The business service industry is a relatively young and prosperous industry. Small and medium size enterprises (SMEs) account for some 70 percent of those business service industries. Research shows that SMEs differ from their larger counterparts in that SMEs generally provide services to other small and medium sized firms, and are also geographically closer to their clients than larger sized firms. In contrast to big enterprises, it is relatively rare for SMEs to form alliances with other firms from the same or different areas of business. Another finding of this paper suggests that on average, big enterprises' own evaluation of their improvements in competitiveness is better than that of SMEs.
Successful SMEs often rely on a strong or differentiable value proposition based on a specific technical competence aimed at a niche market segment. They have carved out a space in the market based on patented technology or process expertise developed over many years.
Entering China typically requires that they transfer this intellectual property (IP) in some form to the local market. Given China's lack of legal protection for IP rights and track record of IP abuse, the risk that a company's "crown jewels" could be compromised is high. For an SME, this leakage could deal a fatal blow.
Another risk arises from the fact that SME management is typically thinner than that of a large, diversified company. A China initiative often requires key functional managers to dedicate substantial time and thus draws their attention away from the core business or other new projects. The CEO, top engineer, supply chain director, and other senior executives generally need to be part of the core China team and spend time in-country to get a direct sense of the opportunities and challenges. This investment of senior personnel can result in a...