Essay on "Business Enterprise and Innovation"

Essay 10 pages (2699 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

Business Enterprise and Innovation in China

The 21st century has been called "The Century of Asia" with China clearly leading the pack. One of the driving forces behind China's economic success to date has been the country's ability to respond to an increasingly globalized and competitive marketplace through innovation and hard work. Although a hard work ethic has been a formative ingredient in contributing to China's success to date, there have been some mixed results when it comes to developing and promoting technological innovations. On the one hand, China has succeeded brilliantly where many other countries have failed in transitioning from its former state-owned enterprise economy to a free market economy. On the other hand, though, the Chinese "old guard" continues to pursue economic developmental initiatives in ways that can stifle innovative developments. To identify the salient features of the business environment that are most likely to impact on China's innovation activities, which industries will likely be involved, and the major obstacles that remain in place, this paper provides a review of the relevant literature, followed by a summary of the research and important findings in the conclusion.

Review and Analysis

Background and Overview

While no one can predict when an innovative concept will strike, what is known is that innovative practices are essential to achieving a competitive advantage in an increasingly globalized marketplace (Lin & Lin 2010). Given its spectacular economic growth in recent years, many observers might believe China has placed a high value on innovation to help fuel its economic development, but this view is only partially correct. In this regard, for the past 4 decades, China in fact succeeded in transitioning itself from a closed, centrally planned economy to a free market system that is playing an increasingly important role in the global marketplace, with China becoming the world's largest exporter in 2010 (China 2011). The reforms that were implemented by the Chinese government to achieve this transition have been cited as being responsible in large part for the ability of Chinese firms to innovate where other countries have failed. For example, Gu (1999) reports that a number of features of the Chinese reform programs have facilitated innovative practices in Chinese industries in sharp contrast to the experiences of the former Soviet republics in Eastern and Central Europe.

This relentless economic growth, though, has not always been based on innovation but has rather been the result of ongoing oversight, and in some cases interference, with the private sector and even a reversion to some previous state-controlled policies (China 2011). For instance, according to U.S. government analysts, in some cases, the Chinese leadership has considered it in their best interests to nationalize certain industries as being essential to the country's economic security (China 2011).

Despite such minor political backsliding, China's performance over the past 30 years has truly been impressive. In this regard, U.S. analysts add that the series of reforms implemented by the Chinese government have had an impressive effect on GDP growth which has increased by more than 1000% since 1978 (China 2001). In fact, by 2010, China had become the second-largest economy in the world after the United States when measured on a purchasing power parity basis (China 2011). As a result of these gains, Chinese industrial and agricultural output surpasses the United States but per capita income remains lower than the world average (China 2011).

Recently, an increase in the Chinese domestic demand has also created an increased demand for imports which grew by 6.2% during the third quarter 2009; furthermore, new jobs have been created, primarily in the service, construction, and public sectors while employment in the export sectors has declined somewhat, a sign of the transition from a strictly export-oriented economy as well as the growing economic clout of the Chinese middle class (China quarterly update 2009). Nevertheless, China's exports continued to experience strong growth as well based in part on the increasing competitiveness of the country's manufacturing industry (China quarterly update 2009).

The Chinese government's most recent Five-Year Plan (March 2011) stresses the need to target the country's domestic markets in order to reduce reliance on exports but analysts expect only moderate success in achieving these ambitious goals by the end of the year (China 2011). In this regard, U.S. analysts predict that the Chinese economy is well situated to continue impressive growth in the coming years, and the Chinese government had pledged to continue its drive to increase domestic consumption to wean the economy off of its current export base.

China's gross national income (constant LCU) in trillions for the period 1991 through 2010 is shown in Figure 1 below.

Figure 1. Chinese Gross National Income (constant LCU) (in trillions)

Source: Based on tabular data at http://search.worldbank.org/all?qterm=chinaconstantprices

Innovative Industries in China

Currently, there are signs that the most innovative industries in China are those that have a proven track record of success to build upon, including the life sciences, nanotechnology, high-speed computing and communications as well as fuel cell technology, among others (Simon 2009). Indeed, the younger generation of Chinese professionals who is taking the mantle of leadership today will become the innovators of tomorrow based on their recognition and appreciation of industry best practices, wherever they may be found (Simon 2009). In this regard, Simon emphasizes that, "Members of this talent community, large numbers of whom will have spent time abroad for work and/or education, will represent the cutting edge of an emerging wave of Chinese technological entrepreneurs who will help to redefine the operating environment for knowledge creation and innovation in China by introducing successful Western practices" (2009, p. 30). This point is also made by Kriz and Keating (2009) who report the current cadre of Chinese students being educated aboard numbers more than 100,000 and these professionals will be well poised to bring newfound innovative practices, generate new patents and become meaningful and productive members of international communities of interest in the future.

The Chinese government has also used international joint ventures as a method to promote innovation through its industries (Cheung 2007). The experiences to date confirm that this approach has proven benefits for all of the stakeholders that are involved. According to Cheung, "In the context of development, multinational enterprises (MNEs) often bring specific advantages such as sophisticated technology, financial resources, manufacturing skills, managerial talents and entrepreneurship when the level of competition in the host country is intense" (p. 228).

In some cases, international joint ventures provide the general framework in which innovation can occur, while in other cases, there are specific contributions that MNEs can make to promote innovation, including the transfer of technologies, and MNEs are more likely to make such transfers when they have a vested interest in the enterprise (Cheung 2007). This approach has been used since 1978 when China's "open door policy" was promulgated in an effort to attract foreign investments and advanced technologies (Cheung 2007). Notwithstanding China's enormous pool of talent and other resources, the need for advanced foreign technologies to achieve innovation remained firmly in place throughout the closing years of the 20th century. In this regard, Zhang and Pearce (2010) emphasize that notwithstanding the enormous amounts of underutilized resources that were available to the country, China's current progress in innovation would not have been possible without advanced technologies from abroad.

One industry in particular appears to have benefited from these open-door policies and which reflect the type of innovation that is most suitable for the emerging Chinese business model. For instance, according to Gao and Damsgaard (2007), "China is the largest mobile telecommunications market in the world, which grows at one of the highest rates in the global scale" (p. 184). These authors, though, are also quick to point out that innovation in the mobile telecommunications market has taken place much differently in China that elsewhere in the world. For example, Gao and Damsgaard also note that, "Constrained by its unique social environment, China's mobile telecommunications market has innovated in a particular way" (2007, p. 185).

In support of the foregoing assertion, Gao and Damsgaard (2007) report that markets in other countries have transitioned from second generation (2.0) technologies to 2.5 generation (2.5G) to the third and fourth generations (3G and 4G); however, the Chinese government has postponed issuance of even 3G licenses while it waits for the country's domestic 3G technologies to catch up. This constraint on one avenue of innovation has resulted in yet another innovative approach being used by the Chinese in its stead. For example, Gao and Damsgaard note that, "Interestingly, we instead have seen the success of personal handyphone system (PHS), a cordless telephony technology generally treated as an extension of the fixed network. It is of practical interest to know the characteristics of mobile telecommunications market innovation in China and to disclose the driving forces to it" (Gao & Damsgaard 2007, p. 185). According to Harris and Dennis (2002), the PHS serves as a standard mobile telephone but also features facsimile and video transmission capabilities. In addition, the PHS is… READ MORE

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