Challenges of SMEs innovation and entrepreneurial financing
| Pages | 295-311 |
| Date | 12 October 2015 |
| DOI | https://doi.org/10.1108/WJEMSD-04-2015-0019 |
| Published date | 12 October 2015 |
| Author | Jarunee Wonglimpiyarat |
| Subject Matter | Strategy,Business ethics,Sustainability |
Challenges of SMEs innovation
and entrepreneurial financing
Jarunee Wonglimpiyarat
College of Innovation, Thammasat University, Bangkok, Thailand
Abstract
Purpose –Today, the financing mechanisms to support small-and medium-sized enterprises (SMEs)
development have been a subject of great interest and a challenge to policy makers as SMEs are
regarded as an important sector contributing to economic growth and stability. This paper is
concerned with the bank financing policies to support SME development in China. The purpose of this
paper is to examine the governmental financing policies and the innovation financing system of China.
The discussions are focused on the bank financing policies to support SME development in China.
Design/methodology/approach –This study is a qualitative research with the use of case study
methodology (Eisenhardt, 1989; Yin, 2003). The research is focused on the policy perspectives of bank
financing to support SME development in the case of China, the world’s fastest-growing economy.
To explore the role of financial institutions and banks in SME financing in China, the research also
derives evidence from a collection of documentary investigation. The research fieldwork and
interviews were undertaken in Beijing and Shanghai, major financial centers in China, with the use of
semi-structured questionnaire. The analyses are undertaken to answer the key questions of: What are
the Chinese government’s strategies to support the development of SMEs? To what extent the
government policies in bank financing can support SMEs and promote the development of an
innovative economy?
Findings –The empirical study has shown that despite the introduction of the 12th Five-Year
National Economic and Social Development Plan to support SMEs development, China still needs to
improve regulatory policies in support of innovative businesses which would help its transition to an
innovation-driven economy. The study provides lessons and policy guidelines to improve the
competitiveness of SMEs in China. The insights from this study can also be applied to other developing
and emerging economies attempting to understand the role of financing mechanisms in building an
innovative economy.
Originality/value –The study has addressed the policy challenges to support SME development in
China, a major Asian emerging country and one of the fastest-growing economies in the world
(with averaged growth rate of 10 percent per annum). The empirical study of policy challenges was
undertaken in Beijing and Shanghai, major financial centers in China. The study offers insights which
can be applied to other developing and emerging economies attempting to understand the role of SME
financing policies and mechanisms in building an innovative economy.
Keywords Sustainable development, SMEs
Paper type Research paper
1. Introduction
China is one of thefastest-growing economies in theworld (with averaged growth rateof
10 percent per annum). In 2014, China was placed in 23rd position according to the
InternationalInstitute for Management Developmentworld competitiveness rankingand
28th position by the World Economic Forum. After joining World Trade Organization
(WTO), China has adopted trade liberalization policies and various government policies
to drive its economy. Small-and medium-sized enterprises (SMEs) play a significant role
in the economy of China as they are thethrust sector that account for 60 percent of total
World Journal of
Entrepreneurship, Management
and Sustainable Development
Vol. 11 No. 4, 2015
pp. 295-311
©Emerald Group Publis hing Limited
2042-5961
DOI10.1108/WJEMSD-04-2015-0019
Received 23 April 2015
Revised 9 June 2015
Accepted 16 June 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5961.htm
The author is thankful to Dr Pravit Khaemasunun, Yanathip Techawiset, Professor Shufen Dai,
Kesrin Ariyaponges and China Thai Chamber of Commerce for all research advice and support.
295
SMEs
innovation and
entrepreneurial
financing
industrial outputsand 80 percent of jobs created in China. TheChinese government thus
realizes the importance of building an innovative economy through enhancing SMEs’
capabilities. In building an innovative economy, the Chinese government has introduced
the 12th Five-Year National Economic and Social Development Plan to support SMEs
development. This paper attempts to understand the challenge of financing innovative
economy through SME development in China.
The paper is organized as follows. Section 2 reviews the theoretical framework on
the banks, financial institutions and their role in innovation. It also reviews the
literature on venture capital (VC) financing to support SME development. Section 3
describes the research design and methods. Section 4 discusses the analyses of findings
with a focus on the bank financing policies to support SME development in China.
Section 5 concludes the paper by drawing lessons and insights that can be used as
policy guidelines to improve the competitiveness of SMEs.
2. Theoretical framework
SMEs are the economic sector making a significant contribution to economic growth
and job creation. However, they often face significant difficulties in accessing the kinds
of financing they need for growth (Pissarides, 1999; Hyytinen and Toivanen, 2005).
Although the studies on traditional sources of finance for start-up are already
voluminous (e.g. Moore, 1993; Gompers and Lerner, 1998, 1999, 2001; Mani, 2004), there
is a gap of research linking the study of entrepreneurial financing to the aspect
of public policies in developing countries. Therefore, this study attempts to fill a gap in
existing research by exploring the bank financing and VC financing to support
entrepreneurial activities. Table I lists the types of financing and sources of capital to
support SMEs.
In filling the research gap, this study will make a contribution to the body of
knowledge in SMEs innovation and entrepreneurial financing. Thus, the structure of the
theoretical framework section will be divided into two parts:
(1) Banks, financial institutions and their role in innovation.
(2) VC financing to support SME development.
2.1 Banks, financial institutions and their role in innovation
Banks and financial institutions play an important role in terms of providing credits to
support the economic growth. Bank financing is critical to the functioning of the
economy since it is an important source of funding to support SMEs development.
Nevertheless, banks and financial institutions are reluctant to provide credit lending to
Investor Goals
Family Success, payback
Friends Payback, friendship
Credit cards Payment
Suppliers Payment relationship
Business angels (private investors) Payback, returns, control
Venture capital Fast growth, multiple returns, ownership
Banks Payback, collateral
Source: The author’s design
Table I.
Types of financing
and sources
of capital
to support SMEs
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