This essay sample essay on Hsbc Analysis offers an extensive list of facts and arguments related to it. The essay’s introduction, body paragraphs and the conclusion are provided below.
Every organization must interact with its internal and external environment in its day to day operations. The nature of these interactions to a great extent determines the survival of any organization. That is why every organization has to understand what is going on within and around it. These bring into focus how economic, political, legal, technological, environmental and social forces affect HSBC.
While battling with these external forces, there are other internal forces which are inherent in the banking sector that affect HSBC. In view of these, the bank has some competitive advantages which have enabled it to compete favourably with other players in the industry.
However, the tool used to scan the environment of HSBC to determine its success within the environment has some limitations. These limitations are equally x- rayed in the work.
It is a known fact that every organization must interact with is external environment during the course of their business. Economic factors are basically those factors that relate the organization of money and resources within HSBC especially in terms of the production, distribution and consumption of their financial services. This will be discussed under sub headings like GNP trends, interest rate, money supply, inflation, unemployment, disposable, income.
Gross National Product (GNP) is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad, minus income of non resident located in that country).
The UK economy grew at its fastest rate for two years in the third quarter of 2006. It grew by 0.7% between July and September. This takes the annual growth rate up to 2.8%. It will further increase following the announcement of 5% interest rate by the Bank of England.
This will make borrowing more expensive, and less attractive to investors who would refrain from borrowing for investment purposes. HSBC may probably advance less credit causing its profit to dwindle and shareholders’ earning would equally be reduced.
This is simply the total amount of money circulating in the economy (Anderton, A. 2006). In the UK, there are two types of money supply which are namely narrow and broad money with narrow money acting as a medium of exchange while broad is narrow plus near monies. Money supply is important because it has a link with inflation. This is illustrated as Velocity * Money supply = real GNP * GNP deflator.
In other words, if the quantity of money in circulation grows faster than the real GNP described as unproductive expansion, inflation is most likely to follow. It will affect HSBC because lending becomes very expensive. The bank will lose earnings because activities will be reduced.
Interest rate is the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned. This rate has enormous consequences on the activities of HSBC. In July 2006, the interest rate was 4.5%, 4.75% in august and now 5.0%. This caused inflation to edge up to 2.5% as against 2.4% in the months before august. The rate at which customers acquired banking services improved tremendously.
It is obvious that a fall in the interest rate leads to an increase in investment expenditure whereas a rise in the interest rate leads to a decrease in investment expenditure. This is the direct consequence of the current 5.0% regime.
HSBC earnings will be affected because borrowing for investment expenditure will definitely decline. It will choke off economic growth; increase the cost of debt, causing widespread problems for individual. People will overestimate risky investment and reassess risk. The beneficiaries will be savers. Thus, cause people to save.
This is the rate at which a country’s currency exchanges with other currencies in the world. The GBP has been relatively stable against the dollar. Exchange rate depreciation does affect HSBC directly or indirectly. It can affect the structure of HSBC assets and liabilities denominated in foreign currencies, and its off balance sheet exposure and non asset based services.
It can indirectly affect demand for loans, the extent of the bank’s competitive edge and other banking condition. It can affect domestic firms, increase credit risk and liquidity risk.
Inflation and unemployment
Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole. Inflationary trends and unemployment do affect HSBC negatively.
This is a body of laws, administrative rulings, and precedents which addresses the legal rights of, and restrictions on workers and their organizations. In employment laws, there are issues that affect the smooth operational running of HSBC. These are namely strikes, pickets, boycotts, unofficial industrial actions, trade unions and other members. Their overall effect could be enormous on HSBC and the economy in general.
Wages paid out is part of operational cost of HSBC. Recently, the minimum wage in the UK was increased from ï¿½5.05 to ï¿½5.35 for adults aged 22 and over. It equally increased for other age categories. The consequences are that the operational cost will be on the increase, efficiency may probably reduce, and the net profit of the bank will decline. This will affect the expectations of the shareholders as dividends will drop
On the other hand, employees will have more money for their consumption. It will further cause the country’s productivity level to move up as more goods will be needed.
Work and families bill
This bill will be birthed soon. It concerns balancing work and good parentage. The law will make it lawful for maternity leave to be extended to nine months. In addition, paternity leave will soon be a reality. It means HSBC will be paying out extra three months salaries for mothers on maternity leave. This extra expenditure is unproductive and reduces HSBC efficiency.
The current issue now is age discrimination at work. The bank can not discriminate on age with regard to employment. It is most true that younger people are more productive, proactive, dynamic and resourceful than older people. This law will cause the bank to employ both young and old people. The effect might be that zeal. Dynamism, and approach to work which have established the bank as a leader in Uk may be eroded.
The most contemporary issue is the warming issued by HSBC that it could move its headquarters out of London as a result of huge corporation tax which is at 30% of profit. This is high and outrageous. The percentage compares favourably with other G7 nations e.g. France 34%, Japan 40% but not with other Europeans countries like Ireland at 12.5%.
The tax reduces the profits of HSBC. The investors, shareholders of the bank receive lower dividend as a result of the tax. If HSBC pulls out of the UK, which generated which is committed to social services will decline. Moreover, investment will probably be discouraged because investors want ventures where their investment will be maximized.
Taxation raises the bank’s cost of loans which discourage entrepreneurs away from information intensive financing and into unmonitored financing. It reduces the supply of deposits.
In banking and financial markets, the technologies have primarily affected the velocity and volume of transactions. Both domestic and foreign transfers and other banking services have surged and the rate at which they are done has increased. This is as a result of emerging technology advances. In online transactions, where one makes a payment using debit and credits, it takes about 48 hours for the payment to be cleared. But, from January 2007, an emerging technology will complete the clearance in just minutes.
Government involvement in researches to further develop the sector is another issue. One of the distinct differences between technological innovation in the UK financial service industry and that in foreign nations is the level of government subsidy of technical developments that affect the financial service industry. For example, the smart card, the applications and functions was developed by the French Ministry of Post and Telecommunications (PTT). The government of UK should be more participative.
The sector does not encourage obsoleteness due to the nature of the industry combined with the activities of hackers who are out there to ruin the banks.
The banks’ waste disposal and energy consumption contributing to environmental hazards is under control. Their position is threatened by the green law which is in force. Environmental laws affect the bank. Income distribution contributes to the services to be offered by the bank. Higher income redistribution will ensure better businesses and vice versa.
The age, income, sex and population has a way of affecting the activities of HSBC. The level of education or enlightenment informs people about the products and services of banks. The level will affect their willingness to transact or not to transact.
This describes the intensity of competition between existing firms in an industry. It is true that highly competitive industries generally earn low returns because the cost of competition is high. In the banking industry which is the focus of discussion, competition brings about HSBC offering customers the most attractive combination of performance features, introducing new products, or creating a stronger brand image than competitors like Barclays, TSB Lloyds, RBS, and NatWest etc.
The industry is not dominated by two or three banks that are battling to achieve market leader status, and the rules of the game are well established. In this case, the rivalry is not so intense. However, Customers can easily switch between some products. Intense rivalry is likely when customers in the banking industry can easily switch to other banks. In these situations, the banks will be vying for market share.
The market for banks is not growing too fast. The banks are unable to grow their market without taking market away from other competing banks. In this situation, rivalry is more likely.
There is no exit barrier in the industry which will make rivalry intense. The brand identity brings about intense rivalry as other competing banks will be forced to outperform their rivals by adopting active strategies. Their products are basically the homogenous. This will most likely make rivalry intense.