Analysis of Hsbc Bank and Its Strategy

ANALYSIS OF HSBC BANK AND ITS STRATEGY

Table of Contents

Table of Contents

1.Introduction

1.1.Origin of HSBC

1.2.Timeline

1.3.Crisis of HSBC

1.4.Today HSBC

2.Global Diagnosis

2.1.External positioning and market analysis

2.2.PESTEL Analysis

2.3.Porters Five Forces Analysis

2.4.Presentation of HSBC’s products and services

2.5.Strategic segmentation

2.6.Business Model

2.7.SWOT Analysis

3.Key Strategic Choices

3.1.HSBC General Strategy

3.2.HSBC Human Resources Strategy

3.3.HSBC Acquisition Strategy

4. Deployment and Results

4.1. Internationalization Strategy

4.2. Organizational Analysis and Change Management

5. HSBC – recent evolution

5.1. During the financial crisis

5.2. From 2010 to 2013

References

1. Introduction

1.1.Origin of HSBC

HSBC is the British multinational banking and financial services company which founded in 1991 by the Hong Kong and Shanghai Banking Corporation. The origin of the bank is in Hong Kong and Shanghai and branches were opened in 1865.

1.2.Timeline

Figure 2: HSBC’s Timeline from the origin to 2013

In April 2000, expansion into Continental Europe took place with the acquisition ofCrédit Commercial de France. HSBC also bought Demirbank and Insolvent Turkish bank in July 2001. Hongkong and Shanghai Banking Corp would provide a fixed-rate mortgage to buyers of Cheung Kong (Holdings)' Victoria Towers residential development in November 2001. In addition, HSBC announced HSBC USA, Inc., through a new subsidiary, Wealth and Tax Advisory Services USA Inc.(WTAS), would purchase a portion of Andersen's tax practice in July 2002. The new Group would serve the wealth and tax advisory needs of high net worth individuals. In Aug 2002, it acquired GrupoFinancieroBital, SA de CV, Mexico's third largest retail bank for $1.1bn. HSBC expanded further in the United States in Nov 2002.

The new headquarters of London officially opened in April 2003. To expend further, HSBC bought PolskiKredyt Bank SA of Poland in September 2003. Furthermore, HSBC expanded into China buying 19.9% of theBank of Communicationsof Shanghai in June 2004. In the UK acquired Marks & Spencer Retail Financial Services Holdings Ltd for £763m in December 2004. Acquisitions in 2005 included Metris Inc, a US credit card issuer for $1.6bn in Augustand 70.1% of Dar es Salaam Investment Bank of Iraq in October. Moreover, HSBC also bought the 90 branches in Argentina of BancaNazionale del Lavoro in April 2006. It also acquired the Chinese Bank in Taiwan in December 2007 and IL&FS Investment, an Indian retail broking firm in May 2008.

1.3.Crisis of HSBC

Even though HSBC could expend its branches around the world, there are still crisis for HSBC. The major crisis of HSBC happened in 2005 which Bloomberg Markets magazine accused HSBC of money-laundering for drug dealers and state sponsors of terrorism. Though Stephen Green, CEO said that “This was a singular and wholly irresponsible attack on the bank’s international compliance procedures”, subsequent investigation indicated that it was accurate and proved that the bank was involved inmoney launderingthroughoutMexico. In March 2009, HSBC announced that it would shut down the branch network of its HSBC Finance arm in the U.S., leading to nearly 6,000 job losses and leaving only the credit card business to continue operating.

1.4.Today HSBC

Although there wasfinancial crisis in 2007–2010, it is stillbetter than other global banks. According to Bloomberg, "HSBC is one of world’s strongest banks by some measures“. Today HSBC is spreading around 85countries with 7,200 offices through Europe, Asia, Africa, North America and South America. HSBC is organized within four business groups: Commercial Banking; Global Banking and Markets; Retail Banking and Wealth Management; and Global Private Banking. HSBC also hasa dualprimary listing on the Hong Kong andLondon Stock Exchangeand is a constituent of theFTSE 100 Index.

1. Global Diagnosis

In order to find global position and market value of the HSBC bank, we focused in different sector and used various analysis tools. External market analysis, Identified macro trends with PESTEL, identified external factors impacting on the profitability of the company with Porter’s 5 forces, Products and services analysis, various strategic segmentation of the company and internal analysis in business model and SWOT analysis.

2.1.External positioning and market analysis

Headquartered in London, HSBC is one of the world’s largest banking and financial services organizations and HSBC successfully established 6,300 offices in 75 countries and territories and more than 54 Million Customers. “We are committed to growing the business and dividends, implementing the highest global standards of conduct and compliance” is the global strategy according to Stuart Gulliver, HSBC Group Chief Executive.

HSBC have a strong believe in local knowledge with global reach that is one of the successful formula behind covering large area in financial sector, HSBC’s global market has expertise to invest in the four principal asset classes – foreign exchange, rates, credit and equities. While doing market research we found specific 5 brand values they are:

Perceptive: - Anticipated and meeting the needs of diverse customers around the world by using their ability to combine global reach across markets and segments with local knowledge and expertise.

Progressive: - Committed to continuous improvement in quality, effectiveness and efficiency through team work.

Responsive: - Acting quickly to ensure we meet and exceed customers’ ever-changing expectations. Management at all the levels is hands-on, operating with a minimum of bureaucracy, giving guidance with wisdom and delegating with confidence.

Respectful: - Exercise on corporate responsibility, committed to the welfare & development of the local communities. Committed to complying with the letter and the spirit of all relevant laws and regulations in the various countries in which they are present.

Fair: - demonstrating the highest levels of integrity and puting the Group’s interests ahead of the individual’s and treat customers, employees and suppliers fairly and objectively.

2.2.PESTEL Analysis

The factors analyzed in the “PESTLE Analysis” framework are political, economic, social, technological, legal and environmental. Organizations use this framework to understand those macro-economic factors which can help them in identifying external threats or opportunities. But in order to deal with external threats or take advantage of external opportunities, an organization needs to analyze micro factors using other frameworks like SWOT or Porters 5 Forces.

Political

HSBC’s management had to make an appearance in 2012 before the US Senate’s Permanent Subcommittee on Investigations (‘PSI’). The political hearings were related to an investigation by the PSI into potential risks to the US financial system from HSBC inadequate compliance with US regulations around money laundering and financial sanctions (HSBC Interim Report 2012). According to BBC (2012), US government held HSBC responsible for money laundering from criminal activities by drug lords amounting to more than $2.6bn in assets. The bank is now required to strengthen their compliance and risk management infrastructure and culture which is likely cost it a lot of money.

Economic

Many financial institutions are still feeling the effects of the 2008 financial crisis and the very real liquidity problem that led to the failure of others like Northern Rock. According to Franks (2009), banks like HSBC have been saved by the fact they are universal with product offerings all over many geographical locations. The HSBC chairman says is surviving and doing well because its underlying revenue growth is driven by Global Banking and Markets and Commercial Banking particularly in the faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America where the economic outlook is more positive (HSBC Interim Report 2012)

Social

Social issues like climate change and criminal money laundering are some of the social issues that HSBC is dealing with currently. In 2012, US government held HSBC accountable for criminal money laundering amounting to $2.6bn and asked the company to contribute considerable time and resources to monitor millions of potential crime transactions. HSBC is also gearing towards supporting a move to a low carbon economy and as a result, it’s providing climate financing, including environmental markets, debt and equity investment and insurance (HSBC Sustainability Report 2011 p15)

Technological

As the low carbon technology takes hold to support a low carbon economy, HSBC is beginning to invest in climate and ‘clean tech’ research. For example, in 2011, HSBC provided structured finance for low carbon emission bus systems in cities like Johannesburg and Panama making HSBC the market leader in climate technology financing (HSBC Sustainability Report 2011 p15)

Legal

According to Frank (2009), increased governmental regulation from the EU, higher capital requirements as well as new anti-money laundering requirements mean that HSBC has to deal with legal compliance that is costly and time consuming.

Environmental

HSBC recognizes the current trends in climate change and governments demanding organizations to reduce their carbon foot prints. HSBC says it’s committed to reducing its own carbon foot print by reducing recycling waste, transport emissions as well as improving energy efficiency in their buildings (HSBC Sustainability Report 2011).

2.3.Porters Five Forces Analysis

Porter’s Five Forces Analysis highlights the aspects in the external environment of an organization. These factors have the ability to affect different organizations in terms of competing (Porter, 1980). Accordingly, these forces has been defined as factors that drive competition, making sure that the competitive business will be generated by the interaction of five various factors on a firm. These factors include rivalry among industries, buying power of the customers, supplier power, the possible threats of new entrants and the threat for substitute products or services within the market. By merely understanding the context of each force, enables the company to have important insights that will drive them to implement effective strategies to outgrow their competitors.

Force 1: The Intensity of Rivalry

It is said that HSBC has many rivals in the banking and financial sectors. The degree of rivalries among these firms enables HSBC to use efficient strategies to maintain its leadership position in the market. Furthermore, because of the capabilities of other rival companies, HSBC develops strategic plans to make sure that they are always be the number one choice of their customers in banking and finance industries.

Force 2: The Threat of Entry

With the potentials of having high profits in this kind of industry, HSBC is subject to several threats of market entry. The threats of these new entrants sometimes make or break an organization like HSBC. In this regard, HSBC has been able to establish some entry barriers to ensure that their competitive advantage. The company also uses strong branding images to make sure that their customers will remain loyal to them.

Force 3: The Threat of Substitutes

HSBC is also aware that their competitors will provide new products and services in the future. The threat that these substitute products gives to HSBC’s profitability allows the company to work hard to sustain its position. Through the strategy of HSBC in focusing on four different customer segments, the company has able to provide needs of each customer group which lessen the impact of other substitute products.

Force 4: Buyer Power

Accordingly, the buyer power is noted to be one of the two important forces which affect the occupation of the value established by an organization. Herein, the vital determinants of this force include the size as well as the customer concentration. It can be said that HSBC has been able to manage their customers effectively which allows the company to gain customer loyalty and satisfaction. The strategy used by HSBC enables them to become the world leader in banking and financial sector.

Force 5: Supplier Power

It is said that supplier power reflects to the buyer power. In this regard, the analysis of this force commonly focuses on the significant size and concentration of suppliers which is also relative to the competitors. It also focuses on the degree of differentiation in the materials being supplied (Porter, 1980). It can be said that HSBC has the ability to charge their target markets different prices in accordance with the differences in the price formulated for each of the buyers. This usually implies that the audience is described by high supplier power.

2.4.Presentation of HSBC’s products and services

Global Product lines are as follows:

HSBC Direct

HSBC Direct is a telephone/online direct banking operation which attracts customers through mortgages, accounts and savings. It was first launched in the USA in November 2005 and is based on HSBC's 'First Direct' subsidiary in Britain which was launched in the 1980s. The service is now also available in Canada, Taiwan, South Korea, France and India. Poland is launched business direct in September 2009. In the US, HSBC Direct is now part of HSBC Advance

HSBCnet

HSBCnet is a global service that caters to local business needs by offering specialized functionality for different regions worldwide. The system provides access to transaction banking functionality – ranging from payments and cash management to trade services features – as well as to research and analytical content from HSBC. It also includes foreign exchange and money markets trading functionality.

The system is used widely by HSBC's high-end corporate and institutional clients served variously by the bank's global banking and markets, commercial banking and global transaction banking divisions.

HSBCnet is also the brand under which HSBC markets its global e-commerce proposition to its corporate and institutional clients.

HSBC Advance

HSBC Advance is the group's product aimed at working professionals. The exact benefits and qualifications vary depending on country, but typically require a transfer of Salary of USD 1,500 or more every month or Maintain USD 25,000 of deposits in a Savings/Current Account or investments. Advantages may vary depending on country, such as day-to-day banking services including but not limited to a Platinum Credit Card, Advance ATM Card, Current Account and Savings Account. Protection plans and Financial Planning Services. A HSBC Advance customer enables the customer to open accounts in another country and transfer their credit history.

HSBC Premier

HSBC Premier is the group's premium financial services product, comparable to the Centurion service of American Express. It has its own Elite Card entitled HSBC Premier World Card. The exact benefits and qualification criteria vary depending on country. Customers have a dedicated Premier Relationship Manager, global 24-hour access to call centers, free banking services and preferential rates. A HSBC Premier customer receives the HSBC Premier services in all countries that offer HSBC Premier, without having to meet that country's qualifying criteria ("Premier in One, Premier in All").

2.5.Strategic segmentation

HSBC is one of the largest banks in UK and is increasing its operations in other counties. There are strong competitors from the world’s leading financial services organizations. To achieve constant growth in business HSBC is persuading a “managing for growth” strategy. Their “strategic human resource management” strategy involves developing comprehensive values among their employees. The “strategic management” initiative was launched to ensure competitive advantage from each business unit.

The intensity of strategy formulation is primarily focused on Private Banking, Personal Financial Services, Commercial Banking and Corporate and Investment Banking. In current economic slowdown, HSBC is emphasizing on helping domestic customers with additional products and advisory services as well intensify on brand strategy to focus on globalization. HSBC plans to carry on building its strengths on international connectivity and global business development with aims to invest primarily in fast growing emerging markets.

HSBC was able to fully utilize the untapped business potential available and thereby capture a huge chunk of the market.

Despite growing in almost 80 countries al over the world, HSBC has been successful in positioning itself in ‘World’s local bank’. As the bank constantly works hard to maintain a local feel and local knowledge, customers feel comfortable to bank with an international brand like HSBC. Consequently it has ensured high customer loyalty and HSBC has been able to retain its large customer pool.

Another key factor of success is the ability of HSBC to reach a large section of customers by different innovative promotional campaigns. Moreover discounts, rebates, relaxing of interest rates on loan during crisis etc. has helped to gain popularity as well as confidence among its customers.

HSBC also keeps a strong focus on the services that it offers to the customers. It offers personal banking services, consumer finance, commercial banking, corporate investment banking and market, private banking etc. among 100 million customers spread all over the world in a very professional and efficient way .This has helped to boost up the confidence level of the customers to a great extent. Also its professional attitude towards understanding the different hitherto untapped segments like niche marketing or targeting a specific demographic segment has led to its success story.

2.6.Business Model

HSBC business model is based on an international network connecting faster growing and developed markets.

Banks takes deposits from customers and uses the funds to make loans, either directly or through the capital markets. Direct lending includes unsecured lending, residential and commercial mortgages and overdrafts, and term loan facilities. Finance importers and exporters engaged in international trade and provide advances to companies secured on amounts owed to them by their customers. In addition, wide variety of products and financial services are offered including broking, asset management, financial dvisory, life insurance manufacturing, corporate finance, markets, securities services and alternative investments. Products provide for clients ranging from governments to large and mid-market corporates, small and medium-sized enterprises (‘SME’s), high net worth individuals and retail customers.Operating income is primarily derived from: