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Friday, May 28, 2021, 11:07
Digital revolution — a race for survival for SMEs
By Oswald Chan
Friday, May 28, 2021, 11:07 By Oswald Chan

COVID-19 has hastened the digitalization of HK’s small and mid-size enterprises. With the impending launch of electronic consumption vouchers, it’s imperative for them to embrace the digital business environment to survive. Oswald Chan reports from Hong Kong.

Before the onset of the COVID-19 pandemic, few small and medium-sized business had a knack for digital technology, satisfied that their existing modus operandi would suffice.

But the global public health crisis has almost completely changed that mentality, forcing many to switch from the offline to the online mode of operations. With digitalization emerging as the barometer for survival, SMEs have jumped on the technology bandwagon by expanding online sales channels, strengthening cybersecurity and digitalizing their operations.

SMEs shouldn’t be concerned just with technology support. More important are the changes in management and employee mindset, as well as the awareness of, or strategies in digital transformation

Edmond Lai, chief digital officer at the Hong Kong Productivity Council

The Hong Kong Trade Development Council, tasked with creating and promoting opportunities for enterprises, said that even if physical fairs and exhibitions were to resume, it would continue to organize regular online sourcing events to generate further business opportunities for suppliers and buyers globally.

According to the Global Association of the Exhibition Industry, the exhibition business worldwide shrunk by 68 percent last year compared with 2019, with US$370 billion worth of business pacts among exhibition participants failing to materialize.

Not only has the sourcing pattern changed, but also consumption habits.

Asia’s smart commerce platform Shopline launched its Online Pop-up Store on this year’s Mother’s Day, featuring more than 1,000 products, including perfumes, apparel, kitchenware and dried seafood, from over 60 participating merchants.

Shopline teamed up with YouTube channel Arm Channel to host two livestream sessions before Mother’s Day to help merchants gain brand exposure and interact with consumers. Orders placed during the sessions would be delivered within 24 hours at the earliest by intelligent logistics startup Zeek.

Publicly listed online merchant Hong Kong Television Network has launched “HKTVexpress”, offering one-hour delivery through HKTVmall app for various grocery and lifestyle products made on “HKTVexpress”. Some 4,200 merchants and suppliers are offering more than 500,000 product choices. Currently, more than 800 retail pickup points have signed up for the service, and up to 6,000 pickup points are expected to be in operation by the end of this year.

Although the business environment is tilted toward digitalization, SMEs in Hong Kong are still trailing in the field.

According to the 2020-21 Asia-Pacific Small Business Survey published by CPA Australia in March, only 8.5 percent of small Hong Kong businesses polled are willing to introduce new products or services this year, compared with the survey average of 23 percent. The survey interviewed 4,227 small businesses in 11 markets across the Asia-Pacific region, including 306 small enterprises in the special administrative region.

The survey revealed that only 17 percent of Hong Kong respondents have taken action to begin or increase online sales, which is lower than the survey average of 25 percent.

Although 57 percent of Hong Kong respondents received more than 10 percent of their sales through digital payment options, it’s still a far cry from the survey average of 64 percent, and significantly lower than the Chinese mainland’s 91 percent, according to the poll.

Obstacles in digitalization

A host of factors explain why Hong Kong SMEs are slow in embracing digitalization.

An HKTDC survey conducted in the first quarter of this year showed that more than 56 percent of the exporters interviewed blamed intense competition in the e-commerce market for the slow growth of online business. More than 52 percent of the respondents highlighted the ineffectiveness of digital marketing campaigns.

Other issues identified included uneconomically small orders, difficulties in maintaining long-term relationships with buyers on a virtual basis, potential cybersecurity risks, and the need to train e-commerce employees.

“As the profits of SMEs drop significantly, the lack of capital has forced them to retrench their financial resources that can be spent on technology investments. This will ultimately affect their willingness to try out new technology products,” CPA Australia’s Greater China Divisional President 2021 Janssen Chan said.

He said SME owners who are younger than 40 years old are more receptive to technology adoption, while those who are over 50 are more reluctant to apply technology.

“For small businesses like food and beverage outlets and restaurants, as well as self-employed taxi drivers, the cost consideration outweighs other factors in adopting technology,” Chan said. Digital payment options entail terminal installation costs, account maintenance charges, and a certain percentage of commission fees to be paid to digital payment service operators based on SMEs’ monthly business receipts.

Moreover, some businesses, like clothing retailers, still need physical retail stores to allow customers to try out new products in person. Therefore, online sales are not the preferred option for such retailers.

CPA Australia said Hong Kong SMEs must catch up in adopting technology lest they be outpaced by regional competitors. Currently, SMEs want to ramp up capabilities in areas like big data integration, cybersecurity, process automation and the internet of things.

With Hong Kong set to implement its electronic voucher program soon, SMEs will be at a loss if they fail to keep pace with the technology age, as the program will cover both physical and online stores in the retail, food and beverage, and services sectors.

The city’s four operators of stored-value facilities assigned by the government under the program have agreed to waive fees, as far as practicable, for the installation and usage of electronic payment devices by local merchants, particularly SMEs, as well as administrative fees for processing payments made with the vouchers.

The SVF operators, taking into account their own operational model and commercial arrangements, will also rebate the additional income generated from consumption vouchers to consumers or merchants by various means.

The government hopes the e-voucher program, costing more than HK$36 billion (US$4.64 billion), could boost the pandemic-battered economy and foster the development of the local electronic payment market. Vouchers worth HK$5,000 will be disbursed to eligible Hong Kong permanent residents and new arrivals aged 18 or above in installments.

Edmond Lai, chief digital officer at the Hong Kong Productivity Council, said SMEs shouldn’t be concerned just with technology support. More important are the changes in management and employee mindset, as well as the awareness of, or strategies in digital transformation. This is because running a digital business is not the same as that of an offline business which requires the new management approach.

“A lot of SMEs may think they just need to open an online store and wait for the business. It isn’t that easy! You’ve to learn digital marketing so as to draw online traffic for the online store and know how to put product photos online that will attract your targeted clients,” Lai said.

“How to manage a virtual team to work for you? How do they work together through the online world? This requires a different set of management skills,” he said. “You also have to think how to grow the online business. What is the next growth strategy after technology deployment? How to combine the offline and online segments to create a hybrid mode of business?”

SMEs also have to design a new compensation system for their sales people at physical stores as online business may take away a portion of their income.

The HKPC, as the government’s statutory organization to promote technology for Hong Kong firms, will have to do more to promote cybersecurity for SMEs as most of them had underestimated this risk before the pandemic. With online sales in Hong Kong growing, it would be wise for SMEs to bolster cybersecurity.

Ways to tap e-commerce

In the second quarter of this year, the HKPC will start a subscription-based online platform of digital tool kit services covering digital marketing, online fulfillment, online transaction, online customer services, online back office and cybersecurity. “By paying a monthly subscription fee, SMEs can have the technology in a few weeks at a lower expenditure. When they can get revenues sooner, they can procure more digital services,” Lai said.

The HKPC aims to promote government funding support for SMEs through a combination of onsite and virtual fund fairs. The effectiveness of government funding programs depends on how many SMEs are aware of them. After SMEs have used the funding, the government can refine the measures based on their feedback.

In March, the government revised the “Special 100% Loan Guarantee of the SME Financing Guarantee Scheme”, extending the application period and relaxing the maximum loan amount and maximum repayment period.

Under the Anti-epidemic Fund, the Innovation and Technology Commission launched the Distance Business Program to support enterprises in adopting information technology solutions to continue their business and services during the pandemic. As of May 11, 26,396 applications involving total funding of HK$1.71 billion had been approved, with the applications averaging HK$64,800.

From a long-term perspective, in addition to digitalizing the whole business process, SMEs should learn how to tap the e-commerce business ecosystem in order to access more funding and other business resources.

The Hong Kong Monetary Authority set up a commercial data interchange in November, enabling data owners, including consumers and businesses, to share information with banks via data providers, such as fintech companies, utilities and payment gateways, with their consent.

With customers’ consent, banks can gain access to a substantial body of relevant and authenticated data to enable them to forecast the cash flow of businesses, identify cash flow patterns, understand counterparty risks, and make loans without having to ask for collateral. Merchants that outperform projected sales can then begin to improve their credit standings.

The service could solve long-standing pain points in SMEs’ financing by allowing small-business owners to use their own data to enhance their access to financial services.

HSBC and HKTVmall, which have joined the CDI project, said they’ll join forces in utilizing commercial data to roll out a simpler and faster digital trade finance solution, and to support SMEs seeking to tap the local e-commerce market. Both parties will also collaborate in big data analytics and open programming interface  technology.

HKTVmall will provide merchant data, including turnover and refund records of different types of goods for HSBC to analyze and forecast business performance during the credit assessment and monitoring process. Based on the commercial data from the HKTVmall platform, a pilot digital trade loan was offered to Cleanic Cleaning Equipment, a household cleaning equipment and tools company. The digital trade finance service will be launched later this year.

SMEs form an important pillar of Hong Kong’s economy, accounting for more than 98 percent of businesses in the city and about 45 percent of total employment in the private sector. If they can better harness innovation and technology, Hong Kong could further cement its competitiveness in the region.

Contact the writer at oswald@chinadailyhk.com


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