- Environmental and Industry Analysis
What environmental factors influence the operations and competition in this industry? Consider the entire spectrum of political, legal, economic and other factors that shape the structure and nature of this industry. What determines success in this industry? In other words, what key success factors must firms satisfy to survive and compete well in this industry? Provide your logic, illustrate with examples or whatever ammunition you can find. Analyze the industry structure. What are the key segments? What stage of the life cycle of the product(s) is the industry in?Who are the major suppliers? Who are the major buyers? Are there any substitutes? Do the suppliers or buyers constitute a threat through forward or backward integration?How does your preceding industry structure affect competition? Who are the key competitors?What are their strengths and weaknesses? Where and how do they compete? What environmental, competitive, technological and other trends (opportunities and threats) are likely to affect this industry as a whole in the next decade and beyond?
The banking industry is a complex one that HSBC has done a good job of entering and dominating. The political, economic, and legal atmospheres are key influences on any bank’s success.
Starting with politics, according to SmartMoney, capitalist economies do not mix politics and banking. However, with the recent recession, the government has been increasingly involved in the regulation of financial industries “whereas once investors analyzed earnings, management and profit margins [and] now all eyes are focused on the back scratching and insider dealings in Washington, D.C., where politicians who don t know much about banking are turning taxpayers into involuntary investors.” The economic atmosphere is extremely important to the banking industry’s welfare in terms of the circulation of money by spending and investing. There will always be a need for banking however, on both a personal and institutional scale. HSBC successfully perpetuated and managed the market being the second largest bank in the world according to Global Finance Magazine. Lastly, the legal pressures coming from federal authorities have also increased with the recession. We can see such changes taking place in new laws like the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act which “restricts the banks’ own trading as well as to increase transparency of operations.” The 2012 scandal within HSBC’s management and lending to risky parties blew up in Washington as the Senate Banking Committee pressed for heavy fines and even jail time for the HSBC officials that were involved in the scandal.
In terms of competition and survival, the banking market is very saturated with various niche banks, community banks, and global banks that cater to every financial need. Because of the heavy density, banks are very service based. The consumer satisfaction is key to the bank’s success. MBA Lectures argues that the main drivers of success in this industry include technology like ATMs, quality of service, brand recognition, and size of the bank since larger banks tend to have more physical presence improving convenience and product awareness. Because the industry is already very much set up with few new entrants and products, banking can be seen as in the maturity stage of the business life cycle. In terms of supplier power, the Federal Reserve Bank is the only supplier for the banking industry as they control rates and money supply. The buyers are the everyday person with a banking need which applies to almost everyone, making consumer power very high as competition is extremely fierce. Because starting a bank requires enormous capital, the supplier would be the only identifiable entity that has enough power to constitute a threat of backward integration.
HSBC’s competitors would include other enormous global banks which Yahoo Finance identifies as Barclays, Citigroup, and the Royal Bank of Scotland. These banks do not match up to HSBC’s assets but they do hold more market share depending on geographic location. HSBC, like much of its competitors, offers products to small and large sized consumers for financing, investing, online services, transaction banking, securities services, and trading. According to financial analyst, Keith Bowman, HSBC has fared far better than the Royal Bank of Scotland (RBS) in terms of surviving the credit crisis. RBS greatly depends on the government for assistance; as much as 80% of the bank is owned by the government as well as having 95% of its business in the United Kingdom while HSBC’s United Kingdom business only accounts for 55% of its total business. American banks Citigroup offers more products than HSBC but cannot boast the widespread coverage of HSBC. The fact that Citigroup’s business is primarily in the United States made it extremely vulnerable and threatened by the housing market crash. However, Citigroup has an impressive online banking sector that has proved itself successful and popular amongst consumers. Barclays, also smaller than HSBC, focuses on corporate and investment banking, wealth and investment management, retail and business banking. Barclays has also been in a number of scandals dating back to the 1980s.
HSBC has proven to dominate the global setting of financial services. The strong brand name, reputation for great service, enormous physical presence and wealth are all reasons that HSBC thrives and are seen as strengths of the bank. Like every other company, there is always room for improvement. Underlining the bank’s recent scandal, HSBC can better its monitoring and tracking system to prevent faulty loans and also look at Citigroup’s online superior presence to mimic it and better their own services on the web. Projecting into the future, the threats of the banking industry include mounting government pressure after failure to responsibly manage the capital as seen in HSBC’s recent scandal as well as the new trend in virtual banks. Increasing government regulation can severely impact bank image and success as well as virtual banks that offer lower cost service because they do not pay overhead cost. Opportunities include capitalizing on society’s growing need for technologically advanced banking services by adjusting marketing platforms and online banking features.
Sources:
Bowman, Keith. “HSBC and RBS”. Hargreaves Lansdown. May 11, 2012. Online. April 3, 2013
“Direct Competitor Comparison”. Yahoo Finance. April 1 2013. Online. April 1 2013.
http://finance.yahoo.com/q/co?s=HBC+Competitors
Hoenig, Jeffrey. “Why Politics and Banking are a Bad Mix.” SmartMoney.com. January 26 2009.
Online. April 1 2013.
http://www.smartmoney.com/invest/markets/why-politics-and-banking-are-a-bad-
mix/
“Key Success Factors in the Banking Industry”. MBA Lectures. Online. September 28
2010.
http://mba-lectures.com/management/strategic-management/819/key-success
factors-of-banking-industry.html
“The Banking Industry In 2012”. Investopedia. January 27 2012. Online. April 1 2013.
http://www.investopedia.com/financial-edge/0112/the-banking-industry-in
2012.aspx
“World’s 50 Biggest Banks”. Global Finance Magazine. August 27, 2012. Online. April 1 2013.
http://www.gfmag.com/tools/best-banks/11986-worlds-50-biggest-banks
-2012.html#axzz2PDsFjIdD
Nice, now I will focuse on their International Strategy.
This is a good start. You need to include more information about HSBC’s scope: How many markets does it serve? What services does it offer- just retail banking or investment banking, too? What are its strengths and weaknesses?
You also need to provide more information about the industry and its competitors. Who are HSBC’s major competitors? What opportunities and threats do they face?
btw I saw that Barclays, Citigroup, and the Royal Bank of Scotland are its competitors but how do they really match up? Isn’t RBS having its own problems?
Thank you for the feedback, Professor. I will add that information in.
Politically speaking, I found it interesting how in most recent years the lines between financial institutions and the government have become extremely blurred. Just referencing the U.S. bail out of the banks in the 2008 financial crisis ignited by housing market crash due to inappropriate default loans. Although I support the fact that the banks needed hand holding during this time of crisis to prevent a detrimental financial meltdown, I believe to some extent banks should have harsher penalties and policies with regard to their illicit practices.
Requiring a bank to pay a fee is like a slap on the wrist. According to the New York Times article, “Realities Behind Prosecuting Big Banks,” the harsh realization that most banks in this industry are “too big to fail” and “too big to jail.” Ultimately, the notion that these financial institutions have become so monumental that pressing criminal charges can deem economically destabilizing worldwide.
The Nation’s attorney general, Mr. Holder told the Senate Judiciary Committee, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.”
This article gives perspective into how the government determines bank penalties, being on the basis of severity and nature of offense. Would prosecuting jail time and harsher charges do more harm then good?
Source:
http://dealbook.nytimes.com/2013/03/11/big-banks-go-wrong-but-pay-a-little-price/
I found a few HSBC’s direct competitors online, such as Barclays PLC, Citigroup, Inc, and The Royal Bank of Scotland Group plc. The website also provides a comparison chart which lists out financial information of each one.
Source:
Yahoo Finance. N.p., 03 04 2013. Web. 3 Apr 2013. .