Innovation in Chinese and German small and medium-sized companies

Master's Thesis, 2018

78 Pages, Grade: 2,0










1. Introduction
1.1 Research background
1.2 Problems

2. Innovation orientation of companies
2.1 Definition of Innovation
2.2 The Importance of innovation in companies

3. Methodology

4. SMEs in China
4.1 Definition of small and medium-sized enterprises in China
4.2 Importance of small and medium-sized enterprises for China
4.3 History
4.4 Current status of China’s SMEs
4.5 Problems China’s SMEs are facing

5. Innovation in SMEs
5.1 In China
5.1.1 Characteristics of Innovation in China’s SMEs
5.1.2 Challenges of Innovation that China’s SMEs are facing
5.1.3 Opportunities of Innovation that China’s SMEs are facing
5.2 In Germany

6. Future Research

7. Summary

8. Literature


With the rapid economic development in the past two decades, China has become the world second largest economy and has a profound influence on global economic development. In order to have a better understanding of the Chinese “economic miracle” and a future-oriented insight into Chinese economic growth, it is necessary for us to have a glance at the development of Chinese small and medium-sized companies (SMEs) and the driving force of their development: Innovation.

Many scholars in China and Germany have carried out research on SME innovation. However, because of the differences in culture, economic environment, and SME development history etc., the development of SME innovation is also different, leading to dissimilar research directions.

In this thesis, the author analyzes the articles, reports, surveys, books and other literature that was made in China in the past 20 years. All the literature and data are synthesized into three parts: the characteristics of China's SME innovation, the challenge of China's SME innovation and the opportunities of China's SME innovation. Based on literature analysis, the author summarizes the characteristics, challenges and opportunities into different points. This thesis also presents the most representative German research on SME innovation as a comparison to Chinese ones, and describes the similarities and differences between Chinese and German SMEs' innovation research, helping to find out the new direction of future research on SME innovation in China.


Mit der rasanten wirtschaftlichen Entwicklung in den letzten zwei Jahrzehnten ist China zur zweitgrößten Volkswirtschaft der Welt aufgestiegen und hat einen tiefgreifenden Einfluss auf die globale wirtschaftliche Entwicklung. Um das chinesische "Wirtschaftswunder" und einen zukunftsorientierten Einblick in das chinesische Wirtschaftswachstum besser zu verstehen, müssen wir einen Blick auf die Entwicklung chinesischer Mittelständler (KMU) und der treibenden Kraft ihrer Entwicklung werfen: Innovation.

Viele Gelehrte in China und Deutschland haben Forschungen zu KMU-Innovationen durchgeführt. Aufgrund der Unterschiede in der Kultur, dem wirtschaftlichen Umfeld und der Entwicklungsgeschichte von KMU variiert die Entwicklung von KMU-Innovationen jedoch stark, was zu unterschiedlichen Forschungsrichtungen und Ergebnissen führt.

In dieser Arbeit analysiert der Autor die Artikel, Berichte, Umfragen, Bücher und andere Literaturen, die in China in den letzten 20 Jahren entstanden sind. Die gesamte Literatur und Daten sind in drei Teile zusammengefasst: die Merkmale der chinesischen KMU-Innovation, die Herausforderung der KMU-Innovation in China und die Möglichkeiten der chinesischen KMU-Innovation. Basierend auf Literaturanalysen fasst der Autor die Charakteristika, Herausforderungen und Möglichkeiten zu verschiedenen Punkten zusammen. Diese Arbeit stellt auch die repräsentativste deutsche Forschung zu den KMU-Innovationen als Vergleich zur chinesischen vor und beschreibt die Ähnlichkeiten und Unterschiede zwischen der chinesischen und deutschen KMU-Innovationsforschung und hilft dabei, die neue Richtung der zukünftigen Forschung zur KMU-Innovation in China aufzuzeigen.


Hiermit versichere ich, dass ich die vorliegende Arbeit ohne Hilfe Dritter und ohne Zuhilfenahme anderer als der angegebenen Quellen und Hilfsmittel angefertigt habe. Die den benutzten Quellen wörtlich oder inhaltlich entnommenen Stellen sind als solche kenntlich gemacht.

Die „Richtlinie zur Sicherung guter wissenschaftlicher Praxis für Studierende an der Universität Potsdam (Plagiatsrichtlinie) - Vom 20. Oktober 2010“, im Internet unter, hab e ich zur Kenntnis genommen.

____________________________ ____________________________

Ort, Datum Unterschrift


Figure 1. SME classifications by status of registration

Figure 2. Business areas of Chinese SMEs

Figure 3. Geographical distribution of Chinese SMEs

Figure4. Number of employees

Figure5. Difficulties Chinese SMEs are facing

Figure6. The constant growth of the number of online shoppers in China, 2011-

Figure7. The percentage of enterprises engaged in online sales in China, 2011-

Figure8. Number of companies listed on the New Third Board

Figure9. Equity scale distribution of Three New Board listed companies


Table 1. Standards of small- and medium-sized enterprises in China

Table 2. Standards of small- and medium-sized enterprises in EU

Table 3. Studies on China’s SME innovation

Table 4. Comparison of new product output value of large, medium and small enterprises in Zhejiang Province in

Table 5. Use of intellectual property rights by large, medium and small enterprises (2004-2006)

Table 6. The status quo of innovation costs for large, medium and small enterprises (2006)


Abbildung in dieser Leseprobe nicht enthalten


1.1 Research background

With the rapid economic development in the past two decades, China has become the world second largest economy and has a profound influence on global economic development. In order to have a better understanding of the Chinese “economic miracle” and a future-oriented insight into Chinese economic growth, it is necessary for us to have a glance at the development of Chinese small and medium-sized companies (SMEs) and the driving force of their development: Innovation.

Aimed at transforming manufacturing, China has released its national plan “Made in China 2025”. The goal of this plan is to build China as a more competitive economy with greater emphasis on innovation as well as expanded use of new-generation information technology. The priority tasks includes transformation from quantity-oriented manufacturing to one with a qualitative edge, improving manufacturing innovation, fostering Chinese brands and etc. using the German concept of Industry 4.0 and the“Industrial Internet[T1] ”concept formulated in the United States.( Jost W., Mirjam M. & Max J., 2016). Having experienced years of rapid growth, China’s economic development has now entered a new phase and facing a mounting downward economic pressure (Li, 2016). This national plan has specified the future development of Chinese economy and ensuresit’s its[T2] capability to overcome the difficulties with innovation.

As Keqiang Li, the Premier of the State Council of the People’s Republic of China, mentioned multiple times in his public speech at the Opening Ceremony of the Tenth Annual Meeting of the New Champions, “Made in China 2025” China shall not only aim at large companies but also support small and medium-sized companies (2015). Many small and medium-sized companies have become important forces that can promote the transformation to a digitalized and future-oriented economy and upgrade the manufacturing industries through their entrepreneurship and innovation. This gives SMEs a crucial and non-replaceable position in China’s future development (Li 2015).

Meanwhile, after years of development and accumulation of experience, German SMEs have developed their own models for innovation and set one of the best examples for the rest of the world. Featured with niche focus, strong customer collaboration and integration, globalization strategy, preference for self-financing, long-run mindset, superior employee relations and community embeddedness (Alfredo and others, 2017), German SMEs have managed to achieve innovation even with limited resources.

Unfortunately, due to the language barrier, limited research has been done to compare Chinese and German SMEs. Considering the importance of innovation for Chinese SMEs for China’s economic development and the impressive performance of German SMEs in the past few decades, the author believes that a comparative study based on an extensive literature research can create a deeper understanding of both sides, complete the existing research on SME’s innovation and hopefully provide practical advice to SMEs in China[T3] .

1.2 Problems

German SMEs have had a huge success in Innovation and have done an important contribution to German economy, but can the same pattern be found in China? To answer this question, we will have to firstly [T4] study the environment of Chinese SMEs, the historical pathway, their current status and other factors that are unique for these companies.

Taking the significant cultural, mental and ideological difference between China and Germany into account, we assume that there also will be a huge difference between SMEs innovation practices. Therefore, the second question of this study would be how and to which degree can Chinese SMEs learn from German counterparts (or vice versa).

In this thesis, the author will mainly study innovation in Chinese SME while, at the same time using German counterparts as a reference.

1.3 Structure

In the first chapter, the author will present the research background of this thesis, the problems to be solved and the overall structure of the article.

In the second chapter, the author will define innovation and explain its importance to the company.

The third chapter is about the methodology of this article.

The fourth chapter is about China's small and medium-sized enterprises. It describes the history of China's small and medium-sized enterprises in 3 historical stages, and the definition, current situation of China's small and medium-sized enterprises, and the current difficulties faced by Chinese SMEs, so that readers can have a certain understanding of Chinese SMEs themselves. This will lay the foundation for the content of the fifth chapter on SME innovation, and provide preconditions.

The fifth chapter is the main body of this paper, and it is also the research findings of this thesis. The author divides the literature on China’s SME innovation into three parts, the innovation characteristics, challenges and opportunities of Chinese SMEs. According to the relevant literature, the analysis summarizes six characteristics of China's SME innovation, five major challenges, and potential opportunities. And through the analysis of German SME innovation related literature, the author compares the similarities and differences between the SMEs' innovation studies in the two countries.

The sixth chapter and the seventh chapter respectively provide possible directions for future research and summarize the whole thesis.

2. Innovation orientation of companies

2.1 Definition of Innovation

Thisthesisstudies the concept of innovation in different countries. Therefore, different language contexts, respectively Chinese and English, are taken into account and presented as follows.Considering the fact that this dissertation studies innovation in different countries. Therefore, the concepts of innovation in different language contexts, meaning Chinese and English are taken into consideration and presented as follows [T5] . The goal is to clarify the diversity of different definitions in different countries and reach a consistent company-perspective-based understanding of Innovation.

Scholars and organizations holds different opinionswith inregards of the wordingwhichdefinesing innovation. As Schumpeter, the father of innovation research, defines innovations as “the commercial or industrial application of something new—a new product, process or method of production; a new market or sources of supply; a new form of commercial business or financial organization.”(1947, p. 150) A more brief definition was given by Drucker in his book as “the act that endows resources with a new capacity to create wealth” (1985, p.36). Yet the concept of Innovation continues to develop as it’s defined as the process of turning opportunity into new ideas and of putting these into widely used practiceby (Tiddand& Bessant, ( 2009). [T6]

Organizations also give us their interpretations of Innovation. The European Commission states, “Innovation covers a wide range of activities to improve firm performance, including the implementation of a new or significantly improved product, service, distribution process, manufacturing process, marketing method or organization method.” (2004, p. 4). The Organization for Economic Cooperation and Development aka. OECD described Innovation in the Oslo Manual as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations.” (1992, p. 8)

In General, all the explanations aboveindicates indicatethe key features of innovation are creating a new or improved existing, including product, service, new market etc. utilizing diverse resources. The most important thing is, it can only then be considered as innovation, when it is ready for the market or implementation in practice.

The definition of Innovation in Chinese is originated in English ones while the most widely recognized definition is the one from Schumpeter (Xiang, 2005). With the literal meaning of Innovation in Chinese character “创(Chuang)新(Xin)” as “create new”., Hh owever in the company-perspective-based context, 创新, are in most cases combined with technology in China. Therefore, in this article, the innovation wetalked mentionabout mainly refers to technological innovation.

2.2 The Importance of innovation in companies

How important is innovation for companies? What is the meaning of innovation in regard of firm performance. To answer this question a big amount of empirical studies (Lachenmaier, 2011; Folkeringaand others et al.,2003; Irajand others et al.,2013; Brunoand others et al.1998; Jose M., 2006; Stefan and Horst, 2011; Norbertand others et al.,2003) have been conducted by researchers and scholars all over the world in different countries, including Germany (Lachenmaier, 2011), Niederlands (Folkeringa et al., 2003), Turkey (Murat at al., 2011), Chile (Jose, 2006) and so on.

For companies, the meaning of innovation is to enhance firm performance. Four indicators of firm performance, including turnover growth, employment growth, profit and productivity, haven been developed to demonstrate the impact of innovation (Kemp et al., 2003). Two indicators, turnover growth and employment showed a positive relationship with innovative output, while the other two indicators, profit and productivity are not significantly affected by innovative output. (Kemp et al., 2003)

Part of their findings haven been confirmed multiple times in the following years. Positive correlation between innovation and employment has been found in different studies. Lachenmaier (2011) estimated the effect of innovation on employment by measuring the data of German manufacturingfimrs firms. The result suggests that innovations are positively related to employment. Folkering et al. (2003) suggeststhat innovations have a positive impact on sales turnover growth based on the data from more than 400 Dutch small companies. Murat et al. (2011) once again confirmed the positive correlation between turnover growth and innovative activities using the data collected by a survey covering 113 firms in Turkey.

However Bruno et al.(1998) suggeststhat a positive correlation between innovative activities and productivity does exist based on the data of French manufacturing firms. The findings of Iraj et al. (2013) reveal that firm productivity correlates positively with innovation as well.

Allof the above theresultsmentioned aboveshow us the importance of innovation for firms. Its importance is reflected in the positive influence on firm turnover growth, employment and productivity, which contribute to firm performance.


Excerpt out of 78 pages


Innovation in Chinese and German small and medium-sized companies
University of Potsdam
Catalog Number
ISBN (eBook)
ISBN (Book)
Innovation, China, Germany, Innovationmanagement, Small sized companies, Medium sized companies, Medium businesses, small businesses
Quote paper
Trim Salihu (Author), 2018, Innovation in Chinese and German small and medium-sized companies, Munich, GRIN Verlag,


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