The Chinese Innovative SMEs and Entrepreneurship in Global Context

1
The Chinese Innovative SMEs and
Entrepreneurship in Global Context

• Frank G. Liang
• Administration Center of Innovation Fund for
  Technology-based SMEs
• Ministry of Science and Technology of
  China

2
Whats wrong with Made in China?

• September 2004, a Chinese-owned shoe warehouse
  was burnt down in a small town of Spain, Elche.
  What can we do to avoid such kind of disasters?
• The ubiquitous Made in China label obscures
  an important point that few of these products are
  made by indigenous Chinese companies.

3
Can India overtake China?

• Some basic comparisons
• Population (2002) China  1.28 billion India
  1.05 billion
• Population Growth Rate percent (2002) China 
  0.87 India 1.51
• Infant Mortality per 1,000 live births (2002)
  China  27 India  61
• Average Annual Real GDP Growth Rate percent
  (1990-2000) China  9.6 India 5.5
• Foreign Direct Investment (2001) China 44.2
  billion India  3.4 billion
• Population in Poverty (2002) China 10 percent
  India  25 percent
• Labor Force (1999) China 706 million India 406
  million
• Fixed Lines and Mobile Phones per 1,000 people
  (2001) China  247.7 India 43.8
• Size of Diaspora China 55 million India 20
  million
• (Sources CIA World Factbook 2002 The
  Economist Pocket World in Figures World
  Development Indicators CD-ROM Financial Times)

4
(contd) Can India overtake China?

• Macroeconomic performance is outstanding while
  the microeconomic basis is weak
• China's export-led manufacturing boom is largely
  a creation of foreign direct investment (FDI),
  which effectively serves as a substitute for
  domestic entrepreneurship. No private world class
  companies to rival multinationals.
• Many of Indian firms are in the most
  cutting-edge, knowledge-based industries-software
  giants Infosys and Wipro and pharmaceutical and
  biotechnology powerhouses Ranbaxy and Dr. Reddy's
  Labs for example.
• Conclusion the development path of India is one
  built from the ground up and that of China is a
  top-down approach .

5
Whats the most important thing in the global
economy?

• In the global context, enterprises can outsource
  capital, goods, information and technology from
  around the world, often simply with click of a
  mouse.
• But the ability of technology and innovation can
  never be acquired easily. It is endogenous to an
  enterprise and it can be acquired only through
  practice such as developing new products and
  improving a producing process.

6
the Key Elements of Entrepreneurship

• creativity enabling entirely new ways of
  thinking and working identify opportunities
• ability to apply that creativity effectively
  marshal resources to a single end
• drive fervent belief in the ability, force of
  will and passion to achieve success
• focus on creating value do things better,
  faster, cheaper
• take risksbreaking rules, cutting across
  accepted boundaries, and going against the status
  in quo
• collaboration teamwork instead of single and
  heroic individual.

7
Innovative SMEs in China

• Number over 120,000, 92 are private owned 3
  of all the SMEs in China
• Contribution in Innovation 65 of the patents
  and 80 of the new products in China are created
  by the innovative SMEs
• Patterns Wenzhou Pattern characterized by
  numerous private small businesses built on
  personal strive and depending little on FDI
  South of Jiangsu Province Pattern characterized
  by the rural collective economy Pearl River
  Pattern which developed by being the manufacture
  base of Hongkong and Taiwans big companies.

8
South of Jiangsu Province
Wenzhou Pattern
Pearl river pattern
9
Some Cases of Hidden Champion

• The Common Attributes goal-achieving and
  remaining the leading position in the world
  market
• Case 1 the Biyadi battery Co. Ltd 72 of the
  world market of mobile phone batteries
• Case 2 Jiangsu Chia-tai Tianqing Pharmaceutical
  Co. Ltd 10 of the Chinese are liver virus
  carriers, 30 of the carriers are chronic
  patients. This company are the biggest liver
  health drug supplier for foreign imported drugs
  substitute in China.

10
The Life Cycle of an Innovative SME
income
11
the Definition of a Business Angel

• Kelly and Gray (1996)
• a middle aged man with business experience
  and considerable fortune who invests in a
  high-tech or manufacturing program and would like
  to sell it in 3 or 5 years
• The general qualities of a business angel
• Amateur private investors with professional
  experience, most of whom are above 35 years old
  and male
• Prefer to invest into a technological starting-up
  of about 250,000 to 2,500,000 USD
• Have successfully operated an enterprise and good
  channel of marketing and technology willing to
  invest himself to the starting-up together with
  his capital
• Always invest near home and eager for
  achievements

12
The Innovation Fund for Technology-based SMEs in
China (Innofund) background

• Capital Scarcity Still a Major Constraint
• Bank loan difficult due to scale and lack of
  guaranties
• Commercial capitals risk-evasive (not for
  innovation)
• Fund raising from capital market more difficult
• Government funding mainly to research institutes
• Generally adopted measures taken by the developed
  countries
• ANVAR in France
• SBIR/SBIC in USA

13
Innofund an Overview

• Applicant Qualifications
• Independent business entity
• Involving in high-tech RD, production/services
• RD investment/sales gt 5
• Technological personnel/total employees gt 30
• Various ownership(Chinese equity 50 up)
• Less than 500 employees
• Major Statistics (1999-2004)
• Application received 25,419
• Projects Approved 6,400
• Total Funding Budget 3.8bn RMB (380 M Euro)
• Average funding 600,000 RMB (60,000 Euro)

14
Innofund an Overview
15
Innofund an Overview
16
Innofund Achievements

• Innovation Promoted
• Among the 4946 projects funded 1999-2003
• 17 projects holds IPR including
• 1950 patents (34 of which inventions)
• 877 software projects with fully-owned IPR
• 69 National Class I new drugs
• Competitive SMEs Fostered
• 14 out of the 38 companies listed on SME Board
  had been funded by Innofund
• Innoufnd funded companies accounted for 50 of
  the first 8 IPOs on the board

17
Innofund Achievements

• Fund-raising Channels Broadened for Tech-based
  SMEs
• Investment attracted from
• local governments
• Loans from commercial banks and
• Other capitals
• Innofund funding expanded by 17 times
• Employment Contribution
• 106, 000 new jobs created by 1690 projects (1.45
  times)
• Average 63 new jobs by one project
• 30 enterprises by holders of master or higher
  degrees

18
Thank you!