, with only a few exceptions, MNCs remain extensively ‘home region-centric’ rather than global. The challenge of ‘distance’ between countries, not just geographic, but also, differences in cognitive and cultural tendencies, orientation of the nation-state, institutions, business systems, intermediaries, type of market economies, and maturity of those economies, are a Rubik’s Cube of factors to adjust for when adapting a firm’s home country business model.
Distance should not be underestimated as a factor for Asian firms internationalising within Asia where countries are more diverse than in the west. Such distance is a conundrum for western MNCs, for given the greater population and GDP per capita growth rates in Asia, western MNCs will naturally decline relatively unless they figure out how to overcome ‘distance’.
It took many years, even decades, to build a strong business in your home country. Why would it not take as long or longer to build equally strong businesses across foreign countries whose environments are less familiar? Certainly, it is likely to be longer than the five or so years of a western group CEO’s tenure or the timeframe that most western investors are willing to wait.
It is critical to have governance structures in place that take account of the time and financial commitment necessary when venturing outside the home country. Particularly for longer-tailed insurance businesses, capital must be patient, wellinformed, and appreciate the volatility of diverse countries.
Enhance headquarters’ absorption of foreign knowledge
Home country stakeholders can only become well-informed if headquarters absorbs the knowledge emanating from Asia. Personnel in headquarters must be motivated to seek, accept, and absorb what is often non-conforming, potentially confronting, knowledge of operations in distant, occasionally volatile, countries.
This requires the development of trusted relationships, the use of rich interactive communication channels, regular exposure so knowledge continually builds on itself, and sufficient diversity in headquarters in order to recognise the value of disruptive knowledge rather than succumbing to group think. These are the same requirements for firms seeking to become dynamic innovators.
Configuring international structures of an MNC to facilitate knowledge flows
The components that make up the MNC’s international structure not only accomplish task objectives but also influence the ease of knowledge flow towards headquarters. MNC structures are heterogeneous and so much research data and analysis has been necessary to isolate the various components and their influence on knowledge transfer.
Common structures are a matrix, geographic (e.g. Asia regional HQ), or international division. Matrix structures are best at facilitating knowledge absorption by headquarters. Other components with different permutations include the source of appointed leadership, incentives to promote international experience among the top management team; approach to leadership development; how the MNC’s business practices are codified and disseminated; methods and direction of internal communications; and approach to decision-making across the MNC.
Asian-based insurers can learn from the successes and mistakes of their western counterparts. Arguably, western MNCs have even more to gain from a self-reflection of their internationalisation practices over the past three decades.