Developing SMEs Services: Opportunities and Challenges in China Dr Jason Chen, Ascenda CPAs Session 5 IFAC SMP Forum October October Beijing China

Role of SMEs in China ’ s Economy SMPs in China SME Service Opportunities for SMPs Challenges for SMPs Outline Looking Ahead

Role of SMEs in China’s Economy Approximately 9.7million SMEs (2008) Approximately 9.7million SMEs (2008) – 98 per cent of the total registered business entities Contributions by SMEs to national economy (2008) Contributions by SMEs to national economy (2008) – 60% of GDP – Taxes: 50% – Exports: 78% – Innovations (e.g. patent): 66% – Employment: 75% Data source: China Association of Small and Medium Enterprises

Status of SMPs in China ’ s CPA Profession CPAs in China (in the year of 2008) CPAs in China (in the year of 2008) – Total fee revenue: 31 billion RMB – Practicing CPAs: 83,252 – Number of CPA firms: 7,143 Top 80 firms Top 80 firms – a firm with an annual fee revenue of 40 million RMB and plus – Total fee revenue: 18.6 billion RMB – 60 per cent of the total – Revenue per firm: 233 million RMB Data source: CICPA

Status of SMPs in China ’ s CPA Profession SMPs Defined: SMPs Defined: – Firms with an annual fee revenue of less than 40 billion RMB (“Non-top 80”) Revenue of SMPs Revenue of SMPs – Total fee revenue: 12.4 billion RMB – 40 per cent of the total – Revenue per firm: 1.76 million RMB Fee Revenue in 2008

Service Opportunities from SMEs Features of SMEs in China Features of SMEs in China – Business goals and strategies  “Making money whatever or wherever it is” – Management and internal controls  e.g. more than two sets of accounts – Financing difficulties  e.g. only 22% bank loans granted to SMEs  e.g. of the total direct financing, only 3% to SMEs – Human resources  Lack of well-trained managers

Service Opportunities from SMEs Service Demands by SMEs Service Demands by SMEs – Bookkeeping and secretarial services – Tax Advisory services  Tax agent, i.e. preparing and filing returns  Tax planning and advising – Managerial consulting  Internal control  Performance evaluation and remuneration  IT systems – Financial and investment consultation  Introducing PEs  Advice on buying & selling business

Service Opportunities from SMEs Opportunities for SME Services are TREMENDOUS!

Challenges for SMPs But most SMPs in China JUST LET THEM GO……

Challenges for SMPs Break-down of SMPs Services in China Break-down of SMPs Services in China

Challenges for SMPs A further analysis on SMPs service focus A further analysis on SMPs service focus – Assurance and compliance: 89.57% – Consulting and other non- assurance: 10.43% Notes: asset appraisal excluded

Challenges for SMPs Operational problems with SMPs in China Operational problems with SMPs in China – Lack of clear market positioning – Majority of services originating from non-market forces  Governmental permissions vs. practising certificates – Lack of services differentiation results in low-price competition – Failure to attract qualified professionals – Low technical capacity results in poor service quality

Low technical capacity Non-differentiation of services Low-price competition Lack of professionals Financial constraints Cycle of SMP Operation Dilemma

Challenges for SMPs SMPs: How will you get PREPARED?

Looking Ahead Changes in business mindset Changes in business mindset – Be professionals, not just “money-makers” – Be market-oriented and on long-term development Market positioning Market positioning – Developing core competence – Differentiation strategy – Foster or “cultivate” demands from SMEs – Alliance with other firms to grow

Looking Ahead (cont ’ ) Creativity and differentiation of services Creativity and differentiation of services – Do what others cannot – Outsourcing market & consulting business – Be specialist in segmented markets – Develop branding in certain regions and in certain industries Developing information technology Developing information technology – Research and develop computerized systems for SMEs Developing people resources Developing people resources – Adopting team-working practice and offering help with career development