Brexit has UK SMEs looking East for global growth

·      45% identify Hong Kong as the gateway to the Chinese mainland 

·      36% state the Brexit debate makes trading with Hong Kong or China more attractive

·      Young entrepreneurs with less confidence in Europe most likely to have traded with Hong Kong or China in the last year 

Research for Hong Kong Trade Development Council (HKTDC) in advance of its flagship “Think Asia, Think Hong Kong” event returning to London on 21 September 2017, found that almost half (45%) see Hong Kong as the gateway into the Chinese mainland and other Asian countries.

Although confidence for business growth in Europe and Asia are broadly similar (57% and 62% respectively) 36% of UK SMEs state that the Brexit debate has made the prospect of trading with Hong Kong or China more attractive. 

Over a quarter (28%) of UK SMEs believe that it is easy to set up as a foreign business in Hong Kong and almost a quarter (21%) are attracted to its low tax rates. Additional assets identified include Hong Kong’s good levels of English (51%), the long standing political relationship between Hong Kong and the UK (32%) and its proximity to China (36%). The biggest opportunities that businesses recognise for launching into the Chinese mainland is its huge consumer base (42%), followed by its growing middle class (35%) and ability to be early adopters of technology (27%), whilst the challenges include the language barrier (57%), the rule of law and perceived red tape and regulation (both 41%). 

According to the Office for National Statistics’ (ONS) latest Annual Business Survey on Importers and Exporters, only 5% (104,600 out of a total of 2,129,800 businesses) of UK companies were merchandise exporters in 2015, while the number doubled to 10% (216,000 out of 2,129,800) if services exporters were also included. The Hong Kong Trade Development Council suggests that Brexit offers the UK an opportunity to develop a more independent, autonomous trade policy towards Asia that can play to its economic strengths. Both goods and services (i.e. financial services, high-tech solutions and educational services) exporters are in a prime position to ride on the structural transformation underway in many Asian countries, which are moving towards a service-based economy, bringing benefit to both sides.

The research suggests that UK SMEs are underestimating what a well-established route launching into Hong Kong is. When asked how many UK companies currently operate in Hong Kong, 32% could not identify any, while the strongest response (20%) came for 250-500, when the actual answer is closer to 1,000. Not surprisingly the big global names of HSBC and Barclays were the most recognised at 51% and 41% respectively, but even well-established brand names such as Vivienne Westwood and Twinings scored very low at just 7% and 6% respectively. 

William Chui, Regional Director, Europe of the HKTDC comments: “It’s great to see that UK SMEs are identifying the benefits of launching into Hong Kong as part of their global growth strategy at this time of European uncertainty. And also, that they are valuing Hong Kong as a hugely well positioned launch pad for businesses wanting to ‘crack’ the lucrative but notoriously challenging to penetrate Chinese mainland market. What I think a lot of UK SMEs are failing to realise however, is how many UK businesses of their size are making a real success of launching into Hong Kong.” 

Hong Kong is the UK’s second-largest export market, third-largest import source and third-largest trading partner in Asia. Hong Kong is also the UK’s second-largest source of foreign investment and largest outbound investment destination. 

Just 16% of businesses surveyed have traded with Hong Kong or China in the past year, but a further 26% have been considering it over that time frame. Interestingly, this appears to be a youth market with the young entrepreneur bracket the most likely to have traded with Hong Kong in the past 12 months (25%) compared with those aged over 55 (15%). 

The areas in the UK that have put the most consideration into branching into Hong Kong are the North East (41%) followed by London (34%), and then Yorkshire and the Humber (30%). 

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