SME Business Operating Environment Index Drops Slightly

The Business Operating Environment Index for local small and medium-sized enterprises (SMEs) for the second quarter of 2005 fell slightly, according to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in April 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 555 SMEs were interviewed, of which 303 came from the services sector and 252 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, “Owing to a substantial drop in the operating cost index and the financial and investment index, the overall index for this quarter (April to June 2005) sees a slight drop of 5 percentage points from 14% in the last quarter to 9.2%.”

Sub-indexes covering operating cost, financial and investment, and human resources all reported decreases for the second quarter. In particular, the operating cost index (from 41.0% to 19.6%) and the financial and investment index (from 15.6% to 3.2%) showed a drastic decrease of 22 percentage points and 12 percentage points respectively. “The expectation of a rise in operation costs, particularly in commercial rental and transportation, as well as the recent increase in interest rates are the contributing factors for the downward adjustments,” Mr Li explained.

On the other hand, the risk assessment index (from 3.9% to 15.4%) recorded an increase of 12 percentage points from last quarter, reflecting an anticipation for a less risky business environment.

The market opportunity index also increased by 4 percentage points from -9.6% to -5.6%, an indication that SMEs generally expect business performance in the second quarter to improve.

No marked change was reported in the human resources index which stood at 18.8% (a drop of 1 percentage point).

The overall business operating indexes for manufacturing and services industries dropped 4 and 6 percentage points respectively, reporting 10.5% and 8.2%. “While the manufacturing sector is more optimistic than the service sector in terms of market opportunities, operating costs, as well as financial and investment environment, the latter is more positive in human resources and risk assessment,” he added.

“A closer look at individual industries revealed that the logistics and transportation sectors are most positive about their business prospects, while the retail and wholesale businesses expect negative growth as the traditional shopping season comes to an end,” he said.

Regarding SMEs’ expectation on their business performance in the coming 12 months, 56% of the respondents anticipated a growth in business volume, as compared to 57% in the last survey. The expected average increase among them was 3.5%. Those who did not expect any growth have increased slightly from 33.3% in the last survey to 35.1%.

On investment strategy in the Mainland, 54% of the respondents have started their business activities/investment in the Mainland. Among them, 46% expressed that they would expand their business operations within the Guangdong Province, while 28% said that they would consider expanding beyond the Guangdong Province in addition to their existing business activities in this region.

Among those who have business activities in the Mainland, 92% said that they have encountered management problems that needed to be addressed. “Human resources management”(86%), “risk management in business and operation”(60%) and “leadership management”(55%) were cited as their major areas of concern. 40% said that they would solve these problems internally, while 25% did not have any specific plans. 8% would consider recruiting professional consultants for help while 76% agreed that these management problems would affect the performance of the company.

The survey also looked into SMEs’ expenses on staff training and found that 54% of the respondents had provided training for their staff, with average annual spending of HK$18,000 per company.

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
29 April 2005


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