SWOT Analysis of HSBC Bank - Assignment Example

SWOT Analysis – HSBC Organisations are physical ‘structures’, where varied employees with different educational qualifications, skills and experiencewill accomplish their allocated work under the supervision of a leader, for the organisation’s benefit as well as for their personal benefit. These workers will normally be apportioned into different departments for better arrangement or streamlining of work. Among the many departments, which constitute an organisation, the marketing department’s role is omnipresent and crucial, as it can only boost an organisation through various strategies. Organisations which want to optimize their growth, reach and profit cannot remain “static”, restricted to minimum geographical territories. They need to keep on entering new territories breaking both geographical ‘boundaries’ as well as economical ‘boundaries’, thereby expanding their reach and emerging successful. With every organisation wanting to expand their reach and make an imprint in various markets, there will be enough opportunities for it, to initiate that expansion drive. So, when the organisation has enough opportunities, it can utilize its strengths and thereby set targets and formulate various strategies to achieve those targets and thereby beat off the competitors. However, the organisations will also have weaknesses and this could bring in various threats to the organisation, impeding its growth and the organisation, HSBC could be no exception. So, we will perform a SWOT analysis of HSBC bank and understand the key issues and strategies of its operations with special reference to UK as well as its overall strategy. Background HSBC is one of the largest banks in the world. In April 2008, Forbes magazine adjudged it as the forth largest bank in the world in terms of assets and second largest in terms of sales. It was the most profitable bank in the year 2007 leaving Citibank and Bank of America behind. In UK it is by the largest bank where it operates in following areas: Banking - current accounts, savings Loans – mortgages, credit cards Personal finance - investments, insurance Its key competitors in UK are Lloyds TSB - Lloyds TSB Bank plc is one of the worlds largest banks with assets of over GBP344 billion and more than 63,000 employees NatWest Personal Banking - part of the Royal Bank of Scotland Group and the third biggest bank in UK Abbey - the sixth largest bank by assets and the second largest provider of mortgages &savings in UK Barclays Personal Banking- one of the largest financial services groups in the UK. (hubpages.com) Strengths: HSBC is considered to be a very conservative bank and does not employ any aggressive strategies and high leverages. This strategy has paid off very well as the bank is today the most highly capitalized bank. It has huge asset base for capital investments for further expansions. Due to its high capital adequacy, HSBC was the only bank which did not opt for UK government borrowings due to the financial turmoil. This has been a great advantage to it as the bank has been able to retain its autonomy. Even in the future the bank will not need to borrow for sustenance. Besides being able to retain its autonomy, the bank has also managed to keep up its reputation as a reliable bank. Because of this increased confidence it will be able to further increase its customer base. Another advantage of good capitalization strategy of HSBC has been its performance over its competitors in the recent economic turmoil. It did get affected by the exposure, however, the impact was much less as compared to what its competitors like RBS and Abbey had to face. Looking at the actual fall in stocks by November 2007, Barclay fell by 26%, Royal Bank by 28% and HSBC by only 2.7%. This was mainly because HSBC has heavily invested in Household International (householdwatch.com). HSBC is primarily listed in the London and Hong Kong stock exchanges. This is a major pain saver for the company because of the problems in complying with the new Sarbanes-Oxley laws for registering in the US stock exchange. These new regulations are very expensive to comply with. Because of this there are a lot of companies which avoid registering at the New York Stock exchange and prefer to register elsewhere. The company has an advantage of early presence in China on account of having historical affinity to Hong Kong. While most of the banks are rushing towards this emerging economy to take advantage of the development in the economic and financial situation there, HSBC has already been there with 140 years of experience. In fact, it has the largest network of any foreign bank. This is a great advantage for HSBC as it understands the Chinese customers much better than their competitors who have entered the market recently. Not only in China, the bank already has a presence in other emerging markets. Because of the similarity of these economies to China, it becomes much easier for the bank to formulate strategies for other emerging economies. Because of its global presence in Europe, America and Asia, the bank has very diversified risk portfolio. Thus, adverse conditions of one region are easily countered by profitable position of the other. This has a major positive impact on the group’s costs and revenues. The bank re-branded itself in the year 1999 after complete acquisition of Midland bank to assert its foothold in Europe. They took up the name HSBC bank to show the integration of the group throughout its operations. Despite this late re-branding and consolidation, the group has been able to establish its brand image well throughout the world and has become and international name. This acquisition, which was one of the biggest ones, has given its management a great experience of organic and effective growth. Thus, they know how to grow effectively. The company had another strategy shift in 2006. Until then, the company’s investment banking division was embarking on a plan to take on Wall Street’s biggest banks in Europe and America. They hired Studzinski from Morgan Stanley, but changed plans after he left in 2006 and started focusing on their area of competitive advantage due to cost escalations. However, they had made a modest entry into this market which was to their advantage. They renamed the investing banking arm to Global Banking and Markets (GBM), earlier called corporate, investment banking and markets (CIBM), and its global investment business as HSBC Global Asset Management. With this they aligned themselves to industry norms (Slater 2008). HSBC is trying to make use of technology as a way of increasing revenues during the difficult financial conditions. It has launched the “Joining up the company” strategy which aims at placing the bank on a global platform to help increase revenues (cio.co.uk). The financial services division has launched the strap-line ‘The worlds local bank. This is a marketing strategy to give a message that HSBC is not a foreign brand and understands local needs. Thus, HSBC has been able to use this slogan throughout the world to create a corporate brand and highlight its vision. In the UK market HSBC is planning a wealth based marketing plan based on 6 sub-brands. These will target consumers (individuals and commercial) based on their wealth levels. The company’s basic strategy is to market through relationship rather than through transaction based banking. Thus they have come up with 4 consumer sub-brands namely HSBC Private Bank, HSBC Premier, HSBC Advance (a current account targeting the young professionals who are future premier customers based on their present profile) and the fourth sub-brand still needs to be announced. This sub-branding is for the direct consumers. For the business consumers there will be two brands- HSBC Corporate aimed at companies with turnover above £25m and HSBC Business for other smaller businesses. This positioning is being marketed under the campaign called “unlock the World’s potential” and will be supported by a global ad campaign by JWT. This strategy will help the company target the right customers. (Brownsell 2010). In another marketing strategy HSBC will be sponsoring on-air and online activity across CNBC in Europe, the Middle East, Africa and Asia Pacific. In Europe alone CNBC is available in approximately 110 million homes, 1,400 banks and financial institutions, and hotels (O’Carroll 2009). This is a great penetration strategy for HSBC. Banking crisis has hit the brand image hard. In a recent world-wide poll conducted, UK phone giant Vodafone replaced HSBC to push it to the number 8 position. However, there was no other banking company ahead of HSBC in the list (Reynolds 2010). This shows that HSBC is still perceived as a valuable brand as compared to others. Weaknesses Re-branding as a marketing strategy was a very late reaction towards consolidation resulting in opportunity loss to the bank. It was operating under various names in different countries and hence the re-naming lead to a belief that HSBC was actually a new bank. This was in contrast to the fact the HSBC was already serving them for years but under a different name. A very conservative approach can lead to slow growth in the future. With the economic recovery, it is important that the company embarks upon aggressive but cautious expansion plans. HSBC is planning to cut around 1200 jobs in UK. This has created a very negative image of the company. The company has admitted that 2900 functions will be affected by these cuts. This can create a very demoralizing impact on the overall staff of the company and eventually impact the performance. The company has even been accused of misleading the public on actual number of redundancies (King 2009). The company needs to come clear of this bad mouthing and embark upon better human resource management. The bank has been in news over lack of data security measures and other data theft issues. In one of the cases, a former IT employee of the company stole data of 15,000 UK clients who had accounts with the bank in Switzerland. Apart from this there were 9000 old customers whose data got leaked. All these 24,000 customers were exposed to the risk of scrutiny by income tax authorities (uk.news.yahoo.com). In another incidence, researchers at Cardiff University discovered a flaw in the security of the bank’s online banking system which left 3.1 million UK customers exposed to data theft by and fraud by criminals. The researchers found the security systems of other banks better that HSBC’s (Johnson Cobain 2006). In one more such data theft stories, HSBC lost a data disk which had data of 370,000 customers. On top of this, the bank officials admitted that the disc was not encrypted, though it had a password (news.bbc.co.uk). These are glaring examples of carelessness in handling sensitive personal data by the bank. Looking at the negative publicity obtained on account of the various data security issues, HSBC needs to re-look at its security systems and make them fool-proof. This can lead to immense loss of faith by the customers and eventually loss of business to rival banks that are perceived better. Despite falls in UK interest rates, HSBC has increased its mortgage rates (businessteacher.org.uk). This can lead to an overall negative impact on the market and ultimately lead to more defaults. Opportunities: HSBC can use its international expertise and strong credit lending record to launch new products in the UK market. For example it launched full asset-based lending proposition in the UK. This they launched banking on the fact that they have a good international experience as well as good lending credibility along with great customer service record in the UK. Hence, they claim that they can provide great benefits to the businesses operating in both markets (hsbc.co.uk.1). HSBC has a well developed internet banking platform. It can use this to enhance its business opportunities further. One of the utilizations has been in its direct banking service for Small and Medium sized Enterprises (SMEs) in Ireland. With this platform, the SME in North Island can now mange there business from anywhere. This facility was not available in this region earlier (hsbc.co.uk.1). This kind of banking platform can reduce the dependence on cash by SMEs. The bank has a great opportunity of launching similar products based on internet banking platforms in the emerging markets also as these areas are still unexplored. With the increase in economic activities in these countries, the SMEs are striving here too and many banks do not have much experience in these markets. Due to its high capitalization, the bank has a good opportunity to buy other banks which are unable to recover from financial crisis. It also has the opportunity to buy assets as currently their market value has gone down due to economic downturn (businessteacher.org.uk). Threats: Banking crisis has hit the brand image hard. In a recent world-wide poll conducted UK phone giant Vodafone replaced HSBC to push it toe the number 8 position (Reynolds 2010). Too much reliance on technology can lead to very high impact breakdowns. Recently HSBC ATMs did not function for around 4 hours on account of system breakdown (King 2010). This comes at a time when the company has embarked upon its ambitious “one HSBC” strategy. Thus there can be chances that this change in technology is causing problems in the existing systems. When technology is upgraded or changed, there are bound to be such sporadic incidences. However, these episodes leave a very negative impact in the minds of the people. Hence, it is very important that there are some backup plans before implementing such changes so that the customers do not face any inconveniences. The massive cost cutting exercises by the company has lead to reduction in operations and IT staff (King 2010). This could not only lead to negative impact on operational performance but also increase incidences of IT breakdowns and further damage to the company’s image. The company is also trying to reduce its IT budget by cancelling some big IT projects. For example, it recently cancelled its £300 million data centre in York (King 2010). This was a very important project for HSBC as data centres are important component of IT infrastructure. With the increased customer base of the company, data centres gain even more significance as they handle huge amounts of customer data. With the scrapping of such projects, HSBC could be hampering its growth prospects. The company faces resistance from European and American markets on its plans to take advantage of the low cost economies by transferring work to these Asian countries. The transfer of these processes can be a great cost advantage to the company but if they are unable to take this advantage then there competitors definitely will. Because of its reliance on internet technology, the company is at a risk of internet hazards like virus attacks. This is industry specific threat as today majority of the banks do their business through internet banking. Banking sector is the most volatile sector in all economies. It is always the first one to be impacted, be it a blooming economy or a negative one. Hence, HSBC also faces the same volatility as other banks. References Brownsell, A 2010, HSBC rethinks strategy with wealth-based plan, viewed on March 12, 2010 http://www.marketingmagazine.co.uk/news/985664/HSBC-rethinks-strategy- wealth-based-plan/ cio.co.uk 2008, Globalised IT outlook proves resilient at HSBC, viewed on March 12, 2010 http://www.cio.co.uk/news/3045/globalised-it-outlook-proves-resilient-at-hsbc/ householdwatch.com 2007, Barclays, Royal Bank, HSBC all down with problems ahead, viewed on March 13, 2010 http://householdwatch.com/wp/2007/11/03/barclays-royal-bank-hsbc-all-down-with-problems-ahead hsbc.co.uk 2008, HSBC Launches Full Asset-based Lending Proposition in the UK, viewed on March 12, 2010 http://www.hsbc.co.uk/1/2/business/info/resources/news-room-press-releases hubpages.com, HSBC, viewed on March 10, 2010 http://hubpages.com/hub/www-hsbc-co-uk Johnson, B and Cobain 2006, Security flaw leaves 3m HSBC online accounts open to fraud, viewed on March 12, 2010 http://www.guardian.co.uk/technology/2006/aug/10/news.accounts King, L 2010, HSBC mainframe crash takes ATMs down, viewed on March 12, 2010 http://www.cio.co.uk/news/3210063/hsbc-mainframe-crash-takes-atms-down/ King, L 2009. HSBC back office and IT staff face redundancy, viewed on March 12, 2010 http://www.cio.co.uk/news/113356/hsbc-back-office-and-it-staff-face-redundancy/?otc=44 news.bbc.co.uk 2008, HSBC loses customers data disc, viewed on March 12, 2010 http://news.bbc.co.uk/2/hi/7334249.stm O’Carroll, T 2009, CNBC signs HSBC to sponsor business channel, viewed on March 11, 2010 http://www.marketingmagazine.co.uk/news/930317/CNBC-signs-HSBC-sponsor-business-channel/ Reynolds, J 2010, Vodafone, HSBC and Tesco lead UK brand charge, viewed on March 12, 2010 http://www.marketingmagazine.co.uk/news/984732/Vodafone-HSBC-Tesco-lead-UK-brand-charge/ Slater, S 2008, HSBC renames investment bank after strategy shift, viewed on March 12, 2010 http://uk.reuters.com/article/idUKL1857961820080118 uk.news.yahoo.com 2010, HSBC Data Theft Hits 15,000 Rich Customers, viewed on March 11, 2010 http://uk.news.yahoo.com/5/20100311/tbs-hsbc-data-theft-hits-15-000-rich-cus-327c223.html Read More