The business sentiment of Hong Kong local small and medium enterprises (SMEs) remains pessimistic.
According to the latest findings of the ¨Standard Chartered Hong Kong SME Leading Business Index〃 (Standard Chartered SME Index), the overall Index is 46.3 for the fourth quarter of 2012. Although the reading is slightly improved from 42.9 in the last quarter, it is still below the 50 no-change mark. The quarterly index survey is independently conducted by the Hong Kong Productivity Council (HKPC), aiming to enable the public and SMEs to get an insight into the forthcoming business climate for better forward planning.
The Overall Index comprises five areas, including local SMEsˇ outlook on their ‘sales amount’, ‘profit margin’, ‘investments’, ‘staff number’ and ‘global economic growth’ for the next quarter. In the latest survey, telephone interviews with 806 SMEs in eight industry sectors were conducted in September 2012.
Among the five surveyed areas, the Sub-Indices for ‘staff number’ and ‘investments’ scores slightly above 50, indicating SMEs interviewed are still willing to allocate resources in these two areas. These investments are mainly for use in expanding production capacity, increasing raw materials inventory, and the purchase of equipment and facilities. No respondent has plans to invest in automation. However, the Sub-Indices for ‘sales amount’, ‘profit margin’ and ‘global economic growth’ are below 50 (indication of pessimism), though the readings is risen significantly from last quarterˇs.
In terms of industry sectors, the Retail Industry Sub-Index post 46.2, up 23.5% against the last survey, the highest increase among all surveyed sectors. It reflects a marked improvement on the economic outlook for the retail sector. The Sub-Indices for Import/Export/Wholesale Industry and Manufacturing Industry remained almost the same, scoring 45.6 and 41.8 respectively.
The respondents were also surveyed about their company cost structure. Results showed that the three major cost components, namely raw materials, employee salaries, and rent account for 67% of the total costs. In particular, rent accounts for 24% of the total cost of SME retailers interviewed, which is higher than those of the Import/Export/Wholesale Industry (20%) and Manufacturing Industry (16%).
For raw materials, though 53.7% of respondents expected the cost to rise in the fourth quarter, the reading has dropped by 21.6% from the last survey. As SMEs expect further rise in material costs, Leo Lam, Director (Business Innovation) of HKPC advised to adopt automation and information technology, such as cloud-based solutions, to effectively monitor and control cost.