Speech by DGTI at 2012 APEC SME Summit (English only)
Tuesday, February 21, 2012
Following is the speech by the Director-General of Trade and Industry, Ms Maria Kwan, at the 2012 APEC SME Summit on the topic of "Public-Private Partnership in Fostering SME Development" today (February 21):
Anthony Nightingale, Vincent Lo, distinguished guests, ladies and gentlemen,
Good afternoon everybody. Many people have told me on various occasions that being the first speaker after lunch is a big challenge. I hope you all can help me overcome it. Joking aside, I feel greatly honoured to be invited here today to address this SME Summit jointly organised by the APEC Business Advisory Council (ABAC) and the Hong Kong Trade Development Council.
I am very impressed by the good mix of speakers at this Summit. I know that Anthony and Vincent have worked very hard on it and, as Anthony said this morning, particularly Vincent. The programme shows that he has succeeded in bringing together outstanding business leaders and successful entrepreneurs, financial experts as well as representatives from the academia and government. The Summit provides an excellent opportunity for a balanced, comprehensive and thought-provoking discussion on the theme of "Entrepreneurship in Asia-Pacific". I am sure the dynamic discussion today will provide all of us with much food for thought.
What I propose to do at this session is to briefly summarise Government policy on SMEs. Then, rather than giving you lots of facts and figures, I will focus on how public-private partnership helps to make a number of SME support measures provided by my department work better and be more useful and relevant. I will also briefly cover other support measures that have been put in place through other Government departments and quasi-Government bodies.
SMEs, over 300 000 in number, are the backbone of Hong Kong, China's economy. They constitute over 98 per cent of our local business establishments and provide about 48 per cent or over 1.2 million of our total employment in the private sector. The Government is committed to facilitating their growth and supporting their continuous development.
Our policy on SMEs is to provide the necessary support to enhance their competitiveness, but in keeping with our economic philosophy of "big market, small government" and "maximum support, minimum intervention". It is effectively underpinned by our rule of law, our commitments to an open and free market, free flow of capital and information, a low and simple tax regime, transparent government and efficient infrastructure, which are all conducive to creating a business-friendly and facilitating environment.
As is well known, the common concerns and interests of SMEs include access to financing, lack of capacity to internationalise, difficulty in identifying foreign business opportunities, as well as challenges in building management capability, entrepreneurship and innovation.
To help SMEs overcome the various challenges, Hong Kong, China has put in place a wide range of support measures through a number of Government departments and quasi-government bodies. My department administers a number of schemes, namely the SME Loan Guarantee Scheme and the very popular, time-limited Special Loan Guarantee Scheme to assist SMEs in securing financing, an SME Development Fund to enhance competitiveness of SMEs in general or in particular sectors, and an Export Marketing Fund to provide some hand-holding to SMEs in their exploit of export markets. In addition, to help SMEs build management capability and entrepreneurship, we run SUCCESS, a Support and Consultation Centre for SMEs. It provides SMEs with free business consultation services, including face-to-face subject-specific business advisory service and mentorship. All these are relevant to start-ups as well as established businesses.
Access to Financing
When the Government introduced the SME Loan Guarantee Scheme in 2001 and later the Special Loan Guarantee Scheme in 2008 to help SMEs and others secure loans from the commercial lending market, public-private partnership was very much at the heart of them and contributed to their success. As is evident, it would be practically difficult, if not impossible, for the Government to run a business loan scheme on its own. We do not have the commercial expertise in credit assessment and loan management. We therefore opt for a loan guarantee scheme with the support of the banking sector, which brings in the relevant expertise and professionalism from the commercial lending market.
The arrangement proves to be a win-win for all. Under the SME Loan Guarantee Scheme, the Government assumes the role as guarantor covering up to 50 per cent of loans granted to SMEs by private lending institutions. This enables SMEs to get comparatively more competitive rates from the banks. We however rely on the lending institutions' professional skills, judgement and care as a prudent lender in assessing the creditworthiness and financial viability of the SMEs and in managing the loans extended to them. Through this public-private partnership, we have brought together Government resources and expertise from lending institutions to facilitate SMEs' access to finance. Over the years, the Scheme has helped SMEs to pursue further business development.
When we were hit by the global financial crisis and the ensuing credit crunch in 2008, we quickly put in place a time-limited Special Loan Guarantee Scheme with total loan guarantee commitment of about US$12.8 billion (HK$100 billion). In partnership with over 40 lending institutions, the Government provides a higher guarantee protection of up to 80 per cent of the loans to all non-listed enterprises in Hong Kong. This time-limited special scheme was very successful. It helped more than 20,000 enterprises tide over their cash flow problem during the financial crisis and also helped to preserve more than 340,000 jobs.
Lately after the cessation of this special scheme, the Hong Kong Mortgage Corporation Ltd, a company wholly owned by the Government, launched a market-oriented loan guarantee scheme to provide our SMEs with an additional option to obtain sustainable financing. Riding on the success of the Special Loan Guarantee Scheme, it incorporates essential features including vetting of loan applications by banks. This latest Scheme demonstrates a more intricate but flexible mode of public-private partnership.
Public-private partnership in loan guarantee schemes brings efficiency, synergy and benefits. Apart from providing a flexible and sustainable financing platform for SMEs, it reduces the credit risk which would otherwise be wholly borne by the Government under a government loan scheme. It also enables private lending institutions to better manage their lending risks, which in turn enhances the overall stability of our banking sector.
Enhancing the Competitiveness of SMEs
Besides funding schemes targeting at individual SMEs and enterprises, we have set up an SME Development Fund (SDF), which supports non-profit-distributing organisations implementing projects that would enhance the competitiveness of SMEs in general or in specific sectors. This is another significant example which shows how public-private partnership could work to benefit SMEs better in different ways.
The operation of the Fund enables all non-profit-distributing organisations like trade and industrial organisations, professional bodies and research institutes, etc, to come up with their own ideas as to how to achieve the general objective. Under the Fund, they can apply for a maximum of about US$256,000 (HK$2 million) or 90 per cent of the funds required for each project contemplated.
Such an arrangement enables the Government to tap the expertise and knowledge of trade veterans who have been serving different trade organisations and the respective sectors for years. They know best what SMEs need and their proposals can directly address the changing needs of the trade in a timely fashion. The result is that we have varied and at times very creative projects which facilitate the development of SMEs even in new areas.
Over the years, SDF projects have covered a wide range of areas and taken many forms. They include the most traditional, like assisting our exporters and manufacturers in understanding and complying with international standards and regulations of importing countries. This is important as many SMEs may not be aware of the latest development of international and national standards imposed by importing countries or, even if they do, may not fully understand their implications or how best to comply. We have SDF projects covering, e.g. EU regulations on chemicals and their safe use, commonly known as "REACH", and the US Consumer Product Safety Improvement Act. Such legislations have implications for many of our manufacturers and exporters in different areas. However, as the regulations are very technical and complicated, individual SMEs might have difficulty understanding fully how the requirements would affect them. At the instigation of relevant trade associations, SDF projects were initiated with a view to providing comprehensive information to our SMEs in a way that they can understand, and to help them cope with the changing requirements. Seminars, workshops and visit tours are arranged and guide books compiled to provide SMEs with the information and support they need to make adjustments in light of new requirements.
Other projects were also conducted over the years to help SMEs understand relevant ISO requirements and hence enhance their capacity in accessing international markets. These examples show that besides being more closely aware of the needs of their members as well as the trade, trade and supporting organisations would also likely be able to launch useful programmes in a timely manner. Their wide network also enables them to mobilise experts and other relevant parties to make things happen quickly.
Given the general eligibility criteria, the creativity of SDF projects could be immense. One recent proposal involves helping SMEs to identify a unique niche market. As in many other developed societies, there is insufficient attention given to the less privileged groups, such as the mentally or physically disabled, the ethnic minorities and the visually and hearing impaired. Their potential as consumers is often overlooked. A reputable social service agency, which knows very well the needs of these less privileged groups as well as their market potential, launched a project to help SMEs understand the specific needs of these potential customers and encourage them to develop this niche market. This, in turn, will help to provide a better consumption environment for the less privileged groups.
Another project relates to enhancing the competitiveness of private nursing homes. The applicant, an SME association, partnered with a private nursing home and a pharmacy, proposed a pilot scheme to test out the use of radio frequency identification to match the identity of individual elderly persons with their prescribed medicine, so as to ensure that the right medicine is given to individual residents in elderly nursing homes in a timely manner. The project deliverables and target beneficiaries of the above two projects are quite unique. These projects are successful not only because they help SMEs open up or remain in a niche market, but also because the less privileged individuals who need more care and concern from the community can also benefit.
Strengthening the Capacity of SMEs to Explore New Markets outside Hong Kong
Most SMEs want to explore new markets but do not know how. The SME Export Marketing Fund provides funding support to encourage and facilitate SMEs' participation in export marketing activities organised by our Trade Development Council and private sector exhibition organisers, trade publication publishers, websites service providers, etc. Such service providers have good knowledge of the market situation and understand the specific needs of SMEs. Hence, they can devise the most appropriate export marketing activities that best serve the needs of the SMEs. On the other hand, the SMEs themselves have the liberty to choose freely in the market those qualified export marketing activities which best suit their needs in order to optimise their limited resources.
Sometimes, collective efforts are important and badly needed for exploring new markets. The SDF I mentioned minutes ago also plays a significant role in helping SMEs reach out to new potential customers in the world.
For instance, under the SDF, we have supported funding applications by the jewellery sector to set up a Hong Kong Pavilion at one of the world's largest jewellery shows in Las Vegas. We have also sponsored similar ventures by the mould and die industry at the Asiamold, one of the largest international trade shows for the mould and die industry, to display to the world their high-quality mould and die products and their latest technologies. The SDF also supported the plastic processing, moulds and machinery industries to launch an export marketing campaign in Germany and Malaysia in 2010 and 2011 respectively. These are important exhibitions of the industry. Integrated plastic product processing demonstration lines covering the whole range of plastic products were set up at the exhibitions. While this involved a lot of technical problems, the efforts seemed to have paid off as we learnt that the display had made a great impression on the visitors.
Turning to the Mainland market, it is growing very fast and our SMEs are keen to develop their own brands and explore the domestic sales there. Many good ideas on branding were generated and implemented through the SDF. To quote just a few, a series of very successful practical guidebooks on different parts and sectors of the Mainland market were produced under co-operative efforts of many SME associations, trade associations and industrial organisations. The response was overwhelming as, in addition to the web version, reprinting of the guidebooks had to start almost right after their publication. Training courses, seminars and workshops in various formats and for different sectors were also organised. In addition, a number of promotional activities for Hong Kong brands were recently funded by the SDF with a view to introducing "Made by Hong Kong" products to major cities like Chongqing and Wuhan in Mainland China and hopefully would facilitate SMEs' access to shopping malls in the Mainland. We hope to see positive results in the years to come.
In addition, we are now actively working on a proposal announced by our Chief Executive in his 2011 Policy Address to set up a dedicated fund of about US$130 million (HK$1 billion) to encourage our SMEs to move up the value chain by developing brands, restructuring and upgrading their operations and promoting domestic sales in Mainland China. Our current thinking is that the fund would comprise two parts. In one part, we will provide funding support to individual enterprises to undertake projects in the areas that I have just mentioned. In the second part, we will continue to adopt the SDF mode and involve non-profit organisations in undertaking larger-scale projects to assist Hong Kong, China's enterprises in general or in specific sectors.
Building Management Capability and Entrepreneurship
Our close partnership with the private sector also works well in upgrading and enhancing the management capacity of our SMEs. SMEs generally lack professional expertise and adequate resources for consultancy services. Through our Support and Consultation Centre for SMEs (or SUCCESS in short), we provide SMEs with free business consultation services, including face-to-face, subject-specific business advisory service and mentorship. As SMEs at different stages of business development may encounter different problems, we adopt a multi-faceted approach in delivering our services, including helping business start-up, strengthening marketing capacity, enrichment in legal and accounting knowledge, etc.
In doing so, we collaborate with major trade and industrial organisations, professional and academic bodies, as well as private companies. These partners assign their members and business contacts, including accomplished entrepreneurs, senior executives and professionals, to be volunteer advisors of our "Meet-the-advisors" Business Advisory Service and pro bono mentors of our SME Mentorship Programme. Whilst their expertise and experience benefit SMEs, we understand that our partners also cherish such opportunities as an effective means to demonstrate their and their members' contribution to the community.
Mentorship has also proven to be mutually beneficial to mentors and mentees. Judging from feedback received from some accomplished mentors, the sharing with mentees from different backgrounds during the mentorship does not only inspire them to evaluate their own business from different perspectives but also stimulates new business thinking. This is clearly a win-win outcome. In fact, I understand that mentors and mentees in many cases also develop a longer term or lifetime partnership.
Other SME Support Programmes
Recognising the need for our SMEs to move up the value chain through creativity and design, the CreateSmart Initiative spearheaded by Create Hong Kong provides financial support to initiatives that may help the development and promotion of creative industries, and supports creative SMEs and talents to participate in exhibitions and competitions to build the brand of their services and products.
The Hong Kong Science and Technology Parks Corporation (a statutory organisation with close links to businesses in innovation and technology) offers a comprehensive incubation programme to assist technology start-ups during their vulnerable inception stages. Apart from subsidised office accommodation, shared-use laboratories and equipment, as well as marketing, financial and technical assistance in the critical initial years of these companies, the programme also includes mentorship support service for the incubatees.
Since its inception in 1992, the programme has incubated over 330 start-up companies. Over the years, the number of incubatees and graduates filing patents, trademarks and registered designs, and winning local and international technical and managerial awards, has increased steadily. In the prestigious Wall Street Journal Asia's Asian Innovation Awards 2010, an incubatee was awarded the Technopreneur Award. Another incubatee won the bronze award in the same awards in October 2011.
Last but not least, the Small Entrepreneur Research Assistance Programme administered by the Innovation and Technology Commission provides financial assistance in the form of a matching grant for technology entrepreneurs and technology-based companies (including start-ups) to undertake research and development of commercially viable technologies.
After sharing with you how public-private partnership works in a number of SME support measures, I trust you would agree with me that public-private partnership has an important role to play in fostering SME development. The benefits are improved understanding, timely moves, creative approaches and efficient execution, to name a few. It is conducive to meeting the changing needs of industry and commerce and enables implementation in a cost-effective, flexible and sustainable way. I look forward to continuing public-private partnership in fostering the development of SMEs.
Lastly, I would like to thank Hong Kong ABAC for an excellent job in organising the SME Summit today, which provides a platform for our SMEs to gain new insights and perspectives on entrepreneurship from our distinguished guest speakers.
Thank you very much.