Challenges of Innovation for Chinese Small and Medium-sized Enterprises: Case Study in Beijing

Innovation has been regarded as one of important impetuses to gain competitive advantages and achieve sustainable development for small and medium-sized enterprises (SMEs) in the past thirty years. However, SMEs in China have currently confronted a lot of problems impairing their innovation performance. This study aims to identify the main challenges hindering successful innovation of Chinese SMEs. Based on the previous academic studies, there are five research variables are developed and evaluated: lack of financial support, inadequate research and development (R&D) activities, the shortage of technical and skilled employees, weak entrepreneur orientation, improper governmental and legal environment. Furthermore, the primary data are collected by structured-questionnaires from 120 SMEs in Beijing. According to the research results analyzed by SPSS, it reveals that lack of financial support and inadequate R&D activities are major challenges for Chinese SMEs to achieve innovation. The shortage of technical and skilled employees as well as the improper governmental and legal environment is other barrier. Therefore, more responsibilities and actions should be taken by the government and SMEs themselves to enhance the innovation capability of Chinese SMEs. On the other hand, only one factor—weak entrepreneur orientation, is not regarded as a key challenge. This indicates Chinese entrepreneurs have increasingly realized the significant role of innovation played in the survival and long-term prosperity of SMEs recently.


Introduction
The Chinese economy has leapt forward since the implementation of economic reform and open-door policy in 1978. China is a relative late comer to modern industry but a highly successful one. The rapid growth of dynamic SMEs is one of significant achievements of this overall macro-economic reform (Kanamori et al., 2007). Moreover, as a vital driver behind the economic boom in China, Chinese SMEs make great contributions to GDP growth and employment creation. For example, Chinese SMEs represented around 61% of national GDP and provided approximately 87% of new job opportunities in 2013 (China Statistical Yearbook, 2013). With the acceleration of economic globalization and technological revolution, companies have to renew or improve their products, services and manufacturing processes timely to acquire competitive advantages in fierce market competition (Bozkurt & Kalkan, 2014;Tajeddini, 2010). Therefore, the innovation capability as an engine of technology progress is of importance to all firms, especially for SMEs (Radas & Bozic, 2009   Note. V1-lack of financial support, V2-inadequate R&D activities, V3-shortage of technical and skilled employees, V4-weak entrepreneur orientation, V5-improper governmental and legal environment From the research findings above, we can summarize that there is no less than 110 respondents regard V1, V2 and V3 as main barriers of innovation for Chinese SMEs. Additionally, 107 (89.17%) of respondents agree with V5 as the other challenge. Based on these problems, several proper recommendations are presented as follows:

To Provide Adequate Financial Support
More actions and measures should be taken to cope with financial strain of SMEs by a full range of financial support. For example, the Chinese central and local governments have to offer tax deduction even tax exemption, and public borrowing with low interest rates to encourage the innovation activities adopted by SMEs. Furthermore, the commercial banks and financing institutions need to establish the special programs for Chinese SMEs to expand their scope of financial support.

To Establish R&D Networks
It is very difficult for SMEs to perform innovation by themselves alone owing to the limitations of available resources and R&D capabilities, compared with their larger counterparts. Therefore, more cooperation between SMEs and other enterprises, universities, science and technology institutions are necessary to enhance the innovation capability of SMEs by establishing professional associations and effective networks together. This would provide more learning opportunities, experience exchange and information sharing.

To Recruit and Train More High-qualified Staff
The recruitment of high-educated employees with technical and managerial skills is a key for SMEs to improve their poor situation of human resources. SMEs could attract an educated employee by a desired salary and an impartial promotion opportunity. Moreover, Chinese SMEs should offer good fringe benefits to retain their workers. In addition, SMEs have to make increasing efforts on the employee training in order to learn more advanced knowledge and master more useful skills.

To Create Favorable Governmental and Legal Environment
Although a variety of standards and regulations have been enacted to protect the legal rights of Chinese SMEs, the current legal and administrative systems are still incomplete, especially for the protection of intellectual property rights. The illegal imitation has severely damaged the motivation and creation of innovation. To encourage the innovation activities of SMEs in China, the government should build more favorable and fair environment by improving current policies and broadening scope of legislations. For example, a series of measures should be taken to promote intellectual property protection, including the complete prohibition of pirating and the strict enforcement of present laws (e.g. trademark law, patent law and copyright law).

Research Limitations and Suggestions for Future Research
Before the elaboration on the suggestions for future studies, the main limitations of this study need to be informed. First of all, due to the restrictions of limited time and resources, this research merely concentrates on SMEs in one region (Beijing City). This would lead to less acceptable findings. Moreover, only structured-questionnaire is used as research approach and only one director or manager from each enterprise is responsible for answering all questions, which might influence the research results.
To broaden research samples, the future studies are advised to extend the research scope regarding different SMEs in different areas. To overcome the weaknesses of single data source, data can be collected from leaders, employees and trade unions. The deep interview is also necessary to provide more information.

Conclusion
As discussed above, five variables are selected as the major criteria for this research. Therefore, all research results and findings are based on these five variables: lack of financial support, inadequate R&D activities, shortage of technical and skilled employees, weak entrepreneur orientation, improper governmental and legal environment. Among these five variables, there is only one factor -weak entrepreneur orientation, is not considered as a dominating challenge. This implies that the majority of entrepreneurs have recognized the importance of innovation capability in the long-term development of SMEs in China. In accordance with the main challenges, four recommendations for the government and SMEs themselves are provided to enhance future innovation capacity.