Small businesses in the Asia-Pacific region are upbeat about their future as they begin to emerge from the economic uncertainty caused by COVID-19.
By Engel Schmidl
CPA Australia's 12th annual Asia-Pacific small business survey report shows many businesses remain resilient across the region despite the shadow cast by the pandemic over long-term economic recovery.
Unsurprisingly, 2020 saw every market surveyed register its lowest recorded percentage of small business growth, with Australia and Hong Kong recording the worst results.
Of the 4227 small businesses surveyed across 11 markets, a record low of 46.2 per cent of small businesses reported growing during 2020, down from 65.8 per cent in 2019.
The challenging environment has also meant 31.3 per cent of businesses shrank last year, more than double the 14.5 per cent result in 2019.
The expectations for 2021 are for a better year for many of the region’s small businesses. A total of 60.8 per cent expect to grow this year, with 20.1 per cent expecting to rebound strongly. However, the environment remains uncertain, with 17.1 per cent forecasting they will shrink or close their business.
Small business expectations are weakest in Hong Kong. Only 21.2 per cent expect to grow, and 49 per cent expect to shrink or shut down this year.
Businesses also reported higher rate of job losses than in previous years, with 14.7 per cent of small enterprises shedding staff in 2020, compared with 6.7 per cent in 2019. The potential severity of job losses was however partially offset by government wage subsidy schemes, like JobKeeper in Australia.
Not surprisingly, small businesses that didn’t grow or shrink in 2020 were more likely to reduce employee numbers, with 21.8 per cent cutting staff, compared with only 2.5 per cent of high-growth small businesses.
Fortunately, businesses are moderately confident about hiring, with 36.1 per cent of the region's small businesses expecting to add employees this year.
Cautiously optimistic about business growth
The big positive from the survey is that business owners are confident of growth beginning to return.
Gavan Ord, CPA Australia's business investment policy manager, says COVID-19 has severely tested businesses across all the surveyed economies, but the outlook for the sector is generally promising.
“I would say their confidence is justified, but it is tinged with a lot of uncertainty. I think ‘cautiously optimistic’ is a good description of where the sector is at,” Ord says.
The business outlook for the remainder of 2021 and into the next year will be strongly influenced by the pace of vaccine rollout, how governments handle current and future outbreaks and the continuation of government support for the economy, he says.
“Overall, the small business environment is looking positive, and the economic data from all the markets we surveyed is headed in the right direction. In India, we expect confidence to rebound quickly once the current wave of infections is brought under control.”
Ord says the survey results show that small businesses in markets such as the Philippines, Mainland China, Indonesia and Vietnam are more buoyant about their prospects than Australia and New Zealand. This is due to a combination of factors, including that small businesses in those markets are more digitally savvy, have a greater focus on innovation and are younger.
According to the survey, small businesses that grew strongly in 2020 and expect to grow strongly in 2021 are significantly more likely to be selling online, innovating, exporting, improving their business strategy, working on improving customer satisfaction and seeking advice from experts.
Stronger focus on growth drivers
Ord says the survey data shows a strong link between investing in digital technologies and business growth, similar to results from previous surveys. Small businesses in Asia continue to have a stronger focus on these growth drivers than their Australian and New Zealand counterparts.
“While Australian small businesses increased their online sales and the use of new payment technologies, it was far less than what we expected,” Ord says.
“We’ve heard a lot of discussion in the market about how businesses are moving online. Drilling down into the results, that isn’t necessarily the case – it is a much smaller increase than expected.”
The generally older age profile of Australian business owners partially explains the divergent digital uptake between countries, with business owners in Australia generally skewing older than their Asian counterparts.
Also, many more Australian businesses are micro-businesses – employing fewer than five people – further limiting their capacity to adopt digital technologies.
Ord says a lack of government assistance to help small businesses adopt and productively use digital technologies leaves Australian small businesses behind their counterparts in Asia.
“As an example, Australia recently put A$20 million into the Australian Small Business Advisory Services program, whereas Singapore’s government has invested significantly more to support their small businesses digitise, including around S$500 million [A$481 million] into various digitalisation programs, such as the Digital Resilience Bonus. That shows the scale and ambition of Singapore compared to Australia, which helps to explain the lack of technology uptake by Australian businesses.”
Building value for the long haul
Ord says it is worthwhile remembering that many small businesses, particularly micro-businesses, are not motivated by high growth, but by building long-term value.
“There are multiple reasons why someone might own a business other than growth. However, if one of their reasons for being in business is to fund their retirement, and they are not looking at investing in technologies or innovating, they are not increasing the value of their business.
“It's not only about the short-term income from activities around digital transformation, but also the longer-term value to the business.
“They are potentially depriving themselves of the capital value in their business when they do retire and making it potentially harder to sell the business and achieve the sale price they want.”
7 lessons from high-growth small businesses
- Develop your capability to identify and implement the right technologies for your business. This includes seeking advice.
- Invest in learning more about your customers and potential customers
- Invest in researching and implementing new or improved products, processes or services
- Test whether there is demand for your products or services in new markets
- Increase your social media presence and expand the ways you use social media
- Expand your e-commerce presence and use new payment technologies to make it easier for customers to pay online
- Focus on improving your business strategy and its implementation
Source: CPA Australia Asia-Pacific Small Business Survey 2020-2021