Corporate Strategy of HSBC Plc - Case Study Example

Corporate Strategy of HSBC Plc Introduction HSBC Holdings plc is the world's biggest financial group in terms of market capitalization. Not only got that it also rated the third largest company by Forbes 2000. HSBC Holdings was instituted in 1991 to act as the parent company to the Hongkong and Shanghai Banking Corporation. It was based in Hong Kong. The head office of the group is situated in the HSBC Tower (8 Canada Square) in London's Canary Wharf. The group actually is named after its establishing and largest member, the Hongkong and Shanghai Banking Corporation. The international network of HSBC consists of over 10,000 offices in 82 countries and territories all over the world. It has been maintaining tremendous performance. Traditionally, HSBC is holding a very strong Tier 1 ratio. In 2006, the Tier 1 ratio of HSBC was 9.4%, considerably higher than the Tier 1 ratio of 8% maintained by the global banking industry. At the end of June 2007, HSBC had a Tier 1 ratio of 9.3%, higher that those recorded by its competitors RBS (7.4%) and Barclays (7.7%). HSBC is aspiring to double the involvement of insurance from present levels, to 20% of profit prior to tax. For the period of the first half of 2007, the groups’ insurance operations contributed 11% to HSBCs profits. The group is at present concentrating on cutting costs and on scaling down operations in the US, in order to preserve profitability that it has obtained. Strategical Applications To check the performance of the bank strategically, it is important to check its applications. It is the fourth largest corporation in the world in terms of assets ($1.861 trillion as of December 31, 2007, while Citigroup reported $1.884 trillion). It reports its results in United States dollars, since 80% of its earnings originate from outside the United Kingdom. Nearly 22% of its earnings are from operations in Hong Kong, where it was headquartered until 1993. It is the largest bank in Hong Kong, and at the end of 2005 was the largest banking group in the world by Tier 1 capital. The group's shares are presently operated on the London, Hong Kong, Paris, New York and Bermuda stock exchanges. Investigation through SWOT Analysis By means of SWOT Analysis, there is an attempt to use the strategic planning tool to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in the corporate development of HSBC plc. This has been estimated on the basis of the lecture given by Stephen Green, GROUP CHAIRMAN, HSBC HOLDINGS PLC1. Strengths Weaknesses Opportunities Threats Profit before tax up 10% to $24.2b. Attributable profit up 21% to $19.1b. Earnings per share up 18% to $1.65. Return on shareholders' equity, 15.9%. Dividends per share up 11% to $0.90. And its Tier 1 capital was unchanged, 9.3% against 9.4% at the end of last year on the Basel 1 calculation. setting out a range of 15% to 19% through the cycle; swing factor in results; lack of realistic approaches for the targets; needs improvement in both customer recommendation and staff engagement, and establishing it directly into executive remuneration high volatility in the market, seize acquisition opportunities as they appear, significant internal wealth generation, obvious focus on emerging markets and international connectivity, principal off-balance sheet risk relates to credit protection bought from monoline insurers as a hedge against securities held within the trading portfolio; there is the risk above 90%, the percentage in negative equity might rise There is an involvement of specifying the objective of the HSBC plc group with its internal and external factors that are favourable and unfavourable for it in achieving that objective. Business Strategy The group evidenced revenues of $70,070 million in the fiscal year 2006, and generated most of its revenues from Europe and North America. HSBC also has extensive attendance in Latin America, Hong Kong, and other countries in the Asia Pacific. The target is to achieve Forus leading. The Forus‘leading’ means the preferred, the most admired and the most dynamic. It has to be a company recognised for giving the customer a fair deal. Their strategy strives to be the market leader with personal, commercial and corporate customers. growth gets defined both in the established markets like Europe, North America and Hong Kong, and in emerging markets like Latin America, India and China. They are now more than half-way though their five-year strategic plan, ‘Managing for Growth’, to make HSBC the world’s leading financial services company. They keep their strategy under steady re-evaluation to meet the confrontations of the world. There are seven key priorities for the Group for the last two years of the plan, 2007-08. These seven ‘global pillars’ are aimed at ‘joining up’ the company so that HSBC can become the best place to bank for its customers and the best place to work for its employees. These seven global pillars are - 1. Our customers – service excellence 2. Our brand – the world’s local bank 3. Our culture – the best place to work 4. Our global distribution – our global advantage 5. Our businesses – building for sustained growth 6. Our technology and process – joining up the company 7. Our organisation – guidance with wisdom and delegation with confidence Corporate Principles and Values2 The values of HSBC plc are the fundamental sets to their business strategy. The major emphasis is on long-term, ethical client relationships. They pursue excellence and efficiency through teamwork and their outlook is global. Simultaneously, as the world’s local bank, they see great value in their diversity. To ensure all its colleagues around the world know what they stand for and how they accomplish their business, they publish the Group Standards Manual on their global Group intranet. This gets updated annually and is mandatory for all employees. The purpose of the manual is to set the standards and policies for the business operations, underpinned by their corporate values and principles. There is the compulsion for each country, to hold the responsiblility for implementing a code of conduct. The Group Standards Manual refers employees to Functional Instruction Manuals, which set out detailed policies and procedures for specific functions including Compliance, Credit and Risk, Finance, Human Resources, IT, Purchasing and Tax. The internal audit function of HSBC plc is accountable for guaranteeing that each country CEO complies with the Group Standards Manual and the Functional Instruction Manuals. The actual tie remains in the format of the HSBC Holdings plc’ Board of Directors which is given below. Compliance framework The target is to set high standards of integrity, professionalism and fair dealing in running the business worldwide. The relevant objective is to fulfill with both the letter and the spirit of all applicable laws, codes, rules, regulations and standards of good market practice in each region wherever the company do business. Responsibility for conformity with these standards rests with the relevant boards, chief executives and senior line managers. They operate a Compliance Disclosure Line in agreement with the US Sarbanes-Oxley Act. Employees can report anonymously concerns about corporate wrongdoing which includes the failure to approve policies in line with our Group Standards Manual – without fear of reprisals. Their tool serves as the fundamental underpinning of their marketing plans. These corporate strategical structures got the key benefits as -- serves as the foundation of a marketing plan -- allows the organization to carry out its mission efficiently -- deals with the firms at the rate of new product development and business model innovation The target audiences are very specifically noted. these clients are especially -- Investment Managers -- Venture Capitalists -- Management Consultants -- Research Companies -- Other Industry Professionals Leverage analysis3 HSBC Holdings plc Leverage Analysis Fiscal Year 2005 2004 2003 2002 2001 Fiscal Year End Date 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 Long Term Debt-  % of Earnings Before Interest & Taxes 1,006.2% 733.9% 782.5% 302.8% 306.9% Long Term Debt-  % of Earn Before Int, Tax, Depr & Amort 938.0% 673.1% 710.8% 271.8% 272.7% Long Term Debt-  % of Total Assets 14.3% 11.1% 11.3% 4.5% 4.0% Long Term Debt-  % of Total Capital 68.5% 58.5% 57.7% 36.6% 35.1% Long Term Debt-  % of Common Equity 231.6% 162.8% 156.3% 65.0% 61.7% Total Debt-  % of Earnings Before Interest & Taxes 1,384.4% 1,723.7% 1,726.0% 1,041.8% 1,152.6% Total Debt-  % of Earn Bef Int, Tax, Depr & Amort 1,290.6% 1,580.8% 1,567.9% 935.2% 1,023.9% Total Debt-  % of Total Assets 19.6% 26.0% 24.9% 15.3% 15.1% Total Debt-  % of Total Capital 94.3% 137.5% 127.3% 125.8% 131.6% Total Debt-  % of Total Capital & Short Term Debt 75.0% 76.8% 75.0% 66.5% 67.0% Total Debt-  % of Common Equity 318.7% 382.3% 344.8% 223.7% 231.6% Minority Interest-  % of Earnings Before Interest & Taxes 27.2% 68.7% 73.1% 58.8% 71.1% Minority Interest-  % of Earn Bef Int, Tax, Depr & Amort 25.4% 63.0% 66.4% 52.8% 63.2% Minority Interest-  % of Total Assets 0.4% 1.0% 1.1% 0.9% 0.9% Minority Interest-  % Total Capital 1.9% 5.5% 5.4% 7.1% 8.1% Minority Interest-  % of Common Equity 6.3% 15.2% 14.6% 12.6% 14.3% Common Equity-  % Total Assets 6.2% 7.2% 7.2% 6.8% 6.5% Common Equity-  % of Total Capital 29.6% 36.0% 36.9% 56.3% 56.8% Total Capital-  % of Total Assets 20.8% 20.0% 19.6% 12.2% 11.5% Minority Interest-  % of Earnings Before Interest & Taxes 27.2% 68.7% 73.1% 58.8% 71.1% Fixed Assets-  % of Common Equity 16.5% 21.7% 21.1% 27.3% 29.8% Dividend Payout 39.4% 37.4% 48.3% 57.8% 65.3% Funds From Operations-  % of Total Debt 6.0% 3.6% 3.2% 5.9% 8.4% Strategic models The strategical models can be estimated by means of Ansoff Product-Market Growth Matrix. It a marketing tool created by Igor Ansoff and first published in his article "Strategies for Diversification" in the Harvard Business Review (1957). For HSBC plc, this matrix helps to decide what course of action it should be taken in the given current performance. Marketing participation of HSBC plc often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The matrix illustrates, in particular, that the element of risk increases the further the strategy moves away from known quantities - the existing product and the existing market. Thus, the company needs to have product development typically involve a greater risk than `penetration'. Added to this, are the specification of diversification that generally carries the greatest risk of all. Conclusion Strategic management techniques of HSBC Holding plc thus can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the company. In HSBC, this is accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. There is also the provision for starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions. In a way, the application of Business corporate strategy of HSBC plc is elastic and that’s how they are functioning. It is the provision that mkes way for further expansion of the company. The adoption of Public policy development suits best in the way of affirming the grip over the market. These are specifically meant in accordance to the demand of the particular country. HSBC contributes to debates on the development of public policy in many of their markets. The following are the top issues in some of their key locations: UK: overdraft and card fees; bankruptcy; responsible lending; financial inclusion; financial capability. USA: global competitiveness; equitable tax policies; responsible lending and consumer protection; information sharing; employee benefits. Brazil: disability; integration of Afro-descendants; environmental risk. Mexico: commissions and fees; over-regulation. India: HIV/AIDS. Sources 1. Annual Results 2007 HSBC Holdings plc Earnings Conference Call - Final 2. www.hsbc.com/values 04/03/2008 3. www.hsbc.com/investors 4. www.hsbc.com/crgovernance 5. http://en.wikipedia.org/wiki/HSBC; 04/03/2008 6. HSBC Holdings plc Corporate Responsibility Report 2006 29 Read More