185). Not all industries have shared the positive experiences of the mobile telephone industry in China, though, and a number of obstacles and challenges remain firmly in place that tend to hamper innovative practices in China, and these issues are discussed further below.
Obstacles and Challenges to Innovative Practices
Obstacles and challenges to innovative practices can adversely affect an enterprise's two fundamental innovative activities, (a) product innovation and (b) process innovation (Lin & Lin 2010). Typically, higher product quality is related to higher production costs, while process innovation attempts to minimize such production costs (Lin & Lin 2010). In either case -- and given the enormity of the markets that are involved -- even small innovations can result in a huge savings and a solid competitive advantage for Chinese firms (Lin & Lin 2010). There are a number of factors that continue to hamper the innovative process in China, though. Currently, the Chinese government faces numerous general obstacles and challenges, including:
1. Reducing the country's inordinately excessive domestic savings rate which adversely affects domestic demand;
2. Sustaining adequate job growth for tens of millions of migrants and new entrants to the workforce;
3. Reducing corruption and other economic crimes;
4. Containing environmental damage and social strife related to the economy's rapid transformation; and,
5. Inflation remains a problem as well as the amount of debt incurred by local governments in their rush to jump on the economic development bandwagon in recent years (China 2011).
In this environment, it is reasonable to suggest that some types of industries will enjoy some advantage over others in terms of their ability to innovate and this has been the case in China in recent years. For example, according to Cliff, "The macroeconomic environment, competition, and factor markets provide mixed incentives for technological innovation in China. Some aspects of the macroeconomic environment stimulate technological development; while others inhibit it" (2001, p. 50).
The Chinese government's most recent emphasis on promoting the country's domestic market may in fact also end up backfiring on them despite the efforts of policymakers to maintain stability and continued economic growth. In this regard, Cliff also points out that, "The high economic growth rates China has been experiencing are a major stimulus, as they mean that the market for new or improved products is rapidly expanding. Growth rates have tended to fluctuate greatly, however, and uncertainty about the domestic economy may discourage innovation" (2001, p. 50). Likewise, Cliff (2001) cites the continuing problems with inflation that have defied government intervention that may discourage foreign long-term investment in technology-related initiatives.
Moreover, and although things have definitely changed for the better from just a few years ago (at least from the perspective of foreign investors), some degree of political instability has also discouraged technological innovation in China (Cliff 2001). According to Cliff (2001), foreign investors remain somewhat leery of the Chinese leadership's commitment to political stability as well as the long-term investments that are needed to bring new innovations to fruition and the global marketplace. In addition, an increasingly competitive marketplace also represents a challenge for the Chinese leadership with respect to the provision of incentives for technological innovation (Suttmeier 1997). Likewise, a number of industries in China already have significant incentives to export their products because this provides them with valuable access to foreign exchange and investments (Cliff 2001). Moreover, China's accession to the World Trade Organization in 2002 resulted in increased competition for the growing Chinese domestic market (Cliff 2001).
Based on their analysis of innovative practices by service and manufacturing firms in China, Lin and Lin (2010) report that the intensity of research and development (R&D) activities is positively related to innovation resulting in larger numbers of patent applications, but such intensity does...
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