Key findings from the APAC small business survey

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast, brought to you by CPA Australia.

Simon Downes:
Hello and welcome back to With Interest, I'm Simon Downes. This month, CPA Australia has published our 15th annual Asia Pacific Small Business Survey, which provides a detailed insight into the challenges facing businesses in 11 different markets across the region. While the economic conditions across the 11 markets are different, the fundamentals of running a small business are the same, and the research is invaluable in helping to form CPA Australia's policy positions when it comes to supporting small businesses and the accountants who work with them.

From India to Malaysia, Singapore, Indonesia, mainland China and Hong Kong, the survey pulled together the experiences of more than 4,200 business owners and senior managers from companies with fewer than 20 employees. One of the key takeouts from the research is the performance and outlook of small businesses in Australia and New Zealand compared to their counterparts in Asia, especially when it comes to the use of technology to grow their business. There's a lot to discuss. And joining me to do so is Gavan Ord, who is our senior manager of business and investment policy here at CPA Australia. Welcome back to With Interest, Gavan.

Gavan Ord:
Thanks, Simon, and great to be back.

Simon Downes:
Gavan. The report does suggest that small businesses in Australia in particular, but also New Zealand, are struggling to keep pace with their Asia-Pacific counterparts in some respects, and action is needed to help address this imbalance. The report shows that small businesses in Australia and New Zealand are bottom or near to the bottom of the class when it comes to how likely they are to report growth over the last 12 months, plus their expectations for growth in the next 12 months, and concerningly, their satisfaction with their financial performance.

It also found that Australian small business owners are the least likely to expect their national economy to grow in the next 12 months, while also being the least likely to expect their revenue from overseas sales to increase. Gavan, all this is not particularly encouraging for small business in Australia and New Zealand. So, I suppose the first question is, has this surprised you? How concerning do you think the results are?

Gavan Ord:
Yeah. Thanks, Simon. And before I answer your question, I think I just want to add that there's lots of high-quality small business surveys out there. The difference for our survey is that we're able to compare Australian small businesses, for example, with Hong small businesses. So, we're actually able to get a deeper picture of small business sector in different markets. Back to your question around are we surprised about the results, particularly for Australia, New Zealand? And I'd say no. Long term, and as you said, this is the 15th annual survey, over that period of time, the Australian and New Zealand small businesses have underperformed other small businesses across the Asian region, but also, they've underperformed against medium and large businesses within their countries, so not surprising.

And also, I would add that there's no expectation that the gap between small business performance in Australia, New Zealand and elsewhere is actually going to close. So, there's no data to show that the gap is closing. On your question around are we concerned, I'd say yes and no. Sit on the fence. Yes, we're concerned because think about small business in Australia. They contribute around about a third of Australia's GDP. So, if the small business sector is underperforming, then that's a drag on Australia's economy, it's a drag on wealth creation, it's a drag on productivity and it's a drag on job creation. Concerning? No. I said yes and no are we concerned. On the no side, the data shows that while the gap isn't decreasing in terms of differences of performance, Australia and New Zealand small businesses are making incremental improvements in different areas of how they run their business. For example, in the technology uptake, there's a little bit of improvement in those areas.

Simon Downes:
Yeah, Gavan, I remember when we first looked at these results together a few days ago, and I think one of the words that I used was bleak from an Australian perspective in particular. And I look at the results and it does sort of fill me with a sense of pessimism coming from the small business owners and managers in Australia. I mean, you think about the least likely to expect the local economy to grow, I think they're also the least likely or one of the least likely to expect their business to be hiring people.

Gavan Ord:
That's right.

Simon Downes:
What's behind that overall slightly more gloomy outlook that we seem to be getting from the results in Australia and New Zealand?

Gavan Ord:
There's some underpinning issues that are long-running. So, it's not just about a weak economic demand at this point in time or high costs. They're the main challenge. But underpinning the weak results over a long period of time is two or three factors. One is the low comparative levels of technology uptake. The second one is the low levels of investment and innovation. And the third one that sort of sits underneath this, which I hope we go into, is the older age profile of Australian and New Zealand small business owners. Australian and New Zealand small business owners are significantly more likely to be 50 or 60 than their counterparts in Asia.

Simon Downes:
The report found that small businesses in Australia are much more likely to be owned by people aged 50 or over. And it's interesting, isn't it? Because that's obviously a great thing in respect of the knowledge and experience that those people will have of their particular line of business, but it does mean that they are much less likely to be using technology like e-commerce and social media. In fact, one of the findings from the report that really jumped out to me is that Australian small businesses are amongst the most likely to have a social media presence, but they're amongst the least likely to report notable revenue from online sales.

They have the digital tools, they have a social media presence, but getting them to grow their business through these means, it's not quite working out. We've seen that the results from some of the other markets involved show that there's more investment in new technologies and businesses are reaping the rewards of those, while many in Australia are missing out. And so, that's concerning for the businesses themselves, but also, the broader economic impact.

Gavan Ord:
It is definitely concerning. In short, yes, it's very concerning. Now, there's other recent media reports around the Australian and New Zealand businesses, particularly small businesses are slow adopters of new technology. And you give the example of e-commerce. So, we did see throughout the COVID, there was, in all markets, an improvement in the level of e-commerce adoption. But within Australia and New Zealand, there's actually a drop-off in 2023 in terms of e-commerce. And that could be because people are returning to shopping mall, shopping centres, and more directly engaging with business. But other markets, this growth in e-commerce continues. And that's important because the data actually says that businesses that engage with e-commerce on a regular basis are more likely to be growing. So, it's not just that they're not doing it. There's a strong correlation between e-commerce and growth. So, the businesses which aren't investing in e-commerce are actually missing out on a big growth opportunity.

Simon Downes:
Gavan, I'm looking through the results here. And on average, across the Asia-Pacific region, around 26% of business owners reported that they've sought professional IT advice from consultants or specialists. In Australia, that number's just 17%. So, 11 out of 11th placing there in terms of the rankings. What's going on? What's holding people back? Even if you were talking about older demographics who may be less tech-savvy than some younger business owners and managers, but what else is holding people back from getting the advice that they might need to actually progress in this area?

Gavan Ord:
Well, that's a good question, Simon. So, for me, it's also about the size of the business in Australia and New Zealand. In Australia and New Zealand, the businesses are more likely to be micro businesses, so less than five employees. And we know in Australia and New Zealand that business owners are incredibly time poor. They're just running their business. They don't actually have extra time to look at the new technology that might be great for their particular industry. And this is why we encourage them, yes, you don't have time, but if you do have some spare time, go and speak to people who know about this stuff. Go and speak to tech experts in your industry. They can at least let you know what's going on. I know people are very time poor.

If you're not using that time to engage with the experts, you are missing out on opportunity and that actually flows through to growth. So, some other data here is that when Australian and New Zealand companies do invest in tech, only 25% tell us that that investment in tech improved their profitability in the short term. The survey average is 50%, so half. So, even when Australian and New Zealand businesses are investing in tech, they're not investing in tech that actually improves their business, at least in the short term. So, again, that comes back to they just don't have the time, they don't have the capability to choose the right tech. And we would really like them to go out there and if they have some spare time and cash, talk to people who know about the tech, which is best suited for their particular industry, because they should find that the return on investment will be greater for them and lead to a better business if they do make their right tech investments.

Jacqueline Blondell:
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Simon Downes:
One of the areas where Australian businesses, in particular, and New Zealand too, come out on top of the rankings is that they're most likely to report that an increase in their costs has had a major negative impact on their business. Is this a sign of Australia and New Zealand doing it tougher in an economic sense more broadly? Or is this also some of that pessimism coming through that we were talking about?

Gavan Ord:
Well, I think it's a combination of both. I think all the 11 markets surveyed, all showed that increasing cost was either their number one or number two challenge last year, but it came through very strongly for both markets. But we also saw a lot of markets that they respond to this challenge for having a greater focus on cost control. So, that didn't necessarily come through as strongly in Australia and New Zealand. We're going to be in a high-cost environments for some period of time, I suspect. So, I think businesses need to focus more on cost control, and that's not necessarily as the old saying, penny wise, pound foolish. You need to have a strategic approach to cost control, not just cutting gear, cutting there. Which costs do you need? Do you look at cheaper fuel sources? Do you look at changing your rosters so you maybe have less staff costs? Things like that. So, in terms of costs, I would encourage businesses to take a stronger focus on cost management. And it goes back to technology. Look at technology that might actually improve efficiencies and eventually drive down costs.

Simon Downes:
So, we've discussed the interesting findings in regard to the demographics of business ownership. And of course, the flip side is that the outcome shows that younger people are much more likely, as business owners and managers, much more likely to innovate, they're more likely to export to overseas markets, and they're less risk averse than older business owners. And all this together means that those small businesses owned by people under 50 are more likely to experience growth than those owned by older people. So, Gavan, we know there are obvious benefits to experience when it comes to running a business, but it seems that inspiring young people, and I think we use our words carefully when we talk about this, it is about inspiring young people to start a business, purchase an existing one. This is going to be a crucial part of our future economic success, we think, and something that we touched on in our pre-budget submission recently. Why don't you talk us through our policy thoughts in regards to this?

Gavan Ord:
Yeah, so for us, if Australia is seeking to grow more strongly, create a more dynamic business environment and encourage innovation, the more that we can incentivize, encourage younger people to start a business, or as you said, also to purchase an existing business, I think that'll go a long way to achieving those objectives. And also, add about productivity as well, that younger business owners are running more productive businesses. So, what we've said in our pre-budget submission is we think the Australian government should be doing more to encourage younger people to buy a business or to start a business. And to do that, they need to look at what motivates people to start a business, what are the challenges they face? And our survey data says people are primarily motivated to start a business to be their own boss. So, that's sort of where you start from. The governments can look at how do we get people to start a business?

Well, what's encouraging? What would encourage them? And the first step is they want to be their own boss. The challenges they face are around the uncertainty of regular income when you start a business, problems with cash flow. So, you need to look at that. So, how do you prepare a new business owner for those challenges? And partly, that's about encouraging them to seek advice from professionals, but it's also about giving them the skills so they can manage those issues. Overall, we want to see the government target and increase in the proportion of younger, small business owners. And I think that's where we need to get to if we are to see improvements in productivity, improvements in growth, and improvements in wealth creation.

Simon Downes:
And I wonder as well, if there's an opportunity to sort of reframe how we often think about young people who spend so much time online, so much time making YouTube videos, curating their social media content. We see this quite often as a waste of time. Parents will often be telling their children to stop wasting their time doing these things, but there are legitimate business skills and knowledge that can come from running a successful social media platform, like on YouTube or Instagram.

Gavan Ord:
I really like that observation because invariably we look at kids doing this and going, "Oh, they're wasting their time." But actually, when they're doing these things on YouTube or Instagram, they're actually picking up business skills, entrepreneurial skills, which over time, they can translate into another business, maybe a more successful business. So, I think we should be encouraging, within reason, our kids to be looking at these things and experimenting with business models, potentially through YouTube or Instagram, but other things as well. I think the more that younger Australians dip their toe in the water and try out different sorts of business models, the more they'll go, "Oh, this is actually right for me. I like being my own boss."

And they'll see how other businesses are run and they'll pick up business skills and they'll look at market gaps and they'll see opportunities for themselves. So, it'd be great to see us encouraging more younger Australians and more younger Kiwis to actually try out different business models, whether it be YouTube or Instagram or other things because I think that'll give them the skills and the confidence to move on to actually buying or starting another business.

Simon Downes:
Thank you, Gavan. Really interesting stuff and I encourage anyone who's interested to learn more about the Asia-Pacific Small Business Survey, there'll be a link in the show notes for you to do that. So, that's it for today. Thank you to Gavan Ord once again for coming along. And from all of us here at CPA Australia, thank you for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest, by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.