SMEs across Hong Kong are rethinking their spending strategies: due to low profit margins over the past few year, many startups and SME’s in Hong Kong are losing sight for the future. In a recent study by the Standard Charted Bank and the Hong Kong Productivity Council, only 10% of SMEs in Hong Kong believed that the economy would improve in the near future.
The numbers do support this too—‘sales’ and ‘profit margin’ in the fourth quarter indicated that SMEs took a dive towards the end of 2016. The report shows that all three of the the major industries (manufacturing, import/export, and retail) were below 40% for the second time in history. Thus, going into the later half of 2017, SMEs have taken a cautious approach to expansion practices which will affect the long-term confidence levels and eventual recovery for small medium enterprises.
Most of the SMEs point to instability in the global economy as the source of their contractionary policies. With Britain exiting out of the European Union as well as fear of Trump imposing changes to US trade policy, many entrepreneurs in Hong Kong are worried about their inability to develop their businesses internationally.
For all this pessimism, Hong Kong still remains one of the fastest growing global hubs for new enterprises. Since 2009, there has been a 209% increase in the number of startups in the city. Tech talents and VCs have all been flocking to Hong Kong, trying to get in on the city’s rapid entrepreneurial growth. For a city that has historically been locked in traditional business routes and large global corporations, this exponential increase in startups has changed the landscape of Hong Kong’s economy.
This pessimism is only natural—the influx of entrepreneurial growth has both the government and establish corporations scrambling to adjust and accommodate for these new business routes. Thus, the pessimism is only temporary: as Hong Kong grows better accustomed to its flourishing startup scene and global investment increases, optimism will also increase for SME across all industries.
As we take a closer look at the Standard Chartered Bank Report, there is obvious signs of potential growth for SMEs across the board. Despite spending contractions, there was a record high level of ‘hiring’: hiring levels rebounded to a six-quarter high of 52.6% indicating that not only is there abundant talent in Hong Kong, but that businesses are looking to eventually expand in the future. In addition, the ‘investment’ index remain steady over the past year and a half. Although at modest levels, the stable stream of investment shows that the overall outlook for Hong Kong’s entrepreneurial scene is still positive and the city still has a lot of room for development and growth
However, the real question is how do we ensure that businesses can make profit during this turbulent time of transition? The answer is for business owners to put their money where it matters.
The two things that Hong Kong SMEs and startups spend the most on are salaries and office space rent. The two sections combined make up over 50% of all business expenditures for most companies. However, during times of economic contraction, businesses need to reevaluate what is truly important for businesses to spend on.
In the end, finding human talent is far more crucial for companies. In the Silicon Valley, there has been an increasing trend of large corporations going to incredible lengths to gather the right employees. In 2010, Facebook bought a web startup named drop.io from a 27-year-old entrepreneur named Sam Lessin for just under 10 million dollars. However, to the surprise of many, Facebook shut down the web startup only a month after acquiring it. As it turns out, What Facebook they really wanted was Sam Lessin. Finding the right talents in today's market is a make-or-break point for startups today. Thus, spending more on employer salaries, even when the economy is experiencing contractions is justified for its long term merits.
On the otherhand, paying exorbitant amounts on office space rent is unreasonable. For companies affected by the economy, finding cheaper solutions in Hong Kong's crazy office space situation could be the key solution in increase profit margins.
Hong Kong is well known for its notoriously high cost of commerical space. Clocking in at over USD$278 per squarefoot, office space rent is the one thing thats draining SMEs across the board. An affordable office space can increase profit margins greatly. Thus, it is vital that SMEs reanalyze their space needs and find cost saving solutions.
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One solution that companies can turn towards is shared office space. Flexible shared office spaces is a great a great idea for SMEs and startups alike. Not only can businesses find spaces that will cater to their company's changing needs, but also they can save money in so many aspects. In addition to reduced spending on overhead utility costs, shared offices also mean that companies will not have to spend money on office furniture and wifi.
Streamlining your office space expenditures is crucial when rebudgeting during this time of economy contractions. Saving on rent means you can put your money on what actually matters to your business in the long run.
Quikspaces is currently the only online marketplace platform in Hong Kong offering shared office spaces. Companies with unused space or extra desks can rent them out to other companies to use. The space rental is a smart, flexible, and affordable solution to today’s office space crisis. Get started with us today.