Consumer Influences and Behaviour: UK Banking
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Chapter 1 (Intro)
To become the leading international bank HSBC has combined the emerging markets through international connectivity and scale yet maintaining the strategy unchanged. To comply with the recent economic turmoil HSBC's strategy is apparently most appropriate one as the projected the return of total shareholders' equity remains achievable over full business cycle. Reinvestment of the capital allowed the company to maintain flexibility of direction in accordance with financial and regulatory environment. This can help the company to make the long term decisions supporting the brand values and the customer relationship and the growth to be consistent with the strategy.
The ‘Managing for growth' a diverse evolutionary strategy ranging from 2003 to 2008 for HSBC's growth and development across the globe addressing the areas where desirable and attainable improvement can be made; was an ultimate success. Unlike competitors, the consistent approach to grow within the emerging markets HSBC did not have to dispose any stakes in strategic investments to generate capitals. Depending on the customer demand and maintaining the strategic line while reviewing the emerging new opportunities, HSBC has successfully survived in the period of uncertainty. The company has increased the number of HSBC Premier Customers to 2.9 million, and the customer volume is increasing highly in the emerging market. During financial crisis and economic recession the global financial markets have suffered a serious impact. Very few banks have escaped unharmed by adjusting to shifts in the global financial and economic environment.
Market entry timing decisions are inherently difficult. A firm's managers need to consider the influence of so many factors both internal and external to the firm in deciding when to enter a market with a new product (Lieberman and Montgomery, 1991). Firms face a particularly difficult decision of planning when it is best to enter a market with a new product in response to a market introduction of a pioneering new product by a major competitor. Given that pioneering is no longer an option, is it better for the firm to enter the market quickly with a competitive new product or is it better for the firm to delay market entry for strategic reasons.
When the competitive stakes are high, it is clearly in a firm's best interest for its management to plan carefully such a market entry timing decision by giving careful consideration to a broad array of information including information on the competitor, the competitor's product offering, the market, and the firm's internal resources and product offerings. Considerable academic research has been conducted that suggests the desirability of certain market entry timing strategies for a wide array of conditions in the competitive environment (cf. Bowman and Gatignon, 1995; Brown and Lattin, 1994; Green et al., 1995).
The business world composed of organization and work becoming more demanding and wild. Facing organizations are now facing so many challenges. Among them globalization, customer awareness, higher revenue with minimizing the operational cost, strengthening the organizational capacity, renovation and change, technological implementation, maintaining diverse human capital, and confirming essential and constant change. Fortunately the degree of competition among industry rivals has significantly increased. Now most of the organizations can easily duplicate technology, industrial methods, production, and even strategy. To gain the competitive advantage in the long run, business houses need to establish their own organizational capability (Burke & Cooper 2004).
1.2 Background of The Study
HSBC is a prominent name in the global banking industry. This bank has been operating successfully all around the world as a local bank with its efficiency and effectiveness. The integrated strategy of HSBC and on time decision made it becoming a threat for other long lived bank in the industry. The strategy the bank had followed make it to cope up with all sorts of cultural barriers and to be along within the society and create the better brand value compare to the other rivals in the banking industry. The reason behind the on-going prospect of this bank is due to a reason which made is to gain the competitive advantage in the global money and investment market. Lately the economic crisis hit the global money market and retail banking industry injuring the performance of all the major players in the industry as the confidence and the trust of the customers were gone.
This study is a requirement for the course I am enrolled in. This study will help me to utilize the acquired knowledge/theories and relate them to the applied business. The title was chosen as banking industry is one of the diverse industries and UK is one of the most competitive markets where the industry rivals constantly changing their strategies to adopt with the change and HSBC is one of the best performing banks in it. With the establishment of the purpose given, this study may be of importance to the purpose that have been discussed by fulfilling the objectives, the study will be helpful for researchers focusing on different strategies and innovative techniques with regards to the method of gathering the information. The findings of the research will be helpful for researchers in creating their own means of conducting their study. The significance of this study is the option that it may contribute the findings for the other studies that wish to examine factors for the success or failure of a study. Another importance of the report is to serve as a director for researches that emphasis on defining the effects of an integrated marketing strategy which made HSBC successful in the UK banking industry as well as globally.
1.4 Aim and Objective of the Study
The aim of the research to find the answer to the research question
“How can HSBC Continue to Maintain Its Competitive marketing advantage in the UK market?”
The objective of this study is to identify the reason behind the success of HSBC and the challenges the company may face in future and the potential strategy the company may follow so that it can maintain its leading position in the UK retail banking industry. So, the prime objectives of the study are as follows:
- To identify how HSBC operates and what made it unique besides others
- To identify the attitudes of the UK customers towards HSBC.
- To identify the attitudes of the company staffs towards existing marketing system.
- To identify the shortcomings (if existed) of the Strategy being adopted by HSBC
- To identify the most effective strategy appropriate for HSBC in response to the current financial crisis in UK.
1.5 The Organization of the paper:
Unlike the conventional approach this paper is furnished with the industry analysis focusing on the UK banking industry in term of its performance, effective factors leading HSBC to become more successful, the changing switching tendencies of the customers, role of the SMEs in the industry and an overview on the investment criteria in the money market.
The study will initially gather information that will serve as introductory part of the study. The study will then gather related literature to prove the need for conducting the study. The literature review can help in determining what are the studies already done, what study needs to be corrected. The study will then determine the methods and means for data to be gathered and analyzed. In this part the data is being readied to be gathered and analyzed but the method to gather it will first be determined. The next part of the study is gathering, presenting and interpreting the data. In this part the validity of the hypothesis and ideas about the study will be proven. The last part of the study will be the part where conclusions and recommendations will be stated. In this part final statement about the study will be done.
The study will be organized in accordance with the following order
Chapter 2(Literature Review)
According to Porter (1985) it is the value chain through which a company can create and offer value to its customers by efficiently utilizing costs and effectively offering the product or services through a lower cost or a higher differentiation. Again Rajnandan (2007) said value chain not only seeks to do away with the activities that do not add value, but establishes the importance of other support activities, including infrastructure, technology, and so on, that play a vital role in providing the foundation for competitive advantage. The value chain also is useful in outsourcing decisions. Understanding the linkages between activities can lead to more optimal make-or-buy decisions that can result in either a cost advantage or a differentiation advantage. (Graeme J. Buckley, 2006) After defining the discrete activities marketers need to identify the linkages between activities. The relationship survives if the performance or cost of one activity affects that of another. Competitive advantage may be obtained by optimizing and coordinating linked activities. (Porter, 1985)
The developed opponent's expected strategy, where it participates in the marketplace, how it competes, and what it tries to achieve, should be distinct from any strategy pursued by any rival. Those executives charged with visualizing the developed rival's strategy should also be encouraged to go beyond the likely strategies of announced. It is necessary to communicate the competitive variables to the target market as that will force the buyers to prefer the products. Where marketing communications carries the meaning of the company's product attributes, aiding customers reach their goals and moving the company closer to its own goals.' (Lancaster, 2002)
Marketing efficiency depends on communications effectiveness. The market is activated through information flows. The way a potential buyer perceives the seller's market offering is heavily influenced by the amount and kind of information he or she has about the product offering, and the reaction to that information. Marketing, therefore, relies heavily upon information flows between the seller and the prospective buyer. (Thomas A. Staudt, Donald Arthur Taylor, 1976)
The firm's value chain links to the value chains of upstream suppliers and downstream buyers. The result is a larger stream of activities known as the value system. The development of a competitive advantage depends not only on the firm-specific value chain, but also on the value system of which the firm is a part. (Kiichiro Fukasaku, 2007) Dramatic changes due to globalization, deregulation, and technology have redefined the nature of business by increasing competition. Significant increases in the speed of competitive response and the number of competitive actions and price cuts have also resulted. Those indicators highlight the intensity of competition. (Gr, Cu, Le, Hu, Ken G, 2005)
Unlike the classical concepts, the marketing concept states that the nature of the marketing orientated organisation, whether product or service based, profit or non profit based, is the identification and genuine satisfaction of customers needs and wants, more effectively and efficiently than the competition. The marketing concept has been defined as ‘the key to achieving organisational goals' and the marketing concept rests on ‘market focus, customer orientation, co-ordinated marketing and profitability'. (Le, Ru, Lancaster, 2002). ‘Marketing Research is a systematic problem analysis, model-building and fact-finding for the purpose of improved decision-making and control in the marketing of goods and services' (Kotler, 1999)
Strategic capabilities that companies can use to support the strategy they have chosen to pursue. A strategic capability offers a company a sustained competitive advantage when substantial time and effort is required for competitors to develop the same capability. (Susman, 1992)
Game theory more specifically, non-cooperative game theory can be a useful tool for investigating a comprehensive model of competitive advantage in that it demonstrates the linkages between resources, competitive moves and responses, and advantage. (Gr, Cu, Le, Hu, Ken G, 2005)
The ability and speed with which a company can learn from experience is another strategic capability. The ability to learn is dependent, in part, on how the company captures and accesses information. Companies can simplify this process by minimizing the amount and complexity of information they have to process. (Susman, 1992)
Only by gaining a deep and comprehensive understanding of buyer behaviour can marketing's goals be realised. Such an understanding of buyer behaviour works to the mutual advantage of the consumer and marketer, allowing the marketer to become better equipped to satisfy the consumer's needs efficiently and establish a loyal group of customers with positive attitudes towards the company's products. (Lancaster, 2002)
Competitive advantage is a way of firm's gained advantage over its rivals. Competitive Advantage introduces a whole new way of understanding what a firm does. Competitive Advantage takes strategy from broad vision to an internally consistent configuration of activities. Its powerful framework provides the tools to understand the drivers of cost and a company's relative cost position. Competitive Advantage also provides for the first time the tools to strategically segment an industry and rigorously assess the competitive logic of diversification. (Porter, 1998)
The design stage determines the way in which a firm intends to differentiate its good or service from rivals. In this stage a firm makes choices to gain a competitive advantage over rivals. (William, 2004) For a single product or narrow group of products, a firm's competitive strategy refers to the weighted mix of price, product qualities and features, and service that differentiates its product from those of rivals. (William, 2004)
The Competitive Advantage model of Porter learns that competitive strategy is about taking offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior return on investment. According to Michael Porter, the basis of above-average performance within an industry is sustainable competitive advantage. There are 2 basics types of CA: Cost Leadership (low cost) and Differentiation.
The Delta Model contains the following elements: Strategic Triangle: used for defining strategic positions that reflect fundamentally new sources of profitability (three strategic options: best product, customer solutions, and system lock-in), Aligning these strategic options with a firm's activities and provides congruency between strategic direction and execution (three fundamental processes are always present and are the repository of key strategic tasks: operational effectiveness, customer targeting, and innovation), and Adaptive processes: core processes of the company must be aligned to the chosen strategy in order to make progress against the strategic agenda and avoid a commodity-like outcome.
2.1 The Trends (Customer Focused)
E-trading and online customer services are becoming the key differentiators in every industry. The banking industry in the midst of a shift assisted and backed by the rapid technological advancement, internet and globalization. The transition is not an incremental one through which organizations, processes, and technologies evolve in linear fashion into more advanced, but still familiar models which is distinct from the earlier industry change. Industry observers anticipate that this transition will be much more radical and constitute a complete metamorphosis of banking's entire business model, realigning everything from its strategic business orientation to its technology architecture to its value proposition to its customers. (Balthasar, 2010)
2009 is a significant year forcing many private banking experts to remember. Privet funds failed to generate revenue as clients withdrew assets from private banks. The global financial crisis has fundamentally changed the investment pattern of the High Net Worth Investors and their wealth management business itself.
‘Many “new money” acquire their wealth through IPO. Brazil and China accounted for two-thirds of global capital raised in Q2 2009' (Ernst & Young, 2009) showing that there is a growing demand for private banking and wealth management service in the region as the economy is rapidly growing.
China's growth will outstrip US which is a good news for private banks who have a strong APAC presence, wealth management professionals should understand that the Chinese market is not easy to penetrate.
- First of all, client advisors need to be fluent in Mandarin and have local connections.
- Secondly, guanxi (relationships) still plays an extremely important role in the modern Chinese business community, private bankers without access to key relationship brokers as references will find it very difficult to convince Chinese HNWIs to open accounts. Private banks that hire locals will have a definite advantage over expats trying to cover Chinese clients. (Warren Buffet, 2009)
Affordability assessment approaches vary across the industry. Responsible lending decisions require checks to be made concerning income and outgoings (typically using a combination of income multiples and affordability models) when assessing ability to repay now and into the future. Also the type of lending undertaken and the type of borrower (for example, applicants with impaired or low credit ratings) may require more detailed assessments to be carried out.
Other (unregulated) lending Mortgage lending is only part of the affordability picture. Under the auspices of Treating Customers Fairly (TCF), affordability assessments are equally relevant to other borrowing, including personal loans and credit cards, and a number of lenders are looking at how their affordability assessment processes may need to be strengthened for these types of credit.
In an effort to strengthen existing rules, new Banking Code guidance concerning assessing affordability in relation to unsecured loans (overdrafts and other borrowing) was issued by the Banking Code Standards Board in April 2006. Any assessment should now include at least two of the following:
- Income and financial commitments
- Repayment history
- Credit reference agency information and past repayment history
- Credit scoring.
It is also worth noting that the Office of Fair Trading's recent guidance (‘the OFT Guidance') reinforces the need for firms to have regard to its earlier guidance on non-status lending and confirms its intention to consider further specific guidance with regard to irresponsible lending and what this may mean in different market sectors and circumstances.
Responding to the concerns
The FSA has indicated that as part of its retail agenda it will continue to focus on quality of advice processes in the mortgage market. In responding to these concerns, firms will wish to consider how the results of the FSA's findings impact each of their lending businesses:
- How extensive is the affordability process; does the advice process include an assessment of income and identifiable expenditure; anticipated changes in personal circumstances (income/expenditure composition); impact of interest rate changes and possible future increases in interest rates?
- How can the consumer deal with mortgages extending into retirement?
- What steps are taken to ensure that underwriting processes (including income multiples and affordability models) reflect the different characteristics and risk profiles of customers in different market sectors (for example, sub-prime; non-conforming)?
- Is the recent assessment carried out to identify the affordability (including affordability decisioning models) to meet the regulatory as well as commercial drivers impacting the business?
- What steps are taken concerning the assessment of the customer's ability to repay where ‘enhanced' income multiples are used (and where the firm may have insufficient, or outdated, data to measure the potential impact/risks of default)?
- What MI does the consumer have to facilitate the identification of affordability issues on a timely basis (for example, the performance of loans where ‘enhanced' multiples have been applied; at the end of any discount period; the level of arrears and repossessions; lending introduced by intermediaries)?
Even for long-established product offerings, it is clear that nothing stays still. Aside from regulation by the FSA, the market still needs to respond to the challenges of competition investigation into the PPI market.
In the years leading up to the crisis, a combination of factors, including low interest rates, lax lending standards, a proliferation of exotic mortgage products, and the growth of a global market for securitized loans fueled a rapid increase in household borrowing. (Shedlock, 2010)
‘The recent financial crisis contributed to the longest and most severe economic contraction since the Great Depression. The rapid expansion in the use of borrowed money, or leverage, by households in recent years, is one factor that may help account for the virulence of the downturn.' (Shedlock, 2010)
‘The common patterns observed across countries suggest that, the unwinding of excess household leverage via increased saving or increased default rates could be a significant drag on consumption and bank lending going forward, possibly muting the vigor of the economic recovery.' (Shedlock, 2010)
2.2 Changing Nature of Consumer Behaviour (Higher Expectation)
‘Customers take control. Customers will be smart, informed and savvy users of financial services. They will only be interested in service providers that can meet their very specific individual needs.' (CMA Management, 2006)
Global banking leader for the Institute for Business Value, each bank must decide on a strategy that fits its customers' needs. Banks will need special strategies to cater to a far more discerning--and controlling--customer. Innovative approaches to business design, customer service, workforce management and IT will be critical to banks' future success. (Sunny Banerjea, 2009)
Banking customers will demand more advocacy, personal security and control in their banking relationships Banks will source products and services from many specialized and best-in-class service providers, including independents and other banks providing white-label products and services. Innovation in products, processes, relationships and business models will be the primary path to sustainable growth.
Furthermore, the modern banking industry has brought greater business diversification. Some banks in the industrialized world are entering into investments, underwriting of securities, portfolio management and the insurance businesses. Taken together, these changes have made banks an even more important entity in the global business community.
2.3 Globalization (Intense Competition)
‘By 2015, we will live in an intensely customer-centric market that is dominated by global mega banks and densely populated by specialist financial services providers. Fierce competition, global regulation and technology will reshape bank and non-bank structures.' (Rusty Wiley, 2009)
Banking is moving incrementally but unmistakably away from a model based on products, transactions, touch points, and internal departments toward one based on customers, processes, integrated experiences, and the enterprise-wide value of information. The new strategic centre is not an institution's asset size, market share, revenue growth, or operating efficiency, but the “customer experience” the institution provides to consumers. Whether a seismic departure in focus or simply a more pronounced emphasis on an existing strategy, many banks have decided this is their destination.
Many countries are now more alert after so many scams including The Bernard Madoff $65 billion Ponzi scheme exposed in 2009. To minimise and control the false trading activities and tax evasions, governments worldwide demand more oversight of banking operations influencing not only the investment banking business but also the private banking side. The account opening process, KYC and offshore banking activities are under tighter scrutiny than ever before. As a direct result, banks have to spend more money on compliance and risk management. (Investment Research, 2010)
Banks no longer think in terms of selling products and making transactions, but rather in terms of acquiring, satisfying, and retaining customers. They are realigning their system architectures to recognize, integrate, and monitor business processes that span departmental boundaries and consider customers from a company-wide perspective. The resulting systems provide customers with tools to conduct their own banking business on their own terms, in their own time, and through whatever channel they happen to access. (Balthasar, 2010)
This shift in strategic focus has already had a profound impact on the way that banking's role and value to its customers have evolved, leading to the second feature of the industry's transformation, which is that banking is no longer seen as purely a financial transaction, but rather in a broader and more significant way as a financial information business.
This distinction may sound like splitting hairs, but the eventual effect on the banking industry will be nothing short of transformative. To better adapt and accommodate this shift successfully, banks will have to recon and upgrade their entire IT infrastructures.
The excellent international reputation and the $300 billion private banking assets the region currently manages, the Singaporean government is aggressive in making the country more attractive to private banks and HNWIs worldwide. Singapore officials are planning to amend the Income Tax Act, which is likely to help the country to make Organisation for Economic Cooperation and Development's “white list”, further establishing itself as Asia's private banking stronghold. (Wall Street Arrow: Market Insights, 2009)
The competitive pressures that have squeezed the banking industry for the past decade show no sign of letting up, principally due to the banking industry's continuing consolidation. (Balthasar, 2009)
Many industry analysts are expecting another round of large bank merger announcements, with the additional element of international banks involved in cross-border mergers. We have seen the beginnings of that trend already in Europe, with the acquisition of Abbey National (U.K.) by Santander (Spain) and the protracted dispute between Dutch bank ABN AMRO and another Spanish bank over two Italian banks. One important ramification of the continued growth of leading banks will be their ability, based on their sheer size and higher efficiencies, to invest in world-class data storage, management, and analytical capabilities, thereby extending their dominance by the development of innovative revenue-generating products and services. The transition to banks as primarily an information source has helped lower the barriers to entry in the financial services industry, opening the banking arena to a host of new, non-bank players. The current alarm among banks and their regulators about Wal-Mart's efforts to obtain an industrial loan company (ILC) license in Utah is the most visible manifestation of that trend.
2.4 Technology (Customised Service)
Sharply focused technology. The enabler of all this change will be technology that supports rapid, accurate decision making and greater operational flexibility and efficiency. The successful specialists will be those who can track and analyze specific customer needs and speedily meet them with profitable, reliable products. (CMA Management, 2006)
The global trend of deregulation has opened up many new businesses to the banking industry. Coupling that with technological developments like internet banking and ATMs, the banking industry is obviously trying its hardest to shed its lackluster image. (Investopedia, 2010)
The major force driving banking transformation stems from the increasing commoditization of financial transactions. Banks can no longer distinguish themselves on the basis of product set functionality or operational excellence. Commercially available systems have perfected virtually all the important functions in basic transactions, including payments, deposits, funds transfers, and account reporting. The maturity of technology in these areas has made both functionality and pricing nearly uniform among leading vendors.
The sheer volume and scope of regulatory requirements has imposed on banks an unprecedented need to develop transparent systems and processes, along with more effective and reliable means for collecting, storing, and manipulating information. Going forward, banks will need to develop an approach to their IT infrastructure that places a premium on flexibility, adaptability to rapidly changing market circumstances, and the ability to integrate information from multiple sources currently isolated from each other.
The competitive landscape has also shrunk considerably. In June 2008, there were 46 lenders offering unsecured personal loans, down from 58 in June 2007, however, by June 2009 this number had dropped further to just 37.
The real value proposition that banks offer now is in the information they can provide about financial services and transactions, from a perspective of accessibility, speed, convenience, granularity, analysis, and so forth. In other words, the important question to ask banks now is “how quickly, accurately, deeply, efficiently, transparently, and finitely can they capture, parse, store, identify, access, retrieve, sort, match, analyze, aggregate, present, share, distribute, and protect data?” Therefore, leading banks are basing new technology strategies on transforming and enhancing their command of information. Although they already sit atop vast amounts of data about their customers, banks in many respects are unable to identify and/or retrieve it with any degree of precision. With banking's future growth and profitability dependent on the ability to aggregate information across systems and reorient it by customer instead of product, technology spending decisions will henceforth be guided by how well a proposed solution furthers a bank's command of information. (Balthasar, 2009)
The command of information should be incorporated it into technology development by the vendors allowing them to capture (automatically as much as possible) descriptive and associative information about customers, transactions, and workflow circumstances as distinct data fields; to identify, access, associate, aggregate, sort, and display data from disparate sources; to exchange, transfer, compound, and deconstruct data freely across system boundaries; to normalize, integrate, and analyze that data for a specific purpose and for a specifically designated market segment; to drill down and parse data into ever more discrete units that can be segregated and analyzed; and to manage all of the above in near-real time through centralized database management and automated business processes with rules-based workflow and exception management.
Initiatives and architectures not built on a sophisticated data management core will provide only limited benefit, since sooner or later they will be unable to integrate fully into a bank's overall architecture scheme. Wasteful duplication of spending and resources will continue, thereby denying banks the operational efficiency they need to rebuild margins and provide meaningful value to their customers and shareholders.
Priorities in Banking Technology:
All of the strategic imperatives above will require banks to adopt flexibility, speed, and transparency across operations. This will require a technology orientation fundamentally based on horizontal integration and spanning multiple business lines, rather than vertical integration within individual business lines. The priorities for banking technology in the next several years will be data capture and management across geographies and business lines, mining and analysis of customer information to enable more customized service and profitable relationships, more efficient and scalable business processes, and nearly fool-proof regulatory compliance. Meeting these objectives will significantly reduce a bank's IT cost base through the use of competitive, low-cost technology and allow banks to move forward with architecture upgrade initiatives by replacing application modules rather than risking full-scale system replacements. While banks are still several years away from realizing these wholesale changes, there are a number of areas where technology is already beginning to enable a longer-term transformation. These are the hot technology priorities for banking in the short-to-intermediate future.
The maturity of transactional banking services is forcing transaction fees downward in tandem with narrowing interest margins and driving the need to understand customer profitability and risk more accurately, over and above the more direct objective of raising customer satisfaction and loyalty. Strengthening the overall relationship with the customer is one of the highest priorities for virtually all banks. Developing a single view of the customer with consistent and up-to-the-minute information across all business lines is driving the next generation of customer relations management (CRM) technology.
2.5 Economic Turmoil
Market corrections can easily become crashes as confidence is lost. The threat goes deeper than the possible extent of credit losses on complex asset and derivative products. This latest financial crisis could seriously affect business revenues and costs more widely. However, the US Federal Reserve Bank has cut US rates, stock market values have remained buoyant, and Bank of England auctions to provide liquidity, albeit at a price, have gone unused.
All firms will have to factor in the likely impact of a weakening economy and housing market on loan loss provisions and recoveries. Concerns remain that the liquidity crisis in the debt markets could spill over into the equity market and trigger a steep fall in prices (a fear that was unfounded at the time of writing this article as the FTSE 100 stood at over 6500, only 3% off the 12-month peak). For the moment, firms that hold good levels of cash and employ a spread of short-, medium- and long-term funding methods are largely unscathed by the credit crunch.
In the short term there may be casualties across all sectors among businesses that are reliant on short-term funding from the debt markets. But if rising mortgage rates undermine High Street spending, businesses that depend on consumers' discretionary spending will be impacted. Ongoing evidence from the US points to problems in the housing market, and elsewhere consumers appear to be showing greater willingness to manage to lower personal debt levels.
The ripple effect of the credit crisis on business (which, more accurately, is a shortage of liquidity and difficulties in pricing credit risk) that began to unfold in August 2007 could have the potential to be deeply damaging to the conduct of everyday business, to reputations and to attitudes to risk. And the full extent of the impact is still unfolding.
Yet this was a crisis long predicted, although the speed and severity caught almost everyone out. The roots of it go deep - into the dot-com crash of 2000 - when, around the world, the response was to keep interest rates as low as possible to encourage a return to economic confidence. Money became cheap and plentiful, and as a consequence, investors increasingly found themselves competing for assets, the pricing of risk became increasingly difficult as structures became more complex, and frequently investors underestimated the real risk. With low interest rates, benign inflation and rising asset prices, all was going well. As interest rates have risen over the past few years, the chickens have been coming home to roost.
Financial services companies will struggle with portfolio risk and complexity, the difficulty of fair valuing assets and the need to rapidly rethink strategy in the light of radically changed conditions. Banks and fund managers, in particular, face a rocky time working through the repercussions of investors' failure to fully understand the risks they were taking on.
Far fewer are now prepared to buy securities such as the commercial paper and certificates of deposit issued by banks and building societies to raise short-term money. And more institutions are reluctant to undermine their own strength by lending to others. The most popular home for cash is overnight deposits held by banks with the strongest credit ratings and where the funds can be called at any time. The market has already begun to differentiate much more sharply between issuers, to the benefit of those with the strongest balance sheets.
The UK remains one of the most expensive places for expats to live - and the recession has taken its toll. The UK emerged as an expensive destination in many categories. Compared with life in their home country, high proportions of expats in the UK claim they now spend more on their accommodation (79%), transport (68%), holidays (62%), utilities (61%) and entertainment (58%). In fact, expats in the UK spend more of their income on accommodation than expats living anywhere else in the world (85% of UK-based expats rank their home as their greatest expenditure). The second and third related item that they spend their cash on was found to be food and entertainment. (HSBC Bank International Expat Explorer Survey, 2009)
Expats in the UK were the worst savers/investors globally, with more than a quarter (27% the highest recorded in the survey) saying that they had reduced their savings and investments when compared with life in their home country.
The UK personal lending market has suffered considerably over the past year. Lending has declined across all product lines, and many lenders have left the market entirely. While some signs of recovery are on the horizon, the supply of credit is still restricted, and perhaps more importantly, consumers are reducing borrowing and debt obligations.
Datamonitor expects conditions to remain tough throughout 2009 and 2010 before improving in 2011. Datamonitor's expectation is of an overall contraction of around 12% in the market from £192.9 billion to £170 billion between 2008 and 2009.
HNWI clients are likely to remain extremely sceptical of private bankers and advisors in the midst of financial turmoil. How to rebuild trust remains a top priority for private bankers. Proper disclosure of conflicts of interests can address some concerns. True private bankers are professionals who should act like doctors, who can be relied on to give impartial expert advice. Private bankers who can in still confidence are likely to remain top performers.
Corporate UK is still relatively lowly geared and companies are holding a fair amount of cash. This could be the moment to do deals. There is a backlog of deals to be done, as well as a great deal of money available to invest, with Asian growth and Middle Eastern oil dollars adding to the funds needing to find a home. Alongside the threats to business, there are opportunities, and money is still available for good quality propositions.
In the financial services sector, the short-term funding famine could accelerate the rate of consolidation. Certainly, from a long-term perspective, current market prices for bank stocks look low. And one consequence of the impact on the private equity sector of the credit markets turmoil is that backers of M&A deals are likely to be sitting on their hands. This gives strong trade buyers a chance to make strategic acquisitions without seeing prices driven up by private equity backers. Companies that have accumulated a war chest of funds for just such an eventuality will now be well placed.
Organisations can, and will, continue to make money where they manage risk effectively. Those that do well will be increasingly sophisticated, as discussed below. However, of critical importance is ensuring that there is adequate governance over the steps taken.
Chapter 3 (Overview)
Market Trends (Increased Competition)
Current issues faced by retail banks arising from this changing environment: revenue replacement, liquidity risk management, changes to processing systems and managing credit risk through the receivables management sector. Whether banks can again make the waterbed effect work to maintain overall revenues following pressure on unauthorised overdraft charges and payment protection insurance income streams.
The changing environment for core systems and demonstrate that leading banks are moving towards a more customer rather than product centric view of systems development, with many banks choosing a vendor strategy rather than an in-house IT development model. Transaction banking : Faster Payments Scheme but point out that there are plenty of further changes in the retail payments environment which need to be planned for to ensure that banks can continue to provide a great customer interface and experience for their retail transactions.
In this business the main factor that will clarify the existence of the fittest in the industry is making the right choice in the right time. After the devastating effect on the world economy, banking sector of UK has fallen apart and some of the organization in this industry has taken the position HSBC used to have. A business such as investment banking has its drawbacks in the field and it is also important to make sure the core of the decision making process that will enable the organization to return more profits to rather than counting the losses. The current situation of Banks in UK have overcome the obstacles to increase the performance level of the organization by creating more opportunities for their banking sector and more and more investment ideas which are becoming risk free rationally after conducting research thoroughly using all possible negative outcomes to cut the losses. Many research has shown that most of the time banks didn't take any precautions before investing into the market and the whole project ended up to be a total loss. In recent years UK banks have started to show more prospective on retail banking and some of the banks have taken serious benefits out of it. The current scenario of retail banking have the market value higher than any other investment banks have ever made in banking history. The most valuable asset in this part of the banking is that they have bigger market of small investments rather than making bigger investments in a smaller market. We all know that risk management has the characteristics to asses' risks in making investment way before it happens and mathematically it is quite accurate if it has been visualise in a segment of the market with facts with numbers. Risk management has always been an effective business tool in this industry. Most of the time this investment tool works as a key element for the organizations to make key decisions and to make sure that they gain competitive advantage in this sector by making proper use of it. After all the fate of the organizations depends on the outcomes from the decisions they are making make profit out of it.
In many organizations infrastructures are constant and it almost never changes. Sometimes though it changes when the organization needs to change under difficult circumstances. In recent years Banks transaction system often support different internal structure of the banks and also externally originated changes to the to the organization.
Industry Background (UK Banking)
‘Banks in the UK are under threat from increased scrutiny by economic regulators. Ongoing interest in issues such as the interchange fees that underpin card payment networks has been augmented by a focus on unauthorised overdraft charges (UOCs) and payment protection insurance (PPI).' (PWC, 2008)
During the early 1990s, Finland's banking system went through turmoil following the collapse of exports to the former Soviet Union. In 1998, the Federal Reserve was obliged to organise the rescue of Long-Term Capital Management, a large and prominent hedge fund that was on the brink of collapse. In 2000, the Turkish government sought assistance from the IMF after a series of banking scandals caused interest rates to rocket to more than 1,700% in just a matter of days. Just a few years later, China's central bank was forced to intervene to save the state banking sector from insolvency after the property market became severely overheated.
The recent nationalisation of Northern Rock proves that British financial institutions are not immune from crisis. A sizeable bank with what appears to be a prime residential mortgage book, Northern Rock was balance-sheet-solvent and adequately capitalised.
However, it was heavily reliant on the wholesale money market to fund its business and, following a significant fall in that market's liquidity, it was not in a position to refinance its payment obligations as they fell due on an economic basis. Had Northern Rock sought to generate additional cash by selling some of its assets, it would probably have been forced to incur substantial losses. Instead, it turned to the Bank of England for emergency liquidity assistance and eventually passed into public ownership.
The very nature of retail banking business - receiving short-term deposits but granting longer term loans - means that liquidity risk will always be an issue. To satisfy their liquidity needs, banks rely on ready access to the money and asset markets. However, problems can arise, even in a properly functioning market. On the one hand, doubts may arise about the creditworthiness of a bank or class of banks. On the other, a bank may prove reluctant to provide liquidity to another bank if it is uncertain about its own future liquidity requirements.
UOCs are now the subject of legal proceedings at the High Court between the Office of Fair Trading (OFT) and seven of the country's leading banks and the leading building society, as well as an ongoing investigation by the OFT. PPI is also being investigated by the Competition Commission. The stakes are high: it is estimated that the banks generate many hundreds of millions of pounds per annum in revenue from UOCs, and the Competition Commission believes that a similar amount is generated from PPI (the vast majority of which it considers to be excessive); and potentially fundamental changes to these markets are possible. The amounts at stake are much greater than was the case with the OFT ruling on credit card default fees and the article demonstrates that banks will need to have a good understanding of how competitors and customers will react to proposed price changes.
Company Background (HSBC)
At a glance
Hong Kong (1865)
London, United Kingdom
Finance and insurance, Consumer Banking
Corporate Banking, Investment Banking
Global Wealth Management
Private Equity, Mortgage, Credit Cards
â–¼ US$ 137.309 billion (2008)
â–¼ US$ 56.384 billion (2008)
â–¼ US$ 6.498 billion (2008)
â–² US$ 2.527 trillion (2008)
â–¼ US$ 93.591 billion (2008)
331,458 (9,500 offices in 85 countries and territories)
HSBC Bank plc
The Hongkong & Shanghai Banking Corporation
HSBC Bank USA
HSBC Bank Middle East
HSBC Bank Brazil
Before going into more details, this paper discovers the glorious milestones HSBC came across since it's evolvement from the Hongkong and Shanghai Banking Corporation Limited. The Hongkong and Shanghai Banking Corporation Limited was founded in 1865 in Hong Kong with offices in London and Shanghai and an agency in San Francisco, USA. The bank existed as an eastern force until mid 1950s. It began to create and acquire subsidiaries after that.
Since then HSBC came across some remarkable milestones to grow and reach today's position are as follows:
Year 1959: The Hongkong and Shanghai Banking Corporation takeover the British Bank of the Middle East. At that time it was called the Imperial Bank of Persia. The Bank is now called HSBC Bank Middle East Limited.
Year 1965: The Hongkong and Shanghai Banking Corporation Limited takeover a majority shareholding in Hang Seng Bank Limited, Hong Kong, now, the second largest bank incorporated in Hong kong.
Year 1972: The Mdland Bank acquires significant shareholding in UBAF Bank Limited (now British Arab Commercial Bank Limited)
Year 1978: The Saudi British Bank is established under local control to take over the British Banks of the Middile East's Branch in Saudi Arabia.
Year 1980: The Hongkong and Shanghai Banking Corporation Limited acquire fifty one percent of New York State's Marine Midland Bank (now called HSBC Bank USA, N.A.). Midland Bank acquires a controlling interest in eading German private Bank Trinkaus & Burkhardt KGaA (now HSBC Trinkaus & Burkhardt AG).
Year 1981: The Hongkong Bank of Caada (now HSBC Bank Canada) is launched in Vancouver, Canada.
Year 1982: Egyptian British Bank S.A.E. is formed, with the Group holding a forty percent interest. The HSBC group now holds 94.5% in the renamed HSBC Egypt S.A.E.
Year 1983: Marine Midland Bank take over Carrol McEntee and McGinley (now HSBC securities (USA) Inc.
Year 1986: Hongkong Bank of Australia Limited (which is now HSBC Bank Australia) is established.
Year 1987: The Hongkong and Shanghai Banking Corporation Limited acquires the remaining shareholding of Marine Midland and a 14.9% equity interest in Midland Bank Plc (now known as HSBC Plc).
Year 1991: HSBC Holdings Plc is established. The shares of HSBC Holdings are now traded in London and Hong Kong stock exchange.
Year 1992: HSBC Holdings purchases the remaining equity in Midland Bank this year.
Year 1993: The HSBC Group”s Head Office moves to London, UK.
Year 1994: Hongkong Bank Malaysia Berhad (now HSBC Bank Malaysia Berhad) established.
Year 1997: HSBC Group establishes Banco HSBC Bamerindus S.A. in Brazil (this is now called HSBC Bank Basil S.A. - Banco Multiplo), this year HSBC Group also acquires Robert S.A. de Invesrsiones in Argentina (now HSBC Argentina Holdings S.A.)
Year 1999: Shares in HSBC Holdings begin trading on New York stock exchange, third in its kind. HSBC take over New York Corporation (now integrated with HSBC USA Inc.) and its sister concern Safra Republic Holdns S.A. (now HSBC Holdings Luxembourg S.A.) Midland Bank acquires a 70.03% interest in Mid-Med Bank Plc. (now HSBC Malta Plc.) Malta's largest commercial Bank.
Year 2000: HSBC take over CCF (now HSBC Franc) one of the France's largets Banks. Shares in HSBC Holdings are listed on a forth stock market in Paris.
Year 2001: HSBC acquires Demirbank TAS now HSBC Bank A.S. Turkey's fifth largest private setor Bank and signs as agreement to purchase an eight percent stake in Bank of Shanghai.
Year 2002: Acquisitions include Grupo Financiero Bital, S.A. de C.V. (now Grupo Financiero HSBC, SA. De C.V.) one of Mexico's largest financial services group.
Year 2003: HSBC accuires Household International Inc. (now HSBC Finance Corporation); and Losango Promotora de Vendas Ltda in Brazil. Four French Private banking subsidiaries combine to form HSBC Private Bank France. HSB Insurance brokers Limited forms a joint venture, Beijing HSBC Insurance Brokers Limited. Hang Seng Bank acquires 15.98% of Industrial Bank Co. Ltd. A mainland China Commercial Bank.
Year 2004: HSBC acquires the Bank of Bermuda Limited and shares in HSBC Holdings are listed on a fifth stock exchange, in Bermuda. The Hongkong and Banking Corporation acquire 19.9% of Bank of Communications Limited, China's fifth largest bank.
Year 2005: HSBC acquires 9.91% of Ping an Insurance (Group) Company of China Ltd. Subsequently increased to 16.8%. HSBC Finance Corporation acquires Mertis Copanies Inc.
Year 2006: HSBC acquires the Panama Based Grupo Banistmo S.A. the leading Banking Group in Central America.
Year 2007: In Chin, HSBC is one of the first foreign banks to incorporate locally under the name HSBC Bank (China) Company Limited, and HSBC Rural Bank opens for business in Hubei Provience, In Vietnam, HSBC acquires ten percent of Bao Viet, the country's top insurer. In Taiwan, HSBC obtains agreement to acquire certain business and operations of the Chinese Bank Co. Ltd.
Year 2008: Chongqing Dazu HSBC Rural Bank Company Limited opens making HSBC the first foreign owned rural Bank in western China. HSBC icreases its stake in Vietnam's Techcombank from 14.4% to 20%.
From the milestones it is clear how HSBC expanded overtime keeping their strategy the world's local bank. Each of the cases HSBC enters into a new market through acquisition, which helped them to take on the local expertise to be a local bank. Comparatively it was easy to enter in these markets besides Canada and Australia.
Australia and Canada was protectionist and so was the Continent, in addition to being over-regulated and well served by its own talent. Central West Africa was saturated by British banks and, after independence; the new countries gave priority to domestic banks. Only the USA was attractive because it offered dollar assets in a dollar-hungry world (Laulajainen 2003). But before anything could be done about it, events elsewhere called attention. HSBC was in intense competition all over Asia with Chase Manhattan which showed interest in a small bank in India and Malaysia. HSBC pre-empted by purchasing the bank in 1959. In the same year another defensive acquisition became necessary, when an investor group tried to buy the British Bank of the Middle East, strip its assets and sell the branches to HSBC, which did the bulk of its Middle East business through the bank (Laulajainen 2003).
Diversification had taken a beating although it was only in 2000 when acquisitions in Asia became topical again, in a small way. Two of them were part of the private banking drive, PCIB Savings Bank in the Manila area and Taiwan's leading asset manager China Securities Investment Trust Corp. in 2001, to be followed by an 8 per cent stake in the Bank of Shanghai (Laulajainen 2003).
HSBC had returned to its roots. Afterwards many more events unfolded including the turnover of Hong Kong to china this prompted HSBC to transfer headquarters to United Kingdom (Laulajainen 2003).HSBC sees the Internet as one of several exciting new media, to be incorporated as an integral part of its working. The bank has concluded that e-commerce will change the fabric of the financial services sector and sees it as a way of finding new customers all over the world and improving its services to existing customers. It intends to use e-commerce to reorganize the business so as to provide higher-quality customer services more efficiently. HSBC will be able to link its customers to the full range of international services and manage their processing wherever it chooses, which the bank sees as a considerable competitive advantage (Tansey 2002). HSBC has adopted a clicks and mortar strategy. This requires that customer Internet offerings must meet three criteria: customer needs and preferences come first; they must fit HSBC's existing distribution channels; and they must be multinational in scope. Recently the group has been reorganizing its work for the e-age and putting in place some major components of such a strategy. In 2000, over US$2 billion was spent on technology, including a significant proportion on dot.com initiatives. HSBC aspires to be one of the first to provide customers with facilities through the Internet on a multi-geographical and multi-product, basis (Tansey 2002).HSBC is one of the most successful banks of the world which serves different needs of the people and also business organizations. It has also helped the corporate business world and after certain time it has become the world's local bank. The reason why HSBC is the called the local bank is they managed to established business all around the world and they have more branches than the local banks. They also managed to become one of the most loyal service providers all around the world in this industry.
The red and white hexagon logo of the self-styled "world's local bank" - which first replaced Midland bank's familiar Griffin in 1997 - is found in 79 countries around the world, in which the bank employs 232,000 people and claims 210m customers. About 55,000 work in Britain, 40,000 in the branch business. Hong Kong, where the bank was founded in the 1860s and from which it took its name of the Hong Kong and Shanghai Banking Corporation, generated 25% of profits. The largest part - almost 34% of the total - is generated in North America, where HSBC has expanded rapidly through acquisition in the last five years.
Furthermore, HSBC operate as a meritocracy. It believes in developing its own talent - after all, the continued success of our organisation comes from drawing out the highest achievements from outstanding employees. So it always tries to highlight and promote exceptionally talented people to roles where their ability can have a far-reaching impact on business.
Chapter 4 (Research Methodology)
4.1 Research Objective:
The objective of this study was to examine the nature of the factors influencing the consumer behaviour and customer expectations in the banking industry in UK. Furthermore, the study intends to identify the initiatives taken by HSBC in UK market during the adverse economic condition and maintaining to get competitive advantage. Apart from that, the study will identify the influence of the implemented features like internet, technology, online banking etc. in the financial services along with an analysis of marketing mix. Disregarding the past adoption, the study is designed concentrating the present and potential trends and the factors which will be influential in banking industry. As the industry is getting more competitive with the advancements of the instruments used to conduct the operations and the adoption of these features by the industry rivals, the future of the industry is getting more uncertain and ambiguous. This study is intended to generate some idea about the potential trend of the banking industry in the UK.
4.2 Research Philosophy
The process of the study is planned to highlight different methods and to categorize the best of each when functional to different investor situations specifically in the Banking industry in the UK market. The philosophy is based on a mixture of qualitative and quantitative is critical to future research and opinions. The overall understanding was that both the qualitative and quantitative research is important to provide a significant outline to measure historic trends and returns. While conducting the research emphases were given to screening and maintaining the validity of the data in terms of characteristics, questions, and answer patterns. In this study, interest was to assess the performance of the HSBC in the investment banking, retail banking and others sectors particularly in different market conditions. While comparing the performance of HSBC with industry rivals, traditional industry sector classifications also used to accept significant comparisons.
The approach of the study is fortified by numbers of distinctive industry concerns including every competitor involved in the industry and this research can help determining appropriate products suitable for specific type of customers segment along with supporting evidence and steady outlook to retail, investment and others sorts of banking. As it is understood that earlier performance is not the determining factors for the future performance, so the report was combined with qualitative research rather than just quantitative research.
4.3 Research Design
The study is composed with a combination of quantitative and qualitative research to find out the feasibility of the proposed project. For the qualitative research, data was collected from secondary sources with reference to the concern industry. Again, by separate in-depth interviews of four individuals from different segments of age and survey of focus groups was also conducted.
For quantitative research, general surveys of 100 customers of the company were carried out. The quantitative data helps to compare between different groups of participants.
From the document analysis of different companies and successful completion of interviews and focus-group, the findings were sorted out for drawing the recommendation and conclusion of the qualitative research. Again, separate findings were dug out from quantitative research which included survey of 100 clients, and a hypothesis testing regarding the marketing research problem. Finally all the findings, out of both qualitative and quantitative research were merged to refer the ultimate activities the company may take into account to maintain its competitive advantage in the varying world.
4.4 Data Collection
4.4.1 Secondary Data
To collect the data from the secondary sources, the preference was put on the national dailies focused on the last 5 years performance of the banking and financial industry. Furthermore, the analysis of the key players are in the UK banking industry was also carried out. Apart from that the company annual reports and journals from financial analyst are also considered to get a clear picture about the industry. To collect the secondary data emphasis were put on the internet due to the ease of accessing information.
Findings from the secondary research: Lately the disastrous attack on the US housing market, where HSBC was forced to write off billions due to the credit crunch, has lead the management to persuaded to return in the Far East mostly in the emerging economy. (W Richard, 2009) The decision made by the bank regarding the purchase of the Household International in the US in 2002 was a wrong one, as the share prices went down to almost a fifth to 399p. HSBC, the world's third-largest bank, was the biggest faller in the FTSE 100, which closed 5% lower (Stephen, 2009)
Due to the credit crunch HSBC had become the last bank to surrender and is forced to raise its fund from the investors. Furthermore, unlike the increase in the past 15 years, the bank had cut its dividend- with a view to reserve capital in the worst downturn since the Second World War. (T Jill, 2009) HSBC insisted that the proceeds of the cash call were not designed to plug an existing capital shortfall, but would give the bank a competitive advantage over
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