Asia's Small Businesses See Tough Road Ahead

Hong Kong, May 26, 2009

SMEs predict slow economic recovery and seek new growth opportunities according to annual UPS survey

With much of the world’s attention focused on saving American institutions, small-to-medium enterprises (SME) in Asia are calling out for help as they struggle, not only to survive the economic downturn but more importantly, position themselves strategically for the upturn. Anticipating a slow economic recovery, SMEs want their respective governments to play a greater role in helping them through this challenging period and in particular, enhance their ability to access funding, according to results from the latest UPS Asia Business Monitor (UPS ABM) 2009. (Please see Appendix.)

The most pressing concerns cited by SME leaders this year are: overcoming the current economic downturn, managing cash flow and rising debt and coping with increasing costs. Sixty-three percent of Asian SMEs said they intend to maintain staffing levels and will resort to other means to cope with the decline. (Please see Appendices 2, 3 and 4.)

“This year’s UPS ABM survey shows that SMEs have a tough road ahead. With SMEs making up 95 percent of all businesses in Asia Pacific, their desire to keep their workforce and at the same time, operate competitively is commendable. Their call for help should not go unheeded,” said Derek Woodward, President, UPS Asia Pacific region. With 80 percent of Asia-Pacific’s workforce employed by SMEs, their efforts to retain staff will play an important role in keeping the Asian economy stable. Seventy-one percent of SMEs will tighten their cash management flow with the use of strict credit control and collection plans, 67 percent will reduce other costs such as rent and utilities, and 33 percent said they will reduce staff-associated costs, but not necessarily through downsizing.

The UPS ABM 2009 reveals the challenges SMEs currently face:

SMEs are pessimistic about trade. They expect trade between their countries and other regions to significantly decrease, particularly with Europe and North America and even within Asia-Pacific. This leaves SMEs little opportunity to leverage overseas business opportunities. For export-oriented SMEs, this can be devastating. (Please see Appendix 8.)

On SME perceptions on trade growth, Intra-Asian trade recorded a steep fall from 71 percent in 2008 to 28 percent this year. Other sharp declines can be seen in projections for trade with the Middle East, falling from 55 percent in 2008 to 27 percent in 2009, North America, from 43 percent last year to 15 percent this year, and Europe, down from 54 to 15 percent respectively.

SMEs want local governments to do more to help them weather the recession. Nearly 80 percent cite lack of government support as the biggest obstacle to SME competitiveness. Eighty-six percent of respondents say that governments should focus on helping them gain better access to capital, financing and loans. Forty-six percent believe that government intervention is needed for their country’s economy to recover. (Please see Appendices 6 and 7.)

Financing SME survival. The majority of SMEs are encountering problems in financing their business – 73 percent this year versus 58 percent in 2008. Forty-five percent feel institutions are not willing to lend to small businesses; 44 percent encounter bureaucracy and red tape in processing applications; and 41 percent cite insufficient collateral as a problem they have encountered in business financing. (Please see Appendix 5.)

“We hope the UPS ABM findings help to draw attention to the critical role of the government this year and that together with the business community, we can collectively respond with adequate solutions to ease the burden of the SMEs. UPS is ready to play our part and help SMEs operate a more efficient supply chain as they prepare for the rebound in the economy,” said Mr. Woodward.

Other key findings in the UPS ABM 2009 include:

SMEs are focused on delivering new value and targeting new markets
Twenty-nine percent of the SMEs polled cite moving to higher value-added products and services as the single biggest growth opportunity under current global economic conditions, while 16 percent feel that exploring new markets would help them achieve growth. Similar sentiment is reflected when SMEs discuss their contingency plans to counter the effects of the global economic recession ― 63 percent intend to diversify and/or explore new revenue lines in addition to controlling costs, while 33 percent say they would change the business model. (Please see Appendices 9 and 4.)

SMEs foresee potential in Agricultural, IT and Healthcare
Twenty-seven percent of SMEs regard Information Technology as the sector that will provide the most growth opportunities in 2009, a stark change from 2008 when Manufacturing was regarded as the most important industry. SMEs also see potential in the Agricultural, Forestry and Fishing industries (25 percent in 2009 versus 15 percent in 2008) and the Healthcare and Pharmaceutical industries made the biggest jump (23 percent in 2009 versus 8 percent in 2008). (Please see Appendix 11.)

Pockets of confidence still exist
Although forty-one percent of SMEs polled feel that their company’s prospects will worsen in 2009, compared to 7 percent in 2008; a quarter of them anticipate better business prospects, while 35 percent feel they are likely to experience a similar business performance as in 2008. One possible reason for their continued confidence is that SMEs tend to be entrepreneurial and optimistic. (Please see Appendix 10.)