Hongkong and Shanghai Banking Corporation: Approach to Operating in China

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Strategies Before and After WTO Accession
HSBC’s Strategies for Entering and Operating in Emerging Markets
Conclusion
References

Introduction

Strategic management involves creating and implementing an action plan to pursue a company’s vision and goals. It is a critical business tool in today’s world and an imperative for an organization’s success (Tilt, 2016). HSBC has adopted several strategies in its global operations, some of which are responsible for its success. This paper evaluates how HSBC has adapted its global approach to operating in China before and after WTO accession. It also identifies HSBC’s strategies for entering and managing emerging markets and the pros and cons of its “Managing for Growth” strategy.

Strategies Before and After WTO Accession

Strategies Before WTO Accession

The political environment plays a significant role in business performance. Political and regulatory policies can either promote or inhibit favorable market conditions (Agwu & Onwuegbuzie, 2016). The banking industry in China was characterized by corruption, mismanagement, favoritism, and oppressive policies. According to Luthan and Doh (2018), the government required companies to lend money to state-owned enterprises, including unprofitable, unproductive, and inefficient companies. These policies led to widespread losses, making the Chinese market unattractive to investors (Luthan & Doh, 2018). In response, HBSC adapted its strategy by expanding to foreign markets such as North America and Europe.

It successfully acquired foreign companies and expanded by opening branches in other countries, including Japan and other emerging markets. According to Luthan and Doh (2018), these acquisitions and partnerships increased its customer base to 100 million and assets to over $1,860 billion (570). Partnering with successful companies helped HSBC to penetrate new markets and establish a strong market presence successfully. This way, the company’s success did not depend exclusively on the local market.

Strategies After WTO Accession

HSBC shifted its strategy from globalization to localization after the WTO accession. China was forced to create policies that liberated the domestic market from unfair policies and access restrictions. Following the accession, HSBC focused on increasing its market presence in China. It has done this by raising its stakes in local companies and acquisitions and partnerships. It partnered with thriving local businesses such as BoCOM and Shenzhen Qianhai Financial Holdings to increase its operations. One of the company’s senior directors stated that partnerships had been the company’s best strategy considering the cost and difficulty of entering a new market and acquiring hundreds of thousands or millions of customers (Luthan & Doh, 2018). In this statement, the director implied that the partnerships with local companies helped them acquire a huge customer base at a lower cost than the traditional methods.

Many foreign firms experience difficulties while working with local partners in China. HSBC adapted to this challenge by investing outside “the Big four” to increase its operations (Luthan & Doh, 2018). HSBC’s ability to support outside the business cultural norms is arguably among the reasons it achieved success in China. For example, the company was the first to invest in the country’s middle-class, a market segment that other banks had ignored. According to Mazzucato (2016), investing in new customer populations can lead to significant profits and economic growth in the long term. The joint ventures, i.e., creating alliances with companies, also played an important role in helping HSBC’s localization strategy. The company reached populations such as rural communities that it would never have without the local companies’ support and collaboration.

HSBC’s Strategies for Entering and Operating in Emerging Markets

Market Entrance and Customer-Centric Strategies

The company has successfully entered new markets through mergers and acquisitions and partnerships, and alliances. The company uses acquisitions, joint ventures, and partnerships with successful businesses to expand its operations into new markets quickly. These strategies helped the company attain significant capabilities and competencies (information/knowledge) that expedited their entry process. The organization’s marketing strategies play a pivotal role in helping the company enter a new market. According to Luthah and Joh (2018), HSBC uses a customer-centric marketing strategy that focuses on customer experience and corporate social responsibility. It offers customized and extensive products to reach a wider customer population. HSBC’s focus on unique customer populations in emerging markets helped it acquire a strong foothold in the foreign market.

Centralized Government

The company’s top management is responsible for providing its subsidiary company with strategic plans, human resources, brand name, administrative capabilities, legal resources, and financial planning. According to Luthan and Doh (2018), centralization played a significant role in HSBC’s success in the new market. Centralization has been attributed to the success of many Japanese MNCs. According to Fitzgerald and Rui (2016), the global business environment between the 1980s and early 200s was characterized by fluctuating government policies, diplomatic relationships, and changes in investment flows that affected direct investment. Mergers and acquisitions, investment in foreign markets, and MNCs’ expansion into emerging markets became prominent. MNCs with centralized governance gained firm-level capabilities that gave them a competitive advantage in the market (Fitzgerald & Rui, 2016; Sageder & Feldbauer-Durstmüller, 2018). Luthan and Doh (2018) state that HSBC plans to connect all Chinese operations with other groups’ operations. HSBC provides its subsidiaries with firm-level capabilities required to succeed in the local markets.

Strategic Timing

The company has used both first mover and later mover strategies to succeed in new markets. It was the first company to venture into a new market (middle-class) segment in China. It was also the first company to establish a locally incorporated entity in Taiwan and Vietnam. The company adopted the late-mover strategy in China; it delayed getting into joint ventures with Huaxin Securities Co. Ltd. Joint ventures can help a company acquire cross-cultural negotiations and business relationships (Jukka et al.,2017). The delay in entering a joint venture made the company among the few companies that have realized benefits from Joint ventures in China.

Corporate Social Responsibility

Many companies are beginning to realize business ethics as a strategy of acquiring customer loyalty. HSBC has donated to various educational and environmental charities in Taiwan due to its commitment to its corporate social responsibility (CSR) values. Although the case study does not directly link CSR to business success, various studies have demonstrated the same. A survey conducted by Bacinello et al. (2020) showed that CSR could create company value and generate a competitive advantage against its rivals. From this perspective, it is logical to argue that HSBC’s CSR in emerging markets contributed to its success.

HBSC’s Successes and Failures

In recent years, the company has mainly succeeded in emerging markets. Luthah and Doh (2018) report that HSBC’s pre-tax profits between 2000 and 2005 improved from$905 million to $3,439 million in emerging markets (568). By far, China is the company’s most significant success accounting for approximately 15% of its net profit. The country has also received tremendous success in India, Taiwan, and Vietnam. Although Europe and the United States made crucial contributions to its earnings, Luthah and Doh (2018) state that the revenues have stagnated, and the future seems bleak. In contrast, the revenues generated by Asian markets are growing at an annual rate of seven percent. Additionally, Asian markets currently account for 78% of the company’s net profits before tax and 40% of its total assets (Fitzgerald & Rui, 2016, p.540). It is projected that Asia will be the company’s largest market in the future, especially the Chinese market.

HSBC has failed in the North American market due to poor strategic choices. Its failure can perhaps be attributed to its inability to blend with the American corporate culture and economic crisis. First, the company tried to adopt the Household Acquisition database without understanding the demographic and credit data that households typically rely on in the U.S. Additionally, it attempted to implement the same model in China and Mexico without taking cultural differences into account. Coupled with the economic crisis, the ineffective strategies led to a loss of $1.15 trillion in the mortgage market, 6,100 jobs, and close of 800 branches.

Pros and Cons of HSBC’s “Managing for Growth” Strategy?

The strategy aimed to help the company grow at the international level by focusing on key customer groups. The plan would help the company focus on customers that were important to their financial services to ensure continuous growth. By focusing on its customers, the company would drive change through the appropriate channels and market. It would also help the company retain its core value proposition, such as CSR, high-quality standards, ethical relationships, innovation, and communication. It would need to deliver product offerings that meet these customers’ needs and preferences to achieve its goals. This focus would lead to potentially customized and high-quality services. The success metric of this strategy is increased stock ratings and shareholder return. The disadvantage of having such success indicators is that it leads to case mismanagement and corruption.

Conclusion

The company’s business strategies have undoubtedly contributed to its success. Before WTO accession, the company adapted its strategy to globalization and expanding into foreign markets outside China. After accession, it focused on increasing its market presence in China. The company’s primary business strategy includes strategic acquisition and alliances, centralized governance, customer-centric marketing, and corporate social responsibility. While its revenues are stagnant in the North American and European markets, its market share in Asia increases significantly. The company should focus, therefore, on expanding its business in Asian markets.

References

Agwu, M. E., & Onwuegbuzie, H. N. (2016). Effects of international marketing environments on entrepreneurship development.Journal of Innovation and Entrepreneurship, 7, 1–14. Web.

Bacinello, E., Tontini, G., & Alberton, A. (2021). Influence of corporate social responsibility on sustainable practices of small and medium‐sized enterprises: Implications on business performance.Corporate Social Responsibility and Environmental Management, 28(2), 776–785. Web.

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.

Jukka, M., Andreeva, T., Blomqvist, K. & Puumalainen, K. (2017). A cross-cultural perspective on relational exchange.Journal of Business & Industrial Marketing, 32(7), 937–950. Web.

Luthans, F., & Doh, J. P. (2018). International management: Culture, strategy, and behavior. McGraw-Hill Education Publishing.

Mazzucato, M. (2016). From market fixing to market-creating: A new framework for innovation policy.Industry and Innovation, 23(2), 140–156. Web.

Sageder, M., & Feldbauer-Durstmüller, B. (2018). Management control in multinational companies: A systematic literature review.Review of Managerial Science, 13, 875–918. Web.

Tilt, C. A. (2016). Corporate social responsibility research: The importance of context.International Journal of Corporate Social Responsibility, 1, 1–9. Web.

Click Here To Order Now!