A Study On The Transformation Of Export-oriented SME In China

The transformation of export-oriented enterprises in China has been talked about a lot in recent years since the export in China has still relied on the very advantage based on cheap labor force and source while the sustainable development has become the mainstream both in China and in the world. However, the whole society has not paid enough attention to the issue until the break out of the financial crisis in 2008. Although the labor shortage has been temporarily eased as the result of the crisis, the more important is that the crisis and its outcome have implied that how significantly China's export even the economic development rely on the external environment and forced the government and the enterprises to take the transformation seriously. And the intensified eruption of labor shortage before and after the spring festival in 2011 shows that with the domestic economic and social development, it is urgent to realize the transformation of economic development in order to keep pace with the all kinds of changes at home. What' more, comparing to the large export-oriented enterprises, there are more difficulty in the survival, transformation and development of export-oriented SME due to its disadvantage in scale, liquidity and management and so on. And the article aims to give corresponding advices on the transformation of export-oriented SME after getting a comprehensive understanding on economic development and social progress in China at present which are reflected by the labor shortage phenomena.Through the analysis on the status quo, causation and impact of the labor shortage, the article indicates that with the development of economy and society, the labor force structure has changed fundamentally, which means the constant supply of migrant workers from western rural areas has been history. Instead, the enterprises have to try their best to attract workers by means of raising the salary and providing improved work condition. The change has impacted export-oriented enterprises, especially small and medium-sized export-oriented enterprises significantly with no doubt for their great dependence on cheap labor force. In the last half of the article, the competitiveness of export-oriented SME in China has been analyzed to manifest the necessity and possibility of its transformation and the feasible advices based on the consideration of obstacles confronted by export-oriented SME in China and the experience drawn from the developed countries have been brought up.The first part of the thesis is the analysis on the trend of labor shortage in 2011 and its causation and impact. Over the past 30 years, migrant workers have contributed enormously to the rapid economic development in China. According to the statistics, the amount of migrant workers is up to 14.41 billion as of the end of 2008 and 71% of them are working in the East. And there are distinctive features in the migrant workers group. The workers usually go out for work voluntarily without vocational counsel and information so it is common to see them job-hopping frequently. As.a result, it is impossible to attain necessary social security for them. And the major of the migrant workers are working in labor-intensive industries, which creates the conditions for the hiring trouble in labor-intensive industries. Actually the labor shortage has occurred in eastern coastal areas before and after the spring festival in 2003, which mainly was caused by the workers'dissatisfaction for salary and work condition while the eruption of labor shortage before and after the spring festival in 2011 was reasonable results of intensified contradictions coming with the economic and social development, so it presents some unique trend and characteristics. Due to the industrial transfer from eastern costal areas to midland, the labor shortage has spread to midland gradually and in some extreme cases, enterprises in the East have to compete for workers with those in the West and midland. Another characteristic is that, unlike the previous situation, enterprises in the eastern coastal areas are in need of skilled workers as result of industrial upgrading. And the labor shortage mainly occurred in labor-intensive SME. Apparently the labor shortage has impacted the economy negatively. Firstly, the international competitiveness of labor-intensive enterprises, in this case that would be export-oriented SME has been weakened and there is a chance that small export-oriented enterprises depending on cheap labor force experience cash flow problem even bankruptcy. On the other hand, the attraction of foreign investment has been lowered for the cheap labor appeals foreign businessmen most. What's worse, capital flight will happen in some original foreign investment and local capital. Therefore, with the development of economy, the impact of migrant workers shortage will spread from certain areas and industries to more comprehensive levels. So there is no doubt that the increasing labor cost will affect China's attractiveness to foreign investment and impact the economic development. Nevertheless, just like a coin has two sides, the labor shortage also has its positive impact on economy and society. To begin with, labor shortage will compel enterprises to change their management and help to improve the salary and work condition for migrant workers. And the government will be urged to set up regulations and take action to guarantee the vulnerable groups also could enjoy equal rights, which is a part of building a harmonious society. Secondly, the happening of "labor shortage" will stimulate China to change the development pattern and realize comprehensive, coordinated and sustainable development. In the past 30 years, China has achieved great success in economic development, while political, cultural and social development has lagged far behind the economic development. And only we change the concept and pattern of development can all problems be improved and solved. Firstly, the happening of "labor shortage" compels the government to change economic development pattern depending on cheap labor and resource to sustainable development pattern. Secondly, the incident will force the government to adjust industrial structure and lead labor-intensive industry to transfer to rural areas, western regions and midland where are abundant in labor force, which will promote the development of the rural areas and the West. And it would be helpful to narrow the gap between cities and rural areas. Also, the incident will impel the government to pay more attention to political, cultural and social development instead of focusing on economic development.The second part is about deeper reasons that caused the happening of labor shortage. On the part of enterprises, the wage growth of migrant workers is far slow comparing to that of urban employees. What's more, the prices are surging in recent years while the salary of the migrant workers could not catch up with it, which means their living standard is actually lower. Secondly, migrant workers have to work under the unpleasant work condition that may put their health in risk. In addition, there are some rights infringements for migrant workers in small and medium-sized enterprises such as embezzling payment, not paying workers on time, extending work time without paying off overtime payment, depriving workers'vocations, not signing labor contraction and not covering social insurance. Another reason caused labor shortage is the demand and supply of labor force is unmatched. The enterprises tend to hire young workers arid skilled workers while the fact is that the supply of young workers is decreasing and the number of skilled workers is relatively small, which caused the so-called structural unemployment. On the part of social systems, security system for migrant workers lacks and the current social security system is basically applied to urban workers; at the same time, the insurance rate of social insurance, medical insurance, industrial injury, pension and unemployment insurance for migrant workers is relatively low and the most of migrant workers are not able to get minimum living standard security. Secondly, although it has been several decades since the first generation of migrant workers left their hometown and entered city, the discrimination against them still exists even though the economy and society have developed remarkably. Meanwhile, the outcomes of national policies have partly caused the shortage of labor. Firstly, as the result of the continuous practice of favorable agricultural policies, the enhancement of farmers'income makes opportunity cost of going out increased and in turn reduces the attraction in working in cities. Secondly, the family planning policy carried out in middle 70s of last century has caused a faultage in population growth and the supply of young workers could not meet the demand in the market for labor. In addition, the ideas of migrant worker have also changed. Migrant workers of old generation choose to return to their hometown for they do not be needed any more and workers of new generation are with high education so they have different opinions about job, career and life and the high expectation makes them have the courage to choose jobs and resign their jobs at any time only if their legal rights have been violated or their requirements could not be satisfied.These dramatic changes in labor market conditions have caused the discussion about that whether China's Lewis turning point is coming. Whether China is experiencing the Lewis turning point, the labor shortage definitely will exert a dramatic influence in China's economic development. Labor-intensive manufacturing is likely to lose out quickly after the Lewis turning point.The third chapter analyzes the competitiveness of export-oriented SME in China through SWOT analysis. As for strength, the export scale of SEM has increased year after year and those SME has occupied increasingly growing market share, which has provided a good groundwork for the upgrading. Besides, the SME owns the advantage of changing business strategy flexibly according to the changes in market and making efficient strategic decisions due to the relatively small company size. In addition, industrial clusters development in eastern coastal areas makes the core competitiveness establishment possible through information sharing, innovation developing and brand building.What needs to be paid more attention is the weakness of export-oriented SME. Firstly, the export goods from Chinese enterprises are with low-added value and lack of originality. The goods mainly are generic processed products and OEM products with low-added value, which explains why China has large export scale while the value created by export is not that satisfied. And the lack of originality in exports products means the lack of core competitiveness. Secondly, the marketing for export goods is also not so perfect. It is well known in modern business that brand is intangible assets for company while Chinese enterprises averagely lack of brand awareness, brand building and brand protection, which put their products in disadvantaged position in international competition nowadays. Thirdly, there are many problems in management in export-oriented SME in China. Usually the management may not be improved according to the development of company and the whole company may be inefficient due to the defects exsiting in organizational design. And the most distinctive feature of SME is that the owner will put his interest and experience first and ignore the importance of regulations and team management, which results from its private property. So business development is vulnerable to any change for having no well-established system to guarantee its growth. Fourthly, the export-oriented SME has not invested enough money and energy into the technological development and innovation. The drive of technological innovation lies in the ability of R&D in the enterprise while the development of R&D is determined by the investment of the enterprises. And without innovation, the enterprises will have no chance to be leading in the market but to follow and imitate others. With the development of globalization, the prosperity of finance and transportation and the booming of modern technology, it is opportunity for export-oriented SME in China to take advantage of those progresses to realize their upgrading and development. However, opportunities always come with threats. As the export scale of China has enlarged continuously, China's economic development has exposed to and relied on external environment increasingly. As a result, any change happened in global environment will affect the China's economy and the development of export-oriented enterprises, just like what happened after the finance crisis. Meanwhile, the situation will make Chinese enterprises the target of trade protection. And the reality at home is not so optimistic as well with the rising of cost and the appreciation of the RMB. From above analysis it is obvious that the transformation of export-oriented SME in China is not necessary but also possible.The fourth chapter has discussed the specific obstacles confronted by export-oriented SME as small and medium-sized enterprises in China. First of all, there is no healthy and supportive macro-administration system for the development of SME. In China, The Law of Promoting Small and Medium-sized Enterprises has been put into effect in 2003 while there are a number of defects in the law like some clause are not specific enough and maneuverability are comparatively poor. And the division of the enterprises according to industry category rather than enterprise scale is not reasonable so not helpful to promote the SME development. In addition, there are some policy, discriminations that restrict the development of SME. The main deterrent for SME is difficulty in financing which is caused by its quality and by the environment as well. The SME inclines to falsify their accounts to evade taxing, which results in increase of credit risk and difficulty in attracting external finance. On the other hand, the defects existing in financing system and service of commercial banks also have influenced the fund supply for SME. As the main channel of SME financing, the four major state-owned commercial banks and several national commercial banks pay more attention to large enterprises in big cities. What's more, the finance service that SME could get is limited at present. What's more, there are several defects in lending mechanism of commercial banks such as irrationalities in real estate mortgage, complicated procedure application, the restraint on lend money between enterprises and the lack of direct financing means. Moreover, the government has not provided perfect and supportive public service for SME in China. It is impossible to establish R&D institution and market research center for every SME, so it is necessary to set up intermediary organizations with professional knowledge to provide systematic socialized service while In China, public service organizations are not very developed and grow up slowly. Lastly, the burden on small and medium-sized enterprises basically is external burden comprising of all sorts of tax and fees that are quietly heavy comparing to that of state-owned enterprises.The next chapter introduces the experience accumulated by the developed countries regarding to the resolution of labor shortage and the development of SME. England in the early industrialization and Japan after WWⅡhad all experienced labor shortage for different reasons and the situation in China at present is similar to that in Japan after WWⅡ. But there are a variety of experiences we can draw from such as providing training project for employees and changing management practice to achieve harmonious employer-employee relation. As to the promotion for SME development, Japan and America have adopted totally different measures. In America, the government plays the role of defender for consumer sovereignty and the SME exists to contend against the large enterprises to keep free competition in market and promote effective distribution of resource while the government played a fundamental role in industrial structure transition and SME policy in Japan, which is characteristic of industry-orientated.The lesson we can draw from above comparisons is that although there was not a fair competition environment for the small and medium-sized enterprises in China for historical reason, it dose not mean that all the government can do is to give special support to the small enterprises through establishing and carrying out preferential policies. It should be clear that the key point of promoting the SME development and economic growth in market economy is maintaining fair competition and keeping economic vitality. In this regard, the American government's attitude and policy orientation to the small and medium-sized enterprises is worth learning.Therefore, the best way to promote the SME development and realize economic growth is not only to support certain enterprises on purpose or let government solve specific problems but to create a free competition environment and a market environment in favor of free flow of source and optimized distribution through institution building.The sixth chapter gives the advice on how to promote the export-oriented SME development in China to different participators. The government should establish and improve financing system and promote diversifying financing, assist SME to explore international market, build all-round service system for export-oriented SME and draw up development strategy for SME. As for the enterprises, it is important to establish core competitiveness and improve added value of products, practice brand strategy. Another approach is to change developmental strategy and turn to domestic market.In conclusion, the intensification of labor shortage after the spring festival of 2011 is the inevitable outcome of economic and social contradiction in China. Through the analysis on the impacts and reasons of the labor shortage, we can conclude that it is urgent to realize the economic transition given the specific situation caused by economic and social development. Through the analysis on the competitiveness of export-oriented enterprises, we can conclude that it is not only necessary but also urgent to upgrade business pattern for export-oriented SME under the condition of overseas decreasing demand, appreciation of the RMB and the changing of national policy. The article gives the advices on how to realize the transformation of the export-oriented SME based on the analysis on the obstacles at present in China and experience drawn from the developed countries. Labor shortage is an evitable phrase during economic and social development while it is safe to say that with the joint effort of the government and the small and medium-sized enterprises, the export-oriented SME will open up new and sustainable development and growth path, which in turn will be helpful to the transition of the economic development in China and realize sustainable economic and social development.