International Management - The Performance of HDBC Bank in China - Case Study Example

Executive Summary The report which examines the performance of HDBC bank in China and other rural areas shows that the bank has continuously improved in all areas. The fact that HSBC bank looked to concentrate on the emerging markets make the changes in their working style ensured that they were able to capture a high percentage in the China’s banking industry and was successful. HSBC looks to provide different banking services like personal financial services, consumer finance, commercial banking services, corporate, investment banking and market services. This thereby helped to further develop the business. Further HSBC bank looked to work on essential functions like strategic planning, human resource management, legal, administrative, financial and control which thereby helped to control the activities based on the local conditions. This ensured that the business was able to work according to the local condition and thereby helped in the progress of HSBC bank. This was aided by the fact that the bank increased in business areas and looked to work on different rural areas further improved their progress and were able to withstand the economic crisis. The strategy developed and the different stance taken by HSBC ensured that the overall development in the business was strong and helped to bring required transformation through which the banking sector gained. Table of Contents Introduction 3 Purpose of Report 3 HSBC Strategy in China before & after WTO accession 4 HSBC Strategy in Other Markets 5 Positives of HSBC strategy for growth 7 Negatives of HSBC strategy for growth 7 Strategy used by HSBC to deal with economic crisis 8 Result of HSBC group strategy in 2011 9 Core of HSBC Strategy in China 10 Reason for Expanding Financial Services in China Rural Areas 12 Pros & Cons of Rural Expansion 13 Conclusion 14 References 16 Introduction The success of an organization is largely dependent on the manner in which an organization is able to understand the evolving international environment and change according to it. This also requires proper understanding of the different culture which is present especially while working in the international market and developing strategies to use it effectively and ensuring that the employees remain motivated to perform on all areas. HSBC bank has witnessed a change in their style of working and has brought the required changes by understanding the different opportunities which China and other international market presented. This has thereby ensure that HSBC looks at different developments like culture, changing business opportunities and other areas based on which the performance has been better and stronger. This will also help HSBC bank to develop different strategy for the future keeping in mind the different opportunities that the business provides and will thereby help to grow their business. Purpose of Report The report evaluates the change in HSBC strategy due to changes in China’s strategy especially after been included in WTO. In addition it to the report also evaluates HSBC strategy in other market, the different positives and negatives before HSBC, the manner in which crisis was dealt and the future direction for HSBC. This will thereby help to give a strong idea about the complete performance of HSBC and the different factors both internal i.e. resources, skills, flexibility and so on along with external opportunities like changing business environment, better understanding of culture, and other external factors which helped to transform the entire working style. HSBC Strategy in China before & after WTO accession HSBC strategy before accession of China to the WTO was totally contrasting and different to each other as China’s accession to the WTO brought wide spread reforms which changed the financial industry and resulted in a change in the strategy of HSBC. The description of HSBC strategy is as HSBC Strategy in China before WTO accession: Before China became a part of WTO the banking industry was closed within the confines of the economy and the industry performed as a centrally planner economy. This was a phase when foreign banks were not allowed to perform in the country as investment in the banking sector was not allowed. The State Commercial banks performed most of the functions and worked on the directed principle of lending which was communicated from the government. This resulted in the investment being made in some of the unsuccessful state owned enterprise and created a lot of debt which was non-recoverable and nonperforming. This thereby hardly provide any opportunity to HSBC to act as the work was mainly controlled by state commercial banks HSBC Strategy in China after WTO accession: After China became a part of WTO the banking industry witnessed widespread changes and reforms. China’s economy was opened to foreign competition which allowed banks like HSBC to start functioning in the country. This provided the opportunity which HSBC bank was looking for. HSBC started its services in the country. HSBC started to provide different banking services like personal financial services, consumer finance, commercial banking services, corporate, investment banking and market. This thereby ensured that HSBC was able to carry out almost most of its activities. HSBC bank was also able to witness the opportunity that China presented and thereby started on their strategy of acquisition. The bank started to have share in the insurance sector and slowly with the passage of time looked at the different opportunities which the smaller rural and urban places in China provided. They started to open their branches and looked towards customer satisfaction (Fizel, 2003). While looking to do so HSBC ensured that they understood the culture that was prevalent in China and based on it made changes in their style of work which helped to understand the wants and provide services based on it. Thus, the overall strategy which HSBC used in China changed after China’s accession to WTO which thereby provided the opportunity which HSBC was able to use. HSBC Strategy in Other Markets HSBC to develop its business and to grow eyed the emerging markets due to the wide opportunity that emerging markets provide. The fact that emerging markets are at their nascent phase it allows the banks to start from a very low pentration level which thereby provides an opportunity to tap a larger market (Mankiw, 2008). HSBC relied on it and focused on smaller and emerging markets. Along with it HSBC looked towards using the established business network which would help the emerging countries to establish between business ties and would help to take advantage of the geographic presence. Since, HSBC has its presence all around the world has helped them to take advantage of the geographical location and ensure that the business gains from it. In addition to it HSBC bank ensured that they provide different essential functions like strategic planning, human resource management, legal, administrative, financial and control. This thereby ensured that HSBC looked towards ensuring that decisions were taken at a lower level and in the place where they were working instead of waiting for the response from higher management (Carol & Whelan, 2009). This strategy allowed HSBC to change according to the local culture of the country where they were performing. The strategy also helped to ensure that the local conditions and the style of working were adopted by HSBC bank. This helped them to integrate with the cultural requirements and provided an opportunity through which their performance improved and helped them to have a better presence in the emerging economies. The strategy adopted by HSBC in emerging countries were successful as seen from the increase in contribution from different economies like Mexico, Brazil, China and India to name a few. There decision also backfired in some smaller emerging countries like Argentina, South Korea to name a few. The prime reason for the success of HSBC bank in smaller and emerging countries was the ability to understand the needs and requirements. This was matched by making the require adjustments which ensured that proper cultural integration took place. Also working according to the local conditions and requirements further helped to increase their chances of success. Some of the failures which HSBC witnessed were due to lack of cultural integration and the inability to change the style of working according to the local requirements (Hale, 2003). Thus, the overall strategy adopted by HSBC in emerging markets has been successful and brought the required changes through which the business opportunities increased. Positives of HSBC strategy for growth The positives which is highlighted from HSBC “Managing for Growth Strategy” is as follows HSBC looks to develop their business based on banking services like personal financial services, consumer finance, commercial banking services, corporate, investment banking and market which is their core activities. (Dohring, 2008) This will ensure that HSBC looked to grow their business by banking on areas which will provide long term advantage HSBC was focused on long term returns and growth for fifty years or above which provide an opportunity to ensure that they are able to undergo every fluctuations that the economy might present HSBC looks to measure their performance against the best in the economy which will thereby provide an opportunity through which the bank will be able to continuously evolve their services and deliver high standards HSBC bank looks to maintain core values, long term focus, ethical relation, teamwork, creativity, customer satisfaction, corporate social responsibility, and high standards which will thereby ensure that the bank is able to perform well on all the different parameters and maximize customer satisfaction. Negatives of HSBC strategy for growth The negatives which is highlighted from HSBC “Managing for Growth Strategy” is as follows HSBC has looked at a very long time horizon to measure the performance which at time might make it difficult to judge the performance of the organization and might not help to bring the different aspects which should have been considered immediately (Hunter & Hunter, 2004) The parameters which HSBC has decided to measure their performance against might be difficult to replicate and measure No emphasis has been highlighted on the manner in which culture integration will take place within the working scenario and might have an impact on the overall performance as working in international destination will require understanding of the local factors which hasn’t been considered (Hicks and Gullet, 2001). Strategy used by HSBC to deal with economic crisis The global economic crisis had an impact on the performance of HSBC and others banks but the impact on HSBC bank was very limited. It is true that the economic crisis had an impact on the performance of HSBC as their pretax profit decreased to $.3 billion from $24.2 billion the previous year. Other banks in comparison to HSBC performed poorly and had to even look for bailout from the government. The prime reason for HSBC performing better in comparison to other bank during the economic crisis is that the bank concentrated on their core activities and didn’t look to indulge in speculation activities. This ensured that the risk for the bank was minimized to a large extent (Ernest, 2009). The financial figures for HSBC further highlight that the loss was reduced through writing off goodwill impairment which thereby ensured that the impact on the bank was largely limited. HSBC during the period of crisis also passed a strong statement as the bank ensured that no cash bonuses and performance share awards will be provided to the different executives. This helped to improve their position and brand image in the eyes of the customers as it made people realize that it was their local bank and looks at the well being of the customers (Arnold, 2005). Further, the bank also adhered to the different requirements of the Basel norm which helped them to maintain sufficient liquidity within the system. This ensured that the bank performed in line where they were accepted to carry out their duties and thereby had a positive impact. Fully adhering to the different legal and financial requirements helped to maintain the required liquidity which thereby ensured that HSBC was able to sustain the shock which the economic crisis resulted in. This was helped by the diversification of business over different regional areas. This helped to ensure that the risk was shared among different regions and had a limited impact as some regions despite the economic crisis performed strongly and showed profits (Bebbington, 2007). The culmination of different factors and the ability to adapt to the changing business environment which the international trade provided helped to reduce the risk and ensured that the business was able to perform on different regions and were able to sustain the different risk which the situation created. Result of HSBC group strategy in 2011 HSBC has performed well in 2011 compared to the financials provided for the year 2010. The prime reason for the development of HSBC has been the fact that th world economies especially the developing economies are recovering from the shock of economic crisis which has thereby increased the role of the financial sector for different sort of financing. Since, HSBC has its presence all around the globe it has used the opportunity to develop the business and has helped to be positively contributed towards their growth. This has been matched by the fact that the growth in HSBC performance comes mainly from developing economies like China, India, Brazil, and so on. This clearly indicates to the fact that the decisions of HSBC to invest in emerging economies is paying off (Murray, 2010). The fact that emerging economies are posting high rate of growth in comparison to the developed and matured economies it has helped them to use the opportunity to develop their business (Deegan, 2002). This has been supported by the strengthening of reforms in the banking sector which has thereby provided an opportunity through which HSBC has been able to grow. The financials further shows that different smaller economies in the Asian region provide an opportunity for more growth in the future. This is because the emerging markets are at their nascent phase it allows the banks to start from a very low penetration level which thereby provides an opportunity to tap a larger market (Gibson, Ivancevich and Donnelly, 2009). HSBC by using that opportunity can ensure that they are able to provide a new market for their products and services and will be able to increase their presence geographically. This will further provide better opportunities as it will ensure that HSBC is able to work on the different fundamentals and based on it develop their business which will thereby increase the overall effectiveness and multiply the profits for the bank. Core of HSBC Strategy in China HSBC success in China can be largely attributed to the fact that HSBC changed its style of business and continuously focuses on improving their services and adding new products based on the customer needs and requirements. The fact that HSBC was able to understand the evolving business environment and make the changes in their working style ensured that they were able to capture a high percentage in the China’s banking industry and was successful. HSBC looks to provide different banking services like personal financial services, consumer finance, commercial banking services, corporate, investment banking and market services along with new additions credit card to prospective customers and so on ensured that they were able to satisfy the needs and requirements of the customers (Moradzadeh & Hamid, 2006). For example, HSBC bank investment in Ping An Insurance where they acquired 10% of their share shows the process through which insurance sector and asset management sector was achieved. HSBC bank also had share in the insurance sector and slowly with the passage of time looked at the different opportunities which the smaller rural and urban places in China provided. They started to open their branches and looked towards customer satisfaction. This ensured that the bank invested in different areas and looked towards strengthening the overall process through which better decisions were taken. This strategy allowed HSBC to change according to the local culture of the country where they were performing (Bateman & Snell, 2004). The strategy also helped to ensure that the local conditions and the style of working were adopted by HSBC bank. This helped them to integrate with the cultural requirements and provided an opportunity through which their performance improved and helped them to have a better presence in the emerging economies In addition to it HSBC focused on essential functions like strategic planning, human resource management, legal, administrative, financial and control which thereby helped to control the activities based on the local conditions. This provided an opportunity where cultural integration took place between the economies and helped them to ensure that decisions were taken based on the local requirements. HSBC bank on this aspect also looked to strengthen the role and responsibility of the local players by passing on additional powers to them so that decisions could be made at the same juncture and helped to improve the overall satisfaction level of customers (Gray, Owen and Adams, 2006). For example increase in the investment in BoCom which thereby helped to increase their investment in different areas and helped to work on their core business. Thus, the fact that HSBC looked at different aspect of the business and based on it looked towards developing their business helped them to succeed. No single factor can be solely adjudged as one which contributed to the success of HSBC bank but was instead the culmination of different factors which helped them to develop their business (Boddy & Macbeth, 2000). The fact that HSBC concentrated on their core business and looked to keep everything simple and clear helped to bring the required changes through which the bank was able to taste success in China. Reason for Expanding Financial Services in China Rural Areas HSBC looked towards expanding the financial services in the rural areas because of the different opportunities that were identified in the rural areas. HSBC was able to identify the different opportunities that the rural areas presented and based on it looked towards developing its market in those areas. Some of the reasons which can be identified for expanding the business in rural areas as The rural areas were growing and were contributing positively towards the growth rate of China. This provided an opportunity as growth in the business would mean the necessity of developing the financial sector which HSBC was able to recognize and looked towards investing in those areas (Morhardt, 2009) There was lack of banks in the rural areas and the growing business opportunity provided a scope where banks could look to work. This was found out by HSBC and looked to bank on the opportunities which was provided and thereby ensured that they develop the financial business in the rural areas (Anthony, 2003). The fact that the rural areas lacked banks it provided an opportunity to use the gap and develop the banking sector through which HSBC experienced growth HSBC bank looked towards diversifying their risk and increasing their global presence by entering the rural areas. This thereby provided the required opportunity through which HSBC bank was able to ensure that their risk reduced (Lazonick, 2010). This also provided an opportunity through which the bank was able to diversify and ensure that the business was able to grow. Pros & Cons of Rural Expansion The expansion strategy adopted by HSBC bank to expand their business in the rural areas of China has the following advantage Expanding business in the rural areas helps them to gain a first mover advantage as the rural areas lacks bank and will thereby ensure that HSBC is able to take advantage of the prevailing situation and develop their banking institution Expanding business to rural areas helped to diversify the risk for the business and ensured that in case certain regions didn’t performed well the other regions could compensate for the same The rural areas were growing at an exponential rate and provided the opportunity to develop the business in the financial sector. HSBC bank used the opportunity and developed the business sector based on the needs and requirements of the regions Expanding in the rural areas further ensures that the global expansion strategy of HSBC is prominent and will help the bank to ensure that it is able to increase the global presence in different regions of China which will thereby help to further improve their business (Kerzner, 2004) The expansion strategy adopted by HSBC bank to expand their business in the rural areas of China has the following disadvantage Since the rural areas in underdeveloped it raises questions regarding the long term sustainability of the business as it might raise different issues which might make it difficult to carry out the business activities in those region The chances of the product being accepted within the customer a so raises doubts as it leads towards complicating the risk for the business and increases the dependence on rural customers for the business Conclusion The analysis of the performance of HSBC bank shows that the performance of bank has continuously improved over the year in China. The financial service sector has benefitted in China due to change in government regulation and the accession to the WTO. The fact that HSBC bank looked to concentrate on the emerging markets make the changes in their working style ensured that they were able to capture a high percentage in the China’s banking industry and was successful. HSBC looks to provide different banking services like personal financial services, consumer finance, commercial banking services, corporate, investment banking and market services. This thereby helped to further develop the business. Further HSBC bank looked to work on essential functions like strategic planning, human resource management, legal, administrative, financial and control which thereby helped to control the activities based on the local conditions. This ensured that the business was able to work according to the local condition and thereby helped in the progress of HSBC bank. 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