SMEs struggle with dip in overseas orders, cash woes

The majority of small and micro-sized enterprises in the Yangtze River Delta region are struggling with a decline in overseas orders and cash- flow problems, according to a report jointly published by the National School of Development at Peking University and Alibaba Group.

The report on the operations and financial situation of small and micro-sized enterprises was based on an online survey of 2,247 enterprises and visits to 96 businesses in six cities in the Yangtze River Delta region over the past six months.

"We want to show the detailed circumstances of small and micro-sized enterprises in the region," said Ge Ruichao, a manager from Alibaba Group who participated in the preparation of the report.

Ge added that similar reports will be released to reflect the performance of small and micro-sized enterprises in the country.

According to the report, the biggest problem facing such enterprises was a sharp drop in overseas orders, with 64 percent of the surveyed businesses saying that declining orders had severely affected their production. The figure was 16 percentage higher than it was in 2011.

Chen Xi, manager of Wenzhou Dongyi Shoes Co Ltd, said his company had tried to cut labor and materials costs by moving production inland to Chengdu, Sichuan province, "but we are still struggling with a sharp decline in orders".

In addition to rising costs, the businesses have also been affected by delayed payments from clients.

According to the report, more than 30 percent of the businesses haven't received payments from their clients on time and are having cashflow problems.

Tu Jun, the owner of a trading company specializing in exporting gift packaging in Wenzhou, Zhejiang province, said increased labor costs and delayed payments from clients were likely to have an impact on the company's production.

Tu added that he and his management team are trying to complete a number of jobs by themselves to minimize labor costs, and that the company also aimed to produce more high-quality products.

Although most of the businesses are having financial problems, they remain reluctant to apply for loans to solve their problems.

The report said that 34 percent of the businesses had taken out loans or sought other financial support, a figure that was much lower than in other regions.

"Global economic woes and the slowdown in China's economic growth are taking their toll on businesses in China in terms of fewer orders and smaller profits," said Zhang Hua, a professor at the China Europe International Business School in Shanghai.

Zhang added that the government should offer more opportunities for small and micro-sized enterprises to apply for loans with certain risk control guidelines.

To ease the burden on such enterprises, the government has released a series of policies to boost the export trading industry and authorized certain lending agencies to help them tackle their financial problems.

More than 30 percent of the businesses surveyed said that they had benefited from government stimulus policies.

In fact, the situation for small- and medium-sized enterprises appears to have improved since September with a slight increase in orders.

"Luckily, we have seen an increase in orders since September thanks to increased demand in the run-up to Christmas and the new year," said Zhang Zongping, sales manager of Shanghai Dianhe International Trading Co Ltd.

Zhang added that busier production lines would hopefully improve the company's situation, and a rebound in economic growth would put exporters back on track.