In a small and compact market like Hong Kong, it’s easy to launch businesses and change course as you go along. Hong Kong has always been enterprising and quick to seize opportunities when they present themselves. However, there is also the global side of Hong Kong. As one of the world’s leading financial centres, it has to maintain its position amidst the global, regional and local market forces that are at play. Playing in a bigger sandbox requires a well-considered strategy and a strategic framework that is adaptable to changes occurring on the mainland and beyond.
In financial services, the same conditions apply. To understand the need for a holistic strategic framework and its implications for this industry, let’s review the prevailing market forces. They are apparent to all through the advances in technology such as big data and analytics, cloud computing, mobile apps and social media. We are also subject to tighter regulations from global and local institutions; and we must respond to the requirements for more sophisticated and streamlined reporting standards. A recent IBM report on global technology hot spots shows that mainland Chinese companies have the highest rates of adoption of these new technologies. However, Forrester also reports that Hong Kong’s companies are lagging behind. Why is that and how can we address this issue?
Other market forces include the liberalisation of China and the impending integration of ASEAN which will bring about more opportunities but also more competition. How is Hong Kong preparing to capitalise on the growing financial markets and consumer prosperity in ASEAN?
Finally, there are two critical forces that I believe will have to be reckoned with as they could dramatically change the industry. The first of these forces are new players disrupting the industry. As defined by Clayton Christensen, the Harvard professor who authored this concept, ‘disruptive innovation’ is a product or service that helps create a new market and value network, and which disrupts an existing market and value network.
A good example of such a disruptive player in the context of financial services is Alipay, the e-commerce platform set up by Alibaba, which has subsequently introduced a very successful mutual fund e-commerce platform with its partner Tianhong Asset Management. This has been followed more recently by a move into the insurance sector, with the announcement that Alibaba and Tencent are heavily investing in the listing of Ping An’s placement of H shares. These new offerings are already creating new customers and substantial revenues in China. They are making investment and insurance products potentially much more accessible to customers. What will their impact be on the Hong Kong market and the regional and global markets when they expand their operations outside China?
The other force in the market is the demographic and social make-up of Hong Kong itself. We have the new generation of customers who are very wellinformed and well-connected. They are demanding transparency, simpler products, easy and real-time transactions and a higher level of responsibility, accountability and sustainability from their provider. Recent developments also show that the youth of Hong Kong are more politically inclined and determined to have their voice heard. What might be the implications of these demographic and social shifts and what should the industry do to effectively engage with them?
On the regional and global front, Hong Kong will have to ensure that it can continue to attract the best global talent to be able to maintain its position as a leading financial centre. What strategies are being taken by companies to ensure this? In the Economist’s Crony Capitalism Index published this year, Hong Kong tops the list with most of its GDP tied to sectors subject to cronyism. If such an environment prevails, would Hong Kong be able to attract and retain the best global talent?
In this unfolding scenario, can Hong Kong’s financial services companies afford to operate in a ‘business as usual’ state? Or would it be wise to identify what might be the long-term opportunities and the imminent threats that could change the industry forever? Are the banks and insurance companies in Hong Kong prepared for these changes?
Though there are new customers and new technologies at our disposal, the tools for innovation and transformation remain the same. They include the business model, vertical and horizontal integration, leadership and culture, brand, organisational design, R&D, product design, technology, operations, sales and marketing and customer management. One has to find the best combination of these strategic levers and their deployment to create the desired changes.
The undisputed poster child for continuous strategic transformation is General Electric. Over a 20-year period Jack Welch transformed GE to become the undisputed leader in the businesses that they chose to operate in by creating a vision and strategic plans and carefully orchestrating the use of various strategic levers.
Closer to home, Alibaba, alongside Baidu and Tencent, are now considered three of the most innovative companies in the world. In a documented case study, Jack Ma has famously said he has followed many of GE’s best practices when he was building Alibaba, and allowed innovation to flourish by having each business unit operate independently. From the GE business model, Jack Ma has also created a formidable strategy team that has guided the evolution and growth of the company.
Which begs the question, what is the state of strategy and the strategic function in Hong Kong?
What is it’s definition and scope in most companies? Who drives it? Do we have the capabilities? Are we using this critical discipline to effectively manage the market forces that are affecting our industry? With the aspiration to become the preeminent global financial centre in Asia, will we be able to transform ourselves, and disrupt the financial market itself to achieve this vision? BM