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Small and medium enterprises (SMEs) in Hong Kong remain broadly optimistic about their business despite cost pressures and the local economy’s negative outlook, according to research by QBE.
The study showed that majority of Hong Kong SMEs (54%) expect the economy to worsen in the year ahead, attributing it to increasing international trade disputes (67%), operating costs (54%) and global competition (46%). However, this does not appear to be reflected in their business expectations as almost three quarters (74%) of SMEs predicted their revenue to remain stable or even grow this year. In fact, only 7% cited an economic downturn or international trade disputes as the primary challenge for their business.
The QBE Hong Kong-commissioned study, titled SMEs: Navigating Opportunities and Risks, surveyed 415 SMEs in November 2018. Its findings showed that many SMEs are facing cost pressures on multiple fronts, such as talent recruitment, technology investment, and mitigation of business risks. SMEs are considered the lifeblood of the Hong Kong economy, with 340,000 of these businesses accounting for nearly half of those employed in the City.
The majority of the SMEs surveyed (59%) operate solely in Hong Kong, and nearly half (47%) have no interest in expanding their footprint beyond Hong Kong. For the other half, however, the most popular destinations for cross-border expansion include the Greater Bay Area (46%), mainland China excluding the Greater Bay Area (41%), the US (26%), Singapore (21%), Taiwan (20%), and Japan (18%).
Worryingly, the study also found that amid all the global and market uncertainty, SMEs are quite underinsured. While SMEs are concerned about the loss of income due to business interruptions (62%) and third-party liabilities (59%), only around one in five of SMEs have the right insurance protection against business interruptions (21%) and third-party liability (16%). Furthermore, 14% do not have any insurance at all, making them vulnerable to risks that could ruin their business. This is despite 73% of SMEs having experienced at least one business issue in the past year, such as equipment breakdown, damage or loss of inventory, and property damage.
“The findings are significant because the vast majority of SMEs in Hong Kong are clearly underprepared and vulnerable to incidents that could cause a significant business interruption,” said Lei Yu, CEO for North Asia, QBE Insurance. “Given that they employ nearly half of the workforce in the city, the consequence could be profound for the company and possibly the economy at large.”
