Indonesia tops in small business confidence

Indonesia again tops the table for business confidence.

CPA Australia surveyed small enterprises across the Asia-Pacific. But is Indonesia's positive outlook due to economic conditions or the younger age of business operators in Asia?

Small businesses in emerging economies across Asia are more likely to be growing profits and employee numbers than similar businesses operating in more advanced economies in the region, CPA Australia’s sixth annual Asia-Pacific Small Business Survey has revealed.

Business people in all the eight economies surveyed, with the exception of Hong Kong and Australia, are more confident about the growth outlook for their local economy, particularly those in Indonesia, Vietnam, mainland China and Malaysia.

Members of Indonesia’s small business community are the most confident about their nation’s economic growth in the next 12 months – the fourth year running they have held this view. At the other end of the spectrum, for the second consecutive year, those running Hong Kong businesses were the least likely to expect local economic growth.

The CPA Australia Asia-Pacific Small Business Survey 2014 is part of a longitudinal annual study of small businesses conducted since 2009. In each economy, CPA Australia surveyed a random sample of owners, senior managers and qualified accountants of businesses with fewer than 20 staff.

This year 2985 participants completed the online survey, including 641 from mainland China, 510 from Australia, 312 from Indonesia, 311 from Malaysia, 310 from New Zealand, 310 from Singapore, 309 from Vietnam and 282 from Hong Kong.

Small businesses from emerging economies are more likely than those in advanced economies to report positive business conditions. 

The survey found that Australia’s many small businesses are leaving themselves open to competitive attack and risk running down the value of their enterprises by consciously deciding not to grow, in what they concede are relatively easy financing conditions.

“It’s somewhat to do with the profile of small businesses in Australia and New Zealand,” says CPA Australia’s head of policy, Paul Drum.

“Businesses generally have zero to four employees, they’ve been established for 20-plus years and the owner is generally aged above 50. In Asia it’s quite the opposite. The owners are generally younger, businesses have been established for less than 10 years and they have more employees.”

Small businesses from emerging economies are also significantly more likely than their counterparts in advanced economies to report positive business conditions both in the past 12 months and for the year ahead. Indonesian small businesses were the most likely to say their business grew in the past 12 months and were also the most likely to expect growth in their enterprise during the next 12 months.

The key drivers for actual or expected growth reported by respondents were “increasing sales” followed by “improved customer retention”. Factors dragging on businesses’ actual or forecast growth were “increasing costs”, “increasing competition” and a “poor overall economic environment”.

“Increasing costs and increasing competition were more significant issues for small businesses from Asia than those operating in Australia and New Zealand,” says Drum.

Given the prominence of “increasing costs” in influencing the small business environment across the region, businesses were most likely to be responding to their environment by reviewing costs.

Of the businesses that sought external funding over the past year, a desire to grow the business was the most popular reason for seeking extra money. But significantly and surprisingly, says Drum, a large percentage of small businesses from Indonesia and mainland China were looking for external finance to ensure the survival of their business.

The survey results also show that difficult financing conditions are significantly more likely to influence where small businesses seek their finance, rather than impact the demand for that finance. This suggests that the link between the ease or difficulty of financing and demand for external funds is not as strong as may be thought.

Government incentives are often touted as having an impact on small businesses but the survey reveals that such policies play only a small role in shaping the success – or otherwise – of a small business. Likewise, very few respondents named over-regulation as a major reason for their lack of growth.

For the full survey results, go to cpaaustralia.com.au/smallbusiness

Social does it

This year was the first time businesses were asked about their social media use. Operators in Asia are significantly more likely to use social media and are more advanced with making online sales than their counterparts in Australia and New Zealand. Paul Drum, CPA Australia’s head of policy, suggests this is due to the age of the business owners.

“Even in Asia, the older the respondent, the less likely they are to have used social media in their business or to make online sales,” he says.

“It just happens that in Australia and New Zealand there’s a much greater proportion of people in that older age bracket with small businesses than in Asia.”

Facebook is the social media platform that small businesses derive the greatest value from, with the exception of mainland China where WeChat is the favoured channel.

This article is from the December 2014 issue of INTHEBLACK