Developing Innovation Strategy for Small and Medium-sized Enterprises in China

For Small and medium-sized Enterprises, economic globalization has created new competitors, especially in low labor cost countries, but also greater incentives and opportunities to access the various markets and knowledge sources needed to build lasting competitive advantage through continuous innovation. Small and medium-sized Enterprises are a heterogeneous population of firms whose contributions to the innovation system are wide ranging and include not only R&D based new products and services, but also improved designs and processes and the adoption of new technologies. This paper first identifies the challenges and opportunities that globalization raises for Small and medium-sized Enterprises as they are faced with pressures to reduce production costs, increase productivity, and become more knowledge intensive. It then discusses what is known about how different types of Small and medium-sized Enterprises innovate, and identifies the principle strategies Small and medium-sized Enterprises can pursue to enhance their competitiveness in global markets. Finally the paper draws the implications for government policies.