The Internal Environment and Input Conditions
Problems facing the PRC's SMEs are many and varied. The
SMEs are primarily located in the coastal areas and are mostly
limited to the production of standardized consumer or lowtechnology
goods made for mass markets (such as furniture,
consumer electronics, and textiles and garments). There is
usually little innovation; R&D activity, if present at all, tends to
be negligible. A subset of these firms may be integrated into
global supply chains, but such integration is minimal, and the
relatively homogeneous nature of their products makes the firms
vulnerable to changes in demand from abroad. To the extent to
which firms seek to be more competitive, the strategy is often
through cost-cutting measures. Overall, complacency pervades
the conduct of business, which is usually based on the copying or
licensing of products, using imported machinery.
Lower prices are not enough to allow a firm to succeed in
international markets: improvements in product, process,
technology, and organizational functions such as design, logistics,
and marketing have become the critical success factors in firm
competitiveness. The PRC's SMEs are thus under pressure to
innovate, to upgrade their operations in order to do business on
the international level. Hence, as a late-industrializing economy,
the PRC tends to be restricted by a gap in technology. This
technology gap can be decomposed into three types of lags:
(i) innovation lag (involves the levels of capability for creation
and development in science and technology); (ii) process
capability lag (refers to the infrastructure and “infostructure”
that supports human capital and the firm's ability to make
multiple copies of a product or to deliver repeatedly a service
once the product or service performance specification is given);
and (iii) customer lag (refers to such disadvantages as difficulty
in attracting consumers, due in part to lack of brand recognition,
and the high cost of switching to a new provider, due in part to
large up-front costs).
The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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