Hsbc's Internationalization and Growth Strategy

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[pic 7]In 2011, an investigation was launched by the US senate into allegations that HSBC's lax compliance processes were enabling money laundering for drug lords, terrorists, and dictators. The investigation was concluded in July 2012 and revealed what one senator called a "pervasively polluted" compliance culture at HSBC in a 335-page report. The bank expressed contrition, its chief compliance officer stepped down, and its compliance budget was significantly increased.°

HSBC ORGANIZATION

HSBC's organisation design had been relatively decentralized, with the head office providing essential functions, including strategic planning, risk and credit control, as well as the information technology (IT) platform where applications were run. Operational authority was delegated to heads of subsidiaries, who worked to meet annual targets as laid out in a five-year strategic plan. HSBC subsidiaries were locally incorporated banks with locally domiciled capital, and HSBC saw the world as a multitude of local markets each with its own features and requirements and, accordingly, adopted a geographically oriented organization structure.

Since 1998, realizing that the company needed a higher level of global integration, HSBC added a further dimension of "customer groups:' or "lines of business," to its geographic structure, aiming to improve sharing of best practices and global coordination of its product development, management, and marketing processes. To further enhance

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Case 16 HSBC'S Internationalization and Growth Strategy

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:toss-border coordination, several heads of specific iines of business also served as geographic group heads, with country heads and heads of regional lines of 'business reporting to them."

Competitor Citigroup's strategy for internationalization, on the other hand, had been different. Rather than a collection of locally oriented banks, Citigroup had been operating as far as possible as a single bank with a single balance sheet, classified as a foreign person in foreign markets. Most of its revenues came from the United States and decisions in Citigroup were influenced mostly by global lines of business rather than local markets. Since 2000, Citigroup had placed more emphasis on growth by acquisition rather than by organic expansion, but still aimed more for global uniformity rather than local responsiveness. Although it was ranked as the world's largest bank by revenues in 2008, it suffered huge losses during the global financial crisis beginning in the last quarter of 2008. Citigroup received aid funds through a US government-backed bailout in November 2008. In January 2012, Citigroup was ranked as the world's ninth largest bank by market capitalization, with a market value of US$86.67 billion.

In terms of culture, HSBC was traditionally known as a conservative, thrifty organisation, but nevertheless as a strategically ambitious one. It had a long-term view of markets, invested considerably in people development, recognised local differences, and committed to local markets even in adverse situations. The slogan "the world's local bank" was introduced in 2002. One way of making this a reality was its "international managers" programme, where recruits committed themselves to an expatriate career of three-year appointments around the world. By gaining experience in several functions, businesses and economies, international managers were able to develop a deeper understanding of local markets, promote crossborder transfer of learning and best practices, build greater levels of trust and collegiality among their ranks, and provide a source of internationally experienced senior executive talent. Recruits who did not join the ranks of international managers still underwent a structured programme of development in different lines of business."

More recently HSBC has worked to integrate its global operations further. One aspect of this was the development of a global identity through a group marketing campaign and the "world's local bank" slogan, with an initial investment of around

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US$200m. In 2008, The Banker magazine named HSBC the world's most valuable banking brand. According to Interbrand, the HSBC brand was ranked as the 27th most valuable brand in the world in 2008 (down from 23rd in 2007), with an estimated value of US$13.1 billion. By 2012, it fell further to 33rd, at US$11.4 billion. The Citi brand was ranked 19th in the world in 2008 (down from 11th in 2007), with a value of US$20.2 billion. In 2012, Citi was 50th with a value of US$7.5 billion. The only financial institution ranked higher than HSBC in 2012 was American Express at number 24 with an estimated brand value of US$15.7 billion."

In 2012, HSBC had four global businesses—retail banking and wealth management, commercial banking, global banking and markets, and global private banking—operating in six geographical regions: Europe, Hong Kong, rest of Asia Pacific, Middle East and North Africa, North America, and Latin America."

CURRENT STRATEGY

The strategy unveiled in May 2011 sought to align HSBC to patterns in global financial flows as well as growth in emerging economies. The strategy involved leveraging on HSBC's global network of interconnected businesses, as well as its wealth management and retail businesses in fast-growth markets. Implementation of this strategy involved three main aspects: first, a highly disciplined capital deployment model based on five evaluation criteria (international connectivity, economic development, profitability, cost efficiency, and liquidity); second, internal cost efficiency aiming to achieve a leaner organization through globally consistent operational processes, efficient global functions and streamlined IT; and third, a continuing focus on growth regions and wealth management, as well as better synergies and cross-selling across its businesses, in general, and across commercial banking and global banking and markets, in particular.15

In 2008 HSBC had around 335,000 employees in 9,500 offices distributed across 85 countries, serving an estimated 100 million customers. Across its four main business divisions, commercial banking accounted for 45% of profits, global banking and markets for 26%, personal