What factors have led to HSBS's offshoring policy What benefits does HSBC gain from this - Assignment Example

?What factors have led to HSBC's offshoring policy? What benefits does HSBC gain from this? Introduction: HSBC holdings is a well-known banking and financial services company that mainly provides investment banking solutions, commercial banking products, and wealth management services. This company is headquartered in London, UK. HSBC mainly operates in European region and Hong Kong. It employs as many as 312,866 people. The group recorded revenues of $78,631 million in the financial year ended December 2009, with a decrease of 1.1% from 2008. The operating profit of the group was $5,298 million during 2009, with a reduction of 30.7% from 2008. HSBC has become largely involved in the process of offshoring with an aim to decrease costs of labor. (Data Monitor. 2010) This paper will focus on the issues relating to offshoring by one of the globally known financial service provider HSBC. It will mainly discuss the factors that have led to the company’s offshoring policies and what kinds of benefits are being derived by HSBC Holdings from its offshoring activities. A brief note about Offshoring; Exporting jobs that is commonly known to be as offshoring has become widespread across the world. Companies based in developed regions are getting involved in offshoring to low cost regions of the world. Offshoring mainly implies relocation of jobs with the purpose of reducing costs of production. India and China have become the most important service providers. From the macroeconomic perspectives, there has been a huge debate over whether it offshoring is good or bad for the economy of the exporting countries as well as to the economy of the importing countries. Particularly, major concern has been raised regarding the impacts of offshoring on the economy of the importing nations, like USA, UK, other European nations, Australia, etc. A huge number of highly recognized and highly profitable companies of these nations are involved in offshoring. (Abramovsky et al. 2004) In this context, one thing should be noted that offshoring is quite distinct from outsourcing. Offsourcing is not widespread in all the industries. It is mainly concentrated in some particular industries like computing services, financial services and high-tech manufacturing industries. Offshoring is mainly done for the jobs relating to research and development of the specified industries and their business research. (CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) The labor available in UK and other European countries are quite expensive compared to the labor available in countries like China and India. Many people have expressed their concern over the effect of offshoring on the domestic economy and domestic productivity of UK, but this concern has not quite affected one of the largest financial service providers of the country. In fact, the extent of offshoring has been increased by HSBC to reduce their fixed and variable costs of production. Major motivational factors behind offshoring: Major motivational factors that have played crucial role in adopting the path of offshoring by HSBC can be as follows: First, a financial service provide generally gets the opportunity to of investing in global securities by adopting the path of offshoring. Very often many top performing securities are not available to the citizens of the UK and thus the investors of this country generally does not get the option of investing in these securities that provide lucrative returns. But offshoring makes it possible to make these global top performing securities accessible to the investors. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Second, a banking service provider that opts for offshoring becomes able to provide its banking account holders the opportunity of accessing all those banking products that would not be available otherwise in the domestic market. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Third, the level of confidentiality is much higher in case of offshoring banking services and hence investors become more interested to purchase offshoring banking products as they provide greater means of privacy which is one of the greatest concerns of the investors. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Fourth, for banking and financial services providers like HSBC, protection of assets is one of the major issues to consider. Offshore banking services have obtained very high reputation with respect to its operation. Offshore banking services have been highly trusted for a number of decades on account of asset protection. Hence the assets that are held offshore are considered to be highly secured and immune from hostile litigations. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Fifth, taxation is another most important issue that provokes many financial service providers to get involved in offshoring. The major advantage with offshoring is that the offshore company does not generally have to pay any taxes for its offshoring operations in its resident nation. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Sixth, in case of offshoring the countries where the jobs are relocated happen to be very liberalized economy with minimum level of bureaucratic pressures and very low regulations. These kinds of economic features allow the offshoring companies to conduct their operations in a much flexible way so that they can meet the demand of the investors appropriately. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) Thus, it can be summarized from the above mentioned points that tax exemption, lucrative investment options, higher level of privacy, safe and secured economic and political atmosphere of countries like China and India have motivated the HSBC Holdings to go for offshoring as these advantages can not be obtained domestically. (Clark, 2009; CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d) SWOT of Offshoring: Strengths: Cost effective- costs of labor is far lees than home country, thus offshoring is quite less expensive than domestic operation. Savings- On account of reduced costs, the company can save a lot and invest ther money in their business development Decrease work pressure in the home country: It reduces work load substantially in the home country once it starts working in a proper way. Weakness: Data protection: Since the process of offshoring involves huge international data transaction, the issue of data protection remains a area of big concern. Initial investment: Although operating costs is quite low, but the establishment costs is quite high as adequate amount has to be invested in proper software development so that customer needs are met adequately at the time of offshoring. Huge investment in needed in R&D. significant amount of investment is also needed on training as the employees have to be properly trend to conduct this complex offshoring business. Opportunities: The talent pool in countries like India and China is huge. Thus the company can use this talent pool effectively to expand the cost effective way of business through offshoring. Offshoring needs employees to have a very good English communication skill and the potential labor force available in India and China speak very good English and therefore can handle the job effectively. Countries like china and India are also technologically advanced and hence relocating jobs in this country will be quite helpful for HSBC. Threat : Since huge amount of data is transferred and used on an international domain, there exists a chance of misuse of data. Litigation and legal matters are also prominent as offshoring also involves international security of personal information issues. Offshoring may raise grievances in home country as it results in cutting job in home country. This wrath may hamper domestic operation. Benefits derived by HSBC form offshoring: The benefits that HSBC has been able to obtain from its offshoring activities can be detailed follows: Potential tax efficiency: HSBC has been able to reap the benefits of tax exemption from its offshoring operations. Through offshoring the HSBC has become able to provide tax efficient bank accounts to its customers and to offer the investors the opportunities to invest on the basis of their situation. Through banking and financial offshore the company has been able to provide its customers the following advantages relating to tax efficiency: First, HSBC is now able to provide its customers with such bank accounts on which interests are paid without any kind of tax deduction. This kind of facility will attract more investors to invest through HSBC. Second, depending where the bank account holder lives, income on his/her offshore bank account or investmented funds will not be subject to tax in the country where he.she lives if that money earned through this account or investmnets is not remitted into domestically. Third, in case of offshore bank account, the ccount holders do not require to pay any inheritance tax or capital gains tax. All these kinds of tax benefits that HSBC will be able to provide its customers through its offshoring activities will enhance its customers base as investors always prefer tax-exemption. (HSBC, 2010) Convenience: Through offshoring HSBC has become able to provide very easy access to finncaces internationally. With offshoring bank accounts, it is no longer necessary for a custoimer to move bank account from one country to another while moving from one nation to the other. Earlier the bank used to loose many investtors and bank account holders when they moved from UK or other European nations to some other countries, But now there is no such fear of loosing customers as customers can now get long term finnacial relationship irrespective of their location. No matter where the customer is located in this world, he/she can easily mnage his.her funds in a wide range of currencies. (HSBC, 2010) Provision of safe place for investors’ funds: Even if political or economic situtaion in UK is not good, the bank account holders of HSBC do not need to panic about the protection of their assets as offshoring provides significant protection to the assets of the investors. During the period of political and economic instability, HSBC does no longer fear from loosing its customer base as customers will not withdraw their accounts from the bank as they are assured enough that offshoring will keep their money safe. (HSBC, 2010) Besides the benefits mentioned above, HSBC has also been able to learn some vital lessons form their offshoring activities which are very crucial for the business operation. Through offshoring the company has been able to recognise the need of imoving towards an improved technological platform to make the provision of its finnacial services more efficient. Thus the decision of going for offshoring was not only based on cost factors, but also on reaping technological benefits. Through offshoring, HSBC has been able to meet the needs of its customers at a faster pace. In order to move towards a more improved technological platform, HSBC has set up its operations in India which is very much efficinet in developing softwares. (Brady, 2006) Through the process of offshoring the company has been able to rightly recognise the need for mainting high quality of services while dealing with their customers. Customers can be brutal if the services provided to them are not of the best quality. HSBC is now paying more attention on providing high quality services to its customers that has become really very helpful for the company to retain its existing customer base as well as attracting new customers. (Brady, 2006) Conclusion: inspite of having all these advantages HSBC has to be very careful while dealing with the laborers who are not involved in the process of offshoring. Very often the offshoring companies are blamed of exploiting domestic laborers and cutting jobs to go offshore. If laboreres find out that they are being exploited severely in the name of offshoring they will show their grievances in the form of protests, strikes, etc which are extremely harmful for the business. Hence, the company should understand that domestic laborers should also be handled carefully, otherwise customers will feel the heat and they may withdraw their account from the company. (Treanor, 2004) References: 1. Clark, M. 2009. Offshore Banking – Why Going Offshore? Going Offshore Advantages. Retrieved from http://www.offshorebankingtoday.com/offshore-banking-why-going-offshore-going-offshore-advantages/ on 25th February, 2011. 2. HSBC. 2010. What is offshore banking? Retrieved from http://www.offshore.hsbc.com/1/2/international/offshore-banking on 25th February, 2011. 3. Brady, R. 2006. HSBC's Lessons in Outsourcing. Retrieved from http://www.businessweek.com/magazine/content/06_05/b3969426.htm on 25th February, 2011. 4. Data Monitor. 2010. HSBC Holdings Plc. Retrieved from http://www.datamonitor.com/store/product/hsbc_holdings_plc?productid=CF3EA15E-B7E8-4816-A611-11945461E4AA on 25th February, 2011. 5. Abramovsky, L., Griffith, R. and Sako, M. 2004. Offshoring of Business Services and its Impact on the UK Economy. Retrieved from http://www.aimresearch.org/uploads/pdf/Academic%20Publications/offshoring%20doc%20_1.pdf on 25th February, 2011. 6. CORPORAT E PARTNERS RESEARCH PROGRAMME. n.d.Outsourcing and off shoring Implications for organisational capability. Retrieved from http://theworkfoundation.co.uk/assets/docs/publications/105_outsourcing.pdf on 25th February, 2011. 7. Treanor, J. 2004. Strike threat as jobs go offshore. Retrieved from http://www.guardian.co.uk/money/2004/jul/01/business.accounts on 25th February, 2011. Read More