Analysis of HR implications

The Hong Kong and Shanghai Banking Corporation (HSBC) was founded in the year 1865 for financing trade between Asia and the Western countries. It has been more than 150 years since its foundation and today it boasts of almost 40 million customers all across the globe spanning 66 territories and countries (About.hsbc.com.cn, 2018). Founded by Sir Thomas Sutherland, the company is now led by John Flint who was appointed as the Group chief Executive in February this year. The company is headquartered in London and has close to 3,800 offices around the world.

The multinational company did not take much time in expanding its business in other parts of the world after analyzing the flow of commerce. It expanded to Yokohama in 1866, Kolkata in 1867, Ho Chi Minh City in 1870 and Manila in 1875 initially (About.hsbc.com.cn, 2018). Within three decades of its formation, HSBC had expanded to 16 countries with focus on financing trade throughout the globe. The chief expansion strategy of the company was through mergers and acquisitions, as many analysts believe. In 1992, the company had acquired UK’s Midland Bank thus making a move out of Hong Kong. Then in 2004, the company made one of its biggest expansions in China. It bought a stake of 1.7 billion dollars in the Bank of Communications, China’s fifth largest bank (About.hsbc.com.cn, 2018).

Franchising refers to a type of business that allows the owner of franchisor of any product or service to attain distribution through allied dealers or franchisees (Nijmeijer, Fabbricotti and Huijsman 2014). Franchising is often adopted by businesses as an expansion strategy that assures minimum risk. The business or the franchisor gives the franchisee the right to use its intellectual property, it business model and brand.

In franchising, the Human Resource department plays a crucial role especially in the growth of the business. The franchisees have to address various HR considerations including employee leave, compliance amongst other things. The risks involved in managing the franchise influence not only the franchisor but also the franchisee as well. It is therefore important to consider the HR implications prior to staring the franchise. Often, many franchisees tend to overlook HR function and let the issues of employment be out of control. Apart from that, other HR implications on franchising include:

• Employee leaves
• Paid sick leaves
• Recruiting and training
• Performance management
• Safety at the workplace

Multinational companies face similar or even more difficulties while expanding through franchising than do the local companies. Identifying and ensuring the right franchise partner and then taking care of all the areas, as recruiting staff, training them and so on requires extreme patience and expertise. The lack of a strong HR team could result in the complete failure of the franchise and the company overall.

The expansion strategy of a multinational corporation also involves Mergers and Acquisitions (M&A), which is one of the most successful strategies for the business. Mergers and Acquisitions or in short M&A, is a term used to define the process of “consolidation of companies or assets through various types of financial transactions” (Bena and Li 2014). While in a merger, the directors of two companies seek approval from the shareholders and then approve the combination. When the merger is done, the company that has been acquired does not exist anymore and works under the acquiring company. Acquisition, on the other hand, does not involve complete takeover rather, the acquiring company attains majority of the stake with the acquired company’s name and legal structure being the same.

Franchising

M&A, as Gomes et al. (2013) state, help a business achieve organizational goals, specifically that of expanding into other markets. The strategy helps MNCs in particular to acquire companies in places where they wish to expand their business. It has a deep influence on the employees of the company at each level as two companies incorporate into one. It has however been observed that in majority of cases, M&A fail to achieve the targets set by the organizations. One of the chief reasons for this is the failure of the HR department to manage operations. Incompatible cultures, poor motivation, style of management, communication problems, loss of talent and so on are some of the HR-related factors that result in M&A failure.

The three-stage model of M&A further brings to light the implications of this strategy on HR. the three stages are (Rottig 2013):

Pre-combination – In this stage, the basic HR issues that HSBC confronts include:

• Dissemination of knowledge and understanding
• Placing of leadership
• Team composition that influences success
• Methodical and extensive pre-selection and selection are vital
• Conducting extensive diligence in all areas is crucial
• Cultural assessment
• Prior combination planning reduces later issues
• Forming practices for transfer of learning and transfer

Combination – The HR implications at this stage are:

• Selection of appropriate candidate
• Team design creation and selection are vital for combination and transition process
• Communicating is important
• Decision to be taken on who leaves and who stays
• Forming a new structure, culture and HR practices and policies is important

Solidification and Assessment of the New Entry – This is the last stage and involves HR implications such as:

• Staffing of new entry and leadership is crucial
• Forming and evaluating a new structure
• Combining two cultures requires assessment revision
• All stakeholders’ concerns should be addressed perfectly

As evident from its Strategy Update 2018, HSBC has its plans to boost its business in Asia as one of its top priorities. Mr. Flint remarked that the company has been undergoing a period of restructuring and it now has eyes on growth. “In the next phase of our strategy we will accelerate growth in areas of strength, in particular in Asia and from our international”, the CEO had stated.  It is therefore clear from the company’s strategy that it aims to focus more on its Asian market in the coming years.

In China, the regulatory issues faced by foreign lenders in the country are hindering the company’s growth strategy. After China’s entry in 2001 into the World Trade Center, many Chinese companies feared that the foreign banks would eat up their share and profit. This fear resulted in strict regulations being introduced in the country that greatly hampered foreign companies that also included HSBC. Owing to these strict regulations, HSBC has devised strategies that include:

• Focusing on China’s southern regions where opportunities for growth are higher than there are in other parts (Reuters.com 2018).
• Cutting down the bank’s structure from 20 people to 14
• Focus on technology push by utilizing China’s economic growth
• Boost hiring in China

It is important that the HR functions be clearly defined because expanding to a culturally different country would require prior training of the expatriates. It is important that they are motivated enough to work in a different environment. As evident from the last strategy, it directly relates to the HR functioning of the company. The company aims to boost its hiring process in China to strengthen its organizational structure.

In terms of its international developmental strategy in India, HSBC has focused on its Human Resources more than anything has. In 2017, the headcount for HSBC India increased by 4000 people making the total to 37,000, which is the second highest after United Kingdom (Thehindubusinessline.com 2018). Other than that, the company also plans to lend to small and medium enterprises (SMEs) in India. Engaging with domestic corporate in renewable energy sector is another developmental strategy that the company is focusing on in India. The HR team has a major role to play in successfully fulfilling these strategies because hiring and training of the best people is the responsibility of the HR team. 

Mergers and Acquisitions

Expatriates are those who reside either temporarily or permanently in a country other than their own for business purposes mainly. The expatriates usually earn more than those who work in their own country. However, expatriates face great problems, as they have to adjust to the new culture of not only the country but also the organization. Multinational corporations thus have to design reward packages for the expatriates to make them feel valued and treated fairly.

However, several complexities are involved in designing the reward packages for the expatriates. MNCs use the Local plus approach, the Balance sheet approach or the Going rate approach while designing the rewards package. According to McEvoy and Buller (2013), the Balance sheet approach is the most commonly used approach for designing the reward package. The Balance Sheet approach involves the existing compensation given by the parent company that includes the usual salary, benefits and other monetary remunerations. Apart from this, the expatriates also receive incentives for accepting foreign appointment and equalization of pay to make sure that they do not face unequal payment due to differences in currency.

The approach however, is filled with complexities since it struggles to strike a balance between the expatriates and the local employees.

• The first issue is that design reward packages using this approach often lead to inequalities between the assignees of diverse people in the same host country and local nationals.
• Secondly, the approach makes the administration extremely complex as it involves different remunerations and packages to be looked after

Nazir, Shah and Zaman (2014) assert that this approach cannot work because it does not take into consideration factors such as the host-country cost of living, tax implications, healthcare costs and so on.

Another approach used by MNCs to design reward packages include the Going rate approach. As per this approach, the salary package of the expatriate is designed such that it relates closely to the salary structure of the local employees. It is done by taking into account the compensation levels of the local employees and the local market rates. One of the chief aims of the approach is to treat the expatriates as local citizens and encourage them to adapt to the local traditions.

The Going rate approach also has limitations that include:

• Dissimilarities between assignments for equal employee
• Differences among assignees of same nationality in diverse countries and
• Potential problems of re-entry

HSBC has a good record when it comes to offering reward and compensation to its expatriates. The higher officials in particular, enjoy huge packages when they choose to work in foreign nations. Monetary package as high as 300,000 GBP are offered to chief executives and higher officials at HSBC (HSBC.com 2018). To cite an example, Michael Geoghegan was offered 300,000 GBP as living cost allowance for decamping to Hong Kong. Similar packages are offered to the officials when they decamp to China. Apart from living cost allowance, expatriates to China are also offered healthcare costs, food and travel allowance as well. The expatriates were even able to buy properties in the country owing to the reward and compensation benefits offered by the company. The benefits are higher for expatriates moving to China because it involves greater risks and increased effort owing to the cultural shift.

Expatriates moving to India also enjoy huge benefits of rewards and compensation. In a survey held by HSBC Expat Explorer Survey, employees expatriating to Mumbai, India earn the highest as compared to other cities (Expatexplorer.hsbc.com 2018). The salaries offered to the HSBC employees moving to Mumbai is double the global average salary for expats.

Hence, it is evident that HSBC is amongst the best when it comes to offering reward and compensation packages to its expatriates. However, it is clearly visible that there is remarkable difference between the range of offers given to the lower level employees and the higher officials.

Conclusion and recommendations

The analysis brings to light the implications of organizational strategy on the Human Resources or HR. the company chosen for the analysis, HSBC, has a clear strategy when it comes to expanding its business through franchising and mergers and acquisitions (M&A). Although it has faced difficulties and failures in implementing its strategies, it made remarkable comebacks as well owing to good leadership. The analysis also found that when it comes to offering rewards and compensation practices to its expatriates, HSBC indulges in biasness. It makes huge distinction between the expatriates holding higher positions and those in lower level. Hence, the following recommendations are suggested for the company to follow:

• It should provide equal rewards and compensation to all its employees based on their capabilities and not on their position in the organizational structure.
• Further, it is also recommended that the company should provide additional benefits to its HR department as they have the toughest task to do when it comes to expanding or looking after expatriates. 

References:

About.hsbc.com.cn 2018. Our strategy – About HSBC | HSBC China. [online] About.hsbc.com.cn. Available at: https://www.about.hsbc.com.cn/our-company/our-strategy [Accessed 20 Nov. 2018].

Bena, J. and Li, K., 2014. Corporate innovations and mergers and acquisitions. The Journal of Finance, 69(5), pp.1923-1960.

Expatexplorer.hsbc.com 2018. Expat Explorer Survey – Findings : HSBC Expat. [online] Expatexplorer.hsbc.com. Available at: https://www.expatexplorer.hsbc.com/survey/findings [Accessed 20 Nov. 2018].

Gomes, E., Angwin, D.N., Weber, Y. and Yedidia Tarba, S., 2013. Critical success factors through the mergers and acquisitions process: revealing pre?and post?M&A connections for improved performance. Thunderbird international business review, 55(1), pp.13-35.

McEvoy, G.M. and Buller, P.F., 2013. Research for practice: The management of expatriates. Thunderbird International Business Review, 55(2), pp.213-226.

Nazir, T., Shah, S.F.H. and Zaman, K., 2014. Review of literature on expatriate compensation and its implication for offshore workforce. Iranian Journal of Management Studies, 7(2), pp.203-221.

Nijmeijer, K.J., Fabbricotti, I.N. and Huijsman, R., 2014. Making franchising work: A framework based on a systematic review. International Journal of Management Reviews, 16(1), pp.62-83.

Reuters.com 2018. HSBC to expand further in China, cut red tape under new management…. [online] U.S. Available at: https://www.reuters.com/article/us-hsbc-strategy/hsbc-to-expand-further-in-china-cut-red-tape-under-new-management-team-idUSKBN1HG1RR [Accessed 20 Nov. 2018].

Rottig, D., 2013. A marriage metaphor model for sociocultural integration in international mergers and acquisitions. Thunderbird international business review, 55(4), pp.439-451.

Thehindubusinessline.com 2018. HSBC’s India headcount rises by 4,000 despite drop in global workforce. [online] @businessline. Available at: https://www.thehindubusinessline.com/money-and-banking/hsbcs-india-headcount-rises-by-4000-despite-drop-in-global-workforce/article9560233.ece [Accessed 20 Nov. 2018].