The Hongkong and Shanghai Banking Corporation - Essay Example

Corporate Strategy Q1: Provide a critical appraisal of the strategies of HSBC since 2000, your answer should concentrate on significant strategies initiatives and supported by appropriate tools of analysis and models. (500 words) The Hongkong and Shanghai Banking Corporation has a long history of expansion and development into the six continents and retaining 100 million customers worldwide. With total assets of nearly US $1, 000 billion, HSBC occupies a leading position in the world of banking and finance and is struggling for more market share through its powerful initiatives (www.hsbc.com). One of the initiatives that assisted HSBC in gaining increasing revenues was introduced in 2000s and called “managing for value”. The strategy emphasized the Group’s unique balance of business and earnings between the older, mature economies and the faster-growing emerging markets. For example, the acquisition of all of Lloyds TSB’s onshore and offshore assets related to Brazil in 2003 was a strategic step previewed by this initiative. Following the expansion to emerging markets, HSBC has grown from 51 countries in 1991 to 79 in 2003. At the same time, the company was strengthening its presence in developed markets such as the US, Switzerland and Luxembourg through the acquisition of Republic New York Corporation and Safra Republic Holdings S.A. for US $9.85 billion. Through these and other acquisitions throughout 2000s, HSBC aimed at delivering wealth management in key financial centers around the world1. A huge step towards gaining the eurozone market share came with the acquisition of Credit Commercial de France (CCF) in April 2000 for US $ 11 billion. By settling down in France, HSBC has got access to a personal, corporate, investment and private banking of all Europe in this way strengthening its presence in the developed countries. This acquisition and other initiatives contributed to a continuing improvement on the company’s performance, in which profits of shareholders grew from US $4,318 million in 1998 to US $6,239 million in 2002. Another initiative that strongly consolidated HSBC was its initiative to adopt the unified brand using HSBC and its hexagon symbol nearly everywhere it operated. In 2000, the corporation launched Premier round the clock international sercices for the Group’s most valuable personal customers. Since 2002, the HSBC identity has carried the tagline of “The world’s local bank”, outlining the Group’s experience and understanding of the various markets and cultures. The adoption of the single identity was a strategic step to simplify the tast of consolidating and developing HSBC’s role in the community. Through the Group’s Education Trust and other initiatives, the corporation supported a number of educational projects and thousands of children around the world. In 2001, the Group began the five-year “Investing in Nature” programme, a partnership in environmental projects with Earthwatch, WWF and Botanic Gardens Conservation International. Through the acquisition and growth strategy, HSBC has received a geographical balance and representation in multinational finance. Besides Europe and Asia, the Group expanded to North America where in 2002 it acquired and recapitalized Groupe Financiero Bital in Mexico at a cost of US$ 1.9 billion. In 2003, HSBC purchased the Household International, Inc. that added significantly to the Group’s business and profile in the US. In October 2003, HSBC announced its agreement to acquire the Bank of Bermuda in a transaction valued at US$1.4 billion. Finally, the new initiative launched in 2003 is now being followed by the Group. It is called “Managing for growth” and it aims at focusing on the key customer groups of personal financial services, customer groups of personal financial services and consumer finance. Q2: Analyse the environment in which HSBC operates. Your answer should contain reference to the competition facing HSBC from alternative providers of financial and banking facilities. (500 words) HSBC faces strong competition in all the markets it serves worldwide from a wide range of financial services institutions including commercial banks, consumer finance companies, savings and loan associations, credit unions, retailers, brokerage firms and investment companies. The Group competes in all the sectors of its activities. In investment banking for example, HSBC faces competition from specialist providers and the investment banking operations of other commercial banks (Zarutskie, 2006). Regulators constantly monitor and investigate the competitiveness of the financial services industry of which HSBC is a part in a number of areas, particularly in the UK and continental Europe. HSBC policy is to work together with all its regulators distributing data and providing perspective on those issues which affect all financial services providers both directly and indirectly through industry bodies. A number of factors influence the HSBC competitive environment. Over the last few decades there has been a trend towards consolidation in banking and financial services on the national and international levels. This trend has resulted in the large and growing number of institutions capable of competing with the Group across a wide range of financial services (Paravisini, 2005). Another factor of the HSBC competition is that the majority of the Group’s business is conducted in the domestic market of the US, the UK and Hong Kong in this way limiting the market growth. In the developed markets such as the US and the UK, the penetration of standard banking services is close to impossible since the markets are saturated. HSBC is therefore expanding to emerging markets including China, Latin America, the Middle East, Turkey and Eastern Europe. By expanding domestic operations on these markets and diversifying financial services of the developed markets, the Group is standing the fierce competition in the financial services and banking industry. Another factor that influences the competition in the industry is the advances in technology. With the development of the internet and related innovative technologies, financial services industry is able to deliver products and services through a growing number of channels. This lowers barriers to entry and makes the competitive environment even fiercer. In order to face the competition in this area, HSBC is offering a vast range of services utilizing the new technologies, currently including the Internet, interactive TV, mobile phone and WAR, and telephone banking2. A recent technological innovation utilized by HSBC was a new offering called FlexiLife Plan(FLP). It is an innovative concept and stands out from the competition by being annually priced. By doing this, HSBC can keep premiums low by pricing for risk yearly rather than across the entire term of a policy. It passes savings on to customers, while still remaining profitable. FLP is a flexible product in that it allows customers to add or change features, such as critical illness and income protection. A new software enables the Group’s branches to quickly and efficiently underwrite and process new business applications, helping to reduce costs in a competitive market. The majority of applications will now be accepted at point of sale, significantly improving the service provided to our customers3. Bibliography: 1. HSBC deploys underwriting weapon to beat the competition in the UK insurance market, Nov. 2005, IBM official website. Retrieved November 28 from: http://www-306.ibm.com/software/success/cssdb.nsf/CS/JKIN-6HXS6N?OpenDocument&Site=gicss67fss&cty=en_us 2. Nanda R., Kerr W., Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship William Kerr. Retrieved November 28 from: http://www.hbs.edu/research/pdf/07-033.pdf 3. Erel, I. 2006. .The effect of bank mergers on loan prices: Evidence from the U.S..Working 4. Kaplan, S. N. and L. Zingales. 2000. .Investment-cash .ow sensitivities are not valid mea-sures of .nancing constraints..Quarterly Journal of Economics, 115:2, pp. 707-12. 5. Laeven, L. 2000. .Does .nancial liberalization relax .nancing constraints on .rms?.World Bank Working Paper 2467. 6. Paravisini, D. 2005. .Constrained banks and constrained borrowers: The e¤ect of bank liquidity on the availability of credit..Working Paper. 7. Rajan, R. G. and L. Zingales. 2003. .The great reversals: The politics of .nancial develop-ment in the twentieth century..Journal of Financial Economics, 69:1, pp. 5-50. 8. Zarutskie, R. 2006. .Evidence on the e¤ects of bank competition on .rm borrowing and investment..Journal of Financial Economics, 81, 503-37. 9. Chang Tianle, Shanghai Star. 2002-05-09, Hot banking competition. Retrieved November 28 from: http://app1.chinadaily.com.cn/star/2002/0509/bz10-1.html 10. Annual report and accounts HSBC pls 2006. Retrieved November 28 from: www.hsbc.com Read More