HONG KONG - A survey of Hong Kong small and medium-sized enterprises showed they did not cut down on long-term investments such as information technology and research and development when the business confidence of the city’s SMEs plummeted amid the fifth wave of the COVID-19 pandemic.

The overall Standard Chartered Hong Kong SME Leading Business Index posted the biggest quarter-over-quarter drop since it began in 2012, falling from 48.1 in the first quarter of 2022 to 35.7 in the second quarter. Stringent social distancing measures, supply-chain bottlenecks, the soaring cost of raw materials and geopolitical crises such as the war in Ukraine all crimped business confidence of the city’s SMEs. The survey was conducted in March by interviewing 812 local SMEs.

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Despite the volatile business environment amid the fifth wave of outbreak, the city’s small businesses regarded technology investment as important in weathering the storm.

According to the survey, 18% of SMEs expected a decrease on overall investment in the coming quarter. Nonetheless, only 23% and 25% of SMEs indicated that they would cut investment in IT (related to e-commerce) and R&D, respectively

According to the survey, 18 percent of SMEs expected a decrease on overall investment in the coming quarter. Nonetheless, only 23 percent and 25 percent of SMEs indicated that they would cut investment in IT (related to e-commerce) and R&D, respectively. Forty-three percent of SMEs said they would reduce investment in inventory, and 38 percent said they would reduce investment in offline marketing promotions.

The Hong Kong Productivity Council, the statutory body to promote technology application in the business sector, strongly believes that IT and R&D are crucial to enterprises in the post-pandemic business environment led by digitalization and technology.

“A lot of the sectors are adopting digital technology even for some traditional small shops. Before COVID, when you talked about digital technology, they would just turn you away. Now, we are starting to see that they are using it because they have no other choice,” the chief digital officer Edmond Lai said.

“We also see that other SMEs and big companies are using a lot more digital technologies in terms of operating the business, selling their products and services, and helping to digitalize the business processes. The benefit of COVID-19 is to accelerate the digital transformation journey of Hong Kong enterprises by three to five years,” Lai added.

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Lai said the HKPC has seen many clients from the manufacturing sector asking for advice on how to upgrade their production lines into smart ones to minimize the production and operation risks in case there is a sixth or seventh wave of the pandemic.

Hong Kong SMEs are considering the use of technology as one of the options to cut costs to survive in a tough business environment. According to the survey, 70 percent of SMEs said they need to cut costs, mainly by downsizing business scale, changing suppliers and leveraging technology.