Business innovation and enterprise -- Innovation in China
The buzzword of today is represented by the internationalized economic crisis which has commenced from within the American real estate sector and soon expanded to impact all sectors across the entire globe. Before the emergence of the crisis however, the buzzword was that of globalization, understood as the process by which boundaries between states are gradually eliminated and the values, beliefs, cultures and resources of one region can easily transcend to another region.
Globalization has impacted all aspects of life, from the means in which one spends their leisure time to the means in which one completes their professional tasks. Globalization has generated effects on all fields of life, from politics, to economics and culture.
Within the business community, globalization has translated into a myriad of impacts. For once, the phenomenon allowed economic agents to transcend boundaries and benefit from the comparative advantage of other regions. In other words, they gained access to more natural resources and to cost effective labor forces. Then, companies were able to create, increase and consolidate international market shares.
Still, the advent of globalization has also materialized in increased competition in both the national as well as the international markets. Enhanced competition in turn has supported increasing customer demands, which ultimately materialized in urges for sustained development within the industry sectors. In such a setting then, it is believed that globalization has fostered development and innovation.
In the background of globalization, the current project sets out to assess the impacts of the phenomenon on the innovative activities of firms in China. In the pursuit of this objective, three different issues would be approached -- the features of the Chinese business environment, which could impact innovative activities; the industries with a potential for innovation and; the personal and critical view of whether investing in China would support innovation, followed by recommendations of how economic agents could overcome the shortages in the Chinese marketplace.
2. The Chinese business environment
China is one of the largest economies of the globe; its gross domestic product of $10,090 billion is only exceeded by that of the United States and the European Union. The Asian country has generically been an enclosed economy, focused on self sufficiency and rules through dynasties with focus on self and cultural preservation.
Three decades ago however, the country commenced a process of reform which liberalized its markets and prompted China as a notable trade partner. The reform program included elements such as the elimination of collectivized agriculture, the liberalization of prices, the decentralization of the fiscal institutions, privatization and the reduction of state intervention within the economy or the development of stock markets. The implementation of these reforms prompted China to become the largest exporter of the globe and the third largest global economy.
Still, in spite of these developments, China remains an emergent economy, which continually faces numerous problems. Some of the constant challenges for the Asian state include the high levels of national debts, corruption, environmental concerns and the assumed low quality of its exports (Central Intelligence Agency, 2011).
All of these features impact the economic climate at a general level, but also at the specific level of innovation. The lines below discuss some of the positive and negative features in the business environment and the means in which they impact innovation in firms.
2.1. Positive dimensions of innovation in China
There is a wide array of issues which create positive stances for innovation to be implemented by economic agents in China. Some of the more notable ones include the following:
The labor force
The cost efficiencies
a) The labor force
The Chinese labor force is among the most cost effective ones in the world, and these low costs contribute significantly to attracting new investors in the country. But aside from actual investors, the cost effective labor force also stimulates innovation. Specifically, by creating cost efficiencies, the Chinese labor force allows economic agents to retain more in profits, which they can then reinvest in innovation. In other words, by working with the Chinese labor force, the domestic and international companies are better financially equipped to stimulate innovation.
b) The cost efficiencies
Additionally, aside from the actual costs of using Chinese labor force, this element also stimulates innovation at another level. Particularly, the Chinese labor force is highly flexible; it is accustomed to working long hours and adjusting itself to the needs of the employer / investor. This docile and disciplined labor force appeals to investors; supports innovation and economic growth (Park, Cai and Du). This finding is also consistent with that of Wuwei Li (2011), who found that the level of spending is a direct stimulator of innovation. In other words, due to cost efficiencies, economic agents operating in China possess more capitals to be reinvested in innovation.
China is often perceived as a country focused on its labor force advantages and its export advantages, and playing a less important role within the technological field. Still, innovation is a primary determinant of innovation in China and the country does possess some technological advantages to support innovation within economic agents (Lin, 2007).
According to Adam Ashton (2010), China possesses superior technologies relative to the United States in terms of environmentally responsible advancements, with specific examples in the areas of energy generation and transportation. These specific technologic advancements of China include high voltage transmission, high-speed rail, advanced coal technologies, nuclear power, alternative energy vehicles, renewable energy, supercomputing, electric vehicle batteries or the conversion of sunlight into usable fuel.
d) Governmental support
Aside from labor force, cost efficiencies and technologies, innovation in China is also supported by other elements, including the support of government in innovation; this support is best materialized in the incentives offered by the Chinese governments to foreign investors and the support of the private business sector, as well as the superior protection of the intellectual property rights (The Economist, 2010).
2.2. Negative dimensions of innovation in China
The factors which foster innovation in China can generically be linked to new features and improvements generated throughout the extended reform process, such as new access to technologies or market liberalization. Still, the centralized and previously enclosed economy of China, coupled with some other new features in the country, also create negative stances for the generation of innovation by economic agents. These features include primarily the following:
The planning system
Other negative aspects.
a) The planning system
The planning system was traditionally a central one in China and this lacked the drive for innovation and change. In some of the larger size Chinese corporations, the planning system is still centralized. The organizational hierarchies are vertical and decisions are taken exclusively at the top. The focus on research and development is limited, as are the funds allocated to this department.
The resources for research and development are also widely controlled by the large size entities as well as by the state, with the small size entities revealing a restricted access to these resources. In other words, innovation is stifled in China as the state owned enterprises which have resources are not motivated to innovate, whereas the smaller, private companies which are motivated to innovate do not possess the necessary resources (Organization for Economic Co-operation and Development, 2002).
b) The competition
Within China, as well as within any other global market, innovation is fostered by competition. In other words, when a respective industry is highly stimulated by both consumer demands as well as producer supplies, that industry is more likely to evolve than an industry which is only supplied by one producer.
In the specific case of China, the levels of market competition are fairly low. The economic agents operate to create items and have them exported, so most of the competition is moved in the international arena, rather than in China. This fact is explained by the still low levels of purchase power in the country, which generate a reduced domestic demand. Specifically, the Chinese population has the 125th largest income per capita in the world, with an annual income of $7,600 per individual. Within the United States for instance, the income per capita is of $47,200 and it is of $32,700 within the European Union (Central Intelligence Agency, 2011).
Aside from the nature of the buyers, the competitive field in China is also revealing other shortages which stifle innovation.
"In China, many market imperfections distort competition. On the one hand, administrative intervention interferes with the functioning of the market mechanisms; on the other, improper and illegal competitive behavior and local protectionism hamper competition. Market institutions are still underdeveloped and effectively inadequate to regulate market behavior in China. […] This market environment has discouraged Chinese enterprises from undertaking R&D and other efforts to improve their product qualities and technical standing" (Organization for Economic Co-operation and Development, 2002).
c) Other negative factors of innovation in China
Aside from the planning system and market competition, the Organization for Economic Co-operation and Development also identifies…