Senior finance executives from mid-sized enterprises in Hong Kong have expressed a prudent outlook for 2014 on the local economy, along with expectations for business growth - despite conservative company expansion plans for the next twelve months. Concerns about talent retention, the external economic environment and increased operating costs were mentioned as weighing heavily on the minds of CFOs for the coming year, according to the American Express Hong Kong Business Momentum Survey 2013.
The survey was conducted by independent global information and measurement company Nielsen, and gauged the views of senior finance executives on the economic and business environment, and to understand their business and spending plans, investment, cost control, and key challenges in relation to driving business growth.
“SMEs are an important part of the Hong Kong economy and contribute significantly to the growth of this market. It is vital to understand their views and insights on the operational environment that will reflect the support that they might need to achieve business goals,” said Jacinta Sheahan, Vice President & General Manager, Global Corporate Payments, Hong Kong & Taiwan, American Express.
Positive on Company Performance despite Prudent Economic Outlook
When asked about their views on economic growth in the next 12 months, CFOs in Hong Kong had divided views. Encouraged by recovering US and European markets, 20% of finance executives expressed optimism for either a substantial or modest economic expansion in Hong Kong whereas 21% felt the reverse with a contraction in the next 12 months. However, majority of those surveyed (59%) reported they expect a flat economic outlook – many see the business opportunities from the gradual economic recovery globally being offset by the rising costs, primarily from the Chinese market.
Looking at their company growth for 2014, CFOs have shown more confidence as 83% of respondents see business growth or a similar performance. Nonetheless, as far as the scale of their operations is concerned, 68% of finance executives will be seeking to maintain the current company size with a further 23% saying there will be a moderate or substantial business expansion. “Companies in Hong Kong are looking to ‘do more with less’ in a business environment with uncertainties, and C-level executives should always look for solutions that meet their needs to achieve cost optimization,” commented Sheahan.
Mirroring the prudent outlook shared by CFOs in Hong Kong and their plan to maintain a static business size, almost 8 out of 10 (78%) companies plan to keep the same level of headcount next year. 15% of respondents who plan to increase the staff size indicated their hiring intentions will focus on driving business growth (e.g. sales and marketing) than support function upgrades (e.g. logistics and IT).
Labor Costs Cited Most Often as Key Challenge; Property Costs Cited Least Often
In a list of ten challenges to business growth, labor costs were cited as being a key challenge for 2014 by 79% of finance executives – due to inflation, manpower shortages, and talent retention. Labor costs are expected to put further pressure on the company’s overall cost and business performance. Following labor costs were concerns over economic growth in China (74%) and currency fluctuations (73%).
Interestingly, in a market where property prices are constantly amongst the world’s highest, property costs were the least mentioned (32%) by CFOs in Hong Kong as a challenge for 2014, followed by technological change (37%) and political influences (40%).
“Human capital is the most important asset for any business, and Hong Kong companies are expecting to spend more to retain talent in 2014 despite their plan to maintain headcount levels,” added Sheahan. “Property costs are not a big factor for CFO’s as they are open to relocating to remote areas in order to drive down spending on properties.”
Making the Most of Travel Spending and Cost Optimisation
As for CFOs looking to drive growth in a challenging business environment, this will impact the way they look at travel spend over the next 12 months. A quarter of surveyed finance executives (25%) said they will increase the overall travel budgets, and business travel will be more orientated towards meeting with current or prospective customers with 89% of respondents saying they will spend the same or more.
When finance executives were asked about cost management, the top areas were optimizing cash flow (86%), the ability to control employee spending (85%) and improving processing efficiency (78%). Common tools used to manage costs were interest rate / foreign exchange rate hedging products and solutions (53%) and supply chain management (52%), with a third (36%) opting for corporate payment solutions.
“Businesses can’t control what they can’t see. Hong Kong companies can realise considerable cost savings through the utilization of payment solutions to optimize cash flow, monitor and control employee spending and helping to maximise cost management. Clearly 2014 will be a challenging year for mid-sized companies in Hong Kong, especially as many have operations affected by the China economic situation. There will be some belt-tightening yet we can also expect increased spending mainly in areas for boosting revenue and growth,” concluded Sheahan.
The American Express Hong Kong Business Momentum Survey 2013 was conducted by Nielsen on behalf of American Express. The survey took place in August 2013 and interviewed 81 senior finance executives from medium-sized enterprises in Hong Kong with an annual turnover of HK$150 million to HK$1.2 billion across various industries including import and export, manufacturing and wholesale & retail, among others.