Aig: Filling the Industrial Voids in China

1. During the establishment of AIG, some institutional voids occurred. In 1949 when the communist party took the power in China, the government owned an insurance company. But this was sort of useless since almost everything was owned by the state. There is a second relevant void, namely the lack of training for insurance agents and as a result of this, a lack of educated insurance agents. This was attractive for foreign companies. Another thing could also be mentioned as a void, namely the total lack of connections with the political world in China, who were not familiar with foreign companies.

2. In our opinion, foreign companies should use option one: adapt to the host country, keeping it’s own core dominant logic.
AIG coped with the voids as below:
- Started joint venture with PICC, which gave options for networking with government.
- Investment of 195million dollars in the Shanghai Center Office complex. As a result AIG gained the trust of politicians.
- The CEO of AIG helped to develop the International Business Advisory Council in Shanghai, which also led to more trust between both.
- AIG recovered a missing Chinese relic, to built a good name.
- AIG invested in training insurance agents, which provided the Chinese market with well educated insurance personnel.

3. AIG developed two FSA’s in China:
- Trust of Chinese politicians, and the good reputation among the Chinese population.
- AIG’s ability to adapt their products to the Chinese market.
The following non location bound FSA’s were transferred to China:
- Expertise in training insurance agents
- Knowledge in insurance policies
As first movers, AIG had some advantages:
- Favorable government relationships.
- Domination of niche markets, due to no competition.
- AIG was able to establish a minimum efficient size which led to lower costs then later entering competitors.
- Other companies were obliged to set up joint ventures, otherwise they were not allowed to do business in China.