CORPORATE AND GLOBAL STRATEGY - Essay Example

? CORPORATE AND GLOBAL STRATEGY Table of Contents Executive Summary 3 Introduction 4 Business Strategy 7 Internal Analysis 7 External Analysis 12 Evaluation of Strategy 16 Conclusion & Recommendations 17 References 18 Executive Summary Business strategy is often referred to as a process and continues along with the business. Nevertheless the strategy of a company needs to be reviewed after a certain interval of time, so that the current strategies meet the changing needs of the customers and matches the changing business environment. By practising this, the probability of a firm to get success in the market place increases to a large extent (Stonehouse and Houston, 2012, p.1). In this context of the study, HSBC has been chosen as the organization. The study revealed that the emerging markets and opening up of the world economy has allowed the company to carry out international expansion. HSBC always follows foreign direct investment strategy to operate in international markets. The external environmental analysis clearly highlighted that in most of the countries where HSBC operates have stable political environment and therefore do not have any operational constraints. In order to gain competitive advantage HSBC uses a mixture of differentiation and cost leadership strategy to operate in the market. However it is recommended that the company should also focus on employing focus strategy, which will allow them to cater to niche segment as well. Introduction HSBC Holdings Plc or commonly known as HSBC, is a UK based multinational financial and banking organization. HSBC Holdings plc was established in the year 1991 by Sir Thomas Sutherland. However the origin of HSBC bank dates back to 1865, when the branches were opened in Shanghai and Hong Kong (Stadler, 2011, p.189). It is presently headquartered at Canary Wharf, London, United Kingdom. HSBC is mainly involved in providing commercial banking services, wealth management, retail banking, investment banking services and also global private banking. It is one of the largest financial services and banking organization of the world. The products of the company include various type of loans, current and savings account, insurance, credit cards, fixed deposits, investment services and advisory services. Furthermore HSBC also has strong presence in sectors such as resources and energy, and research & analysis (Hsbcnet, n.d.). According to the list of Forbes magazine 2012, the company was the sixth largest publicly traded company and third largest bank of the world. HSBC Holdings plc was established in the year 1991 by Sir Thomas Sutherland. However the origin of HSBC bank dates back to 1865, when the branches were opened in Shanghai and Hong Kong. The company has presence in 84 countries of the world and is listed in the Bermuda, London, New York, Hong Kong and Paris stock exchanges. HSBC comprises of around 6900 offices throughout the areas of its operations (Hsbcservicedelivery, n.d.). The major competitors include Barclays bank, Royal Bank of Scotland, Citigroup and J P Morgan Chase among others. The report will primarily highlight the corporate level and business level strategies of HSBC. In the course of the study, internal as well as external analysis of the organization will be carried. In this context analysis tools such as SWOT, PESTEL, Porter’s 5 forces, and value chain will be employed. Depending on the outcome, few recommendations will be also presented. Finally the report will conclude by highlighting the important and critical issues of the study. Corporate Strategy Corporate strategy can be referred to as the guide of decision making which is responsible for determining and revealing the purpose and objective of the organization. Furthermore a corporate strategy also highlights plans and policies by which the organization will be able to achieve those goals. HSBC is considered as one of the largest publicly traded company and is trying to expand their business in those countries, where they did not started the operations. However in every aspect of the financial sector, there is intense competition. Now in order to face it, the company uses “managing for growth” strategy to continue the growth process. “Managing for growth” strategy was launched with the primary intentions of growth and acted as a blueprint for development (Patil and Verma, 2007). One of the most important concepts that must be emphasized in this context is the ideas of strategic change. This strategy is related to the changes in an organization. The concept however do not remains constrained to whether a firm should change or not, but also shed light on the fact that how, where and in what direction a firm should change. In simple words, it is the shifting of a company from its present position towards some desired state in the future by modifying their strategy. The prime intention to carry out such activities is to get competitive advantage. However some of the causes of strategic change are rapid technological changes, increased competition, business relations, political impacts, and due to other external turbulences. In this context HSBC also undergoes strategic change in various forms. Recently, the company announced, that the global private banking operations will be rebranded in order to gain client confidence. Although it does not turn up successful each time. For example in London, the management of HSBC shifted its focus from high street banking to investment and commercial banking. The immediate result was a shocking 1.5 % fall in the value of shares (Treanor, 2011). Also the concept of strategy formulation is extremely important. It is a process by which desired strategies are created. The four key steps are identification, diagnosing, conceiving and realising. In this context, HSBC uses formalism and planning to formulate their strategies. Hence deliberate actions are taken to formulate the strategy. The core values of HSBC are fundamental to its strategy, and addressing them to shareholders, customers, and employees is inherent to the plan. These values encompass an emphasis on long-term, moral relationships with the clients; higher output through joint efforts; a confident and determined sense of excellence; being international in stance and quality; forethought; originality and customer-oriented marketing. All the aforementioned factors are considered by HSBC while formulating a long term strategy. The strategy however keeps changing from time to time and thus makes it flexible. The primary rationale behind having a flexible strategy is to ensure that the company is able to adjust itself during any changes in the external business environment. Apart from that, HSBC also considers diversity strategy. The diversity strategy is about having a diverse group of workforce. The company believes in having a diverse workforce, so that the needs of diverse workforce get satisfied. Also based on the local community, the company considers its recruitment (Morbin, 2004). Business Strategy The strategy of HSBC is to concentrate on the increasing earnings over a longer period of time at a rate that will place it favourably when contrasted with its peer group. The bank also focuses on investing in the development of technology, service delivery platforms, welfare of employees and its brand value to support the future of HSBC. The bank also remains fully committed in benchmarking its performance by comparison with a peer group. Now in order to get deeper insights, internal as well as external environmental analyses have been carried out. Internal Analysis The internal analysis of the company will be carried out with the help of SWOT analysis and porter’s value chain analysis. SWOT analysis will be used to evaluate the internal environment of HSBC. The primary intentions are to uncover the opportunities, strengths, threats and weaknesses. On the other hand porter’s value chain analysis will be carried out to give deeper insights to the supply chain of HSBC. SWOT Analysis A SWOT analysis will be carried out to evaluate the internal and external factors of the company (Williams, Champion and Hall, 2011, p.108). The four factors of SWOT in the context of HSBC are presented below:- Strengths The company has a strong brand reputation and has presence in 84 countries of the world. HSBC is the 6th largest publicly traded company. It offers wide range of products that meets the needs of the customers. Financially strong. HSBC is a socially responsible company and remains dedicated towards the welfare of the society (Hongkongbankfoundation, n.d.). Opportunities Emerging markets. Tapping more market segments which are likely to increase the profitability. Diversification of the product portfolio will offer HSBC an opportunity to capitalize on the present market share. Relationship marketing will offer the company to increase the base of loyal customers. Weaknesses Declining share of market at some places of its operation. Only caters to high income group customers. Due to lack of resources HSBC is finding difficulties to sustain their competitive edge over the competitors. Poor management system and weak marketing approach. Rivals are coming up with new products almost every day. Threats Excessive tax needs to be paid to the government. Saturation of banking industry Intense competition from other global banks as well as from the local banks of various countries. Changing customer needs. Recession may affect the sales volume. Third world countries always prefer public sector banks over any private banks. Value Chain Analysis of HSBC The value chain analysis is principally used to determine and identify the activities that act as a source of competitive advantage and core capabilities. Some of the renowned authors have highlighted that it is important for sourcing decisions to comprehend the mechanism of value creation. It also allows establishing transparency in the services offered and helps to remain cost efficient. The value chain process is characterized by the allocation of resource on one side and on the other hand it depicts how the operational activities interact with one other. Now value chain in the context of a banking industry is somewhat different from other industries. Banking is considered as a business which is driven by customers and therefore the value chain initiates from the marketing side. The process begins with promoting a newly developed product to the marketplace. In the second step, the selling process is carried out, where the newly developed and promoted products are sold by the bank to its customers. The products can be any financial product, be it a savings account or can be any form of investments. The third step is characterized by the delivery of products to the customer. For example the insurance contract, the fixed deposit certificate, the new accounts kit etc are handed over to the customers. The final step is to carry out the corresponding transactional activities such as cheque clearing, settlement and payments. Now the value chain analysis of HSBC is presented below:- Figure 1- General value chain of a Bank (Source: Markus, Nils and Tim, n.d.) Inbound Logistics The inbound logistics include the suppliers who provides fund to HSBC bank. Hence the stakeholders such as domestic and foreign investors can be signified as suppliers. The investors mainly invest in commercial papers and shares. Operations The operations of the HSBC bank include the following:- Commercial banking services Wealth management Retail banking Investment banking services Global private banking The products through which the bank operates are Loans, current and savings account, insurance, credit cards, fixed deposits, investment services and advisory services. Outbound Logistics The bank is trying to get in touch with the customers in more than one conventional way of branch banking. It also uses other means to attain and serve the customers. Hence in order to reach the customers, HSBC is using the following ways: - Branch Banking E-Banking Mobile/SMS Banking Marketing and Sales The selling process is direct. However at some parts of the world the company appoints subsidiaries to carry out the selling function. The employees of the company sell the products directly to the customers. After sales service Once the selling process gets completed, the after sales service comes up. In this context the HSBC has a strong customer query handling cell. Also in order to maintain strong relationship between the customers and bank, HSBC uses customer relationship management tools. External Analysis The external analysis of the company will be carried out with the help of PESTEL analysis and porter’s five forces. Pestle will be used to evaluate the macro environment. On the other hand porter’s five forces analysis will be carried out to measure the industry attractiveness. PSETEL Political – The political factors is mainly about the political constancy of a country. In most of the countries where HSBC operates such as USA, China, UK etc. have stable political environment. In addition, most of the countries have a well defined framework to control the banking and financial activities. For example the banking system of UK is regulated by Financial Services Authority (FSA). Economical – The economic factors comprises gross domestic product, interest rates, inflation rate, growth rate and also the rate of unemployment. The recession of 2007 has hit most of the countries where, HSBC has operation. It has result the global GDP to decline from 5% to 3.7% in the subsequent years. Social – The social factors are about the trends associated with demographics such as population cultural factors, size, and age and consumer activities. Like any other organization HSBC also gets impacted by the conditions and rising situation of the society. However in order to remain least impacted by the society the company remains socially responsible. According to HSBC, the reputations of them today owes to the high standards of behaviour set by their founders. Technological – Technological factors include rate of new product development, current technical infrastructures and process automation. In banking sector information technology is considered as the backbone of operations. The operation of any bank is fully controlled by customized software packages (Wheelock, 2011). Similarly HSBC is also dependent on IT. Also with rapid globalization and technology boom, the company has been able get sound technical infrastructure wherever it has operated. Environmental – The environmental factors of a country includes natural phenomenon such as weather patterns, natural disasters, climate etc. Nowadays protection and preservation of environment is one of the important aspects of a business. Hence in order to carry out the same, the bank has already initiated various programs pertaining to the preservation of environment. In addition, HSBC has joined environment protection campaign. Legal – The legal factors of a country includes the legal business framework of a country. The countries where HSBC have operation consist of a well defined legal framework. The regulations and policies provided by the local government forces the company to be more cautious in performing their business functions. PORTER’s 5 Forces Porters Five Forces Models was originally developed by Michael E. Porter in the year 1980. According to Porter, the degree and nature of competition, within an industry depends on five forces. The five forces are bargaining power of buyers, bargaining power of suppliers, and threat of new entrants, existing rivalry and threat of substitutes (Porter, 1979). Bargaining Power of Buyers Buyers or consumers are either individuals or corporate buyers who are responsible for creating the demands for a product or service in the market place. In simple words it is referred to as the ability of the buyers to reduce the price of the commodities through the process of bargaining (Hill and Jones, 2012, p.58). Now in this context, banking industry is characterized by concentration of the buyers. People around the world use banking services for several purposes. Some of the common functions are money deposit, investment, loan, insurance and currency exchange among others (Ablott, 2004). In a global perspective, the financial sector consists of a large number of players. Also in a domestic viewpoint, a particular country has large number of banks. Thus considering intense internal competition and availability of several banks makes the bargaining power of buyers high. Bargaining Power of Suppliers Bargaining power of the suppliers can be portrayed as the capability of the suppliers augment the price of the raw materials. The suppliers of a bank include hardware suppliers, software suppliers, and suppliers of credit and debit cards. Furthermore, customers are also referred to as the supplier for a bank as it supplies cash to the bank. Since the suppliers of basic items are present in substantial number, the bargaining powers of suppliers are medium. Threat of New Entrant The threat of a new entrant can be highlighted as a threat of a potential player entering the industry. It can have adverse effects, as the level of competition within the industry rises. Now in this context when countries around the world joined WTO and the trade barriers were lifted, entering a banking industry became simple. With less political influence and less impact on environment for banking operations, the threats of new entrants are high. Threat of Substitute Products Substitutes are the products or service that carries out similar function and offers almost the same benefit to the users. Hence substitutes can lower the profitability and market share of the core product. In this context of the study the substitutes of a banking industry includes non-banking financial institutions, investment companies, depository companies etc. Hence given large number of substitutes the threat of substitute products is high. Intensity of competition The intensity of competition depends on the strategic objectives, and exit barriers, industry costs, degree of differentiation, switching objectives and cost. The global banking industry is characterized by the presence of large number of competitors. Therefore the intensity of competition within the industry is high. Factors Threat of new Entrants Threat of substitutes products Bargaining power of buyers Bargaining Power of Suppliers Existing Rivalry Level of Impact High Medium Low (Source: Author’s Creation) Evaluation of Strategy The strategy of the company will be evaluated on the basis of four factors. The four factors are consistency, consonance, feasibility and advantage. On reviewing the strategy of the company, it has been identified that it remains consistent throughout the firm. Moreover strategies pertaining to international expansion, and corporate social responsibility, it is the same everywhere. Although banking operations hardly have any effect on the environment, the company still takes various measures to remain consistent with the environmental law. Now to remain consistent with the external business environment, the company carries out extensive research and the strategy is only formulated on the basis of the outcomes. This allows HSBC to get easily adapted to the changing situations of the business environment. One of the most interesting findings of the study is that, HSBC considers their human resources, financial resources and technical infrastructure before formulating any strategy. This helps the company to test the feasibility of a strategy and to what extent it will benefit them. In this context cost benefit analysis plays a major role. Finally the strategies indeed provide advantages to the company. HSBC mainly follows a mix of differentiation and cost leadership strategy, which allows them to cater to a large number of customers. Hence this strategy facilitates a competitive advantage to HSBC over its competitors. Also according to Porter, differentiation and cost leadership strategy offers competitive advantage to a firm (Porter, 1985). Nevertheless the resources of a company such as all the capabilities, assets, knowledge, attributes etc. also plays a major role towards gaining competitive advantage (Barney, 1991). So from an overall point of view it can be stated that the current strategies of HSBC is offering them competitive advantage in the market place. Conclusion & Recommendations The report was about highlighting the corporate level and business level strategies of HSBC. In the course of the study, internal as well as external analysis of the organization has been carried out. The study revealed that the company has large number of strengths and opportunities. The strengths are mainly in the form of good market reputation, diverse product portfolio, and the financial condition of the company. On the other hands the emerging markets can offer the company with large number of advantages. It will allow the company to carry out internal expansion in other countries as well. The banking industry is characterized by intense competition and therefore to face the competition, the company should consider launching new products and services. The company mainly uses a mixture of differentiation and cost leadership strategy to cater to the market, but in this case, it is highly recommended, that the company should consider using a focus strategy which will help them in catering to niche customers. References Ablott, M., 2004. HSBC cashes in on Household. Cards International [e-journal] Available through: ProQuest Central [Accessed 31 October 2012]. Barney, J. B., 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1), pp.99-120. Hill, C. W. L., and Jones, G. R., 2012. Strategic Management Theory: An Integrated Approach. 10th ed. Connecticut: Cengage Learning. Hongkongbankfoundation, No Date. Awards and rankings in 2011. [online] Available at: [Accessed 31 October 2012]. Hsbcnet, No Date. Products and Services. [online] Available at: [Accessed 31 October 2012]. Hsbcservicedelivery, No Date. Who Are We? [online] Available at: [Accessed 31 October 2012]. 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Banking Industry Consolidation and Market Structure: Impact of the Financial Crisis and Recession. Federal Reserve Bank of St. Louis Review, 93(6), pp.419-438. Williams, C., Champion, T., and Hall, I., 2011. MGMT. Connecticut: Cengage Learning. Read More