Hong Kong and Shanghai Bank in the Global Businesses - Case Study Example

Hong Kong and Shanghai Bank, the World’s Local Bank The Company HSBC presents itself as one of the largest banking and financial services in the world, with a presence in 88 countries and territories in Europe, Hong Kong, the Asia-Pacific region, the Middle East, and North and South America. It is listed in five major stock exchanges – London, Hong Kong, New York, Paris, and Bermuda – with shareholders numbering 220,000 in 121 countries and territories, although it has its headquarters in London. The bank serves 100 million customers through four global businesses, namely Personal Financial Services, Commercial Banking, Global Banking and Markets, and Private Banking (New York Times, 2010). In terms of ownership, operations, and markets, HSBC could be called a truly transnational enterprise. HSBC’s strategic directions HSBC calls itself “The World’s Local Bank,” emphasizing that it combines global financial strength and expertise in the world’s largest emerging markets, with a focused localized approach in addressing its customers’ specific needs. The Company’s mission is to maintain its position as the world’s leading international and emerging markets bank. In concrete terms, this means that the bank aims to realize 60 per cent of its profits from the emerging markets, and 40 per cent from developed markets (Hosking, 2007). This strategy was arrived at when the Company realized that previously, it had concentrated on the slower-growth, developed economies in Europe and the US, a position which would have been exacerbated by the subprime mortgage lending crisis in the US, had HSBC not made the strategic shift towards the emerging markets (Werdigier & Thomas, 2009). It is not to be said, however, that HSBC was mistaken in its initial foray into the developed markets. It was not long ago when the Asian financial crisis (dubbed the “Asian flu”) in 1997 brought the emerging markets and tiger economies of Asia crashing; at the time, however, HSBC had been primarily placed in the US and Europe, a fact which ensured the Company’s greater stability during a period of regional instability. This led then HSBC Chairman John Bond to comment, “While economic difficulties in Asia have affected our business, increased profits from out operations in the Americas and Europe vindicated our strategy of geographical diversification” (King, 2000:245). Supporting HSBC’s mission to strengthen its position as the leading banking institution in the world’s emerging financial markets is its strategy to maximize on the diversity of its workforce. As part of its sustainability effort, HSBC is tapping into the strategic advantage of having a diverse labor pool, recruiting the best possible individuals of various ages, races, creeds, genders, cultures and nationalities. For HSBC, “Diversity is a source of opportunity” that enable the Company to reach “pockets of value to be found in diverse groups of customers” (HSBC website, 2010). HSBC’s international presence enables it to optimize on its diversity and thereby create a competitive edge over their rivals. Not integration but convergence HSBC provides key services in its four principal business groups: Personal Financial Services, Commercial Banking, Global Banking and Markets, and Private Banking. Beyond these functions all inherently part of the main banking thrust, the Company has not significantly ventured into other businesses that may be interpreted as an attempt at vertical integration, although they have made acquisitions that remained within the sphere of the banking intermediation process. For instance, in April 2003 HSBC purchased Household International, a consumer lending group, thereby adding substantially to the Company’s business and profile in its US market. Subsequently, with its acquisition of Keppel Insurance Pte, Ltd., provider of life insurance and Islamic insurance in Singapore (HSBC website, 2010), the Company may be seen to be venturing into convergence of financial services, a trend that has been occurring with increasing frequency in the financial industry. As part of its strategy at diversity, HSBC makes use of localized, duly qualified, suppliers in its non-sensitive business functions, particularly in its information processing requirements. Patronage of local services, labour and supplies reinforces the Company’s intended image, to be identified as a “local” bank, while deriving cost savings and competitive advantage in its outsourcing. Factors that affect HSBC operations worldwide As a transnational business entity, HSBC is prone to the effects of various destabilizing factors that develop in different jurisdictions. Mainly, it is affected by the economic and political conditions pertaining to the countries where the Company operates. Some of the economic conditions that affect the Company are as follows: Unanticipated continuing or deepening recessions and fluctuations in employment Volatility of changes in foreign exchange rates Volatility and general lack of liquidity in the equity markets, especially in the smaller trading markets in Asia and Latin America, and in wholesale funding markets. Illiquidity and downward price pressure in countries’ real estate markets Increasing market worries over sovereign creditworthiness in over-indebted countries Lower than expected returns and systematic losses in the business sector Price competition in market segments HSBC serves, and in relation to this, consumer perception that influences price levels On the other hand, some political and regulatory developments that affect HSBC are: Monetary, interest rate, and other policies of central banks and regulatory authorities among which are the UK Financial Services Authority, the Bank of England, the Hong Kong Monetary Authority, the US Federal Reserve, the US Securities and Exchange Commission, the US Office of the Comptroller of the Currency, the European Central Bank, the People’s Bank of China, and the central banks of other leading economies and markets where HSBC operates Expropriation, nationalisation, and confiscation of assets, and changes in legislation relating to foreign ownership Amendments to the bankruptcy laws and their consequences, in countries where HSBC has a presence. General shifts in government policy that significantly influence investor confidence and decision-making, especially in countries where HSBC operates, Extraordinary government measures to address the economic turmoil Adverse political or diplomatic developments that destabilize society and create legal uncertainty, thereby affecting demand for HSBC’s products and services. The aforementioned factors and many more create repercussions in the financial industry, much more an international bank such as HSBC, which management must address. Critical Analysis From the cursory examination of the foregoing brief history of HSBC, what one is struck with immediately is that for a gargantuan entity, the Company quite nimbly shifts its primary strategic focus among markets, clientele, and businesses, in order to take remarkably surprising advantage of even adverse changes in the economic and political climate. This may be attributable to certain critical qualities embedded in the Company’s strategy, namely workforce diversity, global expansion, and localized expertise. HSBC pursues a policy of diversity as a source of competitive advantage. Tapping into the capabilities of a multicultural workforce allows it to reach those “pockets of value” that produce higher returns for the exerted effort and expended cost. By not going the way of other transnationals which prefer to maintain a large expatriate workforce, and instead culling a broad variety of talent and expertise in its personnel, the Company developed the internal capability to connect more closely with a variety of clientele throughout the world. HSBC’s active pursuit of global expansion, reaching as many different markets in as many continents as possible, allows it the leverage to easily divert strategy between developed and emerging economies. The Company is thus able to take advantage of the ebbs and flows of economic cycles, thus financial shocks affecting some of its markets are offset by the stellar performance of its subsidiaries in those markets that are unaffected. It is for this reason that HSBC was relatively unscathed by the Asian crisis, because of its presence in developed markets, and it survived the recent subprime mortgage debacle by concentrating its efforts in emerging markets that were uninvolved in US mortgage backed securities trading. Finally, HSBC has developed the advantage of capitalizing on its knowledge of local environments in order to fine-tune its products and services towards the needs of its clientele in various localities. Its slogan, “The World’s Local Bank”, embodies in four short words the magnitude of international financial strength on the one hand, and sensitivities to its markets’ indigenous milieu in the other. This combination of financial and marketing expertise provides HSBC its distinct competitive strength its rivals could not muster. “They have something in the market which no one else has: a huge heritage, a footprint, deep connections in a way that Barclays, JPMorgan and Citi have not, and as an investor I’m looking for a way to tap into that,” Glen P. Suarez, an executive in Monaco-based asset management company Knight Vinke, of the Company (Werdigier & Thomas, 2009). HSBC is thus well poised to address the needs of its international community into the future. References HSBC plc Annual Report 2009 HSBC Official Website. 2 July 2010. Read More