Developing SMEs Services: Opportunities and Challenges in China

1. Developing SMEs Services: Opportunities and Challenges in China Dr Jason Chen, Ascenda CPAs Session 5 IFAC SMP Forum October 28 2009 Beijing China

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

3. Role of SMEs in China’s Economy • Approximately 9.7million SMEs (2008) • 98 per cent of the total registered business entities • 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

4. Status of SMPs in China’s CPA Profession • 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 • 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

5. Status of SMPs in China’s CPA Profession • SMPs Defined: • Firms with an annual fee revenue of less than 40 billion RMB (“Non-top 80”) • 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

6. Service Opportunities from SMEs • 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

7. Service Opportunities from 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

8. Service Opportunities from SMEs • Opportunities for SME Services are TREMENDOUS!

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

10. Challenges for SMPs • Break-down of SMPs Services in China

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

12. Challenges for SMPs • 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

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

14. Challenges for SMPs • SMPs: How will you get PREPARED?

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

16. Looking Ahead (cont’) • 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 • Research and develop computerized systems for SMEs • Developing people resources • Adopting team-working practice and offering help with career development

17. Thank You !