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Developing SMEs Services: Developing SMEs Services: Opportunities and Challenges in Opportunities and Challenges in ChinaChina

Dr Jason Chen, Ascenda CPAsDr Jason Chen, Ascenda CPAs

Session 5 IFAC SMP ForumSession 5 IFAC SMP Forum

October 28 2009October 28 2009Beijing ChinaBeijing China

Role of SMEs in China’s Economy Role of SMEs in China’s Economy

SMPs in China SMPs in China

SME Service Opportunities for SMPs SME Service Opportunities for SMPs

Challenges for SMPs Challenges for SMPs

OutlineOutline

Looking Ahead Looking Ahead

Role of SMEs in China’s EconomyRole of SMEs in China’s Economy

Approximately 9.7million SMEs (2008)Approximately 9.7million SMEs (2008)– 98 per cent of the total registered business 98 per cent of the total registered business

entitiesentities

Contributions by SMEs to national economyContributions by SMEs to national economy (2008)(2008)– 60% of GDP60% of GDP– Taxes: 50% Taxes: 50% – Exports: 78% Exports: 78% – Innovations (e.g. patent): 66%Innovations (e.g. patent): 66%– Employment: 75%Employment: 75%

Data source: China Association of Small and Medium Enterprises Data source: China Association of Small and Medium Enterprises

Status of SMPs in ChinaStatus of SMPs in China’’s CPA s CPA ProfessionProfession CPAs in China (in the year of 2008)CPAs in China (in the year of 2008)

– Total fee revenue: 31 billion RMBTotal fee revenue: 31 billion RMB– Practicing CPAs: 83,252Practicing CPAs: 83,252– Number of CPA firms: 7,143Number of CPA firms: 7,143

Top 80 firms Top 80 firms – a firm with an annual fee revenue of 40 a firm with an annual fee revenue of 40

million RMB and plusmillion RMB and plus– Total fee revenue: 18.6 billion RMBTotal fee revenue: 18.6 billion RMB– 60 per cent of the total60 per cent of the total– Revenue per firm: 233 million RMBRevenue per firm: 233 million RMB

Data source: CICPAData source: CICPA

Status of SMPs in ChinaStatus of SMPs in China’’s CPA s CPA ProfessionProfession

SMPs Defined:SMPs Defined:– Firms with an Firms with an

annual fee revenue annual fee revenue of less than 40 of less than 40 billion RMB (“Non-billion RMB (“Non-top 80”)top 80”)

Revenue of SMPsRevenue of SMPs– Total fee revenue: Total fee revenue:

12.4 billion RMB12.4 billion RMB– 40 per cent of the 40 per cent of the

total total – Revenue per firm: Revenue per firm:

1.76 million RMB1.76 million RMB

Local Top8030%

SMPs40%

Big 4s30%

Fee Revenue in 2008Fee Revenue in 2008

Service Opportunities from SMEsService Opportunities from SMEs

Features of SMEs in ChinaFeatures of SMEs in China– Business goals and strategiesBusiness goals and strategies

““Making money whatever or wherever it is”Making money whatever or wherever it is”

– Management and internal controlsManagement and internal controls e.g. more than two sets of accountse.g. more than two sets of accounts

– Financing difficultiesFinancing difficulties e.g. only 22% bank loans granted to SMEse.g. only 22% bank loans granted to SMEs e.g. of the total direct financing, only 3% to e.g. of the total direct financing, only 3% to

SMEsSMEs

– Human resourcesHuman resources Lack of well-trained managersLack of well-trained managers

Service Opportunities from SMEsService Opportunities from SMEs

Service Demands by SMEsService Demands by SMEs– Bookkeeping and secretarial services Bookkeeping and secretarial services – Tax Advisory servicesTax Advisory services

Tax agent, i.e. preparing and filing returnsTax agent, i.e. preparing and filing returns Tax planning and advisingTax planning and advising

– Managerial consultingManagerial consulting Internal control Internal control Performance evaluation and remunerationPerformance evaluation and remuneration IT systemsIT systems

– Financial and investment consultationFinancial and investment consultation Introducing PEsIntroducing PEs Advice on buying & selling businessAdvice on buying & selling business

Service Opportunities from SMEsService Opportunities from SMEs

Opportunities for SME Services are TREMENDOUS!

Challenges for SMPsChallenges for SMPs

But most SMPs in China

JUST LET THEM GO……

Challenges for SMPsChallenges for SMPs

0%

10%

20%

30%

40%

50%

60%

70%

80%

AuditingCapital VerficationAsset appraisalCousultingTax agentTrainingOthers

Break-down of SMPs Services in ChinaBreak-down of SMPs Services in China

Challenges for SMPsChallenges for SMPs

A further analysis on A further analysis on SMPs service focusSMPs service focus– Assurance and Assurance and

compliance: compliance: 89.57%89.57%

– Consulting and other Consulting and other non-assurance: non-assurance: 10.43%10.43%

Notes: asset appraisal excludedNotes: asset appraisal excluded

Assurance and compl i ance

consul ti ng and other non-assurance

Challenges for SMPsChallenges for SMPs

Operational problems with SMPs in ChinaOperational problems with SMPs in China– Lack of clear market positioningLack of clear market positioning– Majority of services originating from non-Majority of services originating from non-

market forcesmarket forces Governmental permissions vs. practising certificatesGovernmental permissions vs. practising certificates

– Lack of services differentiation results in Lack of services differentiation results in low-price competitionlow-price competition

– Failure to attract qualified professionals Failure to attract qualified professionals – Low technical capacity results in poor service Low technical capacity results in poor service

qualityquality

Low technical capacity

Low technical capacity

Non-differentiation of services

Non-differentiation of services

Low-pricecompetition

Low-pricecompetition

Lack of professionals

Lack of professionals

Financial constraints

Financial constraints

Cycle of SMP Cycle of SMP Operation Operation DilemmaDilemma

Challenges for SMPsChallenges for SMPs

SMPs: How will you get PREPARED?

Looking AheadLooking Ahead

Changes in business mindsetChanges in business mindset– Be professionals, not just “money-makers”Be professionals, not just “money-makers”– Be market-oriented and on long-term Be market-oriented and on long-term

developmentdevelopment

Market positioningMarket positioning– Developing core competenceDeveloping core competence– Differentiation strategyDifferentiation strategy– Foster or “cultivate” demands from SMEsFoster or “cultivate” demands from SMEs– Alliance with other firms to growAlliance with other firms to grow

Looking Ahead (cont’)Looking Ahead (cont’) Creativity and differentiation of servicesCreativity and differentiation of services

– Do what others cannot Do what others cannot – Outsourcing market & consulting businessOutsourcing market & consulting business– Be specialist in segmented markets Be specialist in segmented markets – Develop branding in certain regions and in certain Develop branding in certain regions and in certain

industriesindustries

Developing information technologyDeveloping information technology– Research and develop computerized systems for SMEsResearch and develop computerized systems for SMEs

Developing people resourcesDeveloping people resources– Adopting team-working practice and offering help with Adopting team-working practice and offering help with

career developmentcareer development

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