Business Enterprise and Innovation in Essay

Excerpt from Essay :

The "driving forces" that are fueling growth in the PHS industry are not unique, but they have been focused on an "innovation process [that] often leads to changes in market structure composed by varied players, and the appearance of novel services in the market" (Gao & Damsgaard 2007, p. 185). Not all industries have shared the positive experiences of the mobile telephone industry in China, though, and a number of obstacles and challenges remain firmly in place that tend to hamper innovative practices in China, and these issues are discussed further below.

Obstacles and Challenges to Innovative Practices

Obstacles and challenges to innovative practices can adversely affect an enterprise's two fundamental innovative activities, (a) product innovation and (b) process innovation (Lin & Lin 2010). Typically, higher product quality is related to higher production costs, while process innovation attempts to minimize such production costs (Lin & Lin 2010). In either case -- and given the enormity of the markets that are involved -- even small innovations can result in a huge savings and a solid competitive advantage for Chinese firms (Lin & Lin 2010). There are a number of factors that continue to hamper the innovative process in China, though. Currently, the Chinese government faces numerous general obstacles and challenges, including:

1. Reducing the country's inordinately excessive domestic savings rate which adversely affects domestic demand;

2. Sustaining adequate job growth for tens of millions of migrants and new entrants to the workforce;

3. Reducing corruption and other economic crimes;

4. Containing environmental damage and social strife related to the economy's rapid transformation; and,

5. Inflation remains a problem as well as the amount of debt incurred by local governments in their rush to jump on the economic development bandwagon in recent years (China 2011).

In this environment, it is reasonable to suggest that some types of industries will enjoy some advantage over others in terms of their ability to innovate and this has been the case in China in recent years. For example, according to Cliff, "The macroeconomic environment, competition, and factor markets provide mixed incentives for technological innovation in China. Some aspects of the macroeconomic environment stimulate technological development; while others inhibit it" (2001, p. 50).

The Chinese government's most recent emphasis on promoting the country's domestic market may in fact also end up backfiring on them despite the efforts of policymakers to maintain stability and continued economic growth. In this regard, Cliff also points out that, "The high economic growth rates China has been experiencing are a major stimulus, as they mean that the market for new or improved products is rapidly expanding. Growth rates have tended to fluctuate greatly, however, and uncertainty about the domestic economy may discourage innovation" (2001, p. 50). Likewise, Cliff (2001) cites the continuing problems with inflation that have defied government intervention that may discourage foreign long-term investment in technology-related initiatives.

Moreover, and although things have definitely changed for the better from just a few years ago (at least from the perspective of foreign investors), some degree of political instability has also discouraged technological innovation in China (Cliff 2001). According to Cliff (2001), foreign investors remain somewhat leery of the Chinese leadership's commitment to political stability as well as the long-term investments that are needed to bring new innovations to fruition and the global marketplace. In addition, an increasingly competitive marketplace also represents a challenge for the Chinese leadership with respect to the provision of incentives for technological innovation (Suttmeier 1997). Likewise, a number of industries in China already have significant incentives to export their products because this provides them with valuable access to foreign exchange and investments (Cliff 2001). Moreover, China's accession to the World Trade Organization in 2002 resulted in increased competition for the growing Chinese domestic market (Cliff 2001).

Based on their analysis of innovative practices by service and manufacturing firms in China, Lin and Lin (2010) report that the intensity of research and development (R&D) activities is positively related to innovation resulting in larger numbers of patent applications, but such intensity does not necessarily translate into higher numbers of valid patents. The analysis by Lin and Lin (2010) also showed that smaller manufacturing enterprises and larger service firms are more likely to actively pursue innovation compared to their larger and smaller counterparts, respectively (Lin & Lin 2010). The results of the Lin and Lin (2010) analysis also indicate that many Chinese firms' innovative activities are primarily hampered by economic and internal factors, and these are being recognized and addressed.


The research showed that China is well situated to build on its recent successes and many economists predict the country will become the leading global economy in the foreseeable future. Driving this economic growth has been a thoughtful (some would say overly cautious) approach to promoting economic development through innovative practices. Although China has much going for it in terms of a growing domestic market and a talented pool of younger professionals who will become the country's leadership in the years to come, the country is still constrained in its efforts to promote innovative practices as a result of several factors, including an export-dependent economy that is vulnerable to fluctuations in the global economy and massive local government debt that resulted from the rush to modernize its infrastructure.

Despite these obstacles, the research also showed that enterprises in China have taken the initiative to overcome such obstacles and even though innovative practices have proceeded in different ways from elsewhere in the world, innovation continues to drive the Chinese economy in several industries, including mobile telecommunications and other high-tech industries such as nanotechnology, life sciences, high-speed computing as well as fuel cell technologies. In the final analysis, scholars in the 22nd century will likely cite the first decade of the 21st century as the beginning of China's real economic development based on a free market philosophy where it is indeed "glorious to get rich."


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