The impact of services trade barriers: A case study of the insurance industry

Alan Zimmerman, Pace University

Abstract

Trade in services account for an estimated $810-billion and has been growing at an average of 16\% per year for the past decade. World insurance trade has grown less rapidly than trade in other services and some managers blame trade barriers. This dissertation investigates the importance of trade barriers to the managers of international insurance services. Non-tariff barriers (NTBs), have been shown to have an important impact upon international trade in services. Foreign direct investment and market entry strategy theory do not adequately address the importance of trade barriers in the decision making process.^ While the basic market entry strategies as well as specific entry strategies for insurance firms are well established, the literature related to international marketing of services indicates that service firms need to establish local presence to be successful. Where firms are unable to enter a market because it is blocked by trade barriers, some researchers suggest managers engage in specific entry strategies or strategic actions to overcome barriers. This study is based on interviews with 23 managers representing ten U.S.-based insurance firms, one international insurance trade association and ten non-U.S. based insurance firms. The objective of the study was to identify the perceptions of various barriers held by these managers, the effect of these barriers on specific country entry decisions and the entry strategies or strategic actions managers use to overcome these barriers.^ This study shows that in general trade barriers are one of several factors managers evaluate when deciding whether to enter a market. But barriers can become a critical factor if they create prohibitive costs or difficulties. Based on the findings, this study proposes a new model of market entry decision making and also includes the option of strategic actions managers may take in lieu of market entry.^ Respondents saw some specific barriers as critically important. Contrary to theoretical expectations, these critical barriers are not necessarily related to establishment of local presence. In addition to outright prohibition of foreign insurers, the most significant barriers were seen as unenforceability of insurance contract provisions, foreign firm permission to insure their nationals or firms only and discriminatory taxation. Generally managers took more market entry or strategic actions in countries where they perceived the barriers to be lower than in countries where they thought the barriers were higher. The actions taken most frequently were to attempt to influence local decision makers through the legitimacy of the firm's position or the prestige of the firm. The most sophisticated respondents take a long term view and often begin several strategic actions with home and host governments to overcome barriers. ^

Subject Area

Business Administration, Marketing|Business Administration, Management|Economics, Commerce-Business

Recommended Citation

Alan Zimmerman, "The impact of services trade barriers: A case study of the insurance industry" (January 1, 1997). ETD Collection for Pace University. Paper AAI9717121.
http://digitalcommons.pace.edu/dissertations/AAI9717121

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