Download The Strategy Research for Chinese SMEs to Address the Financial Crisis

The Strategy Research for Chinese SMEs to Address the Financial
Crisis
CHEN Xuezhong1, WANG Xing2
1. School of Economic, University of Jinan, China, 250022
2. School of Management, University of Jinan, China, 250022
[email protected]
Abstract: SMEs(Small and Middle Enterprises) in all countries are facing serious challenges in the
financial crisis. On the current situation faced by SMEs in China, we must understand the reasons for
these difficulties and elements that affect the survival and development of SME. First, the Government
should provide a healthy and fair competitive environment and all aspects of support. The most critical
for an enterprise is self-help, to establish a good corporate culture and strengthening the organizational
cohesion. The competitive of enterprises in the final analysis is talent competition, human resource
strategy is crucial for businesses; the enterprises should accord their need to take in the form of strategic
alliance, complementary advantages to achieve new development. China has a vast domestic market,
SMEs should seize the opportunities to develop new markets, changes the marketing strategies. At the
same time, to ensure the vitality of enterprises, must carry out independent innovation, and establish
their own brands and core competitiveness.
Keywords: Financial Crisis, SMEs, Development Strategy
1 Introduction
The global financial crisis outbreak in 2008, makes global enterprises in most countries has been
seriously affected. The bankruptcy of Lehman Brothers, the United States is experiencing a huge
financial crisis, this crisis can be described as a hundred years, not only the U.S. economy has been
battered, but all countries are affected. T SMEs in all countries is undergoing a severe test
According to the SMEs’ definition of World Bank, the minimum number of workers belong to small
businesses usually between 5 to 10, the maximum number usually between 50 to 100 people, the
maximum number of Workers belonging to medium-sized enterprises is between 100 to 250[1]. The
Southeast Asia Department of Asian Development Bank think the number of employees between 10 to
99 companies listed as small businesses, between 100 to 199 listed as medium-sized, more than 200 are
large enterprises. As for the workers of enterprises less than 10 were called micro-enterprises
(micro-enterprises), in which many micro-enterprises rely mainly on non-payment of salaries of
domestic workers[2].
It has become the focus study that how to deal with the financial crisis and its impact for SMEs, seize
the opportunities in a crisis, seek survival and development.
2 Study of the factors that caused the difficulties for SMEs in the financial crisis
In recent years, many of China's SMEs are faced with numerous difficulties, and the management of
many SMEs is not strict, organizational inefficiency, lack of independent innovation capability in their
business processes, to close down become an inevitable trends, the global financial crisis is only have
played a role in acceleration the deaths of these enterprises.
2.1 Rising prices of raw materials
In this global financial crisis, many countries have adopted loose monetary policy and expansionary
fiscal policy to remedy the economy, stimulating consumption, and structural adjustment, making the
national economy out of crisis as soon as possible and enter the recovery phase.
The loose credit policy will promote the raw material prices. Because other countries stimulate
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consumption and investment will lead to market demand for resources, which will promote world
commodity prices, the economic recovery in 2009 lead to resource demand once again. As financial
innovation under control, the major capital investments tend to bulk commodity markets and the stock
market, which will promote the raw material prices.
2.2 Rising labor costs
As a basic cost of an enterprise operation and management, labor costs include wages, social welfare
expenditures, training costs, recruitment costs, rewards and incentive costs, wastage and loss expenses,
etc.. In recent years, the state strengthened the labor and employment supervision. The relevant laws and
regulations have been introduced. According the latest requirements of national labor and employment,
corporate must resolved "five risk a gold" issue: to businesses must pay the employee the full old-age
insurance, medical insurance, unemployment insurance, industrial injury insurance, birth insurance and
housing provident fund. As a result, all businesses will face policy-oriented pressure of rising labor
costs.
2.3 Technology liquidity increased
For an innovative enterprises with scientific and technological, technology liquidity can help them to
achieve fluidity of thinking innovation and product upgrading. The large technology liquidity is the
performance of scientific and technological progress of modern society, the SMEs in their own smaller,
less capital abundant, so when they face the accelerating pace of technological upgrading of the market
economy, its production and development will become very difficult, under the challenge of economic
crisis, various SMEs faced hard choices, and even bankruptcy. SMEs in a major blow, its market shrink,
profits significantly reduced. Therefore, the increase of technology liquidity has also become an
important factor in the survival and development of the SMEs.
2.4 Financing has become more difficult
Under the global financial crisis, SMEs face difficulties in financing that is directly related to SMEs
survive and development. The reason that led to this problem, on the one hand, because China's direct
financing underdeveloped, financial system is not perfect. Long-term financing of SMEs rely on bank
loans, has been the lack of direct financing means. On the other hand, compared with large enterprises,
SMEs have small scale, lower and not stable income, for a variety of financial institutions, they believe
that most SMEs credit low credit risk is relatively high, thus increasing bank monitoring costs, making
all the banking sector will not dare to extend loans to SMEs.
2.5 Lack of independent innovation ability
China SMEs’ independent innovation capability of currently were worrying, corporate research and
development (R & D) capacity, marketing ability is not strong, lack of management innovation,
innovation output capacity is lower. SMEs lack of independent innovation talent. The competitive of
enterprises in contemporary society is the competition for talent, lack the talent is not work. Coupled
with various SMEs, small-scale, capital limited capacity, can not afford to introduce professional
technical personnel and to build their own R & D department.
3 The Strategy Research for Chinese SMEs to Address the Financial Crisis
3.1 Government support
Market economy’s competition is so fierce, SMEs play an irreplaceable role. Because of its small size,
relatively little money invested, and therefore the most sensitive response to the market mechanism, but
also a modern market in the most dynamic component.
3.1.1 Create a favorable environment conducive to the development of SMEs
Government should implement policies and measures to support SME development, deepen the reform
of monopoly industries, expanding the scope of market access, reducing the access threshold, and
further create a fair and open market environment. Organize the relevant laws and policies for SMEs,
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especially implement the supervision and inspection of financial and fiscal, press to play the role of
public opinion and social supervision, to enhance policy effectiveness evaluation. Adhere to
administration according to law, protect the legitimate rights and interests of SMEs and their employees.
Take practical and effective measures, increase support for labor-intensive SMEs, encourage SMEs do
not layoffs, less redundancy, stability and increase employment. For SMEs to absorb in seeking difficult
personal employment, signing of labor contracts and paying social insurance premiums. To give the
basic old-age insurance subsidies, subsidies for basic medical insurance and unemployment insurance
benefits in the corresponding period.
3.1.2 Alleviate the Financing difficulties of SMEs
Encourage to establish the loan risk compensation fund of SMEs, give moderate incremental benefits to
issuance of loans by financial institutions and moderate risk premium of the loss of non-performing
loans to SMES. Speed up to encourage private capital to participate, support and regulate the
development of micro-loan companies, and encourage qualified small loan companies to village banks.
Improve the SMEs credit guarantee system. At all levels must increase their support, integrated use of
capital injections, risk compensation and incentive grants and other means to improve the security
agencies guarantee ability of the SMEs.
3.1.3 Increase the Fiscal support for SMEs
Government should increase financial support, focus on technological innovation support, structural
adjustment and market development of SMEs. Use tax policies to promote development of SMEs. In
regard to taxation, according to a 20% reduction in corporate income tax rate for small profit businesses,
15% reduction for the national key high-tech enterprises supported. In August 2008, the Ministry of
Finance, National Tax Administration improve the textiles and clothing export tax rebate rate from 11%
to 13%, increased about 10 billion yuan tax rebates half a year; in October, the Ministry of Finance,
National Tax Administration improve a large number of SMEs involved textiles and garment export tax
rebate rate again to 14%[3].
In many industries, SMEs are difficult to enjoy fair competition environment in market access, financial
support and allocation of resources. So, there must reflect the fair competition when implementing the
national policies.
3.2 Their own business strategies
The Government has provided a good external macro environment to enterprises, but the enterprise
should have a reasonable strategy to deal with the crisis in all respects to have vitality and achieve
long-term survival and sustained development in the financial crisis.
3.2.1 Enhance the enterprise culture building and improve enterprise cohesion.
In financial crisis, enterprises should take their own cultural construction as an important carrier; greatly
enhance soft power, scientific development. Encourage enterprises to adapt external changes and
achieve scientific development. Enterprise culture is an important indicator to gather and inspire all
workers, enterprise's comprehensive strength and the core of the modern enterprise competitiveness.
"Enterprise culture" as a corporate soft power, it should be fully reflected its position and value in the
process to respond the crisis.
The SMEs’ cultural building should at the grassroots level, real implementation the development
contents. We must strictly comb the company value creation process, if we want to implement the
development of cultural into action. Has a strong corporate culture, share a common core values and
vision, in order to enhance the cohesion and vitality. Haier CEO Zhang said: "The corporate start the
business from the workers and their spirit." In many full of vigor and vitality businesses we can see
corporate culture and the culture measures in crisis is the key to overcome the crisis[4].
3.2.2 Human Resources Strategy
For any business downturn, should be more emphasis on human resources management, in particular,
performance management, to ensure that the enterprises follow the right path forward. In the
market-driven, if the enterprises do not attach importance to human resource management, human
resource management skills do not understand, even if the can get a good performance and good profits,
but business management is far from accurate and efficient, the importance of people is not obvious ,
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making a lot of human resource management issues are just being hidden. Once the situation changes,
people's value would be done, whether there is a good head of executive power, the availability of
incentives and performance improvement techniques, often affect the key to survival. Therefore,
enterprises at this time, a look at attrition and cancellation of other investments, but investment in people
is not only to increase.
3.2.3 Corporate marketing strategies
The cyclical nature of the laws of economic development shows that a crisis often contains significant
opportunities for development. In the current financial crisis, many companies are in most danger of the
moment, but this time the opportunity is unlimited. In the current national policy of stimulating
domestic demand, it is necessary to actively enhance and open up new market share.
National policy to stimulate domestic demand, encouraged, and all enterprises should grasp this
opportunity to find new market opportunities and develop market space. SMEs’ strong adaptability is its
know-how to survive.
Small is weak is strong. Small boats are U-turn; strong adaptability is the survival tips of SMEs. Take an
IT company for example; the IT Company was offer video monitoring programs for a big clothing
manufacturer originally. However, the apparel industry is depressing now, the enterprise rely on the
original core of the basic skills to shift to service the industries like power, oil and so on, which still
have strong demand of IT industry, thereby maintain a good market prospects and development power.
3.2.4 Develop independent innovation capability, and establish their brands and core competitiveness
In the financial crisis, companies should strive to independent innovation in order to ensure the
development of the company vitality.
Science and technology is the fundamental force to overcome the financial crisis. SMEs should strive to
improve their ability in technological innovation, develop their own intellectual property rights, using
new technological revolution to overcome the crisis and achieve sustainable development.
Brand is community and customers’ awareness of the corporate, is the credibility and quality assurance.
Brand innovation is to give the brand with more meaning, higher guarantee and make higher
value-added for enterprises.
Management innovation. Enterprises should accord the changes of external environment, adjustment the
internal management system timely, integrating the internal resources more rational and responsive to
the current economic environment. Management of innovation is not only a modern enterprise
management system to control business, but also need advance awareness and the concept of large
strategic thinking to integrate resources, improve resource utilization and improve enterprise's anti-risk
ability to deal with the current economic environment, challenges and opportunities that may arise in the
future.
3.3 Strategic alliance
The so-called joint venture strategy is refer to between SMEs or large enterprises and small businesses
to implement various forms of cooperation between the strategy of the overall strength of the weaker
small and medium enterprises in economic strength and technological levels may be less difficult to
form like a big business as large as the advantage and brand advantages[5].
Technology strategic alliance enhanced the enterprise's advantages in technology development; shared
the development risk and reduced development costs. Increase the response speed that
business-to-market uncertainty and flexibility. If the production costs down, it will further make the
prices reduce, make benefits for the customers, that products will be welcome to customers. So
enterprises can achieve the purpose of expanded the market share, the values and social conservation at
the same time. The enterprises technology strategic alliances reduced the using costs and increase
products value.
Strategic alliances can effectively promote the alliance to exchange information, promote technological
innovation. "Enterprise core competencies," noted a source of competitive advantage lies in "the
management of the company within the technology and production skills can be combined to enable the
business the ability to adapt quickly to changing opportunities" [6].
Strategic alliances can promote mutual learning among enterprises, improve business efficiency. Each
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member of Strategic Alliance in organization, culture, management and other aspects are differences. It
will provide an opportunity to learn from each other and achieve knowledge and information sharing.
Combining the advantages of each member and create higher profits. At the same time enable each
member to get more benefits, find a new opportunity to increase profits in other technical fields. In the
strategic alliance, the companies can learn from each other, mutual understanding, promote each other
and co-operation, combined with the advantages of each member to create new and higher profits. At the
same time, enable each member to gain more benefits and find new opportunities to increase profits in
other technical fields.
4 Conclusion
In this global financial crisis, China's SMEs faced serious challenges, but it also saw the opportunities
that the market contains. Each financial crisis will bring a new era of economic development. Face the
present difficulties, China's SMEs should actively take measures. In a relaxed country environment,
seize the opportunity to continuously improve their organizational structure and enterprise management
systems, while enhancing the ability to adapt mobility of technical, constantly the introduce new
technologies, develop new markets, enhance the independent innovation ability, form its own
characteristics of products and services to meet the development of market economy and achieve their
long-term development. To established their own brand, services and technological advantages in the
competition.
References
[1]. Hallberg K., AMarket-Orientation Strategy for Small and Medium-Scale Enterprises, International
Financial Corporation, Discussion Paper, No. 4, The World Bank, 2001.
[2]. Edgard R. Rodriguez, An Overview of Donors’ Role in SME Development in Southeast Asia after
the Crisis, in DenisHew and Loi Wee Nee (eds.), Entrepreneurship and SMEs in Southeast Asia,
Singapore: Institute of Southeast Asian Studies, 2004, p.67-68
[3]. Li Jun. Storm road must be taken in small and medium enterprises. CHINA VISION (in Chinese)
[4]. Ye Fan. Corporate culture management mode in financial crisis. China Enterprise Culture Research.
2009(in Chinese).
[5]. Liu Jianglin. The SMEs strategic alliance in the market competition. Southern Forum.
2008(10):28-29(in Chinese)
[6]. Xu Li. Effect of technology innovation in strategic alliances and enterprise technology innovation
capability of China's Cooperative. Journal of Nanjing University of Finance & Economics.
2008(4):69-72(in Chinese)
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