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The Management of Small and Medium Enterprises

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Topic: The Management of Small and Medium Enterprises - Literature Review


Small and medium-sized enterprises (SMEs) contribute significantly to the overall economy of china. Majority of SMEs in china are privately owned. China has created general and particular trade policies and regulations to enhance their growth and development. In the last two decades, SMEs in china have become a significant part of the economy under a number of supporting policies and an expanding market economy. According to Zhao (2007), support from the government as well as an expanding market economy have substantially contributed to their growth particularly in terms of income, employment opportunities, export expansion and economic structure optimization. Currently, SMEs in china are responsible for more than 75% of employment opportunities in urban centers and nearly 60% of the GDP (Zhao, 2007).

For a period, majority of scholars have agued that organizational theories and models designed for large organizations could be directly applied to SMEs (Boyd & Nicolo, 2005). But in recent times, industry players have clearly demonstrated that there is a big difference between the SMEs and large organizations as indicated by Paulson (2008). This is because SMEs are confronted with numerous obstacles as opposed to large organizations. These obstacles are listed by Antkiewicz & Whalley (2005) to include lack of funds and socialized services, less access to market and poor management among others.

The main purpose of the present paper is to examine trade policies in china and their advantages and disadvantages to small and medium-sized enterprises. With examples, this paper will also explore whether there are foreign small or medium-sized enterprises in china. It will also examine the key issues that china needs to address to enhance the growth of SMEs.

Laws and Policies Concerning the Promotion of SMEs

SMEs are the backbone of the Chinese economy according to study findings by Antkiewicz & Whalley (2005); Dunaway & Li (2005) and Lardy (2002). In view of this revelation, China has put in place trade polices and regulations that help in promoting their growth and development. These policies are geared toward improving their operational environment and increasing employment in both urban and rural areas as indicated in a World Bank report (2008). They are also aimed at exerting their significant influence on national economic and social development (Wang, 2004).

At the present, majority of provinces and regions in China have formulated their administrative rules and regulations for enhancing the development of SMEs as noted by Paulson (2008). Moreover, the corresponding authorities and departments of the national government have issued several documents covering market access, the fiscal financial mix, enhancement of government control and administration, technological innovation, development of global markets and creation of service systems for SMEs (The World Bank, 2008).

The government of China has developed legislations, policies and regulations related to the growth of small and medium-sized enterprises. The Small and Medium-size Enterprise Promotion Law was enacted by National People's Congress in 2003 according to reports by Paulson (2008). This law supports the SMEs by enhancing their operational environment, maximizing the use and provision of financing and other essential social services (Paulson, 2008). Securities Law and Cooperation Law was revised in the same period to offer small and medium-sized enterprises unbiased position and treatment in accordance to the law (The World Bank, 2008). In 2006, the Program of the 11th Five-Year Plan of Development of the National Economy and Society raised the specifications to implement the project supporting SMEs.

In accordance to the corresponding legislations and regulations, an RMB 3.51 billion special support funds were issued by Ministry of Finance (MOF) toward improvement of small and medium-sized enterprises. These funds were intended to benefit SMEs in a number of ways such as in technological updates, specialization, expanding markets and facilitating an enabling environment (Wang, 2004). These facts represent a solid ground for improvement of small and medium-sized enterprises.

China's Trade Policies

In the last two decades, China's trade policies have transformed remarkably. This is attributed to the opening-up, participation in APEC as well as China's accession to the World Trade Organization (WTO) (Bhattasali et al, 2004). This in essence led to the elimination of trade barriers and reductions of tariff levels. As an example, zero tariffs on raw materials imports started in 1999 to supplement the local supply as espoused by Mattoo (2003). The World Bank (2008) argues that these changes in trade policies have resulted in considerable shifts in trade flows.

Currently, China is an important link to a broad, finished product chain globally. A rapidly increasing share of raw materials sourced or imported into China is in the form of finished products as indicated in study findings (Agrawal, 2001). China's export market growth is reported to have been driven substantially by finished products such as paper and a plethora of other products (Ash & Vojislav, 1996). This trend is in line with the Government's efforts to limit exports of raw material and promote exports of finished products. In fact, Harper & Roy (2000) claim that nearly all of the in China products come from SMEs. A recent research effort reveals that majority of enterprises across all sectors of the economy in China are SMEs (Zhao, 2007). The study also observed that SMEs played a vital role in exports in China. With the accession to the world trade organization (WTO) and favourable export and global market exploitation policies, Chinese small and medium-sized enterprises are reported to have become ever more involved in the international market (Bhattasali et al, 2004).

Even though VAT rebates are slowly being removed particularly on products such as timber and pulp, it is anticipated that they will remain in place for the near future on finished to promote exports of the same goods (The World Bank, 2008). Any



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