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Thursday, November 24, 2016, 23:01

Digital world the new ‘lifeline’ for exporters

By Oswald Chan
Digital world the new ‘lifeline’ for exporters
Rows of shipping containers stacked up at Kwai Tsing Container Terminals in Hong Kong. The city’s trade growth is unlikely to be sustainable, experts warned, in the light of a rather mild economic recovery in the developed economies, especially the US and eurozone, which are the leading markets for Asian exports. (David Paul Morris / Bloomberg)

Amid continued uncertainties in global trade and other business hurdles such as high costs, intense competition and logistics inefficiencies, Hong Kong exporters have been urged to embrace digital technology to further capture market opportunities.

The SAR’s trade deficit widened last month as total exports slipped 1.8 percent from a year ago — lower than market estimates — while imports went up 0.5 percent, according to government data released on Thursday.

SMEs told to rise to the occasion in the face of global uncertainties and cloudy trade scene

“Looking ahead, Hong Kong’s export outlook in the near term will still hinge on global demand conditions,” a government spokesman said.

Hong Kong’s total goods exports grew 1.9 percent in the third quarter of this year due to stabilization of external demand and manufacturing activities in the Asian region in the previous six months. Exports to Asian economies, including the Chinese mainland, Taiwan, South Korea, Singapore and India, soared significantly, according to the Census and Statistics Department.

As the external trade environment improves, local small and medium-sized enterprises (SMEs) that make up the bulk of Hong Kong’s exporters — accounting for more than 90 percent of its companies and over 50 percent of employment — are bullish on trade prospects.

“US economic recovery is mild, Brexit’s impact on the eurozone’s mild economic growth should be minimal, and coupled with medium-to-high economic growth on the Chinese mainland, Hong Kong’s export sector performance should be resilient in the coming periods,” Government Economist Helen Chan Lee Hoi-lun said this month.

About 82 percent of local SMEs saw steady or increased exports over the past year, generating an average of HK$9.06 million in revenue that accounts for more than two-thirds of their overall revenue. About 35 percent had even forecast an average double-digit growth of 17 percent for next year, according to a survey by FedEx Express.

Conducted by Harris Interactive for the global courier services company, the survey interviewed 9,000 business senior executives, including 500 Hong Kong SME representatives, to analyze their insights into global export opportunities and challenges facing SMEs.

According to the poll, the city’s SMEs are particularly bullish on intra-regional export, with 49 percent anticipating 17-percent revenue growth on average.

Despite the recent market improvement, exporters are still grappling with various challenges. Some 44 percent of SMEs said higher production costs loomed as its largest obstacle, followed by greater international competition (39 percent), stiffer local competition (32 percent) and supply-chain inefficiencies (30 percent).

“Rentals and wages actually have not decreased much in Hong Kong and this heaps pressure on local SMEs. They are optimizing every aspect of the manufacturing process, including materials, labor and logistics operation, in order to cut costs,” said Anthony Leung Ming-tim, FedEx Express’ Hong Kong and Macao managing director.

The survey also found Hong Kong SMEs are lagging behind in mobile commerce and social commerce penetration. Only 56 percent are generating revenue through m-commerce (transactions conducted on smartphones), with 73 percent utilizing social media transactions. This is lagging behind the mainland at 94 percent and 88 percent, respectively.

Digital world the new ‘lifeline’ for exporters

This means SMEs need to play catchup in mobile payment and peer-to-peer (P2P) solutions through government policy, technology and interbank infrastructure.

“Hong Kong SMEs are flexible and fast enough to embark on e-commerce and m-commerce to diversify their revenue streams, while big corporations are more lukewarm toward these initiatives because they are more conservative in their business positioning,” Leung said.

According to business portal “Hong Kong E-commerce”, the SAR’s e-commerce revenue is expected to reach $3.32 billion this year and grow at a compound annual growth rate of 10.5 percent to $5.47 billion by 2021.

The FedEx survey also recognized the importance of logistics in export growth, as an efficient supply chain performs a pivotal role in enhancing customer experience and managing costs, helping win customers and improving bottom lines.

Accounting professional body CPA Australia warned that Hong Kong SMEs may not have sufficient cash inflows to support their businesses. It said this can be countered by the Hong Kong government granting more tax incentives for SMEs to reinvigorate their contributions to the local economy.

A CPA Australia survey of 142 finance, accounting and business professionals in Hong Kong found that 30 percent of respondents supported slashing the profits tax rate to 13.5 percent. Another 37 percent agreed it’s necessary to enhance SMEs’ cash inflows by allowing them to carry back losses for a period of two years, as well as a 10-percent rebate on profits tax paid by SMEs in the past two years.

“Enhancing cash inflows for SMEs is pivotal because it can bolster their financial capability in times of global macroeconomic uncertainty unleashed by the Brexit vote and Donald Trump’s election as the next US president,” said Theresa Chan Kit-yu, Greater China’s taxation committee deputy chairperson at CPA Australia.

Another hurdle faced by SMEs is a subdued global trade climate, with economists staying cautious with the future trajectory.

“We think that structural factors are restraining exports and that activity across Asia will at best limp along for the foreseeable future. For Asia overall, manufacturing is now expanding, though barely, and it’s still lagging the Western economies,” HSBC’s Asian Economics Research Co-Head Frederic Neumann said.

“Growth in advanced economies, in particular the US and eurozone, has remained moderate. Without a pickup in growth in these economies, which are the leading markets for Asian exports, Hong Kong’s trade growth is unlikely to be sustainable,” Hang Seng Bank acting chief economist Thomas Shik said recently.
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