HSBC Formerly Named The Hong Kong Banking Marketing Essay

HSBC Formerly Named The Hong Kong beveling Marketing Essay1. IntroductionHSBC formerly named the Hong Kong and Shanghai Banking Corporation Limited was established 1865. With assets of US $1,502 billion, HSBCs inter case earnings comprises over 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the the States, the Middle East and Africa.This paper examines HSBCs global line of business Strategy with particular emphasis on North the States and the US. Firstly, the relevant literature on International Business is reviewed and a comparison between the literature and HSBC is presented. Secondly, HSBCs business environment is looked at analysing such factors as constancy free-enterprise(a)ness. Next, HSBCs International business dodge is critic solelyy evaluated and finally, a conclusion along with recommendations is provided.2. Literature ReviewThe rapid ball-shapedization of business in the last devil decades has prompted an increasing turning of business fast(a)s to develop strategies to enter and expand into trades outside their locations (Osland et al. 2001153). Reliability on solely domestic markets is therefore a reliable source for matched advantage (Rugman Collinson, 2006). Firms must therefore develop strategies of Internationalisation in overseas markets. According to Johanson and Wiedersheim-Paul (1975306) the term international refers to the activities implemented abroad or attitude of the firm towards foreign activities. Relevant studies on the banking industry and HSBC result be examined downstairs.According to Hoskisson et al., 2000 strategies argon moderated by the characteristics of the particular context in which firms operate. In particular, institutions-the rules of the game-in the host preservation in addition shape firm strategies such as foreign market entry (Peng, 2003 Wright et al., 2005). In a broad sense, macro-level institutions affect transaction be (North, 1990). However, traditional transaction costs research (exemplified by Williamson, 1985) foc rehearses on micro-analytical aspects such as opportunism and bounded rationality. This consequently raises questions onmacro-level institutions, such as country-level legal and restrictive frameworks, influence transaction costs set out been relatively unexplored, remaining largely as background. However, a new-fashioned movement in research posits that institutions argon off the beaten track(predicate) more than ancillary elements, and that institutions directly influence what resources a firm has at its disposal as it strives to develop and launch strategy. An analysis of theory developed specifically out of changes to world(prenominal) markets shows little growth of the standard theories of market segmentation, unalikeiated pricing and appropriate distribution channels which underpinned local and domestic marketing theory. However, the literature over the preceding(a) five long time has shown a particular set of theoretical models specific to global marketing.Hollensen (2007) discusses the Uppsala International Model demonstrating a sequential copy of entry into international markets with an increasing commitment to overseas markets as the international experience of the firm grows (Johanson and Vahlne, 1977). Hollensen (2007) contrasts this with a traditional approach of what is termed as the Penrosian tradition which is establish on economy of scale and a cost-led approach working from the firms core competencies. Dunning (1998) suggests a similar Ownership-Location-internalisation (OLI) framework identifying an ownership advantage of establishing overseas production facilities, a locational advantage which builds a logistics network around the overseas production and, finally, an internalisation advantage where it must be economical for a firm to utilise the precedent two advantages rather than sell them to a foreign firm (Hollensen 2007). Similarly, the standardisation-localisa tion model focuses on specific choices related to international market entry and the identification of riskiness mitigation factors striking to international marketing. Baker, M (1993) recognises the risk mitigation inherent in internationalisation, protecting the firm from adverse fluctuations in the national economic cycle. Hollensen (2007) concurs, outlining the ownership, run and transfer risk in be attached purely to domestic markets. All of the literature is strong on identifying the risks of domestic-based marketing however there is scrimp coverage of the specific risks of internationalisation.2.1 The Strategy of International BusinessFirms operating in the global marketplace are required to balance concerns for globalisation (economic consolidation) with national reactivity (Rugman Collinson, 2006). Globalisation is defined by Rugman Collinson (2006454) as the production and distribution of products and serve of a homogenous type and quality on a world across-the-b oard basis. interior(a) responsiveness is defined by Rugman Collinson (2006) as the ability to understand different customer requirements in different countries and responding to those local demands by providing the required products and services. Globalisation strategy advocates claim that human needs are homogeneous in e truly country supporting product standardisation within world markets (Levitt 1983 cited in Schlie and Yip, 2000). well-nigh authors however argue that the globalisation strategy fails to address customer needs in national markets (Rugman Collinson, 2006). In order to analyse the distinction between integration and national responsiveness Figure 1 (Adapted from Bartlett and Ghoshal) leave behind be used.Fig. 1Source Bartlett and Ghoshal, 1989, in Rugman and Hodgetts, 2001, p.335.As amplylighted above, quadrant 1 represents gamey economic integration and low national responsiveness. This is a global strategy used by firms to achieve economies of scale (Rugman Collinson, 2006). Quadrant 4 represents high national responsiveness but low economic integration. This is a national responsiveness strategy used to customize products/services to local demand(Rugman Hodgetts, 2001). Quadrant 3 meanwhile, represents twain higheconomic integration and national responsiveness. Quadrant 3 is the most demanding of all and is also where numerous successful transnational firms operate (Rugman Collinson, 2006). Finally, quadrant 2 is where the need for national responsiveness and economic integration is low.The banking industry uses a combination of mergers, acquisitions, subsidy and Greenfield strategies. However, economic integration is counterbalanced by national responsiveness in terms of how for each one strategy is designed and implemented (Rugman Collinson, 2006) given that consumer needs may differ from region to region evinces that a product or service introduced in one part of the world is usually rejected by consumers in different pa rts of the world (Rugman Hodgetts, 2001). HSBC provides a good face in relation to the notions mentioned above. Although, HSBCs international network comprises over 9,500 offices in 76 countries, its entry into the US began as a weak and poor performer. Peek et al. (1999) put together that US subsidiaries of foreign banks generally perform poorly payable to acquisition of unsuccessful US banks in conjunction with the inability to improve performance sufficiently. pickings this into consideration, HSBC pursued a localisation strategy in different regions of the world which is similar to Barclays use of integration in tandem with national responsiveness.3. The International Business Environment of HSBCIn order to understand HSBCs International Strategy, the companys business environment is going to be examined using Porters five Forces because as Sandler(20073) points out many of the problems and opportunities bear on a single firm may be associated with broader based systemic is sues impacting an entire industry. Secondly, HSBCs business environment is going to be studied using grind analysis.3.1 Porters Five Forces TheoryPorters 5 Forces theory demonstrate the influences of the five competitive forces which are used to define the characteristics of the target market (Crum 1998, p.307).The main competitive forcers include Porters 5 Forces theory demonstrates the influences of the industry competitiveness (Rugman Collinson, 2006) (See concomitant 1).3.1.1 Level of Competition (Rivalry)Competition in the banking industry is extremely fierce and HSBC is in strong competition with another(prenominal) study banks, such as Barclays and Lloyds TSB. In an environment of strong competition, banks will find themselves involved in intense toll competition.HSBC can avoid price competition by differentiating themselves from the competition as expressed by Porter (1985). HSBC also has competition online debit, insurance and mortgage companies that invite competiti ve prices.3.1.2 Threat of SubstitutesThe bane of substitutes for HSBC is low because money cannot be replaced.However HSBC do have enormous competition from other banks and mortgage lenders and if customers are not happy with the prices and services they are receiving from their bank, they can easily move to a competitor.3.1.3 Threat of New EntrantsThe threat of new entrants is extremely high, and not only from banks. Companies such as Sainsburys and Virgin also sell fiscal products.Ind Bjerke (2007) believe that brand loyalty is an important marketing factor, and HSBC certainly has this advantage.Customers may want a personal service, so the threat of teensy-weensy bank operators whom offer an intimate experience may be favoured over a large bank, such as HSBC (McDonald 2007).HSBC have been operating for many years and therefore has a lot of k promptlyledge and customers can trust them. A new entrant would not have this advantage especially in many of the countries that HSBC ope rates such as China, where trust is imperative to the culture (Brett et al 2006).Bargaining Power of BuyersBargaining office of buyers is extremely high as customers can contrive to a rival company with lower rates and offers such as free rambling phoneinsurance. The customer has the choice of going to a wide array of high street branches and therefore has great power which can affect the market portion out of HSBC.HSBC need to ensure that they offer something more than the other competing banks, such as holiday insurance.3.1.5 Bargaining Power of SuppliersBargaining power of suppliers with regards to HSBC is twofold. Firstly HSBC rely on its customers (suppliers) to bring in its product (money), therefore the negotiate power of suppliers is very high.Secondly, the suppliers are not a threat to HSBC because it is un apparent that they will open their own bank, so the bargaining power of suppliers here is very low.Table 1. Summary of Porters Five Forces AnalysisForceIntensityLev el of CompetitionHighThreat of substitutesHighThreats of New EntrantsLowBargaining power of buyersVery HighBargaining power of suppliersHighPestle AnalysisPoliticalObtaining funding from the money markets has become more costly for HSBC as a result of uncertainty in financial markets and shortage of funds caused by the global credit crisis (BBC 2008).Because HSBC has branches all over the world, they must comply with changes in law with regards to their countries of ownership. An example of this was in 2006 when Vietnamese regulations proposed to increase the foreign ownership cap from 10 per cent. As a result of this newregulation, HSBCs FDI rose by 55 per cent (HSBC 2007).HSBC are also affected by political instability. This occurred in Siameseland in 2006 when the political crisis had a negative impact on consumption patternsand the number of people taking out loans dropped, oil prices and interest rates increased. Due to all these issues, HSBC only physical compositioned a 4% crop in the Thai economy, far less than the other Asian banks (HSBC 2006). Other wars and conflicts in HSBC operating countries will have a direct negative impact on the company.3.2.2 scotchThe credit crunch has seen many major banks tighten their lending criteria in order to reduce the number of credit write-offs. Barclays recently wrote off 1.67billion, Lloyds TSB 1.26billion and HSBC 943million (Hosking 2008).HSBCs profit in the beginning tax in 2007 was 4,081million, and the bank reported a strong start to 2008 despite the global financial crisis. In the first quarter of 2008, HSBCs profit was atomic number 82 of the equivalent period last year (HSBC 2008). Compared to other major banks, including Barclays and Lloyds TSB, HSBC is doing well in the face of the crisis.Changes in foreign exchange rates affect HSBC and new frameworks, similar to one introduced in 2007 by the International Monetary Fund causes instability for HSBC (BBC 2007).Consumer perceptions at the emergent economic downturn has people concerned astir(predicate) their spending patterns and less likely to take out loans and spend what they have.Many banks have been withdrawing mortgage offers, however HSBC are today offering competitive rates (Budworth 2008). Due to their differentiation strategy, consumers are attracted to their mortgages.SocialA report published in the Independent newspaper highlighted the fact that the number of people going to University increases each year, hence people are becoming better educated (Hilpern 2008). The range of services that HSBC offers to university students has increased over the years, however there have been recent campaigns against HSBC from school-age child Unions with regards to interest free overdrafts students receive upon leaving University (Coughlan 2007).Housing trends greatly affect HSBC and the current economic crisis has meant that major banks, including Barclays and Lloyds TSB have been urged to cut interest rates (Murchie 2008). technicalThe Internet has merged itself as a very powerful platform that has changed the way businesses operate (Pieter 2007). People now have access to their finances easily, in any location and for 24 hours.There is vast room for improvement of M-Banking (mobile banking). People are so dependent upon mobile phones and have easier access to their mobile than a computer.The GLT (Global Technology Centre) within HSBC are responsible for new technological advances and operate throughout Europe, Asia and Africa.EnvironmentalWith growing environmental pressures, HSBC has become the worlds first major bank to become carbon neutral. HSBCs commitment to change ensures that they provide environmentally responsible advice to lenders and have become involved in a variety of initiatives, including the foot of renewable energy technology, water and waste reduction programmes and employee engagement (HSBC 2007).Consumers have the option to go green with HSBC and reduce the impact on the enviro nment by saving paper and energy. Customers will receive email statements instead of paper statements, there are no cheque or paying-in books and the customer will be contacted by telephone instead of post (HSBC 2008).LegalHSBC must comply with a wide array of laws and regulations, including consumer protection. Consumer complaints have been paramount in the media lately regarding high bank charges for overdraft limits. The High Court has now ruled that bank charges are to be assessed under consumer protection law. It is now up to the Office of Fair profession (OFT) to decide thefairness of bank charges. Because of this new legislation, consumers have received millions of pounds back from these charges (Pollock 2008).HSBC has to comply with data security measures set by the Financial Services confidence after HSBC admitted to losing a disk that contained the personal details of 370,000 customers in March 2008 (Booth et al 2008).4. EVALUATION OF HSBCS INTERNATIONAL BUSINESS STRATEG Y4.1 HSBCs Entry into North AmericaHSBC began its growth in North America by acquiring failed and weak banks. In effect, shareholders lacking a comparative advantage relative to HSBC, with respect to owning and government given banks or branches (Lichtenberg and Siegel, 1987), sold them to HSBC. Generally, growth through acquisition is difficult to execute as it is vulnerable to problems of over-reach due to managerial hubris (Roll, 1986 Baradwaj et al., 1992 Seth et al., 2000). One cannot pay back at strong conclusions from studies of the profitability of subsidiaries. Banks transfer profit across frame ins (Demirg-Kunt Huizinga, 2001), and foreign banks may prefer to book some business from their headquarters (Peek Rosengren, 2000). One may surmise that HSBC initially chose to acquire weak banks as much out of necessity as design. For any given size, a profitable bank will cost more than an unprofitable one, so in order to achieve diversification goals, HSBC needed to acquir e large banks. Now that HSBC is one of the worlds largest banks, whether one measures by market capitalization or total assets, it has more flexibility.Banking concentration is apparent in many developed countries (Marquez Molyneux, 2002). In response, policymakers within these countries have restricted banks from unless domestic mergers and acquisitions. Some recent failed attempts in Canada are a case in point (Tickell, 2000). Growth opportunities therefore arise through cross border growth. Interestingly, each of the owners of the largest subsidiaries of foreign banks in the US is disproportionately often the largest bank in its home country (Tschoegl, 2002 2004). Strategy viability assessment is the classic area of find how a foreign firm competes against local facing lower cultural issues (Zaheer, 1995). One issue then is whether having operations in contiguous countries represents a competitive advantage. Tschoegl (1987) Dufey Yeung (1993) have argued that, where markets are well developed and competitive, there is no reason to expect foreign banks to be better than local banks at retail banking. At the same time there is evidence for the existence of a liability offoreignness vis--vis the foreign banks host-country competitors (Parkhe Miller, 2002). Of course, there is also evidence that suggests that, the liability is minimal (Nachum, 2003) or wanes over time (Zaheer Moskowitz, 1996). However, these last two studies examine the liability in the context of corporate and wholesale banking markets. The liability may be more salient in the retail markets, where national differences between the home and host market are likely to be more profound. Claessens et al. (2001), Demirg-Kunt Huizinga (1999) found that foreign banks tend to have higher margins and profits than domestic banks in developing countries, but that the opposite holds in industrial countries. Similarly, Dopico Wilcox (2002) found that foreign banks have a greater share in under-bank ed markets and a smaller presence in mature markets. This implies there must not be a high expectancy for coss-border mergers in money qualification(prenominal) banking within developed regions. One can speculate that on the production side, differences in products across markets and privacy laws appear to be limiting parents ability to consolidate processing. As far as depositors are concerned, there seems to be little value to having an account with a bank that operates in other countries, especially now that travelers can draw cash from networked ATMs. HSBC has a service for wealthy individuals-HSBC Premier-that provides cross border advantages as transfer of an individuals credit rating when they relocate, and some other services. However, these facilities are not available to ordinary accounts. The literature on trade flows is instructive here the evidence on NAFTA has shown that borders have a substantial damping effect on trade flows (McCallum, 1995). In North America, HSBC is even poorly positioned to take advantage of cross-border retail banking that is currently drawing attention remittance flows from Mexican workers in the US. Although HSBC now has a strong presence in Mexico, it has almost no offices in California or other US states with large populations of Mexican immigrants.By contrast, Bank of America, the largest bank in California and in many other US states in 2002, bought a 25 percent stake in Santander-Serfin, Santanders subsidiary, which has amalgamated Mexicos oldest and ternion largest bank. If there isreason to believe that, HSBC benefits from cross-border demand or production effects, what is left as a source of advantage? One candidate is what Kindleberger(1969) called surplus managerial resources. When a bank such as HSBC can no longer grow at home, it may find itself with a counselling team that is parttime in terms of the demands on its time. The bank may then choose togrow abroad when it can combine these surplus resources wi th what Berger et al. (2000) call a global advantage. As Nachum et al. (2001) point out, the competitiveness of firms depends on the kind of assets that firms can transfer internally from country to country, but are difficult to transfer from one firm to another, even within a country. Still, it is, extremely difficult to measure an intangible asset as subtle and hard to define as better management (Denrell, 2004), especially when, recent events have shown, stock market performance or accounting measures are of doubtful reliability.5. HSBCs International Business StrategyHSBC, a growth oriented company from earliest days decided to launch concrete strategies to attain market elapseership in all sectors operated in. Though the company was amongst the leading players in areas such as consumer finance, personal financial services, commercial and corporate banking, it also wanted to establish its presence in areas such as enthronization banking, mortgage, insurance and credit card bus iness. To strengthen its product portfolio and geographical reach, HSBC embarked on an aggressive acquisition strategy. The focus was on areas where it was either weak or did not have a presence. Simultaneously, the company launched an aggressive branding exercise to complement its growth strategy. The geographical reach of the bank could be estimated by its presence in the form of the subsidiaries and franchises. It can be said that HSBC uses the multinational strategy since it operates in a range of markets. According to Prahalad and Doz (1987), the prime consideration here is the extent of pressures for global integration and extent of pressures for local responsiveness. In addition, Schlie and Yip (2000343) argue, the key in global strategy is to find the best balance between local interlingual rendition and global standardisation. In order to achieve the benefits of globalisation, businesses need to recognise when industry conditions provide the opportunity to use global strat egy levers (Yip, 1992). Authors Morrison and Roth,Rugman Verbeke (see Schlie Yip, 2000) maintain that Regional Strategies offer such an optimal balance.In order to analyse the globalisation drivers of HSBC, the Yip Framework drivers for internationalisation was adapted from Yip, 1992. According to Campbell (2002), Yipidentified four drivers (See Appendix 2) which determines the nature and extent of globalisation in an industry.Table 2. Globalisation drivers of HSBCMarket Globalisation DriversGlobal customersGlobal distribution channelsPresence in lead countriesCommon customer needsCost Globalisation DriversGlobal scale economiesDifference in exchange ratesHigh product development costsRapid change in TechnologyGovernment Globalisation DriversCommon marketing regulationsGovernment owned customers (Subsidies)Host government concerns (Policies)Competitive Globalisation DriversCompetitors globalisedCompetitors from different continents6. Strategies and Performances of Principal compet itors6.1 Branding and variegationBrand development creates an identity for businesses which creates a competitive edge depending on its effectiveness (Montoya, 2002). The groups chairman stated commitment to making HSBC one of the worlds leading brands for customer experience (HSBC, 2007). In 1998, the Group adopted the HSBC brand and the hexagon symbol as a unified brand in all the markets where it operated which emphasized its global reach. HSBC adopted taglines such as Your world of financialservices in 1999 to enable customer awareness on the range of financial services available for each customer. HSBC ensures that its understanding of varied marketsand cultures are integrated into its brand through the tagline The worlds local bank developed in 2002. Similarly its competitors, Barclays uses a branding strategy which promises to deliver value through financial expertise the fluent in finance strapline (Brand republic, 2004) and Lloyds TSB on the other hand, develops a global s trategy through the development of a strong brand image by reducing local customization and selectively satisfying common customer demands across markets (Osono et al., 200828).Diversification Strategy is the launching of new, retail-focused services, Link with enabling competitive advantage (Hitt, et. al., 2006), Although HSBCs core brand is strong, customer recognition may have saturated, therefore integrating both fresh brands into subsidiaries in tandem enables its growth through Merger and acquisitions providing a competitive advantage, enabling HSBC to play a central role in two of Europes biggest-ever merger and acquisition deals i.e. Mittal Steels hostile bid for Frances Arcelor and German utility company Eons offering for Spanish rival Endesa (Digital look.com 2009).6.2 Technology use and strategyThrough advances in technology, HSBC presents customers with a broad spectrum of financial services including personal financial services and investment banking, amongst others, to create competitive advantage through strategic alignment (competitive potential) (Venkatraman et. al., 1993). Similarly, Barclays and Lloyds TSB use strategic alignment (Service level) to ensure the effective use of IT resources and be responsive to the growing and fast-changing demands of the end-user population (Cio.co.uk, 2010).6.3 Performance EvaluationIt is argued that positive relationships between marketing spend, market share and marketing activities have an incremental impact on market share however this does not apply to the big four banks (Digital look.com, 2009). The graph below demonstrates decline of share prices for RBS and Lloyds in the last two years. Bothbanks have lost between 75% and 85% of its values in comparison to the past 2 years.Fig2 Market Shares Trends of the Top Major BanksIn summary, the results demonstrate varied results for UK banks in 2009. HSBC for example, report significant improvements whereas others such as Barclays and Lloyds TSB demonstrate d ecline due to the impact of the global financial crisis.In addition, according to Digital look.com (2009), HSBCs success attaining the top of investors is as a result of the followingLargest bank in the UK with a well-capitalised balance sheet.Solid defensive stock with a stable and resilient earnings track record.Well-placed to benefit from the continued economic growth in emerging markets.Currently trading on attractive valuations with a forward P/E of 11.6 times and a dividend yield of 3.4%.HSBC demonstrates a lack of focus and development with regards to investment banking which has prevented HSBC becoming a major player in investment banking.Focus and development is essential for performance improvement due to continuous sub-prime mortgage fallout and credit tightness influences on the retail banking sector (Digital look.com, 2009). The last three years demonstrate the emergence of HSBC as an investment banking brand.7. CONCLUSIONThe findings indicate that HSBC dominates the ba nking industry with record profits, however the bank has reported increasing debts and this will not be helped by the current credit crisis in the US and the UK. As consumers become increasingly aware of the rising cost of living they are likely to shop around for the best interest rates and they are likely to find this on the internet with online mortgage and debt companies. Although the introduction of online banking has proved popular among HSBC customers, the company should ensure that extra security measures are in place that will guarantee maximum security of consumer data.As HSBC is a multinational company and therefore people trust the brand and confidence that their finances are being well maintained, there are development opportunities for the future in destinations, such as Afghanistan and Brazil.8. RECOMMENDATIONSIn order to rectify the shortcomings in its international strategy, the author of this report recommends that consideration be given to the followingHSBC should seek to identify optimal investment packages and strategiesHSBC should expand its products and services to suit the various markets and the times.HSBC should focus on ride growth of brands and improving performance by ensuring that their strategies create value and growth.HSBC can stay ahead in competition by offering better services for its customers such as exceptional customer service, environmentally friendly policies including the HSBC Communities Policy which aids developing countries.BIBLIOGRAPHYAmel, D., Barnes, C., Panetta, F., Salleo, C. (2004). Consolidation and efficiency in the financial sector A review of the international evidence, ledger of Banking and Finance, Vol. 28, No. 10, pp. 2493-2519.Anand J, Delios A. 2002. Absolute and relative resources as determinants of international acquisitions. 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