The concept of competitiveness permeates every aspect of all businesses. It is an issue that concerns large corporations and small enterprises alike. However, while established companies with vast resources and connections can use them to expand and develop further dominance over the market, small and medium enterprises (SMEs) do not have the same tools (Żmuda, 2017). Thus, the conversation about factors influencing SMEs’ competitiveness and ability to survive on the market is one of the major topics in business research. The question of what makes firms competitive is not unique to one industry or region. Moreover, it is not limited to viewing companies’ success as limited to their city or country. The idea of global or international competitiveness can be considered for SMEs as well. At present, business relations between nations and increasing connectedness of the world allow small companies to operate overseas (Wu and Parkvithee, 2017). Therefore, current research studies consider what impacts the success of SMEs from various countries on the global market.
Purpose of the Study
The purpose of this quantitative research is to explore the factors that positively and negatively impact the international competitiveness of SMEs, focusing on the information and case studies from China and Zhejiang province, in particular. Thus, various factors identified in the literature review are used as control variables, and the measures developed by Zou and Stan (1998) are employed to measure SMEs’ international competitiveness. The target population under investigation is SMEs operating in Zhejiang province. The study will focus on factors outlined in secondary sources due to the current restrictions of personal meetings or communication (Huiyao, 2020). As many businesses do not operate in their usual ways because of the COVID-19 related changes, secondary data is preferable for exploration.
The research surrounding the competitiveness of firms often does not consider SMEs in particular. Studies by Nasiri, Sultan and Alleyne (2018) and Peña-Vinces et al. (2017) show the gap in knowledge about factors that are particular to small businesses. However, these investigations focus on other regions, using European firms as the main source of information. While these studies can provide Chinese entrepreneurs with some valuable data, they do not cover the unique aspects of Chinese markets and business principles. This is the first area of the significance of the present research. Second, the exploration of Chinese SMEs’ competitiveness is valuable because of the role such small firms play in the national economy. According to UHY (2013), SMEs are responsible for almost 80% of all jobs in the country, and their industrial input is about 60%. These numbers demonstrate the significant contribution of SMEs’ to China and raise the question of how these companies can be made even more competitive to rival international or foreign businesses.
The role of SMEs discussed above and their unique position in China as major providers of capital and jobs allows one to formulate the question for the present research. The global nature of the current market forces both large and small companies to think about their international potential while assessing threats from foreign rivals (Gu and Yan, 2017). SMEs have to compete with each other, major local corporations, and global companies operating in China. Apart from that, they have to consider what factors could help them expand and take a share in the foreign market. The study examines several levels of factors, including global, national, industrial and enterprise, to capture all possible factors influencing performance. Therefore, the primary research question is: What factors increase the global competitiveness of small and medium-sized enterprises (SMEs) in Zhejiang, China?
The following objectives are outlined based on the research question:
- To conduct a literature review on the topic of global competitiveness to develop the theoretical foundation for the study.
- To present the theoretical framework that describes the data collection and analysis of the competitiveness of small and medium enterprises (SMEs) in Zhejiang, China.
- To adopt a suitable research design that adequately realises the research objective.
- To collect data about factors influencing global competitiveness for SMEs in Zhejiang, China, from secondary sources.
- To perform the analysis of collected data using a quantitative methodology and the selected partial least squares path modelling.
- Using analysis’ results, to identify the factors that increase the global competitiveness of SMEs in Zhejiang, China, and make recommendations to SMEs for future actions to increase competitiveness.
- To identify limitations, future research questions and the paper’s theoretical and practical value for SMEs in China.
Summary and Structure
The position of SMEs in the Chinese economy makes their success potential a valuable topic for investigation. The gap in knowledge is the factors that impact Chinese SMEs, in particular, is identified, as the background research is focused on either large corporations or SMEs operating in Western countries. Thus, the research question proposes to investigate factors of international competitiveness using case studies from Zhejiang province.
The investigation is conducted in several steps – in Chapter 2, the literature review on the topic of international competitiveness is undertaken to develop a theoretical basis for the study. Next, Chapter 3 describes the methodology chosen for this project, discussing the research design, variables, sample, instruments, sources of data and the procedure for data collection and analysis. Chapter 4 presents the results of the data analysis process. Finally, in Chapter 5, the results of the study are discussed, and recommendations, implications and limitations of the research are considered.
Research surrounding business topics is abundant with studies about success factors, competitiveness and industry analysis, which can make one think that every potential question in this area has been answered. A literature review of the scholarship is, therefore, vital for any investigation, as it builds a foundation for research and future considerations. In this study, the problem under discussion is the factors of global competitiveness for SMEs in China. Here, such concepts as competitiveness and international competitiveness need to be examined. Moreover, the state of business in China and other countries is another part of the review.
The following review has a thematic structure, with sources organised according to their purpose and focus. The search for relevant scholarly works was conducted using such databases as Google Scholar, and multiple journal articles, books, conference papers and theses were located. The scope of the review includes recent studies to show the latest findings in the business sphere, which is continuously evolving with time. In the end, the conceptual framework is formulated based on the analysed scholarship and the present study’s purpose.
The issue of competitiveness is as old as the existence of businesses; thus, the search for studies has to be narrowed to recent publications that are interested in globalisation and small enterprises. More than that, a particular understanding of competition can limit the number of suitable sources further, providing one with a reliable representation of the current research. For this study, competitiveness is defined as the enterprise’s ability to sell goods or services in the chosen market in comparison to other firms in the same sector. This type of competition can be applied in both domestic and international markets.
The investigation of firms’ international competitiveness is a newer subject in scholarship in comparison to its domestic counterpart. According to Olczyk (2016), despite the long history of scholarly studies on the topic, there exists a lack of a theoretical foundation for international competitiveness. According to the author, this concept is often misunderstood or interpreted differently as every researcher attempts to create their own model for studying. As a result, while the scholarship is overflowing with articles, q solid basis that can be used for comparison with other findings has not been established.
Capobianco-Uriarte et al. (2019) mirror this conclusion, although they show the research on the topic of competitiveness is in the spotlight right now. Both national and export competitiveness is the centre of many studies, and such countries as the United States, the United Kingdom and China lead the exploration (Iammarino, McCann and Ortega-Argilés, 2018). These analyses of available research lead to several conclusions. First, it may be challenging to collect data that would adhere to a single model of measuring international competitiveness factors for companies. Second, the research has to be based on a particular model to avoid losing focus within the vast number of available articles.
Research on Specific Factors
The review of chosen studies demonstrates that most articles do not view the larger picture; instead, they decide to concentrate on a specific industry, country or factor that influences international competitiveness. Among the latter, one may find such areas as governmental support and policy, technological advancement, innovation, tangible and intangible resources, intellectual capital, company flexibility and others. While these studies do not consider the same conceptual model, they reveal which factors the scholars deem essential for businesses to succeed abroad, thus presenting valuable knowledge for the present investigation.
For example, governmental support is one of the factors that is examined in connection with the success of large and small companies. Gassie and Hu (2016) consider whether the supportive policy in China and Europe has the potential for increasing the competitiveness of SMEs. The authors discover that both countries’ approaches to helping small businesses have their benefits and drawbacks. While China’s centralised control is expansive, Europe’s strategy is dynamic and localised. However, both economies have to recognise the growing role of SMEs and how vital policy can be for their growth.
The findings in the study by Appiah et al. (2019) support this idea, highlighting the role of the government in increasing the international competitiveness of SMEs. In particular, they suggest that export-led programmes for SMEs can encourage the firms to offer their products in foreign markets, even if the country does not have substantial financial resources. Another research conducted by Rammer et al. (2017) looks at how energy policy affects firms from several European countries; the authors note that restrictive policies can have a small impact on competitiveness if the firms have enough resources to innovate with the industry. Thus, the role of available resources becomes interconnected with government assistance.
Another factor investigated in the studies is capital – intellectual or intangible resources are at the forefront of the discussion due to their growing role in the digitalised world. Sanchez-Gutierrez et al. (2016) consider SMEs in Mexico and their intellectual capital, which includes intellectual property, intangible assets, knowledge and learning. They discover that the information SMEs obtain directly influences their competitiveness, also noting the importance of education and feedback on the development and use of intellectual capital. Furthermore, Mulliqi et al. (2018) focus on human capital – workers’ level of education and overall industry-related knowledge. According to their research, the labour force’s educational attainment increases the international competitiveness of the firm, especially in transitional economies.
The role of innovation in the growth of SMEs is linked to outside influence by Stawasz (2019), who researches the impact of business advice on competitiveness. The scholar states that business knowledge and a firm’s capacity to absorb this knowledge can increase the business’ success. Finally, Jona-Lasinio and Meliciani (2018) appraise the impact of intangible capital and state that it is the most critical driver for international competitiveness and economic growth. This can be explained by the effects of the fourth industrial revolution, which incorporated smart technology and shifted the world economy toward digital practices (Liu, 2017).
Innovation and particular characteristics of a company is another point in the analysed scholarship. Bugnar, Mester and Fora (2016) argue that developed countries’ ability to engage in rigorous research and development gives them an upper hand on the international market while developing nations have to manage their resources to offer unique ideas and products. Here, the number of patents is not as significant as the overall commitment to change in all areas, including social changes and education. Haldar, Rao and Momaya (2016) explore the flexibility of corporate governance as one of the drivers of international competitiveness. According to the scholars, the size of the firm, the intensity of marketing and development and flexibility positively correlated with a firm’s potential to compete in the global market.
Lastly, the factor of financial risk is another point of research that is represented in scholarship. For instance, Belás and Sopková (2016) determine that small Czech companies’ make-up impacts their opportunities on the local and international markets. The researchers connect financial risks with company size and the age, education and even gender of employees, although these results depend on the country. Another study by Belás et al. (2018) considers how starting funds, motivations, and risk management influence financial risk and the opportunity for better performance. According to their analysis, the environment of a company can affect its self-perception in a high-risk situation. While this finding is not directly linked to competitiveness, it presents the role of the motivations and goals of the business on its ability to change.
Research on Specific Industries and Countries
While many studies consider a particular factor that can affect a business’s potential for international competitiveness, a variety of articles choose to appraise the opportunities of a whole industry or even country. These types of research shift their attention away from narrow concepts and look at cultural and national differences that can impede and assist companies. The present literature review shows that both large companies and SMEs are represented in scholarship, but the heterogeneity of local cultural and economic capabilities provides a challenge to find a unifying number of factors to appraise one’s global competitiveness.
In European countries, the research on the role of SMEs and factors affecting their performance is abundant. Nasiri, Sultan and Alleyne (2018) look at barriers and issues that French SMEs have when trying to enter international trade. The authors find a lack of incentives to expand globally as well as a variety of price and non-price factors that lead to a decline in competitiveness. As a result, most SMEs in the country operate locally or nationally, and the competition between them is intense, which is made even more difficult due to the products offered by neighbouring countries’ SMEs. Furthermore, Westerlund et al. (2017) consider Finnish SMEs; they discover that the business model and inter-organisational networking are the main factors to increase global competitiveness. Thus, they highlight the role of non-price factors described in the previous study, perceiving them as both barriers and opportunities for expansion.
Overall, the research in European countries is focused on the common opportunities of SMEs rather than particular industries. Kowalski (2018) compares foreign and local companies in Central and Eastern Europe and finds that the firm’s staff education, high wages and overall innovativeness increase their ability to export products and services. Thus, it can be seen that the developed countries’ scholarship does not find it necessary to make strong distinctions in products, but sees national development as the central part of the investigation.
In contrast, the variety of studies from other regions finds it important to discuss both a particular industry and a local setting, when apprising competitiveness opportunities. It is possible that, in these countries, some industries are more developed than others, or that federal support is directed at a limited number of economic sectors. An article by Vu and Pham (2016) explores the garment industry of Vietnam in comparison to China. The authors determine that Vietnam’s competitiveness is lower than China’s in the four outlined attributes – factor conditions, firm strategy, demand conditions and supporting industries. Similar factors contributing to competitiveness are investigated by Peña-Vinces et al. (2017), who evaluate the state of SMEs in Peru. Here, scholars outline five aspects – global competitiveness, industry collaboration, host country environment, human capital and the firm’s age and size (Peña-Vinces et al., 2017). This model acknowledges the outside influence of the host country, while other factors align with the ones discussed in other studies.
Asian, Latin American, and African states’ research highlights the role of the country and its particular characteristics in measuring competitiveness (Cardoza et al., 2016; Khan and Abasyn, 2017). Matrutty, Franksisca and Damayanti (2018) examine the economy of Indonesia and the opportunity of local SMEs and find that the government does not provide sufficient resources, which lowers the rate of competitiveness. Nonetheless, they list factors similar to articles mentioned above – supporting industries, demand and production. Talking about Caribbean firms, Wanjiru and Prime (2018) outline the role of government institutions, market regulations and stabilisation. As one can see, the findings align with the rest of the reviewed literature, primarily referring to developing economies where government support is crucial.
Finally, as noted above, China is one of the leading hubs of research on the topic of international competitiveness. Nevertheless, the studies’ distribution is similar to the scholarship about developing countries – it is separated by industry rather than particular factors. However, there are useful exceptions that focus on drivers of success. One of the major sectors under investigation is manufacturing – Liu and Xie (2020) use this sector to appraise the role of environmental policy on international competitiveness. The analysis reveals that certain types of regulation improve the level of competitiveness, including the induction of new technology and process innovation (Liu and Xie, 2020). On the other hand, compliance policy enforced though financial limitations slows the growth of businesses down and lowers their expansion abroad. One of the highly-polluting industries is steel; Popescu et al. (2016) come to a similar conclusion, pointing out that sustainable options can positively increase the competitiveness of Chinese manufacturers, while also decreasing environmental harm locally and internationally. Here, one can interpret these findings as the changing role of industry environment and the global strategy of the company in its potential to compete.
In the study about technology-intensive industries, Del Giudice et al. (2019) find that digital and social technologies drive growth and increase global competitiveness. Moreover, the authors highlight the role of horizontal spillover in the industry – intangible assets become a valuable addition in the market guided by innovation. This study is a mix of industry-specific and factor-driven analysis, where both topics are merged to show how one segment of the economy can benefit from change.
The research by Cheng and Yiu (2016) examines the history of Chinese businesses, and the authors propose the country to develop the system further, strengthen the protection of intellectual property, improve creative education and loosen the connections between politics and business. While this research considers primary factors for enhancing the international competitiveness of local companies, it fails to consider SMEs. As can be observed, scholarship on Chinese industries fails to acknowledge the great role of SMEs in the country’s economy (Fornes and Cardoza, 2019). Some exceptions include studies by Su et al. (2020), Ying (2017) and Besharati (2018) – they a narrow focus on Chinese SMEs. Su et al. (2020) examine the role of global value chains and networks in the internationalisation of the small businesses, which is close in its conclusions to some works on European markets. Nonetheless, this article covers only one factor that could enhance international competitiveness, and other studies focus on the social concept of foreignness.
The review of such concepts as competitiveness and international competitiveness in recent scholarship demonstrates great heterogeneity of works. Many scholars are concerned with these topics, but they do not adhere to or propose a universal model for appraising factors affecting a firm’s competitiveness. Some studies, such as the one by Żmuda, attempt to introduce a framework that incorporates a variety of aspects that can make a company successful abroad. Otherwise, most articles focus on one factor, country or industry in their examination.
Out of the considered studies, it can be seen that the scholarship in developing and developed countries differ in their primary aims. Articles discussing European business, mention the role of SMEs often, looking at specific factors that create challenges or help small businesses thrive. In contrast, research about developing economies is more focused on cultural specificities of countries and their financial capability to support an entire industry, and the specific place of SMEs is overlooked. In China, both types of scholarship are present, but they appear in varying sizes. Furthermore, there are no studies that explicitly discuss the factors that ensure the international success of Chinese SMEs. This is the gap that is identified in the literature review.
The shortage of knowledge related to particular factors affecting SMEs in China creates the basis for this study. The need to compile all aspects of a business that positively affect international competitiveness is the aim of this research, and it can introduce new information for future studies. The literature review shows that the combination of factors affecting SMEs can be used to analyse SMEs from particular industries or provinces, merging the narrow view of developed countries’ approach and developing countries’ cultural issues. This specific project concentrates on all factors affecting SMEs in China and looks at their interrelation and impact.
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