Small and medium size enterprises (SMEs) in China consist of community
enterprises (mainly owned by townships and villages), multiple cooperative
enterprises, joint ventures, and individual and private enterprises. SMEs
produce a significant share of China's GDP in a number of industrial sectors.
In 1995, there were about 22 million SMEs in China employing 129 million
people. SMEs in China face a number of constraints to engaging in technology
transfer, such as for producing more energy-efficient products or investing
in more-energy-efficient processes, including:
Information. SMEs lack contact with technology manufacturers and
customers so information about technology availability and customer demands
is lacking. The evolution of industrial SMEs from non-sector-specific
commune-based enterprises made SME rely on low-grade technologies and
gave them little access to formal information and training channels. SMEs
learn largely by visiting and copying other firms in the same sector.
This constraint on information acquisition is especially true of what
might be called organisational technologies such as project analysis,
financial methods, or studies of market developments and factor price
forecasts. SMEs have limited interchange with government ministries that
might be in a position to advise them on technology choices.
Rural customer demand. Rural customers show little appreciation
for product quality (such as energy-efficiency). Competition is based
solely on price and regulatory initiatives to promote product quality
do not exist. In cases where some product quality standards do exist (i.e.,
minimum heat efficiency of bricks), they are usually not enforced. Even
when customers do appreciate quality, they are often not able to pay for
higher up-front capital expenditures because of severe capital constraints.
And there are usually few marketing activities or product labelling initiatives
to better inform customers, and encourage them to distinguish between
higher quality products and lower quality products.
Financing. SMEs do not possess the financial means to invest in
more advanced technologies. On the other end, technology manufacturers
are not in the position and other intermediaries do not exist to provide
financial mechanisms encouraging technology supply push. Financial institutions
are reluctant to lend for such investments to SMEs.
Market competition: SMEs face little competitive pressure in their
rural markets. All local producers operate under the control of the SMEs
and local markets are highly segregated. SMEs are integrated into a spatial
network of enterprises supplying largely to local markets and not in a
product oriented network. For this reason, inter-local distribution networks
are weak or not existing, and opportunities to exploit existing economics
of scale in production are limited. Product pricing is somewhat arbitrary
and an SME is not driven out of the market when its profitability is too
low. So far, SMEs have no experience with market/competition based regulation.