SMEs hit by triple business squeeze

Survey shows outbound spending and higher expenses continue to pressure earnings.

Rising costs, weaker demand, and interest rate fluctuations have affected eight in 10 Hong Kong small and medium-sized enterprises’s (SMEs) operations this year, according to a survey commissioned by Dah Sing Bank.

The survey, conducted in May amongst 342 Hong Kong SMEs, found that 80% of respondents said geopolitical developments, energy price swings, and global supply chain disruptions had affected their operating costs and profit margins.

Rising costs were cited by 79% of respondents as a key external risk, followed by weaker market demand at 78% and interest rate fluctuations at 52%.

The survey also found that changing consumer spending patterns continue to affect local businesses.

About 74% of SMEs said their revenue had been hurt by outbound consumption, with nearly one in five reporting revenue declines of more than 20%.

Respondents identified competition from cross-border e-commerce platforms offering lower-priced products at 45%, increased weekend spending in Shenzhen at 43%, and more outbound travel by Hong Kong residents at 30% as the main factors affecting sales.

To manage higher costs, SMEs said they are renegotiating supplier terms at 26%, adjusting prices at 24%, and improving inventory management at 20%.

Businesses are also adopting measures to retain customers.

Price promotions were the most common strategy, cited by 34% of respondents, followed by adding more experience-based offerings at 29% and increasing digital marketing efforts at 25%.

When asked about business priorities, 30% said maintaining a stable customer base was most important, whilst 22% cited predictable cash flow and another 22% pointed to lowering operating costs.

The survey also highlighted challenges in accessing support. More than half of respondents said they had never applied for or were unfamiliar with government support schemes.

On environmental, social and governance (ESG) initiatives, 37% said implementation was too costly, whilst 32% said they did not know where to begin.

Commenting on the findings, deputy chief executive, senior executive director and head of group personal banking for Dah Sing Bank Phoebe Wong said SMEs are facing higher costs, changing demand, and shifting consumer spending patterns, but many are responding by improving cost structures and customer experience.

The survey was conducted online from 19 to 26 May and covered 342 Hong Kong SMEs.