The First “China (Shenzhen) Micro and Small-Sized Enterprise Development Forum”, co-sponsored by the Shenzhen Promotion Union of Micro and Small-Sized Enterprises and the Construction Management Center of Dalang Fashion Town under the auspices of the Shenzhen Committee of China Association for Promoting Democracy, was held in Shenzhen on December 6. Among the attendees were over 300 entrepreneurs from micro-, small and medium-sized businesses.
Prof. Yuan Yiming, Deputy Director of the China Center for Special Economic Zone Research (CCSEZR), delivered a keynote speech titled “Opportunities and Challenges: How Micro and Small-Sized Enterprises Could Survive Under New Circumstances”. Prof. Yuan held that micro and small-sized enterprises (MSE) are supposed to be highly valued and given more concern as they are the most effective and valuable market players that have attained the highest resource allocation efficiency and offered plenty of job opportunities that enable the communities to share the fruits of development over the past 200 years. They have made great contributions to the society by fostering the market competition system, injecting new impetus to the economy and promoting economic development and transformation. As MSEs are the cornerstone of economic growth, supporting the development of them should never be a stopgap measure enforced with perfunctory efforts but a fundamental strategy deserving all-out endeavor. Social organizations should play a part in protecting the interests of and proactively calling for a level playing field for MSEs. Besides, MSEs should aim high and look far with global visions and strategies while also staying focused. They should also have courage to break new ground and rise to the challenge, contributing their efforts to the social and economic development.
Prof. Yuan Yiming is delivering a speech at “1st China (Shenzhen) Micro and Small-Sized Enterprise Development Forum”
Appendix: Full Text of Prof. Yuan Yiming’s Speech:
Opportunities and Challenges: How Micro and Small-Sized Enterprises Could Survive Under New Circumstances
Prof. Yuan Yiming
This is a speech delivered by Prof. Yuan Yiming, Deputy Director and PhD Advisor of the CCSEZR, and Director of Shenzhen Hanlun Green Development Institute at the First China (Shenzhen) Micro and Small-Sized Enterprise Development Forum
Over the last 200 years, economists all agreed that MSEs are supposed to be highly valued and be given more concern as they are the most effective and valuable market players that have attained the highest resource allocation efficiency and offered plenty of job opportunities that enable the communities to share the fruits of development.
I. Existence Values of MSEs
The existence and development of MSEs play a vital role in and have great significance to economic growth, which are embodied in the following contributions: fostering the market competition system, injecting new impetus to the economy and promoting economic development and transformation.
(1) Fostering Market Competition System
An economic research shows that the underlying reason of why the market system is efficient in wealth distribution lies in its feature of competition, which is essential to the economic development ability. Furthermore, free enterprises in the market are the foundation of competition, which means that a sufficient number of independent enterprises are indispensable in order to make competition happen. If the proportion of large-scale enterprises in the total number of enterprises is too large, the society will crowd out the competitive mechanism and become inefficient in producing wealth. If the enterprises in the market are not enough due to an overwhelmingly dominant monopoly power or desperately inadequate resources endowment, the market competition will be much less effective, which will lead to low economic growth. This is often the case for some countries whose economy is still poorly developed despite a market-oriented economy system.
MSEs have played a key part in the development of Shenzhen, a pilot zone for China’s socialist market economy, over the past 40 years by contributing their efforts. It is the growth of “grassroots enterprises” that make for the economic miracle of Shenzhen. These enterprises have made tremendous contributions to shaping and fostering Shenzhen’s market competition system.
(2) Injecting New Impetus to Economy
MSEs have long been ignored by the society due to their small sizes. However, they have made significant contributions to tax revenues, employment and people’s livelihood step by step, which is unknown to the public. Since the subprime mortgage crisis of 2008, MSEs have developed rapidly thanks to their small sizes, flexibility in business operation and lower operating costs while large and medium-sized enterprises have suffered bottleneck to growth. MSEs have propped up China’s economy to grow at a high speed. MSEs, making up 90.2% of the total in China, have provided 60.8% of job opportunities and 52.3% of taxes that account for 60.1% of GDP, making outstanding contributions to the market economy.
(3) Promoting Economic Transformation
Industrial transformation may appear as the death knell for some enterprises, but at the same time heralds rebirth and renewal for others as it brings opportunities along. Micro-, small and medium-sized enterprises have an edge in their adaptability. As a Chinese saying goes, it is easy for a small boat to shift direction. Many small enterprises have grown stronger and bolstered economic growth by grasping the opportunity to transform. Although quite a few small enterprises have been shut down during this process, some economists pointed out the cruel fact that, “It is normal to see some old enterprises being closed down as only by this way could the new ones come into being and brought about new industries that could stimulate new driving forces for social development.” It is how innumerable MSEs have broken through obstacles during the transformation and struggled to find a path forward in the market that makes them the new emerging and major driving forces for social and economic development in different stages. This is clearly demonstrated in the case of Shenzhen as represented by the three outstanding enterprises, namely Huawei, Tencent and Ping An Insurance.
According to statistics, MSEs have contributed over 60% of patent application, 75% of enterprise technology innovation and 80% of new product development in China.
II. Difficulties Faced by MSEs
Despite its key role in economic growth, MSEs still face a challenging environment for development. These enterprises, due to their small sizes, are confronted with different kinds of problems that are not even worth mentioning for big enterprises. They are unable to enjoy many services on account of the low cost-effectiveness and high risks in the market-oriented economy where businesses tend to operate to maximize profits. Therefore, MSEs still face a challenging environment for development.
(1) A Common Constraint of MSEs: Financing Gap
Financing gap is a common constraint of MSEs both at home and abroad, which seems to be even more severe in developing economies: According to the World Bank's research report in 2017, it is estimated that the potential financing requirement of small, micro- and medium-sized enterprises in developing economies is USD 8.9 trillion while the credit supply is USD 3.7 trillion with a gap of USD 5.2 trillion, among which that of the East Asian and Pacific regions is USD 2.3 trillion, accounting for 52% of the world’s total financing gap.
The financing gaps of small, micro- and medium-sized enterprises in many countries make up more than 20% of their GDP, some countries like Brazil even reaching over 35%. As for enterprises whose development is bottlenecked by financing crunch, the number accounts for about 27% in upper-middle-income countries and 67% in low-income economies.
However, the situation is much better in Western economies! Based on an EU survey, the proportion of SMEs whose loan applications were rejected by banks in 2017 is shown as follows: 8.57% on average in 28 EU countries, among which Germany is 8.36%, France 7.31%, Italy 7.82%, the UK 4.27%, Finland 3.79%, Sweden 6.77%, Denmark 19.79% and Belgium 6.37%. In the EU survey from October 2017 to March 2018, “providing skilled labor forces” for the first time became the primary concern of SMEs in the euro zone, while getting financing was listed as the "least important matter”. According to a survey of Deutsche Bank in 2014, only 1% of enterprises were rejected in credit application, only 6% reported that they got fewer loans than needed, and about 2% of enterprises were frustrated with financing. Through comparison, it is apparent that why MSEs in developed countries develop so smoothly while those in developing countries are beset with difficulties!
Based on a sampling survey on China’s MSEs, the first problem needed to be solved is the “financing difficulties”. Many MSEs are not provided with timely help when facing serious difficulties and high costs of financing. Although quite a few policies introduced by the country have eased the financing conditions for some MSEs to a certain extent, most of them in desperate need still cannot solve the problem effectively due to the threshold and qualifications set by financing institutions for their commercial features.
(2) Problems Concerning Fairness, Openness and Discrimination in Accessing Government Resources
MSEs in China have encountered specific problems concerning fairness, openness and discrimination in accessing the government resources. According to a survey, the weights of the most important environment factors that entrepreneurs believed to influence their existence and development are shown as follows: government environment with efficiency and transparency (57.71%), development environment with fairness and equity (3.63%), economic environment with integrity and openness (19.35%), market environment with vitality (12.76%) and cultural environment suitable for living and working (6.55%). For entrepreneurs, government services and resources are the most important factors.
Although governments at all levels hold a large amount of supportive funds and have formulated many supportive policies, they tend to attach greater importance to big or existing enterprises and treat some enterprises with discrimination. That is to say, the governments are inclined to support those state-owned, leading, mature or large and innovative enterprises while neglecting small and micro-sized ones, those that are still growing or in traditional industries. According to the sampling survey of 158 supportive policies, 60 clauses are designed to support enterprises above designated size, top 100 enterprises, leading enterprises and hidden champions and 96 items remove the size barrier to qualification for supportive policies while only 2 policies are aimed at supporting MSEs.
According to a satisfaction survey for enterprises of different sizes on business environment, MSEs show the lowest level of satisfaction while large ones have the highest.
Concerning fairness, openness and discrimination in accessing government resources, MSEs are unfairly treated. Such problems, however, are less severe or even does not exist at all in developed economies.
Do MSEs need to be supported by the government? Many an MSEs are struggling with their business in current economic context, so it is of particular significant for governments to formulate relevant policies and lend support to them. The governments should not only treat them with fairness, openness and equity when implementing the supportive policies, but also pay more attention to their growth like the way parents care about their vulnerable children. Apart from being equal, these supportive policies must also be slightly skewed towards MSEs.
III. Several Proposals for Development of MSEs
To remain invincible in the complex economic environment, MSEs should not only merely bank on social concern and policy support, but also enhance their competitiveness and ability to survive by keep learning in the process as it is said in the Chinese proverb, “it takes good iron to make good products”.
(1) Set Ambitious Goals
MSEs should aim high with great ambitions, be highly concerned about the opportunities to grow and to take the lead in the market in order to become stronger. Supposing these enterprises set first-rate goals, they might obtain second-rate results. However, with third- or fourth- rate goals, they are more likely to get fourth-rate results or even worse. When talking about first-rate goals, we don’t intend to mislead MSEs into aiming too high; instead, we encourage owners of MSEs to set ambitious goals after fully knowing about their own strength.
(2) Stay Focused
It is known to all that Shenzhen is a relatively impetuous city. The innovation made by Shenzhen is different from that by Germany or Japan in many aspects. The former is disruptive while the latter is meticulous. However, both enterprises and cities should stay focused in one important aspect; otherwise, they will lose themselves and become uncompetitive on the way. Hidden champions always stay focused as this is the only way to become top-notch. For example, Uhlmann, the world market leader for pharmaceutical packaging systems, says, “We always had one customer and will only have one in the future: the pharmaceutical industry. We do one thing only, but we do it right.” This is the strategy of Uhlmann.
MSEs in Shenzhen are facing a big opportunity and challenge as well: the construction of Guangdong-Hong Kong-Macao Greater Bay Area (the Greater Bay Area). As regional cooperation brought by the future integration quickens its steps, MSEs will experience intensified competition that is beyond their expectation and imagination Therefore, they must stay focused in the face of this great opportunity and challenge.
(3) Establish Global Strategies
Although the pace of integration may slow down due to the complex international economic and trade environment, the global economic integration remains an irreversible trend. MSEs need to integrate itself into global economic integration and grow with the global economy from a strategic perspective of globalization and by taking the right pulse of market expansion and finding their own converging points. They should increase their market shares through globalization and align their focus on products with global sales and marketing moves. MSEs may focus on a narrow niche market, but they could expand businesses to broader areas. For example, Karcher, the world market leader in high-pressure cleaners, only had one subsidiary overseas, but now operates 100 subsidiaries around the world. MSEs should grasp the opportunity for growth as globalization is proven to be the major driving force of Germany's hidden champions.
(4) Dare to Innovate
MSEs are mainly driven by innovation, especially in Shenzhen. The prospect of these enterprises would be gloomy if they do not break new ground. However, does innovation have to be of high-tech caliber, such as biotechnology or other cutting-edge technologies? Not necessarily. Innovation involves two major aspects, namely the innovation of business models and that of technologies and process, either of which could help MSEs build up their core competitiveness.
Hidden champions around the world spend twice as much on R&D as the average companies. These MSEs put 7% of their earnings on R&D. In addition, they could get six times as many patents as big enterprises. One big enterprise could only get 6 patients per employee on average while a hidden champion could get 30.
Some hold that enterprises are not capable of innovating until they monopolize the market or become larger in size. However, the situation only accounts for a small fraction of innovation activities. MSEs should have and indeed have the strongest ability and biggest opportunity to innovate as they are eager for competition with great vitality and pressure to survive. MSEs in Shenzhen should make the most of their greatest ability, environment and opportunity to innovate as Shenzhen is a city with the most fierce competition and strongest innovation ability.
To sum up, as MSEs are the cornerstone of economic growth, supporting the development of them should never be a stopgap measure enforced with perfunctory efforts but a fundamental strategy deserving all-out endeavor. Social organizations should play a part in protecting the interests of and proactively calling for a level playing field for MSEs. Besides, these enterprises should aim high and look far with global visions and strategies while also staying focused. They should also have courage to break new ground and rise to the challenge, contributing their efforts to the social and economic development.
