The fifth Covid wave in Hong Kong earlier this year brought unprecedented challenges to small and medium-sized enterprises (SMEs), but signs of recovery have started to emerge. A survey of SMEs in Hong Kong, conducted by CPA Australia in April, found that 57% of respondents expected their revenue to stay at a normal level or even grow in the months ahead. 

While the relaxing of social-distancing restrictions has undoubtedly eased some of the burdens SMEs are facing, there is another factor contributing to the optimistic outlook – investment in innovation. 

According to the same survey, the pandemic has pushed local SMEs to become more creative in their business models. Over half of the surveyed businesses said that they generated more than 10% of revenue through e-commerce in 2021 – the highest figure since 2017. 

In other words, transforming the need to stay afloat during the pandemic into drivers of innovation can help SMEs not just survive but thrive. 

Embracing innovation in times of crisis 

Innovation has become synonymous with the tech industry in recent years but its central ideas are more relevant to SMEs than ever. At its core, the concept simply means using creativity to improve in three areas: products and services, business model and customer experience. 

The effects of the pandemic will be felt for years to come. Nonetheless, there is no better time to innovate than in periods of crisis. According to a report by McKinsey in 2020, companies that prioritise innovation in times of crisis outperform their competitors by 30% during the recovery. 

While radical shifts in consumer behaviour and market needs are pushing SMEs to the brink, these factors are also key dynamics that allow disruptive products, business models and customer experiences to emerge. For instance, the e-commerce boom spurred by the pandemic has offered an excellent gateway for SMEs to reach new markets and a wider consumer base by adopting digital technologies. 

It has also challenged businesses to create new customer experiences as they now need to cater to more diverse needs and preferences from all around the world. 

Here are three tips for SME owners who are looking to transform survival into innovation. 

Listen to your customers 

Starting the process of innovation can seem daunting, especially for SME owners who are already strapped for time and resources. But it's important to remember that investing huge sums in R&D is not the only way to kick-start the innovation journey. 

Not all businesses need to come up with ground-breaking products and services to succeed. To ensure that new offerings bring extra value to consumers, SMEs can turn to one resource they all have free access to – customer feedback. According to a survey of consumers, 90% of respondents said that "listening to customers" is the best way for companies to drive innovation. 

In addition, paying closer attention to peers and joining trade networks can help business owners find new sources of inspiration to improve their products and services. 

Build a digital-first business model 

Establishing an innovative business model does not require rebuilding your business from scratch. For traditional brick-and-mortar stores, simply expanding sales channels into the digital world can create new revenue streams. 

Setting up a social media account and building an online presence is a fast and low-cost way for SMEs to generate sales through e-commerce. In a recent PayPal survey, 41% of Hong Kong SME respondents said social media was their most important channel for stimulating growth during the pandemic. 

Not only can e-commerce generate growth in the domestic market, but it can also help SMEs access overseas markets through cross-border trade. A survey in the United States by Alibaba, released earlier this year, found that 39% of SMEs with digital sales channels were confident that their exports would grow in 2022, compared to just 13% of those who only use offline channels. 

Going global is no longer an option, but a driver of growth and a key priority for SMEs. 

Create customer-centric experiences 

Building trust with customers is the cornerstone of success for every SME. When it comes to e-commerce, providing a seamless user experience can go a long way in enhancing brand loyalty and increasing bottom-line results. For example: two-thirds of consumers are willing to pay more for a great user experience when shopping online, according to research by Yottaa. 

Optimising the payment process is one of the best ways to enhance the user experience. Innovation in this area means making the process more intuitive by reducing the number of steps involved, offering payment options that consumers prefer, and simply reducing load time. Research by the Baymard Institute found that close to one in five consumers abandoned their shopping cart during checkout because the process was too complicated or taking too long. 

The good news is that even incremental improvements can lead to a significant reduction in cart abandonment and increase conversion. For instance, speed improvement of as little as 0.1 seconds can increase conversion rates by an average of 8% and the order value by an average of 9%, according to the Deloitte report "Milliseconds Make Millions."  

Looking ahead

The first half of 2022 has been tough for SMEs in Hong Kong, but there is no reason to lose hope. The pandemic has provided fertile ground for breakthroughs in the market. Therefore, it is critical that business owners use this time to explore new ideas and prepare for the future. 

By paying closer attention to consumers, investing in e-commerce channels and minimising friction in the user experience, SMEs can go beyond short-term survival and start building a solid foundation for long-term growth and success.

Tim Fu, Market Leader, Hong Kong, Taiwan and Korea, PayPal