Skip to main content
SpringerLink
Log in

Institution-based barriers to innovation in SMEs in China

  • Published:
Asia Pacific Journal of Management Aims and scope Submit manuscript

Abstract

Despite significant development, small and medium-sized enterprises (SMEs) in China continue to experience institution-based barriers, especially in the area of innovation. What exactly are these barriers? How do these barriers influence innovation? How about the status quo of the institutional environment for SMEs’ innovation and development? We seek to uncover these underexplored areas by developing a model characterized by a cost-risk-opportunity (CRO) innovation triangle. We then enrich this model by interviewing 82 top managers and owners at 41 SMEs. We identify the five key institution-based barriers to innovation in China: (1) competition fairness, (2) access to financing, (3) laws and regulations, (4) tax burden, and (5) support systems. These findings enhance the institution-based view of entrepreneurship by shedding light on how institution-based barriers affect innovation in SMEs.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3

Similar content being viewed by others

Notes

  1. A series of recent papers using evidence from countries around the world (but not China) have found that clarifying entrepreneurs’ and creditors’ rights through more entrepreneur-friendly bankruptcy laws can stimulate more development of SMEs (Lee et al., 2007, 2011; Peng et al., 2010).

References

  • ACFCI. 2007. China SME development report 2006–2007. Beijing: China Economic Publishing House.

    Google Scholar 

  • Acs, Z. J., & Audretsch, D. B. 1988. Innovation in large and small firms: An empirical analysis. American Economic Review, 78: 678–690.

    Google Scholar 

  • Acs, Z. J., Carlsson, B., & Karlsson, C. 1999. The linkage among entrepreneurship, SMEs and the macroeconomy. In Z. J. Acs, B. Carlsson & C. Karlsson (Eds.). Entrepreurship, small and medium-sized enterprises and the macroeconomy: 3–42. Cambridge: Cambridge University Press.

    Google Scholar 

  • Arora, V. 2009. China’s financial sector policies. In Q. Fan, K. Li, D. Z. Zeng, Y. Dong & R. Peng (Eds.). Innovation for development and the role of government: 71–89. Washington, DC: The World Bank.

    Google Scholar 

  • Chen, J. 2006. Development of Chinese small and medium-sized enterprises. Journal of Small Business and Enterprise Development, 13: 140–147.

    Article  Google Scholar 

  • CTIBJ (Chinese Technology Innovation Beijing). 2008. The business success is driven by the entrepreneurship. Oct. 14. Beijing: CTIB Information Center.

  • EC (European Commission). 2008. Inno-policy trend chart—Policy trends and appraisal report. Belgium: European Commission.

    Google Scholar 

  • Forbes. 2009. 2009 Tax misery & reform index. http://www.forbes.com, Accessed December 16, 2009.

  • Hadjimanolis, A. 1999. Barriers to innovation for SMEs in a small less developed country (Cyprus). Technovation, 19: 561–570.

    Article  Google Scholar 

  • Hoffman, K., Parejo, M., Bessant, J., & Perren, L. 1998. Small firms, R&D, technology and innovation in the UK: A literature review. Technovation, 18: 39–55.

    Article  Google Scholar 

  • Hu, M.-C., & Mathews, J. A. 2008. China’s national innovative capacity. Research Policy, 37: 1465–1479.

    Article  Google Scholar 

  • Keizer, J., Dijstra, L., & Halman, J. I. M. 2002. Explaining innovative efforts of SMEs. An exploratory survey among SMEs in the mechanical and electrical engineering sector in the Netherlands. Technovation, 22: 1–13.

    Article  Google Scholar 

  • Lee, S.-H., Peng, M. W., & Barney, J. B. 2007. Bankruptcy law and entrepreneurship development: A real options perspective. Academy of Management Review, 32: 257–272.

    Article  Google Scholar 

  • Lee, S.-H., Yamakawa, Y., Peng, M. W., & Barney, J. B. 2011. How do bankruptcy laws affect entrepreneurship development around the world?. Journal of Business Venturing, 26(5): 505–520.

    Article  Google Scholar 

  • Lee, T. W. 1999. Using qualitative methods in organizational research. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Lin, P. 2005. The evolution of competition law in East Asia. In E. M. Medalla (Ed.). Competition policy in East Asia: 15–40. New York: RoutledgeCurzon.

    Chapter  Google Scholar 

  • Liu, Y. 2009. SMEs represent less than 5% in near 5 trillion credit growth. China Economic Weekly, July 15. http://www.ceweekly.cn, Accessed Dec. 20, 2009.

  • Lu, Y., Tsang, E. W. K., & Peng, M. W. 2008. Knowledge management and innovation strategy in the Asia Pacific: An institution-based view. Asia Pacific Journal of Management, 25(3): 361–374.

    Article  Google Scholar 

  • Murray, G., & Lott, J. 1995. Have UK venture capital firms a bias against investment in new technology-based firms?. Research Policy, 24: 283–299.

    Article  Google Scholar 

  • North, D. C. 1990. Institutions, institutional change, and economic performance. New York: Norton.

    Book  Google Scholar 

  • Oakey, R. P. 1991. High technology small firms: Their potential for rapid industrial growth. International Small Business Journal, 9: 30–42.

    Article  Google Scholar 

  • OECD. 2008. OECD review of innovation policies in China. Paris: OECD Publishing.

    Book  Google Scholar 

  • Oslo Manual. 2005. Oslo manual: Guidelines for collecting and interpreting innovation data. Paris: OECD and Statistical Office of the European Communities.

  • Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. 2009. The institution-based view as a third leg for a strategy tripod. Academy of Management Perspectives, 23(4): 63–81.

    Article  Google Scholar 

  • Peng, M. W., Yamakawa, Y., & Lee, S.-H. 2010. Bankruptcy laws and entrepreneur-friendliness. Entrepreneurship Theory and Practice, 34(3): 517–530.

    Article  Google Scholar 

  • Radas, S., & Bozic, L. 2009. The antecedents of SME innovativeness in an emerging transition economy. Technovation, 29: 438–450.

    Article  Google Scholar 

  • Rothwell, R. 1989. SMF’s, inter-firm relationship, and technological change. Entrepreneurship and Regional Development, 1(3): 275–291.

    Article  Google Scholar 

  • Rothwell, R., & Dodgson, M. 1993. SMEs: Their role in industrial and economic change. International Journal of Technology Management, (Special Issue): 8–22.

  • Storey, D. 1992. United Kingdom: Case study. In OECD (Ed.). Small and medium-sized enterprises, technology and competitiveness. Paris: OECD Publishing.

    Google Scholar 

  • Su, Y.-S., Tsang, E. W. K., & Peng, M. W. 2009. How do internal capabilities and external partnerships affect innovativeness?. Asia Pacific Journal of Management, 26(2): 309–331.

    Article  Google Scholar 

  • Taymaz, E., & Ucdogruk, Y. 2009. Overcoming the double hurdles to investing in technology—R&D activities of small firms in developing countries. Small Business Economics, 33: 109–128.

    Article  Google Scholar 

  • Teece, D. 1986. Profiting from technological innovation. Research Policy, 15(6): 285–305.

    Article  Google Scholar 

  • Yamakawa, Y., Peng, M. W., & Deeds, D. 2008. What drives new ventures to internationalize from emerging to developed economies?. Entrepreneurship Theory and Practice, 34: 517–530.

    Google Scholar 

  • Yang, J., Liu, H., Gao, S., & Li, Y. 2012. Technological innovation of firms in China: Past, present, and future. Asia Pacific Journal of Management (in press; doi:10.1007/s10490-010-9243-3).

  • Zhu, Y. M., & Sanderson, J. W. 2009. The key obstacles and countermeasure against development of innovative SMEs in China. China Soft Science, 9: 23–31.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Economics and Management, Tongji University, Shanghai, 200092, China

    Yanmei Zhu

  2. Institute for Strategy and Business Economics, University of Zurich, Zurich, 8032, Switzerland

    Xinhua Wittmann

  3. School of Management, University of Texas at Dallas, Richardson, TX, 75080, USA

    Mike W. Peng

Authors
  1. Yanmei Zhu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Xinhua Wittmann
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Mike W. Peng
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yanmei Zhu.

Additional information

We thank Garry Bruton, Shulin Gu, Steve Sauerwald, and Steven Si for helpful comments. An earlier version was accepted for presentation at the Academy of International Business, Nagoya, Japan, June 2011 and the IACMR Conference, Shanghai, China, June 2010. We thank Jihong Sanderson who interviewed managers at over 20 enterprises together with the first author in Shanghai and Shenzhen and composed the report in Chinese for the 2009 Pujiang Innovation Forum. This research was supported in part by National Natural Science Foundation of China (NSFC) grant (no. 71041032).

Appendix

Appendix

Interview checklist

  1. 1.

    Please introduce the background and history of your firm.

  2. 2.

    How has your firm achieved its growth so far? Are you satisfied with such growth?

  3. 3.

    Do you have any collaboration with universities and research institutes? Are you satisfied with such collaboration?

  4. 4.

    Has your firm experienced the most difficult stage of survival and development, the so-called “valley of death”? If yes, how did you overcome it?

  5. 5.

    Within the current institutional environment, what are the principal barriers for the growth of your firm?

  6. 6.

    How will/do the principal barriers influence the cost, risk, and opportunity of innovation?

  7. 7.

    Did you have work experiences overseas before? If you did, what are the similarities and differences between the innovation environment in China and that in other countries?

  8. 8.

    What kinds of strategic advice for SME development and innovation will you give when these institution-based barriers are removed?

  9. 9.

    Why did you choose this city/region to set up your firm/to work? Are you satisfied with this decision?

  10. 10.

    What are the primary institution-based barriers to the development and innovation of your industry?

Rights and permissions

Reprints and permissions

About this article

Cite this article

Zhu, Y., Wittmann, X. & Peng, M.W. Institution-based barriers to innovation in SMEs in China. Asia Pac J Manag 29, 1131–1142 (2012). https://doi.org/10.1007/s10490-011-9263-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-011-9263-7

Keywords

Search

Navigation