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Many Chinese Smes Have Admitted That They Do Not Have Clear Plans Or ...

Many Chinese SMEs have admitted that they do not have clear plans or practices for managing their new product development practices, which represents a significant strategic challenge, given the research and development and marketing capabilities of many western firms.
China's WTO entry has also impacted on the government's policies of directing foreign direct investment towards encouraged industries and regions, and the various incentive schemes designed to drive investment in high-tech industries and in the more deprived central and western parts of the country (Business Monitor International, 2006). Directly following the WTO entry, the Chinese government produced a new list of areas and sectors where foreign investment was encouraged, together with those where it was restricted or prohibited. The list has been refined in order to abide by the promised market reforms and liberalisations that were part of the WTO agreements, and have opened up the banking, insurance, petroleum extraction and distribution sectors. For example, as a result of these agreements, foreign investors can now invest in Chinese banks, however investors cannot hold more than 20% of the shares, and the combined foreign shareholding cannot exceed 25 percent (Business Monitor International, 2006).

This has created several challenges and opportunities for Chinese SMEs. It has meant that wholly owned foreign subsidiaries are now the most popular entry route for investors. Whilst this has taken some foreign direct investments away from Chinese SMEs, it has also created significant opportunities for them to advise and partner with these foreign subsidiaries, which can give the SMEs access to both revenue and expertise. Also, even after the WTO accession, the policies and investment incentives are still strongly focused on the Special Economic Zones, which were developed over the two decades preceding WTO entry (Ng and Tuan, 2003). As such, SMEs have the ability to make a strategic decision regarding whether or not they position themselves in the Special Economic Zones and operate in the encouraged sectors of the economy. Should they choose to operate in said sectors, they will gain the benefit of increased foreign investment, and the exposure to the more advanced marketing and product development techniques needed to compete in the global economy. However, should they decide to avoid these sectors, they will benefit from less foreign competition, and also from the fact that many businesses are abandoning these sectors in an attempt to attract foreign investment (Ng and Tuan, 2003).
Whilst conventional wisdom states that SMEs should look to enter the largest and fastest growing markets, and attempt to secure niche markets for themselves, Yeung's (2002) examination of Guangdong province, one of the best known of the Special Economic Zones, provides some evidence to the contrary.

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