Hong Kong and Shanghai Banking Corporation

Introduction 

The Hong Kong and Shanghai Banking Corporation better known by its acronym HSBC are a multinational banking and financial service provider. The formation of the bank dates back to the nineteenth century in the British Hong Kong. The founder of the bank is Thomas Sutherland. Over the years, the bank has witnessed significant growth from the British Hong Kong to opening up of branches and offices in over seventy countries worldwide. The company has over two hundred and thirty-five thousand workers on its payroll making it one of the biggest business conglomerates in the World. According to Forbes magazine (2014), it is the world's sixth largest public company. 

Level of Uncertainty 

The banking sector is one of the most vital sectors of any given economy. It stores the money, loans out money to their clients who need loans and also provide financial advice to their clientele as well. With their vast networks in different sectors, banks can come up with a comprehensive picture of the economy. HSBC is not left behind. The banking sector is the center of the economy; the bank bears all the brunt of uncertainty which in business is one of the turnoffs to investors or clients willing to invest. Sometimes, HSBC issues some loans which are unsecured. Such loans bring about the uncertainty of whether the customers will pay or not (Buch, Buchholz and Tonzer, 2014). 

The venturing of the bank into the real estate sector creates another avenue of risk. The issuing of mortgages to disaster-prone areas increases the uncertainty levels in HSBC. When a client receives a mortgage and then disaster strikes such as the recent hurricanes in the Pacific and the state of Florida, the mortgage holders are unable to settle their loans. The bank seizes the "houses," from the loan defaulters but the "houses" have already between swept away by the hurricanes (Buch, Buchholz and Tonzer, 2014). 

There is also an uncertainty of the evolution of the sector. In the 1900s, the banking sectors made use of papers and banking halls. In the 2000s, banks started using credit cards and automated teller machines whereby one could access their money conveniently. In the mid-2000s, there was the coming up of the mobile and internet banking. This kind of banking has simplified banking and brought it closer to the people. One can deposit, withdraw or send money to any individual at any time at the touch of a button (Buch, Buchholz and Tonzer, 2014). 

With such rapid changes in play, HSBC cannot invest all its resources in one type of technology. Some instances, the bank has had to let go off some of their banking halls for the human traffic in the banking halls is minimal. The use of ATMs has reduced since most of their clients are using mobile and internet banking. Most stores have online payment options which are making cash payments a thing of the past (Buch, Buchholz and Tonzer, 2014). 

Competitive Forces 

There are five main types of competitive forces as outlined by Porter. They include competitive rivalry, supplier power, and buyer power, the threat of substitution and threat of new entry. Firstly, the competitive rivalry is one of the greatest competitive force in the banking sector. Banking, being at the core of any economy, has a lot of players. These players try to outdo each other so that the stronger one can have the lion's share of the cake. HSBC faces stiff competition from the Bank of America, Santander, Barclays Bank, Standard Chartered, among the other leading banks in the world. With such competition in place, HSBC tends to provide cheap services to attract more customers (Porter, 1979). 

HSBC faces a significant threat of substitution from banks such as Citibank and Standard Chartered. With the dynamic changes taking place in the banking sector such as internet banking, one has to change rapidly to remain relevant in the industry. HSBC is unable to change as quickly as Citibank and Standard Chartered bank when it comes to internet banking. The two banks have a proper functioning internet banking sector which means their clients are more likely to be satisfied than those of HSBC. As such, HSBC faces the threat of the two banks taking their customers who prefer internet banking to the conventional banking (Porter, 1979). 

In any sector, there is always the threat of new entry. Although the banking industry is one of the sectors which have proper regulations regarding entering and leaving the area, there is always a threat of a new entrant. The new arrival in most cases has the best technologies in place. They also happen to have a lot of money to splash around making it difficult for the old players to catch. In the case of HSBC, the entrance of Santander in the European market has upset their dominance in the region. The bank has come up with better working policies that suite the European market, unlike the HSBC which is more American oriented (Porter, 1979). 

In the banking sector, the buyer power is crucial. Most banks have their target population. With this in mind, they can tailor their resources to suit the clients. The number of customers a bank can attract is crucial to their overall performance. The amount of money that the said customers can deposit or the number of loans that the clients can borrow is also significant in the overall performance of the company. The supplier power is not prominent in the HSBC banking since they mostly depend on their clients for the supply of money (Porter, 1979). 

Environmental Turbulence 

In the year 2008, the world faces one of its worst financial crises. Stock markets dropped, and the banking sector was in tatters. Since the financial crisis era, the banks are witnessing low levels of business credit. Low banking credit implies that bank has little money to lend. The withdrawal of banks from the international markets after the financial crisis led to a reduction of finance in the banks. The highlighting of turbulence of the market is by the fact that during the financial crisis, the HSBC was in a seventeen billion dollars credit crunch loss (BBC, 2008). The ever-rising unemployment creates turbulence in the sector because most people are using credit cards, but they cannot pay for their cards. The ever-changing technology also creates confusion in the area making it a very turbulent industry. In countries where there is no capping of interests, the difference in interest rates in different banks makes the market chaotic for HSBC cannot comprehensively predict what her competitors will do next. 

Reference 

BBC News (2008) HSBC in $ 17bn credit crisis loss retrieved on 1 October from http://news.bbc.co.uk/2/hi/business/7274385.stm 

Buch C., M., Buchholz M., and Tonzer L., (2014), Uncertainty and International Banking, Dutch National Bank 

Forbes (2014) The World's Biggest Public Companies retrieved on 1 October 2017 from https://www.forbes.com/global2000/list/ 

Porter M.E., (1979) Understanding Competitive Forces to Maximize Profitability. Retrieved on 1 October 2017 from https://www.mindtools.com/pages/article/newTMC_08.html