Academic journal article Innovation: Organization & Management

Overcoming Barriers to Innovation in SMEs in China: A Perspective Based Cooperation Network

Academic journal article Innovation: Organization & Management

Overcoming Barriers to Innovation in SMEs in China: A Perspective Based Cooperation Network

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

In the fast-changing and increasingly competitive global market, small and medium-sized enterprises (SMEs) exert a strong influence on economic growth and technological development of many countries through their ability to innovate new products and processes (Zhu et al., 2006). Nevertheless, innovation is difficult to realize, especially for SMEs with little experience and resources (Kaufmann and Tödtling, 2002). Many failure stories of SMEs in technology innovation reveal that there are various factors impeding their innovation process (O'Regan et al., 2006; Zeng et al., 2010).

Since the implementation of the open policy in 1978, China has made great efforts to change from a former highly-centralized planned state to the current market economy (Gu and Lundvall, 2006). The role of SMEs has been expanding in this changing socio-political context of China (Anderson et al., 2003). They not only play a greater role in the economies (accounting for more than 99% of all firms), but also contribute in a large extent to the increased levels of business activity and employment (Siu, 2001, 2005).

As the largest city and the center for economy, finance and trades, Shanghai has undergone dramatic changes as reflected by the rapid growth of SMEs, not only generating a large number of SMEs around the city of Shanghai that overspill into the surrounding area of the Yangtze River Delta, but also a high total turnover (Zeng et al., 2009a). According to the data from Shanghai Municipal Statistics, the number of SMEs had increased to 363,600 by the end of 2006, accounting for 99.70% of the total number of enterprises, and the total turnover had reached 3635 billion Yuan, accounting for 63.10 % of the total turnover of all enterprises. Figure 1 shows the changes in number and annual turnover of SMEs in Shanghai since the 10th Five-year Plan.

From Figure 1, it reveals that the number of the SMEs has increased from 201,100 in 2001 to 363,600 in 2006, and the annual turnover of the SMEs has increased from 1432.916 billion Yuan in 2001 to 3635.341 billion Yuan in 2006.

Although SMEs have the characteristics of responding rapidly to changing environments and satisfying customers' emerging requirements (Ferneley, 2006), many SMEs have been more likely to face resource and capability constraints than their larger counterparts (Hewitt-Dundas, 2006), and have shown considerable difficulties in facilitating innovation (Hussinger, 2010; Rolfo and Calabrese, 2003).

To our knowledge, there is a paucity of research on innovation of Chinese SMEs. Using a structured questionnaire survey, this paper examines the innovation and networking activities of 188 manufacturing SMEs in Shanghai, the largest city in China. We explored the relative importance of the barriers, cooperation networks and policies in innovation for Chinese SMEs. It is hoped that the study can pave the way for improving innovation capacity for SMEs in China.

2. PREVIOUS WORKS

Kim et al. (1993) explored the factors determining technological innovations in small firms in Korea, and revealed that the two top managerial characteristics (risk-taking propensity and tolerance for ambiguity), environmental heterogeneity, environmental scanning strategy, and professionalization of organizational structure were the most significant factors discriminating innovative from non-innovative small firms in Korea. Smallbone et al. (2003) argued that the low rate of return and the lack of finance were the main constraints of innovation for manufacturing SMEs. Using survey data from small Australian manufacturing firms, Rogers (2004) found that innovation might be higher in firms with higher management training, firms that network with each other and firms that carry out R&D. O'Regan et al. (2006) addressed that the investment in R&D, the number of new products introduced, the need to meet technological changes in both processes and products and the importance of prototype development were the most important attributes of innovation in manufacturing SMEs. …

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