Business and Management Challenges of the Hong Kong and Shanghai Banking Corporation - Case Study Example

BUSINESS MANAGEMENT & CHALLENGES Contents Introduction………………………………………………………………………..2 2. Brief Background………………………………………………………………….3 3. Literature Review………………………………………………………………….5 4. Analysis……………………………………………………………………………8 References………………………………………………………………………..10 1. Introduction “An organizations ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage” – Jack Welch, 2009 In an age of globalization, rapid technological innovations and growing need for information management; achieving and sustaining profitability is fast becoming the most sought after criteria for success. Globalization has transformed the manner in which business is conducted and hence it is of utmost significance to the organizations across all industries to develop core competencies or critical success factors so as to sustain their competitive standing in the industry. According to Porter1 “Competitive advantage grows fundamentally out of the value a firm is able to create for its buyers”. Each industry is formed by a set of competitive forces and the attractiveness of any industry is largely dependent on the interaction between such core competitive factors which ultimately determine the profitability and competitive positioning of the firm in the industry. An organization can achieve sustainable growth and development by gaining competitive advantage over its competitors. The term competitive advantage refers to a position where an organization is able to achieve and maintain profitable position in the industry which far exceeds the industry average. An organization can achieve sustainable competitive advantage by delivering similar types of products or services at relatively lesser costs and better quality. This gives the firm an edge over its competitors and helps it in expanding its customer base; increase its revenue inflows, and gain wide spread brand recognition. It can be achieved by offering superior quality products or services, innovation, better efficiency and developing better and efficient customer relationships through constant interactions. This paper discusses the concept of competitive advantage with respect to HSBC. 2. Brief Background The Hong Kong and Shanghai Banking Corporation, also known as HSBC is one of the largest banking and financial services organization in the world which has over 9500 offices in 86 countries and networks spread across continents including Europe, Asia – Pacific, the Middle East, America and Africa2. Presently it holds the distinction of being the largest company and banking group in the world3. The Hong Kong and Shanghai Banking Corporation was established in the year 1865 with a view to provide financial assistance for the growing trade between Europe, India and China and ever since its establishment HSBC has been a pioneer of modern banking practices4. In 2008, HSBC posted a profit before tax to the tune of US$ 9,307 million, a reduction of 62% compared to the previous year. Such imbalances arose on account of the ongoing global economic crisis, which is probably one of the most significant occurrences whose impact was felt across the global financial services sector. However, owing to the bank’s robust corporate strategy, it has conveniently able to survive one of the biggest blows / setbacks experienced by all the sectors globally and managed to post comfortable profits in all its product and service offerings which is reflected in its healthy balance sheet figures and strong liquidity ratios. The bank has further expanded its business during such period of acute crisis and continues to excel on account of its strong brand recognition and unparalleled performance. Owing to such continuous display of corporate growth par excellence, the bank was recently recognized as number one brand in banking by Brand Finance5. HSBC offers a range of products and services which includes DECS (Direct Execution and Custody Services) to institutional clients, Global Custody, Fund Administration, Network Management, Performance Measurement, Outsourcing, Securities Lending, Treasury Services and Cash Management, as well as Trustee and Depository Services6. One of the most distinctive features of the bank includes its personal finance services. With the increase in competition the choices offered by financial service institutions has risen to include a wide gamut of product and services aimed at offering easily accessible financial assistance to its customers. HSBC is a pioneer in such services which includes Banking services, card services, personal credit services, mortgage services, insurance services, investment services and payment services among others. 3. Literature Review Companies achieve competitive advantage through several means which includes both conventional as well as revolutionary. The conventional means of achieving competitive advantage include - achieving cost advantage over its rivals, product innovation and differentiation, offering value added services to the customers, etc while some other methods include achieving competitive advantage through corporate social responsibility, inter organizational co-operation, sustainable value model, etc; some of them are discussed hereunder: Customer satisfaction is regarded as the foundation of customer loyalty which is, in turn, one of the most competent tools of achieving competitive advantage7. Customer satisfaction can be continuously enhanced through continuous product development and innovation. For instance, Portakabin, one of the leading manufacturers and suppliers of office modular and portable office buildings in the U.K., strives to achieve competitive advantage through new product and service development in a bid to offer complete solution to its customers8. Jonker et al (2006)9 proposed the ‘Sustainable Value Model’ for creating competitive advantage which is based on the belief that the ‘stakeholder value’ which includes economic, environmental and social performance of an organization are largely untapped source of competitive advantage and hence should be efficiently and effectively utilized to strengthen its competitive positioning in the industry. Such an approach can help the organizations in achieving substantial reductions in costs, product / service differentiation, and in developing new market segments which will help in fulfilling unmet societal needs, thereby ultimately gaining an edge over its competitors. Several companies have in the past been held accountable by the Government, the media as well as the social activists for the social consequences of their corporate actions. Organizations are even ranked on the basis of their social corporate responsibility quotient which signals the coming of age of the concept of CSR (corporate social responsibility) as an inescapable priority for gaining competitive advantage. Some of the famous victims of CSR include Nike – which faced extensive public boycott after reports about the abusive labor practices adopted by the company were splashed in the media and by a popular newspaper The New York Times in the 1990s; while Shell Oil – made international headlines and fell prey to negative publicity and vehement protests by Greenpeace, owing to its environmentally fatal decision to sink an obsolete oil rig in the North Sea. Cases such as these, point towards the fact that in present times ‘an affirmative social agenda’ is of utmost significance for gaining competitive advantage and that organizations today have moved on from ‘mitigating harm to reinforcing corporate strategy through social progress’10. Competitive advantage can also be created by developing inter – organizational co-operation. Business and organizations across all sectors and particularly in the B2B markets are experiencing the growing need for establishing co-operation between their suppliers and customers in order to achieve a perfect balance between customization and technological innovation. Thus companies strive to combine a range of products and services by collaborating with its suppliers and other players in its business network to offer the most complete product / service offering to the customers11. For example, in case of Phillips Business Communications is a mid size player in the PABX (Portable Automatic Branch Exchanges) market, but owing to the changes in market structure on account of customer demand it is now required to modify its product / service offering to suit the customer specific requirements. In order to retain its competitive positioning in the market, it is compelled by market forces to establish strategic networks and alliances with its business partners and suppliers which combines its brand power, inherent organizational strengths and technological innovation with the competencies of its strategic partners and suppliers in order to be able to offer a product offering i.e., a complete customized solution to its customers. 3. Analysis HSBC has relied on a host of methods as a means of creating competitive advantage in order to retain its competitive positioning and market leadership. Some of such methods adopted by the organization are discussed hereunder: Historically, HSBC has succeeded in retaining its market leadership by developing innovative ways to stay ahead of the competition. Beginning with the early 19th century, when the international trade gained momentum and the need for financial assistance began to be recognized, it developed new networks and spread its geographical reach by establishing offices across continents in order to make its services readily available to its customers. HSBC continued its expansion drive by acquiring subsidiaries, mergers and takeovers to gain and eventually retain the number one spot in the global financial services sector. According to Sir John Bond, ex chairman of HSBC holding, the key to achieving market leadership and retaining a competitive advantage over its rivals, especially in an era of globalization and increased competition, lies in the organization’s philosophy. According to him, “If globalization is about cultural hegemony we disapprove, if it is about better products and services for host countries and it benefits the citizens of a country then we are for it”12. HSBC heavily relies on technology as a means of gaining competitive advantage over its business rivals. The bank claims that internet is one of the best, fastest and reliable means of reaching out to its customers and acquiring newer market segments and effective implements the clicks and mortar strategy as an integral part of its strategic policy. In 2000, the bank invested heavily (approx US$ 2 billion) on technology to become one of the first financial service institutions to offer technologically backed solutions to its customers and succeeded in reaching out to its customers on a multi geographic multi product basis13. Presently, in the wake of the global economic downturn, the bank aims to leverage its local presence and international network to increase its earnings from developed mature growth economies, increasing its local trade links between developed and developing economies, and transferring skills and practices. The earnings from developed economies such as North America have fallen substantially and hence, the bank plans to increase its revenues from developing economies like India, China, and Mexico among others. The financial services giant believes that in a world where homogeneity and standardization dominate, it prefers to build its businesses through diversification and venturing into newer territories since it relies on the belief that different people from different cultures and walks of life help create value. In the face of the turbulent global economy, HSBC relies on diversification as a key to achieve competitive advantage since it offers a healthy fusion of different ideas, which in turn is an essential fuel for growth and success14. References Books: Jones, R. G., George, J. M., (2003), Essentials of Contemporary Management, McGraw Hill Professional Publication, Pp. 198 Jonker, J., Witte, M. C., (2006). Management Models for Corporate Social Responsibility, Springer, Pp. 336 Lowy, A., Hood, P., (2004). The Power of the 2x2 Matrix, Wiley Publishers, Pp.139 Robinson, D., Hewitt, T., Harriss, J., (2000). Managing Development: Understanding Inter - Organizational Relationships, SAGE Publications, Pp. 54 Wit, B., Meyer, R., (2005). Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage, Cengage Learning Publication, Pp.244 Tansey, S. D., Darnton, G., Waterbridge, J., (2003). Business, Information Technology and Society, Routledge, Pp.50 Journals: Porter, M. E., Kramer, M. R., (2006). Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, Pp. 1 – 7 Lassar, W. M., Winsor, R. D., (2000), Service Quality Perspectives and Satisfaction in Private Banking, International Journal of Bank Marketing, Vol. 18, No. 4, Pp. 181 - 199 Douglas Fint – Group Finance Director, HSBC. Turning Scale and Complexity into Competitive Advantage, UBS Global Financial Services Conference (2006) Websites: HSBC (2009). About HSBC, viewed: March 12, 2009 from: < http://www.hsbc.com/1/2/about-hsbc> Forbes (2008). Special Report: The Global 2000, viewed: March 12, 2009 from: < http://www.forbes.com/lists/2008/18/biz_2000global08_The-Global-2000_Rank.html> HSBC Holdings Plc (2008). Annual Report, viewed: March 12, 2009 from: < http://www.hsbc.com/1/PA_1_1_S5/content/assets/investor_relations/hsbc2008arn.pdf> HSBC (2009). Products and Services, viewed: March 12, 2009 from: Portakabin (2009). About Us, viewed: March 13, 2009 from: Read More