SMEs Bullish on Intra-Asia Growth Opportunities

Hong Kong, August 05, 2010

Leaders Tell UPS They Expect Growth in 2010, But Rising Costs a Serious Concern

In contrast to long held beliefs that Asian small-to-medium sized enterprises (SMEs) are heavily reliant on trade with the U.S. and Europe, the UPS Asia Business Monitor (UPS ABM) 2010 reveals most SMEs are conducting a large proportion of their trade within the Asia Pacific region.

The survey shows that amidst renewed confidence shown by SMEs, more than 80% of their businesses are conducted within the Asia Pacific region, versus 6% with the U.S. and 8.1% with Europe . Their medium-term expansion plans are also focused in Asia Pacific with 56% of SMEs anticipating expansion in the region in the next three years, compared to 20% in Europe, 19% in the Middle East and 14% in North America .

The UPS Asia Business Monitor is an annual survey conducted with SME decision makers on SME sentiments, issues, pain points and opportunities across the region. This year's survey covered 1,350 SMEs across 13 markets: Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam.

The responses from SMEs reflect greater optimism when compared to last year. More than half (52%) expect greater growth opportunities in 2010 while only 4% anticipate a decline. SMEs in the Philippines are by far the most bullish on their country's prospects, while Korean SMEs foresee the fewest opportunities.

Even with rising optimism, the deep wounds caused by the financial crisis have not fully healed and funding continues to be a major concern for SMEs. For many SMEs, their top fears are rising costs, competition, interest rate hikes and cash flow. Last year, the overriding concern was the economic downturn.

"This year's ABM survey shows that many regional SMEs have broken free from the financial shackles of the 2009 crisis," said Derek Woodward, president of UPS Asia Pacific Region. "However, rising costs are still a major concern. Many SMEs are looking to improve their supply chain management to help better manage their costs."

"The confidence of Asian SMEs in overseas trade is close to levels seen during the pre-financial crisis period," added Dan Brutto, president of UPS International. "They're focusing first on their own region, which is not surprising. That certainly is consistent with the strong, double-digit package volume growth we saw last quarter across Asian trade lanes."

Additional UPS ABM 2010 highlights include the following:

Majority of SMEs say "The only way is up"
SMEs believe economic recovery is well under way. Almost half of the respondents anticipate positive growth prospects for the region, and another 37% expect economic growth prospects to stay the same as last year. In contrast, last year's UPS ABM found 65% of SMEs expected the economy to decline. Overall, SMEs in Asia are much more optimistic about the prospects of their own business in 2010 than 2009.

Attitudes to trade positively fueled by FTAs available to Asian SMEs
SMEs' projections for trade growth within Asia have more than doubled since last year, from 28% to 69% . A possible reason for this is the numerous Free Trade Agreements (FTAs) that have come into effect or are signed this year. For example, the ASEAN-China FTA, which began in January 2010, saw immediate results with South China's Guangxi Zhuang autonomous region and Vietnam approving a framework agreement in February 2010 to establish a new cross-border economic zone. In addition the ASEAN-Australia-New Zealand FTA (AANZFTA) also came into effect in January 2010, while the Singapore-Costa Rica FTA (SCRFTA) was signed in April 2010. On 27 June 2010, it was announced that the Obama administration would move forward on the U.S.- Korea FTA.

SMEs still feel the heat despite being more optimistic
Although SMEs are upbeat about their business prospects, money is still a big concern, with 40% of SMEs citing rising costs as a key concern. Thirty-five percent are concerned with being competitive, and 23% worry about retaining their employees and their remunerations.

SMEs know their strengths when competing with multinationals
SMEs are aware that their competitive edge against multinational companies is flexibility, higher quality services and better prices . Indian SMEs, are the most concerned about competition among all SMEs in the region, are leveraging supply chain management as a method for quality assurance to ensure product integrity.

Shift in perceived sector opportunities as SMEs look for better prospects
While IT and Manufacturing continue to be the leading industry sectors in terms of growth opportunities, the automotive sector saw the biggest increase in percentage points, jumping from 7% in 2009 to 20% in 2010 . This is in line with recent industry reports. For example, the automotive industry in India grew at a compound annual growth rate (CAGR) of 11.5 percent over the past five years, while expectations of sales growth in South Korea's auto market (domestic vehicles) in 2010 is anticipated to rise 16% year on year, compared with an earlier forecast of just 6%.

Other shifts in attitudes were evident when SMEs revealed they are most pessimistic about the utilities and energy, agriculture and biotechnology industries compared to a year ago.

China remains most competitive
Chinese SMEs are once again perceived to be the most aggressive by their counterparts in other Asian countries. This is despite inroads made by regional competitors such as India, which only placed seventh among the 11 countries surveyed. Korea and Japan share a joint second position, while Hong Kong was ranks third, followed closely by Singapore.