Hong Kong SMEs least optimistic about future economic growth out of all markets surveyed in Global Business Monitor 2019
Hong Kong, 9 October 2019 - Bibby Financial Services, a global financial services partner for SMEs, and Euler Hermes, a global leader in trade credit insurance, jointly released the Global Business Monitor 2019 Survey showing that rising overheads or costs (36%) and cashflow (30%) were the greatest challenges facing SMEs in Hong Kong and Singapore.
The cashflow issue is not unique to the region, as the survey revealed that it has become a greater challenge facing SMEs across all markets surveyed, rising to 32% this year. Cashflow problems are expected to remain the biggest challenge facing Hong Kong’s SMEs for the near future, exacerbated by increasing pressure from a lack of demand.
Out of all cashflow problems, Hong Kong SMEs said they struggled the most with the timely collection of payment from customers. While the issue is not exclusive to Hong Kong, as all markets surveyed this year cited it as an issue, there was an increase from 43% of respondents that stated it as the most problematic area in terms of cashflow management in 2017, to 47% this year in Hong Kong.
Hong Kong SMEs had the second-longest average waiting period out of all the markets surveyed in the report, when it comes to waiting to receive payment from customers as of 2019. The average wait reported was 34 days, although this is also an improvement from the 41-day wait reported in 2017. Singapore, however, had an average of 41 days of waiting, the longest out of all markets surveyed. More than a quarter of Hong Kong’s respondents (27%) said they experienced bad debt over the past year, which is a figure unchanged from 2017.
Cashflow remained one of the key challenges for Hong Kong’s SMEs despite improved government support, with 16% of respondents (up from 9% in 2017) saying that government policy has been favorable to them. However, 38% of SMEs in Hong Kong said that they were still calling for further support from the government to increase funding available to them.
Less than optimistic about future prospects
Of all the markets surveyed for the 2019 report, Hong Kong SMEs were the least optimistic about future economic growth, with 41% expecting Hong Kong’s economic performance to worsen in the next 12 months. A similar proportion felt that the local economy would stay the same, at 40%, with only 30% expecting the local economy to grow over the next 12 months.
Hong Kong is also the market that is most concerned about global economic growth, as 70% of respondents in Hong Kong said they were concerned about global economic growth, compared to 56% of all respondents surveyed across all markets. Major concerns that Hong Kong SMEs cited include the political situation in the US (54%), protectionism and declining international trade (32%) and slowing growth in China (32%).
Open to innovative external financing sources
Hong Kong SMEs were amongst the most open to considering innovative external sources of financing, with an increase in proportion from 16% in 2017 to 26% in 2019 using external finance, 32% saying that they would consider factoring as a potential source of finance for their business, and 29% saying they would consider P2P (peer-to-peer) or online lending. In Hong Kong, 33% of respondents cited concerns about data security as the main reason they would not consider it. Due to ongoing concerns about P2P data security and the lack of regulation of P2P, factoring was considered to be significantly more attractive.
In common with SMEs around the world, 48% of Hong Kong SMEs identified documentation and paperwork as the main obstacles for SMEs seeking access to finance. Rejected applications for external finance have increased sharply in the last two years, doubling from 8% in 2017 to 17% in 2019. The main reason for rejection was because the SMEs were considered to be in risky industries or sectors (36%).
Maria Chung, Managing Director at Bibby Financial Services Hong Kong, said: “Keeping up cashflow and smooth access to financing is crucial for SMEs when it comes to remaining competitive and stable, especially amid the volatile business environment they are currently facing that comes with challenges from both external and internal factors. SMEs should take the initiative to look into alternate funding sources that are growing in availability and accessibility in the market.”
Ludovic Subran, Global Chief Economist at Euler Hermes, added: “As the risks of a recession rise and global GDP is expected to grow at its slowest pace since 2009 in 2020 (+2.4%), it is all the more important that SMEs have virtuous payment loops to avoid going bust. Global insolvencies are expected to rise by 8% in 2020 for the fourth consecutive year, and one in four bankruptcies for SMEs comes from a non-payment.”
Developed in 2016, the Global Business Monitor conducts research into SME sentiment on topics such as confidence, the economy, access to finance, opportunities and threats. This year, approximately 2,300 SMEs were surveyed across 13 markets, with 150 SMEs surveyed per market (with the exception of the US with 500 interviews) to build on the previous studies. The surveyed SMEs were spread across a wide spectrum of industries, including wholesale, manufacturing, construction, transport and service sectors. Data analysis and reporting were conducted by the BFS Global Insight Team. The survey aims to better understand and compare local business environments with a global perspective.