SME Survey Shows Increased Confidence in Business Environment for Third Quarter

After standing at the same level for three consecutive quarters, the latest "Business Operating Environment Index for SMEs" conducted by the SME Centre of the Hong Kong Productivity Council (HKPC) in July 2006 reported an upward adjustment, reflecting an increased level of confidence among local small and medium-sized enterprises (SMEs) in the business outlook for the third quarter of 2006.

The survey on "Business Operating Environment Index for SMEs" 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 557 SMEs were interviewed, of which 303 came from the services sector and 254 from the manufacturing sector.

Commenting on the survey findings, Mr Vincent Li, General Manager (Enterprise Value & Logistics Consultancy) of HKPC said, "The overall index noted an increase of 3 percentage points, rising from 7% for three consecutive quarters to 10% in this survey. The signal is clear that local SMEs are confident about Hong Kong's business operating environment amidst the current economic upturn."

"There was an across-the-board increase in the sub-indexes covering market opportunities, risk assessment, financial and investment, operating costs and human resources, with increases ranging from 1 to 6 percentage points," Mr Li continued.

"The risk assessment index continued to fare well with an increase of 6 percentage points, reaching 17.6%, reflecting SMEs’ optimistic outlook on the external market situation. The improved market opportunity is revealed by the rise in the sub-index to -3.2% (up 3 percentage points), fueled by the influx of business orders," he explained.

The financial and investment index continued to improve with an increase of 4 percentage points (at -3.8%). "SMEs' anticipation of a pause in the upward trend of interest rates and their projected expansion in investment portfolios, especially in the trading and plastics sectors, are factors contributing to the positive outlook," he said.

Both the operating cost index (25.9%) and the human resources index (17%) edged up 1 percentage point, an indication that the operating costs are well under control and the labour supply remains stable.

In terms of sectoral differences, the overall business operating indexes for both the services and manufacturing industries reported an improvement, reaching 12.6% (up 5 percentage points) and 7.1% (up 2 percentage points) respectively. The increase in the services sector index is mainly driven by the robust growth in the logistics and trading sectors.

Mr Li said, "Among the industry sectors studied in this survey, all are positive about their business prospects in the next quarter. While the logistics and trading sectors are the most optimistic, the business services sector is more cautious in their forecast."

Regarding SME's projection of their business performance in the coming 12 months, 55% of the respondents anticipated a growth in business volume, and the expected average increase was 2.5%.

The survey also looked into the management problems of SMEs. In terms of financial and risk management, more than half of the respondents do not have customer credit guidelines and a credit database. Over 50% of SMEs also revealed that the top 20% of their clients contribute to over 60% of their business. The insufficient knowledge and control over customer credit, and the over reliance on a limited number of clients are likely to render their financial position unstable.

The survey also revealed that over 60% of the respondents are either not using or only in a low level of IT application in logistics management. In addition, 50% of them are weak in logistics cost control, therefore constantly under the pressure of rising costs.

On human capital investment, it was found that the majority of SMEs have insufficient investment in staff training and career development, posing a threat to their long-term human resources development and management.

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

4 August 2006

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