Environmental Analysis – HSBC (A Marketing Perspective)

Executive Summary

  • This assignment aims at developing a marketing plan to lift the market share of HSBC’s current account.
  • The marketing plan is aimed to reduce the impact of external shocks, namely, the global economic recession, the instability in the financial markets and the loss of confidence of consumers towards banks and financial institutions.
  • The marketing plan includes the launch of a new prepaid card product that would be included together with HSBC’s current account to promote the bank as a responsible lender in the financial industry.

1. Objectives

This assignment aims at producing an in depth analysis of HSBC’s current account. An internal and external audit will also be conducted to determine HSBC’s position within the financial industry. Furthermore, this assignment would attempt to highlight the various marketing strategies available to help market HSBC’s current account while taking into account the issues in implementing these said strategies.

1.1 Current Situation

The global banking sector is facing its greatest challenge since the Great Depression in the 1920s. “Whitney Day” was when a bearish note from Meredith Whitney concerning Citibank sparked a huge sell-off of US banks that officially ended the bull market in October 2007 and officially herald the start of the US sub-prime mortgage crisis (Financial Times 15 July 2009). To date, the US sub-prime mortgage crisis has caused the downfall of many big banks like Lehman Brothers, Northern Rock, The Royal Bank of Scotland and Lloyds.

Adding oil to the flame is the volatile commodity markets that plagued international trade and business in 2008. The world economy which have grown at an unprecedented rate prior to the US sub-prime mortgage crisis is now at a low level after taking tri-shocks from the global credit crunch, the spike in oil prices (US$ 147 in July 2008) and the food shortage crisis. The presence of such an adverse macro-economic environment has greatly impaired the banking industry’s operating activities and ability to remain profitable.

1.2 The Product

Current accounts are at the heart of the relationship between banks and their customers (Financial Times, 20 July 2009). Also known as a transactions account, a current account is normally the first product that a customer buys. Banks can later use this current account as a platform for further cross selling bank loans, credit cards and mortgages (Financial World, July/August 2009). HSBC has four main types of current accounts, namely HSBC Premier, HSBC Plus, Current Account Advance and Basic Bank Account (see table 1).

Please see table 2 for a comparison of the different types of current accounts offered by HSBC and its competitors. Figure 3 and 4 shows that although HSBC holds only 14 percent of the current account market share in the UK, it also has the least amount of operating branches. This shows that HSBC is able to attract more customers with a smaller branch network. However, the same can also be said of Lloyds TSB.

1.3 The Challenges

The banking industry is in many ways different that a normal organisation. A bank is a financial intermediary that produces its economic value through the pooling and allocation of funds in the financial system (see figure 3). Because a bank normally borrows short (depositors need to be paid on demand) and lends long (commitment to loan tenures), the bank would normally be in a tight squeeze during times when economic activity deteriorates (see figure 4).

Another aspect of the uniqueness of banks is that their raw materials and end products are cash. Besides the labour of pooling funds, safekeeping cash and giving loans, a financial intermediary provides relatively no extra value. Due to the nature of financial services being intangible, inseparable perishable and not heterogeneous, it is very hard for a financial institution to differentiate its services from other competitors.

Currently, HSBC’s greatest challenge is to regain the confidence as a lender and a responsible financial institution. The second challenge comes in capitalising on the recent external environment to gain an upper hand over competitors. The third challenge is to ensure that the marketing plan must be suitable for a time when capital is extremely tight and economic activity is at its very low.

2. External and Internal Audit

2.1 History of HSBC

In 1865, The Hongkong and Shanghai Banking Corporation Limited was established to help finance the growing trade between China and Europe. Named after its founding member, HSBC is currently the largest banking and financial services organizations in the world. Listed on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by approximately 200,000 shareholders in more than 100 countries.

HSBC’s international network comprises of around 9,500 offices in 86 countries and territories in Europe, the Asia-pacific region, the Americas, the Middle East and Africa that in turn provides a wide range of financial services ranging from personal financial services; commercial banking; corporate, investment banking and markets; private banking; and other activities.

2.2 External Audit – PESTEL Analysis

The external audit of HSBC shows that its external environment is exceedingly hostile. Both global and domestic outlook is at its lowest and slow recovery is expected. A survey and interview of Chief Finance Officers of the FTSE 100 by Deloitte revealed that market sentiment would take time to recover from the aftershock of the global recession.

The political and legal landscape is likely to be volatile with new political parties taking the seat government. It is likely that the change in ruling parties would bring new reforms to change the old structure of the financial system. It is to be noted that changes in regulations in the United States may also heavily affect operations in the United Kingdom as globalisation and offshore banking is taken into account.

Social and environmental factors point out that China and India would be the biggest market for financial services in the coming decade. Aging population and a longer lifespan in the advanced economies would likely mean a prolonged relationship between banks and their customers. As higher level education becomes increasingly relevant in the coming years, it is likely that future customers emerge as more demanding and having a better knowledge of banking activities. Recent environmental campaigns also mean that companies must be seen to be environmental friendly before being deemed socially responsible.

Technological achievements in the 21st century would bring many changes to the structure and system of banking. Globalisation would bring foreign banks into domestic doorsteps while better telecommunications would increase the price transparency in the industry. Barriers to entry to the banking industry are also collapsing as the traditional branch network becomes obsolete with the advent of internet banking.

2.3 SWOT Analysis

The SWOT analysis in Appendix 3 shows us a general internal and external position of HSBC. The main strengths of HSBC lie in it being a global bank that is diversified geographically. This has enabled HSBC to emerge from the credit crunch with a better overall market position while other banks have resorted to government aid. Besides that, HSBC also operates a highly successful internet banking arm called First Direct.

The main weaknesses of HSBC lies in the costly capital write downs it faced as a result of its exposure to the US sub-prime mortgage market. Besides that, employee morale and public perception of banks in general are at its low point in the current environment. This weakness is highly adverse to the company as threats from substitutes like Tesco are seeking to gain market share at the expense of traditional banks.

Other threats include the current global recession, political, legal and regulatory uncertainty and the advancement of telecommunications. Among these threats, any political, legal and regulatory changes would greatly affect the operations of HSBC as this will cause changes to the structure of the industry. Opportunities for HSBC lies in joint ventures, mergers and acquisitions of companies that could help the bank gain a better position as a financial institution.

China and some of the third world countries hold the highest rate of economic growth. It is also likely that the global economy would see a rebound in the coming months as economic activity picks up.

3. Market Research

3.1 Primary Research

The first type of market research is primary research that involves research done from scratch and tailored to task at hand. Examples of primary research are questionnaires and interviews. Primary research is costly and time consuming because it involves gathering new information for a specific purpose.

Primary research on HSBC begins with the gathering of information from bank staffs on the types and availability of HSBC current accounts. A questionnaire of 14 questions was then taken from a random mix of people with different genders, ages and occupations. The questionnaire included quantitative and qualitative data concerning their personal views and opinions of their open current account. Please see appendix 4 for the full questionnaire.

3.2 Secondary Research

Secondary research on the other hand is research based on existing data. Examples of secondary research include official government statistics, textbooks, and journals. Secondary data is often a cheaper research method than primary data because it does not require the researcher to be physically on the field. However, some secondary data may not be relevant and research results may not be accurate as they were obtained for different purposes. Examples of secondary research data can be found in the graphs and charts in the PESTEL and SWOT analysis.

3.3 Results

Results from the questionnaire can be found in appendix 4. Of the 200 respondents that were included, 53 percent were male and 47 percent were female. Most of the respondents were around 25 to 35 years old and all respondents have an open current account. The big four banks were the most popular current account providers with a handful of respondents having a second current account with another provider.

The level of satisfaction with HSBC’s current accounts is deemed unsatisfactory with more respondents claiming to be dissatisfied. The main factors for opening a current account was not based on differentiation between financial institutions but was mainly because of geographical convenience, interest rates and other tools of convenience.

The amount of people using the internet to access their current accounts are around 57 percent of the respondents. This indicates a high level of internet penetration in banking activities. A high number of the respondents already have a HSBC current account or are unwilling to switch their current account provider. This may not be due to customer loyalty but to other factors like convenience.

Among respondents who are willing to switch current account providers include bad service quality of their existing current account providers and higher interest rates on surplus funds. Most respondents (79 percent) are likely to use other services by their current account provider. Among other services that respondents are likely to use include savings account, credit cards, overdrafts, financial advice and mortgages.

Public perception deem  HSBC as an average bank (43 percent) while a further 23 percent states HSBC as below average. However, in terms of HSBC’s current accounts, 43 percent respondents claim it is good and only 20 percent claim HSBC’s current accounts are below average. 44 percent of respondents say that the level of services at HSBC is average.

4. Marketing Strategy

4.1 Prospective Strategies

The BCG Matrix shows us that HSBC’s current account is in the star position with the market having a high growth rate and HSBC having a high market share. The problem with the BCG matrix is that high market growth and a high market share is not an indicator of profitability. Indeed, after adding in many hidden costs, many current accounts are operating at a lost.

From the Ansoff and the Porter generic matrix (see appendix 5), HSBC should adopt a combination of market penetration, product development and differentiation strategy. This can be implemented through the introduction of a new prepaid card product together with HSBC’s current account. Unfortunately, this new product is only able to give a differentiation advantage for the short term. Despite that, the new prepaid card product would signal that HSBC is not an irresponsible bank that tries to dump credit on customers without taking into account their ability to repay their debt.

4.2 Implementation and Evaluation

HSBC should look out for opportunities to joint venture with other institutions to provide its current accounts. Mergers and acquisitions may also help the company to gain economies of scale and market share. However, mergers and acquisitions do pose integration difficulties as some corporations come with large debts and working culture incompatibility.

To implement the market penetration and product development strategy, annual objectives need to be clearly stated with importance placed on resource allocation and staff evaluation. Rewards and incentives need to be base on long-term and short-term goals while policies containing specific guidelines on procedures and rules need to be planned beforehand.

Market segmentation should also be carried out to increase customer satisfaction and retention. It is likely that the market must be segment according to demographic and socio-economic factors. Market targeting should be based on HSBC premier accounts, HSBC plus accounts and basic current accounts. The budget for the marketing implementation of the prepaid card is approximately £15 million.

The success of HSBC should be evaluated by benchmarking to competitors aiming for market share in the current account market. Continuous efforts to re-evaluate the organisation’s internal and external environment should also be conducted to ensure that the strategies chosen remain feasible and relevant. HSBC should also keep a balance scorecard which records the organisation’s financial performance, customer knowledge and the development of bank personnel.

4.3 Monitoring and Control

HSBC should adopt the principle of kaizen which means continuous improvement (Drucker 2002). The marketing plan and its implementation should not be the beginning of the end but the end of the beginning. Information systems like those used in customer relationship management are a useful tool to track the cost and interactions of customers with the banks. Besides that, HSBC should encourage customers to provide feedback concerning its new product.

5. Conclusion

Both the internal and external audit of HSBC shows that the organisation is operating in a very challenging time. Both economic and political uncertainty is likely to cause a paralysis in financial institutions. To make matters worse is the nature of banking products that make them exceedingly hard to differentiate and for customers to ascertain their value. Furthermore, as technology makes the branch networks of banks become obsolete and increases price transparency, HSBC would now find that it is unable to rely on price (interest rates) to gain market share and achieve cost leadership. However, all is not lost as HSBC has emerged from the economic turmoil in a relatively strong position. The introduction of an additional service (prepaid card) with HSBC’s current account and marketing to promote HSBC as a responsible lender should enable the bank to gain a larger portion of market share in the current macroeconomic environment.

Appendix 1: HSBC’s Current Accounts and Competitor Analysis

Table 1: HSBC’s Main Types of Current Accounts

Table 2: Competitor analysis

Source: Financial World, July/August 2009

Appendix 2: External Audit – PESTEL Analysis

Political, Legal and Regulatory Landscape

The political, legal and regulatory landscape is currently increasingly volatile as the world faces the aftermath of the sub-prime mortgage crisis. The early deregulations of the 1930s (the  breakdown of the Glass-Steagall Act, 1933 and its replacement, the Gramm-Leach-Bliley Act, 1999) according to Glenn Hubbard R. (2005), has made it possible for the merger and acquisition of investment and commercial banks in the United States. However, the opposite is now occurring as talks on re-regulating the banking industry is likely to be increasingly relevant in the coming days.

Key Areas

  • Changing political landscape
  • The emergence of new regulations concerning banks and financial institutions
  • The uncertain future role of the Bank of England and the Financial Services Authority (FSA)
  • The permitted use of fair value accounting

1. Changing political landscape

The political landscape around the world is badly shaken as a result of the economic turmoil the world has experience after the implosion of the US sub-prime mortgage market. With changes in the ruling political parties in major advance countries like the United States, the likelihood that new regulations would be put into effect in the coming years is very high. In the United Kingdom, some political parties have advocated the abolishment of the Financial Services Authority.

Table 3: Uncertain Political and Regulatory Landscape

The Issues Labour Tories Lib Dems
Banking Regulation Stick with the current system but give the Financial Services Authority more powers. Abolish the FSA and hand the new responsibility to the Bank of England. Leave the FSA as the unitary regulator.
Financial Stability Set up a Council for Financial Stability chaired by the Chancellor. Set up a financial policy committee at the Bank of England to work alongside the current monetary policy committee. Bank of England has overall responsibility.
Consumer Protection Already a responsibility for the FSA. New Consumer Protection Agency to unite responsibilities of the FSA and Office of Fair Trading. Beef up the FSA’s current responsibility.
Bank Break-ups Riskier banks require to hold more capital. Big banks hold more capital; a competition review into bank takeovers. Royal Bank of Scotland and Lloyds Banking Group broken up before taxpayer stakes sold off.
Banker’s pay A new code of conduct of pay overseen by the FSA. Irresponsible bonus structures face a “tax” of more capital. Highly paid bankers publish their pay and confirm if resident and domiciled in the UK.

Source: Andrew Sparrow, Cameron blames Brown’s reforms for crisis ‘of historic proportions’, The Guardian, 21 July 2009

2. The emergence of new regulations concerning banks and financial institutions

The public is now harbouring massive distrust to financial institutions and are now pushing authorities to impose more stringent regulations on banks and financial institutions. According to Brooke Masters (Financial Times, 20 July 2009), regulators from the Financial Services Authority are sitting in on bank board meetings, demanding more data and questioning decisions made by senior management. Among the likely areas to see changes in the coming months is summarized in table 4.

Table 4: Likely Regulatory Reforms (Key Areas)

No. Areas
1. Leverage ratios
2. New liquidity requirements
3. Countercyclical capital ratios
4. Corporate governance
5. Adequacy of systems and controls
6. Treating customers fairly
7. Client money and asset arrangements
8. Market abuse

Source: George Parker and Chris Giles, Tory plan gives Bank Sweeping Powers, Financial Times, 20 July 2009

Brooke Masters, FSA takes harder line on regulation, Financial Times, 20 July 2009

Brooke Masters, FSA’s new approach ruffles feathers, Financial Times, 20 July 2009

3. The uncertain future role of the Bank of England and the Financial Services Authority (FSA)

Many people in the United Kingdom and also around the world are blaming regulatory bodies for their lack of foresight in managing the sub-prime mortgage crisis. Calls to audit the monetary policy decisions of the Federal Reserve are causing widespread uncertainty and fears that the central bank may lose its independence (Financial Times, 15 July 2009). In the United Kingdom, some political parties are trying to give the Bank of England new powers to regulate the financial system and to abolish the Financial Services Authority (Financial Times, 20 July 2009).

4. The permitted use of fair value accounting

The International Accounting Board has proposed principles to which banks and insurers should value an investment as a long-term holding or a trading position (Financial Times, 15 July 2009). This could mean that more investments can be valued at market values that would likely improve transparency and increase earnings volatility. Currently, many securitised assets cannot be valued correctly due to complexity and remain highly illiquid.

Economic Outlook

The economic factors, refers to the nature and direction of the economy in which a firm competes or may compete (Hitt, Ireland & Hokisson, 2005). The world continues to be in a state of shock as the world economy faces a severe downturn as a result of the financial crisis happening in the United States has now spilled into most of the other advanced and developing economies. While the economic impact is more evident in developed countries of the Western hemisphere, emerging markets are beginning to be affected as their economic growth begins to slow. Inflation continues to be a concern even though the prices of commodities and economic activity deteriorates worldwide.

Key Areas

  • Slowdown in world economic output and fears of deflation
  • No decoupling between advanced and emerging/developing economies
  • US spillovers to emerging/developing countries substantial
  • Slowdown in the United Kingdom
  • Survey and interview results of Chief Finance Officers of the FTSE 100 on the economy

1. Slowdown in world economic output and fears of deflation

Figure 5 shows that the global economy has been booming for four years from 2004 to the summer of 2007. In this period, Global GDP rose at an average of approximately 5% a year, which is the highest sustained rate of world GDP growth since the early 1970s (World Economic Outlook, IMF, 2008). This period of high global economic growth is coupled with a relatively low and contained rate of inflation. After the implosion of the sub-prime mortgage market in the summer of 2007, most of the advanced economies are already in or heading into recession.

Figure 6 shows the degree of economic slowdown experienced in major regions that have previously achieved high economic growth. In some of the advanced economies there are fears of deflation as price levels have plummet after the twin shocks experience during the energy and food crisis in 2008. Figure 7 shows that the consumer price index of advanced economies are dipping into negative zones while a similar though less severe drop is being experienced by emerging and developing economies.

Figure 5:

Source: IMF, World Economic Outlook, October 2008

Figure 6:

Source: IMF, World Economic Outlook, October 2008

Figure 7:

Source: IMF, World Economic Outlook, October 2008

2. No decoupling between advanced and emerging/developing economies

Overly optimistic forecast on a decoupling between advanced economies and emerging/developing economies is now seen to be false (see table 5). As advanced economies are now either in or heading into recession, both newly industrialised Asian economies and BRIC (Brazil, Russia, China and India) economies are also experiencing a severe slowdown in economic activity. Even China (the bulwark against a global recession) is seen to be experiencing a slowdown in its exports as a result of lower demand from the United States and Europe.

Table 5: Even if the US is in recession, Asian growth forecast are robust

Growth % 2008 (e) 2009 (f) 2010-2013 (f)
China 10.0 9.3 8.5
Hong Kong 4.7 5.0 5.3
India 7.7 8.1 8.5
Indonesia 5.9 5.9 6.0
Japan 1.3 1.6 1.7
Malaysia 5.5 5.7 5.6
Singapore 5.1 5.6 5.3
South Korea 4.5 4.8 4.5
Taiwan 4.1 4.5 4.3
Thailand 4.7 5.0 4.7
Philippines 5.3 5.4 5.8
US 1.3* 1.9 2.7
Canada 1.3 2.2 2.6
Eurozone 1.5# 1.7 2.0
Britain 1.7 1.6 2.2
AUSTRALASIA 2.9 2.9 3.5

* This after Q4’s sluggish 0.6% and before Q1’s 0.9%

# Germany has “surprising” 1.5% Q1 growth

Note: Global growth forecasts for 2008 have been trimmed to a still healthy 2.8%. BUT, 2009 growth has been upgraded to 3.1%

Source: Conscensus Economics (London) as at June 2, 2008 and May 15, 2008 (for the long-term forecasts) cited by Elaine Ang & Leong H.Y., 2008. Growth in selected bourses overseas. The   Star, 23Jun. B12.

Table 5 shows an overly optimistic picture of the world economy in the first half of 2008. However, later economic data and forecast in the second half of 2008 revealed that many emerging and developing economies have seen economic activity drop more than predicted (see figure 9) as advanced economies are badly hit by the sub-prime mortgage crisis and later by the credit crunch. The newly industrialised Asian economies were badly hit due their broad base economic exposure to the United States.

Figure 8:

Source: IMF, World Economic Outlook, October 2008

Figure 9:

Source: IMF, World Economic Outlook, October 2008

3. US spillovers to emerging/developing countries substantial

The advanced economies are accountable for around 50 percent of global economic output and global exports. The spillovers from the slowdown in major advanced economies have cause global economic activity to drop to very low levels. Figure 10 shows how the economic output, consumer prices and current account balance is affected from the global economic slowdown.

Figure 11 shows how the other geographical regions of the world excluding the advanced economies are affected by the credit crunch. Asian economies look relatively better in terms of GDP growth as compared to other regional areas. Emerging European economies are badly hit with countries like Ukraine going to the IMF for emergency funding. The Commonwealth of Independent States are also badly affected as Russia, the main contributor of economic growth in this region, saw a plunge in the export growth of its raw materials and natural resources.

Figure 10:

Source: IMF, World Economic Outlook, October 2008

Figure 11:

Source: IMF, World Economic Outlook, October 2008

4. Slowdown in the United Kingdom

The United Kingdom is also severely affected by the global economic slowdown with a full blown recession according to HSBC’s 2009 estimates. Domestic demand is likely to fall and fears of deflation is now looming. The manufacturing sector shows a huge drop in production while unemployment is poised to rise to 8.5 percent of the total workforce. Furthermore, the bank base rate is at its lowest in 300 years at 0.5 percent.

Table 6: Economic Outlook of the United Kingdom

Economic Growth










Domestic demand





Output trends
















The Personal Sector

Disposal income





Household expenditure





Retail sales





Unemployment rate (% of workforce)





House prices (Halifax survey, q4 on q4)





International Trade

Trade in goods balance £bn





Current account balance £bn





Inflation and base rate

Consumer Prices Index





Bank base rate (at year end)






1. HSBC forecasts are as at 2nd April 2009.

2. Data and forecasts are subject to revision.

Source: Meredydd Davies, HSBC Economic Review, Spring 2009 Issue 52

5. Survey and interview results of Chief Finance Officers of the FTSE 100 on the economy

Figure 12 shows the results of a survey and interview from Deloitte CFO Survey shows that most CFOs believe the economy will partially recover in the second half of next year. However, this recovery will be gradual and coupled with tight credit lending policies from banks. This implies that economic activity would take a longer time to return to pre-crisis levels and that the credit crunch is far from over.

Figure 12: Interview and Survey Results of Chief Finance Officers of FTSE 100

Source: Deloitte CFO Survey (July 14, 2009)

Social and Environmental Factors

The social and environmental factors are concerned with the world or local population’s characteristics and the natural environment they are subjected to.

Key areas

  • Population data
  • Aging population
  • Distribution of the world’s illiterate population
  • Global warming and going green

1. Population data

The world’s population is expected to increase to around 6.5 billion compared to 6.1 billion in 2000 (Hitt, Ireland & Hokisson, 2005). In terms quantity, China and India alone would make up roughly a third of the world’s population and thereby making them the largest markets for financial services (Refer Figure 13).

Figure 13: World’s 10 Largest Countries in Population

Source: Population Reference Bureau, 2007. 2007 World Population Data Sheet. [Online]. Available at: http://www.prb.org/pdf07/07WPDS_Eng.pdf [Accessed 19 June 2008]

2. Aging population

Even though world population is projected to increase to 9.2 billion in 2050, Peter F. Drucker (2002) also wrote on how the next society would face a rapid growth in the older population and a decline in birth rates in developed countries like the Germany, and Japan (see table 7, table 8 and Figure 14). According to the Guardian (21 July, 2009), the world is about to cross a demographic landmark with the global population of 65 and over is set to outnumber children under five.

Table 7: Countries with the Highest and Lowest Life Expectancy

Highest Country


Lowest Country




































Central African Republic










New Zealand








Source: Population Reference Bureau, 2007. 2007 World Population Data Sheet. [Online]. Available at: http://www.prb.org/pdf07/07WPDS_Eng.pdf [Accessed 19 June 2008]

Table 8: Population Aging Is Occurring Worldwide.

Year 2007

Year 2025

Year 2050





Industrialized Countries




Developing Countries








North America








Latin America & Caribbean












*Percent of Persons Ages 65 and Older

Source: Population Reference Bureau, 2007. 2007 World Population Data Sheet. [Online].  Available at: http://www.prb.org/pdf07/07WPDS_Eng.pdf [Accessed 19 June 2008]

Figure 14: Life expectance in years for persons born in 2001

Source: Diana Kendali, 2007, Sociology in Our Times: The Essentials, 6th ed. Thomson Wadsworth, p.237.

  1. 1. Distribution of the world’s illiterate population

South Asia, East Asia and the Pacific contain the highest distribution of illiterate population age fifteen and older. These regions alone contain more than 68 percent of the world’s illiterate population. As countries like India and China continue to grow at unprecedented rates, it is likely that higher education would become increasingly crucial in these two countries.

Figure 15: Distribution of the world’s illiterate population, age fifteen and older, by region.

Source: Diana Kendali, 2007, Sociology in Our Times: The Essentials, 6th ed. Thomson Wadsworth, p.237.

  1. 1. Global warming and going green

Global warming and going green campaigns have elevated the environmental awareness of many individuals. Corporations around the world are taking steps to cut carbon emission and to advertise their efforts on being a social and environmentally friendly company. Among some of the key companies known to be environmental friendly are seen in Table 9.

Table 9: Top Ten Environmental Friendly Companies

1. Royal Bank of Canada
  • Wind, biogas, biomass
  • Audits environmental practices
2. LaFarge
  • Wind, biomass
3. Grupo Ferrovial
  • Cut greenhouse gas, recycling
4. Westpac Banking
  • Cut greenhouse gas
5. Yell Group
  • Recycling (award)
  • Lead, mercury
7. TOPPAN Printing
  • Toxic chemicals
8. Hewlett-Packard
  • Recycling high tech trash
9. Adidas
  • X non-biodegradable plastic
10. Vestas Wind Systems
  • Renewable energy

Source: Newsweek, 2003

Technological Achievements

The last segment, the technological factors, refers to inventions or innovations from applied science or engineering research. The accuracy of the Moore’s Law, whereby the increase in computing power comes along with a decrease in cost every year, has enabled the financial industry to serve more customers and provide a wider range of services with the same number of employees. However, this has greatly reduced the barriers to entry in the banking industry. See appendix for the impacts of information technology on the banking industry using Porter’s five forces.

Key Areas

  • Competitive Rivalry
  • Barriers to Entry
  • Threat of Substitutes
  • Bargaining Power of Depositors
  • Bargaining Power of Consumers

Figure 16: Impact of Technology on the Banking Industry

1. Competitive rivalry

Increase in computing power and decrease in cost has greatly affected the banking industry by lowering the cost of processing banking transactions and at the same time making it profitable to introduce new financial services (credit cards and internet banking). Modern telecommunications eliminate geographical distance as a factor and increase the direct contact between firms in the banking industry. Foreign and local banks now tend to compete more directly with one another over the same group of consumers.

2. Threat of new entrants

Advances in information technology have significantly reduced the barriers to entry in the banking industry. Due to the adoption of Internet banking, distribution channels are now not limited to traditional branch networks. Prospective customers all over the world could access the internet and search for banks offering the highest interest rates or services with the best features. Furthermore, new banks will also be able to compete by using IT to reduce their cost and extend their distribution channels. Another factor that lowers the barrier to entry would be the low switching cost, for example, the transfer of credit card balances from one bank to another.

3. Threat of substitutes

In terms of threat of substitutes, the banking industry faces an increasing number of substitutes even though deregulation has brought massive mergers and acquisition. This is mainly because of the ability of modern telecommunications to eliminate distance that often hindered foreign banks with no branch networks in local markets. Furthermore, deregulation and IT have enabled non-bank financial institutions like mutual funds and insurance companies to tap into the traditional customers of banking institutions, thus increasing competition in the banking industry.

4. Bargaining power of depositors and consumers

Generally, IT has increased the bargaining power of both depositors and consumers. The emergence of telebanking and online banking has empowered both parties. Depositors can quickly use the internet to determine which bank is offering the highest interest rate and deposit their money there, while consumers do the opposite (lowest interest rate) in searching for loans. Therefore, price sensitivity in the industry has increased together with the number of substitutes available for both depositors and consumers.

Appendix 3 – SWOT Analysis


1. Relatively well-capitalised

Despite the recent turmoil in the financial markets, HSBC has emerged as one of the few British financial institutions that is relatively well-capitalised. The bank has also won the best bank award of the year (The Times, 10 July 2009). In comparison, both the Royal Bank of Scotland and Lloyds TSB has been either nationalised or partly nationalised.  According to HSBC’s annual report in 2008, the banking group have still managed to remain profitable with a consolidated net profit of £3,441 million. This increase in consolidated profit from £3,209 million in 2007 is due to the increase in net interest income by 53 percent.

2. First Direct

Big financial organizations are for the first time being compelled to publish complaint numbers to the Financial Services Authority (FSA) to reveal the best and worst financial organizations in the industry (The Times, 10 July 2009). First Direct, a  member of the HSBC Group, was revealed as the one of the best bank in terms of customer satisfaction as a provider of current accounts, savings accounts and mortgages. As a part of HSBC Group, this achievement is a boast to the overall reputation of HSBC. HSBC can capitalise on First Direct’s reputation to market other financial services.

Table 10

Customer Satisfaction
Best Worst
Current Accounts

First Direct


Co-operative Bank


Clydesdale Bank

Savings Account
Co-operative Bank

First Direct




First Direct Barclays



Credit Cards
John Lewis/Waitrose




First Direct

Co-operative Bank


Yorkshire Building Society





Northern Rock

Source: Financial Services Authority

Figure 17

Source: Financial Services Authority

  1. 1. Global bank

Befitting its motto of being the ‘world’s local bank’, HSBC operates across all seven continents in the world. The group divides its activities into 3 main geographical segments (UK, Continental Europe and the Rest of the World). Domestically, HSBC has 1,430 branches in the United Kingdom and 14 branches in the Isle of Man and the Channel Islands. HSBC also have a long standing relationship with China that dates back more than 140 years. Being a global bank, it is easier for HSBC to shift major operating activities into regions that are less affected by the US sub-prime mortgage crisis and also reduce overall exposure to a particular geographical region.

Table 11

Global Banking Network
Branches Subsidiaries (Branches and Offices)
Belgium Armenia
The Czech Republic The Channel Islands
France The Czech Republic
Greece France
The Hong Kong Special Administrative Region Georgia
Ireland Germany
Israel Greece
Italy The Hong Kong Administrative Region
The Netherlands Hungary
Slovakia Ireland
Spain Kazakhstan
Representative Offices Malta
Ukraine Poland
Venezuela Russia
South Africa

Source: HSBC, Annual Report, 2008


1. Capital write downs

Like almost every other bank in the financial services industry, HSBC suffered huge losses due to the collapse of the US sub-prime mortgage markets. By July 2008, the sub-prime mortgage crisis has already wiped out US$ 403 billion worldwide. HSBC Holdings saw US$19.5 billion of write downs while only raising US$3.5 billion of capital. Although many banks have indeed managed to obtain positive results in 2009, these profits were generate by one-time gains and discontinued operations.

According to the Economist, 25th July 2009, Bank of America’s US$ 3.2 billion profit was mainly because of selling a part of its stake in China Construction Bank, while Citigroup’s US$ 4.3 billion was because of the spin-off of its Smith Barney unit. Profits generate from discontinued operations are not sustainable and it is likely that these gains would not be repeated in the next financial year.

Table 12: Write downs and Capital Injections (US$ billions)

Loss Capital
Worldwide 403.1 322.5
Americas 178 158.8
Europe 203.9 147.2



Merrill Lynch

HSBC Holdings

IKB Deutsche industry













Bank of America 16.0 20.7
Royal Bank of Scotland 15.5 24.4
Morgan Stanley 14.4 5.6
Credit Suisse 9.8 1.5
Washington Mutual 9.3 12.1
JP Morgan

Lehman Brothers





Deutsche Bank 7.8 3.2
Wachovia 7.4 10.5

Source: Bloomberg, cited from The Star, 2008.Flip-flop in US financial leadership, Starbiz, The Star Newspaper, 4th July 2008, p.B5.

2. Loss of trust

The collapse of Northern Rock (the first bank run in the UK in 140 years) can be linked to its over-reliance on the wholesale markets and securitisation to finance its operations instead of the traditional method of funding by taking customer deposits. Lehman Brothers, the fourth largest US investment bank, on the other hand, had a very high gearing ratio with about US$113billion bonds outstanding. Lehman was also involved in highly leveraged investment by using collateral from trading partners as their own collateral to borrow more money to buy highly risky securities such as credit default swaps.

Both the collapse of Northern Rock and Lehman Brothers brought to light some of the mismanagement and disregard of fiduciary responsibility of banks worldwide. Many people are now questioning on how safe their money is in the bank if financial institutions gamble in the financial markets instead of sticking to the traditional banking business model. HSBC has also seen huge write downs and has loss a good deal of the public’s trust as a financial institution. Although the loss of trust is widespread in the financial industry, this factor remains an internal weakness to be dealt with.

3. Low employee morale

As banks start to shed a huge portion of their staff in an effort to downsize into profits, employee morale have dropped to a very low point. Many bank staffs now fear or either being made redundant of retrenched. This has cause a severe drop in the performance of banking personnel and increased the uncertainty of job security. Low employee morale would likely cause customers to receive lower quality in terms of services. Furthermore, uncommitted banking personnel would hamper the effectiveness of the implementation of new marketing strategies.


1. Joint ventures, mergers and acquisitions

Although the global economic downturn is a grave threat to the banking industry in general, some financial institutions that do not require government bailout may still be able to turn it into an opportunity. The recent acquisition of Bear Sterns by JPMorgan is a good example of this as the 85 year old investment bank was acquired for a very low cost. Bear Sterns according to executives of JPMorgan is expected to add up to $1.5 billion in earnings over time. Besides that, the acquisition of Bear Sterns comes with its prime-broking business which finances hedge funds’ trading (Economist, 22 March 2008).

HSBC has emerged relatively stronger than the other big four banks (Lloyds TSB, Royal Bank of Scotland and Barclays). This enables HSBC to be in a better position to look for firms to acquire or to joint venture with to secure market shares in profitable markets. Besides that, it is likely that the government of the United Kingdom would proceed to resell some of the banks that were bailed out in 2008. HSBC can look for profitable institutions to acquire in the coming future.

2. China and the third world

While most of the advanced economies are in are heading into recession, China and some of the third world economies are still showing positive signs of economic growth. Other countries like Singapore has rebounded from recession and has recently posted a GDP growth of 20.4 percent last quarter from the January-March period on a seasonally adjusted, annualised rate after four consecutive quarters of contraction (Financial Times, 15 July 2009).

Figure 18

Source: The Star Newspaper, IMF

Among all the countries in Asia, China stands out as the economic powerhouse of the region. The country accounts for a fifth of the world’s population, yet it consumes up to half of the world’s pork, half of its cement, a third of its steel, and over a quarter of its aluminum. China’s economy has also contracted by a lesser extend relative to other Asian countries and is now seeing its government’s fiscal stimulus effects coming into play (annualised growth was 16% according to the Economist, 25th July 2009). Table 13 shows the rapid increase of foreign direct investments into Asia before and after the 1997 financial crisis.

Table 13: FDIs into Developing Asia

FDI Inflows, US$m

% Share of FDIs into Developing Asia

% of GDP














Hong Kong














South Korea










































Source: United Nations Conference on Trade and Development (UNCTAD), CIMB/CIMB-GK Research cited in CIMB Research Report, (2008). Regional Economic Compass 2008 : Malaysia. Singapore. Indonesia. Thailand. Hong Kong. Kuala Lumpur: Xpress Multimedia Sdn. Bhd. p.31.

1. Recovery from the global recession

Some analysts have forecasted that the worst is over and that the global slump has reached its trough (Economist, 25th July 2009). With the Bank of England’s target rate of 0.5 percent, many have claimed that the economy has already reached its bottom-line and is poised to show robust growth in the coming next few months. Global trade which according to the World Bank is a about a third lower than it was a year ago (dollar value of trade) is likely to stop declining and to reverse its trend (The Economist 25th July 2009).

This is positive news to HSBC as it points out that the credit crunch may soon end. As international financial markets start to free up credit for lending, HSBC may find itself having more financial freedom to operate. However, HSBC must be wary as some analysts have also pointed out that the recent upward trend may be heavily based on demand created by government fiscal stimulus. It may be likely that the global recession is not over as fiscal stimulus is not sustainable without any underlying fundamental economic activity.


1. Global recession

Although the economy is forecasted to start recovery in the coming months, the threat of a global recession is not over. Many economic analysts are worried on the sustainability of the current positive economic trend. It is no secret that governments across the globe have been pumping money into their ailing economies to prop up domestic demand. However, government fiscal and monetary stimulus is unsustainable and budget deficits both in the United States and Europe have risen to alarming levels.

In America, efforts to cushion the drop in private spending resulted in a 12 percentage point increase in the nation’s budget deficits while it is estimated that 75% of China’s growth this year will be state-directed, either through public spending or government induced lending. Similarly, efforts to prim and pump the UK economy will likely result in the government running a deficit of 12.7 percent of GDP in the fiscal year beginning this October (HSBC, Economic Review, Spring 2009).

Figure 19

Figure 20

Source: The Star Newspaper

1. Political, legal and regulatory uncertainty

Changing regulations and guidelines in banking conduct will likely cause changes in both the structure of the financial industry and the nature of products and services being offered by financial institutions. Should Britain’s Conservative Party win the next election, we would likely see the proliferation of the Bank of England’s authority over the financial system. It is likely that the Conservative Party would give the Bank of England the responsibility of guarding the overall system’s stability and the micro supervision of individual firms (The Economist, 25th July 2009).

2. Substitutes

Threats of new entrants to the financial industry are perhaps the greatest challenge that HSBC has to face amid the loss of confidence of consumers towards the traditional banks. Sir Terry Leahy, chief executive of Tesco, has pledge to make the Tesco from a supermarket into a ‘people’s bank’. Together with Tesco is are other retailers like John Lewis, Marks and Spencer, Asda and Alliance Boots that are seeking to grab market shares of financial services by capitalising on public anger (The Financial Times, 20 July 2009).

Tesco is poised to pioneer in-store banking by providing current accounts and mortgages within the next two years. Last year, Tesco have bought out RBS’s 50 percent share in its financial services arm for £950m and has been seen hiring banking veterans, including Benny Higgins, the former RBS and HBOS executive. Supermarket chains like Tesco post the greatest threat to banks like HSBC because they have strong brand names, low operational costs, a nationwide branch network and have well-capitalised balance sheets (Financial World, July/August 2009).

Table 14: Financial services operations of leading UK retailers

Est Retail parent customers Mn Revenues £bn Number of stores Comments
Tesco Personal Finance 1997 6.0 41.5 2300 Tesco bought out RBS stake for £950m in 2008
Asda Financial Services 2003 1.2 22.5 356 Wal-Mart subsidiary
Sainsbury’s Bank 1997 1.5 19.2 792 Lloyds Bank JV
Co-operative Financial 2002 9.0 9.4 2900 Merger with Britannia BS 2009
M&S Money 1985 4.0 9.0 600 HSBC bought M&S stake for £762m 2004
Greenbee 2006 0.75 7.0 235 John Lewis Waitrose
Home Retail Group 2001 1.1 5.9 1075 Argos/Homebase

Other than supermarkets entering the financial arena, small independent banks dubbed ‘Boutique Banks’ have also been active recently. These small financial institutions are based on the belief that big banks are alienating customers (Financial Times, 15 July 2009). While these boutique banks may not be able to shake the major financial institution’s market share on current and savings account, they may compete for professional employees in the market.

Table 15: Ranking of boutique banks

Boutique banks ranked by global M&A revenue* ($m)
Lazard 311
Greenhill & Co
Houlihan Lokey Howard & Zukin 191
Evercore Partners 34
Close Brothers 26
Centerview Partners 23
Perella Weinberg Partners 20
Blackstone 19
Lexicon Partners 15

*2009 year to date

Source: Dealogic

3. Advancement in telecommunications

The rapid advancement in telecommunications is rending the branch network of banks almost completely obsolete. While internet banks like First Direct, Egg and Cahoot are rapidly gaining market share in selling financial services, other bigger multinational corporations are also making use of better communications to enter into domestic markets. An example of this would be China Merchants Bank that has just opened a new representative office in London (Financial Times, 20 July 2009). Entry into foreign markets would previously be impossible due to the lack of adequate communication lines in the past.

The internet has also made banking more convenient and price searching easier for the average consumer. Websites like moneymarket.com provide price comparisons of financial institutions and are likely to increase the price sensitivity of technologically savvy customers.

Appendix 4: Market Research


1. Gender

  • Male
  • Female

2. Please fill tick which age group would apply to you

  • 18-24
  • 25-34
  • 35-44
  • 45-54
  • 55 and above

3. Do you have an opened current account?

  • Yes
  • No

4. Which financial institution is the provider of your current account?

5. Do you have another current account with another financial institution?

  • Yes
  • No

6. If yes, please list down the names of other financial institutions that you have an opened current account with.

7. Please indicate your level of satisfaction with your main current account provider

  • 1 – very satisfied
  • 2 – satisfied
  • 3 – not very satisfied
  • 4 – absolutely not satisfied

8. What do you look for when opening a current account? (example: interest rates, overdraft, locations of branches, reputation, etc)

9. Do you use the internet to access your current account?

  • Yes
  • No

10.  Would you consider switching your current account provider to HSBC?

  • Yes
  • No
  • I am already have a HSBC current account

11.  Please elaborate on the reasons you are willing/unwilling to change your current account provider (please ignore this question if you are already have a HSBC current account)

12.  Are you likely to use other services like savings accounts, financial advice, mortgages and loans from your current account provider?

  • Yes
  • No

13.  If yes, what extra services are you likely to require from your current account provider?

14.  Please indicate your  perception/expectation towards:

HSBC Bank?

  • Excellent
  • Good
  • Average
  • Below Average

HSBC’s current accounts?

  • Excellent
  • Good
  • Average
  • Below Average

The level of service provided by HSBC’s staff?

  • Excellent
  • Good
  • Average
  • Below Average

Thank you for your time.

Appendix 5: Marketing Strategies

BCG Matrix

The BCG Matrix was developed by the Boston Consulting Group in the early 1970s as a model to help big corporations manage a portfolio of different business units (or major product lines). The matrix treats the business unit/product line as an autonomous division to determine their distinctive characteristics and business needs. Each business unit/product line is measured by its market share and market growth.

1. Cash Cows

Cash cows are business units/product lines with a relatively high market share in a low growth industry. These business units/product lines generate surplus cash and are the profit generating arm of the company. Cash cows are normally stars that have been fully nurtured (through investment research and marketing) by the company. However, how long cash cows would remain profitable is uncertain and a divestiture is needed should the company feel that a cash cow is at its declining stage.

2. Stars

Stars are business units/product lines that offer the best long-run opportunity for growth and profitability in a company. These business units/product lines have a high portion of market share and operate in a market with high industry growth rates. Stars should be developed into cash cows by receiving substantial investment in research and marketing.

HSBC’s current account is in the star position because of the high market growth rate and also its high market share. HSBC has around 14 percent of the UK current account market share. While it is behind the other Big Four banks of the UK, HSBC operates the lowest number of branches. This means that HSBC is able to grab a larger portion of market share at a lower operating cost.

3. Question Marks

Question marks on the other hand have a relatively low market share while operating in a market with high growth. The cash needs of question marks are high but their ability to generate cash is low. A company can choose to strengthen these business units/product lines through market penetration, market development and product development.

4. Dogs

Dogs are a burden to the company as they have a low market share while operating in a low growth industry. Being weak both internally and externally, dogs should either be liquidated or divested unless this business unit/product line has synergistic qualities that the company can capitalise from. Other than that, some futuristic innovative products must take time before consumers are willing to adopt them.

Ansoff Matrix

The Ansoff Matrix was developed by Igor Ansoff that focuses on the organisation’s present and potential products and markets. This matrix helps the organisation consider different alternatives between developing existing of new products in existing or new markets.

1. Market Penetration

The market penetration strategy is implemented when an organization seeks to increase market share of its current products/services. This strategy is the least risky as the organization is already equipped with the experiences, capabilities and resources to market and support its products/services. If the market is a high growth market, simply maintaining market share would suffice. However, as the market reaches the saturation stage, a new strategy must be implemented. HSBC is able to use this strategy to gain market share from competitors that have lost confidence in banks that have failed in the recent sub-prime mortgage crisis.

2. Market Development

Market development is a strategy used to obtain growth by targeting new markets with existing products. New markets may include new market segments or new geographical regions. This strategy is good for organisations with products/services that are suitable for different target markets. Due to the organisation moving into a completely new market, market development is considered more risky than market penetration. China and India holds the biggest current account market that HSBC needs to implement the market development strategy. As the economic slowdown in these two countries is not as severe as in the advanced economies, HSBC may find it more profitable to concentrate resources to gain a better foothold in Asia.

3. Product Development

The product development strategy requires the organisation to develop new products for existing market segments. This strategy is suitable for organisations that have a good understanding of their customer’s needs and wants. Existing products/services can be used as a platform for cross selling new products tailored to a specific customer base. As with market development, product development carries more risk than market penetration. HSBC could use this strategy by developing a new prepaid card product that O2 has launched recently together with its current account. The new prepaid card would signal a change in the psychology of spending among customers and would likely portray HSBC as a more responsible financial institution that does not just encourage people to spend.

4. Diversification

Diversification is the strategy of diversifying into a completely new business by developing new products for new markets. Due to the uncertainty of untested products and potentially hostile new markets, diversification is the most risky strategy of the Ansoff matrix. Furthermore, the company may be trying to develop products and markets beyond the core competencies of the organisation. However, innovative products hold the highest potential for highest returns. This strategy is particularly useful should the organisation have the first mover advantage in entering the market. Diversification would not be a suitable strategy for HSBC in times when capital is tight and economic activity is deteriorating. Furthermore, new products in Asian markets are known to not perform well in the early years of development.

Porter’s Generic

Michael Porter argues that a firm’s strength is dependent on mainly two factors, namely, cost advantages and differentiation. When these two factors are split between a broad and narrow scope of the market, the three generic strategies emerge are cost leadership, differentiation and focus strategies.

Target Scope Advantages
Low Cost Product Uniqueness
Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy
Narrow (Market Segment) Focus Strategy (Low Cost) Focus Differentiation Strategy

1.Cost Leadership

The cost leadership strategy calls for the organisation to be a low cost producer of a product/service. The firm can then chose to either sell average market prices for profit or below average in an effort to gain market share. The goal is to be able to provide a good or service at a price below that of competitors. The cost leadership strategy usually targets a broad consumer market. Among ways to implement this strategy is to be able to acquire lower cost materials, outsourcing and vertical integration to reduce the overhead of the company while improving distribution efficiency.

According to quickmba.com, firms that successfully implement the cost leadership strategy usually have the following strengths:

  • Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome.
  • Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.
  • High level of expertise in manufacturing process engineering.
  • Efficient distribution channels.

The risk of the cost leadership strategy includes the development of technology that enables other companies to produce their goods/services at a lower cost or even to leapfrog obsolete production techniques. Furthermore, other organisations that target market niches may be able to provide their products/services at a cheaper cost with better quality.

This strategy is becoming increasingly hard to maintain for HSBC. With internet banks that operate without a branch network, it is hard to see how traditional brick and mortar banks like HSBC are able to compete in terms of cost. However, as a big multinational bank, HSBC would still be able to gain advantage from economies of scale and scope to help lower its overall operating cost.

2. Differentiation

The differentiation strategy requires the organisation to develop products/services that are able to deliver unique attributes valued highly by customers. Value added uniqueness of the product/service would enable the organisation to charge a premium against competitors. By using this strategy, the organisation would be able to charge a higher price with the knowledge that substitutes to its products are not easily available.

According to quickmba.com, firms that have successfully implemented the differentiation strategy usually have the following strengths:

  • Access to leading scientific research.
  • Highly skilled and creative product development team.
  • Strong sales team with the ability to successfully communicate the perceived strengths of the product.
  • Corporate reputation for quality and innovation.

The risk to this strategy is that other companies may be able to imitate the unique characteristics of the products/services offered by the organisation and sell them at a lower cost. Additionally, other organisations that serve a smaller market niche may be able to tailor make products/services that better cater for their respective market segments.

HSBC is able to utilise this strategy though developing and providing the new prepaid card along with its current accounts. As the prepaid card concept was recently launched by O2, many banks have yet to adopt it. This means that by providing prepaid cards along with its current account, HSBC is able to gain a short term differentiation advantage.

3. Focus

The focus strategy requires the organisation to concentrate on a narrow segment niche market within the market in order to achieve a cost advantage or a differentiation advantage over competitors. The rationale is that an organisation can provide better products/services to a particular market niche by focusing entirely on it. Organisations that are successful in focus strategies normally enjoy a high level of customer loyalty and rely heavily on relationship marketing.

Due to a very narrow market focus, organisations pursuing focus strategies have lower sales volumes but potentially high rates of profitability due to the uniqueness and value added characteristics of their products. Risk of focus strategies includes imitations, changes in market niches and new innovative products and services.

HSBC is already utilising this strategy through its HSBC Premier account. These accounts are set up for high net worth customers and they come with a relationship manager to help premier customers handle their banking transactions.


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