The emergence and development of small and medium-sized enterprises in China

1.2.3.1 Background of the emergence of small and medium-sized enterprises in China

Before the founding of New China, there were very few industries of modern significance in China, and most of them were in the hands of foreign capital and feudal buyer's capital. The small and medium-sized enterprises at that time were essentially national industries represented by semi-handicrafts, which were very weak. The founding of the People's Republic of China opened a new chapter in the historical development of China's economy and society, and provided unprecedented opportunities for the development of small and medium-sized enterprises. In order to restore the national economy more quickly, China formulated and implemented a series of policies and measures, confiscated foreign capital and feudal buyer's capital, and became a nationally owned economy, while a large number of small and medium-sized enterprises representing national industries existed as a capitalist economic component and occupied an important position in the national economy. Small and medium-sized enterprises at this time can be divided into three parts: first, state-owned small and medium-sized enterprises; second, private capitalist enterprises; third, individual handicrafts.

1.2.3.2 Stages of Development of Small and Medium-sized Enterprises in China

Overall, the development of small and medium-sized enterprises in China has fluctuated very much, which is caused by numerous objective factors. Divided by the nature of enterprises, the development of small and medium-sized enterprises in China has gone through three periods:

(1) The period of capitalist industrial and commercial development and transformation (1949-1957). The development of capitalist industry and commerce began after the founding of New China in 1949, and the rapid restoration of the national economy became the main task at that time. from May 1949 to December 1956, in order to complete the socialist revolution and establish the public ownership of the means of production, the Chinese ****productivity party, based on the national bourgeoisie's historical contribution and the factors of adherence to the party's leadership and willingness to accept the transformation, and so on, through the form of state capitalism. Applying the policy of peaceful redemption, it carried out a socialist transformation of capitalist industry and commerce, gradually transforming them into socialist enterprises owned by the whole people. This greatly liberated the productive forces and was one of the main steps in the establishment of the socialist system. During this period, private enterprises were basically transformed into state-owned enterprises after socialist transformation. After three years of hard work, private small and medium-sized enterprises achieved rapid development by 1952, and the number of private small and medium-sized industrial enterprises increased by 116% in 1952 compared with 1949, while the number of employed people increased by 210%. During the period of industrial and commercial transformation (1952-1957), all private SMEs were transformed into public enterprises. From then on, private SMEs disappeared from Chinese soil for 22 years.

(2) The Period of Development of Publicly-Owned SMEs (1957-1979). During this period, all small and medium-sized enterprises were owned by the whole people and collectively owned enterprises. The development of small and medium-sized enterprises in this period began after the birth of the people's commune in 1958, and was mainly developed on the basis of traditional handicrafts in rural areas. During the movement of communization, due to the influence of the "one big, two communes" and "leftist" line, some of the projects operated by the former handicraftsmen were turned into collective enterprises, and some small-scale enterprises in the countryside, such as home-based industries and sideline industries, were also taken over by the communes or the brigades and squads. At the same time, based on the decentralized enterprises of community-run industries and handicraft cooperatives, a large number of small and medium-sized enterprises characterized by public ownership were formed until 1978.

(3) The period of rapid development of various types of small and medium-sized enterprises (1980 to the present). China opened up to the outside world from the 1980s, focusing on the eastern coastal areas, and progressing gradually from east to west and from the coast to the inland, and by the first five years of the 1990s, it had basically formed the special economic zones - coastal open cities - coastal economic open zones - areas along the Yangtze River -In the first five years of the 1990s, a general pattern of all-round opening up to the outside world had been formed, which included different levels of opening up and different functions of opening up, combining points, lines and surfaces. Despite the repeated policies during the development period, reform, opening up and development have become the main theme. Small and medium-sized enterprises (SMEs), after 30 years of development, have become a new economic growth point for economic development, and have made an inestimable contribution to ensuring national economic growth and expanding employment.

1.2.3.3 Development Status of SMEs in China

In order to promote the sustained and rapid development of all SMEs, including non-public SMEs, our government has successively promulgated a series of laws and regulations aimed at promoting the development of SMEs, such as the Law on the Promotion of Small and Medium-sized Enterprises (SME Promotion Law) and Several Opinions on Encouraging, Supporting and Guiding the Development of Individual Private Sector and Other Non-public Economies. China's small and medium-sized enterprises have achieved unprecedented development. The overall number of SMEs and their industrial output value have increased significantly (Table 1.5)

Table 1.5 Industrial output value and number of SMEs

Source: China Statistical Yearbook (1985-2008).

Note: Gross Industrial Output is calculated at the price of the current year; the number of SME industries from 1985 to 1997 is the number of all independently accounted SMEs grouped by size, and from 1998 to 2006 is the number of state-owned industrial enterprises and non-state-owned SMEs with annual sales revenue of more than 5 million yuan.

Because of the change in the meaning of small and medium-sized enterprises in 1996, China has adopted a different approach to the number of small and medium-sized enterprises industry statistics, the change in the number of small and medium-sized enterprises from 1985 to 2006 can be divided into two phases, 1985 to 1997 and 1998 to 2006. The relationship between the change in industrial GDP and the change in the number of SME industries in the two phases is shown in Figure 1.1 and Figure 1.2.

Figure 1.1 Relationship between industrial GDP and the number of SMEs from 1985 to 1997

Figure 1.2 Relationship between industrial GDP and the number of SMEs from 1998 to 2006

According to the relevant information of the National Development and Reform Commission, by the end of 2007, the number of SMEs in China had already reached more than 42 million, accounting for more than 99.8 percent of all enterprises in the country. More than 99.8% of the total number of enterprises; the number of SMEs registered by the industry and commerce department is more than 4.6 million, and 38 million are self-employed. The value of final products and services created by SMEs accounts for about 60% of the country's gross domestic product (GDP), the commodities they produce account for 60% of total social sales, and the amount of tax revenue they pay has exceeded half of the total. It is estimated that 75 to 80 per cent of urban employment in China is in small and medium-sized enterprises and private enterprises (the vast majority of private enterprises are small and medium-sized), and in recent years there have been 130 million rural migrant workers employed in urban areas, with the vast majority of these jobs being provided by small and medium-sized enterprises and private enterprises. Statistics show that 66% of new technologies are created by SMEs and private enterprises, and 80% of new products are produced by SMEs and private enterprises. Small and medium-sized enterprises occupy a pivotal position in China's national economy, and small and medium-sized enterprises have become the backbone of the national economy. It can be seen that SMEs have become an important growth point of China's economy and have made great contributions to China's economic development. (Table 1.6, Figure 1.3).

Table 1.6 Development of China's Small and Medium-sized Industrial Enterprises from 2001 to 2006

Continued

Source: China Enterprise Evaluation Association, Department of Small and Medium-sized Enterprises of the National Development and Reform Commission, Department of Industrial and Transportation Statistics of the National Bureau of Statistics, Department of Supervision of Individual and Private Economy of the State Administration for Industry and Commerce, Department of Economy of the All-China Federation of Industry and Commerce, the Central Committee of the DAB

Figure 1.3 Industrial Development Trend of Small and Medium-sized Enterprises in China from 2001 to 2006

1.2.3.4 Development Mode of Small and Medium-sized Enterprises in China

(1) Exclusive Mode. Specialized mode (Li Dayuan et al., 2006) is that the enterprise concentrates its resources on a certain product or service in which it has a competitive advantage, that is, it concentrates its human and financial resources, selects the breakthrough and wins the market, which is determined by the characteristics of small and medium-sized enterprises. SMEs themselves are small in scale and limited in resources, making it difficult for them to diversify their investments to spread risks. Countless facts have proved that diversification is a trap rather than a pie for SMEs. Re-dividing the limited resources which are not rich in themselves will definitely result in overpowering and losing sight of one thing and losing the other. The specialization of the business, improve the degree of specialization, more focused on a segment of the customer base, the characteristics of the needs of the customer group, the purchase mode of more in-depth research, can better serve them. At the same time, due to the operation of a single product and service, the enterprise organizational structure is simpler, easier to manage, more concentrated resources, more conducive to improving technology, and thus improve product or service quality. The American National Canning Company has achieved success through the specialization model. The company sold off some unrelated businesses by carefully selecting target markets and focused on producing canned goods. Specialization has enabled them to improve their technology, product quality and market share have steadily increased, and their assets have grown from US$180 million to US$1 billion in 10 years. Hangzhou universal joints factory is also to take this business model to get out of the dilemma towards success. Of course, the specialized mode also has unavoidable defects. The selection of the target market is the directional problem of the enterprise, which is the key to the success or failure of the enterprise and the primary problem. Because the specialized mode is overly dependent on a certain product or technology to bring a certain group of customers, if the decline in demand, large-scale entry of competitors and other factors lead to dramatic fluctuations in the market, these enterprises will be a serious threat to their survival. Thus, enterprises must choose their markets carefully when adopting this model. Once a target market has been selected for a particular aspect of product or service production, the enterprise's resources cannot be utilized in other ways. Therefore, SMEs should systematically analyze the characteristics of customer demand, their own capabilities and resources, the intensity of competition and competitors in the market, and select a target market where it is easy to build up their own competitive advantage and focus on it.

(2) Specialty mode. Characteristic mode that is, according to their own characteristics, the introduction of distinctive products or services to meet the needs of customers. Characteristics of the implementation of the two basic requirements of the model: First, there is enough market, that is, the consumer groups; Second, the value is large enough, mass market products such as salt, the value is too small, the deliberate pursuit of characteristics will be more than worth the loss. Characteristic mode of operation, focusing on special, that is, differentiation, new and different, think of what people do not think, do what people do not do. Small and medium-sized enterprises in the industry is no more than a follower, it is impossible to have the strength to the industry leader. However, customers are often familiar with the first few brands in an industry, and without special methods and measures, it is difficult for SMEs to attract and retain customers. However, customers are the source of profit for a company, and companies must find ways to get customers to buy their products or services. The special model is to emphasize the first. Special is different, different in the minds of customers is the first. If this first can well meet their requirements, it will form a high degree of customer loyalty and attract new customers to join. For example, the U.S. Seven Happiness Company has skillfully advertised itself as "non-Coke", avoiding the head-to-head confrontation with Coca-Cola and Pepsi, and has greatly increased its sales, becoming the third-selling soft drink in the world.

(3) Alliance model. Small and medium-sized enterprises (SMEs) alone often find it difficult to compete with competitors and to meet customer requirements in a timely and satisfactory manner. Thus, the alliance has become one of the best ways for SMEs to survive and develop, especially in the financial crisis situation, the alliance is an effective measure to avoid and reduce the risk. Alliances include vertical or horizontal alliances, vertical alliances, i.e. alliances with suppliers and sellers, and horizontal alliances, i.e. alliances with competitors. SMEs may either enter into an alliance with a large company and become a satellite enterprise of the large company, steadily supplying it with raw materials, semi-finished products, or selling products or services for it, or providing relevant information. SMEs are more likely to form alliances with firms of similar size for joint purchasing, joint production and joint marketing. The advantages of modern SME alliances are: first, the alliance can obtain the synergistic effect of "1 + 1>2". Alliance enterprises due to resource *** enjoy, complementary advantages, the original resources can play double or even multiple times the utility, as long as the selection of alliance enterprises, good management, synergistic benefits are far greater than the synergistic cost. Secondly, the stabilization effect can be obtained. When the enterprise into a horizontal or vertical alliance, the environmental variables will be greatly reduced, stability is greatly improved, thus enhancing the enterprise's ability to resist risk. The alliance business model also has its inherent defects. The first thing to note is the conformity of the market law alliance. The alliance is not pulling the strings, is conditional, there is a basis, that is, for each other all, the dominant resources are not for me all, so that there is a need for the alliance. At this stage, due to China's market economic system is not perfect, the credit system has not yet been established, the phenomenon of corporate credit default still exists in large numbers, the alliance agreement may not be well implemented. Enterprises must have enough knowledge and preparation.