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Aig and China's Accession to the Wto

By:   •  June 21, 2012  •  Case Study  •  585 Words (3 Pages)  •  2,292 Views

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AIG and China's Accession to the WTO

On one hand, Hank Greenberg wants AIG to remain a wholly-owned subsidiary. He did not want AIG to undergo the 50% foreign-owned insurance company. There was full growth potential in China where AIG's existing operations $ 200 million revenue were small compared to the company's total-wide assets of $ 30 billion. Most analysts saw huge growth potentials and had predicted life insurance premiums would reach $ 75 – 100 billion in 2005. There's also potential for improved margins. Life insurance was increasing rapidly and with its population, China had great potential. AIG followed a "localization strategy" whereby expatriate managers were well educated as to local business culture and practices to facilitate immersion into the local markets and tap into its local network in terms of potential employees and clients, which would facilitate business growth.

Hank was also encouraging China to enter the WTO. This would bring various advantages to AIG in the form of market liberalization, deregulation and consolidation. If China entered the WTO, AIG would be able to sell licenses anywhere in China within three/five years of entry within the WTO, which were now restricted by government to narrow geographic markets within China. AIG currently was limited as to the scope of their operations. Trade disputes would be settled by the WTO Dispute Resolution system as opposed to bilateral bargaining.

The other key players were the EU, the Chinese government, local businesses, national and foreign insurance companies. The EU argued that AIG should not be the exception to the 50% ownership for foreign companies since it would give an unfair advantage to AIG. The EU also had their own insurance companies in China which they wanted to thrive and AIG's retaining 100% ownership would be unfair competition. Both the EU and US obtained concessions from China as a result of their support to China to enter the WTO. China agreed to give licenses to seven European insurers which had not yet been issued. The EU was against AIG expanding their operations under the full ownership and didn't think they were being given fair treatment.

Chinese governments and local


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