An Exploration of Country of Origin Effects in the Vietnamese Life Insurance Industry. Randall Shannon The University of the Thai Chamber of Commerce

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1 An Exploration of Country of Origin Effects in the Vietnamese Life Insurance Industry Randall Shannon The University of the Thai Chamber of Commerce Vu Quang Vinh The Vietnam Insurance Corporation Track 15 Services Marketing Abstract With a large population and an emerging economy, Vietnam offers potentially high growth markets for many industries. Life insurance was first offered by a state owned enterprise in 1996, but competition intensified when foreign competitors were allowed to enter in There are now five companies competing and the state owned enterprise has seen its market share reduced. Survey research was conducted to explore consumer awareness and knowledge to ascertain whether the foreign firms gain positive country of origin effects among consumers. Only 25% of respondents knew the CO for all companies, thus its impact seems minimal. Findings revealed a Double Jeopardy pattern in that users were more likely to say nice things about the company they were using. Background With a population of 81 million, 50% of which are under twenty years of age, Vietnam is a market with high potential for a variety of products and services. The insurance industry began in Vietnam in 1965 when the state owned enterprise, The Vietnam Insurance Corporation (Baoviet), began selling marine insurance. Baoviet was the first firm to begin selling life insurance when it launched the division in The market grew rapidly, but they soon faced competition when the Vietnamese government allowed foreign firms to enter in The entire industry has shown impressive growth, more than doubling each year. In 2001, market growth was at 116.8% compared with the previous year. After just over five years of operation, the life insurance industry revenues reached $US 300 million in 2002, as shown in Figure 1. Due to stable growth and low inflation in the economy, the improved per capita income helped drive higher demand for life insurance. The premium income was at 0.55% of its GDP in 2001 (Truong 2002); still much lower than the rate of 2-4% of the ASEAN countries and 10-12% of developed countries. Policies per population were roughly 2% in the Vietnam market; while it was 22% in China, and nearly in Japan (Savercool 2001). The figures promise that Vietnam will be a large potential market, and therefore, the emphasis of the industry's marketers would be on how they might best gain market share. The companies presently have been challenged as to how to survive and succeed, or at the very least, maintain their position against the competition among the other insurers. The rapidly increasing market share of foreign companies is a big threat to the domestic firm, Baoviet. While all firms are gaining market share due to the growing market, the domestic company has effectively seen a reduction of a large 2278

2 portion of their market share in the past two years due to gains made by foreign firms. As the largest competitors are foreign owned, a potential threat exists in terms of country of origin (CO) effects. The CO effect can be defined as any influence that the country of manufacture, assembly, or design has on a consumer s positive or negative perception of a product (Rosler 1999). A company competing in global markets today may manufacture products worldwide, thus when the customer becomes aware of the country of origin there is the Figure 1: Premium Income of the Vietnam Life Insurance Industry (US$ 000) Total Premiums 350, , , , , , , , ,211 50, ,118 13,290 32, Year Source: The Department of Life Insurance Development (Baoviet) possibility that the place of manufacture will affect the product or brand image. There is substantial evidence attesting to the impact of CO on consumer evaluations and choice of products (Teas and Agarwal 2000; Al-Sulaiti and Baker 1998; Johansson 1989). However, this is based on work done regarding products, not services. CO has been found to impact a brand s symbolic or status enhancing traits, as well as quality in developing countries such as China (Schroath, Hu and Chen 1993; Sklair 1994), India (Cordell 1991), Thailand (Amine and Shin 2002) and Vietnam (Schultz, et al. 1994). Beyond quality, it has been found that foreign products may be preferred because they are non-local (Batra et al. 2000), perhaps a form of xenomania, or attraction to foreign things. Consumers may use country characteristics to infer product quality such as economic development, political climate, perceived similarity with the source country's belief system, and technological aspects (Cordell 1991, 1992; Han 1990; Martin and Eroglu 1993). Verlegh and Steenkamp (1999) found that differences in economic development are an important factor underlying the country of origin effect. Brand Familiarity and Salience 2279

3 Country image can be developed through consumers' familiarity with the products (Roth and Romeo 1992). Familiarity could link to product-related knowledge and experience. Alba and Hutchison (1999) defined brand familiarity as the number of product- related experiences, and previous ownership was used to measure familiarity of a product. As the industry is young in Vietnam, consumers would have less opportunity to gain familiarity through experience, thus awareness might be a better measure, along the lines of the mere exposure effect posited by Zajonc (1968), finding that respondents expressed more liking for things they were familiar with, which has been validated cross culturally (Smith and Bond 1993). This has some link with the concept of salience as described by Ehrenberg et al. (1997). He argues that salience has a great influence on consumer decision making, and thus advertising repetition creates brand familiarity more than brand conviction. Salient, or popular brands tend to be well-liked by both users and non-users. Less popular brands with lower market share, or "small" brands, will not be as well liked by users or non-users. This is known as Double Jeopardy and is a pattern observed in Dirichlet theory, which states that market share can be used to predict both usage and attitudes (Ehrenberg et al. 1990; Ehrenberg and Uncles, 1999). This is potentially an important point, as it would imply that the large and long established domestic firm might get higher scores due to market share rather than any true CO effect. However, there could still be an impending threat in that the foreign firms spend more money on advertising, thus are increasing their salience as well as their market share. If consumers perceive foreign firms positively on the basis of CO, it would be a dangerous signal for the future of the domestic firm, and they would want to consider strategies with that specifically in mind. However, if there are found to be no CO effects, then it the issue rests upon strategy, salesperson training and staff development, and traditional aspects of competitive marketing. Methodology A questionnaire was designed in English based on constructs in the academic literature to the extent possible using 5-point Likert scales ranging from (1) not important at all to (5) very important. It was translated into Vietnamese and back translated into English by two bilingual individuals whose mother tongue was Vietnamese. A pilot survey was first tested with a dozen respondents and tested for validity, then 315 face-to-face interviews were conducted in Vietnam in May-June Due to the mixed sample, a combination of sampling techniques was used. Because non-users are prevalent, simple random sampling was used in an attempt to get approximately 100 non-users for analysis. By communicating with the Secretary General of the Association of Vietnamese Insurers, it was possible to obtain a sampling frame of users from all companies combined. To allow for samples large enough to compare for each individual company, quota sampling was used in conjunction with random sampling to get at least 30 users of each insurance firm. The final sample was comprised of 218 users and 97 non-users of life insurance products. Respondent demographics included 47.65% men and 52.4% women. ANOVA was used with SPSS to analyze the data. Findings Baoviet and Prudential received the highest rate of spontaneous awareness. These high rates of awareness can partly be explained by approximately two-thirds of the respondents being users. Also, the pattern of Double Jeopardy from Dirichlet theory 2280

4 may apply, as Baoviet and Prudential accounted for 80 percent of the market share in The underlying issue of this research, however, is whether or not consumers know the origin of the companies, and if so, whether it has a positive or negative impact on their attitudes. Awareness of the country of origin for foreign firms seems relatively low as only 25% of respondents accurately identified the CO for all five companies and users were found to be more knowledgeable than non-users. Table 1: Year of Entry, Ownership, Market Share and Awareness for Life Insurance Firms in Vietnam Company Vietnam Insurance Corporation (Baoviet) Prudential (UK) Life Insurance Company, Ltd. American International Assurance Company (AIA) Manulife Insurance Company Baominh CMG Life Insurance Company Ownership (Vietnam) (The UK) (The USA) Year of entry Market share in 2002 Company Awareness (n=315) % 292 (93%) % 254 (81%) % 211 (67%) (Canada) % 154 (49%) (Vietnam 50%- Australia 50%) % 186 (59%) Respondents were asked using 5 point Likert type scales to what extent they agreed or disagreed about the statements regarding the life insurer's attributes (quality, service, reputation, prestige, and stability). The results were mixed overall, as foreign insurers got higher scores for "high quality" and "good service", while Baoviet was perceived as more financially stable, more prestigious and more trustworthy, as shown in Table 2. Table 2: Baoviet Versus Foreign Insurers Attributes Attributes Baoviet Standard Deviation Foreign Standard Deviation insurers Have high quality Good service Good reputation Prestige Are financially stable Trustworthy This may be explained by foreign companies offering better training and compensation for salespeople, thus providing better service. Many Vietnamese, especially older consumers and those living in the countryside rated the domestic firm positively. The state owned company is perceived as having "stability" among the majority of the Vietnamese people. This might result from the long existence of the Awareness of CO 60% 57% 37% 29% 2281

5 state's dominance in many fields, thus forming the Vietnamese culture of preferring what is operated by the state owned company, it could be a form of patriotism, or could also be a form of Double Jeopardy because of having high market share. However, when analysis was performed among users based on the company used, it was found that respondents ranked the firm they were using highest, as shown in Tables 3 and 4. Table 3: Differences Found Between Baoviet s Users and Foreign Insurers Users Regarding Baoviet s Attributes Attributes Baoviet's users Foreign insurers' users F value Sig. (n= 102) (n = 116) Have high quality Good service Good reputation Prestige Are financially stable Trustworthy Thus, in either case, the users seem to prefer the company that they had bought life insurance from. The results are consistent with the underlying tenet of behaviorism, which explains that behavior is a factor driving consumer attitude, (e.g, "I use it, therefore it is good"). This again could be exhibiting a Double Jeopardy pattern, as the domestic firm has the largest market share, overall it should receive the most positive responses. That the foreign firms are seen as offering better service and quality is potentially a danger sign for the domestic firm. Table 4: Differences Between Baoviet s Users and Foreign Insurers Users Regarding Attributes of Foreign Insurance Companies Attributes Baoviet's users Foreign insurers' users F value Sig. (n= 102) (n = 116) Have high quality Good service Good reputation Prestige Are financially stable Trustworthy If viewed using the Dirichlet model, the domestic firm has the highest market share, thus should have the highest scores for all attributes. If it is truly a difference in the offerings, it might be explained by the foreign firms having a more systematic training system and thus better trained sales staff. Either way, this can be seen as a potential danger for the domestic firm, as it has been losing market share to the foreign entrants. Thus, the domestic company should work to strengthen its services and the foreign companies should increase customer's trust regarding their financial competence, which may come about partially by increasing salience, or as a side effect of advertising and brand building. As consumers gain more knowledge the issue may gain increased relevance, thus further research could be conducted on CO effects as the market matures. 2282

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