The Marketing Strategy of HSBC Holdings Plc - Essay Example

?SWOT Analysis for HSBC Holdings plc Introduction HSBC Holdings plc is one of the largest banking and financial services organisations in the world, with some 8,000 branches located in 88 countries and territories in Europe, the Middle East, North and Latin America, the Asia-Pacific, and of course in Hong Kong. The company is listed in at least five stock exchanges in the world (London, Hong Kong, New York, Paris and Bermuda), with 220,000 shareholders in over 120 countries and territories. The organisation provides a complete range of financial services, to a customer base numbering 100 million worldwide (HSBC Annual Report and Accounts, 2009). Marketing tools used by the organization The marketing strategy of the organisation targets four customer groups: Personal Financial Services that includes consumer finance, Commercial Banking, Global Banking and Markets, and Private Banking. In the present financial milieu, the tools that would best persuade customers to entrust their transactions with a particular institution would be the service attributes themselves, that such service capably meets with the clientele’s most stringent requirements. The Academy of Marketing Science (2008) states that a company’s reputation is considered a marketing tool (p. 31). HSBC’s strongest marketing tool is its reputation. The conservatism associated with its brand name is a valuable asset. In a period of general public distrust in the financial system, confidence in a financial institution is the single most important factor that would determine a customer’s patronage. Another tool that HSBC relies on to attract and maintain its customers’ loyalty is its global presence. Most businesses in one way or another undertake commercial transactions of an international nature, which require some form of financial settlement that only a bank with strong global exposure may capably and satisfactorily discharge. Also, innovative products that timely address the market, such as HSBC’s recent launch of low interest rate, low deposit mortgage funding, have the potential of attracting demand because such products cater closely to their need. Finally, HSBC prides itself on its global expertise not only on financial matters, but also on its knowledge concerning socio-cultural considerations. Business culture happens to be closely linked with social traditions in certain countries; HSBC thus markets itself as the local global bank, referring to its local expertise coupled with global presence. Customers of the organisation, including issues Because HSBC serves a wide range of consumer and corporate banking interests, its customers also span the continuum from individuals in their personal finances, to non-business organisations, to small and medium scale enterprises (SMEs), to large domestic corporations, to state entities, and up to large multinationals corporations (MNCs) and conglomerates. Because of these widely divergent products serving widely different clientele, the company faces several issues having to do with its customers, that may put the bank at significant risk. The diversity of HSBC’s various markets is an important risk management factor and a source of financial strength (Greer & Kolbe, 2003) and it may be consolidated into three main business models in which it has a “natural advantage” (HSBC Annual Report and Accounts, 2009, p. 12): 1. Businesses that cater to international customers for whom connections with developing markets are critical (Global Banking and Markets, Private Banking, the major part of Commercial Banking, and the mass affluent segment of Personal Financial Services; 2. Businesses with local customers where the efficiency of output or services may be improved by access to markets on a global scale (the small business segment of Commercial Banking, and the mass market segment of Personal Financial Services; and 3. Products which may have potential in the global market, with the assistance of the HSBC Group’s efficiency, expertise and reputation, such as the bank’s global transaction banking product platform. Even as HSBC tends to the needs of millions of customers, it cannot avoid being exposed to highly risky or even fraudulent clientele. The issue of determining customers’ creditworthiness, and the risk of loan impairments and write-offs, are challenges to the bank that can only be minimized through the exercise of due diligence, but can never be completely eliminated. Another issue concerning customers is the possible continued depression of consumer confidence in the general economy but particularly in the banking system. The lack of confidence due to the financial crisis besets not only banking customers but also the banks themselves, which is the reason cited by analysts for their reluctance to lend even to other banks despite being awash with cash (Nier, 2009). Current issues faced by the organisation HSBC, like all financial services organisations worldwide, faces risk issues that resulted from the financial crisis that triggered the global economic recession. These risks are essentially grounded in the financial arena, but they necessarily impact on the services that the firm affords its various clientele, and consequently impact on its revenues and bottom line. These issues are: 1. Changes in the general economic conditions where the HSBC operates, the more important of which are the following (HSBC Annual Report and Accounts, 2009): 1.1. The deepening recessions with the corresponding fluctuation in employment in excess of that which had been forecasted; 1.2. Unforeseen volatility in foreign exchange rates in terms of both US dollars and pounds sterling; 1.3. Adverse effects of ill-timed interest rate volatilities in countries where HSBC operates; 1.4. Excess volatility in the equity markets, including and especially the small and less liquid trading markets in the emerging economies of Asia and Latin America; 1.5. Illiquidity and price weakness in the market for various financial and real assets, particularly real estate markets that fell victim to the subprime mortgage crisis. 2. Changes in government policy and regulatory measures, among which are (HSBC Annual Report and Accounts, 2009): 2.1. Monetary, interest rate, and similar policies of central banks, the Basel Commission, and other regulatory agencies in the different countries HSBC operates in (e.g. the UK Financial Services Authority, the Bank of England, the Hong Kong Monetary Authority, the U.S. Federal Reserve, the U.S. Securities and Exchange Commission, the US Office of the Comptroller of the Currency, the European Central Bank, the People’s Bank of China, and so forth); 2.2. Measures and initiatives being proposed for adoption, aimed at changing the size, interconnectedness, and the scope of activities of financial institutions in an attempt to avoid a repetition of the circumstances that led to the recent financial crisis; 2.3. A shift in benchmarks for the capital and liquidity standards, leading to deleveraging in banks’ balance sheets, and lowering returns that are made available by the present business model and portfolio composition; 2.4. Imposition of taxes and levies intended to modify the business mix and risk appetite of enterprises and investors; 2.5. Likelihood of expropriation, nationalisation, confiscation of assets, and changes in legislation relating not only to foreign ownership, but also private ownership where the organisation defaults on its bailout assistance. This last concern gains significance in light of the huge government bailout of the various private businesses in distress. 3. Other factors specific to HSBC (HSBC Annual Report and Accounts, 2009) 3.1. HSBC’s success in the degree to which it can identify the likely risks it faces, including loan losses and delinquencies; and to the extent it has foreseen such risks, the ability to which it may effectively contain these risks through account management, hedging, and various risk management techniques; and 3.2. HSBC’s success in meeting the operational, regulatory, legal, and litigation issues. Control systems used by the organisation Banks, for good reason, are the most regulated business entities in a free market economy (Baumol & Blinder, 2008, p. 242). This is because a free market economy cannot function without a strong financial system that operates as it should be, and in which market participants could repose their trust that their transactions will be faithfully carried out. Large international banks such as HSBC are particularly charged with this mandate, because they make possible the smooth and timely flow of financial transactions among business entities in different countries. HSBC is thus constantly mindful of its obligation to establish control systems that ensure transparency and good governance throughout the organisation. 1. Executive compensation For most financial institutions, the matter of extremely sizeable executive compensation levels disproportionate to the company’s performance has been a matter for concern. The possible unethical nature of bank executives being compensated with multimillion dollar parachutes, while the bank’s clients deal with bankruptcy and the meltdown of their nest eggs, has been important even by the bank regulators in the Basel Commission. In HSBC, an independent Remuneration Committee has been established to provide the necessary control in top management pay. This is a much better arrangement than the Board of Directors rewarding one of their own with unconscionable salaries while members of the rank and file get terminated or laid off. The Remuneration Committee undertakes the rigorous international benchmarking on compensation, and upon reaching its conclusions, consult such findings with the appropriate external authorities. 2. Economic and financial market uncertainties It was argued that the recent financial crisis caught everybody by surprise and could not have been foreseen. Various analyses and academic articles since then have pointed out indicators that, had they been given the proper attention at that time, would have alerted state policymakers and business leaders to the increasingly untenable situation. In retrospect, these all become apparent; the important thing is to recognize them as they are currently developing. HSBC has undertaken to evolve new macroeconomic tools by which it could manage the supply and cost of credit, and determining the risks attendant to the company’s exposure. The aim of such measures is to develop a sustainable system by which the financial intermediary function may be successfully undertaken at the optimum level of profit possible, without putting the bank at a level of risk that is difficult to assess and, therefore, address. 3. Risk management Tighter regulation has been advocated by many consumer groups as the solution to the problems faced by the financial community, particularly in light of the subprime crisis and the credit crunch. It is said that the banks’ mismanagement of funds should be put under stringent regulatory control to prevent a reprise of the excesses of the past liberal, market-based system. However, in the pursuit of this direction, there is always the danger of over-regulation that may in turn unduly restrict the free market forces that would fuel economic growth (Bird, 2001, p. 277). As HSBC Group Chairman S.K. Green expressed in the Group Chairman’s Statement, when “de-risking” of the banking system is taken too far, it will “throttle recovery” and transmit higher risk to other parts of the capital market not susceptible of regulation. There is thus a need to strike the right balance between a strong financial system and support for economic growth, which HSBC is intent on establishing in its system of policies and corporate strategies. Other factors for consideration There are certain company-specific factors that may determine whether or not the company may take full advantage of environmental opportunities or avoid the threats that may adversely affect it. For HSBC, its strengths are well known and publicized. However, its internal weaknesses have been more in the nature of incidences that highlighted specific lapses rather than endemic faults. One weakness had been the data theft in 2009 wherein HSBC announced only 10 account records had been taken. In March 2010, the HSBC group admitted that the theft involved 15,000 accounts of its Swiss private banking unit. The accounts were compromised when an employee stole data which had made its way to the possession of French tax authorities. From the time of that admission, the Company’s Swiss private banking unit was downgraded. Because of this incident, the Company stated that it had spent $93.5 million in security system upgrading; however, the Company’s reputation had already been affected and consumer confidence in the bank fell. Conclusion There are many strengths that HSBC brings to the market, to the greater advantage of its loyal customers. It is one of those few financial institutions that have weathered the financial crisis with relatively few adverse repercussions. These include its combination of global strength and local expertise, and its diversification into other geographical areas, into emerging economies, and into a broad range of market services. On the other hand, weaknesses that compromise the company’s ability to take advantage of its opportunities are few and incident related rather than endemic. Unfortunately, they undermine the company’s ability to generate confidence among their clientele. HSBC should therefore overcome the negative effects by highlighting their excellent service, global reach, and local market expertise, which happen to be their strongest selling points and differentiates it from among the other competitors. HSBC SWOT ANALYSIS STRENGTHS HSBC’s global scale and well-developed network is able to take strategic advantage of the current globalization trend. Because of its size at a market capitalisation of more than $200 billion, it provides financial muscle to its branches, subsidiaries and affiliates. Its diversified revenue sources enable the bank to smooth out the effects of local volatilities and destabilizing impacts. It is well entrenched in nearly all economies worldwide, and therefore benefits from countercyclical and uncorrelated sources of revenues – where one revenue source may be faltering, another would be rising. Its brand strength allows it to command premiums and maintain a roster of top tier clientele. In a period when long-standing institutional A-raters collapsed because of their exposure to toxic assets, HSBC’s conservative policies had preserved its good name and strengthened its brand reputation. WEAKNESSES There are occasional and at times unavoidable security lapses that may adversely impact customer’s confidence. Unfortunately for HSBC, an incidence of data theft compromised corporate information that may have included confidential client information. While the organisation tries to take every precaution against a recurrence, there is always a chance, though slight, that a similar incident may happen again. As with most investment banks, HSBC Finance Corporation (formerly Household International, Inc.).is prone to a degree of asset quality deterioration and poor operating performance. HSBC-FC is into the consumer lending business, and has considerable exposure in subprime home equity in the US. OPPORTUNITIES In the recovering economy, portfolio management is likely to improve the overall worth of the enterprise. Increased volatility in the market provides opportunities for divestitures and acquisitions could fuel profit taking of overvalued assets (or disposal of risky assets) and bargain hunting of undervalued counters, from which profit margins may be realized. Investments in the emerging markets, particularly in Asia and the Middle East, provide potential for strong growth and above average profitability. The current low interest rate mortgages with low deposits could increase revenues and market share by boosting lendings. THREATS Regulatory changes that are expected to take place may cause unforeseen alterations in business plans, and increase company costs in terms of compliance spending. These costs involve the additional expenses required by regulations to meet audit and disclosure requirements, as well as the increased funding cost in competing for retail deposits. Economic conditions in certain parts of the world are still unstable, and may undermine the growth of the organisation. The continued weakness particularly in the light of the massive bailouts in developed economies may usher in a new round of market uncertainties. With information from Datamonitor,2010 and HSBC Annual Report and Accounts for 2009. 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