Corporate Strategy of HSBC - Case Study Example

Corporate Strategy of HSBC Table of Contents Table of Contents 2 Introduction 3 Strategic Position and Business Model 3 Strategic Options 6 Evaluation of the Strategic Options 6 Justification and Recommendation 9 Implementation 9 Conclusion 10 References 11 Introduction Global organizations are dissimilar in terms of their area of operation and the product or service offerings. Most of the companies which have global operation usually comprise different business forms (Oliva and Kallenberg, 2003; Shin, 2001). The business forms are generally subsidiary companies with a multidivisional structure. The strategic decision in a global environment tries to design the organization’s overall direction and its ultimate validity during the unpredictable and predictable changes, which may take place due to the changing business environment. Similarly, organizations belonging to the global banking industry are considering different type of business forms in order to sustain in the market place. These days’ banks offer diversified financial services such as savings deposit, term loan, and also fund transferring among others. One such bank which offers all the aforementioned services is HSBC Bank. This project is about identifying the strategic position of HSBC in the global market. In addition, the report will also try to identify the business model of the company. Once the strategic position and business model of the company is identified, the next step is to carry out an evaluation about the strategic options available to the company in order to develop their business. The evaluation of the strategic option will be done on the basis of the findings from SWOT analysis. After that the report will justify the strategic option and along with that few recommendations will be provided. The recommendations will be about how the company can improve its current state. Finally, on the basis of the findings, the study will draw conclusions. Strategic Position and Business Model The Moto of the company is The Worlds Local Bank. The mission statement of the company is “Providing outstanding customer service; effective and efficient operations; maintaining strong capital and liquidity by prudent lending policy and strict expense discipline” (HSBC Holdings PLC, 2012). The mission statement of the company clearly reflects the dedication of the company towards providing high quality services to the customers. The company aims to attain high standards of honesty, integrity and want to remain committed towards fair and true dealing. In addition, the company is also concerned with the competence and quality issues. Lastly, HSBC Holdings Plc also tries to comply with the rules and regulations of business. The company mainly focuses on two long term trends and defined its strategy accordingly. The two long term objectives are as follows: - Financial Flow: - The world economy has been connected like never before. Cross border flow of capital and world trade has continuously outstripped the growth of domestic products (Solé, 2007). Moreover, the financial flows between regions and countries have also become intense. Hence, within the next decade, the company anticipates that around 90% of the world trade growth will be represented by 35 markets. Additionally, the company also expects that the level of concentration in the flow of cross border capital will remain unchanged. Economic Development: - The Company expects that by 2050, they will be able to cater to new markets and new market segments. Among the 30 emerging markets, the company believes that by the year 2050, 19 will be called as high end markets. Hence, the company wants to expand the HSBC is considered to be one of the few international banks and its competitive advantage lies in the wide market network and coverage. This strategy of the company has helped them to maintain international financial flows, and access the high end markets. In addition, this particular strategy has allowed the company to earn huge amount of revenues every year. In order to achieve the aforementioned long term objectives, the company has the following strategic position. Strong Business Network: - The Company is strategically positioned in such a way that it will be able to take hold of the international financial flows. HSBC Holdings Plc mainly uses franchise model to carry out their business operation. Moreover, the company has positioned itself in the market as a bank which serves corporate clients. Moreover, the company is also determined in offering retail banking solution to the personal clients (Ahlstrom and Bruton, 2009). Focus Wealth Management and Private Banking: In order to achieve high share in the markets which are growing at a rapid pace, the company needs to focus on private banking and wealth management business. HSBC also invests in the retail banking business, but to only those markets which will allow the company to operate in a profitable manner (HSBC, 2013; Loosvelt, 2006). Business Diversification: In the foreign markets, the company uses business diversification strategy as a part of their corporate strategy. In addition, the company also emphasizes on growth strategy, for the purpose of expanding their business on the foreign soil. Apart from the aforementioned strategies, the company has recently decided to reduces its expenses and cover the losses it has suffered due to the global economic downturn and sovereign debt crisis. In order to accomplish this objective, the company has decided to lay off around 30,000 jobs worldwide (Reuters, 2012). Along with that HSBC is also planning to close down several branches, which are no longer profitable. The company believes that with this approach of the company will be useful for improving its financial condition (Muñoz and Patrick, 2011). The business model plays a crucial role towrads the success of a company. It simply sheds light on how a company will earn revenue and remain profitable. In the context of entrepreneurs, a business model helps to acquire new investors or how the firm can establish partnership. The business model of HSBC is extremely simple and it mainly focuses on subsidiary business. In order to expand to other parts of the world, the company considers subsidiary companies to carry out the operation on their behalf. The company carries out its business with the international customers, where the connectivity of emerging markets is critical. The company also does business with the local customers, where the company will be able to achieve efficiency through operations on a global scale. The business areas of the company include investment and corporate banking, commercial banking, private banking and personal financial services. The company caters to the mass market with the help of its personal financial services. On the other hand the small and medium sized business houses and large organization are served with the help of commercial banking. The company earns revenue and remains profitable by following this business model. The pictorial representation of the company’s business model is presented below: - Figure 1 Strategic Options Evaluation of the Strategic Options The current business age can be dubbed as the age of intense rivalry. In addition, the need of customers is dynamic in nature and keeps changing with time. This has led organizations to make changes in their business, marketing as well as options strategy over and again. Similarly, HSBC is also a company, which has made several tactical changes in the past. Currently, the company is dealing with several issues in the market. This is the reason why we find, large number of job cuts by the bank, and closing down of a number of branches around the world. The rationale behind such occurrences is both internal as well as external. The situation therefore clearly points out to the fact the company presently need some kind of changes to its strategies. The challenges faced by company can be easily uncovered with the SWOT analysis carried out in the first part (Part A) of the report. The SWOT analysis carried out in the first part to get insights into the strengths, weaknesses, threats and opportunities faced by the company has shed light on the fact that the profit margin of the company has reduced significantly. Apart from that the asset quality of HSBC has also deteriorated with the passage of time. The market capitalization of the company has also decreased due to the poor performance of the strategic business units (SBUs) of HSBC. The biggest issue however, come in the form of security threats. Due to lapse of operational security there has been increasing concerns over the security of the data of existing customers of the bank (The HSBC Group, 2011). The bank has operations in almost every part of the world. However, in some of the developing countries such as China and India, it has to deal with stringent regulatory frameworks. However, the biggest threat of the company comes in the form of financial glitches. The major ones are sovereign debt crisis and the ongoing financial downturn. Additionally, there are also financial issues pertaining to the banking operation. In order to deal with these prevailing issues, it is important to develop and suggest some strategic options. Strategic options are defined as the alternative or creative and alternative courses of actions that are executed to deal with the prevailing issues. The strategic options are also useful in making preliminary screening of the alternative courses of action. The strategic options open to the company in order to deal with the existing challenges are as follows: - Product Differentiation: - One of the viable options for the company to deal with the existing challenges can be product differentiation. Product differentiation is defined as a process by which a company is able to distinguish its products from those of its rivals. The primary intention of pursuing a product differentiation strategy is to make the products more attractive than the products offered by competitors. However, product differentiation does not only mean differentiating the product from that of the competitors, but it is also about differentiating from the company’s own products. Currently, the products offered by HSBC include depository services, credit and debit cards, mortgage term loans, and also different type of insurance products. Although, it is impossible to change the core products of the company, but the company can inculcate additional features to the existing products. With this approach the company will be able to make product differentiation. This strategic option will not only address issues pertaining to financial problems, but will also play crucial roles in plunging the impact of recession on the bank. Focus on Low end Markets: - The bank has positioned itself in the market in such a way that it only caters to elite class of the society. The eligibility criteria for the individuals as well as for the companies have been set high by the company. From these findings, it can be stated that the company only focuses on the high end market to earn revenue. The mission statement of the company however reflects that the company is fully dedicated to provide world class service to the customers. Therefore from both these findings, it has been understood that the bank wants to continue their business operation only with elite customers and is dedicated to provide them high quality service. On the other hand, if the bank along with serving high end markets also focuses on the low end markets, it may prove to be an effective strategic option. The company can target the low end customers with the existing products and services. In this context, the only change that the company needs to make in the offerings is the average quarterly maintenance of account balance. If the average quarterly balance is reduced, the company will have the opportunity to target low end markets. This will allow the company to maintain a steady fund flow and can overcome the issue of financial turbulence (Zisa, 2011). Merger and Acquisition: - Another workable option for the company can be merger and acquisition. Merger and acquisition is one of the aspects of corporate strategy and management which deals with selling, buying, combining and dividing different companies which can help companies to grow at a rapid pace. For example, joint venture is one of the examples of merger and acquisition. In this context, HSBC can also pursue this corporate strategy. The bank has branches in several parts of the world and the study revealed that in some of the countries such as Pakistan, the bank is performing poorly and hence the management at HSBC has decided to close down operation at that place (Colchester, 2012). However, in spite of closing the operation, if the company merges with any of the local banks, it will greatly help them. Since the local bank will be more familiar with the legal guidelines of the country, HSBC will be able to comply with the rules and regulations. Justification and Recommendation In the last part, the project has identified three strategic options for the company, which are the probable solutions for the company. The three strategies identified are product differentiation, focusing on low end markets and merger & acquisition. In the context of product differentiation, the company will be able to address most of the issues it is currently dealing with, but the challenges pertaining to security threats, and sovereign debt crisis cannot be solved with this strategic option. Therefore, this strategy is not recommended to the company. The next strategic option was related with the company focusing on the low end of the market. This option can be extremely useful for the company in addressing most of its prevailing issues. The financial issue will be completely solved, as through this approach the company will be able to ensure continuous flow of funds. The market share may also increase greatly. However, the only problem associated with this strategic option is that the issue of profitability margins will not be solved and may increase at certain point of time. In addition, HSBC will also find difficulties in offering operational security to the clients. Therefore, this option is also not recommended to the company. Finally, the option of merger and acquisition can be beneficial to a large extent, as with this approach HSBC will be able to find solution for most of its business issues. Rather than closing down the operation where the bank is underperforming, the management can merge with another local bank. Moreover, the company will be able to increase market capitalization and can comply with the legal requirement. With the help of the acquiring bank, HSBC will be also able to provide operational security to the customers. Therefore the company is highly recommended to pursue this strategic option. Implementation The company is considering closing its operations in Pakistan, due to poor performance. However, in this context merging with another bank can be a feasible option. The implementation process of merger and acquisition is very simple. It only includes four stages. In the first stage it is important to determine the rationale for which the merger will take place. In addition, this step also includes analysing the management structure of acquiring company. The second step is about analysing the products or service offerings of both the companies. On the basis of the findings, it is recommended that the company should design its merger plan. The final step required is the implementation of the plan. It is recommended that the company should consider the resources and time required to accomplish the entire process. Conclusion HSBC is one of the largest and leading banks of the world. The bank is continuously trying to expand its operation in other parts of the world, but it is facing strict competition from other banks. In addition, the company is also dealing with several issues such as debt crisis, financial instability, and low market capitalization among others. There are some issue also related with the ongoing financial downturn. In order to deal with these issues, the report has formulated three different strategic options; however the most appropriate one recommended to the company is pursuing merger and acquisition. This strategic option will help the company to serve most of the purposes. References Ahlstrom, D., and Bruton, G. D., 2009. International Management: Strategy and Culture in the Emerging World. Connecticut: Cengage Learning. Colchester, M., 2012. HSBC in Talks to Sell Pakistan Branches. [online] Available at: < http://online.wsj.com/article/SB10001424052702303772904577335242897127520.html> Accessed 12 March 2013]. HSBC Holdings PLC, 2012. Strategic Objectives. [online] Available at: [Accessed 12 March 2013]. HSBC, 2013. Our strategy. [online] Available at: [Accessed 12 March 2013]. Loosvelt, D., 2006. Vault Guide to the Top Financial Services Employers, 2007. 3rd ed. New York: Vault Inc. Muñoz, S. S., and Patrick, M., 2011. HSBC Strategy Shift Cuts Jobs, Branches. [online] Available at: < http://online.wsj.com/article/SB10001424053111903520204576481533557357692.html> [Accessed 12 March 2013]. Oliva, R., and Kallenberg, R., 2003. Managing the transition from products to services. International Journal of Service Industry Management, 14 (2), pp. 160-172. Reuters, 2012. HSBC cuts 30,000 jobs sees more to come. [online] Available at: [Accessed 12 March 2013]. Shin, N., 2001. Strategies for competitive advantage in electronic commerce. Journal of Electronic Commerce Research, 2 (4), pp. 164-171. Solé, J., 2007. Introducing Islamic Banks into Conventional Banking Systems. Journal of Islamic Economics, Banking and Finance, 4(2), pp. 9-34. The HSBC Group, 2011. HSBC France: Annual Report and Accounts 2011. [pdf] Available at: < https://www.hsbc.fr/1/PA_1_3_S5/content/france/about-HSBC/financial-info/annual-reports/pdf/DocRef_2011_(EN).pdf> [Accessed 12 March 2013]. Zisa, L., 2011. Assessing the Risk Management Process in the Banking Industry. Munich: GRIN Verlag. Read More