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HSBC Bank’s Management Issues in China Case Study


Introduction

HSBC Bank in China is remembered as being among the first banks from foreign countries to get local in China dating back to 2007. The HSBC China forms part of the HSBC Group that operates globally owned by The Hongkong and Shanghai Banking Corporation Limited based in Hong Kong. Within China, HSBC enjoys the largest network for its service compared to other foreign banks. This is because the bank provides a whole range of services that meet the needs of both individuals who are business-oriented and citizens coming from the middle-class.

The Group network in China is made up of 23 small branches and 37 main branches. It is the uniqueness of its strategies that have made it stand out from the rest of the banks. Despite its prosperity, the bank also experiences a lot of setbacks such as the economic recession but it has managed to come up with appropriate measures and strategies to overcome them and remain at the top of the market.

How has HSBC adapted its global strategy to operate in China, both before and after China’s WTO accession?

Even before the accession of WTO by China, HSBC had come up with several strategies that were aimed at expanding its bank sector through opening more branches and agencies globally. By employing these strategies, HSBC had intended to reach out as far as North America and Europe but still keep its main focus within the country and the region around the Asia-pacific area. It achieved this by opening up modern baking systems and being the main fiscal advisor to the government in matters like opening the first bank for the nation and printing its own currency in form of banknotes. The strategies later included coming up with public loans and ensuring that the Hong Kong bank remained the foremost institution in Asia with regards to finances in the 19th century (Luthans, & Doh, 2012).

The Hong Kong bank later expanded its markets in Asia and come up with working strategies in ensuring that the Chinese currency remained stable. After the WTO’s accession in China, its banking sector opened up to banks from foreign countries. This liberation made banks in China attract foreign institutions’ interest, especially in finances. It was following this liberation that HSBC expanded its strategies in China. Among the most outstanding investments include; the Ping An insurance which resulted in a transaction worthy $1.8 gaining more than 19% of its stakes. HSBC strategy was unique as it took advantage of the large China’s population as well as the upcoming middle class, invested in high saving rates, and huge capitals (Russell, 2012).

Discuss HSBC’s strategies for entering and operating in other emerging markets. Where has it found success, and where has it faced setbacks, Why?

By the year 2000, HSBC had ensured that more than half of the assets it had gained were directed to countries that were developing. However, still most of HSBC earnings come from its markets that had already matured like the Britain and Hong Kong. This strategy was initiated by Chairman Green who came up with strategies that focused on the emerging markets that had great potentials. He believed that emerging markets had a higher chance of growing faster as compared to markets that are already matured.

His argument was based on the fact that the financial services and the economies in such markets were beginning from very low financial services penetration. With regards to consumer finances, HSBC under the supervision of Green appreciated the significance of models that took into consideration the markets that suffered from starvation for loans and credit cards. The demographic analysis clearly indicated that consumer finance was emerging as being a significant part which was rapidly growing in relation to the spectrum on financial survives and this was expected to last for a long period of time (HSBC Bank, 1991).

The strategies on emerging markets had several gains as they dramatically increased to about $3,439. These strategies also helped HSBC open up its market globally and market equities globally with almost 100 percent (Lardy, 1998). The global economic growth in merging market also grew faster as compared to the already developed markets. However this strategies were associated with a number of set backs including the banks concentrating more on social functions and not its main function of checking on economic returns. This led to the banks to direct most of its investments on lending practices which led to the HSBC supporting many enterprises owned by the emerging economies which were unprofitable and inefficient. (Wanda and Rodlauer, 2003).

What are the pros and cons of HSBC’s managing for Growth strategy?

The managing for growth strategy by the HSBC was aimed at building the international and global scope of the HSBC so as to ensure its continuous growth through having its focus directed on customer groups that were key to personal financial services. These services included; commercial banking, consumer finances, private banking and market banking. By this strategy, the HSBC aimed at getting long term earnings by having the peers as their benchmarks (Cousin, 2011).

The advantages associated with this strategy include; it ensured the continued establishment of HSBC together with the hexagonal symbols associated with it to remain as the leading brands globally for customers with experienced social responsibility, enabled the HSBC drive its growth over appropriate channels and key markets, the HSBC was also in a better position to reach out to international markets through its product offering that had greatly improved and effective leadership and accelerated its growth through advisory capabilities and capital markets.

The main disadvantage of this managing for Growth strategy was that it resulted to instability that was witnessed through the increased cases mismanagement and corruption in the banking sector leading the investors and customer loosing the confidence they had in banks (Icon Group International, 2010).

How did HSBC withstand the world economic crisis? Was HSBC’s position weakened or strengthened as result of the crisis? What were the results of HSBC group strategy in 2009?What regions were identified as new global opportunities

During the economic crisis, HSBC just like most of the banks during this period recorded profits that were dwindling. HSBC responded to this situation by cutting down on closing locations, staffs and also doing away with some of the programs that were less profitable. This strategy strengthened the bank as its profits increased by approximately $13.3 by the end of the 2009 financial year which was a 148 percent profit increase. HBSC came up with the decision in 2009 to have a good number of its consumer finance closed down especially those operating in United States. By the end of this exercise, more than 800 Beneficial and Household Finance offices owned by HSBC were shuttered leading to 6,100 jobs lost in United States.

The economic crisis and the credit crunch during this period led to the HSBC to struggle in so many ways that the bank faced more scrutiny in its executive compensation. The public response was that of outrage following the executive compensation which they regarded as being too high. The end result was that most of the taxpayers in the United States left the bank (Safarian and Dobson, 2002).

What is the core of HSBC’s current “Organic Growth Strategy” in China? Why did HSBC decide to expand its financial services in China’s rural areas? What are the pros and cons of the rural expansion?

The management of the HBSC came to a consensus that the core strategy in its current position was to continue having the Group positioned in such away that it will attract returns and growth for along period of time. This was to be achieved through the continuous strengthening of its position for it to remain the leading international bank in the world, putting more focus on markets that are merging and business that grow faster, have the principle office of the CEO of the group moved to Hong Kong and put more emphasis on organic growth (Yang and Kuhn, 2007).

These rural banks were meant to provide financial services that would meet the rural area needs in China through offering services such as lending services and cash flow on individual basis as well as the ability of customer to repay leans evaluation. The above measures were meant to be permanent solutions to the deficit of assets normally experienced by rural farmers and enterprises. These rural banks also provide supply chains on cooperation financing with relationships that are longstanding with the customers. However, the cost of establishing these rural banks were remarkably high yet the revenue earned from these banks was low (Chapman, 2000).

Recommendations

Although the HSBC continue to dominate the banking sector both in China and globally, it faces stiff competition from other local and international banks thus has to reorganize its plans in order to continue to re-affirm its position both locally and internationally, its has to open up its operations in order to achieve this. Looking at the structure of the HSBC group, this can be easily achieved as it only has to check on a few areas. The areas that need to be looked at include;

  • Put more focus on business that are growing faster and the new and emerging markets.
  • To intensify its position as an international leading bank.
  • Concentrate its strategies on organic growth as inorganic growth has proved to be associated with a number of risks.
  • To shift the offices of the CEO to Hong Kong for better administration.
  • Invest more in the local market where it faces less competition.

References

Chapman, J. (2000). Chinas Banking System Currency. Washington, DC: Gazelle Distribution.

Cousin, V. (2011). Banking in China. New York, NY: Palgrave Macmillan.

HSBC Bank. (1991). HSBC Business Profile Series. New York, NY: HSBC.

Icon Group International. (2010). HSBC: Webster’s Timeline History. New York, NY: ICON group International.

Lardy, N. (1998). China’s Unfinished Economic revolution. Washington, DC: Brookings Institute Press.

Luthans, R. & Doh, P. (2012). International Management: Culture, Strategy, and Behavior. New York, NY: McGraw-Hill.

Russell, R. (2012). HSBC Bank (China). New York: VSD.

Safarian, A. & Dobson, W. (2002). East Asia in Transition. New York, NY: University of Toronto Press.

Wanda, T & Rodlauer, M. (2003). China: Competing in the Global Economy. Washington, DC: International Monetary Fund.

Yang, L. & Kuhn, R. (2007). China’s Banking and Financial Markets. New York, NY: John Wiley & Sons.

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IvyPanda. 2021. "HSBC Bank's Management Issues in China." February 9, 2021. https://ivypanda.com/essays/hsbc-banks-management-issues-in-china/.

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IvyPanda. (2021) 'HSBC Bank's Management Issues in China'. 9 February.

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