A Study Key on the Dynamic Forces Affecting the Success of SMEs Services Sector in Hong Kong

A Study Key on the Dynamic Forces Affecting the Success of SMEs Services Sector in Hong Kong

Introduction

The importance of small and medium enterprises to the economy has grown steadily. They are not usually challenging to establish, and different governments tend to promote their growth. At the global stage, studies have shown that SMEs form the bulk of business entities.They are primarily the largest employers in the private sector. The majority of the countries worldwide have developed laws and policies that seem to favor the operations of SMEs. Their formation and establishment are not subject to extremely tough and stringent rules and regulations. The environment has to be accommodative to prevent any possibilities of financial suffocation of small and medium enterprises. To achieve sustainable growth in the SME sector, governments offer financial incentives,advisory, and policy support. The World Bank also extends monetary assistance to these entities to ensure that this sector realizes its full potential. The institution’s involvement in the operationalization and functioning of the industry is proof that the international stage acknowledges the centrality of SMEs to global economic success (Lam & Burton, 2006).

SMEs are categorized based on certain personnel limits that are set by respective states. For instance, in Hong Kong, an SME may be a manufacturing entity that has less than 100 employees. Alternatively, non-manufacturing businesses that have less than 50 employees have been as small and medium enterprises (SMEs in HK, 2016). The SMEs have been described as the cornerstone of the Hong Kong economy because they account for more than three-quarters of employment in the private sector. Currently, Hong Kong has about over 340 00 SMEs, which represent at least 95% of the businesses in the region. These vast numbers indicate themassive potential that the SMEs enjoy. Therefore, it is most prudent that these business enterprises receive the best legal safeguards and the necessary mechanisms that will ensure their overall growth.

The profile of a business enterprise bears specific significance to commercial transactions. It informs the scope of the operations of the entity and helps the state regulators to monitor the business operations at any given time effectively. The drastic increase of SMEs in Hong Kong would pose a significant risk of market chaos if they were to remain unregulated or uncontrolled. For instance, micro-SMEs can have ten employees or less. This requirement is an easy threshold for individuals to achieve, and it may make all forms of businesses to spring up. Therefore, as much as SMEs need the best environment for growth, specific measures have to be developed to ensure that the industry does not go rogue. Also, proper regulation serves to ensure that the sector is sustainable and self-sufficient, which are safeguards against any possibility of collapse of enterprises..

The Hong Kong Special Administrative Region Government has displayed continuous support for the expansion and development of the SME sector (SMEs in HK, 2016). Unsurprisingly, the industry remains bedeviled with a myriad of issues that have hampered the SMEs from realizing their true potential. Studies have shown that financing is the biggest issue facing the sector. At the startup stage, the entities are unable to get proper or sufficient funding from the financial institutions. The situation is in contrast with the large enterprises that enjoy better financing. Therefore, the SMEs are left to depend on individual member contributions or the support from their family and friends. e This may affect the sustainability of the sector and its overall growth. In this regard, the government established the SME Export Marketing Fund to help address the financial issues that may be facing the industry. The fund aims at improving the Hong Kong SMEs’ appeal to the countries of export of the goods and services offered.The government also seems to appreciate the fact that recently Hong Kong SMEs have been battling a harsh external economic environment. The markets for the export products have been continuously shrinking, and this may have a long-term effect on SMEs. These developments informed the government’s creation of the Branding, Upgrading and Domestic Sales (BUD) Fund, which provides financial and capacity support for SMEs (SMEs in HK, 2016). The empowerment of small and medium-sized entities has been linked to increasing internal competition among the enterprises in the country, thus, fostering innovation and invention. Furthermore, the government has established specific departments that can effectively deal with the SME sector.

The Trade and Industry Department is the executive organ that is mandated to deal with the development of trade matters, which includes the space within which SMEs operate in Hong Kong. The department serves as a link between the government, the public, and the small and medium enterprises. This connection is achieved through administering the available SMEs funding schemes and the formulation and implementation of policies that are geared towards positive competition in the sector (Lam & Burton., 2006). The TID also plays a crucial role in engaging in SME activities that are relevant in the Asian region. This helps to ensure that the strategies adopted by the SMEs in Hong Kong reflect the regional and global needs, thus, enabling the sector to serve an international market. The Trade and Industry Department works closely with the Mainland in streamlining and liberalizing the commerce department. Mainland China is among the biggest markets for the goods and services produced by the SMEs in Hong Kong. The department is also mandated to enhance the capacities of the various business units. This is done through continuous training of the enterprises on the emerging trade practices. The department also avails the necessary information to the SMEs on the best business practices that minimize costs while enhancing the returns.

The other government organ established to deal with commerce matters that affect the SMEs is the Hong Kong Trade Development Council. It is created through a statute, and it is primarily concerned with the trade environment in the Special Administrative Region. It conducts trade-related research in Hong Kong, mainland China and the world at large. Such analysis helps it to present market insights to the SMEs, thus, creating business opportunities for the entities. The council regularly makes trade publications and reports that are intended to provide the SMEs with information on the best practices to be adopted.

This research shall focus on the state of the SMEs that offer services in Hong Kong. The service provider SMEs are involved in health, transport, education, or farming sectors. These are delicate sectors of the society that have to be given the necessary attention. It would be imprudent to allow the SMEs involved in the health sector to mess around with the lives and well-being of individuals. The manufacturing SMEs are the biggest employers covering about 30% of all the employment opportunities in the entities. However, the service providers are the link between the manufacturers and the consumers. For instance, the retail service providers ensure that people can get the daily needs and wants.In Hong Kong, the retail sector is the largest service provider among SMEs. Also, the wholesale industry receives the most significant turnover, especially in terms of profit. Almost 99% of the legal service providers are classified as SMEs. Their importance cannot be understated because they help to ensure the observance of the rule of law and protect the rights of their clients.

Statement of the Problem

As currently constituted, the Hong Kong Special Administration Government has taken some steps to facilitate an enabling environment within which SMEs can operate. These include creating legislation that allows for flexibility during the formation and winding up of the small and medium-sized enterprises and making tax reforms that ensure the businesses do not face an unnecessary burden of over taxation. The government has also taken active steps towards enhancing the capacity of the SMEs through trainingof the personnel and publishing of trade-related research reports. The various funds created, such as the SME Export Market Fund have been established to facilitate the financing of the business entities. The government has also allowed the liberalization of the sector. This is aimed at ensuring there is minimal interference with the factors and forces that determine demand and supply of goods and services. Thus, the Special Administrative government does not involve itself in the pricing of the essential commodities in Hong Kong. Also, the government has invested a lot in the education system of Hong Kong. This ensures that the region maintains a literate population. Therefore, SMEs can have a competent workforce that can deal with emerging global trends. However, the service provider SME sector in HKSAG still faces a myriad of issues that have a limited capacity of the enterprises to achieve their potential.

Studies have indicated that the service provider SMEs have the biggest potential for growth (Accounting Limited, 2019). However, the industry has remained fragile and susceptible to internal and external factors that threaten the success of the enterprises. The measures taken by the government and other stakeholders have proved not to be a guarantee of automatic success of the entities.  Corporate governance structure in Hong Kong has been identified to have loopholes that may limit the environment within which the small and medium-sized enterprises operate in the HKSA.

The biggest problem in the sector is the issue of financing because a majority of the businesses are unable to raise the startup capital (Yao, 2014 p10). The nature and size of the entities are particularly unfavorable for the financial institutions to extend loans or grants that may be used for establishment. It has been harder to get financing at the formation stage as compared to the ability to get the funding for expansion. This is an enormous problem for the industry because, necessarily, if the businesses are unable to start, then there would be no entities to offer financial support for expansion. The funding schemes from the government have failed to address the situation adequately. For instance, the SME Export Market Fund places more emphasis on the export opportunities for the already established enterprises. This is a dangerous approach because it seems to assume that the established SMEs are the only ones that deserve financial support to facilitate their activities. The SME sector in Hong Kong has not fully utilized the digital space. These are dynamic forces that have to be investigated and their overall effects on the success of entities.

Significance of the Study

The study shall be instrumental in explaining the dynamic forces that affect SMEs service providers. SMEs are a core part of the economy that cannot be ignored. Thus, every possible measure must be taken that will ensure its growth and expansion. A thorough analysis of the industry will help to identify the strengths of small and medium-sized enterprises. This is crucial because it informs the stakeholders of the already established mechanisms and strategies that have to be retained. The industry players get to appreciate their strengths and find ways of making them better. However, a proper analysis of the forces affecting service providers is entirely instrumental in highlighting the challenges that the sector faces. The government, policymakers, and the business owners get to fully comprehend the possible obstacles that limit the potential of the SMEs. This helps to inform the necessary reforms that can be taken in order to ensure that the entities achieve what they set out to do.

The SME service providers account for the highest amount of turnover among the small and medium-sized businesses. As much as the overall SME sector accounts for about 95% of companies in Hong Kong, the service providers explicitly account for about 92% of the GDP. This is in sharp contrast to the previous decades. For instance, in the 1970s, the service providers SMEs accounted for about 60%. This tremendous rise has made researchers describe the economy of HKSAR as a service-oriented economy. Almost three-quarters of the money that is transacted in the marketplace goes through the SME service providers. Therefore, service providers provide the highest employment opportunities, and they earn the highest revenue. A collapse of the service provider SMEs would primarily result in a breakdown in the economy of Hong Kong. The nature and importance of the service providers make it necessary for a thorough review of the state of the sector at the moment.

The significance of the study extends to three levels; the state, the business owners, and the community at large. Hong Kong is a net service exporter. This means that the services provided form the bulk of the exports of the region. This confirms the position that the service provider SMEs enjoy in the Hong Kong economy. The service sector has undergone substantial changes over the decades. This has included the adoption of universal strategies such as the laissez-faire approach to commercial transactions. This approach requires that the business transactions on goods and services should be determined by the forces of supply and demand without unwarranted government interference. The government agencies should only get involved whenever it is necessary to do so. The necessity may arise due to factors such as the need to safeguard the public interest. Studies have shown that the Hong Kong government does not have a significant influence on the operationalization of the SMEs. It only offers support mechanisms through the provision of funding, capacity building, and extension of the relevant market information. This informs the need for a critical need to critically the forces that influence the state, growth, and success of SMEs in Hong Kong.

At the government level, the study shall be crucial to inform the outlook of commerce in Hong Kong. The forces that affect the growth of service provider SMEs will be determined during policy formulation. For instance, the government will be at an informed state when developing strategies for the telecommunication providers in order to ensure that there is coverage all over the land. The study shall also inform the government of the distinct features of the various small and medium-sized enterprises. The research specifically focuses on the forces affecting the service providers. This helps to differentiate from the particular factors or features of the other SMEs. There is a necessity to identify the issues that are specific to each sector. Therefore, the study will shield the government against the risky generalization of the entire SME sector. It is prudent that the legislation and policies adopted by the Special Administrative Region provide overall success to the whole of the commerce sector both locally and in the international stage. It would defeat the purpose in case the strategies adopted result in the success of one the manufacturing SMEs yet the service provider enterprises stagnated or experience declines (Moy&Luk, 2003). Thus, the study shall be most significant to the government and how it approaches the entire sector.

The study has immense significance to the owners of SMEs in Hong Kong. Through a review of the dynamic forces affecting the success of the enterprises, the business personnel gets informed on the economic environment in Hong Kong. They can make appropriate decisions on the type and size of SMEs to get involved. It is expected that every entity owner would aspire to implement the best practices that have the potential of assuring success for their business (Studer et al., 2008). The unsustainable methods will likely be abandoned and eventually done away.

Furthermore, the study shall provide evidence of the success enjoyed by service provider SMEs in different parts of the world. Hence, the business owners become informed on the strategies that their counterparts have adopted. This is a proper recipe for positive competition among the SMEs because every entity would seek to outdo the other (Moy &Luk, 2003). The net effect is the promotion of innovation and invention in the bid to become the best service provider. In the current digital era, progressive change is a fundamental game-changer that helps an enterprise to use the digital space to reach a wider audience effectively. For instance, the study will motivate the business owners to be innovative on how to tackle the forces that are obstacles to the success of SMEs. In this manner, the SMEs will convert the challenges to success (A Report on Support Measures for Small and Medium Enterprises, 2012). The study will facilitate the enterprises in Hong Kong to work in an optimal environment that utilizes the strengths of the industry while minimizing the possible challenges arising.

Finally, the study has substantial significance to the consumers of services in HKSAR and all over the world. The investigation will ensure that business enterprises adopt the best market prices. Since the small and medium-sized enterprises in Hong Kong have earmarked the international market, the services provided will have to be as per international standards. The quality of functions will have to be of the highest levels possible. In essence, consumers will receive first-class services and treatment. To appeal to the local Hong Kong market as well as international consumers, SMEs will have to take a customer-centric approach. This requires that the clients’ needs are given the biggest priority before anything else. The success of the entities is pegged on the satisfaction of the consumers. The business owners have to address the needs of the customers successfully, and the success of the business becomes inevitable. Furthermore, the study shall provide the necessary steps that can be taken by the clientele to ensure that their favorite enterprises are thriving. Studies have shown that consumers would not like to see situations where their favored service collapse or go to waste. The consumers will also become informed on the ways that they can continuously make the business owners accountable whenever they do something unfavorable. Thus, the study will be very instrumental in ensuring that all stakeholders benefit from the success of service provider SMEs.

Research Questions

1. What are the average and small-scale ventures service areas owners and managers’ views success?
2. Which are the external dynamic forces that affect the success of the average and small-scale venture service areas?

• Which are the internal dynamic forces that affect the success of average and small-scale ventures service areas?

Scope of the Study

The research dwells on external and internal dynamic forces that hinder the growth of small and average venture service areas in Hong Kong.  Despite there being different measures of success and definition of a successful SME, the research relies on what the owners and managers of the SME service sector deem as a successful business.  The study will also be limited in terms of the area covered, and the information gathered will be used to make decisions and guidance.

Definition of Terms

SME refers to small and medium-sized enterprises. They are described as small or medium based on the number of employees of the business entities. The requirements for the number of employees varies and is usually based on a country’s legal definition of SMEs.

Conclusion

The introduction chapter identified the topic. The SMEs in Hong Kong are not collapse or a crisis. However, the sector has not yet fully achieved its potential and success. The research will bear a lot of significance to the government, the business owners, and the consumers at large. The following chapter will discuss materials that have undertaken research that is related to the thesis topic.

Bibliography

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