SME innovation in Zhejiang, China

Abstract

PurposeThe purpose of this paper is to critically examine the barriers to innovation in Chinese small and medium enterprises (SMEs).Design/methodology/approachInterviews with 39 SME owner‐managers, industry bodies and relevant government authorities were gathered and analysed.FindingsThe key finding is that Chinese SMEs may be at risk of being stuck in a high‐level equilibrium trap and that the improving macro‐environment might not change embedded innovation constraining hierarchical management and guanxi networking.Originality/valueKey contribution is the characterisation of Chinese SMEs as stuck in an equilibrium trap along with a description of the conditions that cause it. Importantly, this paper explores these issues by juxtaposing macro‐environment conditions with the rational firm‐level behaviours that they prompt.