Local SMEs Optimistic on Business Outlook for Last Quarter of 2006

Local small and medium-sized enterprises (SMEs) remain positive towards Hong Kong's business operating environment in the last quarter of 2006, according to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in October 2006.

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 529 SMEs were interviewed, of which 300 came from the services sector and 229 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "The overall index for the last quarter of 2006 is 10.9%, much like that of the previous survey. It reflects local SMEs' sustained level of confidence in Hong Kong's business operating environment amidst the continuous economic upturn."

Variance was noted in the sub-indexes covering market opportunities, risk assessment, financial and investment, operating costs and human resources.

"The risk assessment index (20.98%) and operating cost index (28.5%) continued to improve, both reporting an increase of 3 percentage points as compared to the last survey. The optimism is an indication that both the costs and risk elements are well under control for local SMEs," he said.

"A point to note is the financial and investment index (3.97%) which reported an improvement of 7.7 percentage points. SMEs' anticipation of a downward adjustment of interest rates in the near future is one of the major factors contributing to the positive outlook," he said.

"The market opportunity index (-8.76%) reported a decrease of 5.5 percentage points as SMEs are cautious about the intensified market competition. The moderate decrease in the human resources index to 15% (down 2 percentage points) reflects the relatively stable demand for manpower," he added.

The survey also found that the services and manufacturing sectors hold similar views on the positive business outlook, with their overall business operating indexes reporting at 11.46% (down 1 percentage point) and 10.14% (up 3 percentage points) respectively.

Mr Li said, "Majority of the industries studied in this survey are positive about their business prospects in the last quarter, only with the exception of the trading, retail and wholesale sectors. These two sectors are more cautious in their forecast as they anticipate possible changes in the market environment."

Regarding SME's projection of their business performance in the coming 12 months, 56% of the respondents anticipated a growth in business volume, and the expected average increase was 2.35%.

In this study, a special report on local SMEs' perception of the relative competitiveness of their Mainland counterparts was also included. In the areas of product quality management, operational efficiency, and human capital management, the respondents stated that Hong Kong companies are more competitive than Mainland enterprises.

On the overall potential for corporate growth, 55% of the respondents considered their Mainland counterparts more competitive, especially in the areas of 'profit generation' and 'scope of development', while Hong Kong companies were rated higher in 'financing' and 'risk management'.

Comparing their overall capabilities in sales and marketing, 45% of the respondents stated that Hong Kong companies have competitive advantages over Mainland enterprises. Local SMEs rated themselves higher in the areas of 'brand management', 'international marketing' and 'customer service', while their Mainland counterparts are stronger in 'marketing in the Mainland'.

The survey also revealed that 71% of the respondents rated Hong Kong companies stronger in terms of the overall capabilities in product and technology innovation, particularly in the areas of 'promotion of an innovation culture' and 'R&D investments'.

In addition, 57% of respondents stated that Mainland companies are more capable in overall costs control. While Hong Kong enterprises are more capable in 'financial and capital cost control', and 'logistics cost control', Mainland companies fare better in 'production cost control'.

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
Website: www.hkpc.org

23 November 2006

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