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Index Shows Slight Improvement in Business Operating Environment for SMEs

The Business Operating Environment Index for local small and medium-sized enterprises (SMEs) for the third quarter of 2005 has increased slightly, according to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in July 2005.

The survey on "Business Operating Environment Index for SMEs", initiated by HKPC in 1998, is conducted quarterly to gauge the views of Hong Kong's SMEs in the areas of market opportunities, financial and investment situation, operating costs, human resources and risk assessment. In the latest survey, a total of 554 SMEs were interviewed, of which 304 came from the services sector and 250 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "Local SMEs, in general, are positive about the business outlook for the third quarter with the overall index scoring 11.6%, a slight increase of 2 percentage points compared to the last survey conducted in April 2005."

Sub-indexes covering market opportunities, human resources, financial and investment, and risk assessment all reported mild increases for the third quarter. "Both the market opportunity index (- 0.7%) and human resources index (23.9%) showed an increase of 5 percentage points, an indication that SMEs are expecting more business opportunities and are likely to recruit more staff in the coming months as the economy continues to improve," Mr Li said.

The risk assessment index (16.4%) and financial and investment index (4.2%) also recorded a slight increase of 1 percentage point each from the last quarter, reflecting that the financial conditions of SMEs remain stable under the present business environment.

"No marked change was reported in the operating cost index which stood at 19.1% though there are concerns over possible rises in operating costs," Mr Li said.

In terms of sectoral differences, the overall business operating index for manufacturing industries showed no significant variance as compared to that of last quarter, with the index scoring 10.7%; whereas the services industries recorded an increase of 4 percentage points from 8.2% in the last survey to 12.3%. "While the manufacturing sector is more optimistic than the services sector in terms of operating costs, the latter is more positive in human resources and risk assessment factors," he added.

"A closer look at individual industries revealed that the retail and wholesale businesses are most positive about their business prospects thanks to the soon-to-be-opened Hong Kong Disneyland, while the logistics and transportation sectors expect slower growth," he said.

Regarding SMEs' expectations of their business performance in the coming 12 months, 58% of the respondents anticipated a growth in business volume, as compared to 56% in the last survey. The expected average increase among them was 3.6%. The proportion of those not expecting any growth decreased slightly from 35% in the last survey to 34%.
This survey also gauged the views of local SMEs on the growth potential of the local and overseas markets. The Mainland market (50%) was expected to have the highest growth potential, followed by the European (33%) and the Hong Kong (29%) markets. Close to 60% anticipated that the markets in the United States, Canada and the Far East (excluding the Mainland and Hong Kong) would remain unchanged.

On business development strategies, 68% of the respondents said that their present business strategies would remain unchanged in the coming year while 29% would consider business expansion/further investment. Hong Kong (41%) and the South China (40%) were the key markets for business investment.

Concerning SMEs' forecasts on operating costs, 65% of the respondents predicted that raw material costs would increase in the coming 12 months. Within this group, 80% anticipated the costs to go up no more than 10%. On staff salaries, 72% said that the pay level would remain unchanged, while 25% expected to have a salary increase of no more than 10% during the year. In addition, 33% of the respondents anticipated a rise in rental costs, with the majority forecasting increases of no more than 10%.

Regarding SMEs' need for professional services support on the Mainland, the survey found that 'accounting' (31%) and 'insurance' (28%) services were most needed, followed by 'legal' (22%) and 'financial consultancy' (13%) services.

With funding from the Innovation and Technology Fund (ITF) of the HKSAR Government, the SME Centre was established in December 1997 as a one-stop service centre to provide local SMEs with an easy access to a network of service providers including experts from HKPC and other relevant organizations covering the areas of banking and finance, information technology, forwarding and shipping, telecommunications and insurance, etc.

For media enquiries, please contact:
Ms Betty Lee
General Manager
Corporate Communications & Events
Tel: (852) 2788 5036
Fax: (852) 2788 5056
E-mail: emilyc@hkpc.org

HKPC
9 August 2005

Remark:
Index = % of respondents holding a positive outlook - % of respondents holding a negative outlook