Brexit has UK SMEs eyeing Hong Kong for global growth

One in three UK SMEs state that the Brexit debate has made the prospect of trading with Hong Kong and China more attractive.

Almost half of British businesses are now looking eastwards for growth, catalysed by Brexit uncertainty.

Research for Hong Kong Trade Development Council (HKTDC) ahead of the Think Asia, Think Hong Kong event last week reveals that the special administrative region is seen as the gateway into the Chinese market, as well as the rest of Asia.

Although confidence for business growth in Europe and Asia are broadly similar at 57 per cent and 62 per cent respectively, one in three UK SMEs state that the Brexit debate has made the prospect of trading with Hong Kong and China more attractive.

Low taxes, ease of doing business

Over a quarter of the surveyed British businesses believe that it is easy to set up as a foreign business in Hong Kong and are attracted to its low tax rates. Good levels of English, the long standing sociopolitical relationship between Hong Kong and the UK and its proximity to China are other major pulls for Hong Kong.

The biggest opportunities that businesses recognise for launching into the Chinese mainland is its huge consumer base, its growing middle class and ability to be early adopters of technology. However, expanding into China also present many challenges, such as the language barrier, the rule of law, and perceived red tape and regulation.

Opportunities abound for exporters

According to the Office for National Statistics’ (ONS) latest Annual Business Survey on Importers and Exporters, only 5 per cent of UK companies were merchandise exporters in 2015. The number doubled to 10 per cent for businesses exporting products and services.

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 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.

Underestimating UK-Hong Kong trade links

The research suggests that UK SMEs are underestimating the potential for expanding into Asia, Hong Kong in particular. When asked how many UK companies currently operate in Hong Kong, 32 per cent could not identify any.

One in five business owners believe that at most, around 500 British businesses operate in Hong Kong, but in reality, the number is closer to 1,000. Not surprisingly the big global names of HSBC and Barclays were the most recognised, but even well-established brand names such as Vivienne Westwood and Twinings were overlooked by the respondents, suggesting a wider lack of awareness of the brand power of British brands overseas.

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 per cent of businesses surveyed have traded with Hong Kong or China in the past year, but a further 26 per cent 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 compared with those aged over 55. From a regional perspective, businesses in the North East are the most likely to branching into Hong Kong, followed by London, and then Yorkshire and the Humber.

“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,” says William Chui, regional director of Europe at HKTDC. “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.”

Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.