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Local SMEs Remain Positive Towards Hong Kong's Business Operation Environment

Local small and medium-sized enterprises (SMEs) generally remain positive towards Hong Kong's business operating environment in the first quarter of 2006, according to the latest findings of a survey conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in January 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 559 SMEs were interviewed, of which 306 came from the services sector and 253 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "Compared to the last quarter's findings, no significant change was reported in the overall index which stood at 6.9%. The overall business sentiment for local SMEs remain positive."

Sub-indexes covering market opportunities, operating costs and human resources all reported no significant variance for the first quarter of 2006, with the indexes scoring -7.4%, 22% and 17.5% respectively. "As local SMEs are generally taking a 'wait and see' attitude towards the market situation, they do not expect major changes in human resources and operation costs in the coming months," Mr Li said.

"The risk assessment index, on the other hand, showed the most noticeable increase of 9 percentage points (from 6.7% to 15.6%), reflecting the gradual dissipation of business risks as the market stabilizes," he added.

"Also notable is the financial and investment index with a further drop of 4 percentage points from -4.8% in the last survey to -8%. As the interest rates continue to rise, majority of the SMEs expect heavier financial burdens in the coming months," he said.

In terms of sectoral differences, the overall business operating index for manufacturing industries recorded an increase of 2 percentage points, with the index scoring 8.4%; whereas the services industries slightly dropped 1.5 percentage point from 7.2% in the last survey to 5.7%. "While the manufacturing sector is more optimistic than the services sector in terms of market opportunities, operating costs and human resources, the latter is more positive in risk assessment factor," he added.

"A closer look at individual industries revealed that the clothing and textiles sector is most positive about their business prospects," he said.

Regarding SMEs' projection on their business performance in the coming 12 months, the expected average increase was 2.7%, a slight drop of 0.2 percentage point.

The survey also provided a comparison on SMEs' expectation of salary adjustment between their local and Mainland operations. It was found that 39% of their local operations would have a salary increase in 2006, as compared to 43% in their Mainland operations, with average salary increase at 3.4% and 4.7% respectively. "The survey, on the other hand, found that 40% of the local SMEs would offer their staff with year-end bonus or cash rewards. Among them, 55% estimated that the bonus or cash rewards would be equivalent to half to one-month salary," Mr Li added.

Concerning staff recruitment, 81% of local SMEs would maintain the existing level of workforce during the year, while 17% were likely to employ more staff, with 18% forecasting increases of more than 10%. For those who had business operations in the Mainland, 27% expressed that they would employ more staff there. Among them, 38% expected that the increase would exceed 10%. "SMEs require more employee for their operations in the Mainland in order to cope with their business needs," Mr Li said.

In addition, the survey showed that executives and supervisors involved in "sales and marketing", "production" and "procurement" were most needed by a majority of SMEs, whereas personnel having working experience on "sales and marketing" and "production" were required to fill the general posts.

The survey also looked into SMEs' needs on staff training and found that "sales and marketing capabilities", "leadership skills", "human resources management", "risk management" and "IT management" were ranked as the key areas that should be strengthened. In addition, only 16% of the respondents had provided training for their staff with annual spending of more than HK$10,000, while 55% did not reserve any budget at all.

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
Website: www.hkpc.org

HKPC
9 February 2006

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