(Hong Kong, 28 October 2021) The Hong Kong Productivity Council (“HKPC”) today announced the “Standard Chartered Hong Kong SME Leading Business Index” (“Standard Chartered SME Index”) for the fourth quarter of 2021. The Overall Index rose by 1.6 to 48.2, hitting a three-year high once again. Gradually climbing up towards the 50 neutral level, the latest result reflects that despite the slowing down of the COVID-19 pandemic, local SMEs are still moving sluggishly forward in the recovery of business confidence.
On the same day, HKPC and Standard Chartered Bank (Hong Kong) Limited (“Standard Chartered Hong Kong”) also organised “SME Conference - The Road to Recovery for SMEs” to explore how SMEs can engage in innovation through digital technology to optimise operations and gradually move towards recovery.
Four of the five major sub-indices* reported an increase, two of which above 50 indicating optimistic sentiment. “Recruitment Sentiment” fared the best with 51.7, a two-and-half-year high. Among them, 16% of the SME respondents expect salary to increase in the coming quarter. “Accommodation and Food Services”, “Information and Communications” and “Social and Personal Services” industries had the strongest hiring intention, with nearly 20% of the SMEs surveyed from the three industries indicating that they would hire more staff. The sub-index "Global Economy" fell slightly from the previous quarter by 1.9 to 50.9, but still ranked second among the five major sub-indices.
In terms of “Investment Sentiment” in the coming quarter, the SME respondents expect to increase investment on “Product and Marketing Promotion” only. Investment sentiments in all other areas decreased, with that of inventory (including raw materials and products) being the lowest. Also, SMEs surveyed in this quarter expect continuous rise in cost of raw materials and price of commodities in the coming quarter. As many as 65% of SMEs expect the cost of raw materials to rise, the highest among the survey in the four quarters of this year.
Mr Edmond Lai, Chief Digital Officer of HKPC, said, “Even though the index did not exceed the 50 neutral mark this season, it still hit a three-year high. SMEs’ ‘Recruitment Sentiment’ performed the best and the economy gradually recovered. SME employers are more optimistic about the prospects. Competition in the human resources market has also become fierce. Recruitment intentions have become relatively prosperous. The epidemic has accelerated the technological transformation of all walks of life. Digital transformation and innovation are essential for business development, which results in greater demand for talents with ‘FutureSkills’. In recent years, the HKPC Academy under HKPC has also provided a number of diversified ‘FutureSkills’ training courses and services, aiming to help individuals and the industry upgrade their skills to adapt to the increasingly digital and innovative business environment under the new normal.”
Mr Kelvin Lau, Senior Economist, Greater China, Global Research, Standard Chartered Bank (Hong Kong) Limited, said, “It is encouraging to see our overall SME Index improving for a third straight quarter, to a 13-quarter high of 48.2. Although the overall SME Index was still below 50, things could have been worse given how growth in the mainland economy has been slowed in recent months, first due to COVID resurgence, and more recently real estate challenges and rolling power outages. Elsewhere outside of the mainland, we have also been seeing rising Delta-variant cases and more talks of US Fed tapering concerns. All this looks to have weighed on the more externally-oriented sectors in Hong Kong – ‘Manufacturing’ and ‘Import/Export Trade and Wholesale’ sub-indices both dipped below 43.0 this time, making them clear underperformers outside of ‘Construction’ sub-index; the risk is for them to stay weak in the coming quarter if disruption from power shortage in the mainland lingers. Conversely, our industry sub-indices confirmed that Hong Kong’s services sectors – led by ‘Accommodation and Food Services’ (+9.7), ‘Professional and Business Services’ (+4.9), ‘Financing and Insurance’ (+3.7) and ‘Retail’ (+2.8) -- remain on a steady recovery path; we expect this to continue so long as Hong Kong can maintain its zero local COVID case streak. We believe Hong Kong’s newfound domestic resilience should continue to act as a timely anchor to local SME confidence when the rest of the world deals with lingering growth and rising inflation concerns.”
The thematic survey for this quarter explored the views and deployment of SMEs on “Innovation”. It found that “Product / Service Development or Enhancement”, “Operational Cost Reduction” and “Staff Competitiveness Enhancement / People Management” would be the top three areas where the surveyed SMEs plan to direct their resources for 2022; while “Environmental and Green Sustainability” and "Innovation” would be the areas with the least resources for investment.
With most wanting to achieve “Cost Reduction" and "Quality Improvement” through innovation, the biggest obstacles encountered by SMEs when trying to innovate include difficulty in predicting the benefits, worries about the innovation costs being too high or a lack of funding, and thinking that innovation does not meet the nature of the company's business.
The results of the thematic survey reflect that SMEs in general only associate “innovation” with improving products or services and have no idea how to apply it in other business areas or processes. “Innovation” can actually be extended to innovative ideas and design thinking to break out of the established framework to solve business pain points in this digital age. Innovation can be applied to the entire business process of SMEs such as sales, personalised services, customer management, daily and technical operations. Mr Lai added, “Application of innovative technology in traditional production process with smart use of real-time data can save manpower, streamline production process, enhance productivity and achieve intelligent production. Traditional retail can also come in innovative forms such as online sales and customised products to bring a better customer service experience or even open up new markets or collaboration opportunities, with unlimited business opportunities.”
He continued, “The results of the thematic survey reflect that short-term benefits such as ‘reducing costs’ or ‘increasing revenue’ are the key incentives for SMEs to innovate. The worry of an increase on operation costs is a concern on ‘innovation’. In the new economy, with business competition becoming more intense, ‘innovation’ is the key to success and continuous growth in the post-pandemic era. In the long run, the benefits of innovation will far exceed its costs. Therefore, SMEs should plan their innovation roadmap as soon as possible and leverage on digital technology to upgrade and transform. As the cost of innovation varies, HKPC’s “Digital Transformation Starter Kit” provides a cost-effective introductory program for SMEs with tight budget to implement at a relative low cost.”
Mr Lai added, “In addition, HKPC has always been committed to helping companies understand and apply ‘Design Thinking’ to practice innovation. The HATCH, whom we jointly set up with the Fraunhofer Institute for Production Technology from Germany, helps accelerate the adoption of ‘Design Thinking’ in developing innovative market-leading products, services or improving business operation models, etc., to promote industrial innovation, by strengthening the ‘smart innovation’ capabilities of SMEs and introducing them the appropriate government funding schemes.”
On the same day, HKPC and Standard Chartered Hong Kong also held the SME Conference 2021, “The Road to Recovery for SMEs”, focusing on how to achieve innovative and sustainable business with the adoption of digital technology in order to strengthen competitiveness and embrace new market opportunities in the digital and post pandemic era. The event had invited Mr Edward Yau, Secretary for Commerce and Economic Development to deliver the opening remarks while Mr Willy Lin, Chairman of HKPC, and Ms Mary Huen, Chief Executive Officer, Hong Kong, Standard Chartered Hong Kong, gave welcome speeches. Mr Edmond Lai, Chief Innovation Officer of HKPC, together with other business leaders, SME representatives and economists, shared their views on the opportunities of digital retail, green and sustainable development from multiple perspectives, as well as the creative adoption of technology to conjure a win-win situation for businesses.
Moreover, “ForeSight Series”, a thought-provoking signature event with an aim to help local companies capture the essence of impending economic development and technology trends in the year ahead returns this year. “ForeSight 2022” under the theme of “Dare to Innovate, Capture the Opportunities” will be held on 18 - 19 November in order to provide SMEs and startups with a more comprehensive business outlook for the coming year with new horizons revealed from the trends, opportunities, successful cases and practical business tips shared by heavy weight speakers.
Conducted in September 2021, the Standard Chartered SME Index survey successfully interviewed 817 local SMEs. The report will be available for download from HKPC website: https://u.hkpc.org/scbi-hk.
To learn more about HKPC’s smart solutions to help enhance the productivity of SMEs with advanced technology in achieving Make Smart Smarter, please visit the dedicated webpage: https://smarter.hkpc.org.
*The five Sub-categories are “Recruitment Sentiment”, “Investment Sentiment”, “Business Condition”, “Profit Margin” and “Global Economy”.
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