By September 2000, the Hong Kong operations of HSBC, one of the world's largest and most profitable banks, were lagging behind in implementing the group's "Managing for Value" (MfV) strategy. The strategy had the stated goal of the bank doubling shareholder value over a five-year period. This was to be both through growth in its core businesses, as well as a dramatic reduction in operating costs. One major cost-cutting initiative was the large-scale migration of the bank's Network Services Centre (NSC) in Hong Kong to its new global processing centre in the nearby mainland Chinese city of Guangzhou. Implementing this initiative -- moving staff and resources to the Guangzhou Data Centre (GZC) that had been established in 1996 - encountered major operational and public relations problems.
Professor of Asian Business Steven White describes the sensitive nature of HSBC's attempted response to global banking developments. HSBC had long been regarded as a standard bearer for Hong Kong's pre-eminence as the region's financial centre - a largely unchallenged role even after the territory's administrative handover from London to Beijing in 1997 and its new classification as a "Special Administrative Region".
Technically, there were no major barriers to the bank following a global trend in financial services; namely, pursuing economies of scale by transferring back-office operations to lower cost areas. The average salaries of staff in GZC were often a fifth of those in the NSC. From this perspective, moving professional positions to GZC and to HSBC's other new global processing centre in India seemed fully in keeping with MfV objectives. Most duties were extremely routine, such as inputting and verifying customer account data, involving few important decision-making responsibilities.
HSBC management therefore concluded that minimal job training would be needed for migrating staff. Target functions could be switched from the NSC to the GZC virtually overnight, in keeping with a general objective of reducing unnecessary controls and operational redundancy.
But as has been the case with so many multinationals seeking to "rationalise" operations through similar schemes, serious practical problems quickly emerged. Hong Kong staff were reluctant to move to a mainland city that, while geographically close, had a very different political and business culture, and far less developed social infrastructure. The staff -- initially given a choice to move or risk losing their positions - felt betrayed by the bank, since there was the expectation among workers that faithful service should be rewarded with job security.
The migration was also having more widespread social fallout. HSBC had long been by far the biggest bank in the territory, wielding considerable local political influence. Some citizens seemed to feel that it was reneging on a tacit agreement to reciprocate for the advantages it had garnered from its "privileged position" through abandoning its base for easy short-term gain. With 75% of retail bank accounts in Hong Kong being with HSBC, overly upsetting a big part of its client base could obviously spell disaster.
The authors also describe the widespread concerns in Hong Kong that the city's status as a primary gateway to the large and growing Chinese market was diminishing. The territory had moved from being a manufacturing to a financial services centre in the decades prior to Chinese control. Would the GZC migration set a precedent for an exodus of white-collar jobs to the mainland, further weakening the already wobbly Hong Kong economy?
Such anxieties aside, job cuts continued in Hong Kong. In October 2001, HSBC announced the opening of a second China-based data processing centre. The new office was to service accounts throughout the Asia-Pacific region, as well as for the parent holding company in Canada and Europe.
Meanwhile, the bank was acquiring stakes in several mainland banks, and China obviously represented huge opportunities for new growth and cost-savings. But problems with the migration to GZC had already shown the challenges to smoothly implementing such initiatives. Morale in the Hong Kong operations was at a low point, due in no small part to a lack of assurances that further job cuts would not be "necessary". Could HSBC hope to stem the backlashes and unintended consequences that future changes could easily elicit?