Determinants of product innovation in Chinese private small and medium-sized enterprises

In the increasingly competitive and fast-moving global market small and medium-sized enterprises (SMEs) have been an important engine behind economic growth, job creation and technological progress. In particular they have made a significant contribution to the economic development in transition economies which have witnessed the movement from centrally planned to free-market economies in which the private sector dominates. In China private SMEs play a crucial role in the transition towards a more market-oriented economy and are the main source of new jobs and productivity improvements. Much of the initial success of Chinese SMEs has been attributed to their ability to engage in low-cost production of relatively mature products. Continuation of their success, however, will depend more and more on their ability to engage in new product innovation. This has important implications regarding their performance, growth potential and long-term survival, given that without the development of new products it is difficult for SMEs to gain a competitive advantage over rival firms. Although a growing body of empirical work has been conducted on what determines the propensity of SMEs to innovate in mature economies, few studies have begun to investigate these issues in the rapidly emerging economy of China. While these studies are valuable in helping us to understand the innovation process in SMEs they predominantly focus on a small number of firms in one geographical area or industrial sector.