University of Sunderland

in London

PGBM 156

Strategic Management
In An International Context

Module Leader: Giuseppe Cantafio

Module Teacher: Bruce Sheppy
Student Name
Student Number:
Word Count: 3057 words
 Contents
Executive Summary 3

Introduction and Background 4

Introduction about Munich Re 4

History of Munich Re 4

Question One: Open Innovation and Internationalisation 5

Question Two: Internationalisation, Localisation and Competitiveness 8

Question Three: Organisational Purpose, Profitability and Social 9

Responsibility

Question Four: Personal reflections on learning 11

Conclusions & Recommendations 12

References 13

Figure References 15

Figures

Figure 1: Porters Generic Strategies, Source: Porter, 2008

Figure 2: Munich Re Strategic Priorities, Source: Munich Re d, 2021

Figure 3: Porter’s Diamond , Source: de Bruin, 2018

Figure 4: Supply Chain, Source: Kanda, 2021

Figure 5: Porters Generic Strategies, Source: Porter, 2008

Figure 6: Triple Bottom Line, Source: Elkington, 2018

Figure 7: CSR Rating Source: CSR Hub, 2021

Figure 8: Gibb’s Reflective Cycle, Source: Gibb, 1988

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Executive Summary

The following assignment draws attention to the competitive advantage of Munich Re, a
multinational reinsurance company based in Germany, focusing on the advantages within the
domestic nation through Porter’s Diamond model as well as on an international scale through the
use of Porter’s Generic Strategies. Munich Re have effectively created a robust and stable strategy
with a huge focus on the digital innovation to uphold its position within the industry against its
competitors. Through the investigation of the corporate social responsibility and its close connection
to the services offered by Munich Re, there is an increasing level of attention towards the
environment and the society on behalf of Munich Re. This is potentially due to the circumstances
regarding Climate Change and Covid-19 impacting the rising costs of the services.

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Introduction and Background

This assignment will be investigating and analysing the multinational corporation (MNC), Munich Re,
within the insurance industry in Germany through research in four different areas: Open Innovation
and Internationalisation; Internationalisation, Localisation and Competitiveness; Organisational
Purpose, Profitability and Social Responsibility; and my Own Personal Reflections on each section
discussed. These areas will be examined with support of theoretical concepts including Porter’s
Diamond (Lasserre, 2017) and Generic Strategies (Porter, 2008), Henry Chesbrough’s (2006)
innovation concept and Elkinson’s (1998) triple bottom line.

Munich Re

The selected MNC for this report is a German multinational insurance company, Munich Re, present
in over 50 countries around the world (Munich Re, 2020). The organisation is based in Munich,
Germany and the main services comprises of reinsurance, insurance, capital market solutions and
related services (Munich Re b, 2021). According to Statista (2021), the German company is the
largest reinsurance company worldwide in 2020 with over $43 billion in Net Premiums, followed by
Swiss Reinsurance Co. with slightly under $35 billion (Figure 1). Munich Re own just under 20% of
the reinsurance industry market share (Kanda, 2021) and continue to expand and grow year on year.

Figure 1: Largest Reinsurers

worldwide,

Source: Statista, 2021

The German Company was originally founded in 1880 by a German banker, Carl von Thieme (Whom
also Founded Allianz), along with Wilhelm von Finck and Theodor von Cramer-Klett (Anie, 2018).
Munich Re had become an international organisation within the first year since starting up due to
Thieme’s belief that reinsurance is international by nature (Munich Re c, 2021).

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Question One: Open Innovation and Internationalisation

This first section of the assignment will be critically evaluating the competitive advantage Munich Re
has obtained through innovation, with the use of Porter’s Diamond. the analysis will be broken down
into the determining factors of the Diamond Model to illustrate the competitive advantage within
Germany.

According to Chesbrough (2006), open innovation refers to the utilisation of external resources to
undertake activities to innovate; whereas only using only internal resources to research & develop is
closed innovation. Arguably, some industries would benefit more from open innovation as the cost
and the scope of the research may be too high and large. When looking into the reinsurance industry
worldwide, the OECD (2017) reports that new technologies and innovation is improving the
efficiency in areas within the sector, for example, claims management and intermediation.

Considering this, Munich Re (d, 2021), have a strategic priority to transitioning to digital resources
(Figure 2) through InsurTech, a concept which combines the technological world with the insurance
industry, converting all the processes into digital software and technology (OECD, 2017). In order to
maximise on the benefits of innovation, Munich Re has formed strategic alliances with several
companies, one of them being CoreLogic, looking into the climate risk in New Zealand and Australia
(Marketline, 2021). Climate change is an increasing risk for the reinsurance industry, costing $210
billion worldwide (Munich Re, 2020), so arguably innovation in this area would be beneficial to
achieve sustainability.

Figure 2: Munich Re Strategic

Priorities, Source: Munich Re d, 2021

The German reinsurance company also emphasises on benefitting from open innovation through
global partners, clients and markets and have therefore opened a website platform for individuals to
contact the organisation for ‘co-innovation’ (Munich Re e, 2021). This notion signifies a promotion in
open innovation and globalisation of the industry.

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 Figure 3: Porter’s Diamond ,
Source: de Bruin, 2018

Porter’s diamond is an economic model used to understand the external competitive environment
of a particular industry within the nation using the following determining factors: Factor conditions;
Related and supporting industries; Demand conditions; Firm strategy, structure and rivalry; as well
as Government; and Chance (Lasserre, 2017).

Factor conditions

Germany adopted a scheme that encourages its citizens to participate in apprenticeships which has
been so successful that two thirds of the working population have now useful qualifications and
skills to utilise in the industry (de Wit and Meyer, 2005). As a result of so many individuals taking
part in this educational scheme, Germany now has an abundance of highly educated people who are
able to work up to senior roles.

Related and supporting industries

The industries directly related to the Reinsurance industry in Germany are the Pension Funds and
Insurance Brokers & Agencies industries (Kanda, 2021). These industries often are the suppliers for
the reinsurance companies as show in the supply chain (Figure 4) while the buyers are The General
insurance carriers and Life and Health Insurance carriers.

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 Figure 4: Supply Chain
Source: Kanda, 2021

Demand conditions

The demand for reinsurance is highly dependent on the primary insurance markets; if there is low
demand for direct life, health and medical insurance etc, it will decrease the need and capability for
primary insurance markets to reduce the net liability, hence lower demand for reinsurance (Kanda,
2021). That said, given the uncertainty with the Pandemic and Climate Change making the future
harder to predict, the demand for reinsurance is also on the rise (Cohn, 2021). Munich Re (2020)
have seen an increase in demand for other sectors for instance occupational disability, long-term
care, and critical illness.

Firm strategy, structure and rivalry

Currently, the main competitors within the reinsurance industry in Germany are Allianz and
Hannover Re, although there are other European companies that are also rivals, AXA, Generali,
SCOR, Swiss Re and Zurich Insurance Group (Munich Re, 2020). Despite a high number of established
competitors, Munich Re offer a high-quality service and have been the market leader for a significant
amount of time with a market share of almost 20% (Kanda, 2021).

Government

Government regulations play a large role in the reinsurance industry as there a specific capital
requirement that must be followed (Kanda,2021) and failing to follow these regulations could result
in the operating licence being revoked which could end the company’s business.

Chance

With regards to chance, there are many external factors that can affect the competitive advantage
of the business, the most recent example is Covid-19 pandemic which has been responsible for
global financial losses in all industries (Jones, Palumbo & Brown, 2021). Munich Re (2020) have
however announced that the pandemic will not hold them back in offering quality service and are
confident that there will be minimal long term affect on the operations of the business. In fact, the
company has benefitted by developing the digital skills at a much faster rate.

Overall, the reinsurance industry in Germany is highly competitive with a total of three major
reinsurance competitors in Germany and the level of education is extensive thanks to the

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government interventions. With innovation at the heart of Munich Re’s strategic aims, the company
will continue to possess a strong economic position within the industry in Germany. Although the
Porter’s diamond model offers insight into the competitive advantage within one country, it fails to
consider the role of MNC’s and that there are many external factors from other countries that can
influence the competitiveness than just within the domestic one. For this reason, other models
should be used to assess the competitive advantage such as, the generic strategies and the strategic
clock.

Question Two: Internationalisation, Localisation and Competitiveness

Within this section of the report, the author will be investigating the demand of internationalisation
and the demand for localisation relating to what strategy Munich Re has adopted and whether this
decision has created a competitive advantage. The Generic Strategies model (Porter, 2008) will be
used to reflect on the competitive advantage.

The concept of expanding into different countries and markets it referred to as internationalisation
(Lasserre, 2017) and can be seen as an expected part of an organisation’s growth and expansion
strategy. Ansoff (1965) states that the process of internationalisation is increasing the competition in
all industries, especially with the addition of technological innovation and the shortage of resources.
By becoming more international, it also diversifies the company portfolio because as Ansoff (1965)
explained, customers in different countries will not want or need the same products or services as
those in the home country. Therefore, to maintain its presence in the new market, the company
would have to diversify and adapt the current products or services to suit the demands of the new
customers and maintain its position in the new market which is a process called localisation (.

Porter (2008) introduced a concept called the Generic strategies, made up of Cost leadership,
Differentiation, Cost focus and Differentiation focus (Figure 1), in order for company to achieve a
competitive advantage. The term, competitive advantage, refers to the company being able to
produce a good or service better or more with lower prices than its competitors (Lewis and Slack,
2014). The generic strategies concept illustrates that in order to achieve a competitive advantage,
the organisation must choose one of the strategic aims as it is unlikely to be the best in all the area.
If a company if to focus on all the strategies, it is likely to underperform and therefore not achieve a
competitive advantage.

Figure 5: Porters Generic Strategies,

Source: Porter, 2008

Through the investment in innovation and technological change, this can create a competitive
advantage for an individual corporation as explained by Porter (2008), innovation can offer the
opportunities for lower costs and/or increased differentiation. Given that Munich Re’s main strategy

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is though innovation on an international scale (Munich Re e, 2021), and its success in being the
number one Reinsurance company around the world, it could present a strategic advantage within
the industry.

That said however, according to Kanda (2021), the reinsurance industry is exceedingly globalised and
requires extensive diversification in countries and locations in order to maintain success. In order for
the business to obtain the information necessary, for example, net technology, IT risks and
demographic trends, there is a necessity for globalisation and sharing for information (Munich Re f,
2021).

It is important to consider that the climate crisis has affected the demand of reinsurance massively
which by default readjusted the prices of risk to prepare for the future (Nelson, 2019). With the
addition of the Pandemic, the increase in prices could be rising even faster than anticipated,
influencing the affordability of those with low- average incomes not being able to sustain the capital
for insurance. Therefore, the necessity for low-cost opportunities is essential in order to maintain
the business activities available to all customers.

Question Three: Organisational Purpose, Profitability and Social Responsibility

The following section will be evaluating the organisational purpose, corporate profitability and
corporate social responsibility of Munich Re and whether their objectives are important in the
growth of the company.

At the centre of an organisation is the purpose of their operations, often reflected in the mission and
vision (De Wit and Meyer, 2005). The organisational purpose is the driving factor for all employees
to work together and achieve the same strategic goal. Aside from the strategic goal, the organisation
is also expected to do more for the external environment through Corporate Social Responsibility
(CSR), a fundamental element to recognise the impacts towards the environment and the society.
The term is used to outline the policies and practices a company acts upon in order to positively
influence the world around them rather than just within the company operations (De Wit and
Meyer, 2005). The goals relevant to CSR can often create a stronger link between the stakeholders
and the company by listening and addressing the needs of the stakeholders involved, these
requirements can involve the sustainable development, employee development and many other
related topics (Lewis and Slack, 2014).

Figure 6: Triple Bottom Line

Source: Elkington, 2018

A structure that captures the elements involved in CSR is John Elkington’s (1998) ‘Triple Bottom
Line’, offering organisations another way of viewing the annual performance. Instead of just focusing
on the financial profits, the concept expands to measuring the impact towards the people and the
planet, making up the 3P’s. That said however, there is a lot of controversy with using the Triple
Bottom Line as organisations have an organisational strategic purpose of achieving their goals but

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now are also expected to go further and address the concerns of the society as well (Lewis and
Stack, 2014). The demand for corporate profitability as well as the demand for social responsibility
can put more pressure on an organisation as the operations can influence the economic
performance. That said, there are a set of 17 worldwide goals presented by the United Nations
(2021) addressing the world’s biggest challenges in achieving sustainability, including inequality,
climate change and poverty. The goals are often adopted by large corporations to internally achieve
these goals to make the difference the world needs.

When it comes to the environment and the people, it is natural that it can directly influence the
reinsurance industry through the natural catastrophes and disasters that happen across the world
(Nelson, 2019). A representative from Munich Re, disclosed that the impacts of climate change will
be responsible for the rise in premiums and potentially other insurance services (Nelson, 2019).
Therefore, it could be argued that the reinsurance industry should be investing more time and funds
towards the people and planet to reduce the risk of fluctuating costs. Though the increased costs
could produce increased profit margins in some sectors, it will also create a crisis of affordability for
those with low or average incomes.

Figure 7: CSR Rating

Source: CSR Hub, 2021

According to Kyriakou (2018), the obligation for a corporation to consider the long-term implications
of their actions reflects whether the corporate governance is good or not. CSR Hub (2021) have
given a CSR rating of 54 out of 100 for Munich Re’s performance in this area ranking only 64 against
the other companies. Arguably, from the data presented, the CS could be improved and developed,
in fact, Munich Re (2020) have announced in the 2020 annual report that the ambitions for 2025 are
to strengthen the CSR strategy as well as prioritize further the criteria related to the environment,
society and governance. This strategic ambition for the forthcoming years could present an
attractive decision for the stakeholders as well as foreign investors.

Question Four: Personal reflections on learning

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I will be using Gibb’s Reflective cycle to give an informed review on my personal understanding of
Munich Re’s operations and strategic decisions towards crisis management, in this particular case,
managing with the unexpected Covid-19 Pandemic.

TEXT REMOVED TO PRESERVE CONFIDENTIALITY

Conclusions & Recommendations

This assignment has given insight into how different industries can be influence and affected by
different variables depending on the nature of the business.

From the data research in this assignment, Munich Re is undoubtedly very strongly positioned when
it comes to it rivals within the industry, having the largest market share within the industry and its
constant expansion in new markets around the world, it seems unlikely that the reinsurance
company can be affected significantly from anything. That said, Covid-19 is the factor that has
caused the dramatic increase in losses and it may take years to recover, not just for the reinsurance
industry but for all sectors worldwide. With that in mind, Munich Re has been investing increasing
amounts into innovation to transform the operations into digital services which will be beneficial
now that many services are moving online.

As a recommendation, Munich Re could form an alliance with a competitor, for example Allianz, to
further strengthen their position. By doing so, the reinsurance companies together could potentially
govern the reinsurance industry and become the largest global players reinforcing the competitive
advantage. Another recommendation that Munich Re are already beginning to take action in is doing
more the environment and the society or quite simply investing more in the CSR so that
stakeholders will feel appreciated and investors will see the attractiveness of the organisation.

References

Anie, J., 2018, Biography of Carl von Thieme -Businessman and Founder of Munich Re and the
Insurance Allianz, Academia, [online] Available at:
https://www.academia.edu/37818961/Biography_of_Carl_von_Thieme_Businessman_and_Founder
_of_Munich_Re_and_the_Insurance_Allianz (Accessed: 20th October 2021)

Ansoff, H., 1965. Corporate strategy. New York: McGraw-Hill.

Chesbrough, H., 2006, Open innovation: the new imperative for creating and profiting from
technology, Harvard Business School Press, Boston, MA

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Cohn, C., 2021, Global reinsurance rates to keep rising next year - ratings agencies, Reuters, [online],
Available at: https://www.reuters.com/business/finance/global-reinsurance-rates-keep-rising-next-
year-moodys-2021-09-07/ (Accessed: 6th November 2021)

CSR Hub, 2021, Corporate Social Responsibility (CSR) & Environment, Social, Governance (ESG)
Metrics, CSR Hub, [online], Available at:
https://www.csrhub.com/CSR_and_sustainability_information/MUENCHENER-
RUCKVERSICHERUNGS-GES-AG (Accessed: 21st November 2021)

De Bruin, L., 2018, Porter’s Diamond Model: Why Some Nations Are Competitive And Others Are
Not, Business-to-you, [online], Available at: https://www.business-to-you.com/porter-diamond-
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de Wit, B. and Meyer, R., 2005. Strategy; An International Perspective: Process, Content, Context.
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Elkington, J., 2018, Recalling The Triple Bottom Line, John Elkington, [online], Available at:
https://johnelkington.com/2018/07/recalling-the-triple-bottom-line/ (Accessed: 13th November
2021)

Elkington, J., 1998. Partnerships from cannibals with forks: The triple bottom line of 21st‐century
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Gibb, G., 1988, Learning by Doing: A guide to teaching and learning methods. Further Education
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Kanda, S., 2021, Global Reinsurance Carriers, IBISWorld, [online], Available at: https://my-ibisworld-
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