HACETTEPE UNIVERSITY
2006 – 2007
BUS 436
INTERNATIONAL BUSINESS MANAGEMENT
Subject: Host Country Gains and Losses: Foreigners in TURKEY
Instructor: Assoc. Prof.Mahmut ARSLAN
Prepared by:PELİN COŞKUN
DUYGU ADAR
Spring 2007
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HOST COUNTRY GAINS AND LOSSES: FOREIGNERS IN TURKEY
THE HSBC GROUP
Head office
International brand
Assets
Profit (pre-tax)
International reach
Staff
Customers
Technology
HSBC TURKEY
Direct Banking Channels
Product Range
Personal Financial Services
Corporate/Commercial Banking Services
Investment Services
Treasury and Capital Markets
Key Events in the Growth of HSBC Turkey
HOST COUNTRY GAINS
Idle Resources
The Use of Unemployed Resources
The Upgrading of Resource Quality
Increased Competition
Foreign Market Opportunities
Campaigns
HOST CONTRY LOSSES
Purchases in Turkey
Bombs Hit HSBC Bank in Istanbul
Taking the Best Resources
REFERENCES
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HOST COUNTRY GAINS AND LOSSES: FOREIGNERS IN TURKEY
In this study, we examined the investments of HSBC and gains and losses of Turkey, the host country.
THE HSBC GROUP
The HSBC Group is one of the largest banking and financial services organizations in the world, with well-established businesses in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.
Head office
HSBC Holdings plc is incorporated in England, with its head office in London.
International brand
The establishment in 1999 of HSBC as a uniform, international brand name ensured that the Group's corporate symbol has become an increasingly familiar sight across the world. In 2002, HSBC launched a campaign to differentiate its brand from those of its competitors by describing the unique characteristics which distinguish HSBC, summarized by the words 'The world's local bank'.
Assets
1,502 billion USD at 31 December 2005
Profit (pre-tax)
20,966 million USD for 2005
International reach
Over 9,800 offices worldwide.
Staff
223,000 employees in 76 countries and territories.
Customers
Over 125 million worldwide, with a total e-customer base of more than 14 million.
Technology
HSBC is a major user of advanced information technology. Processing over 13 billion customer transactions a year, HSBC’s IT systems are rapidly growing their e-business channels including use of the internet, PC banking , interactive TV, and telephone banking via both fixed and mobile phones. HSBC maintains its own private telecommunication network – one of the world’s largest – to deliver IT services to customers and to staff around the world. HSBC web sites attracted over 260 million visits in 2003.
HSBC TURKEY
HSBC Bank A.S. serves Turkey with a full range of products and services, an uncompromising dedication to customer satisfaction, and a commitment to making the world's local bank Turkey's favorite bank.
Having entered the Turkish market in 1990, the Bank established its presence on the pillars of the strength and prowess of the HSBC Group. It built on this foundation with a deep and broad understanding of the local economy and markets and through specialisation in corporate banking and capital markets activities.
Partnership structure: HSBC Bank (Turkey) A.Ş. is a wholly owned subsidiary of HSBC Bank plc.
Branches: 192
ATM: 521
Customers: Over 2.5 million customers
Staff: 4.967
Subsdiaries: HSBC Yatırım Menkul Değerler A.Ş., HSBC Portföy Yönetimi A.Ş., HSBC Ödeme Sistemleri Bilgisayar Teknolojileri Basın Yayın ve Müşteri Hizmetleri A.Ş., HSBC İnternet ve Telekominikasyon Hizmetleri A.Ş.
HSBC Bank A.Ş. Financial Highlights
31.12.2005YTL (Thousand)
Assets7.380.209
Own Resources1.094.324
Profit (pre-tax)269.930
31.12.2005%
Capital Adequacy14.32
Direct Banking Channels
HSBC rendering quick and practical Internet Banking and Telephone Banking services to its customers, uses recent technology in its ATMs and provides to the customers one of the fastest ATM networks. HSBC ATM’s serves 7/24 for banking transactions.
ProductRange
Personal financial services, corporate, commercial and investment banking; treasury and capital markets.
Personal Financial Services
Debit Card, Credit Cards, Savings Products, Consumer Loans, Payments and Collections, HSBC Premier, Financial Planning, Insurance.
Corporate/Commercial Banking Services
Credits, Foreign Trade Financing, Islamic Banking, Projects and Exports Financing, Syndications, Custody Services, Local Consultancy Services, Cash Management.
Investment Services
Mutual Funds, Equity Transactions, Portfolio Management.
Treasury and Capital Markets
Treasury Bond and Bills, Eurobond, Spot Foreign Exchange, Futures, All Fixed Income Securities, Gold Operations, Futures and Option Contracts, Other Derivative Products, Money Market Products
Key Events in the Growth of HSBC Turkey
1990
HSBC becomes the first British bank to enter the Turkish market. The Bank is established in Istanbul as Midland Bank Inc. with 100% foreign capital.
1997
HSBC launches Personal Financial Services with an extensive product range in addition to corporate banking and capital markets.
1999
The name of the Bank is changed from Midland Bank Inc. to HSBC Bank A.S.
2001
HSBC Bank A.S. acquires Demirbank T.A.S., Turkey's fifth largest private bank. The acquisition extends HSBC's local network of branches and delivery channels as well as its customer base in personal banking and client portfolio in corporate banking.
2002
HSBC Bank A.S. acquires Benkar Tuketici Finansmani ve Kart Hizmetleri A.S., one of the country's top providers of consumer finance, from Boyner Holding A.S. The acquisition includes the Advantage Card, the largest card organization in Turkey outside the banking sector.
2003
After purchasing Advantage Card, installment and cash point features are added to all HSBC credit cards.
2004
HSBC Portfolio Management A.Ş., which was founded on 13.08.2003, starts operating on 06.02.2004.
2005
HSBC Portfolio Management manages 8 types of mutual funds, which are 3 A–type and 5 B–type, since the end of 2005.
Moreover, 2 pension funds are managed following the aggrement with Anadolu Hayat Emeklilik A.Ş.
During the same year, SME Banking has been established.
2006
HSBC Bank A.Ş. has announced its goal of 100% organic growth based on investments in Turkey till 2010. Opening 200 branches and gaining 4000 new employees are part of this growth plan.
In addition, the first Private Banking branch opened at Mayadrom on August 11, 2006
With its expertise in the domestic market and devotion to serving that market in the forefront of the competition, combined with its distinct advantage in providing privileged access to one of the world's largest financial networks, HSBC Bank A.S. is well-placed to set the pace of banking in Turkey.
HOST COUNTRY GAINS
Turkey, the host country, gains from the investment of HSBC in Turkey. We have examined some of them.
Idle Resources
Stephen Green, the CEO of HSBC Group, have seen opportunities about growth in Turkey. First of all Turkey is a young market. There are many potentials in retail banking sector. According to these opportunities the inflow of investment from HSBC stimulated local development through the employment of idle resources.
HSBC serves to three main customer groups; large establishments, small and medium size enterprises (SME) and individuals. Because Turkey is a growing country, there are opportunities in these three segments. According to Stephen Green, HSBC will improve its service ranges. Its aim is to serve 6 million individual customers, 280 thousand SME and 10 thousand corporate and commercial customers in 2010. HSBC also aims to increase Turkish SME’s competitiveness in global markets. According to this vision HSBC is planning to allocate resources of 2,5 billion dollars for 300 SME’s in 2010.
The Use of Unemployed Resources
HSBC is planning to grow twice according to five-year development plan realized in 2006. Thus, the firm is planning to increase its branches from 159 to 350 and number of staff from 5.000 to 8.500. Last year 40 new branches have been established, this year 43 new branches are planned to be established. These recruitmentswill decrease unemployment in Turkey.
The Upgrading of Resource Quality
HSBC initiated the upgrading of resources by educating the local personnel to use equipment, technology and new services.Learning and development is essential in an ever-evolving industry. HSBC regularly revise its training programs. It wants to equip its employees with the skills they need to operate successfully. HSBC uses a variety of training mechanisms, including e-learning, which is a cost-effective way of enabling more employees to work on programs at their own pace. Regional Training Centers provide training, education and guidance in a local environment for local people in their own language and respecting cultural, religious and ethnic values. In 2005 they invested an average of US$800 per employee on training programs delivered by our 16 major training centers worldwide. By training its personnel in information technology department about NET, JAVA and MS SQL, HSBC increased its personnel’s competency in Turkey.
Corporate social responsibility forms a core part of the training for relationship managers working within Commercial Banking and Corporate, Investment Banking and Marketsbusinesses. The training is delivered by Group training function to ensure consistency across all businesses and includes training on reputational risk, living brand values and delivering against theGroup’s strategy.
In addition to receiving CSR training, graduate trainees will also develop local financial literacy projects to educate women and children from low-income communities.
Increased Competition
After purchasing Advantage Card, installment and cash point features are added to all HSBC credit cards. Competition pushed existing local companies to improve their efficiency to add those features.
Foreign Market Opportunities
HSBC makes it easier for Turkey to reach foreign markets in a global world. Locan banks can do this too. If a foreign bank is as global as HSBC, reaching foreign marketsand importers and exporters in those countries are easier. Another advantage is that HSBC’s global brand name can take cheapness of funding to Turkey.
Campaigns
HSBC provides help for Turkish citizens without distinction of nationalityby making campaigns. It makes donation of behalf of each customer to Community Volunteers Foundation (CVF), for each statement they receive only through e-mail by education support campaign. In 2004 HSBC started a project with the collaboration of Çağdaş Yaşamı Destekleme Derneği to exhibit a foundation to 500 students in accordance with education support policy. Number of students increased to 1000 in 2006.
HSBC volunteers have started a campaign to support 21 schools in 20 different cities. Banks’ personnel voluntarily help schools in cities like Siirt, Kahramanmaraş, Artvin, Kars, Ordu, Tokat to meet their book, stationery goodsand amendment requirements. It also extend financial aid of 3 thousand YTL. HSBC volunteers had an extensive budget bythe help of HSBC personnel. While each volunteer endows 2 YTL, each employee endows 4 YTL a month. Different needs of 30 thousand children have satisfied since 2003.
HOST CONTRY LOSSES
Purchases in Turkey
According to John. D. Daniels, a host country may lose if investments of MNEs
- Replace local companies
- Take the best resources
- Destroy local entrepreneurship
- Decrease local R&D understandings
Here we first examine the purchases of HSBC in Turkey and negative effects of these purchases on Turkey as a host country.
In October 2001, HSBC acquired Demirbank TAS, the fifth largest private bank in Turkey, and its wholly-owned stock broking and fund management subsidiary, Demir Yatirim.
The merger of HSBC Bank A.S and Demirbank was successfully completed in December 2001. The combined bank, HSBC Bank AS, has a network of 187 branches and offers a comprehensive range of products and services to corporate, commercial and personal customers. In addition to a nationwide network of branches, HSBC offers telephone banking, internet banking and ATM services in Turkey.
On 8 August 2002, HSBC Bank A.S had signed a Sale and Purchase Agreement for the acquisition of Benkar Tuketici Finansmani ve Kart Hizmetleri A.S. (Consumer finance and card services) and the Advantage brand from Boyner Holding A.S. The purchase of Benkar was completed on 19 September 2002.
Through the acquisition of Benkar, HSBC is complementing its extensive financial services portfolio in Turkey and will now provide HSBC customers with installment cards. At the same time the bank will provide qualifying Advantage card customers with an international credit card and other banking services.
After we explained the purchases now we will go into details. Before 2001 Crises, Demirbank was the one of the midsize banks, had been taking business from Turkey's big established banks. It had also bet big on the anti-inflation program's success in bringing interest rates down still further. At one point, Demirbank held 10 percent of Turkey's domestic debt. But it was funding its operations from Turkey's short-term money markets, which were supplied by the same big-money banks it had alienated. For Demirbank, the ratio of government debt instruments portfolio to total assets was about twice the size of other private banks. Unlike other private banks, this bank was not active in traditional banking business of collecting deposits and distributing loans. With its large portfolio of government securities (approximately half of which is purchased in the year 2000),Demirbank implicitly helped the Treasury to attain its primary goal. Perhaps, it is for this very reason that the authorities decided to pursue a policy of regulatory inaction.It may also be the case that this bank more than any other small bank, through its unusually rapid growthtrajectory, posed a serious threat to major actors in the private commercial banking system. The funny thing was that these money-center banks, with their international network, got their funds from the short-term US repo debt market through New York international banks.
When delays hit a big Demirbank foreign-loan syndication, the bank suddenly found its lines of credit cut. During the onset of the initial crisis in November 2000, large banks, notably Akbank and Garanti Bank, shut down their credit lines to Demirbank which was experiencing severe liquidity problems at the time.Demirbank was forced to dump its Turkish treasury bills at a loss to meet margin calls and other obligations. A classic fire sale began, not much different from the situation faced by the hedge fund LTCM in the United States, except on a much smaller scale. Normally, the Turkish central bank would have stepped in to ease Demirbankover its liquidity crisis, as the New York Fed did with LTCM, and all would have been fine. But a key condition of IMF support for Turkey's anti-inflation program was a cap on the total foreign and local currency in circulation in Turkey. So when the Demirbank crisis triggered a small rush to buy dollars from the central bank, it drained Turkish lira out of circulation just when they were most needed to ease lending between banks.
Finally, towards the end of the liquidity crisis of November 2000, Demirbank was transferred to the Savings Deposit Insurance Fund (SDIF) on December 6, 2000.
Most countries are generally alarmed when a company buys a local firm. In Turkey after the 2001 crises which had reached its peak in February 2001, HSBC purchased Demirbank for 350 million $. However, before the crises, HSBC offered 1 billion $ for Demirbank. Albeit the President of HSBC Keith Whitson thought this price was fair for both sides, this difference incurred large losses in Turkey. Turkey threw away a good opportunity before crises period. Besides, this capital outflow is a disadvantage for Turkish economy. Nevertheless, when we see this effect on the resource side, it is difficult to determine that there was more or less employment because of the acquisition.
Bombs Hit HSBC Bank in Istanbul
On 15 November 2003, as US President George W. Bush was in the United Kingdom meeting with Prime Minister Tony Blair, two truck bombs exploded. Suicide bombers detonated the vehicles at the HSBC Bank and the British Consulate, killing thirty people and wounding 400 others. The bombers appear to have waited for the traffic lights in front of the HSBC headquarters to turn red to maximize the effects. Several Britons were killed in the two attacks, including the top British official in Istanbul, consul general Roger Short, but most of the victims were Turkish, as in the earlier synagogue blasts. At 15.00 hours local time HSBC announced that it was closing temporarily all of its branches in Turkey. It appears that the bombers may have specifically targeted UK interests in the city
Al-Qaeda later claimed responsibility for both attacks. Some captured suspects said that Osama bin Laden himself ordered the attacks, but rather wished to hit a US military base in Turkey.
The financial impact of the attacks was felt immediately in Turkey. The Istanbul stock exchange was closed after the explosions, but not before the stock index had dived 7.3% amid panic sales. Investors were afraid of the attacks and they relinquished their investments in Turkey.
Besides, attacks affected tourism sector and decreased the reliability of Turkey. Tourist demand diminished and Turkey was taken in the black list because of the possibility of an attack like that. Moreover, with the explosive effect, tradesman and their shops around the venue are harmed.
“HSBC launches fund for victims of Istanbul tragedy 26 November 2003”
HSBC has launched a US$1 million staff welfare fund to help the families of staff who were bereaved or injured in shocking events in Istanbul. The Group is also establishing a community relief scheme to help local businesses which were devastated by the bomb blasts.
The HSBC Turkey Staff Memorial Fund will raise money to support the families who have lost loved ones, fund education for the children who have lost parents, and help staff who were injured, some seriously, in the bomb blasts. HSBC will make a donation of US$1 million to launch the fund, which will also be available to donations from employees of the Group worldwide and the general public - details of the relevant bank accounts follow below.
Herewith this fund they tried to compensate the losses of both home and host country.
Taking the Best Resources