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The Role of SMEs and Clusters in the National Innovation Syst

ems in ChinaYuan CHENG and Jian GAO

School of Economics and ManagementTsinghua University

Beijing 100084P.R.China

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Outline

• Introduction

• Manufacturing Clusters

• Cluster in High-tech or science park

• Policy implication

• Summary

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A. IntroductionChina used to be a country which only large

and medium sized SOEs were legal to operate. SME was marginal to China.

The transition period means giving SME or private company rights to develop, from a role of filling the gap left by SOE to an important GDP and employment contributor.

SMEs have gone through a rapid development and SME is one of the important actors in national system of innovation now.

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Geographical locations of SME

• SMEs have a strong geographical orientation: boomed in areas where the role of SOE is limited and where there is strong base of human resources.

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And Current Landscape ICT Industry

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The standards of China's small and medium-sized

Industry Index Unitmedium-

sizedSmall-sized

Manufacturing

Number of employees number 300-2000 Less than 300

Sales ten thousand CNY 3000-30000 Less than 3000

Total assets ten thousand CNY 4000-40000 Less than 4000

Construction

Number of employees number 600-3000 Less than 600

Sales ten thousand CNY 3000-30000 Less than 3000

Total assets ten thousand CNY 4000-40000 Less than 4000

WholesaleNumber of employees number 100-200 Less than 100

Sales ten thousand CNY 3000-30000 Less than 3000

RetailNumber of employees number 100-500 Less than 100

Sales ten thousand CNY 1000-15000 Less than 1000

TransportationNumber of employees number 500-3000 Less than 500

Sales ten thousand CNY 3000-30000 Less than 3000

PostalNumber of employees number 400-1000 Less than 400

Sales ten thousand CNY 3000-30000 Less than 3000

Accommodation and Food &

Beverage

Number of employees number 400-800 Less than 400

Sales ten thousand CNY 3000-15000 Less than 3000

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Focus of the research

This study is mainly on industrial clusters, analysis the manufacturing industry clusters and innovation clusters.

Cluster analysis is used to analyze the interaction of knowledge flows in national innovation system between different

agencies. Cluster in traditional industryCluster in high-tech industry

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B. Manufacturing ClustersTVE used to be the first wave of SME when C

hina said good by to SOE dominated system. Those TVEs usually operated in manufacturing industry. some of them born in forms of cluster, specialized in one product.

SME in traditional industry take advantage of cluster.

Cluster advantage in south of China: Entrepreneurship spirit, low tech, labor intensiv

e, industry with low entry barrier, geography brand rather than company brand, large marketing network, processing innovation.

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Geographical locations of SME and cluster In China, the Pearl River Delta and Yangtze

River Delta are the two most important economic zones for SME, FDI and cluster.

the Pearl River Delta and Yangtze River Delta have won the honor of "world plant“

There are many low tech and high-tech clusters in south of China.

Those two regions are more liberal for private investment and FDI.

SME have gradually acquired equal market access, finance and other resources in these two regions

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Pearl River Delta Economic Zone

Pearl River Delta Economic Zone is located in the northern part of Hong Kong, composed of nine cities. Its area is 24,437 square kilometers.

Its production comprised from baby products to power tools and high-tech products

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GDP over the years the Pearl River Delta Region

Unit: hundred million

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Investment in fixed assets over the years of the Pearl River Delta

Unit: hundred million

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Exports over the years of the Pearl River Delta

Unit: 100 million U.S. dollars

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The characteristics of the Pearl River Delta

Economic development relies heavily on labor-intensive industries.

Economic development has benefited from the economic interaction between Hong Kong, Taiwan and Guangdong.

The Pearl River Delta's manufacturing are in the bottom of the value chain in the division of labor and cooperation in global value chain.

There are rich ICT components clusters in Perl River Delta.

Attracting huge population of mobile famers as their main work force

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Yangtze River Deltas

Yangtze River Delta region belongs to China's eastern coastal area.

Yangtze River Delta Area, is defined as the city belt composed of 16 cities on the fan-shaped alluvial plain with Shanghai as their core of production.

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GDP of Yangtze River Delta region over the years

Unit: hundred million

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Investment in fixed assets over the years of the Yangtze River

Unit: hundred million

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Exports over the years of the Pearl River Delta

Unit: 100 million U.S. dollars

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The characteristics of the Yangtze River Delta

Coordination and cooperation between cities are the driving force of economic development of Yangtze River Delta.

Yangtze River Delta enjoys a unique advantage in high-quality human resources.

Strong manufacturing capability around Shanghai

Good infrastructure for manufacturingAttracting large multinationals

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Clusters in Zheijiang

产业部门 典型专业化产业区hanzhou Electronics,

pharmacy, garments, software

杭州旅游汽配城、萧山衙前化纤业；新塘羽绒业、南洋制伞业；女装业

Ninbo garments、 machinery, Petrolane

县服装产业、蔺草加工、横街水表及配件、姜山燃气灶具、咸祥金融箱柜；余姚模具城、玩具城、塑料城、汽车配件 ]水暖设备、电动工具

xiaoxin Textile, dyeing, chemicals,药、化工（如纺织印染助剂）、化纤等

绍兴县中国轻纺城；诸暨市衬衫、五金、袜业、嵊州领带城、新昌轴承、胶丸业；上虞劳保用品、伞件业；越城区家具业

jiaoxin Leather, instruments, textile

海宁皮革、经编；平湖服装、箱包；秀洲区丝织品；海盐紧固件、玩具；桐乡羊毛衫业

huzhou Textile, silk, garments,

纺织（丝绸、毛纺、印染）、服装（童装）、建材、竹编等

zhoushang

Fishery products,machines

舟山水产品中心批发市场；水产品精深加工、海洋药物、船舶修造、电器电子、玩具等，同时已经形成了螺杆、微电机、小五金和水产品加工等

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Summary of Manufacturing Clusters in China

The relatively low-end of two-triangle’s manufacturing industry, design, development and marketing network of the product are under control of international multinational corporations.

Lack of innovation ability is the bottleneck industrial clusters in China.

Low-cost advantages of China's industrial clusters which built on cheap labor costs and cheap raw materials can easily be replaced by imitation.

How can proceed from GPN to GIN is the challenge for the two most dynamic regions.

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C. High-tech SME and Clusters

High-tech SME is closely related to government R&D programs and policy.

High-tech ZoneIncubatorsUniversity Science Park

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Role of SME in NIS of China

1978 1995

Stage of plan-led model

High-tech 863 planThe Torch ProgramSpark ProgramTorch Programthe National Natural Science FoundationClimbing plan,973

Present

stage of national technology innovation system

“Strategy of Rejuvenation by Science and Education’Innovation fund for SMEKnowledge Innovation Program

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SME in high-tech industry

• SME, especially technology based firm was seen as the main innovation driver in high-tech industry.

• Learning from USA practice, introduced national S&T based SME innovation fund since 1980s.

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Spin-off and Industry-academy linkage has been promoted

• University established lots of linkages with industry:– setup spin-off companies– research grants from industry– consulting and service– training (MBA, EMBA and short term training.)

• R&D institutes – Setup spin-off companies– research grants from industry– consulting and service

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University’s spin-off

Number of spin-of

f

revenue（ billion

RMB）

Profit （ billion

RMB）

净利润（亿元）

上缴税金（亿元）

对学校的回报（亿元）

1999 2137 26.7 2.2 18.04 10.96 13.92

2000 2097 36.8 3.5 28.03 18.79 8.46

2001 1993 44.8 3.1 23.98 20.09 7.78

2002 2216 53.9 2.5 18.63 25.92 7.61

2003 2447 66.8 2.8 14.73 29.40 7.74

2004 2355 80.7 4.1 23.86 38.48 8.25

资料来源 :《 2004中国高等学校校办产业统计报告》，教育部科技发展中心，中国高校校办产业协会。

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High-tech Zone is the home for technology based SME

High-tech Zone as a government infrastructure investment region is an important policy tool to attract foreign investment and creat employment.

1985 1988 2009

The first high-tech zones is established in Shenzhen

The first national-level high-tech zones, the Zhongguancun Science Park, is established in Beijing

The 53rd National Hi-Tech Industrial Development Zone was set up in Shaanxi Yangling, which is the first national agricultural high-tech park.

1997

The 56th state-level hi-tech industrial development zone is established.

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Overview of high-tech zone enterprises (2000 ~ 2007)

2000 2001 2002 2003 2004 2005 2006 2007

Enterprises 20796 24293 28338 32857 38565 41990 45828 48472

Numbers of employees 251 294 349 395 448 521 574 650

Industrial output value 7942 10117 12937 17257 22639 28958 35899 44377

Industrial added value 1979 2621 3286 4361 5542 6821 8521 10715

Gross income 9209 11928 15326 20939 27446 34416 43320 54925

Net profit 597 645 801 1129 1423 1603 2129 3159

Taxes paid 460 640 766 990 1240 1616 1977 2614

Total exports 186 227 329 510 824 1117 1361 1728

Note: the number of enterprises (Unit), numbers of employees (million people); exports (100 million U.S. dollars); the remaining items (100 million)

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Enterprise Development

Enterprises income distribution of National-level High-tech Zone countries in 2007

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Role of National High-tech Zone in China Innovation Clusters

National High-tech Zone is an important carrier to implement the strategy of independent innovation. development.

National high-tech zones achieved fruitful results in the promotion high-tech industrialization, institutional innovation, the transformation of production and the optimization the economic structure, the attraction of the talents and the provision of entrepreneurial environment.

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The development of Incubators in China

2000 2001 2002 2003 2004 2005 2006 2007

Incubators 131 280 378 431 464 534 548 614

Tenant enterprises

(10 thousand)7693 12821 20993 27285 33213 39491 41434 44750

Employees 12.88 26.36 36.34 48.25 55.24 71.70 79.00 93.00

Graduated Enterprises

2770 3994 6207 8981 11718 15815 19896 23394

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The development of Incubators in China

Graduated Enterpr i ses

0

5000

10000

15000

20000

25000

2000 2001 2002 2003 2004 2005 2006 2007

Empl oyees

0

20

40

60

80

100

2000 2001 2002 2003 2004 2005 2006 2007

Tenant enterpr i ses(10 thousand)

0

10000

20000

30000

40000

50000

2000 2001 2002 2003 2004 2005 2006 2007

I ncubators

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007

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The role of incubators or high-tech zone to promote the SMEs to innovation

Incubator promotes the overall effects.Incubator can reduce the start-ups

costsIncubator can help enterprises obtain

external resourcesIncubator can transmit innovation and

entrepreneurial spirit

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University Science Park

In 1988, Northeastern University has established the first University Science and Technology Park in China --- Northeastern University Software Park.

On February 16, 2009, National University Science and Technology Park in China has risen to 69.

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The role of university science park to promote the SMEs to innovation Provide a source of innovation for

enterprisesThe absolute advantage of human

resources.A wealth of library and network

resources.

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Typical high-tech clusters in China

Zhongguancun Science Park establishment in 1988 in Beijing, with high-tech services as the core

Tianjin Hi-tech Zone set up in 1988 with bio-medicine and green energy as oriented industries

Wuhan East Lake High Technology Park established in 1993 with photoelectron field as the core

Shanghai Zhangjiang Hi-Tech Park established in 1992, with integrated circuits and software, bio-pharmaceutical as leading industries

Shenzhen high-tech zones with telecommunications industry as the leading

Zhengzhou High-tech Zone to with superhard material as the core industry.

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Clusters out of FDI:The eight products of Suzhou that rank No.1 in the

world (2003) Products Quantity of

outputShare of world output

Computer mouse 60 million 61%

Crystal vibrator for cell-phone

700 million 30%

LCD for cell-phone 80 million 25%

Chip resistor 10 billion > 20%

Crystal vibrator shell 100 million 22%

Computer mainboard 20 million 20%

Wimp type keyboard 0.36 million 10%

Thyristor for LCD TV 0.30 million ~ 10%

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Constraints on SMEs in China

The level of management of corporations is relatively hang behind, the shortage of talent is the biggest problem facing by SMEs.

Insufficient funds, the financing channels problem, limited venture capital and financing

Affected by the financial crisis, exports are hampered.

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Public Policy

Public policy to promote SMEs innovation and entrepreneurship. the "SME Promotion Law "promulgated and i

mplemented in 2003SMEs board in Shenzhen Stock ExchangeOver-the-counter securities trading system (th

e third board Market)

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Policy thinking

Innovation Funds develop quickly

List of Innovation Fund of National SMEs

Year Applications ApprovalsCapital（ 100 millio

n）1999 3329 1089 8.16

2000 4974 872 6.59

2001 3682 1008 7.83

2002 4215 780 5.4

2003 4249 1197 6.64

2004 4925 1464 8.27

2005 5406 1552 9.88

2006 6399 1905 8.43

2007 3120 1151 9.55

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Innovation network building and support system upgrade

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D. SummarySMEs as the core element of national innovatio

n system, has played a pivotal role in in the development of our manufacturing clusters, promoting the emergence and further development and innovation of two major manufacturing clusters.

Cluster proves to be a good practice for SME.High-tech based SME was given a high priority

in promotion agenda of ChinaSME still cannot enjoy the condition as SOEs d

o. So, there are space for improving.