The Macau SAR Government proposed the “Plan for Moderate Economic Diversification of Macau Special Administrative Region (2024-2028)” in August 2023, aiming to gradually boost the diversified economic development of the city. Since small and midsize enterprises (SMEs) are playing an important role in promoting a diversified economy, the government expects large enterprises to facilitate the growth of SMEs by adopting the “Large Businesses Leading Small Businesses” business model. However, amid policy promotion, what opportunities do SMEs have for development? What is the development of SMEs in recent years? In this issue of Macau CSR, we explore the development opportunities for Macau’s local SMEs.
Different regions have slightly different definitions of SMEs. In Hong Kong, an SME is a manufacturing industry enterprise that employs less than 100 employees, or a non-manufacturing enterprise with less than 50 employees. In Singapore, SMEs are businesses with annual sales turnover less than S$100 million, or an enterprise with no more than 200 employees. In Canada, Mexico, and the United States, SMEs are defined as businesses with less than 500 employees.
As a micro-economy, the size of most businesses in Macau are small and medium-sized, in addition to the comprehensive tourism and leisure industry. Although authorities haven’t formally defined SMEs or published figures on their prevalence, according to government SME support provisions, enterprises with fewer than 100 employees are qualified to receive SME subsidies, giving us an effective definition of a Macau SME.
According to industry analyses conducted by SME-focussed local associations, nearly 90% of Macau businesses fit this definition. The development of SMEs therefore has a decisive impact on the city’s economy as a whole and makes a major contribution to Macau’s economic development and employment.
SMEs in the post-pandemic era
Macau has seen a significant decrease in tourists in the past three years as a result of the Covid-19 outbreak, with a significant proportion of SMEs facing the crisis of bankruptcy. Even though the SAR government promoted the e-voucher subsidy scheme no less than three times during the pandemic, and also proposed a range of policies supporting SMEs, the local economy simply failed due to long-term border restrictions.
The ”Think Tank of United Citizens”, a local civil society group, launched an online survey in 2022 which saw 1,262 SMEs interviewed. According to the results, 46.8% of SMEs suffered a “heavy blow” during the pandemic, and were facing the risk of closure.
After Macau finally reopened officially to the outside world on 8 January 2023, the tourism industry progressively recovered, with the number of inbound tourists gradually returning to 2019 levels, bringing hope to Macau’s small and medium-sized enterprises. However, the reopening of the city has brought a different kind of impact on SMEs.
Lok’s restaurant, located in Areia Preta, was able to keep operating during the three years of the pandemic. However, as soon as the city reopened, it faced a closure crisis. Talking of the business environment, Mr Lok said, “After the normalization of travel, the number of residents spending locally has decreased sharply, with the catering industry being greatly suppressed.
“During the pandemic, e-voucher subsidies were issued, which encouraged local residents to stay and consume in Macau. It worked. However, that assistance is no longer available. It’s natural that residents choose to consume in places with lower prices. This is understandable.”
Lok said his business turnover has clearly shrunk, while property owners now believe they can increase rents since the economy is meant to be recovering. “Foot traffic decreased and prices are rising,” Lok said, “Rent increases are being demanded. There is no choice but to suspend the restaurant’s operations.”
Local commentator Ian Johnson stated that local small and medium-sized retail and catering industries are suffering setbacks. “The three-year pandemic has changed the consumption patterns of many people. In addition, online shopping has become more developed. This change in consumption patterns and consumption in northern cities has also affected many local businesses.
“Not only is it the retail and catering industries which are suffering, but also some companies that cooperated with public departments in the past have been affected by the government’s reduction in spending over the past three years.”
Professor Samuel Tong Kai Chung, President of the Macao Political Economy Research Association and President of the Macau Institute of Management, said that there has been a “consumption downgrade” situation in the post-pandemic era. “After the opening up at the beginning of this year, businesses in tourist areas recovered quickly, but it’s the opposite in traditional communities since local consumption power has shifted and landlords also increased rents due to social conditions.”
Digital transformation of SMEs
After the pandemic, the local consumption model has gradually transformed, and the business model of SMEs is not limited to traditional “face-to-face” transactions. The “online and offline” business model has become increasingly popular. But this requires comprehensive support from government policies, large enterprises and emerging industries.
Professor Tong pointed out, “Under the new consumption model, SMEs should try to adopt transformation, particularly digital transformation.”
In the 2024 policy address, the SAR government spent considerable time discussing the transformation of local SMEs. The report also emphasized that the SAR government will strengthen the construction of a “smart city”, launch services for small and medium-sized enterprises to facilitate the industry’s digital upgrade, and assist small, medium and micro enterprises to grow by leveraging new technology.
“Large Businesses Leading Small Businesses” business model
In the “Plan for Moderate Economic Diversification of the Macau Special Administrative Region (2024-2028)” proposed by the SAR government in August 2023, the “Large Businesses Leading Small Businesses” business model was raised for the first time. The government is striving to promote the cooperation of public institutions and private enterprises, as well as to highlight the social responsibilities of large-scale enterprises to lead the development of small enterprises by making full use of their own business capabilities.
According to the Plan, starting from 2024, the government and large enterprises will continue to promote the revitalization of historical and cultural areas, while cultural experience elements featuring local characteristics will be promoted to attract small and medium-sized enterprises to settle in such areas. By pushing the “Large Businesses Leading Small Businesses” business model, the government plans to join hands with local SMEs to carry out initiatives to attract tourists into these “old districts”.
Professor Tong says from the point of view of the overall development of Macau’s integrated tourism and leisure industry, tourist sources will be more diversified and the city will welcome more overseas tourists in the future, as well as different tiers of tourists in terms of spending capacity, which will bring more business opportunities to different SMEs.
“Diversified tourists and large enterprises will bring more room for the development of small and medium-sized enterprises,” he says.
“In the area of procurement, for example, we will see local large enterprises working more often with local SME suppliers to form a complete supply chain, and the increase in procurement volume will boost the development of SMEs.”
He also believes the participation of SMEs will diversify the development of large businesses. “While the tourism industry continues to develop, the more participation we see of different SMEs such as restaurants and shops, the more diversified such development will be. The participation of small and medium-sized enterprises will also allow tourists to experience more local culture.”
Large enterprises’ support measures
Some large enterprises in Macau have long attached great importance to cooperation with local enterprises and have supported the development of local SMEs through different approaches over the years, particularly in the area of local procurement.
One large enterprise that has made great contributions to the local economy and development took the lead in implementing the “Large Businesses Leading Small Businesses” business model by launching a small and medium-sized enterprise joint venture plan. The group has successfully attracted local retail and catering SMEs to open business in their resort, thus providing assistance to help SMEs promote and build their brands.
Changes in the SAR Government’s SMEs support policies
Many might be surprised to learn the Macau SAR government actually first launched assistance measures for SMEs 20 years ago. This was in the early days after the handover, when the new local gaming industry had not yet been developed, and industries in Macau were generally stagnant. In 2003, the city was further affected by the SARS epidemic, which led to a decline in social and economic conditions and a wave of closures of small and medium-sized enterprises.
In order to protect the development of local SMEs, the Macau SAR government launched the “Small & Medium Sized Enterprises Aid Scheme” to provide interest-free financial assistance. It was the first government subsidy program for small and medium-sized enterprises after the handover. The program has been continuously improved since then, and the amount of financial assistance available has been increased to MOP600,000 for each SME.
In the past 20 years, the government has successively strengthened its support for SMEs, launching both the “SME Credit Guarantee Scheme” and the “SME Catastrophe Property Insurance Subsidy Scheme”. After the COVID-19 outbreak in 2020, SMEs bore the brunt of the severe economic impact and the government proposed plans to support SMEs to endure the unexpected tough times.
For example, the government proposed the “Interest Subsidized Scheme on Bank Loans to Enterprises” in 2020, providing loans up to MOP 2 million to small and medium-sized enterprises. The program was implemented in two phases, and a total of 4,983 applications were approved, with a total approved loan funds of MOP 6,316,909,375.
Although Macau’s SMEs have needed to endure the worst of times through the pandemic years, and still face their challenges post-pandemic, a new era of is dawning. Various government support policies, along with the diversification of Macau’s economy and the support of Macau’s larger tourism enterprises heralds new opportunities for those SMEs that managed to survive the past few years, and the new SMEs which will no doubt launch in the near future. Perhaps, at long last, good times for Macau’s SMEs are here again.
