A Report on Support Measures for Small and Medium Enterprises

Chapter 4

Proposals to help SMEs start, build and expand their businesses

Existing support measures

4.1     The Committee has surveyed the support measures and services provided by Government departments and support Organizations for SMEs and recognises that both the scope and variety of such support services are very wide. A summary of the major support services is at Appendix 7.

4.2     The Committee is aware that over the years the Government has been devoting much resources to supporting SMEs. For example, the Government provides recurrent funding of about $3.1 billion^{(Note 5)} annually to major SME support Organizations. In addition, the Government has underwritten a contingent liability of up to $10 billion for the ECIC, which is fully owned by the Government. In the past few years, the Government has used over $10.6 billion^{(Note 6)} to introduce a number of SME support programmes. Some of the programmes are implemented by Government departments, others by SME support Organizations.

4.3     Further, following its reOrganization in July 2000, the Trade and Industry Department (TID) has become the frontline department responsible for the support of SMEs. In performing its duties, the TID works closely with, and is assisted by, other departments.

    The role of trade associations

4.4     The Committee notes that, in addition to Government departments and support Organizations, various trade associations, in particular SME associations, have all along been playing an important role in supporting the development of SMEs in Hong Kong. These associations provide the trade and SMEs with valuable information; encourage and help SMEs identify, embrace and prepare for challenges and opportunities; organise various training courses, seminars and overseas study tours; collect the views and survey the needs of the trade and SMEs, and reflect these to the Government. Given their cohesive power, trade associations also help to settle disputes by acting as mediators balancing the interests of different parties. As such, trade associations are major partners of the Government in supporting SMEs. The contributions of trade associations over the years are much appreciated by the Committee.

    Proposed additional support measures

4.5     After assessing the effectiveness of the existing support measures, the Committee is satisfied that in the past few years, the Government and support Organizations have been providing SMEs with much support in terms of starting and expanding businesses. However, SMEs these days are faced with three major changes in the economic climate and need stronger support in various aspects. In view of this, the Committee recommends to the Government a series of new measures, details of which are set out in the ensuing paragraphs.

(A) Business environment

(1) Maintaining a favourable business environment

4.6     The Committee believes that the Government should vigorously maintain Hong Kong's favourable business environment, continue to uphold its market-oriented economic policy, and focus its economic development measures on the provision of comprehensive infrastructure in promoting economic development. Other than putting in place certain measures to guard against market rigging and disruption of the market mechanism, the Government should refrain from meddling in the market, nor should it tamper with the market's self-adjustment function process. As regards taxation, a clear and simple regime is particularly beneficial to SMEs because it spares them from spending much manpower and resources in dealing with taxation matters, thus enabling them to better focus their limited resources on business operations. In addition, the absence of sales tax has a positive effect on the retail and tourism-driven sales sectors. For these reasons, the Committee urges the Government to maintain a low and simple tax regime and uphold the principles of prudent financial management and living within our means. Moreover, the Committee urges the Government to avoid, as far as possible, levying sales tax. The sales tax, if levied at a time when the economy is just recovering, would deal another blow to SMEs, many of which are engaged in trading and retail businesses. A sales tax would also cause Hong Kong to lose its attraction as a shoppers' paradise and popular destination for tourists.

4.7     Since the Government has all along been playing a pivotal role in maintaining a favourable business environment, the Committee recommends that policy bureaux/departments, when formulating and implementing policies, should take into account the impact of their policies on SMEs and consult SMEs concerned if necessary. The Government should also enhance co-operation with all local trade associations, in particular those representing SMEs, so as to pool together resources and expertise in promoting the development of SMEs. As an advisory body responsible for putting forward suggestions on the long term development of SMEs, the Committee stands ready to give advice on relevant issues when necessary.

4.8     As for high rent and wages, the Committee sees them as the unavoidable consequences of economic growth. After the financial turmoil, these operating costs have already been adjusted by the market mechanism and lowered to more reasonable levels. SMEs should seize this opportunity to consolidate their resources and make use of Hong Kong's competitive advantages to engage in high value-added activities to offset the impact of high operating costs in areas such as rent and wages.

(2) Helping to start a new business

4.9     Hong Kong's free market environment has always been highly conducive to starting new businesses. At the same time, the vigour and enterprising spirit of business starters have always been the driving force of Hong Kong's economic prosperity. The Committee is of the view that although people who decide to start a business should bear the risks of that decision themselves, the Government should provide them with as much support as possible so as to enhance people's capability of starting businesses and minimise the obstacles they may encounter in complying with different government rules and regulations. In this regard, the Committee recommends to TID to further enhance its support services for SMEs. These include :

1. studying the feasibility of providing one-stop licensing services for starting business, which include providing checklists of licences required for various trades, collecting licence application forms for business starters, and forwarding applications to the appropriate departments;
   
   

2. expanding the SME Information Centre to help reduce SMEs' (business starters in particular) time and efforts in collecting information. The expanded Centre can provide a central collection of different kinds of government information relating to doing business in Hong Kong. By pooling expertise and resources of relevant Government departments, industrial and commercial Organizations as well as professional bodies, the Centre can provide comprehensive information and advisory services for SMEs through its databank, seminars and face to face consultations; and
   
   

3. enhancing the information and types of services provided by the Virtual SME Information Centre to provide SMEs with diversified, relevant and up-to-date business-related information and services. This is to support and encourage IT application in SMEs.

4.10     The Committee is delighted to learn that the TID supports the above recommendations and has undertaken to discuss with licensing departments and relevant orgainsations as soon as possible with a view to implementing the above services.

(B) Financing

4.11     The Committee recommends helping SMEs solve their financing problems through the following :

1. narrowing the existing gap in the loan market by adopting various measures, including the provision of short-term incentives, to make up for the inadequacy of the market mechanism;
   
   

2. encouraging the development of diversified financing tools and channels; and
   
   

3. assisting SMEs in gaining access to information on the financing market.

(1) Narrowing the existing gap in the loan market

4.12     To narrow the gap in the existing loan market, the Committee recommends that :

1. an interim SME Business Installations and Equipment Loan Guarantee Scheme should be set up (see paragraph 4.13);
   
   

2. a roundtable comprising representatives from Government departments responsible for commerce and industry, the Hong Kong Monetary Authority (HKMA), financial institutions and SMEs should be set up to enhance communication among various parties, particularly in the area of loan provision;
   
   

3. after identifying the information generally required by financial institutions when vetting loan applications, a checklist of the information should be drawn up for the reference of SMEs. This should help SMEs prepare their loan applications and, hopefully, improve the prospect of approval. This recommendation, if accepted, can be followed up by the proposed roundtable;
   
   

4. the HKMA should expedite the establishment of a commercial credit reference agency to provide information on the creditworthiness of borrowers. This should improve the credit risk management of financial institutions and enhance the transparency of the loan market; and
   
   

5. the Government should encourage the financial sector to develop and use a credit scoring system with which financial institutions can make objective and prompt assessments of credit risks on the basis of various indicators, thereby facilitating the processing of loan applications from SMEs. Experience in the US shows that with a credit scoring system, financial institutions will be more willing to provide loans to SMEs.

(I)   SME Business Installations and Equipment Loan Guarantee Scheme

4.13     As the Chinese saying goes, "being well-equipped is the prerequisite for good work". The Committee believes that SMEs, no matter whether they are in the manufacturing or the service sector, should enhance their efficiency, productivity and competitiveness by procuring/upgrading appropriate business installations and equipment from time to time. Although some banks/financial institutions are already actively promoting credit/rental services in relation to business installations and equipment, it appears that the market is not yet mature. Many SMEs have reflected to the Committee their difficulties in obtaining finance for business installations and equipment. The Committee recommends that before market forces come fully into play, the Government should implement an interim loan guarantee scheme with a view to encouraging banks/financial institutions to respond more positively to the financing needs of SMEs for business installations and equipment. The scope of the loan guarantee scheme may include machinery related to business operations, computer software and hardware, communication system, stationery, transport facilities, furniture and fixtures (e.g. air-conditioning system, built-in cabinets and lighting system), etc. The specific recommendations on the scheme are set out in Chapter 5.

(2) Developing diversified financing tools and channels

(I)   Enhancing the credit services of the Hong Kong Export Credit Insurance Corporation

4.14     Import/export is one of the major industrial sectors to which many SMEs belong. To SMEs engaging in export trade, export credit insurance is of particular importance. The ECIC provides export credit insurance cover and credit management services for local exporters when they enter into transactions with overseas buyers on credit terms. The aim of the services is to minimise exporters' liquidity problems in case they fail to receive payments from overseas buyers. Further, in late May last year, the ECIC, in conjunction with a number of financial institutions, launched the "ECIC Supported Export Finance for SMEs Arrangement". Under the arrangement, participating financial institutions undertake to accept ECIC policies as valid collateral for discounting export bills and offer loans to SME exporters holding ECIC policies. As at the end of May this year, 48 financial institutions have, under the arrangement, supported insured export transactions with a total value of $445 million.

4.15     The Committee understands that, under existing legislation and its scope of service, the ECIC can only provide export credit insurance services for exporters. However, in response to the views of the trade, the Committee has examined in detail with the ECIC the following ways to strengthen and expand the ECIC's services within its existing scope of operation :

1. modifying the ECIC's insurance risk assessment process by providing different percentages of indemnity according to the levels of risk involved so that more SMEs can make use of the services; and
   
   

2. providing additional diversified credit insurance products.

4.16     As regards item (i), the ECIC has indicated that it would continue, under its existing scope and the principle of prudent risk management, to provide different percentages of indemnity for individual cases or different sectors in a more flexible manner according to the levels of risks involved. For item (ii), the ECIC has undertaken to continue to respond positively to the needs of exporters and provide diversified export credit insurance products. The Committee has learnt that the ECIC has already introduced 15 new insurance policies in the past six years in response to market demand. Further, the ECIC is actively preparing a new insurance facility to accept applications for cover from exporters for hand-carried goods.

4.17     Some members of the trade reflected to the Committee that since the database of the ECIC contains information on the credit standing and rating of overseas buyers, and since such information is helpful in minimising export risks of small and medium exporters in Hong Kong, it would be good if the ECIC could give local enterprises access to its database for credit reference. Upon the Committee's enquiry, the ECIC explained that according to its contract with the credit information agency which supplies the information, the information about overseas buyers is for the ECIC's internal use only and could not be further disclosed. However, most of the information in the database can be obtained by exporters from commercial credit information agencies direct. The Committee appreciates the position of the ECIC and recommends that the ECIC assist trade associations representing SMEs and the export trade in obtaining the relevant information from commercial information agencies on more favourable terms through collective bargaining.

(II) Studying the feasibility of credit guarantee in the form of insurance

4.18     To explore new credit sources for SMEs, the Committee has made reference to an unsecured credit insurance scheme provided by the Hong Kong Jewelry Manufacturers' Association (the Association) to its members in co-operation with an insurance company. Under this scheme, the insurance company acts as guarantor for the gold credit of jewelry manufacturers. The main considerations in providing the guarantee are the financial position of the manufacturer, as well as the personal and company sureties provided. On the basis of the letter of guarantee issued by the insurance company, the bank will offer a loan to the manufacturer for the procurement of gold as raw material. If the manufacturer fails to make timely repayment, the insurance company will be held liable for indemnifying the bank. Manufacturers participating in the scheme are required to pay administration fees and insurance premiums to, respectively, the Association and the insurance company. The role of the Association under the scheme is simply to help its members understand the operation of the scheme, and to provide a channel for the insurance company to have better understanding of the background of the applicants. To the jewelry and gold industry, the scheme does provide a new way of financing other than bank credit. The Committee is of the view that the scheme, which uses the concept of credit insurance, offers a useful reference for other sectors. The Committee recommends that other trade associations and sectors should, having regard to their own operating conditions and characteristics and with reference to the experience from this scheme, jointly examine with insurance companies the feasibility of introducing similar credit insurance schemes to their own sectors.

(III) Enhancing the knowledge of equity financing

4.19     Apart from bank credit, export credit insurance and sector-specific credit insurance, SMEs should also make good use of other financing tools available in the market and consider alternative means and sources of financing. Equity financing is a feasible means of funding. In particular, financing arrangements offered by venture capital firms are most suitable for SMEs with potential for growth and development, since such arrangements provide them with long-term equity capital for development. Apart from providing capital, participating venture capital firms can play a more important role of introducing to SMEs modern governance culture and systems which will be beneficial to SMEs' long-term development.

4.20     Listing on the Growth Enterprise Market (GEM) is another source of financing for SMEs. Contrary to common belief, raising capital through public listing is not limited to big companies or IT enterprises. To most SMEs, however, listing on the GEM is admittedly not an easy task because they are required to pay considerable listing fees and maintain a high degree of transparency in their operations and financial position.

4.21     Although venture capital funds and listing on the GEM are more suitable for SMEs with high growth rates and good potential for development, other SMEs should not rule out such financing arrangements during their growth and expansion stages. The Committee recommends that the Government should help SMEs acquire an early understanding of these financing means, so that they can make use of these means if and when suitable opportunities arise.

(3) Facilitating SMEs to grasp information on the financing market

4.22     To facilitate SMEs to widen their knowledge on various financing means, the Committee recommends that :

1. the trade should establish a comprehensive SME financial resources database which contains information on services and products offered by various financial institutions. Such a database will help SMEs identify suitable financial institutions and financing packages according to their own needs; and
   
   

2. the Government should, in collaboration with other SME support Organizations, organise educational activities such as seminars and talks to motivate SMEs to enhance their financial transparency and to acquire better knowledge of and skills in financial management.

(C) Corporate governance and culture

4.23     Corporate governance is about how the board of directors and the management of an SME should steer and manage the business and operation of the enterprise. Corporate governance also provides a framework for enterprises to set targets and strategies, and to supervise the performance of the enterprises. SMEs wishing to sustain their development should pay attention to corporate governance and culture. For this reason, the Committee recommends that the Government should, in collaboration with professional Organizations, draw up a set of guidelines on corporate governance for SMEs. The guidelines should cover issues such as the composition, modus operanti and responsibilities of the board of directors; the legal status, authorities, liabilities and competency requirements of directors; shareholders' rights; business ethnics, etc. Furthermore, seminars should be organised to help SMEs enhance their knowledge of governance standard and to promote corporate culture. The Committee also recommends that trade associations, in collaboration with support Organizations, should formulate suitable sector-specific governance framework for SMEs' reference.

4.24     With the increasingly keen competition in the international arena, frequent upgrading of technology and shortened product life cycle, big enterprises tend to safeguard the professional standards of their products and services through vertical division of labour, outsourcing business items which they are not specialised in. Against this background and with their efficiency and flexibility, SMEs are well poised to win more outsourcing orders from big enterprises and hence establish reciprocal strategic partnership with them. Indeed, many of today's big and successful enterprises succeed because they have made good use of their comparative advantages in their growing stages by expanding through forming strategic alliances with other enterprises. Today's SMEs should ride on the trend of specialisation and grasp the opportunities of cooperating with big enterprises. Such co-operation will help SMEs expand their room for development. It will also help them learn from the rigorous governance frameworks and operation methods of big enterprises. While understanding that coalition and co-operation between enterprises are strictly commercial decisions, the Committee recommends that the Government, working through its connection with both parties, promote the benefit of reciprocal strategic partnership between SMEs and big enterprises.

(D) Human resources

4.25     The Committee is of the opinion that to improve the human resources of SMEs, efforts must be made in the following three areas :

1. increasing the supply of quality manpower;
   
   

2. strengthening the culture of "life-long learning" in our workforce; and
   
   

3. helping SMEs enhance the value of their workforce.

(1) Increasing the supply of quality manpower

(I) Education

4.26     Education is the fundamental answer to increasing the supply of quality manpower in the labour market in the long run. The Government must continue to invest substantially in education, with particular emphasis on language proficiency, critical thinking and analytical power, as well as IT. The Committee supports the comprehensive education reform being undertaken by the Government, and the cultivation of a culture of life-long learning and all-round development. The Committee envisages that the education reform will help supply Hong　Kong with the quality manpower required to keep pace with our economic development.

(II) Bringing in talent

4.27     A broad overview of other places such as the US and Israel shows that they understand that, with the globalisation of world economy, cultivating local talent is important but no longer sufficient. Steps must be taken to also attract talent from overseas through, for example, enabling immigration policies. The Committee therefore welcomes the government's implementation of the Admission of Mainland Professionals Scheme, and the relaxation of the relevant requirements so that Mainland students studying in Hong Kong can stay and work here after graduation.

(2) Strengthening the culture of life-long learning in the workforce

4.28     In the medium term, Hong Kong has to strengthen the culture of "life-long learning" by encouraging and motivating our workforce to continue learning with a view to improving their ability to meet the changing needs arising from the rapid development of our society. Indeed, continuous learning on one's own initiative and on a community-wide basis is the only way to maintain a quality workforce in the long term.

4.29     For this reason, the Committee supports the Chief Executive's announcement in his 2000 Policy Address that the Government will, in collaboration with the education, industrial and commercial sectors, develop a life-long learning ladder, and study the implications of establishing a qualifications framework and programme standards. The Committee is pleased to see that some education institutes have already joined hands with the industrial and commercial sectors to start moving in this direction. For instance, the Institute for Enterprises of the Hong Kong Polytechnic University is working with the Professional Validation Centre of the Hong Kong Plastics and Metal Industries and its 17 trade associations to provide continuous educational programmes under a life-long credit accumulation system for workers of the metals and plastics industries. The Committee urges the Government to join force with the education, industrial and commercial sectors to quicken the pace in this regard. Moreover, the Committee encourages our workforce to make the best use of IT and the Internet to pursue cyber learning.

(3) Helping SMEs enhance the value of their workforce

4.30     Employers are the most important human and management resources of an SME. Indeed, they often perform different roles. For example, they could be in charge of financial, administrative and personnel matters at the same time. And they may even be product developers, producers, sales representatives or front line staff as well. The Committee is therefore of the view that when helping Hong Kong's SMEs improve the quality of their human resources and generally strengthen their competitiveness, a priority area must be the enhancement of the quality of the SME employers.

4.31     On employees' training, at present, tertiary institutions, the Vocational Training Council, the Hong　Kong Productivity Council, the Clothing Industry Training Authority, the Construction Industry Training Authority, the Employees Retraining Board, the TDC and many other private Organizations and associations are offering a wide range of courses which provide comprehensive training in professional skills, IT and management for various trades and sectors. SMEs should make good use of these courses in training their staff.

(I) SME Training Fund

4.32     To encourage SMEs to provide training to their employees, the Financial Secretary announced in the 2001-02 Budget the setting aside of $300　million for the establishment of a training fund to subsidise SMEs' training initiatives. The training fund is to be administered by the TID. The Committee has been invited to put forward recommendations on the operation of the fund, including the scope of training, the eligibility criteria, and the amount of subsidy to be provided.

4.33     Having considered the training needs of SMEs, the Committee recommends that an SME Training Fund be set up. The Fund comprises two parts. First, in response to the Financial Secretary's initiative, training subsidy on a dollar-to-dollar matching basis, with a cumulative ceiling of $10,000 for each SME, will be provided to encourage SMEs to provide job-related training to their staff. The Committee is of the view that, given the very wide range of businesses SMEs are engaged in and consequently the great diversity of their training needs, it is appropriate for the SMEs to choose for themselves training programmes which can best meet the needs of their staff. Moreover, in order to encourage SME employers to pursue self-enhancement, the Committee recommends that an additional $100 million be set aside to provide funding support, on a dollar-to-dollar matching basis and subject to a cumulative ceiling of $5,000 for each SME, for SME employers to attend training courses relevant to their businesses, particularly on disciplines relating to business operation, financing, marketing, taxation, law, corporate management, staff management and IT. The objective is to enhance the leadership and management know-how of SME employers through training. Details about this fund are set out in Chapter 5.

(II) Other suggestions to upgrade human resources

4.34     The Committee considers that the pilot Mentorship Programme for SMEs run by the TID is able to help SME business starters improve their techniques and abilities in business operation, as well as widening their vision generally. The programme provides SME operators, in particular new business starters, with opportunities to obtain guidance from some successful and experienced businessmen, and to learn from them the keys to success in business. It has been on trial since last November for a period of one year, after which the TID will evaluate its effectiveness. The Committee recommends that, if the evaluation confirms the effectiveness of the programme, the TID should expand the programme for the benefit of more SMEs.

4.35     The Committee also recommends the establishment of an SME Outstanding Training Award, to commend SMEs with outstanding performance in training. The training practices/experience of the winning enterprises should be widely publicised to promote the culture of "life-long learning".

4.36     Further, in view of their limited resources, SMEs very often find it rather difficult to attract talent when recruiting staff. The Committee recommends that tertiary institutions should implement an Institution Trainee Practicum Programme. Under this programme, arrangements may be made for students to work in SMEs during their course of study in areas relating to their disciplines. The working experience can then be counted as a module in their study programmes, or be counted towards their credits. This proposal will enable students to acquire actual working experience on the one hand, and induce them to take up related jobs upon graduation on the other. At the same time, SMEs will be given opportunities to identify suitable prospective employees earlier, thus helping direct talent to SMEs.

(E) Technology application

(1) Applied technology

4.37     The application of technology and technical know-how as a long-term investment can help control cost and achieve greater productivity and efficiency. The Committee encourages SMEs to invest in this area. In paragraph 4.12, the Committee recommends that the Government should establish a loan guarantee scheme to assist SMEs secure loans from banks and financing institutions for the procurement of business installations and equipment. With such loans, SMEs can procure appropriate business installations and equipment to improve their productivity and competitiveness. The loan guarantee scheme will cover various equipment, including those relating to IT.

(2) IT application

4.38     As stated in Chapter 3, in order to facilitate the application of IT by SMEs, it is necessary to raise their awareness of the benefits IT can bring to their businesses. It is also necessary to increase the supply of IT personnel.

(I) Raising SMEs' IT awareness

4.39     The Committee recommends the following measures to raise the awareness of SMEs on IT :

1. the Government should provide financial support to encourage the IT sector to form IT promotion teams to assist selected SMEs in different sectors which currently are not making much use of IT in their operation. The programme will demonstrate how IT application can reduce operating costs and improve the work flow. SMEs will thus witness for themselves how IT can benefit their businesses. Their experience will also demonstrate to other SMEs in the same sector the advantages of IT;
   
   

2. the Government should work with relevant orgainsations, business associations and the media to publicise best practices in IT application, by way of TV specials, newspapers and magazines articles, booklets, exhibitions and visits, etc. Such publicity will demonstrate to SMEs the benefits of IT and enhance their understanding of it;
   
   

3. the Government should co-operate with relevant orgainsations and business associations in organising sector-specific SME IT-expo on a regular basis to demonstrate how IT may work in different sectors, and help SMEs understand the relevance of IT to their daily business operations;
   
   

4. the IT sector should be encouraged to set up a database of IT service providers (including, for example, hardware, software, IT solution packages and homepage design). This will make it easier for SMEs to obtain information on IT services available in the market and their costs; and
   
   

5. an SME IT Application Award should be set up to commend SMEs with outstanding achievements in IT application. Their success stories should also be widely publicised.

4.40     The Committee firmly believes that SMEs in Hong　Kong, renowned for their adaptability and responsiveness, will be ready to take the appropriate move to invest in and use IT, once they are aware of the benefits IT can bring to their businesses.

(II) Increasing the supply of IT personnel

4.41     The Committee finds that in general what SMEs need most are technical people who possess basic knowledge and some operating experience in IT. With their basic knowledge in office computer, software and the Internet, or the ability to design simple homepages, they can help SMEs handle basic IT and e-commerce related applications.

4.42     The Committee is aware that the Education and Manpower Bureau, in co-operation with the IT sector, successfully launched a pilot IT Assistant Training Programme last year. The aim of the ten-week programme is to provide comprehensive IT training to people who have attained an education level of Secondary 3 or above. So far, 900 people have successfully completed the programme. The programme was well received by the business and industrial sectors, as well as the trainees themselves. In view of SMEs' keen demand for junior IT personnel, the Committee recommends that more places under the IT Assistant Training Programme be provided in the light of actual needs, in order to ease the shortage of IT personnel.

4.43     The Committee is also aware that, starting this summer, the Information Technology and Broadcasting Bureau will run a pilot subsidy scheme targeted at Secondary 5 to Secondary 7 school leavers to encourage them to study IT courses during the summer vacation. The scheme seeks to enhance their IT skills and prepare them for their future career. The Committee welcomes this scheme and believes that it will further ease the current shortage of IT personnel.

4.44     In fact, if SMEs are to apply IT extensively in their operation, they cannot solely rely on a handful of technicians. Each and every employee in the enterprises must master the skills and get into the habit of using IT in their day-to-day operation. The Committee hopes that SMEs can make good use of the proposed SME Training Fund (see paragraph 4.33) so that their staff will be able to receive appropriate and relevant IT training.

(F) Market expansion

4.45     Generally speaking, SMEs have access to three markets, namely the overseas, local and the Mainland market. Each of the markets has its own characteristics. The opportunities they offer and the challenges they pose are also different. Having regard to the unique circumstances of each market, the Committee has recommended different proposals to help SMEs gain better understanding of the markets, adjust themselves to the changing circumstances, and get a head start in the markets.

(1) Overseas markets

4.46     To help local SMEs develop the overseas market, the Committee recommends that a number of measures be taken. These include setting up an SME Export Marketing Fund, encouraging and helping SMEs establish strategic partnership with overseas enterprises, and assisting them in exploring local and overseas venues to showcase their products and services.

(I) SME Export Marketing Fund

4.47     Hong Kong is an export-oriented economy, with SMEs accounting for over 99% of our import/export business. It is, therefore, of utmost importance for SMEs to have a timely grasp of overseas market information and be able to meet the needs of overseas consumers. In this connection, the Committee has made reference to overseas experience, and notes that governments in many overseas economies (e.g. the United Kingdom, Australia, Singapore) provide support, in different forms and varying degrees, to help SMEs penetrate overseas markets. To encourage SMEs to explore new markets, to actively take part in trade fairs and marketing activities, to keep abreast of market developments, and to broaden their outlook, the Committee recommends that the Government provide funding to set up an SME Export Marketing Fund. The proposed fund is to subsidise SMEs in activities which facilitate their expansion into overseas markets. Each eligible SME may receive a grant up to a maximum of $10,000. Details are given in Chapter 5.

(II) Forming strategic partnership

4.48     Apart from participating in trade fairs and study missions, SMEs will find it beneficial to form strategic partnership with overseas enterprises as a means to gain access to their markets. The Committee notes that the Asia-Pacific Economic Co-operation (APEC) has been actively encouraging member economies to assist their SMEs to form strategic partnership with enterprises of other member economies. For this purpose, many economies have set up trading partner matching database to facilitate this process. Also, the US Government has launched a Business Partnership Initiative for SMEs in conjunction with Thailand and Singapore separately. For this purpose, a business partner matching mechanism has been established to encourage and promote the formation of strategic partnership between US enterprises and those in, respectively, Thailand and Singapore.

4.49     The Committee considers that the formation of strategic partnership among SMEs has become an irreversible trend. The Committee is pleased to learn that the TDC is also aware of the importance of its trading partner matching database to local SMEs; that the TDC has strengthened its database in terms of information on local SMEs and overseas companies; and that the TDC will enhance its matching service. The additional information to be included in the database will include the track record of SMEs on the lookout for overseas trading partners, their facilities, their affiliates and distribution network in the Mainland, as well as more in-depth information on foreign importers and Mainland enterprises. The Committee has learned that the TDC is now reviewing the functions of its overseas offices with a view to stepping up their support for SMEs in opening up overseas markets. The Committee hopes that the review will be completed before long. The Committee also recommends that the TDC, while reviewing how its matching service can be enhanced, study the effectiveness of the aforementioned Business Partnership Initiative for SMEs, and consider the feasibility of launching a similar programme for SMEs in Hong Kong.

(III) Opening up new channels to promote Hong Kong products and services

4.50     On product promotion, many SMEs have been complaining about a dearth of exhibition venues in Hong Kong, denying them opportunities to take part in trade fairs. The Committee considers it necessary to set up more exhibition venues locally. With competition, the rental and other service charges of exhibition venues in Hong　Kong should go down. This will alleviate the burden of SMEs and make it easier for them to take part in trade fairs in Hong Kong. In this connection, the Committee notes that the TDC will conduct a feasibility study on the Phase 3 extension project of the Hong Kong Convention and Exhibition Centre. Another Organization has also expressed an intention to construct an international exhibition centre at the Hong Kong International Airport. The Committee warmly welcomes these initiatives and urges that the relevant parties complete the study, make a decision and proceed with implementation. Further, the Committee considers that the establishment of an exhibition gallery for Hong Kong quality products and services at the well-positioned Hong　Kong International Airport will improve the knowledge of overseas visitors and potential buyers about Hong　Kong products and services. Therefore, the Committee recommends that the Government pursue with the Airport Authority the feasibility of this idea.

4.51     The Committee is of the view that it would significantly spruce up the international image of Hong Kong brand names if the TDC would make use of major overseas trade exhibitions to help publicise and promote the overall quality of local products and service. The Committee is pleased to learn that the TDC shares this idea and is planning to set up a Hong　Kong Brand Name Gallery in some major overseas exhibitions. Products of Hong Kong brands will be showcased to overseas buyers in distinctive designs and well-presented packages to boost the image of Hong Kong products in the international market. The Committee further understands that the TDC will also strengthen its exhibitions of Hong Kong products in the Mainland to promote Hong Kong brand names to Mainland consumers.

4.52     The Committee also recommends that SMEs make wider use of cyber exhibition on the Internet with a view to marketing their products to other parts of the world at minimal cost. In this connection, the Committee is aware that the TDC has plans to enhance its cyber exhibition of products and services by introducing more overseas fairs on its website. The Committee recommends that the TDC promote this service amongst SMEs more actively. The Committee encourages other Organizations to also develop cyber exhibition service.

(2) Local market

4.53     The Committee is of the view that the following four-pronged approach can be adopted to facilitate SMEs opening up the local market: first, stimulating local consumption; second, attracting more tourists from overseas and the Mainland; third, assisting SMEs to bid for Government procurement contracts; and fourth, attracting more overseas and Mainland enterprises to set up offices and hold large conventions and exhibitions in Hong Kong.

(I) Stimulating local consumption

4.54     To give an impetus to local spending, we must first and foremost enhance service quality. In recent years, there is a growing trend for the people of Hong Kong to spend their weekends and long holidays in the Mainland and overseas. In the face of fierce competitions from the Mainland, local SMEs must strive to develop a quality service culture and a commitment to quality in meeting the growing demands of local consumers. When they realise that money spent here is money worth spending, consumers will stay and spend in Hong Kong. Improvement in customer service by SMEs will enhance the overall quality of the local service industries. In turn, the consumer market will be stimulated, and the Hong Kong tourist industry benefited. The Committee understands that the catering industry and the retail industry have already been covered by the Skills Upgrading Scheme administered by the Skills Upgrading Steering Committee set up by the Education and Manpower Bureau. The Committee recommends that the Steering Committee consider including other relevant service industries in the Skills Upgrading Scheme, and offering training courses on customer service for the employees in these industries.

(II) Attracting tourists from overseas and the Mainland

4.55     The Committee understands that the Government is committed to establishing and promoting Hong Kong as a world-class resort and business hub. The Hong Kong Disneyland now under construction is a key project to enhance the attractiveness of Hong Kong. Although the Disneyland will not be operational until 2005, some industries (for example, the construction industry) have already benefited from this project. With its development under way, it is anticipated that Disneyland will afford more opportunities for our service industries to grow. In addition, the Hong Kong Tourism Board has drawn up concrete plans for attracting tourists from overseas and the Mainland to Hong Kong. Meanwhile, the Committee welcomes the Government's plans to streamline border control, as announced by the Financial Secretary in the 2001-02 Budget. With the attraction of more Mainland tourists in mind, the Committee recommends that relevant Government departments work together with their Mainland counterparts to further simplify the application procedures for Mainland tourists who intend to visit Hong Kong, and to grant more quota for these tourists. The Committee is also concerned about the deteriorating environmental quality in Hong Kong. The Committee recommends that Government take immediate steps to firm up and implement measures to improve our environment, including air and water quality and our amenity, with a view to turning Hong Kong into an environmental friendly and dynamic metropolis which is a choice destination for tourists.

(III) Assisting SMEs to bid for Government procurement contracts

4.56     The Government is the largest local purchaser of a great variety of commodities, including stationery, paper, electrical appliances, drugs, cleansing products, food, vehicles and even aircraft. It also procures a wide range of services such as consultant services, cleansing services, property management, parking meters management, transport services, and operation of waste handling facilities, etc. Most of the commodities and services purchased and hired by the Government are indeed SMEs' line of businesses. However, many SMEs are not familiar with the procurement procedures of the Government. The Committee therefore recommends that the relevant Government departments should hold talks to brief SMEs on Government's procurement and tender procedures, and how to prepare tender documents.

(IV) Attracting overseas and Mainland enterprises to set up offices and hold more large international conventions and exhibitions in Hong Kong

4.57     Invest Hong Kong should continue its endeavour to attract overseas and Mainland enterprises to set up offices and hold large conventions and exhibitions in Hong Kong. This will help consolidate Hong Kong as an international business centre and help boost tourist spending, to the direct benefit of the local businesses. To facilitate/promote the Organization of large international conventions and exhibitions in Hong Kong, the Committee recommends that the Hong Kong Tourism Board and the TDC step up their efforts in this respect and help enhance Hong Kong's competitiveness as a venue for international conventions and exhibitions.

(3) The Mainland market

4.58     Local enterprises, including SMEs, have been encountering difficulties when doing businesses in the Mainland. Their problems mainly stem from their unfamiliarity with the economic environment, laws and regulations of the Mainland, and a lack of mutual communication. As the economic development of Hong Kong and the Mainland are interwined, the Committee considers that greater support should be rendered to enterprises in developing the Mainland market.

4.59     The Committee notes that the TID's SME Information Centre works with trade and industrial bodies from time to time to convey to SMEs information on the Mainland market. This is done through seminars, publications, website or other media. Together, these efforts enhance SMEs' knowledge of the Mainland market. Furthermore, the Financial Secretary stated in his 2001-02 Budget Speech that he has asked the TDC to provide SMEs with more information and advice on doing business in the Mainland. In this connection, the TDC will conduct an in-depth analysis of the South China region, covering the development potentials in different sectors, the distribution systems, and import channels. It will liaise with relevant Mainland parties with a view to securing comprehensive and more up-to-date market information for local businesses. The TDC will also set up a China Business Advisory Unit to provide SMEs with one-stop services for doing business in Guangdong. The Committee hopes that the TDC will implement as soon as possible the various measures to facilitate SMEs' entry into the Mainland market.

4.60     As far as helping local businessmen understand and comply with Mainland laws and regulations is concerned, the Committee understands that the Government has already been disseminating to local businessmen, through the liaison mechanism of the Trade Working Group under the Mainland/Hong Kong Special Administrative Region (HKSAR) Joint Commission on Commerce and Trade, information on newly introduced Mainland policies and measures on trade and commerce that may affect them. The Government also reflects to the relevant Mainland ministries and commissions the problems faced by Hong Kong SMEs when doing business in the Mainland, with a view to seeking improvement in the Mainland business environment. Further, the Financial Secretary stated in the 2001-02 Budget Speech that the Government would actively consider the appropriateness and feasibility of setting up an Economic and Trade Office in Guangdong. Apart from official channels, the Committee welcomes trade associations to organise exchange activities between the two places and to maintain communication with the trade and commerce departments in the Mainland, with a view to assisting Hong Kong businessmen when they run into difficulties in the Mainland.

4.61     The Committee believes that the HKSAR delegation to the Western Region of China, led by the Chief Secretary for Administration, has laid a solid foundation for the development of an interactive and mutually beneficial relationship between the two places. The Committee urges the Government to consider, having regard to the experience of the visit, what action could be taken to help SMEs seize the business opportunities available in the Mainland.

(G) SME Development Fund

4.62     To comprehensively cater for the needs of SMEs in different aspects, the Committee considers that the Government should, as far as possible, encourage trade and industrial Organizations, professional bodies and research institutes to provide targetted support for SMEs.

4.63     With this in mind, the Committee recommends that an SME Development Fund be set up to finance projects or research put forward by non-profit-making SME support Organizations, trade and industrial Organizations, professional bodies and research institutes. The projects to be funded should be in line with the spirit of the various recommendations stated in this report and be of help in enhancing the competitiveness of SMEs in general or SMEs in specific sectors.

4.64     The Committee recommends that, if necessary, Organizations/institutions should be invited to apply for funding assistance from the fund to implement some of the major support measures recommended in this report. This will facilitate early implementation of the recommendations after they have been approved by the Chief Executive, thus benefitting SMEs as soon as possible.

4.65     To ensure that the fund will yield maximum results, the Committee recommends that priority should go to applications which can benefit the most SMEs, and that this should form one of the major criteria for assessing funding applications. For details of the fund, please see Chapter 5.

(Note 5) :

(Note 6) :

Chapter 5 : The four funding schemes

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