Why Hong Kong’s Small Businesses Need to Reimagine Future Growth

By Lauren Zhao

Hong Kong’s small business owners need to act quickly if they’re to mitigate against supply chain disruption and find customers in new markets.

Small and medium-sized enterprises (SMEs) are a cornerstone of Hong Kong’s economy. They employ 1.2 million people and account for 45% of Hong Kong’s overall employment, so their prosperity is critical to our city’s success.

The pandemic has exposed the vulnerability of global supply chains and has been a wake-up call for many local businesses to review and improve the resilience of their operations. For recovery to take root, businesses need to act to avert further disruption and emerge stronger than before.

Lockdowns and restrictions have also accelerated the growth of e-commerce around the world and customers everywhere are buying more online; research organisation Digital Commerce 360 estimates that online sales globally grew by over 24% to nearly US$4.3 trillion in 2020.

This means now is the time for small businesses to reimagine their customer base and connect to new audiences, and digital innovation is integral not only to how they will unlock this challenge, but also as a means to guard against any future uncertainty.
Analysis from Tech Monitor has shown that digitalised companies have performed better financially, and more firms are moving digital transformation up their agenda. But what do business owners need to do to improve their resilience and create more opportunities in the e-commerce space?

Build up and back up
Many businesses were caught off-guard by the rapid spread of the pandemic which uncovered weaknesses in their supply chains, creating shortages and backlogs. According to PayPal, an overwhelming 86% of Hong Kong’s businesses have experienced supply chain disruption and logistical issues because of the lockdowns and border closures.

When the pandemic first hit, supply chain disruption in China focused the need for greater diversification. And subsequent unforeseen events such as the March 2021 blockage of the Suez Canal, a route which accounts for about 30% of the world’s daily shipping container freight, have further emphasised the fragility of global supply chains.

Hong Kong business owners should continue to recognise the need to recalibrate their expansion strategy and decentralise operations to shield themselves from any potential market disruptions, for example by investing the necessary time and money in expanding their networks of tier-2 and tier-3 suppliers to secure stocks and available capacity.

Look for customers in new markets
With its enviable connectivity by land, air and sea, Hong Kong is well positioned to grow further as both an import and export gateway to Asia Pacific. As retail businesses shift out of survival mode, they recognise the need to look further afield for growth opportunities, with 64% of e-commerce business owners in Hong Kong saying they need to increase demand or find more customers as soon as possible, and 45% believing it is urgent for them to find customers overseas (PayPal).

Asia Pacific is the closest and most natural place to start. While China is currently Hong Kong’s top export destination, an expanding middle class and GDP growth, advancements in technology and infrastructure and rapid transition to online purchasing mean neighbouring markets in Asia Pacific also offer tremendous untapped opportunities for businesses to expand their customer base.
Indonesia, for example, recorded surging e-commerce sales in 2020, with the total value estimated to have increased 37.4% to US$25.3 billion, according to research firm GlobalData. Thailand came second after Indonesia in terms of internet economy size, amid the country’s rising internet penetration rates in recent years. The number of Thai households shopping online has surged by 58% during the pandemic, according to NielsenIQ, accelerating the country’s shift to e-commerce. 

Know before you go
For small businesses in particular, where teams tend to be lean and resources stretched, the effort and investment required to reinforce a supply chain that’s likely taken some time to build can seem daunting. But UPS has dedicated experts that can help.

From simplifying paperwork to demystifying the nuances of a multi-lateral trade agreement, specialist knowledge and expertise can help build flexibility, reliability and peace of mind into supply chains, meaning businesses can adapt quickly when dealing with the unexpected. We have seen demand for these services rise since the outbreak, reflecting economic trends and a rising level of awareness and action. We have also seen rising ambition to look overseas for solutions and growth.

Although challenging, many companies are already making great strides in unlocking new opportunities overseas; Hong Kong-based tech accessories company Native Union is just one example. When the company was planning its recent expansion into Japan, the team faced a problem they weren’t able to solve alone which would have delayed plans considerably. But after talking to UPS, we were able to collaborate and find a solution that means Native Union now enjoys a smooth and simplified shipping process that complements the company’s growth ambitions.

Time to think digital
SMEs play an essential role in supporting the economic recovery and development of Hong Kong. As the pandemic has accelerated the shift away from physical stores to digital shopping, they are investing in digital to reach customers and stakeholders at an unprecedented pace. A recent report by data management company Veeam shows that two-thirds of Hong Kong businesses are investing in initiatives to accelerate digital transformation to further improve their ability to roll with market volatility and evolving customer demand.

We have seen how powerful this can be as the pandemic has forced drastic changes and it is almost mandatory for businesses, especially for retailers, to undergo digital transformation in order to recover and future proof their business.

In today’s fast-paced, e-commerce-driven world, businesses everywhere need to be bold, agile and innovative. This can seem daunting but digital innovation is making it easier than ever before for SMEs to reach new markets and reduce friction along the way.

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