StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The UK Financial Sector - Term Paper Example

Cite this document
Summary
It has operations in many countries across the world and has developed several innovative and creative methods to maintain its presence not only in the UK but also globally. HSBC…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.7% of users find it useful
The UK Financial Sector
Read Text Preview

Extract of sample "The UK Financial Sector"

Strategic Analysis Introduction HSBC is the second largest insurance company in the world and one of the largest banks in the world. It has operations in many countries across the world and has developed several innovative and creative methods to maintain its presence not only in the UK but also globally. HSBC has played a big role in the global and UK economy, creating employment and inspiring the creation of other firms that are in awe of it achievements (Lista, 2013:34). The fact that HSBC’s struggles are felt across the world, not just the UK, is testament to its dominating presence. Competitors like Citigroup, Royal Bank of Scotland (RBS), and Barclays have provided a stern test of HSBC’s resilience and innovation, but so far the company has emerged stronger from every challenge. However, it still has to improve on certain areas like building an online presence to match its physical presence. This will be possible; soon. In this paper, the writer will discuss the overview of the UK financial industry, HSBC’s macro environment, as well as its competitive environment. It is hoped that several lessons will be learned by not just the readers, but also the companies involved in the provision of financial services and products. Industry Overview The UK financial sector is one of the largest and most advanced in the world. In fact, besides the United States, no other country has a financial industry as developed as that of the UK. The industry hosts some of the biggest companies in the world and uses some of the most technologically advanced processes to deliver products and services in the UK and abroad (Monteiro, 2013:49). Some people make resolutions to reduce weight and be more fit. The UK financial services sector has made a lot of developments in getting fitter, and its balance sheets are now good reading. Well, not good reading but they are not the eyesore they were a few years ago. The industry has reformed how companies are run, using a helping hand from regulators. This has made financial scandals like PPI undervalued sale and Libor-fixing less likely to occur in the future. The industry is still recovering from the financial crisis of 2008, but it has performed better than most in buffering its clients from the adverse effects of the crisis. This is not to say that UK residents did not feel the impacts of the financial crisis. They did, but their government and the financial industry did well to protect them from the worst of it. Another popular resolution is encouraging companies to learn new skill (Ciro, 2012:74). This is where Deloitte is convinced that financial institutions like HSBC would be clever to invest their time and money. The industry should upgrade its use of technology and its intimacy with customers. Economic forecasts are increasingly optimistic than they have looked in ages. If these are proven, financial institutions will have more business to rival each other in. However, the competitive scene will also hot up in the future. New competitors are entering the industry and are making UK companies aware of the need to do better in every aspect. Companies like Google, PayPal, and Metro Bank have identified the UK financial services industry as the most attractive across the Atlantic. Regulators are still harassing banks and insurance agencies like HSBC in order to gauge their compliance with new laws meant to combat issues like money laundering other improper financial conduct. To cope with this “problem,” UK financial institutions need to embrace technology (Cunha, 2013:43). This is an area that comprises everything from security against cyber attacks to big data. Technology is also the driver of the most vital trends in the industry, the move to digital banking. The verdict is yet to be delivered on how much money this can save the sector. But what is certain is that it can enhance customer experience. Studies have shown that individuals who use digital banking are more likely to recommend their financial providers to colleagues and friends and less likely to shift to other companies, compared to those who do not (Johnstone, 2010:54)). More studies have revealed that customers are more optimistic when talking online about digital financial services than about other channels. Overall, the future looks bright for the UK financial industry, and it can only get better. Macro Environment Analysis Political Environment The political landscape across the world is still relatively unstable as a result of the economic chaos the world experienced in the wake of the 2008 financial crisis. With upheavals in the ruling political parties in developed, powerful countries like the United States and the United Kingdom, the chances of new regulations being created to bring the banking industry under control are very high (Roselli, 2012:27). In the UK, some political movements have pushed for the disbandment of the Financial Services Authority. In 2012, HSBC’s executives had to appear before the US Senate’s Permanent Subcommittee on Investigations following the committee’s launch of investigations into the possible risks the US financial system faced from HSBC’s poor compliance with US laws on money laundering and financial penalties (Lista, 2013:28). The US government held HSBC liable for money laundering from illegal activities by drug kingpins. The figures amounted to almost $2.7 billion in assets. The bank is now compelled to boost its compliance and risk management system and culture, which will be very expensive (Lista, 2013:39). The public currently bears feelings of distrust to financial organisations like the HSBC and are now urging authorities to create tighter regulations on financial institutions like HSBC. Officials from the Financial Services Authority now attend board meetings, demand more information, and question decisions taken by senior executives. The uncertain future responsibility of the Financial Services Authority and the Bank of England is also a big worry for HSBC (Bennett and Kottasz, 2012:134). Clamor to reform the monetary framework of the Bank of England and the FSA have put HSBC in a very uncertain situation, and banks do not like uncertainty. In fact, no business likes uncertainty. Some political parties in the UK have attempted to give the Bank of England more powers to regulate the financial structure and to disband the FSA (Ciro, 2012:77). Economic Outlook The world remains in a state of shock after the 2008 financial crisis. It may not seem to be the case among ordinary people, but the major companies are still recuperating from the crisis which left many as financial vagabonds who had to rely on governments for bailouts before they could resume operations. The financial crisis was felt in the United Kingdom, although to a lesser extent than other regions. However, the effects were still grave enough to cause panic among financial powerhouses like HSBC (Khan and Anderson, 2012:45). The financial downturn brought slow effects that have not peaked in other regions as of today. For instance, developing countries are yet to feel the impacts of the crisis. HSBC has operations in many developing countries, and this is a major worry for it. Inflation continues to be a worry even though the prices of basic commodities and economic activity decline in the UK and other countries (Lista, 2013:49). The UK is still affected by the global economic downturn after it experienced a full-blown crisis following the US’s financial woes. This is according to HSBC’s estimates. Domestic demand is still low, and worries over inflation have refused to go away. The financial industry is still experiencing a huge decline in demand for services and products like insurance and mortgages, HSBC’s main sources of income. Employment is set to rise to 8.5 in 2014, and the bank base rate is at its likely lowest (0.5 percent) in 300 or so years. The liquidity problem that caused the failure of banks like Northern Rock is still around, and the HSBC is facing very uncertain times now and ahead (Bennett and Kottasz, 2012:136). The effects could have been worse if HSBC did not have a large portfolio of products and services it offers to clients in many geographical locations. This allowed it to spread its risks, but it was still hit pretty hard (Ciro, 2012:78). According to industry insiders, the HSBC is doing better than expected because its main revenue growth is supported by Global Banking and Markets and Commercial Banking, especially in the dynamic regions of Latin America, rest of Asia-Pacific, and Hong Kong. Social and Environmental Factors The world’s population is expected to rise rapidly in the next decade. In terms of sheer quantity, India and China alone would still account for approximately a third of the total population and therefore making them the largest foreign markets for companies like HSBC (Virgo, 2013:430). Even though the population is expected to hit 9.2 billion by 2050, the next generations will experience a rapid expansion of the older populations and a reduction in birth rates in developed countries like the UK, Japan, and Germany. The world is close to breaking a demographic boundary with the global population of 65 and over to beat the number of children under five (Lista, 2013:51). This does not make good reading for organisations like HSBC because it depends on the coming generations, not older ones, to drive its growth. Global warming and green movements have raised awareness on the environment among companies (Virgo, 2013:431). Corporations worldwide are putting measures in place to reduce carbon emissions and advertise their initiatives to be socially and environmentally friendly. HSBC will be forced to engage in such activities lest it is seen as just another greedy company that does not care about anything other than profits. These initiatives will cost money and have to be planned for. Criminal money laundering is also another social issue HSBC has to deal with today. In 2012, the US government held the company liable for criminal money laundering totalling $2.6 billion and asked it to contribute lots of time and resources to monitor many (millions) criminal transactions (Virgo, 2013:432). This cost the company a lot of money and ruined its image. HSBC is also getting ready to support an initiative to make the UK economy low-carbon. As a result, it is offering climate financing, including debt and equity investment, environmental markets, and insurance (Virgo, 2013:432). This is very costly, but the company has declared that it is dedicated to reducing its carbon footprint by minimizing recycling waste, improving energy efficiency in its buildings and reducing transport emissions. Technological Factors As low carbon techniques emerge to support the UK’s low-carbon economy, HSCB is starting to invest in “clean tech” and climate research. For instance, in 2011, the company provided structured financing for low-carbon emission transport systems in cities Panama and Johannesburg. This made it the market leader in the financing of climate technology. Legal Heightened government regulation from the European Union, anti-money laundering demands, as well as more capital requirements mean that HSBC has to contend with legal regulations that are not only time consuming but also very expensive (Marar, Iyer and Brahme, 2009:16). However, this is not matter of choice because the likely repercussions of noncompliance will be more expansive and involving in the long-term. The company has to adhere to the law no matter how expensive it is. Competitive Environment Analysis The UK financial services industry is highly saturated with different companies like niche banks, global banks, insurance agencies, community banks that satisfy every financial need. Due to the high competition, companies are highly service-oriented; client satisfaction is vital to the company’s success (Marar, Iyer and Brahme, 2009:19). The main drivers of success in the industry include quality of service, size of companies, technologies like ATMs, brand recognition, among others. The larger companies tend to have more geographical presence that improves product recognition and convenience. Since the industry is already well set up with few new firms, products, companies can be viewed as in the maturity phase of the business life cycle. HSBC’s rivals include large international banks like the Royal Bank of Scotland, Citigroup, and Barclays (Marar, Iyer and Brahme, 2009:21). These banks do not live up to HSBC’s assets, but they have higher market share depending on the physical location. HSBC, like most of its rivals, provide products and services to small and large clients for transaction banking, securities services, investing, trading and financing, and online services. HSBC performed much better than the Royal Bank of Scotland when it came to weathering the financial crisis. RBS largely relies on the government for aid; as much as eighty percent of the bank is owned by the Scottish government. RBS also has ninety-five percent of its businesses in the UK, while HSBC’s UK business represents only fifty-five percent of its total business (Marar, Iyer and Brahme, 2009:18). American banks like Citigroup provide more services and products than HSBC but cannot match the global coverage of HSBC. The fact that Citigroup’s interests are mainly in the US makes it very susceptible to and threatened by financial crises. However, Citigroup has a good online banking segment that has proved successful and loved by clients. Barclays, which is also smaller than HSBC, concentrates on investment and corporate banking, retail and business banking, and wealth and investment management (Marar, Iyer and Brahme, 2009:15). Barclays has also been involved in multiple scandals since the 1980s. HSC dominates the global environment of financial services. Its reputation for great services, huge physical presence, strong brand name and wealth are the main reasons it is successful and continues to be (Virgo, 2013:434). Like any other business, there is always room for improvement. Considering HSBC’s history of scandals, it should improve its monitoring and tracking infrastructure to avoid bad loans and also copy Citigroup’s online superior segment to improve its online services. References Bennett, R. & Kottasz, R. (2012) Public attitudes towards the UK banking industry following the global financial crisis, International Journal of Bank Marketing, vol. 30, no. 2, pp. 128-147. Ciro, T. (2012) The global financial crisis: triggers, responses and aftermath, Farnham, Ashgate Publications, Surrey. Cunha, M.V. (2013) Market integration through data protection an analysis of the insurance and financial industries in the EU, Springer, Ordrecht. Docherty, A. & Viort, F. (2013) Better banking understanding and addressing the failures in risk management, governance and regulation, Wiley, Hoboken. Hodgson, D.E. (2000) Discourse, discipline and the subject: a Foucauldian analysis of the UK financial services industry, Burlington, Vt., Aldershot. Johnstone, S. (2010) Labour and management cooperation workplace partnership in UK financial services, Gower Publications, Burlington, Vt. Khan, M.H. & Anderson, D. (2012) The impact of geographical diversification on business growth a case study on HSBC, LAP LAMBERT Academic Publishing, Saarbrucken. Lista, A. (2013) EU competition law and the financial services sector, Informa Law, Abingdon, Oxon, UK. Marar, P., Iyer, B.S. & Brahme, U. (2009) ‘HSBC brings a business model of banking to the doorsteps of the poor’ Global Business and Organisational Excellence, vol. 28, no. 2, pp. 15-26. Monteiro, D. (2013) ‘The flow of credit in the UK economy and the availability of financing to the corporate sector’ European Commission, Brussels. Roselli, A. (2012) ‘Financial structures and regulation: a comparison of crises in the UK, USA and Italy’. Palgrave Macmillan, Houndmills, Basingstoke, Hampshire. Virgo, J. (2013) ‘Investment risk, loss, and causation: After Rubenstein v HSBC Bank Plc’ Trusts & Trustees, vol. 19, no. 5, pp. 430-434. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Strategic analysis Term Paper Example | Topics and Well Written Essays - 2000 words, n.d.)
Strategic analysis Term Paper Example | Topics and Well Written Essays - 2000 words. https://studentshare.org/business/1844107-strategic-analysis
(Strategic Analysis Term Paper Example | Topics and Well Written Essays - 2000 Words)
Strategic Analysis Term Paper Example | Topics and Well Written Essays - 2000 Words. https://studentshare.org/business/1844107-strategic-analysis.
“Strategic Analysis Term Paper Example | Topics and Well Written Essays - 2000 Words”. https://studentshare.org/business/1844107-strategic-analysis.
  • Cited: 0 times
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us