A Study on the Technological Innovation of Small

and Medium-sized Enterprises in China

Liu Tianjun , Hou Junxi , Zhao Kai
(College of Economics and Management , Northwest A&F University , Yangling 712100, Shaanxi,
China) July 2003

Abstract: SMEs play a decisive role in our national economy. With China's participation
in WTO, SME technology innovation is facing shortages of funds, lack of talent, and
insufficient investment in technology research and development. The lack of incentive
mechanisms and weak intermediary services also constrain the development of SMEs. In
this regard, financing channels should be broadened to improve human resource
management mechanisms. The state should give policy support to SMEs, and through
technology-based alliances of production, learning and research, and a comprehensive
innovation service network, SMEs can achieve technological innovation.
SMEs are an important force for China’s economic development. They play an important
role in ensuring stable growth of the national economy, alleviating employment
pressure, stimulating private investment, optimizing economic structure, promoting
market competition, promoting market prosperity, facilitating people’s lives, and
maintaining social stability. effect. At present, there are more than 8 million small and
medium-sized enterprises registered in China's industrial and commercial
administration, accounting for 99% of the total number of registered companies in the
country. Their total industrial output value, sales revenue, profits and taxes, and total
export volume have accounted for 60%, 57% and 40% of the national total respectively.
At around 60%, SMEs in circulation accounted for more than 90% of the nation's retail
outlets. SMEs also provided about 75% of urban employment opportunities, making an
important contribution to attracting the employment population. With the development
of productivity and the acceleration of the restructuring of state-owned enterprises,
Chinese SMEs are faced with a transition from extensive and episodic growth to
intensive and intrinsic development. The powerful lever to promote this transformation
is technological innovation. Therefore, Effective measures to solve the difficulties faced
by SMEs in technological innovation and improve the ability of SMEs to innovate in
technology have become the key to the implementation of the Party’s guidelines for the
development strategy of SMEs.
I. Technological innovation and its basic characteristics
Technological innovation is a concept of economics. It originated from the "innovation
theory" proposed by the famous American economist Schumpeter in 1912. Its basic
meaning is the technical and economic activities related to the research and
development, production, and commercialization of new technologies (including new
products and new processes). Its main feature is to reflect the combination of
technology and economy, highlighting the first commercial application of new
technologies. To meet market demand, obtaining commercial profits becomes the
ultimate criterion for testing the success of innovation [1]. Technological innovation has
the following significant features:
(a) integrity
From the research and development of new technologies to the first commercial
application, technological innovation is a holistic process. It is a systematic project. It
emphasizes the synergies between the various elements of the enterprise, from
research and development to the first commercial application, and from the need of the
market. The whole process of prototype trial production of new product prototypes,
changes in production processes, quality control, and market development, lacks any
one aspect, and technological innovation cannot be successfully implemented.
(B) Targeted
Emphasizing the extent of market realization and gaining commercial benefits are the
ultimate criteria for verifying the success of technological innovation. In other words,
technological innovation not only focuses on the creativity and technological level of
technology, but also focuses on the role of technology in economic activities and
successfully acquires business in the market. Profits require that all activities of
technological innovation of enterprises must closely focus on market goals and strive to
achieve this goal.
(III) Subjectivity
Emphasizing that the enterprise is the main body of technological innovation, requires
that the enterprise is the main body of decision-making, development, benefit,
investment, and risk-taking of technological innovation.
(IV) Uncertainty
The technological innovation system is a non-linear system composed of complex
networks in which various factors interact. Therefore, technological innovation has a
high degree of uncertainty. It is manifested in the lack of known information related to
the occurrence of events; there are always technical and economic problems in the
innovation process that are not yet known how to solve; accurately predicting and
tracking the results of actions is impossible. It is precisely due to the existence of such
uncertainties that makes technological innovation a risky activity.

2，the main problems faced by SMEs in technological

innovation
The development of China's economy and its participation in WTO have brought great
opportunities for SMEs and have given SMEs a good external environment for
technological innovation. However, SMEs still face many problems in technological
innovation.
(I) Lack of funds
The lack of funds has severely restricted the technological innovation of SMEs. As a
technical and economic activity that brings scientific and technological achievements
into the production process and into practical productivity and material products,
technological innovation must have capital input as a direct basis and direct constituent
element of such activities. Capital investment is the technological innovation activity
that can be carried out. The most basic prerequisites. Lack of funds is a prominent issue
facing Chinese SMEs in technological innovation. According to the State Council
Development Research Center's questionnaire survey on the development status and
problems of SMEs organized by the four provinces of Guangdong, Liaoning, Hubei and
Yunnan, 66.9% of SMEs believe that “funds shortage” is a constraint on enterprise
development and technology. The primary issue of innovation.
(2) Lack of technological innovation talents, technical research and development funds
and insufficient investment
The lack of technological innovation talent in China's SMEs. At present, only 38% of the
scientific and technical personnel engaged in research and development in China are in
enterprises. The vast majority of them are concentrated in large enterprises. Even fewer
are actually engaged in technological innovation in SMEs. At the same time, due to the
small size of small and medium-sized enterprises, low capital, and social perceptions and
deviations in understanding, it is difficult to attract high-quality talent, and the high rate
of brain drain also makes it difficult for companies to further develop. Therefore, the
lack of talent has greatly constrained the improvement of the technological level and
labor productivity of enterprises and has seriously affected the development of SMEs'
technological innovation activities. In technological innovation activities, technology
research and development activities are at the most basic core position, technical
research and development funds
It is the main indicator for measuring the investment of science and technology funds.
The proportion of technical development expenditure as a percentage of sales revenue
reflects the intensity of corporate absorption and innovation. Internationally, it is
generally believed that companies with technology development funds accounting for
1% of sales are difficult to survive, 2% are sustainable, and 5% are competitive. Chinese
enterprise technology research and development expenditure accounts for the whole
country.
The proportion of corporate research and development is far lower than that of
developed countries. According to a sample survey conducted by the School of
Economics and Management of Tsinghua University, the average ratio of SME
technology development expenses to sales revenue is 0.37%, and technological
innovation funding is far from sufficient. Lack of competitiveness.
(3) Insufficient incentive mechanism
Due to the inertia of the planned economy, Chinese SMEs lack effective incentives for
technological innovation both externally and internally, and it is difficult to establish the
main body of innovation. From the perspective of external mechanisms, the separation
of government from enterprises has not been fundamentally improved, and local
governments have not been able to properly transition from direct intervention
management under the planned system to macro-control services under the conditions
of market economy. Enterprises do not have sufficient decision-making power. The
autonomy of innovation is greatly affected. From the perspective of internal enterprises,
institutional reengineering is slow, property rights are defined ambiguously, corporate
governance is seriously flawed, and operators are quick and light-weighted. They are
unwilling to focus on tapping potential, transforming and innovating in-house, and
innovation mechanisms for technology participation in distribution cannot be formed. In
addition, the overall standardization of the market is not high, and the interests of
innovative and follow-up companies, brand-name companies, and counterfeit
companies are not significantly different, weakening the institutional constraints and
market pressures of innovation.
It is difficult for companies to attach great importance to technological innovation from
a strategic perspective, and it is difficult to enhance the urgency and awareness of
technological innovation.
(4) Weak intermediary services
Since SMEs are limited to their own conditions, it is impossible to establish a well-
developed technology development and transformation system. They must rely on the
outside world to meet their technological innovation requirements. The intermediary
agencies just meet this demand. In recent years, the state has strengthened its guidance
and support for technology transfer intermediary activities, and intermediary agencies
have developed rapidly. At present, there are more than 50,000 intermediaries at all
levels across the country, and the pattern of technology transfer through intermediaries
has basically taken shape. However, overall, the hardware facilities and service support
systems of these institutions are still relatively weak, and their operating standards are
uneven. Together with the management system of the fragmented management
system, the operations of intermediaries tend to be independent and independent, and
the innovation service system should be the functions such as feasibility study, financing
guarantee, patent agency, dispute adjustment, etc. are still far from being perfected and
exerted. It is difficult for SMEs to provide a full range of quality services.
(5) No policy framework has been formed to support technological innovation in SMEs
Since the reform and opening up, China has successively formulated and implemented
laws and regulations such as the "Scientific and Technological Progress Law," "Scientific
and Technological Achievements Law," and "Several Policy Opinions on Encouraging and
Promoting the Development of SMEs," and the Ninth National People's Congress
Standing Committee. The meeting reviewed and approved the "Promotion Law of the
People's Republic of China on Small and Medium-sized Enterprises" and implemented it
on January 1, 2003. This is China's first specialized law on small and medium-sized
enterprises and marks the start of normalization of China's promotion of SME
development. Legalization track. However, compared with developed countries,
compared with the intrinsic needs of many Chinese SME technologies, the Journal of
Northwest Agriculture and Forestry University (Social Science Edition) No. 3 Innovation,
the country has not yet formed a complete set of policies and regulations, and it lacks
technology innovation. Special laws for various SMEs in the country. At present, some
policies and regulations have to some extent the color of the traditional planned
economy. In general, the development of supporting small and medium-sized
enterprises has not yet been brought to the appropriate height.

3, to speed up the technological innovation of SMEs

(1) Using various forms to expand financing channels
Technological innovation requires investment. The greater the investment in
technological innovation, the stronger the ability of technological innovation. To solve
the problem of serious shortage of innovation investment, first of all, it is necessary to
broaden the financing channels and establish a three-in-one investment system for the
country, society and enterprises. Enterprises must first enhance their awareness of
innovation, take the initiative to increase their investment in science and technology,
ensure that technological research and development funds increase year by year, and
achieve self-accumulation and self-development. Commercial banks should set up a
credit department for small and medium-sized enterprises to flexibly use a variety of
financial instruments to provide SMEs with various financial services such as exchange,
settlement, transfer, and financial management. Second, the government should
increase financial investment in the process of promoting technological innovation in
SMEs through government procurement, financial discounts, equity investment, and
financing guarantees.
And the establishment of SME entrepreneurship development funds, etc. provide direct
financial support or indirect financial incentives for technological innovation. Third, the
capital market is used as the main channel for SMEs' technological innovation
investment. China's technological innovation investment mainly comes from banks.
However, technological innovation investment itself is risky, and bank loans are often
the first consideration of security. From this point of view, does not meet the risk
requirements for investment in technological innovation. The only way to meet the risk
requirements for technological innovation investment is capital markets, because a
large part of the capital market belongs to venture capital. In addition, allowing small-
scale and local equity markets to be established and promoted in various parts of China.
Obtaining venture capital through this equity market is extremely important for SMEs'
technological innovation and development.
(2) Improve human resources management mechanism and create innovative talents
Talent is the carrier of modern science and technology, and it is also an inexhaustible
motive force for corporate technological innovation. Because small and medium-sized
enterprises do not have advantages in attracting talents for their own reasons, leaders
should learn to cherish talents, learn to “retain people through their careers, retain their
feelings, and retain treatment”, and form a strong culture of respecting knowledge and
respecting talents in the company. , To establish a mechanism conducive to the growth
of talent and to stand out. It is necessary to broaden the path to Jin Xian, to be good at
discovering talents, to unite talents, and to use talents, and to make full use of scientific
methods to manage and develop talents.
(3) Strengthening the government’s policy support for SMEs’ technological innovation
1. There should be a special management agency for SMEs. At present, China
implements sub-sector management for SMEs, and the government does not have a
dedicated agency for the work of SMEs. This divisional management of the differences
in the development environment of SMEs with different economic components and
different industries is not conducive to SMEs’ technological innovation activities.
Therefore, it is necessary to establish a national-level SME management organization,
which will centralize the management of SMEs with various economic components and
industries, and coordinate issues related to the government’s relevant departments in
promoting the development of SMEs and their technological innovation activities, such
as laws, policies, and management. And fully mobilize enthusiasm in many aspects,
protect the interests of SMEs, and better promote the technology innovation activities
of SMEs.
2. The government should pay close attention to researching and formulating
supporting regulations and policy documents for the "SME Promotion Law." It is
necessary to gradually establish a complete legal system for technological innovation in
small and medium-sized enterprises based on the "Promotion Law for SMEs". In this
legal system, there should be laws and regulations for different aspects and different
contents, especially including technological inventions and technological innovations.
New laws and regulations concerning technology transfer, technology promotion and
government support for technological innovation in small and medium-sized
enterprises, research and development of small and medium-sized enterprises, and tax
reductions and technological innovation activities. Governments at all levels should use
legal means to create a better environment for SMEs' technological innovation
activities.
3. The government supports SMEs in technology plans, service networks, and access to
international markets. The government may formulate a variety of technological plans
for SMEs' technological innovation activities. Through the implementation of these S&T
plans, the entire process of SMEs' technological innovation will be supported from the
stages of research and development, trial production, and commercialization of results.
Government investment is established as small and medium-sized
The social networks of enterprise services, such as information networks, technology
development networks, logistics service networks, talents, and technical training
networks, have become important measures to improve the competitiveness of SMEs.
China joins W TO for Chinese SMEs to enter the international market, participate in
international competition, learn advanced foreign technology and management
experience, and improve their own innovation and competitiveness
It has created a good opportunity. The relevant government departments should
formulate corresponding countermeasures to promote international technology
exchanges and cooperation among small and medium-sized enterprises, especially high-
tech enterprises, and provide a bridge for SMEs to enter the international market.
(4) Establishing a technology alliance combining production, teaching and research to
form a technological innovation and development system
It is far from enough that technological innovation alone depends on the strength of
SMEs. We must make full use of market mechanisms to broaden the scope of technical
cooperation and extensively carry out various forms of joint production, teaching, and
research. With the implementation of the “211” Project and the “985” Plan, the
university’s scientific research strength will be greatly strengthened, and the scale of
postgraduate and post-doctoral enrollment will expand rapidly. More than 70% of
postgraduates are required to conduct applied research, which inevitably requires
universities and Enterprise cooperation even "marriage", use of university's educational
resources and relatively "cheap" human resources, improve the company's
technological innovation capabilities, and promote technological progress. On the one
hand, enterprises should seize the opportunity of national and provincial scientific
research institutes to transform, take the initiative to contact, actively intervene, and
promote the cooperation and cooperation between enterprises and these research
institutes; on the other hand, they must also use the encouragement enterprises
launched by governments at all levels. Preferential policies for cooperation with
universities and colleges, and vigorously promoting cooperation between enterprises
and universities. In terms of cooperation, enterprises can interact with the fourth issue
of Liu Tianjun, etc.: A Brief Discussion on the Technological Innovation of SMEs 73
Colleges and Universities jointly develop new products, new technologies, and new
technologies. They can also intervene in existing projects in advance, invest some funds,
and obtain some the right of priority transfer of intellectual property or scientific and
technological achievements can also be established in cooperation with universities and
research institutes to establish research institutes and laboratories to form a relatively
stable and long-term cooperative relationship. After the small and medium-sized
enterprises implement restructuring, they should focus on the development of a joint-
stock type “production, study and research” consortium, that is, schools or research
units that use intellectual property and technology to acquire shares, and companies
that use plant, capital, and equipment to participate in shares, so that the depth of
cooperation can be deepened, and cooperation can be enhanced. Strength of.
(5) Vigorously develop innovative intermediary agencies and improve innovation
service networks
SMEs have limited resources and urgently need a sound innovation intermediary service
system to provide support and help. At present, in addition to regulating the operations
of existing technology innovation service organizations according to the requirements of
market economic laws, and improving their service levels, we must also establish and
guide various intermediary service organizations in a targeted way, such as the selection
of conditional industrial technology institutes. Restructured into an industry technology
center to provide advanced scientific and technological achievements and supporting
technical diagnosis and guidance for small and medium-sized enterprises; Relying on
existing high-tech development zones and industrial parks, nurturing technology
incubators to provide venues, facilities and services for SMEs' technological innovation
activities In particular, it is necessary to vigorously strengthen the construction of
information service agencies and technology exchange markets, provide information for
SMEs through the information network to provide the latest technology, economy, and
market information, help them accurately grasp changes in the external environment,
and improve market prediction and rapid response capabilities; Coordinate technology
supply and demand through technology trading market, provide supporting services
such as patent agency, contract registration, and intellectual property rights change
during the transaction process, reduce technical transaction costs, and increase the
conversion rate and conversion speed of scientific and technological achievements. In
the process of strengthening intermediary services, special attention should be paid to
the communication and liaison between various organizational units, and efforts should
be made to promote the socialization and industrialization of intermediary services, and
gradually form an open service network with complementary functions, so as to realize
optimal allocation and integration of scientific and technological resources. To maximize
the overall effectiveness of the service system. Technological innovation is the only way
to promote the high-quality development of enterprises and is the key to the survival
and development of small and medium-sized enterprises. Under the background of
China's accession to W TO, small and medium-sized enterprises must tap their potential,
overcome difficulties, and fully implement technological innovation according to their
own characteristics.