HSBC Environment - Case Study Example

HSBC Case Study Name Course Date Introduction HSBC holdings belong to the British Multinational company. its headquarters are in London and is regarded as one of the largest banks in the world. The company came into operation in 1991 after Hongkong and Shangai banking merged to form a corporation. The company is well spread all over the world with offices around Africa, Asia, Europe, North America, South America and serves over 8 million customers in the globe. According to reliable statistics from Forbes, the company’s total assets amounted to $2.693 trillion by 2012. HSBC An endowment is a very important source of income for the university, in the fiscal year 1999, endowment income represented about 25% of the university’s income, the company managed approximately $15.1 billion in endowment funds in the second quarter of the fiscal year 2000, a large part of the university’s budget financed by endowment income has been increasing throughout the years. Treasury Inflation Protected Securities (TIPS) are bonds that give investors security against the effects of inflation on the value of money, their principal, and coupons grow according to the level of prices as measured by the Consumer Price Index. Harvard’s portfolio incorporates an 11% target allocation to domestic bonds like US Treasury securities which offer a market return on a fixed income without credit risk.1 However this investment has risks such as interest rate risks and inflation risks, Domestic securities consist an annual value of a bond and a coupon rate whose payments are fixed and do not change due to changes in inflation rates, the real value of the principal at maturity can be different at the beginning of investment influenced by factors like inflation . TIPS on the other hand are different because their principal value adjusts to changes in the Consumer Price Index, they offer a real yield of between 3.2%-4.25% and these yields show that the return on cash assumed in the portfolio analysis by the company is too low and the better estimate would be 3.5%. Thus, it can be an essential asset to hold on to in the portfolio. In contrast, treasury bills offer real yields of 2% and that of treasury nominal bonds is about 3%.Therefore TIPS offer a higher yield and inflation protection traits. TIPS has a current yield of 4% which is a good estimate on the real returns for Harvard as an institution with high investment expectations, computed estimates of the volatility and correlation of the real return on TIPS compared to other assets show that these inflation protected bonds are an attractive asset. These inflation-protected bonds are advantageous because their structure demands that the principal and coupon of the bond changes monthly according to the level of inflation as dictated by the Consumer Price Index (CPI). The adjusted principal is paid when it matures when the bonds are returned to the inflation changed principal amount. It is seen that the coupons increase proportionately with increase in principal due to inflation. TIPS are better placed as inflation bonds when inflation is higher than expected, inflation can erode regular treasuries if inflation is very low. TIPS holders get lower returns than what they could get in domestic bonds for the same maturity period, the value of the principal can decrease from its peak but will never decrease below face value. Therefore if TIPS deflation occurs the principal is adjusted downwards and interest to be paid also decreases at maturity Harvard would be paid the original principal if the if the adjusted principal is less than the original principle. HSBC has played a major role leading to economic crisis. Political Factor Political environment prevalent in a country require analysis whether small or large firm wants to operate in a certain country2 .These are the factors primarily utilized to screen the market to operate in an organization in consideration to work in a particular country should understand the political and government structure of the market target and political systems in the country. The political framework of the environment is crucial on the fact that political dimension determines how the firm will thrive. Firms endeavor to make their operations suit the government or political situation this is to avoid political harassments and condones3. Government involvement in business is through making policies and encouraging national interest. Sovereignity of a nation is a matter of consideration as it has a great impact on global firms4 Risk Assessment Risk assessment is crucial in analyzing any market for selection of market target as levels of uncertainty has raised in the past years. For continuation of government policies and changing political philosophies that are evident in most markets5 International markets have unsurerities and any firm wishing to internationalize to check its strategies to put into consideration political risk in the country of operation6.the risk analysis can be divided into four factors; general instability, expropriation, operations and finance. In the event that any of the factors reduces risk then the firm should reconsider its business environment. The barriers suit the firms present in the market as they are more valued and the barrier itself reduces competition. The barriers may include tariff and non-tariff barriers. Local government to protect and promote the growing local industries of firms imposes them. Existing organizations can always maintain reduced prices creating a difficulty on the new organizations to establish themselves with stability. Firms can maintain prices low making it difficult for new firms to settle in that the prices are a deterring barrier. Other factors that contribute to this constraints include; government, asset based specificity, legal proprietary knowledge, scales of economy etc. Conformation to other countries' trade relation arrangement is reduced by the barriers imposed b the governments in these countries. There are barriers to exit which mainly prevent the non-profit making firms not to quit their current market. Economically a firm is viable when the cost of producing and selling a commodity or service covers the variable costs. Law decisions impact the global businesses greatly as the decisions affect the globalization process of a firm. Many firms encounter difficulties in setting up global marketing strategies and programs. Economic Factor The economic performance and development of a given country is crucial to the functioning of an international firm. International strategies of a firm get influence from stage of economic growth of the subject country. The country’s reaction towards foreign business, demand of goods and distribution system obtain influence from economic growth. Economic climate understanding is important in developing countries as the market potential and the same determine growth. Economic shifts and emerging markets are some of the factor that economy dictates them. Rostow put up a model that can help classify countries on the stage of development. The stages are; traditional society, precondition for takeoff, the drive to maturity and the age of mass usage7. In other modes, countries can be classified according to economic development degree and this type of classification puts all countries into 3 different categories namely; Less developed countries; these are countries in which per capita GDP is low, the infrastructure is weak, and manufacturing activities are at the lowest peak possible. Newly industrialized nations; these are some of the countries which are emerging into the international base and trade. Advance industrialized nations; the per capita incomes are high and infrastructure is near perfect. Industrial base is improved and industrialization is at its peak. The economic environment is vital for international businesses as market expansion is the ultimate dream of any firm. In international factors that affect the firms, operation in a country economic analysis is important for setting up a company internationally. During the changing economic and business environment, Honda accumulated increased net sales despite the unfavorable translation effects on the currency. The net sales were because of high sale of automobiles and motorcycles. Negative implications experienced due to the adverse effect of the earthquake, high R&D costs, movement of the foreign currency, administrative costs. Positive results came from mix of sales and high production. Honda has also set initiatives to tackle the changing world economy through improving the delivery of attractive products. Market Potential and Market Size Foreign markets and estimation of potential market value assessment is one of the challenges many firms face in internalization process. The main issue is the capability of the export market to purchase imported products. Shifts in demand get consideration by many organizations operating internationally8. The size of the market is analyzed critically as to what share the firm has influence, obtaining market has proven difficult as already set up firms tend to exclude new entrants. Product affordability, availability of substitute and the consumer taste and preference are the crucial component of any market analysis internationally. Local production can help in computation of market size when exports get deducted and imports added.GNP is an indirect way of measuring the same in that population size, growth in GNP and imports are considered. Cultural Factor Selection of market is get influence by culture largely as the challenging factor. Some cultures remain conservative while others are dynamic9.for a business venture to be successful internationally the firm must be a consistent learner of the culture of the people in that country they operate in. Culture is an integral part of marketing concept as buyer satisfaction and the same affect demand. Technological Factor For businesses to compete effectively at the international market, technology is a very essential factor. It is at the core of globalization as it enables cheap and quality production. This factor gives consumers and businesses more creativity in products and services. It also contributes to the improvement of communication within and outside a company/organization10 Labor Factor These are factors associated with human resource. They include the; cost of hiring, level of skills, level of labor mobility, influence of unions and the knowledge status of employees. Tax Factor These factors affect cost of running any business directly. They determine the different rates and fluctuations of business costs. They include; tax amount, tax trends, treaties, evasions, custom duty, tariff protection etc. Capital Factor Capital factors affect decisions made considering business loans, government systems in banks & regulations and even the flexibility of the currency at local level. Business and social factors The business factors are; marketing & distribution status, competition, quality of life, and trends of gains, while some of the social ones include; consumer expertise, population life expectancy, ways of life style, rates of immigration & emigration. There are different analyses on performance that operate on a business environment. Some of these analyses are on the factors such as political, social, cultural, economic etc. Other analyses are: Examination of the international trade patterns: the examination is based on location, products, ownership and the stakeholders involved. This is inclusive of the respective trade structures (free trade and protectionism), agreements of trade & partners. Bibliography Archive, H. C. (2011, August 9). Holden Commodore VE Spcifications. Retrieved 2012, from Holden Commodore VE Spcifications: www.users.on.net Association, N. R. (2011, September 18). Car review. Retrieved 2012, from Holden Commodore: www.myrna.com.au Brags, D. (2010). The market Planning Guide 6th Edition. Nearborn USA: Dearborn Publishers. Genevieve, H. (2004). Strategic Marketing Analysis. Southbank: Nelson Australia. Read More