Small to Medium Enterprises (SMEs) and Macro Economic Indicators

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Small to Medium Enterprises (SMEs) and Macro
Economic Indicators

• Presented by
• Arti Triveni and Janet Turvey

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Purpose of the Research

• To investigate whether SMEs in Hawkes Bay found
  any relevance for and use the macro economic
  indicators available at both national and
  regional level.
• As tutors of Economics and Small Business
  Management at EIT we had become aware of the
  difficulties that small businesses have in this
  regard.

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Purpose of Study cont.

• SMEs are very vulnerable to macro economic events
  beyond their control.
• Many previous studies on SMEs had focused on
  other problems such as planning, lack of capital,
  cash flow crises, marketing, staffing and
  operations difficulties.
• We considered there might be a problem for SMEs
  in that they often lacked the time to keep
  abreast of the bigger economic picture.
• This was primarily a needs analysis funded by the
  Business Links Funding.

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Research Method Undertaken

• A gathering of existing macro economic data from
  various sources.
• A literature review
• Interviews with twelve varied local small
  business operators in Hawkes Bay.
• Interviews and surveys with a number of
  economists including Sean Bevin who provides data
  for the Napier City Council and John Bon Verhoven
  from Hastings District Council.

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Research Method continued

• A study of economic data on the Hawkes Bay
  region.
• A focus group of eight selected businesses from
  the local community.
• A questionnaire was prepared which focused on a
  list of macro economic indicators selected from
  the previous discussions and this was sent to 500
  local businesses randomly selected from the
  Yellow Pages.

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Research Method continued

• By three weeks 94 surveys were returned completed
  and 16 were returned undelivered. This gave a
  response rate of 19.42.
• Three were discarded due to less than 30 of the
  questions being answered.
• Minitab software was used for collation.
• A final report was presented to Business Links
  Funding in early March 2006.
• Press release in April 2006.

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Findings Literature Review

• There did not appear to be any recent studies
  on this topic.
• Don Brash had produced a conference paper
  highlighting the need for the Reserve Bank to
  better communicate to small businesses the impact
  of global events such as the Asian crisis (Dec.
  1998).

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Findings Literature Review Continued

• A paper by Rufus Dawe (Sleeping Dogs Beware, NZ
  Business Nov. 1987) had discovered the need for
  businesses in general to be following GDP,
  private consumption, balance of payments,
  inflation, unemployment and the Governments
  financial budget.

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Findings from Qualitative Research

• Interviews with small business operators such as
  a hairdresser, carpet cleaner, draughtsman, real
  estate agent, travel agent, farmer, energy
  consultant found that they do often look at the
  information if it is relevant to them.
• According to Bevin and Bon Verhoven (2005), it
  appeared that there was much information
  available on economic indicators and the regions
  growth but the challenge was to get businesses to
  apply them.

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Findings from Quantitative Research

• Of business respondents, 56 had 1-5 employees
  (classed as micro), 29 had 6-20 employees
  (small). Only 10 had 21 employees. Of those
  replying, 5 did not respond to that question.
• Only 50 of respondents received information on
  economic indicators. There didnt appear to be
  any correlation on the type of business and
  whether they received economic information.

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Findings continued

• Most businesses used the newspaper on a daily
  basis as their major source of economic
  information.
• Forty- eight percent of businesses consult
  someone on economic indicators.
• The most popular type of consultant on economic
  indicators were accountants (see table on the
  next slide)

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Number of businesses that consulted the
following sources
Accountant 27(52)
Bank manager 4(4)
Business Mentor 7(13)
Other 14(27)
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Findings continued Planning and Economic
Indicators

• Of all the businesses that receive information on
  economic indicators, 11 responded that they read
  it and file it, 11 read it and use it. A further
  ten businesses read it and trash it.
• Of the operators receiving information on
  economic indicators 27 used the information
  sometimes whilst only three used it always for
  the planning of their businesses.
• Three never used the information received.

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Findings continued Management and Economic
Indicators

• Twenty nine businesses sometimes used the
  information received for managing their
  businesses.
• Two always used the indicators for managing their
  businesses.
• Four stated they never used the information.

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Findings continued Reasons for not using the
Information

• Businesses found that lack of time(33), lack of
  access(15) and a lack of interest(15) were the
  major constraints to using economic indicators.
  Cost accounted for only 4 of the answers.
• Some other comments were that they lagged behind
  reality or they had no value in operating their
  business.

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Findings continued Economic Indicators

• Please look at the table provided to view the
  complete list of indicators which are extracted
  from the original report.
• The following indicators were the ones which
  featured most as being difficult to understand
• Producer Price Index (inputs) (48)
• Producer Price Index (outputs)(48)
• 10 Year Government bond rate(30)
• Government operating balance(36)

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Findings continued Indicators and ease of
understanding

• From the research, there were a number of
  indicators that our respondents found very easy
  to grasp the meaning and implications of .
• These were generally also the ones they found
  Directly relevant to their business or had
  Some relevance to their business.
• See the table on the next slide.

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Indicators that were most easily understood
(percentage)

• Consumer Confidence 45
• Labour Cost (wages) 43
• Current Account Balance 38
• Savings Rate 33
• New Car regs 49
• Unemployment 46
• Population growth 49

• Retail Sales 48
• Export Prices 32
• Import Prices 30
• Business Confidence 43
• Employment 38
• Credit Card Billings 43
• Net migration 44
• Regional Trends 31

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Findings continued Most Relevant to their
businesses

• The same list of indicators was provided in order
  to discover which ones were most relevant to
  SMEs.
• Please look at the tables provided.

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Limitations

• This research took place between September 2005
  and November 2005.
• It appeared from the response rate(19.42) that
  the timing was not favourable to the businesses
  surveyed.
• Many businesses appeared to be either too busy as
  Christmas approached or not interested in
  completing the questionnaire.

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Conclusions (General)

• There was plenty of information on up to date
  economic data at national level via the banks,
  the news media, trade associations and Statistics
  New Zealand.
• The question was whether it was in a readable
  form for the small business person.

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Conclusions (Qualitative Findings)

• Several interviews plus the focus group indicated
  that SMEs are only interested if the indicators
  had a direct bearing on their business.
• Their main focus was on the daily operations of
  their business.

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Conclusions Continued

• Those businesses who were computer literate had
  no problem sourcing information.
• The question might be their ability to source
  information at the regional level for the average
  SME.
• The authoritative summary by Bevin, The
  Napier/Hawkes Bay Monitor, may be overlooked by
  many businesses.

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Conclusions from Literature Review

• The study did not uncover any recent studies on
  this topic at a regional level.
• There were many journal articles on SMEs, and
  also on economic indicators but linking them
  together was difficult.
• The Chamber of Commerce commented that they were
  becoming aware of a deficiency in this area.

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Conclusions (quantitative findings)

• The majority(56) of businesses surveyed in
  Hawkes Bay have 1-5 employees. This supports
  Government statistics that show 86 for 0-5
  employees.
• Not all businesses(50) receive information on
  economic indicators regularly.
• Most of the operators used the information only
  sometimes for planning and managing.

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Conclusions continued

• 48 of businesses consult someone on economic
  indicators and accountants were the most often
  consulted (52).
• Lack of time was considered to be the major
  constraint in using economic indicators(33).

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Conclusions continued

• The economic indicators that appeared to be most
  relevant to their operations were Population
  growth, Consumer confidence, Business confidence,
  Employment, Real GDP (economic growth), Labour
  cost (wages), Future expectations and Regional
  trends.

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Recommendations

• It is suggested that possibly the Reserve Bank
  might consider defining and simplifying the
  economic indicators to make it easier for small
  business operators without specialist financial
  staff to understand the meaning and implications
  of them.
• It is possible that there is scope for a simple
  one page bullet point summary on a regular basis
  to be provided for small businesses in the region.

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Recommendations continued

• It is recommended that a similar research be
  carried out in 2007 in order to evaluate whether
  change has taken place.

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• Prepared by Arti Triveni and Janet
  Turvey(September 2006)