Reference no: EM13737834

Case Study

Japan is an enormous market that cannot be ignored. As one of the world’s largest banks that calls itself the world local bank. Hong Kong and Shanghai Banking Corporation Limited (HSBC) has only been briefly involved in Japanese banking business in past years. In September 2007, HSBC announced its plan for a full scale distribution into Japan’s retail banking market by sending a special task force with several financial services experts from Hong Kong to promote and expand their retail banking business in Japan. However after four years of unsuccessful attempts to overcome language and recruitment barriers as well as to resolve decision making problems and technical incompatibility. HSBC decided to leave the Japanese banking market in February 2012.

The first problem that the HBSC task force faces in Japan is language and recruitment barriers. As a general corporate policy, the official medium of communication within the HSBC group is English, a language not commonly used in Japan. The bank has to pay a salary of about 20 – 40 percent higher than the market rate in order to recruit bilingual local personnel who are fluent in both English and Japanese. This significantly increases the operating costs of HSBC’s Japanese branches. While recruiting suitable bilingual local employees is not easy, firing them is even more challenging. Japan has a long history of “lifetime employment” and it is very difficult to dismiss employees simply because of their incompetence. Sometimes it takes months of negotiation to ask an unwanted employee to leave the bank.

Slow decision making process is another complication for the HSBC task force who need speedy decisions to produce an impressive amount of profit as soon as possible. Japanese employee spend long hours listening, discussing and clarifying various issues and problems and arguing their opinion until they are fully convinced. They attempt to reach a true consensus rather than a compromise between manager and employees. This makes the process of designing and implementing aggressive marketing plans for business expansions extremely time consuming.

What makes things worse is the fact that technical incompatibility in ATM and Internet banking systems renders HSBC’s global standardization plan unworkable in Japan. HSBC has it own standard ATM system used in its branches all over the world; however due to technical restrictions, HSBC is compelled to use the local ATM system, commonly found in more than 30,000 convenience stores and post offices in Japan. The same happens for Internet banking services. HSBC is not allowed to use its own Internet business model developed for all its branches in the global market because it does not fully comply with the protocol and technical standard used by Japanese telecommunication vendors. The local ATM and Internet banking systems can only partially interface with HSBC’s global system, but the bank has to adopt reluctantly.

As the financial market turmoil dampens, HSBC intends to cut its worldwide costs by $3.5 billion before 2014 and sharpen the bank’s focus by quitting countries where it lacks sufficient returns. Unfortunately, Japan is one of these countries.

Questions:

Is HSBC Global Corporation, Multi Domestic Corporation or borderless organization for its business in Japan?

While HSBC claims that it is the world’s local bank, can it become a local bank in Japan?

What should HSBC have done before they considered a full scale distribution into Japan’s retail banking market?

What problems do you see in HSBS’s efforts to distribute the Japanese market in 2007?

What obvious cultural differences between the HSBC task force and local Japanese employees do you see in this situation?