Towards the Innovation of High-tech Small-medium Enterprises

(SMEs): The Interview Approach

Wei Xue

, Victor Chang

, Yijie Chen

and Qianwen Xu

Zhonghui Accountancy, Suzhou, China

School of Computing, Engineering and Digital Technologies, Teesside University, Middlesbrough, U.K.

International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, China

Independent Researcher, Suzhou, China

Keywords: Innovation, Small and Medium-sized Enterprises.

Abstract: With the intensive global market competition, the Chinese central government is paying more attention to the

innovation of SMEs, especially for high-tech SMEs. This paper conducts the interview approach to investigate

the status of innovation and its importance to SMEs in Suzhou. R&D development requires innovation as a

key element. Findings from interviewees are positive towards innovation. Innovation has been used

throughout the SMEs – from strategies, marketing, products to services. This implementation makes SMEs

in Suzhou more competitive than most other cities of China by offering positive thinking and dynamic inputs

to produce more creative products and services. However, problems have been identified. Although SMEs

are the main body of technological innovation, but it is difficult for them to survive. We plan to propose a

framework that contains all factors influencing R&D and carefully set hypotheses. With our mixed-method

approach in our future work, we present more results and analysis based on our findings.

1 INTRODUCTION

Since China opened up its market, Chinese economic

development has been depended on the introduction

of foreign advanced technology and investment. But

the attractiveness of China to foreign investment has

declined with the increase of the labor cost. Now

China's economic development model is facing a real

transformation under a more intense global

competitive situation. China's future economic

development inner driver would come from the

development of domestic enterprises. Of all these

domestic enterprises, small and medium-sized

enterprises (SMEs) are the pillar of the national

economy.

However, in the long run, Chinese SMEs have

been located at the bottom level of the industry chain.

They are characterized by low-quality products, low

price, or technical plagiarism. If Chinese enterprises

cannot move from the current simple processing, low

technology content product manufacturing to the high

value-added product with independent intellectual

property rights, the development will be difficult to

https://orcid.org/0000-0002-8012-5852

sustain. Chinese enterprises want to survive and

develop in international competition only through

independent innovation, developing products and

production technology with independent intellectual

property rights and independent brands. Therefore, in

recent years, research on the innovation of enterprises

has been the focus of attention in the field of

economics.

Tan et al. (2015) indicated that China had become the

global largest market and manufacturing factory, and

Chinese innovation capabilities have been largely

advanced as it experienced 30 years' reform and

opened up to the world. China has learned and

enhanced much in the innovation awareness through

the cooperation with foreign companies and partners

(Chung, Leanne, 2014).

2 MANUSCRIPT PREPARATION

Some of the Chinese industries have made significant

progress in the high technology product development

and the business model innovation. McKinsey (2016)

Xue, W., Chang, V., Chen, Y. and Xu, Q.

Towards the Innovation of High-tech Small-medium Enterprises (SMEs): The Interview Approach.

DOI: 10.5220/0009489601290135

In Proceedings of the 2nd International Conference on Finance, Economics, Management and IT Business (FEMIB 2020), pages 129-135

ISBN: 978-989-758-422-0

129

researched that China performed well in efficiency-

driven and market-focused business innovations, like

new energy, E-commerce, high-speed train and

mobile phones, etc. through this research and survey,

they suggested that the Chinese companies had very

powerful potentially innovation capabilities.

Especially, SMEs are the main body of technological

innovation and the most active group of technological

innovation. SMEs are the main carriers of the

transformation of scientific and technological

achievements, and they are playing an increasingly

important role in promoting the progress of science

and technology, industrial upgrading and economic

growth. According to the disclosure of the central

government (2018), now more than 70% of

technology innovation of China came from SMEs. Xu

(2006) analyzed that SMEs have taken more than

65% patents, 74% technological innovation and 80%

new product development. However, it is difficult for

SMEs to survive for lots of reasons, such as

insufficient financial resources, weak ability to bear

risk, poor attractiveness to talents, etc. According to

the Chinese statistics yearbook (2016), the survival

rate of SMEs only arrives at 10% in the recent ten

years. Therefore, although SMEs account for most of

the technological innovation of China, but their

ability or willingness to innovate constantly is not

high comparatively. From a long-term perspective,

the situation is harmful to the development of China's

economy. Then, it is important to understand the

status of innovation to SMEs and identify the

influencing factors to their ability of continuous

innovation.

Small and medium enterprises would have more

innovation driving motivation because they are

mostly obtaining the profit from the market and the

grants from the government (Cohen and Levinthal,

1990; Romer, 1990; and Van Dijk et al. 1997). But

actually, the innovation willingness from small and

medium enterprises is not very high, because the

long-term technical foundation of small and medium-

sized private enterprises is so weak that there is

insufficient innovation accumulation. Hence, they

generally adopt a low-tech and low-cost development

strategy. Innovation often requires a large amount of

capital, and at the same time, there are larger technical

and market risks. Small and medium-sized

enterprises’ scale is very small, with insufficient

financial resources and weak ability to bear risks.

Moreover, they are always facing a difficult financing

status and a shortage of innovative funds. Some small

and medium-sized enterprises have gradually realized

the importance of technological innovation to the

continuous development of enterprises. Therefore,

they try to implement various innovation activities.

However, patent and other intellectual property rights

are not protected enough, the enforcement of the law

is weak, and the achievements of enterprise

innovation are often harmed by other enterprises in

the same industry without penalizing. So the initiative

of innovation is breaking down.

Radas and Bozic (2009) indicated that SMEs

would confront much more challenges if they want to

initiate innovation and develop innovation

capabilities because SMEs do not have sufficient

capital contribution and technological accumulations.

Then, how to enhance the innovation capabilities has

become the first task for the SME founders or owners

and the government.

But so far, most past literature research mainly

concentrated on public companies and stated-own

companies because it is much easier to obtain

secondary information from the public disclosure.

Some literature has investigated the product

innovation or R&D research (Zhu et al., 2012).

Innovation should be usually considered as the

thought or approach to do something new or different

(Garcia & Calantone, 2002). Baregheh et al. (2009)

indicated that innovation includes multiple stages in

which organizations turn ideas into new or improved

products, services, or processes in order to advance

compete and differentiate themselves in their market

place. The types of innovations Baregheh studied

belongs to product or service and process innovation.

Kahn (2018) defined product or service innovation as

the outcome of the work and process innovation as

the change of the process. However, according to

Azar and Ciabuschi (2017), it is important to consider

not only product or service, and process innovations,

but also organizational and marketing innovation.

Organizational innovation is introducing an up-to-

date method in the enterprise’s business operation,

management, or relations. By conducting

organizational innovation, expenditure on the

administration and transaction may be reduced and

employee satisfaction may be improved

(Rajapathirana and Hui, 2018). Marketing innovation

is the implementation of new methods in product

design, pricing, promotion, or advertising placement

(OECD, 2005). In this paper, the scope of innovation

is not limited to technological and includes

organizational and marketing innovation.

There are some generally accepted main factors

would influence the innovation of enterprises, such as

the industry, the scale, the R&D investment amount,

the government incentives, the history of the

enterprises, the strategy an position of the product, the

leader or founder of the enterprises, the competition,

FEMIB 2020 - 2nd International Conference on Finance, Economics, Management and IT Business

130

and the economy of the country. But for High-Tech

SMEs in China, Deng (2019) and Shan, Sun (2018)

suggested that the government policies are primary

incentives to push forward the innovation capability

of the enterprises. In Deng’s research (2019), she

found that the main support policies for technology-

based SMEs mainly include tax reductions, financial

subsidies, and talent introduction policies. However,

from her survey, the most obvious benefit for

technology-based SMEs is just tax reduction policies.

In 2017, the Ministry of Finance, the State

Administration of Taxation, and the Ministry of

Science and Technology specifically issued support

policies for the deduction of R & D expenses for

technology-based SMEs, including the evaluation

criteria for technology-based SMEs. Shan and Sun

(2018) studied tax policies much deeper. While they

affirmed this policy, they identified some questions

as well. First of all, since another policy on increasing

the pre-tax deduction ratio of research and

development expenses in 2018, all types of

enterprises that meet the required R & D expenses are

subject to a 75% deduction. Therefore, the tax

deduction policy in 2017 for technology-based SMEs

is not an advantage anymore. Secondly, the restriction

of science and technology has raised the threshold for

SMEs to enjoy the tax policy. Some SMEs engaged

in R & D activities but not meet the evaluation criteria

are prevented from enjoying this special policy

support. Furthermore, the tax deduction policy has

limited support for loss-making technology SMEs.

The loss-making technology SMEs are mostly in the

initial stage. They face greater risks of R & D failure

and investment failure. The demand for various

special policies is particularly strong and the tax

deduction policy cannot solve their problem

promptly.

3 METHOD

The research would select the SMEs around Suzhou

City, and the research would adopt the “Grounded

theory”. The “Grounded theory” was first introduced

by Barney Glaser and Anselm Strauss in 1965, the

principle of the grounded theory is to deduce a

conclusion from the interview or the data, so it is also

called that how to discover the nature and conclusion

from the data. This research method is more useful to

appraise the comparative importance of different

factors influencing the innovation.

The research would be performed in the case

study focusing on the discussion with the talent from

the SMEs located in Suzhou cities, which has a

national high-tech industrial base as well as one of the

important central cities in the Yangtze River Delta.

Among all the cities in the Jiang Su province,

Suzhou's comprehensive strength of scientific and

technological innovation has ranked among the top

for ten consecutive years. According to the Suzhou

government, its total social R & D investment

accounts for 2.78% of GDP, the contribution rate of

scientific and technological progress reaches 64.5%

and the output value of high-tech industries accounted

for 47.7% of the total output value of industries

(Suzhou Statistics Bureau, 2019). At present, society

and economy are constantly changing, and the

emergence of high-tech industries has become an

important technology to promote economic growth in

the century. He (2016) explained three main ways on

how high-tech industries promote the development of

the economy. First of all, high-tech industries have

higher added value, faster update speeds, higher

investment returns, and lower investment risks

compared with other economic sectors, leading to a

large advantage. Secondly, high-tech industries

improve the labor productivity of employees

effectively as well. Finally, the emergence of high-

tech industries changed the traditional technology and

promoted the development of enterprises. Therefore,

increasing efforts to develop high-tech industries in

Suzhou has played an important role in economic

growth.

The research would adopt a one to one interview

approach. The research is based on collecting

evidence and keywords around the core question

concerning innovation. This research employs the

interview approach for two reasons. On the one hand,

the government statistics might mislead the research

result because many innovation activities in SMEs are

ignored by their survey. The majority of the SMEs do

not have a formal or fixed R&D or innovation

department internally (Kleinknecht, 1987).

Therefore, the data the government collected may not

be complete. However, in this research, which

focuses on the city level instead of a province or a

country level, conducting the interview approach is

easier for us to identify the relative importance of

different factors to the innovation of SMEs. On the

other hand, the interview approach allows the

interviewee to express themselves in a more freedom

way. Compared with questionnaires or statistics, the

information collected from the interviews provides

the primary information for research, which is more

direct and convincing. The research sample includes

50 employees from 10 SMEs and ten government

officers. The names of the sample enterprises are

anonymized and their basic information is presented

Towards the Innovation of High-tech Small-medium Enterprises (SMEs): The Interview Approach

131

in Table 1. They have covered several industries,

including the Internet, manufacturing, pharmacy,

trading, etc. and the years of establishment range

from 6 to 25 years.

Table 1: The basic information of sample enterprises.

These 50 employees from the enterprises would

include the owner or the founder, the CEO, or the

general manager, the technology or operation middle

level management, as well as high-level employees.

The SMEs participants’ demographics are shown in

Table 2. Among these participants, expect the five

employees whose average working experience is four

years, other roles' average working experience are all

greater than seven years. Besides, most of the

participants take part in the innovation activities

directly, which makes them suitable to be the

interviewees when studying innovations of high-tech

SMEs.

Table 2: The participants’ demographics from enterprises.

The interviewees would reply to the questions

under the guidance of each theme questions, which

allow them to express themselves and show the key

points in their thoughts. The interviews were recorded

during the process. Two processes were used for

coding. First, there was an intensive listening and re-

listening to the interviews to take notes of the

keywords. Then there was much more careful coding

for themes and sub-themes. Some of these themes

came from the past literature and some were

developed out of the case.

4 RESEARCH FINDINGS

When the interview was completed and the interview

contents are recorded, the research adopted the

approaches suggested by Hou et al. (2014). This

research concluded two constructs from the interview

participants’ disclosure that are “Innovation

cooperation” and “innovation orientation”. Also, a

new concept, “IP transaction platform," was found

during the interview.

Summary of selected interviews is presented in

Table 3. In the past literature, very little attention has

been paid to the Innovation cooperation, except the

research performed by De Marchi (2012) is the first

one that indicated the influence of cooperation on the

R&D. Giovannetti and Piga (2017) performed

empirical research and indicated that active

cooperation played an active impact on the innovation

of enterprises. We did obtain the same response from

the interview and discussion with the participants.

Table 3: Summary of selected interviews.

The summary from the interview outcome is as

follows. First, innovation is critical to some sectors

such as the pharmaceutical and high-tech industry,

since they need to implement new concepts and ideas

into product development. They also spend a

significant amount of funds for research and

development. Second, innovation can drive the way

that Suzhou Industry Parks can function. Aiming to

be competitive in mainland China, innovation has

been used throughout the SMEs – from strategies to

concepts, from implementations to marketing and

from products to services. Third, innovation means it

FEMIB 2020 - 2nd International Conference on Finance, Economics, Management and IT Business

132

has influenced the way each business entity works,

such as allowing the remote working, portfolio-based

outputs and team dynamics. It has changed the

businesses to think and act positively, and respond to

the markets and customers as soon as possible, and

embrace challenges. As a result, innovation has

offered positive thinking and dynamic inputs for each

individual and organization to produce more creative

products and services, and to think ahead of the

market response and customer demands (Zhou et al.,

2005). For example, private car sharing, smart

manufacturing, smart toys and smart caring can be

successful and sustainable business models in Suzhou,

while other parts of China are still in exploring stages.

These interview outcomes can offer valuable

knowledge which are not yet in the current literature.

5 DISCUSSION

For a significant period of time, studies on innovation

activities have been focused on technology and R&D

innovation, which was considered as the main factor

in improving the performance and growth of the

enterprises (Fagerberg, 1994). Some scholars and

researches have indicated that innovation in modern

industries and businesses should be much broader

than the traditional high technology and R&D

activities (Marsili & Salter, 2006; Schmidt and

Rammer, 2007). The research findings agree with

them and found that in high-tech SMEs in Suzhou,

innovation is not limited to product or service

innovation and process innovation anymore. The

concept of innovation can also be implemented in the

organization or marketing.

The framework that contains the factors influencing

the innovation of high-tech SMEs can be constructed

from the interviews and it is shown in Table 4.

The influencing factors can be categorized into

external factors and internal factors. External factors

include the government, market and third parties.

Internal factors consist of innovation capabilities and

entrepreneurship.

Firstly, the relevant government policies, such as

government subsidy, tax incentives, have positive

impacts on the innovation of high-tech SMEs.

However, the results of interviews indicate that

financial support form the government cannot

fundamentally solve the financing problem for SMEs

without a good financial environment. In addition,

high-tech SMEs require highly relevant laws and

protections from the government to protect their

innovation achievements.

Table 4: The framework of influencing factors.

The influencing factors can be categorized into

external factors and internal factors. External factors

include the government, market and third parties.

Internal factors consist of innovation capabilities and

entrepreneurship.

Firstly, the relevant government policies, such as

government subsidy, tax incentives, have positive

impacts on the innovation of high-tech SMEs.

However, the results of interviews indicate that

financial support form the government cannot

fundamentally solve the financing problem for SMEs

without a good financial environment. In addition,

high-tech SMEs require highly relevant laws and

protections from the government to protect their

innovation achievements.

Secondly, SMEs with good marketing capability can

grasp technical market requirements or expectations

faster; then, they can update their product or service

quickly and lead to a positive impact on market

performance. In addition, market competition and

industry development cause high-tech SMEs to

produce a sense of crisis and urgency, thus make

pressure into motive force.

Thirdly, innovation cooperation with the third party

has a positive influence on the innovation of high-

tech SMEs. The results indicate that innovation

searches may be difficult for SMEs as most of them

do not have much external contact and the cost and

time spent on the search may be too high for them.

Service intermediaries can help SMEs to achieve a

balance between cost and benefit of innovation search

as they interact with numerous enterprises and they

have become a warehouse with knowledge and

Towards the Innovation of High-tech Small-medium Enterprises (SMEs): The Interview Approach

133

opportunity. With help from these third parties, the

innovation of high-tech SMEs will be promoted.

Fourthly, innovation capability is the guarantee of the

technological innovation drive of SMEs and the

innovation capability comes from the talents.

However, according to the interviews, it is difficult

for high-tech SMEs to attract high-level talents

because most of them cannot afford the increasing

employment cost.

Finally, entrepreneurship impacts the innovation of

high-tech SMEs positively. With proactiveness,

innovation-oriented leadership and strong risk-

bearing ability, a high-tech SME is more willing to

innovate continuously.

6 CONCLUSIONS

The paper presents the status of innovation and its

importance to SMEs in Suzhou while adopting a

qualitative approach. R&D development requires

innovation as a key element. Factors that can

influence the success and delivery of R&D can

largely impact the effectiveness of products and

services in Suzhou. This can also affect its GDP

contributions in Suzhou, since it is heavily dependent

on revenue from high-tech and R&D firms in Suzhou

Industrial Park, Suzhou, China. Findings from

interviewees are positive towards innovation.

However, problems have been identified. This paper

provides guidance for the high-tech SMEs on how to

develop and maintain their innovation willingness

and capability. In addition, this paper provides

references for the local government on how to adopt

appropriate approaches to encourage SMEs forward

to innovation. We plan to propose a framework that

contains all factors influencing R&D and carefully set

hypotheses. With our mixed-method approach in our

future work, we present more results and analysis

based on our findings.

REFERENCES

Azar, G., & Ciabuschi, F. (2017). Organizational

innovation, technological innovation, and export

performance: The effects of innovation radicalness

and extensiveness. International Business Review,

26(2), 324-336.

Baregheh, A., Rowley, J., Sambrook, S. (2009). Towards a

multidisciplinary definition of innovation.

Management Decision, 47, 1323-1339

B. Van Dijk, R. Den Hertog, B. Menkveld, D. Thurik

(1997). Some new evidence on the determinants large

and small firm determinants. Small Business

Economics, 9 (4), 335-343

Chinese statistics year book (2016). National Bureau of

Statistics of China.

In:http://www.stats.gov.cn/tjsj/ndsj/2011/indexeh.htm

accessed on 1 February 2020.

Chung, L. (2014). Headquarters' managerial intentionality

and reverse transfer of practices, Manag. Int. Rev., 54

(2), 225-252

Deng, Y.G. (2019). Research on the Improvement of

Independent Innovation Ability of Technology based

SMEs—Taking the power industry of Zhuzhou as an

example. Science Technology and Industry, 19(6), 84-

Fagerberg, J. (1994). Technology and international

differences in growth rates. Journal of Economic

Literature, 32(3), 1147-1175.

Garcia, R., & Calantone, R. (2002). A critical look at

technological innovation typology and innovativeness

terminology: a literature review. Journal of Product

Innovation Management: An international publication

of the product development & management

association, 19(2), 110-132.

Giovannetti, E., & Piga, C. A. (2017). The contrasting

effects of active and passive cooperation on innovation

and productivity: Evidence from British local

innovation networks. International Journal of

Production Economics, 187, 102-112.

He JM (2016). The contribution and role of China's high-

tech industry to economic growth. China Economy

and Trade, (13), 45-45.

Kahn, K. B. (2018). Understanding innovation. Business

Horizons, 61(3), 453-460.

Kleinknecht, A. (1987). Measuring R&D in small firms:

How much are we missing? The Journal of Industrial

Economics, 36(2):253-256.

Kuo, Y.K., Kuo, T.H., Ho, LA (2014). Enabling innovative

ability: Knowledge sharing as a mediator. Industrial

Management & Data Systems, 114 (5), 696-710.

Marsili, O., & Salter, A. (2006). The dark matter of

innovation: design and innovative performance in

Dutch manufacturing. Technology analysis &

strategic management, 18(5), 515-534.

Mckinsey Global Institute (2016). The China Effect on

Global Innovation, October. McKinsey &

Company.In http://www.mckinseychina.com/wp-

content/uploads/2015/07/mckinsey-china-effect-on-

global-innovation-2015.pdf?bd0bde〉on 15 Jan 2016.

OECD. (2005). The Measurement of Scientific and

Technological Activities Oslo Manual. Guidelines for

Collecting and Interpreting Innovation Data. In (3rd

ed.). Paris: OECD EUROTAT.

Romer, P.M. (1990). Endogenous technological change.

Journal of Political Economy

, 78, 71-102

Radas, L. Bozic (2009). The antecedents of SME

innovativeness in an emerging transition economy,

Technovation, 29, 438-450

Rajapathirana, R. J., & Hui, Y. (2018). Relationship

between innovation capability, innovation type, and

FEMIB 2020 - 2nd International Conference on Finance, Economics, Management and IT Business

134

firm performance. Journal of Innovation &

Knowledge, 3(1), 44-55.

Schmidt, T., & Rammer, C. (2007). Non-technological and

technological innovation: strange bedfellows?. ZEW-

Centre for European Economic Research Discussion

Paper, (07-052).

Shan, W.L., Sun, HZ (2018). Problems and

countermeasures of R&D expenses additional

deduction policy for small and medium sized scientific

and technological enterprises. Journal of Hebei

University of Engineering (Social Science Edition),

35(4), 12-14

Suzhou Statistics Bureau (2019). Statistical Communiqué

on Suzhou National Economic and Social

Development 2018, Available at

http://www.zfxxgk.suzhou.gov.cn/sjjg/szstjj/201905/t

20190515_1165289.html (Accessed: 27 Jan 2020)

Tan, K. H., Zhan, Y., Ji, G., Ye, F., & Chang, C. (2015).

Harvesting big data to enhance supply chain

innovation capabilities: An analytic infrastructure

based on deduction graph. International Journal of

Production Economics, 165, 223-233.

De Marchi, V. (2012). Environmental innovation and R &

D cooperation: empirical evidence from Spanish

manufacturing firms. Research Policies, 41 (3), 614-

623

Cohen, W.M., Levinthal, DA (1990). Absorptive capacity:

A new perspective on learning and innovation.

Administrative Science Quarterly, 35, 126-138

Xu, G.H. (2006). Several significant issues related to

independent innovation. Journal of Chinese Soft

Science, Vol (10), 1-10

Zhu, Y., Wittmann, X., Peng, M.W. (2012). Institution-

based barriers to innovation in SMEs in China. Asia

Pac. J. Manag., 29 (4), 1131-1142

Zhou, K. Z., Yim, C. K., & Tse, D. K. (2005). The effects

of strategic orientations on technology-and market-

based breakthrough innovations. Journal of Marketing,

69(2), 42-60.

Towards the Innovation of High-tech Small-medium Enterprises (SMEs): The Interview Approach

135