To what Extent are the Chinese Entrepreneurs Seeking to start New Businesses at a (Dis)advantage Compared to their Western Rivals?
The success of the Chinese empire over the past few decades in terms of economic growth and development has sparked interested from both the developing countries and the Western developed nations. The performance of both the high-tech and the manufacturing sectors in this country is the most remarkable and its efforts to transition from a communist economy to a more stable capitalist economy. Different nations, business, and scholars consider the miraculous success of the Chinese empire as an effort of the Chinese government in allocating certain resources and finances. They argue that the strong boom and the rapid changes in the country's private sector are due to openings and opportunities provided by the state and not the efforts of that private sector on its own (Naude, and Rossouw, 2010, pp.94). However, despite assigning the state as the key role in rapid economic transitions and growth in the private sector, others argue that the success in China had a basic ingredient that can only be portrayed by private ownership of properties and private entrepreneurship. Still, while the state-owned companies are indeed the key players in China's economic success, the interest shown by the government of China to induce economic growth in the country is mostly seen in the role of entrepreneurship in the private sectors. According to research, over 25 percent of the Chinese adult population are entrepreneurs; enduring scarce resources and intense competition. This number is twice as many as in the United States (Ahlstrom and Ding, 2014, pp.613). This essay is an attempt to understand the extent to which the Chinese entrepreneurs seek to start new businesses at a disadvantage compared to their Western rivals. It will also highlight the comparative analysis between the Chinese economy and the Western economies.
The emergence of private entrepreneurship in China dates back to the 1978 economic resurgence which began with Deng Xiaoping's Reform and Opening policies. At this time, the Republic of China was still under communism and the government, seeing the success of the Europe and Western nations, established Special Economic Zones to test capitalism (Naude and Rossouw, 2010, pp.97). This gave rise to a class of private entrepreneurs who were curious and ready to take advantage of the new economic system; capitalism. Whether the government was involved or not, these entrepreneurs were resourceful in terms of ideas and numbers but with very limited resources at their disposal. Given their efforts after the Cultural Revolution, the Chinese government implemented the first patent law that allowed the entrepreneurs to thrive while bankrupting most of the state-owned enterprises. This was a big boost to the private industries which were under the umbrella of the public sector. The government further in 1987 reversed the law that curtailed the expansion of the private firms by limiting their number of employees to a maximum of seven. According to (Jonas, Lai, Root and Warriner, 2015), the move provoked a mass private company registration which increased up to 93 percent within the first year.
The private sectors and the entrepreneurial enterprises in the Republic of China function in an ecosystem and institutional conditions that are incomparable and extensively differ from those of their Western counterparts. (Batjargal and Liu, 2004, pp.169) states that a country's entrepreneurial environment is heavily influenced by the participation of the state authority. This has an adverse effect on most private entrepreneurs who often times rely on state political affairs and government regulatory practices to operate. For instance, unlike other entrepreneurs from western developed countries, Chinese entrepreneurial ventures are often put at a distinct disadvantage due to the country's state-biased and government-run legal system. In China, the government passes laws and policies in favor of the state-owned enterprises and private ventures they consider are in line with state-set goals. The court system, though reformed in the recent past still exudes biasness towards small business and entrepreneurs. The court protects government state-owned enterprises against privately owned business and large corporations against small-scale business. This act of selfishness in addition to unregulated policies make innovation in China a special case.
Funding is still the number one bottleneck to most Chinese innovators and entrepreneurs. Even though the Chinese government tends to recognize the efforts of the private entrepreneurs in the growth and development in China's economy, the government does very little in encouraging their activities through incentives and access to funds (Jonas, Lai, Root, and Warriner, 2015). According to the same research, China does not allow any private sectors to operate banks, therefore, the commercial loans are still regulated by the government which is biased against private entities. Similarly, the banking system is controlled by the government, has poor lending rates which are often too high for young entrepreneurs and small-scale businesses. This is unlike the western developed countries which allows privately owned banking system and a well laid down system to rate credit. Inter-company lending is also prohibited under the Chinese laws. This allows state-owned enterprises compete unfairly against privately owned small businesses. The state involvement in entrepreneurship and innovation in China is by far the biggest difference while comparing Chinese economic ecosystem. For example, the research and development funds belonging to the innovative enterprises are often allocated on the basis of political relationships and connections rather than the achieved merit (Gupta and Wang, 2016). When this happens, the funds that can lead to innovation is spent on personal projects rather than actual research. Similarly, the entrepreneurs find it challenging in China since only 4 percent of the research and development fund is spend on the entrepreneurial enterprises compared with 17 percent of most OECD economies.
In China, unlike in the Western countries, the inherent contradictions arising from state-based ideologies and the entrepreneurial imperatives often hinders entrepreneurship and innovation. When giving patents, the Chinese government gives public relations a greater priority in terms of quantity over the quality. Research shows that in a span of five years since 2010, the patent applications received by the State Intellectual Property Office went from slightly over 300, 000 to almost a million (Gupta and Wang, 2016). The government still seeks to double the number in the coming years. This has devalued the quality of a typical patent as the government focuses more on the scale and not quality. Similarly, the concept of the "Great Firewall of China" adopted by the Chinese government hinders many volatile young Chinese researchers and innovators to access worldwide information. The government ideologies have also curtailed benefits from the foreign companies to local entrepreneurs. The country's stand regarding intellectual property puts pressure on foreign companies who often resolve to local adaptation rather than inviting private innovators in developing high-tech next-generation technologies despite having research and development labs in the country (Jonas, Lai, Root, and Warriner, 2015). Without the protection of the Chinese legal system, these investors tend to shy away from sharing technological work to presumed Chinese competitors. In Western countries like the United States, however, young innovators and entrepreneurs have unlimited access to global information researchers. This allows these young entrepreneurs to access relevant sources that in turn can help them develop comprehensive entrepreneurial skills. The US ideologies towards the foreign companies on its markets do not condition any transfer of technology for market access (Saxenian, 2002, pp.28). This puts these foreign companies at a distinct advantage regarding the intellectual property. The outcome has been that, unlike in Chinese markets, the US gains so much from the spillover effects from the research and development work from world's leading technology developers. This is seen as a key driver to the emergence innovation and entrepreneurial ecosystems.
Despite the inherent contradictions between the Chinese government's political ideologies and innovative imperatives, the government still recognized the vital role these entrepreneurs and innovators play in China's rapid growth and tries to encourage their activities through incentives certain incentives. For instance, the ruling government acknowledges the funding barrier the innovators' encounter. Efforts have been made in the recent past to improve lending opportunities of these young innovators liberalizing interests rates across all Chinese commercial banks (Jonas, Lai, Root and Warriner, 2015). Similarly, these entrepreneurs are currently benefiting from a large pool of government allocated resource for innovations and start of small businesses. For example, the Beijing's Zhongguancun, one of the Chinese government-sponsored projects zones, are set aside purposefully to induce economic development in certain specific sectors of their economy. This is done through significant financial incentives and tax holidays for the entrepreneurial enterprises located in those zones. At the same time due to these incentives, these zones act as attraction sites for angel investors and a series of business incubation. According to (Ahlstrom and Ding, 2014, pp.615), the Chinese government has also facilitated entrepreneurship by encouraging a number of multinational joint venture and lifting more experienced entrepreneurs. This increases the quality of young innovative talents by training local entrepreneurs in terms of creativity and effective project management. Relying on their experience, the government encourages more experienced entrepreneurs to branch-out or make relative investments in starting businesses. The outcome is that the Chinese entrepreneurs are currently considered astute and more affluent than their former counterparts not because of the same features are seen in the Western developed nations but due unique motivations and cultural influences seen in modern China.
According to a recent survey, as a result of these unique feature found in the modern day China, Chinese entrepreneurship and innovation are taking a different approach in business compared to most Western economies. For instance, most Chinese successful innovators have mastered the Chinese markets and an art of integrated innovation to meets the needs of the local consumers. (Li, 2007, pp.298) states that the Chinese entrepreneurs apply the same ideas as the Western companies do in the production of goods and services, however, the end product does not necessarily look the same after a series of rebranding and localization and oftentimes fulfill the needs of the local consumers than a foreign product would. Similarly, despite the effects of the Great Firewall of China and other government interferences, the Chinese entrepreneurs have an incomparable knowledge of the local markets and can easily identify the unmet needs of the local consumers. These innovators have mastered the art of circumventing the government barriers to source ideas from foreign markets and create a demand of goods and services that were otherwise lacking in the local markets (Gupta and Wang, 2016). Furthermore, these class of entrepreneurs carefully put...
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