Appearing in In The Black magazine, March 2018
Small business owners in the Asia-Pacific feeling optimistic: survey
Small businesses in the Asia-Pacific region are successfully leaping into the digital era and are optimistic about the future, according to CPA Australia’s 2017 small business survey.
Across the region, small businesses with a focus on technology, innovation and exporting are significantly more likely to be growing and creating jobs than those that are not.
The Asia-Pacific Small Business Survey, the eighth conducted by CPA Australia, was of 2952 businesses with fewer than 20 employees from Australia, New Zealand, Mainland China, Hong Kong, Indonesia, Malaysia, Singapore and Vietnam. While Hong Kong is a Special Administrative Region of the People’s Republic of China, for the purpose of the survey data for Hong Kong is shown separately from Mainland China.
Growing sense of optimism among small business owners
The survey found a growing sense of optimism in the small business sector. Overall, 2017 was slightly more positive than 2016, with a moderate increase in the number of businesses reporting that they grew.
Indonesia and Vietnam showed the strongest rates of growth, and Australia, New Zealand and Singapore the weakest.
Small business confidence in their expected performance in 2018 is highest in Indonesia, Vietnam and Mainland China and lowest in Australia, Singapore and Hong Kong.
Confidence in their local economy is highest in Vietnam and Indonesia and lowest in New Zealand and Australia.
Respondents under 40 were significantly more likely to state that their business is growing, and are more confident about general economic conditions.
The Asian average of businesses planning to increase employee numbers over the next year – a metric associated with growing businesses – is 49.4 per cent. This contrasts with a figure of 18.8 for Australian small businesses and 17.6 per cent for New Zealand small businesses.
“2017 was a positive year for most small businesses across the region, especially in Indonesia and Vietnam, and these positive conditions look set to continue into 2018,” says Paul Drum FCPA, CPA Australia head of policy.
Small businesses and digital payments
The survey found that over 90 per cent of small businesses in Asia use social media or sell online, especially in Mainland China, Indonesia and Vietnam, while counterparts in Australia and New Zealand are lagging.
Amongst Australian and New Zealand small businesses, only about 60 per cent use these technologies.
The link between growth and technology is reflected in over 78 per cent of businesses that grew strongly in 2017 reporting that their investment in technology was already profitable. The emphasis on technology extends to payment systems, with Mainland China at the forefront. Nearly two-thirds of small businesses from Mainland China offer at least one e-payment option (from digital platforms such as AliPay, ApplePay, and WeChat Pay).
Over a third of these companies said that payments via digital platforms made up over 30 per cent of total sales.
Small business shy of bitcoin
There appears to be a wariness of cryptocurrencies such as bitcoin.
In Vietnam, however, 32.9 per cent of respondents said they accepted cryptocurrencies, although cash remains the most popular payment option for the country’s small business owners.
Cryptocurrencies are also gaining ground in Indonesia, where 24 per cent of small businesses accept it as a payment method.
However, in the other markets surveyed only a small percentage of businesses accept payment via such means.
Drum says that while there is a strong link between adoption of technologies and growth, “this does not always mean that investing in the latest thing is always a good thing – and bitcoins and other cryptocurrencies are a very good example of where businesses need to tread carefully.”
Exports and innovation are key to small business growth
Small businesses that have exports and innovation as a key part of their business model are significantly more likely to have grown in 2017 and to expect to grow in 2018. Amongst Asian business, 24.5 per cent expect revenue from overseas sales to grow in 2018, compared to only 6.7 per cent in Australia and 8.2 per cent in New Zealand.
“The survey results again show a strong link between innovation and growth – yet innovation is not all about white lab coats and Silicon Valley-types,” says Drum.
“Innovation can include introducing a new product or service to your market or investing in new processes – and this may come not just from a new invention but market research in overseas markets or tweaks to your existing product range.”
While technology is improving processes, small businesses in Asia were significantly more likely to introduce a totally new product, process or service to their market or the world than Australian and New Zealand small businesses.
This was especially true with businesses from Indonesia and Vietnam.
Of Australian companies, only 7.4 per cent expected to bring something new to the market (9.2 per cent for New Zealand), compared to an Asian average of 29.1 per cent.
Costs and finance hurt small business
Survey respondents cited customer loyalty, good staff and improved customer satisfaction as having the most positive impact on their business in 2017.
Increased costs and increasing competition were seen as the factors most detrimental to their business. Staff costs were a particularly significant cost in Mainland China, and rent costs were again named as a problem in Hong Kong.
Small businesses in Australia and New Zealand are much less likely to have required external finance in 2017 than businesses from Asia.
In Asia, as well as Australia and New Zealand, banks are the most common source of finance, and in most cases businesses borrowed to finance growth.
In Singapore and Hong Kong, however, there were large numbers of businesses that accessed finance to cover increasing costs. This is a worrying trend, pointing to high cost structures and potentially high levels of debt.
Reflecting the above-average use of social media tools, online sales and new payment technologies, respondents in Mainland China reported a growing use of fintech to finance their business. Over a quarter of these respondents who raised funds in 2017 said that their main source of finance in 2017 was peer-to-peer lending and crowd-sourced funding. The implications of this are not yet clear but it indicates that fintech is a growing field.
Growing cybersecurity threat to small business
Cybersecurity is a significant concern for small businesses across the region.
The survey average saying that an attack was very likely or somewhat likely in 2018 was 35 per cent, with Australia and New Zealand at the lower end (26 per cent and 19 per cent respectively) and Vietnam and Indonesia at the higher end (81 per cent and 76 per cent respectively).
Businesses that expect to grow in 2018 are the most likely to expect a cyberattack, with over 69 per cent expecting it.
Even where businesses do not believe they will be subject to a cyberattack in 2018, the majority are still taking action to protect their systems. The most common cybersecurity actions are regular anti-virus, anti-spyware and malware scans, performing regular backups and storing the backup offsite or in the cloud, and using a spam filter on email accounts.
Actions such as insurance covering cyber risks, engaging a cybersecurity specialist, or having a “whitelist” application to block unapproved software appear to be fairly uncommon. Taking actions in these areas could do much to limit damage from a cyberattack, or even prevent it from occurring.
Drum says the outlook for 2018 is generally positive across the region, particularly for businesses from Indonesia and Vietnam, and those that make good use of technology, that are expecting to innovate and grow their revenue from exports.
“Businesses should be considering how to build their understanding of technologies so that they can invest in technologies that best meet their needs, and take time to learn about new markets. While such research may not result in an exporting opportunity, it may give businesses new ideas they can roll out,” he says.
In total, 2952 participants completed the online survey, conducted from 13 October to 10 November 2017.
Survey participants, by country
Mainland China 606 (Beijing, Chongqing, Guangzhou, Shanghai)
Hong Kong 310
New Zealand 306