Despite the fact that HSBC has been very successful in the market in the recent years, in order to stay in the top of the industry it needs to adjust its strategy to the requirements of the external environment. Currently, the bank focuses its attention on the expansion by means of acquisitions; it has opened many branches worldwide and seeks to obtain profits due to the large volumes of operations. HSBC has been particularly successful in conquering the market in China. “HSBC’s Chinese currency banking business now has the widest geographic reach of any foreign bank in mainland China after the bank’s Xiamen branch received approval to offer local currency banking services to Chinese businesses.” (New license extends HSBC’s Chinese banking service, 2005.
Available from: http://www.hsbc.com/hsbc/news_room).
Due to the rapid growth of Chinese economy in the past years, HSBC Group has devoted very much attention to obtaining and maintaining the top position in the Chinese market of financial services. “HSBC is China’s largest foreign bank, after opening a new sub-branch in Beijing. The world’s second largest bank now has a 14-strong branch network in the country, and is the first foreign bank to open a sub-branch in the capital.” (HSBC expands mainland China network, 2005.
Available from: http://www.hsbc.com/hsbc/news_room).
There are many other countries in which HSBC Group provides its activities and opens new branches; the largest volume of operations takes place in North America.
The managers of the financial group concentrate their efforts on attracting more customers all over the world to use the services of the bank. However, this strategy of expansion worldwide can be considered both aggressive and to some extent, threatening for the bank. The expansion to other parts of the world exposes the financial institutions to more risks than it would otherwise be exposed to. The global financial market can be characterized by the increased volatility of interest and currency rates, volatility of equity markets. Many foreign markets are currently experiencing high unemployment and recessions. All of the mentioned factors increase the risks of the HSBC Group and thus can lead to large financial losses if the risks are not minimized.
The proposed strategy for HSBC for the next 2-3 years is the strategy of close monitoring and minimization of the institution’s risks in order to prevent the bank from experiencing large losses. The bank can still apply the strategy of expansion worldwide and increasing the volume of services but at the same time it needs to pay more attention to the risks which it gets exposed to. The plan of this strategy implementation includes the following steps, including the estimated approximate time limits:
- Appointment of the change management team members to implement the changes in strategy consisting of 3 top-managers and 3 managers of the senior level (1 month);
- Identification of major risks connected with the bank’s expansion worldwide (3 weeks);
- Determination of services which expose the bank to the highest level of risks (3 weeks);
- Determination of countries with the highest levels of volatility and limitation of bank’s activities in these markets (2 weeks);
- Adoption of new risk-management principles and policies in the organization (6 months);
- Adjustment of the new risk-management system in the institution to the new requirements (7 weeks);
- Re-organization of some departments in order to meet new requirements of risk-management system (12 months);
- Employment of highly-qualified professionals in derivatives trading and hedging;
- Quantification of risk-exposure with the help of the latest risk-management programs (2 months);
- Risk minimization through the wide use of hedging instruments, insurance, bank guarantees, letters of credit, forfeiting and other tools (2 months);
- Further expansion with consideration of risk exposure.
The suggested steps of the new business strategy implementation will enable the organization to bring changes to the existing strategy in a relatively short period of time. The long-term goal which the financial group will be seeking to achieve is risk-minimization in the globalized environment. Without the orientation of the company on the efficient risk minimization, all of the efforts of HSBC to increase the profits through the expansion will be in vain because the risk exposure will be able to reduce all of the obtained profits. The strategy of risk-minimization is the only suitable for HSBC in the environment of volatile interest and currency rates. Every new step of the financial institution in the direction of expansion to foreign countries needs to be supported by a couple of steps in the development of risk-management system.
The members of the change management team need to be chosen very carefully because they are going to have an important task of identifying the major risks of the financial company’s activities. The team members will have to determine the financial markets of which countries are characterized by the largest levels of risk. It is clear that developing countries are for the most part much riskier than highly-industrialized countries. Currently, HSBC has already occupied a large share of the financial services market in highly-developed countries and there are very little opportunities for growing. On the contrary, developing markets like China or Taiwan give great opportunities for expansion and thus HSBC seeks to increase the number of branches in these countries. In order to be successful in these activities, HSBC Group has to make sure all of the risks are taken into consideration.
New risk-management principles and policies need to be applied in the shortest period of time, because the risks to which the organization gets exposed overseas can be very dangerous for the company’s stability. For example, the loans granted in foreign countries can be exposed to the currency risk and risk of inflation, as well as interest risk. The fluctuations of interest rates are difficult to predict in highly-developed countries but the task becomes even more complicated if developing markets, for example in China to which HSBC has been expanding its activities during the last years.
The most efficient risk-management tools which need to be applied by HSBC Group are financial derivatives. Since the institution is mostly engaged in retail banking services, it is greatly exposed to interest rate risk. The most efficient tools of interest rate risk minimization are interest rate swaps. Other tools which have to be applied to minimize financial risks include forwards, futures, options, and mortgage derivatives. The largest problem with which HSBC Group can meet is the limited number of derivatives instruments in the financial markets on the countries to which it expands. Derivatives market is very well-developed in highly-industrialized countries but it offers only a limited number of instruments in such countries as China. Foreign banks started participating in derivatives trading in China only a relatively short time ago, and it will take a while until the market reaches a high level of development. Until then, HSBC Group will have to apply other tools of risk-management to minimize risks or existing instruments available in the derivatives market.
It is important to make sure all of the branches of HSBC Group located in emerging countries have a large number of highly-qualified professionals in derivatives trading. They need to go through special training programs in order meet all of the requirements.
With the help of the risk minimization strategy implementation along with the strategy of expansion, HSBC Group will be able to achieve three important goals: first, ensure the company’s top position in the global market of financial services; second, increase the revenues of the financial group due to the expansion of the company worldwide; third, reduce the financial risks to which HSBC group is exposed and losses which can be caused by these risks implementation.
The choice of correct business strategy is particularly important for organizations engaged in banking business. Those companies which function in other industries have large possibilities of winning a large share of the market due to radical innovations. For example, computer industry is characterized by constant innovations and companies need to find more and more ways to stay compatible. In the banking business, innovations are also possible but they are never radical. However, even a small change in strategy can be very efficient in the field of banking. In order to be successful, banking institutions need to adjust their business strategies to meet the demand of customers.
All of the strategic goals chosen by the bank have enabled it to remain a top bank in the industry for many years. It is a universal bank, i.e. a financial supermarket which enables its customers to obtain the whole range of financial services in one place. “Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal financial services; commercial banking; corporate, investment banking and markets; private banking; and other activities.”
HSBC currently occupies a very high position in the global market of banking services. It has been ranked first in retail services and consumer-orientation. “HSBC has been voted International Retail Bank of the Year at this year’s Retail Banker International awards. It also picked up the award for Retail Bank of the Year in China, Hong Kong and Taiwan.” (HSBC voted top international retail bank, 2004. [Online]. Available from: http://www.hsbc.com/hsbc/news_room). Successful decisions made by the bank’s managers have enabled it to remain the best bank for consumers in 2004. “HSBC is Britain’s most admired bank for the fourth year running, according to a survey of some of the banking industry’s most senior executives and analysts“ (HSBC stays top of British banking poll, 2004. [Online}. Available from: http://www.hsbc.com/hsbc/news_room).
In order to keep a stable position in the market, HSBC Group devotes very much attention to designing its strategic goals. The company’s management constantly ensures that all of the correct strategic goals are established and short-term goals are chosen in order to achieve long-term ones. All of the goals established by the company are closely connected with the major goal of the company- increasing the value of its shareholders: “As a commercial organisation, our governing objective is to provide a satisfactory return on our shareholders’ capital. We do this by having a talented and motivated staff who offer our customers competitive services and products.” (Group History. [Online]. Available from: http://www.hsbc.com ). In order to achieve this goal, the company completes the following range of objectives:
- The highest level of services for customers;
- Maximum convenience of deposit policy;
- Maximum flexibility of lending services;
- Maximum liquidity of operations;
- Strict control over expenses;
- Efficient policy of risk-management;
- Best alignment of price and quality of services;
- Fair compensation for employees;
- Efficient organization structure;
- Minimum of bureaucracy;
- Openness to change.
By achieving all of the mentioned objectives, the organization is able to succeed in increasing the value of shareholders. Particular attention is devoted to the lending services which the financial group offers because they bring the largest revenues to HSBC Group. Consumer lending is one of the most important businesses for the institution and thus the company devotes very much attention to creating a winning strategy in consumer lending. Due to the most convenient terms which have been suggested to customers, the financial group has obtained large profits from consumer lending. For example, revenues from credit cards totalled 2,976 million dollars in 2003. At the same time, revenues from other lending services were estimated by 966 million dollars.
These figures speak in favour of the bank’s orientation on consumer lending rather than on commercial lending which is such a characteristic tendency of the modern market of financial services. Banks tend to grant much more resources to consumers than in the previous years while it becomes more and more difficult for companies to obtain loans at the banks. They are often forced to look for other types of financing, for example, with the help of bonds.
In our opinion, HSBC Group could revise this type of strategy in some way in order to attract more customers. It could increase the volume of lending to companies and decrease the volume of consumer lending for a while. On one hand, this strategy is very challenging because commercial lending requires a much better qualification of specialists working at the bank. Consumer lending is much more simple because the process of customers’ monitoring is relatively easy, as well as the process of decision-making about credit rating of the borrower. However, on the other hand, commercial lending can help the financial group to get better positioned in the market and open new perspectives for it. In the world where most companies need to look for ways to obtain financing through the bond market, HSBC could obtain many additional customers by facilitating the process of lending to companies. The risks of this strategy could be efficiently reduced with the help of employing new highly-qualified credit inspectors. The wealth of shareholders could be increased dramatically due to this change of strategy, and thus HSBC Group’s strategic objective would me achieved.
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