Economic uncertainty should be a push factor for SMEs to broaden horizons
- Many firms reliant on US and mainland China for supplies and sales feel increasingly vulnerable as dispute between nations intensifies
- Hong Kong’s small businesses can establish strong competitive advantage from proactive expansion in Asean region and Greater Bay Area
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The United States-China trade war is continuing to intensify with drastic consequences.
In Hong Kong, businesses can expect less spending from an anxious domestic population, as well as possible liquidity crunches as banks turn risk-averse.
A more practical strategy could be for Hong Kong businesses to turn their attention to the 10-member Association of Southeast Asian Nations (Asean) region, or the Guangdong-Hong Kong-Macau Greater Bay Area (GBA).
The region provides sustainable new business opportunities, mainly for two reasons.
Some Asean countries are less directly intertwined in the US-China showdown, which means consumers there may not have adopted the same cautious outlook.
Second, Asean as a whole has moved in the opposite direction to the US and China. Even as the US turns protectionist, Aseannations have committed to lowering trade barriers.
Benefits of cross-border growth
As the risks of the trade war intensify, Hong Kong businesses, especially small and medium-sized enterprises (SMEs), would benefit from expanding into new markets. Now is a good time to consider expansion into Asean and the GBA, and to redirect supply chains.
Check out a few key areas that SMEs can focus on.
1. Diversify sources of supplies
Political pressure can also result in suppliers being unwilling or unable to ship materials, regardless of whether or not an SME is willing to pay the tariffs.
It takes time to source new suppliers in any new market, as well as to negotiate or close deals and to build trust. As such, Hong Kong SMEs that act early to find suppliers in Asean or the GBA would gain a competitive advantage over those that don’t.
2. Reclassify goods for Asean trade
For example, if an SME produces bracing for heavy machinery, the product may wrongly be classified as an import of heavy machinery (for example, the term “machine parts for heavy machinery” was used as the description). This may cause the product to face higher taxes in certain Asean states. Malaysia, for instance, dissuades heavy machinery imports for certain sectors by imposing higher import duties on these goods.
It is possible that a simple reclassification can result in lower tariffs or speedier approval, and hence a reduction in the time to market. SMEs will likely incur some legal and administrative costs in finding the expertise to do this, but they can consider it an investment as it prevents delays, costs and possible penalties related to the incorrect classification of goods.
3. Develop contingency plans
One example of this is to explore the possibility of shipping through Asean countries.
It may be possible to ship a product to, say, Singapore or the Philippines, where a subsidiary company then sells it to a buyer in the US. While this results in higher logistical costs, it may end up being cheaper than paying the punitive tariffs raised in the US-China trade war.
Other contingency plans can include sourcing alternative buyers in Asean and having a flexible marketing plan. For example, SMEs can develop a secondary marketing plan that they can quickly implement in Asean in the event that their current target market is blocked by tariffs or becomes unprofitable because of increased import taxes.
Choose proactive expansion
An immediate instinct may be to shy away from cross-border expansion given the uncertain economic climate.
However, this instinctive reflex may lead to greater problems in the long run as SMEs in Hong Kong cannot count on their small domestic market during a severe downturn. As such, they can view the trade war as an impetus for proactive action, rather than a call for caution.
In addition, SMEs that use the opportunity to expand, while counterparts shy back, can gain a competitive advantage in the growing Aseanmarket.
This could, in a pleasant irony, allow them to emerge from the trade war in a stronger position than before.