The majority of small- and medium-sized enterprises (SMEs) have yet to commit themselves to embracing technology as a business tool, despite the oft-touted benefits of information technology (IT).

The pace of computerisation among Hong Kong's SMEs in 2001 has regressed over last year's rate, according to a government survey released on November 12. Investments by smaller companies in personal computers dropped to 46 per cent this year from 48 per cent in the previous year. Those with Internet access also fell from 34 per cent to 33 per cent over the same period.

With SMEs accounting for 98 per cent of companies in Hong Kong, this represents a major challenge for IT vendors and service providers. For government this is a cause for concern in relation to its plans for Hong Kong to become a major logistics and digital hub.

The problem may well rest with a mindset universal to most SME owner-managers, which can be described as being cautious and lethargic when it comes to spending on new and "unknown" technologies.

The majority of survey respondents cited the reason of "no business benefits" to installing personal computers. This may be because SMEs simply cannot afford to take risks in new areas, so they prefer to invest in technological applications only after they are proven to be successful.

SMEs typically do not have the luxury of having expansive resources to draw upon and because of this the cost of investing in IT can be quite high given that returns are not immediately apparent and do not translate directly to the bottom-line. For the risk-averse SME, the faster-than-normal rate of depreciation that characterises IT applications remains a real issue. For companies that have already invested in both software and hardware, upgrading or conversion costs and after-sales support become the most important elements when planning purchases.

However, these are manageable issues and the issue of controlling spending can be addressed through such cost-effective means as outsourcing and relying on application service providers (ASPs) according to Emil Yu of Keystone Electric Wire & Cable.

"By leveraging on external expertise, SMEs can avoid having to make costly investments in developing tailor-made software. Companies also save on attendant overheads such as training, compatibility with external systems, and software upgrades. The minimum capital investment that companies have to make under such a arrangement is the purchase of an operating system to run their applications," he said.

Nonetheless, companies should be aware that the idea of renting software is still in its infancy with the market trying to define itself following the bursting of the dot-com bubble, said Chris Simpson of RCP Consulting.

To boost profits in the short to medium term, Calvin So of Dataworld, suggests companies achieve this by investing in business critical applications for their accounting and trading operations.

"Accounting software automates routine, yet tedious, operations [that may otherwise require a lot of manpower]. It provides management with a clear picture of the company's financial status and cash position so that they can make quicker and better decisions on cost control and respond to market changes," he said.

Having overcome initial resistance to computerisation and assuming that hardware issues have already been taken care of, how should the novice small business operator go about selecting software to get the biggest possible bang for their buck?

Denis Lee of SME Resource Centre Ltd, advocates that SMEs first determine what their needs are. This helps companies remain focused when navigating their way through the overwhelming choice of applications, systems and service providers on the market, a task that can be very confusing and intimidating.

Mr Lee cautioned against succumbing to the institutional imperative of buying a piece of software just because everyone else was doing so. Companies should draw up a business plan to better assess their IT needs depending on their particular circumstances and objectives, Mr Yu said.

In addition, Mr So also suggests that SMEs ask themselves the following questions:

Will the software help achieve smooth operations and increase efficiency?

What is the initial cost?

Will the software contribute to lowering operating costs?

Will there be the need to incur additional expense for software maintenance?

Is it easy to learn and use?

The very act of buying software off the shelf can be performed by companies themselves provided they have specialised personnel to undertake selection, installation, configuration and customisation procedures. Otherwise, "It would be foolhardy for companies to attempt the process on their own when it would be more worthwhile to bring in a consultancy firm," Mr Simpson said.

While the bare-bone approach of acquiring mainstream applications off the shelf may be adequate for a three- to four-person company, an operation with a staff size of 15 or more would be better off opting for proprietary software developed to suit specific needs.

Companies thinking of buying new software should do so now.

"Most software dealers have lowered their software and service charges significantly in the past few months," Mr So said.

Companies should also be planning ahead as markets begin to recover slowly.

"The cycle for software development takes months and by the time the general business environment improves company systems will be up and running to capture the opportunities," Mr Simpson added.

Whatever the reasons for SMEs' slow take-up of technology, they need to recognise that IT applications can offer significant and positive contributions to their operations.

"The rapid globalisation of world markets requires that companies respond quickly to customer demands," Mr Lee said. "The ability to offer value-added service is also critical and I cannot see how SMEs can compete on that basis without the appropriate technology in place."

This sentiment is shared by Mr Yu.

"Information is power and IT tools allow SMEs to leverage on that power," he said.

Hong Kong companies should also be mindful of competition from Chinese companies whose level of IT adoption is rising rapidly.