Introduction
HBSC is a major international corporation in the banking and financial sector. Over the years, the company has modified its business strategy to fit growth patterns and demands in the economic market. The organization’s business approaches have played a crucial role in helping HSBS achieve its success in the banking industry. This paper will analyze how HSBC has adjusted its international strategy to reinforce its business operations in China, both before and following China’s World Trade Organization (WTO) accession. The report will also focus on its approach to accessing and running other new marketplaces and suggest the factors that might have contributed to its success or failure. Finally, an evaluation of the benefits and drawbacks of HSBC’s “Managing for Growth” strategy will be provided.
How Has HSBC Adapted Its Global Strategy to Operate in China, Both Before and After China’s WTO Accession?
Strategies Before Accession
The loan-lending business in China before WTO accession was characterized by corruption, mismanagement, favoritism, and government interference. Bank owners would loan money to state-owned enterprises, including inefficient and unprofitable businesses. These ineffective practices led to debt accumulation, which, in turn, undermined the industry. Before the WTO accession, HSBC adapted its business strategy from localization to globalization to evade the home country’s disastrous economic situation. It expanded its operations to other regions, including North America and Europe, by acquiring and partnering with firms already established in foreign markets (Luthans & Doh, 2018). Examples of organizations purchased by HBSC include Marine Midland in U.S and U.K; these acquisitions helped double its assets and fortified its market presence in these nations. Partnering with these established foreign companies gave HSBS the needed resources and capabilities to penetrate new marketplaces. It also made it less susceptible to the underlying economic and political environment at home.
Strategies After Accession
Two years after WTO accession, the government reformed the domestic market by creating interest rate liberation policies and allowing foreign markets to operate without access restriction. HSBC saw this as an opportunity to expand its market presence in the local market. To this end, it strategically acquired the most successful local banks, including Ping An Insurance, Bank of Communications, and BoCOM. HSBC also adapted its strategy as a first-mover; it was the first company to stabilize the Chinese currency.
HSBC also saw opportunities in the market that other banks did not consider and capitalized on those opportunities. While other businesses focused on lending capital to state-owned enterprises, HSBS took the risk of serving a new customer population: the middle-class. Changing a business model to address the needs of new consumer populaces is a market-creating innovation strategy that has been associated with long-term business profitability and economic growth (Mazzucato, 2016). The middle-class was an untapped market with vast potential customers, considering that it was the country’s largest population at the time (Luthans & Doh, 2018). The acquisition and alliances with the leading local companies helped it reach even more customer populations, including the rural population. The expansions were aggressive as they pursued the most lucrative and profitable ventures.
HSBC’s Strategy for Entering and Operating in Other Emerging Markets
Acquisition and alliances are perhaps HSBS’s primary strategies for accessing and launching its operations in other new marketplaces. The term “acquisition” relates to the purchase of a company or business by another corporation or enterprise. HSBS entered strategic alliances and partnerships with companies that were already established in the emerging markets. It invested in emerging markets such as Argentina, Brazil, Mexico, India, and small developing countries.
Branding
The company leverages its brand identity to gain a market position in emerging countries. HSBC has identified branding as one of its strategic pillars that will enable its growth strategy. HSBC, including its subsidiary companies, uses the same brand name and logo. Having a single brand identity has helped the company to become universally recognized and improved its global visibility. HSBC has built a well-known brand personality that has provided it with international visibility.
Customer-focused Marketing
HSBC uses customer-focused marketing strategies to penetrate new markets and reach specific customer populations. It offers a more expansive and personalized product range/financial services to get a broader customer population. For example, its private sector was explicitly designed to meet the needs of its highest valued customers. Additionally, HSBC had distinct customer groups, which allowed it to gain a foothold in market segments that other competitors did not recognize. For example, the company saw emerging markets as “essential markets with burgeoning demand“ and invested in these customer segments (Luthans & Doh, 2018). It overlaid the underlying geographic designations and reached out to new customers.
Centralized Leadership and Management
The centralized governance adopted by HSBC has helped the company to adopt and operate in emerging markets successfully. The head office supported the subsidiary companies in emerging markets by providing strategic plans, human resources, legal, administrative, and financial planning. The vertical strengths enable the company to gain a competitive advantage in strategic alliances and horizontal expansions (Fitzgerald & Rui, 2016). According to Luthans and Doh (2018), this centralized approach enhanced effective decision-making and accountability. The subsidiary companies in emerging markets benefited from the institutional support and privileges derived from affiliating with HSBC’s brand.
Where Has it Found Success, and Where Has it Faced Setbacks? Why?
The company’s most noticeable failure was in North America following its miscalculated strategic decisions. For instance, the organization acquired Household Acquisition Company, a firm that used a unique system to predict if a customer would repay a loan. The framework was built after 13-year-old research on consumer behavior. Unfortunately, the corporation did not suit the U.S household’s demographic and household data, which led to its failure. The firm closed around 800 branches, resulting in the loss of 6,100 jobs (Luthans & Doh, 2018). The company’s collapse in North American company can be attributed to the 2008 financial crisis that resulted in $1.15 trillion in credit losses in the mortgage market (Luthans & Doh, 2018). Besides, its business model may not have worked in the American market.
The company widely succeeded in Europe and other emerging marketplaces. HSBC increased pretax profits $905 million to $3,439 million from 2000 to 2005 (Luthans & Doh, 2018). In emerging markets, its pre-tax improved from $2.6 billion to 6 billion between 2004 and 2014 (Luthans & Doh, 2018). It has had the most success in China, where profits soared from $32million to $3billion within the same timeframe. Currently, China’s profits account for about 15% of its business (Luthans & Doh, 2018). Its success in India is also vivid: HSBC made profits exceeding 200 percent in the country. It also gained inequities between 100 and 140 percent in 2009 by investing in Asia and Brazil (Luthans & Doh, 2018). It has also gained success in Vietnam and Taiwan and even became the first foreign company to establish a locally-incorporated firm.
Arguably, its success in emerging markets can be ascribed to its ability to take the risks of serving customers ignored in the banking industry. By focusing on untapped customer populations, the company gained a strong foothold in the emerging market. Stephen Green, the company’s chairman, stated that “… emerging markets grow faster than mature markets because you are starting from minimal penetration of financial services in general…” (Luthans & Doh, 2018). This statement implies that the company capitalized on underserved populations as part of its growth strategy.
Pros and Cons of HSBC’s “Managing for Growth” Strategy?
The “managing for growth” approach aims to make HSBC a global financial services industry leader. The benefit of the approach is that it allows the company to retain its core value proposition. By maintaining its value propositions, HSBC will keep the business aspects that give it a competitive advantage. The company’s core propositions include ethical relationships, high standards, corporate social responsibility, communication, customer-centered marketing, and creativity (Luthans & Doh, 2018). It also allows HSBC to invest in business components that are integral to success. These business components include brand name, human capital, and technology. This strategy’s disadvantage is that it shifts its focus on customers and directs it to stock ratings. Luthans and Doh (2018) assert that the managing for growth strategy aims to increase HSBC stock ratings and shareholder return. This shift in business focus can lead to missed opportunities, especially in emerging markets.
Conclusion
HSBC’s business strategies have no doubt contributed to the company’s success in the banking industry. The business owes its success to strategic acquisition and alliances, centralized governance, brand image, and customer-focused proposition. Arguably, HSBC’s initial success was due to its ability to take risks that other companies were unwilling to take. Before the accession, the company focused on gaining a foothold in foreign countries but focused on becoming China’s largest bank network after the WTO accession. Considering that HSBC’s success is primarily attributed to its investments in emerging markets, it should adopt a strategy that enables it to retain its core value propositions and customer focus.
References
Fitzgerald, R., & Rui, H. (2016). Whose fall and whose rise? Lessons of Japanese MNCs for Chinese and emerging economy MNCs. Asia Pacific Business Review, 22(4), 534–566. Web.
Luthans, F., & Doh, J. P. (2018). International Management: Culture, strategy, and behavior (10th ed.). Mc Graw-Hill Education.
Mazzucato, M. (2016). From market fixing to market-creating: A new framework for innovation policy. Industry and Innovation, 23(2), 140-156. Web.