management report

• Executive Background

This management report starts with an executive summary of the HSBC Holdings plc. The HSBC Holdings plc is an international bank whose name originates from its founding member, The Hongkong and Shanghai Banking Corporation Limited. This company’s headquarters are in London, United Kingdom.

It was established as a local bank in the year 1865, and it was supposed to fulfill international objectives such as to facilitate the growing trade in the various regions of Europe, India, and China.

Thomas Sutherland, a Scot who was an employee of the Peninsular and Oriental Steam Navigation Company, was one of the key proponents of the idea of founding the Bank (Koller, 2007). He attributed this to the rising demand for banking facilities in Hong Kong.

After its establishment, the Bank sought to expand its customer base and the services it provided to its customers by opening more branches in different regions. Eventually, the Bank established itself as a massive undertaking operating in both local as well as international finance.

By the end of the 19th century, HSBC had established itself as one of the largest banking and financial services organizations globally and had its headquarters in London.

2.0 Introduction

HSBC Holdings plc is a leading British universal investment bank and financial services holding company. Due to its vast nature and its many branches spread all over the world, HSBC Holdings plc has been able to establish itself as one of the largest banking and financial service organizations in the world. It has its headquarters based in London. In 2017, for instance, a particular audit report indicated that HSBC Holdings plc was ranked at position 7 of the largest banks in the world and 1st position in Europe. It came after a determination of the total worth of the company’s assets was found to be an estimated US$2.558 trillion. (Monetary Authority of Singapore, 2017)

As stated in the executive summary, HSBC’s name originates from its founding members in Hong Kong, who founded it in the year 1865. The same founding members later opened the HSBC London chapter in the year 1991.

Over the years, HSBC Holdings plc has witnessed a significant expansion in terms of the number of offices it has all over the world. According to Forbes magazine, in the last six years, for example, the number of offices has increased significantly from 3900 to a total of 8000. HSBC service coverage is available in 87 countries in Europe, Asia, America, and the Middle East too, in which regions it has captured a customer-base of over 38 million customers. (Monetary Authority of Singapore, 2017)

The HSBC bank operates in four major areas: Commercial Banking, Global Banking and Markets (investment banking), Retail Banking and Wealth Management, and Global Private Banking. (Naheem, 2015)

It has also been listed on two different exchanges(Lu, 2010): the Hong Kong Stock Exchange and London Stock Exchange,  and also forms part of the Hang Seng Index and the FTSE 100 Index. A 2012 audit indicates that it had £102.7 billion in market capitalization and was therefore ranked as the second-largest company on the London Stock Exchange, after Royal Dutch Shell(Dietrich and Wanzenried, 2014).

HSBC Holdings plc further has foreign exchanges in the New York Stock Exchange, Euronext Paris, and the Bermuda Stock Exchange. These are referred to as secondary listings.

3.0 Mission & Vision Statements and objectives of HSBC Holdings plc

Just like any other financial institution or Bank, one of the HSBC’s goals is to make profits. That, however, does not bar HSBC from enhancing its corporate sustainability plan and other customer services since its establishment in the year 1865 to its advancement to a global institution in the modern-day world. My recommendation on this matter is that the HSBC should always strive to adhere to the basic principles upon which it was founded. By doing so, the Bank will, in turn, remain an institution of high ethical standards even as it seeks to maximize profits arising from its various dealings(Khaled Hossain and Khan, 2016).

The mission of HSBC is to ensure that there is growth in the finance and corporate industry by being socially focused, customer-centered and commercially driven in all its operations.   Since the day the company was established, it has always prioritized the improvement of corporate sustainability and customer satisfaction through its various programs. As a result, the Bank thus operates as a tool for social change, social benefit, and customer involvement. (Tait et al., 2011)

My recommendation on this issue would be that the Bank needs to put the deposits made by customers in responsible use. They could probably invest such funds in other businesses, and this would lead to high achievement in that sustainability and social- business responsibility in the market would be enhanced.

The vision of the HSBC Bank is to be the preferred Bank for organizations and businesses that aim to create community, social and environmental benefits. The Bank states that it is committed to promoting social development and supporting community involvement through its various projects worldwide – thanks to the worldwide branches which have over 8000 offices.

My recommendation on this issue is that communities need to be supported more by facilitating easy and simple banking methods for all community members so that they have the financial capability to meet their needs.

4.0 Industry Analysis using Porter’s five forces framework

Porter Five Forces Analysis is simply a policy management mechanism that is used to figure out the scope of a given industry and fundamental levers of profitability in that industry(Porter, 2008).

This mechanism is the creation of Michael Porter. In his revolutionary write-up entitled “Five Forces that Shape Strategy”, Michael Porter outlined five forces that have noteworthy impacts on a company’s lucrativeness in its industry. The Porter Five (5) Analysis Forces are the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat from substitute products, and rivalry among the existing players.

The threat of new entrants means the threat that new companies pose to already established companies. This will lead to low profits for the already existing companies because there will be an increased supply of services without an increase in demand. If new foreign banks enter the market,   HSBC Holdings plc will be forced to adapt to the new ways introduced by the new entrants. Otherwise, it will not be in a position to compete and will consequently run out of business. To deal with this problem, HSBC can do several things. It could innovate new services to ensure customers are not lured away by a competitor, build economies of scale so that the fixed cost per unit is reduced, or even develop capacities and invest in research and development.

On the issue of bargaining powers of suppliers(Benton and Maloni, 2005), all companies get their resources from various suppliers. Powerful suppliers have leverage over other companies when it comes to negotiations. Such suppliers in the Financial sector may decide to use their high negotiating power to get favorable deals with the various Foreign Money Center Banks, HSBC being one of them. This will hurt the HSBC bank in that its profits are reduced to a great extent.

There are several ways in which the HSBC can tackle this problem, including fostering efficient business relations with a wide variety of suppliers so that there is a wide variety to choose from. Also, the Bank can look for suppliers whose operations depend on the firm. An illustration of this is the Nike company. Nike has manufacturers who rely on it entirely, and this helps Nike in the sense that the manufacturer has lesser bargaining power.

On the issue of the bargaining power of the buyers, customers always want the best quality goods and services at the most affordable price. This poses a risk of not maximizing profits on companies such as HSBC Holdings plc.  If a company has a small customer base, then the high bargaining power lies with the customers and they can dictate an increase in discounts and offers.

HSBC Holdings plc can counter the bargaining power of buyers by increasing service coverage to reach many more customers as well as regularly introducing new products and services in the market. This will increase the company’s bargaining power.

Threats of substitute products or services mean that there are alternative products and services that a customer can acquire from a different company. For example, services like Dropbox and Google Drive are a substitute for storage hardware drives. When a customer chooses an alternative provider of products and services, the one that has been ignored suffers a loss of the profits it would have made. Generally, the threat posed by an alternative product or service is high if it is unique and more advanced than the ones currently in the market.

HSBC Holdings plc can tackle the Treat of Substitute Products and Services in several ways, including paying more attention to quality rather than profits, being able to appreciate the customers’ needs properly and finally putting in place switching barriers for customers.

Finally, I will explain what rivalry among the existing competitors means. This means that there is a high number of competitors in the market that have either equal or almost equal economic power. In such a scenario, customers can switch from one competitor to another as they pursue goods and services at little costs.

The risk associated with this is that if the competition is stiff, prices will go down, and companies would not be able to make maximum profits. HSBC Holdings plc does business in a  Foreign Money Center Banks industry, which is quite competitive, something which has an impact on the profitability of the Bank.

HSBC Holdings plc can deal with Intense Rivalry among the Existing Competitors in Foreign Money Center Banks industry in several ways. It includes assessing customers’ needs accurately and meeting them, building economies of scale, and joining competitors in a bid to enlarge the market instead of operating in a small competitive market.

HSBC Holdings plc managers should adopt the Porter Five Forces, as discussed above, to examine the various ways in which the five competitive forces affect profitability. After that, they will be in a better position to develop a strategic means for increasing HSBC Holdings plc competing power and long term profit-making in the Foreign Money Center Banks industry.

5.0 Industry attractiveness and issues facing HSBC Holdings plc

Industry attractiveness can be defined as the evaluation and prediction of the potential profit of a market. Industry attractiveness can be arrived at by using the Five-Force framework which was written by Michael Porter in one of his books “Competitive Strategy and Competitive Advantage”(Wilkes, 1995)

Michael Porter also posits that the extent to which an undertaking generates profits is also determined by the nature of competition within the market industry in which that particular undertaking operates.

The HSBC bank has been listed as one of the most valuable banking service providers in the world. As a matter of fact, an audit done in February 2019 showed that HSBC 10^th among all the International Banks, and had a net worth of 20.19 billion Us Dollars.

During its existence and work of improving sustainability in the corporate world, just like any other organization, HSBC has been hit by severe issues from time to time. I will highlight some of these issues. In the year 2018, for instance, after the resignation of Mr. Gulliver, who was the chief executive then, the Bank was forced to hire an outsider, and this proved to be quite costly as it would have been more appropriate and cost-effective to hire an insider.

The same year also, HSBC Holdings plc failed to meet a number of its financial targets. Furthermore, HSBC’s return on equity could not exceed 1%. The Bank’s shares also remained to be flat despite having paid more than $50bn in dividends for six years.

Finally, the HSBC also faces a deferred prosecution agreement (DPA)(Flore, Kolaric, and Schiereck, 2017). This agreement was signed with regulatory agencies from the US in 2012 to evade criminal charges for allegedly having taken part in laundering $881m for Mexican drug mafias and being involved in transactions for countries under US sanctions, such as Iran, Libya, and Sudan. Despite this issue, it was reported in the HSBC”s annual report that the US Department of Justice was not satisfied with the slow manner in which HSBC tried to clear its name from the scandal. As a result of this laxity by the HSBC management, the US Department of Justice also took longer to decide whether or not to extend the DPA which was due to expire the following year.

6.0 Analysis of the current strategies and strategic issues

HSBC’s main agenda is embedded in the sole idea of ensuring dependable customer service and creating opportunities for all its customers for as long as possible. Its strategic advantages enable the company to establish a broad customer base all over the work.

First of all, the HSBC is a major international bank and bases its operations in a number of high-growth markets, such as Asia and the Middle East. It enjoys a privilege position due to its strong wealth business, and a 2019 report indicates that HSBC had client assets of USD1.4 trillion.

Also, the HSBC is a world-leading trade and payments and cash management bank with revenue of USD17 billion (in 2019). This is made possible by the broad networks which the Bank has established internationally. HSBC Holdings plc operates in over 85 markets globally and is believed to make up approximately 90 percent of global GDP.

Another strategic advantage that HSBC Holdings plc has is based on its balance sheet. It maintains a strong capital, funding, and liquidity position at any given moment. That enables the Bank to diversify in its operations, and consequently promote sustainability in the corporate world.

These strategic advantages place HSBC Holding plc in a position to keep reaping benefits from the ever-changing dynamics of the global finance industry. Even though there may be short-term challenges such as lower interest rates, the Bank still benefits in the long-run due to the positive trends. As a matter of prediction, global wealth is anticipated to keep on increasing. This prediction is based on the rapid growth rate being witnessed in Asia, Latin America, the Middle East, and Africa.

Despite the HSBC bank performing exemplary well I regions of Asia and the Middle East, the underperformance has been witnessed in a number of branch offices. This has been one of the Key Strategic Issues facing the company.

7.0 Analysis of the Matrices on SWOT, SPACE, BCG, & QSPM and their results

SWOT

SWOT analysis or SWOT matrix can be defined as a strategic planning tool for use by a person or a company to point out strengths, weaknesses, opportunities, and threats of a business in a particular industry(Mercieca et al., 2016). It is mostly useful in the initial stages before a decision concerning the business is made to establish the strategic position of a company. It is also meant to identify the objectives of a company’s business as well as the relevant internal and external factors that may affect the market.

According to this matrix, the strengths of the HSBC bank include having sufficient capital to fund its operations. Due to this factor, the Bank can be superior to its competitors. It also doesn’t have to borrow loans and grants from the UK government, and is, therefore, retains more independence. The Bank also is a dominant force even in emerging markets, and this enables it to benefit from the future economic growth of such exchanges. HSBC’s universal presence has also made it possible for the Bank to spread risk as well as providing significant economies of scale. (Hughes and Mester, 1998)

The weaknesses of the HSBC bank, according to the SWOT matrix analysis, are as follows. There is the Bank’s focus on investing in the small business sector, leading to increased risks of making losses. Also, at some point, the Bank was forced to cancel some debt after specific borrowers defaulted loans.

Moreover, HSBC has raised its mortgage rates despite there being falls in the UK interest rates. This creates a negative perception. It could also lead to more cases of defaulting because the mortgagees would be struggling to make their payments. There have also been witnesses negative energy among the employees after the Bank recently rolled out its redundancy program. This is a time-bomb because the program will eventually lead to decreased loyalty by employees, hence low productivity.

Opportunities of the HSBC bank include a strong tendency to acquire assets due to its high level of capitalization. Some banks are struggling, and such banks may be available for acquisition by the HSBC at relatively lower costs. HSBC does not only have power over small banks but also stronger ones like the Bank Ekonomi in Indonesia. HSBC acquired shares in this Indonesian Bank, and this is a considerable step towards HSBC’s expansion into the Asian Continent. HSBC  has also had an advantage over other banks since it is in a strong economic position and is thus capable of building a reputation of being a safe bank for depositors. There is also negative coverage by the media against HSBC’s competitors like HBOS. That persuades many customers to choose HSBC instead.

There are several threats associated with the HSBC bank. For example, investors decide to make investments in other industries once they make losses when dealing with financial institutions. There is reduced trust in these banks by investors. Also, these economic losses affecting banks and investors eventually lead to less credit in store for customers.  Finally, due to allegations that the HSBC bank understated the loss, it made from US sub-prime markets, most investor’s confidence in the Bank has reduced.

Even though the SWOT analysis matrix is a tried and proven method, it has its limitations.

SPACE

SPACE stands for Strategic Position & Action Evaluation. The SPACE matrix is a strategic management tool used to analyze a company. It is used to determine the most appropriate strategy that a company should take in its business(Yessenalina and Cardie, 2011). A SPACE matrix specifically lays emphasis on strategy formulation in relation to the ability of a company’s business to compete within the industry within which it operates.  The SPACE matrix can also be used as a tool to analyze other models, such as the SWOT analysis and the BCG matrix.

BCG

The BCG-matrix is also known as the growth-share matrix.  It is a corporate planning tool that a company may use to illustrate an analysis of the relationship of its various brands against its relative market share and the rate at which market growth occurs(Mohajan, 2018).

After that, it can also be used as a business tool in that it is as well as use to determine the appropriate strategies that a company should adopt.

HSBC bank should adopt this matrix because it is easy to perform and provides a thorough analysis.

QSPM

QSPM stands for Quantitative Strategic Planning Matrix. It is an advanced strategic management tool for evaluating alternative actions that a company can take in the course of its business, taking into consideration the relevant internal and external factors(Lashgari et al., 2014).

This matrix focuses on the ability of a company to make good use of its opportunities, strengths, and to deal with threats.

It is, however, essential to take note that not all alternative strategies must be evaluated using QSPM. A company should weigh all the circumstances before adopting this matrix. The following are the steps that should be followed. Step 1 is using the EFE matrix and the IFE matrix to point out vital strategic factors.

Step 2 is formulating the particular strategy that one wishes to undertake. This can be arrived at by applying the SWOT analysis, SPACE matrix analysis, BCG matrix model, or the IE matrix model.

Step 3 is about finding out the viability of the strategies which have been chosen by looking at the effect of each internal and external factor involved.

7.1 Strategy recommendations

There are specific strategies the HSBC needs to adopt if it’s to meet its objective of continuing to offer exemplary connection services of its customers globally(Oh and Kim, 2016). Such strategies should be based on such relevant factors as the changing dynamics of the macroeconomic environment and also the interest rate guidelines. The importance of taking into consideration these factors is that the HSBC bank will be able to determine the extent to which it needs to alter its revenue growth expectations; hence it will then adjust its business plan suitably.

For instance, the Bank needs to improve its organizational set-up. Also, there is a need to ameliorate the return profile of off-balance-sheet exposures and to reduce the cost base by the company. By doing so, the performance of the Bank will have been boosted, and this would then lead to increased returns for investors, as well as sustainable growth.

The important areas in which the HSBC needs to consider include restructuring its underperforming branches such as the non-ring fenced Bank in Europe(Blundell-Wignall, Atkinson and Roulet, 2014), invest income generated through such restructuring in more business opportunities to boost growth and try its best to put in place more efficient and effective service-delivery methods so as to increase customer satisfaction.

Finally, the HSBC Holding plc should ensure it reports regularly about its financial performance in terms of achievements, targets which have been met, and those that are yet to be met and how it intends to do about such. This will increase accountability in the organization of the Bank.

8.0 Conclusion

Having said all that, I would like to conclude by stating that the HSBC bank has done a commendable job in establishing a brand operating as a world-leading lender and going ahead to make it a global force to reckon with.

In addition to establishing a strong customer base when it was founded, the HSBC bank has gone ahead to acquire a strong customer base overseas as well. That was done in a reasonable and timely manner, and the HSBC bank has in the process, acquired a superior position in the global banking industry. A 2004 report indicated, almost 75% of the income earned that year was from overseas subsidiaries(Economist, 2016).

Also, HSBC Holding plc is said to be the leading choice of the banking and financial service providers, which many customers prefer. Many customers prefer HSBC due to its various strategies, which take into account that customer needs and seeks to meet them.

Research shows that HSBC has been able to edge its competitors because of the strategies that it applies in the market within which it operates the global finance and banking industry. HSBC Holdings plc has been able to ensure customer satisfaction in all regions where it has a branch office. It has also led to social and economic growth due to the various projects it sponsors in the world. For instance, the HSBC supports education programs for needy pupils, mainly in countries situated in the Middle East, Asia, and Africa(World Bank, 2009). It also plays a vital role in the economy, where it uses some of its profits to reinvest in other projects, something which leads to corporate sustainability(Linnenluecke and Griffiths, 2010).

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