Local SMEs More Confident in Hong Kong's Business Outlook for First Quarter

Following the downward adjustments in three consecutive quarters, the latest "Business Operating Environment Index for SMEs" conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in January 2005 reported a rebound, reflecting an increased level of confidence among local small and medium-sized enterprises (SMEs) in the business outlook for the first quarter of 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 opportunity, financial and investment situation, operating costs, human resources and risk assessment. In the latest survey, a total of 556 SMEs were interviewed, of which 305 came from the services sector and 251 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "This is the first increase recorded in the overall index in a year with the figure reaching 14%, an increase of six percentage points compared to the last survey conducted in October 2004. It signals the return of confidence among local SMEs as Hong Kong's business operating environment continues to improve."

Out of the five sub-indexes, four reported a rise. Mr Li said, "The operating cost index (41%) showed the most significant increase of 20 percentage points, reflecting that SMEs have adopted effective cost control measures to prepare for the growth ahead. Also notable is the financial and investment index (15.6%) with an increase of 12 percentage points. With the interest rates standing at a reasonable level, SMEs are expected to expand their investment portfolios in the first quarter."

A moderate increase of four percentage points was noted in the human resources index (19.67%) as some SMEs have plans to employ more staff. The market opportunity index also increased slightly from -11.7% to -9.6%, an indication that SMEs expect steady improvement in business performance as the economy continues to revive. Despite these positive signs, the drop of 14 percentage points in the risk assessment index (3.93%) revealed that SMEs are aware of the keen competition ahead.

The overall business operating indexes for manufacturing and services industries were 14%, an increase of seven and five percentage points respectively. "The overall business sentiment across industries is more positive than the last quarter's," said Mr Li. "While the manufacturing sectors are more optimistic than the service sectors in terms of market opportunities, operating costs, as well as financial and investment environment, the latter is more positive in risk assessment," he added.

"A closer look at individual industries found that the business services sectors are most bullish about their prospects, while the retail and wholesale businesses expect slower growth as the traditional shopping season comes to an end," he said.

Regarding SMEs' expectation on their business performance in the coming year, 57.3% of the respondents anticipated a growth in business volume, as compared to 50% in the last survey. The expected average increase among them was 3.25%. Those who did not expect any growth have dropped from 43% in the last survey to 33.3%.

On salary adjustment and human resources planning, 26.2 % of the respondents would consider a raise in salary, and 24% of them have plans to employ new staff.

Under the background of the abolition of the textile and clothing quotas since 1 January 2005, the survey found that 64% of SME manufacturers have adopted a ‘wait-and-see’ attitude while monitoring the developments. 21% of the respondents said that they would consider expanding their production in the Mainland in addition to their existing facilities in Hong Kong, whereas 4% would increase their Mainland facilities at the expense of the local set-up.

This survey also gauged the views of local SMEs on the impacts of the falling US dollar. 18% of the local SMEs interviewed agreed that the weak US dollar would affect their operating cost. Within this group, 50.5% anticipated the cost to go up no more than 10%, while 23% expected a reduction of up to 5%.

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 5895
Fax: (852) 2788 5056
E-mail: justina@hkpc.org

HKPC
31 January 2005


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