HSBC at 150

16 10 2015

The archivists of the HSBC group have produced a wonderful series of videos to commemorate the 150th anniversary of the bank. These videos are aimed at a variety of external stakeholders as well as the bank’s worldwide workforce. As someone who has published academic research on HSBC’s history, I was really impressed by the way in which these videos strike the right balance between accessibility to the general public and the display of detailed historical knowledge.

HSBC’s investment in these high-quality videos was obviously substantial, which means that the bank’s senior managers see the firm’s long history as a strategic asset. As I looked at these videos, I was reminded of the paper by Suddaby, Foster, and Trank (2010) that demonstrated that “rhetorical history” can be an important source of competitive advantage for firms because rhetorical history is often inimitable. If Bank X attracts customers by lengthening its hours of service, it is pretty easy for Bank Y to do the same. Bank X is then back to square one. To be sustainable, a firm’s source of competitive advantage needs to be something that is difficult to copy. An old bank that uses its heritage is marketing has an important competitive advantage that newer rivals necessarily lack.

It is worthwhile pausing to think about the implications of this insight for banking strategy in the face of rapid technological change. The core function of any bank is financial intermediation. A great deal has recently been written by academic and popular authors about how new technologies have the potential to increase the competitive pressures on banks by allowing borrowers and lenders to cut out the middleman. Think of P2P lending. There is even a weekly podcast called Breaking Banks on the subject. Some authors suggest that disintermediation will soon destroy banking as we know out or at the very least reshape the entire financial system. It is true that banks have certain fixed costs that their nimbler, online-only peers don’t have. However, old banks such as HSBC have a key advantage in the fact they have a long history they can point to in their communications with depositors, employees, regulators, and other stakeholders.

Anyone who wishes to learn more about the recent history of the bank should read The Lion Wakes: A Modern History of HSBC by David Kynaston and Richard Roberts.

Suddaby, R., Foster, W. M., & Trank, C. Q. (2010). Rhetorical history as a source of competitive advantage. Advances in Strategic Management, 27, 147-173.

Is Globalization Slowing Down? Is Banking Experiencing Deglobalization? Is the Perceived Relative Decline of the United States to Blame?

20 04 2015

There is some evidence that globalization has slowed down since the Global Financial Crisis. One way of measuring globalization is to compare the growth of global trade to growth in the world economy in general. By that measure, the rate of globalization definitely appears to be slowing. According to a recent article in the FT, in three decades before the 2008 financial crisis, global trade regularly grew at twice the rate of the global economy.”With last year’s growth of 2.8 per cent, global trade has now expanded at, or below, the rate of the broader global economy for three straight years.”

In the last year or so, the term “deglobalization” has been on everyone’s lips (see here, here, and here). I get the impression the word was used frequently at the 2015 World Economic Forum meeting (see here and here). This discourse of deglobalization can also be seen in the Wall Street Journal and the other publications read by senior corporate managers. In The System WorkedDan Drezner has argued that we haven’t seen any deglobalization.  My own view is that while the global trade data suggests that while we haven’t witnessed any actual deglobalization, the process is decelerating dramatically.  Recent news out of the banking sector provides some evidence of deglobalization: HSBC is retreating from key emerging markets: the “world’s local bank” has decided it will no longer provide retailing banking service in Turkey and Brazil, two important countries.  See here, here, and here.

As I read the press reports about HSBC’s exit from emerging markets, I noticed the frequency of references to political factors in influencing the change in the bank’s strategy. As a business historian who is interested in globalization, I’ve long believed that the changing political institutions are incredibly important as drivers of the various waves of globalization and de-globalization the world economy has experienced over the last few hundred years.  I’m particularly sympathetic to the view that rapid globalization requires a strong global hegemon, which means that globalization is most likely to take place in a world dominated by a single superpower capable of providing global public goods such as international stability. We had such a superpower for almost a century after Napoleon’s defeat in 1815 (it was the British Empire). Banks and other firms made their strategies accordingly. Britain’s status as the first of the great powers was challenged in the early 20th century by rising great powers like Germany and the world experienced de-globalization, largely because of the reluctance of the interwar US to step into the shoes of the British Empire. International firms still made money, but they had to adjust their strategies to the new geopolitical landscape. Globalization did not resume until the post-1945 period, when the United States began to perform many of the functions  that had the previous liberal capitalist global hegemon, the British Empire, had discharged (Kindleberger, 1986 and Gilpin, 2011, 94-95).

Recent years have seen the accumulation of evidence of American relative decline. I don’t know if we are really in a post-American world, but the unipolar system that underpinned rapid globalization in the 1990s no longer exists. Perhaps the Obama’s administration’s foreign policy has contributed to the perception of American weakness. Such perceptions, accurate or not, may influence the strategies of MNEs. In any event, we now live in a world of great power rivalries that is uncannily similar to the world circa 1905. The outbreak of the First World War in August 1914 ended the first era of globalization and initiated several decades of deglobalization and de-financialization. I’m certainly not saying that great-power rivalries will continue to intensify. Nor am I saying that the expectation of intensification now informs the strategy of HSBC and other multinationals. (I simply don’t know what the senior managers of such firms think about the international system, although I would very much love to talk them about this issue!). However, I would speculate that the people who make high-level strategy in firms like HSBC expect that the world’s political systems are moving in a direction that means that a business model of providing retail banking services on every continent and in every major emerging market no longer makes sense.

Please note that I am not saying that either globalization or deglobalization are normative. I’m mainly interested here in how shifting policy environments influence the strategies of multinational firms.

It’s Out! The Lion Wakes: A Modern History of HSBC

10 03 2015

The Lion Wakes: A Modern History of HSBC by David Kynaston and Richard Roberts was published a few days ago. This book has been eagerly anticipated by a number of historians.

The Lion Wakes tells the modern story of HSBC, starting in the late 1970s, when the bank first broke out of the Asia-Pacific region with its purchase of Marine Midland Bank in the US. It follows HSBC’s battle to purchase Midland Bank in1992, the subsequent move of head office from Hong Kong to London, and the string of acquisitions that brought the bank to its pre-eminent place in global finance today. Acclaimed historians Richard Roberts and David Kynaston chronicle the bank’s struggles as well as its successes: the last part of the book deals with the ill-fated move into consumer finance in the US, as well as the financial crisis of 2008 and its effect on HSBC. Impeccably researched and generously illustrated from the HSBC archives, this is a valuable addition to global financial history.

At least one review has already been published. Given that HSBC has been in the news a fair bit recently, I’m certain that this book will be a publishing success!

David Kynaston is a critically acclaimed historian and author, and the recipient of a Spear’s Book Award for his lifetime achievement as a British historian. His books include a three volume history of postwar Britain; Austerity Britain (longlisted for The Orwell Prize), Family Britainand Modernity Britain (longlisted for the Samuel Johnson Prize), which has sold 150,000 copies, as well as a four-volume history of the City of London, and the centenary history of the Financial Times. Richard Roberts, a professor at King’s College London, is the author of studies of Schroders, Equitable Life, Orion, and the financial crisis of 1914.