Mnchener Rckversicherungs - Gesellschaft Company Innovation Analysis - Case Study Example

An overview of the internationalisation strategy of Münchener Rückversicherungs-Gesellschaft

 Münchener Rückversicherungs-Gesellschaft (Munich Re Group) is one of the largest reinsurance companies in the world. The company’s journey to prosperity began in 1880 when three investors Carl, Wilhelm and Theodor decided to pool their resources together and establish the corporation. The company has an organized internationalisation that has seen it record promising returns for a long period. In 2015, the company had an equity amounting to €31 billion and premium income totaling to €50.4 billion. In addition, the company’s consolidated results for 2015 amounted to €3,122 million. The company’s performance is an attestation internationalisation benefits (Ulst, 2005).

In its internationalisation strategy, the company targets large economies such as Germany, North America, and the United Kingdom (Avery, 2005). Germany forms the largest market for the company and represents about 37.2% of the total market area. The North America is another important target for the company. North America constitutes about 26.1% shareholders of the company. The United Kingdom has also emerged as a country of interest since the number of the company’s shareholders in the country has increased to about 12.9%. Other areas that the company focuses on include Africa, Latin America, and Asian.

The company has put significant efforts into developing its operation in Europe since the European countries have the largest market potential for insurance services. In essence, Europe is among the regions of the world that are experiencing rapid industrialisation and massive investment in high-risk businesses. Therefore, the region is in high demand of both insurance and reinsurance services since the increase in investment opportunities in high-risk business presents many financial uncertainties for investors (Heinecke, 2011).

The North America is composed of industrialized states. Essentially, Canada and the USA have big economies that involve a variety of economic activities. For instance, the USA is the world’s superpower, and this shows why North America is a major area of interest for the company. It is imperative to recognise that investors will always want to invest in areas that promise high returns, investing in the world’s super power is inevitable since it enhance the security of returns and the profits are admirable.

World regions such as Asia, Latin America, and Africa are of considerable interest because they have high potential to grow. For instance, Asia and Africa are rich in industrial resources which mean that they have great potential of seeking reinsurance services. In essence, the Company is quite dynamic in its operations and focuses on investing in areas that promise reputable returns either in the present or future times. The need for insurance services in developing nations has been on a rise in the past few years. The company has realized this and focuses on expanding its services in such areas.

Apparently, the company has about 200,000 shareholders, with instructional investors owning up to 74.7%. Other owners of the company include private shareholders, investment companies, insurance companies and banks. The company has adopted a comprehensive structure that allows internationalisation of its operations to different parts of the world. One of the enterprise’s major achievement is the establishment of two subsidiaries in America to attain a global coverage. The two subsidiaries are Munich Reinsurance America and America Insurance Group.

Analysis of parent-subsidiary network

Degree

The parent and its subsidiaries are controlled from one head office based in Germany. In other words, there is a unity of command between the parent and the subsidiaries. The company started in Germany with the purpose of providing insurance and reinsurance services to the domestic market. The provision of these services in the domestic market exhibited reputable outcomes that attracted investors from different parts of Germany. The continued investment by individuals, institutions, and banks increased the company’s resource. With time, the company accumulated significant amounts of resources such that it could afford to cover high-risk businesses. Eventfully, the company became too to attract the attention of investors from different parts of the world. This influenced the company’s management to consider entering the international market and restructured its operations so as to fit in the global marketplace. The subsidiaries were established to address insurance-related issues in the respective host countries (Plunkett & Plunkett Research, 2008).

Betweenness

The modern technology and the proficiency of the company’s management have facilitated the success of its internationalisation strategy. In essence, the company has fully incorporated the modern technology in its day to day operations to enhance effective communication between the subsidiary and the head office. For instance, the use of computers and the internet facilitates instant communication among the various departments of the company and between the company and its subsidiaries (Borscheid, & Haueter, 2012). In addition, the management staff of the subsidiaries can communicate effectively with the management staff of the parent company anytime a need arises. The company uses the internet and other avenues provided by the modern technology to advertise its services to its various target markets. In essence, the company has a website when the information regarding its operations and the kind of services it provides can be accessed. In addition, the company has an online support staff whose responsibility is to ensure that any questions by clients, potential customers or members of the public are addressed appropriately.

Closeness

The company has structured its operation in such a way that they are closely related to ensure efficiency and easier management. In addition, the parent maintains a close supervision to all the subsidiaries to ensure the quality of services produced is high. The company focuses on the reinsurance business, primary insurance business, asset management and health insurance. The reinsurance business of the company involves covering insurance companies from different parts of the world. The company assumes the risks of other insurance companies and provide advice on insurance business. The company has over 50 business units in different parts of the world (Kilpatrick, 2000).

The company primary insurance services under ERGO Insurance Group. EGRO is involved with writing the life and health insurance, property and casualty insurance. The primary insurance service is available in Germany other countries in the world. Primary insurance is offered in about 30 countries and covers over 35 million clients who include insurance subsidiaries and individuals. The company started offering asset management services in 1999. The purpose was to increase its investments and that of the third parties. The asset management of the company amounts to over €227 billion. The company has largely benefited from asset management since monitoring of resources has been made easier. In essence, potential investment opportunities are easily identified and, therefore, the company will enjoy a long life of prosperity.

Eigenvector

The Eigenvector shows how different variables are related. In essence, the eigenvector can be used to evaluate the contribution of the company and its subsidiaries to job creation in their respective host countries. Essentially, the company has offered jobs to many people both in the parent location and the subsidiaries. The salaries of the company’s employees constitute the bulk of expenses. However, the performance of the employees produces sufficient revenues that cover the expense and leave the company with attractive profits. The financial results of the company in the recent parts reveals that opening of subsidiaries and other business units across the world has been very profitable to the enterprise (Churchill, C., & International Labour Office, 2006).

Role played by subsidiaries

Location

Hitt, Ireland & Hoskisson (2007) states that the subsidiaries play an important part in the success of the parent company. For instance, the location of a subsidiary determines the nature and number of clients to attract. Subsidiaries established at strategic locations that are easily identifiable and accessible by the target clients generate higher revenues compared to those that ignore strategic positioning. In addition, the degree of competence and the proximity between the subsidiary and the client play a vital role in determining the overall performance of the company.

Size

The size of subsidiaries is an important feature as far as the success of the parent company is concerned (Motohashi, 2015). The size determines the number of clients that can be served at a time. The larger the size of a subsidiary, the larger the number of clients to be served at one given time. In essence, the size of subsidiaries influences the company’s share in the global market. Apparently, subsidiaries sell the image of the company to the outside world. Therefore, the way a subsidiary conducts its activities determines the customer’s perception of the company’s services. In essence, subsidiaries that create a conducive business environment for clients promote the name of the parent company in the host country. It is imperative to understand that the image of an international company is important for its performance in the present and future days.

Revenue

The activity of a subsidiary is crucial as far as revenue generation is concerned (Hitt, Ireland & Hoskisson, 2007). For instance, the America Insurance Group has shown effective performance since it is involved in a variety of activities. In essence, the subsidiary facilitates access to various insurance services to the American clients and, therefore, it has built a close relationship that enhances client loyalty. Studies have shown that client loyalty is an important factor in the business world. Loyal customers enhance steady flow of revenues and expand the market by either referring potential clients to seek the company’s services or taking insurance cover for their relatives. In this regard, it can be noted that the subsidiaries expand the market for the parent and increase the revenue as well (Ulst, 2005).

It is crucial to recognize that failure by a subsidiary to provide quality services may be taken to mean that the parent company is not fit to serve in the international market. Such an incident may lead to losing of clients in one region of the world and then spread to other parts. It is necessary to note that lose of clients leads to a reduction in revenue collection and poor financial performance of the company in the long run. Essentially, the service industry is quite competitive in present days and, therefore, a slight mistake may drive a multinational company out of business. In this regard, subsidiaries should be avenues to uphold and promote the parent company’s reputation.

Employees

Subsidiaries offer employment to many people of the host country. Studies reveal that employees constitute a core component of a company and therefore appropriate mechanisms must be established to enhance efficiency. The quality of services provided by employees to the clients influences the performance of a subsidiary in the host nation. In this regard, employees should be given sufficient resources to execute their duties. Essentially, due to the complexity of employment policies in different host countries, the management of multinational enterprises is quite involving. Therefore, the top management must establish effective measures to prevent adverse consequence that might erupt due to the failure of the workforce of some subsidiaries. The senior management should ensure efficient use of the modern technology so that the objectives of the company can be achieved within the stipulated timeframe (Schaffer, 2002). In essence, the parent company should use subsidiaries as spheres of influence in the international market to reinforce its efforts to maintain a profile higher than that of the competitors. The communication system adopted by a company affects the closeness of the various subsidiaries and the relationship between the parent company and the respect subsidiaries. In this regard, an effective communication system should be developed to enhance efficient flow of information between the parent company and the subsidiaries. However, it is important to remember that establishing protective measures is inevitable for the prosperity of any multinational corporation.

Implication of the industry and country environment on the innovation strategy of the firm

Implication of the industry on innovation 

The business environment of the industry or the country has a significant influence on the innovation strategy of a firm. Schertzinger (2009) states that the industry influences the innovation strategy of a firm. For instance, a competitive sector such as the service industry requires a continuous introduction of new ideas to command a reasonable market share. In essence, market competition is a stimulus of innovation in any industry. Therefore, firms in a competitive industry should invest adequate resources in developing innovations. In addition, industrial dynamics such as change of the production technology or shifts in the distribution channel plays an essential role in determining the innovation strategy of a firm. A firm should always be up-to-date on developments in the industry so that new changes work to its advantage. In essence, sufficient market research should be carried out before introducing an innovation strategy to the industry.

Implication of the country environment on innovation activities:

Röder (2011) states that the country’s political and legal systems affect the kind of operations that a company can conduct. For example, political feuds disrupt investment strategies and influences the investors’ capacity to introduce changes in an existing business or potential plan of activities. Legal restrictions on the kind of business to operate in a given country or region also affects the innovation strategy employed by an investor. Friendly legal restrictions promote innovation while tough and oppressive measures discourage innovation.

The county’s social and cultural constructions are important considerations when establishing a business in a country. The country’s cultural and social systems determine the kind of services to be offered to clients in that country (Motohashi, 2015). For instance, some cultures do not encourage their members to take life assurance policies since it is perceived to bring bad luck to the community. Therefore, the innovation strategy of the firm should be designed in such a way that accommodates the beliefs of the target clients.

The economic policies and patterns in a particular country affect the innovation strategy adopted by an investor (Noussia, 2014). For instance, restrictive policies such as oppressive quotas and tariffs discourage investors from committing their resources to the economy. In addition, unfavorable fiscals and monetary policies implemented by the government discourage innovation. However, favorable policies predictable economic patterns promote innovation and therefore accommodates various innovation strategies.

Reference list:

Avery, G. (2005). Leadership for sustainable futures: Achieving success in a competitive world. Cheltenham, UK: Edward Elgar.

Borscheid, P., & Haueter, N. V. (2012). World insurance: The evolution of a global risk network. Oxford: Oxford University Press.

Churchill, C., & International Labour Office. (2006). protecting the poor: A microinsurance compendium. Geneva.

Heinecke, P. (2011). Success factors of regional strategies for multinational corporations: Appropriate degrees of management autonomy and product adaptation. Berlin: Physica-Verlag.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management: Competitiveness and globalization; [concepts and classes]. Mason, Ohio [u.a.: Thomson South-Western.

Kilpatrick, A. (2000). Of permanent value: The story of Warren Buffett. Birmingham, Ala: Andy Kilpatrick Pub. Empire.

Motohashi, K. (2015). Global business strategy: Multinational corporations venturing into emerging markets. Tokyo: Springer.

Noussia, K. (2014). Reinsurance arbitrations. Heidelberg: Springer,

Plunkett, J. W., & Plunkett Research, Ltd. (2008). Plunkett's insurance industry almanac. Houston, Tex: Plunkett Research.

Röder, T. J. (2011). From Industrial to Legal Standardization, 1871-1914: Transnational Insurance Law and the Great San Francisco Earthquake. Leiden [u.a.: Martinus Nijhoff Brill.

Schaffer, R. H. (2002). High-impact consulting: How clients and consultants can work together to achieve extraordinary results. San Francisco: Jossey-Bass.

Schertzinger, A. (2009). Creating value in insurance mergers and acquisitions. Wiesbaden: Gabler.

Ulst, I. (2005). Linkages of financial groups in the European Union: financial conglomeration developments in the old and new member states. Budapest [u.a.]: CEU Press.