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Mass Entrepreneurship and Innovation: New Impetus to Development
2016-04-07
By Zhang Junkuo, Vice President of DRC& Zhang Yongwei, Deputy Director-General of Enterprise Research Institute of DRC
Mass entrepreneurship and innovation is a major strategy initiated by China on the basis of the needs for the transformation and development as well as domestic innovation potential, in an effort to optimize the environment for startups and innovation, stimulate the limitless wisdom and creativity of the people, and allow those capable of and hoping to have startups and make innovations to have opportunities for displaying their talents, achieve independence through startups and lead a better life through innovation. China has launched a good number of policies for promoting mass entrepreneurship and mass innovation. The environment for startups and innovation has been greatly improved, people have got more opportunities for jobs or startups in quite a few fields new growth areas keep popping up, and the role of mass entrepreneurship and mass innovation in supporting economic and social development is increasingly prominent.
Mass entrepreneurship and innovation does not encourageeveryone to put down their current jobs to set up their own businesses, but most people are related to this issue, because innovation and entrepreneurship is after all not the patent of the minority. Mass entrepreneurship and innovation requires government support and allows the market to play the fundamental role in the process. How to better leverage the functions of both to create a more positive environment for entrepreneurship and innovation is the major issue in such efforts.To prevent the work in mass entrepreneurship and innovation from being unduly understood, degenerating into a fleeting occurrence, or presenting twisted behaviors, it is necessary to further clarify the connotations and significance of mass entrepreneurship and innovation strategy, straighten up the work approaches, improve policy systems and accelerate the building of the ecological system for this strategy.
1. Promoting mass entrepreneurship and innovation is a key strategy conforming to China’s conditions
Mass entrepreneurship and innovation is based on China’s development needs when entering the new normal and aims to forge new drivers for economic development. Having entered the new stage, we cannot carry on with the traditional development model any more. Instead, we must fundamentally rely on the innovation-driven economy, adjust the economic structure, and enhance the quality of economic development. Mass entrepreneurship and innovation is a new approach to exploring the building of the innovation-based country. Through mass entrepreneurship and innovation, more innovation outcomes will emerge in large numbers to complement scientific and technological breakthroughs, thus constituting a systematic and multi-layered national innovation system.
More importantly, mass entrepreneurship and innovation enables the linkage between innovation and startups, driving innovation through startups and boosting innovation through market demand, and thus merging production, education and research into an integrated whole for market to play the decisive role in innovation. New types of operation, new industries and new models will present themselves in the effort of mass entrepreneurship and innovation, while traditional service sectors will be greatly expanded and new growth areas will spring up and make a mickle, thus making mass entrepreneurship and innovation the crucial bolster to shore up economic restructuring.
Mass entrepreneurship and innovation is based on China’s special advantages and huge potential of extensive human resources, as well as the extensive domestic market and a sound industrial system, aiming to stimulate the innovation potential and startup vitality of the whole society. The reform of household land contract system launched in the 1980s motivated the mass enthusiasm in labor. Now China has 1.3 billion population, including over 900 million workforce. If the limitless wisdom and creativity among them is unleashed once again, there will be dramatic shifts in people’s living quality and cultural life. With huge market potential in China, even a segmented marginal market is capable of backing development of thousands of companies. Besides, we are equipped with an established sound industrial system. Seasoned with ideas, imagination and innovative technologies, it is very easy for China to commercialize and mass-produce products more efficiently. With the benefits brought by globalization, there will be more opportunities for startups and higher likelihood for success, which in turn can contribute more to people’s confidence in and expectations for innovation and startups.
Mass entrepreneurship and innovation is based on people’s inherent pursuit of equity in opportunities and rights, and aims to explore new approaches to getting rich through work and achieving prosperity for all as well as ensuring social equity. Through mass entrepreneurship and innovation, people would have better way-out, the unemployed would get income, those having low income would become the mid-income holders, and the income mix would be improved. College students would find more opportunities than merely entering institutions or big corporations; any graduates with skills and capabilities can have startups or do so after accumulating working experience. With increased possible passages towards life success, the problems in employment will be eased. Once mass entrepreneurship and innovation becomes a trend, social atmosphere will become better, people would no longer worship power and influence, but aspire to set up and grow their own businesses through their talents, and there will be a more fair and equitable society.
Mass entrepreneurship and innovation is based on the innate need for overall deepening of reform, and aims to locate more breakthrough points. Historical experience shows that successful reforms are related to people’s interests and can deliver benefits to them as early as possible. Mass entrepreneurship and innovation concerns everyone, and their major concern in entrepreneurship and innovation is what are the sectors that reform is going to make breakthroughs first. To produce more opportunities for entrepreneurs, it is necessary to promote market-oriented production factor reform, especially reform for the monopolized industries and the financial sector; to lower the threshold for innovation, it is necessary to promote government reform, streamline administration and delegate more powers to lower level governments; to raise people’s motivation for entrepreneurship and innovation, it is necessary to improve social credit mechanism, innovation incentives and social insurance system so that people can set out to make innovations and have startups with ease and fewer worries.
2. Mass entrepreneurship and innovation has brought about new changes
The environment for startups and innovation has been improved. Through the government’s reforms of streamlining administration and delegating power to lower-level governments, the combination of power delegation and regulation enhancement, and optimized services, as well as the implementation of policies such as reducing taxes levied on small-and-medium-sized enterprises, resolving difficulty in financing, and promoting “Internet Plus” and “Made in China 2025”, some obstacles that have long hindered entrepreneurship and innovation have been removed, and the threshold for making startups has been lowered. Some highly market-oriented cities have concentrated resources for innovation because they have kept improving the local administrative, market, financing and judicial environment and public services. Evensome provincially administered municipalitiessuch as Shenzhen have attracted a wealth of foreign makers and geeks from America’s Silicon Valley to make startups here. This further proves that improving the environment is the top issue in promoting mass entrepreneurship and innovation.
With the enhancement of people’s passion for entrepreneurship, startup entities have become more diversified, leading to the emergence of more social groups for entrepreneurship. First, the number of overseas students returning to make startups at home has surged from around 50,000 in 2008 to 364,800 in 2014, taking up 15 per cent of the returnees. Second, startups led by scientific technicians have drawn great attention. With the professional knowledge, research outcomes available for application and a keen insight about market demand, these technicians enjoy more advantages than other entrepreneurs as well as more chances for success and more apparent spillover effect of wealth. Third, there is a rising proportion of college students to make startups from 2.8% in 2013 to 6.3% in 2015. Fourth, more migrant workers are also setting up their own businesses either in their hometowns or in the cities they live and work, which has become a crucial approach for migrant workers to get rich in the new era.
The channels leading to entrepreneurship and innovation have becomemultiplied. It used to be difficult to make business startups in the past when technological and social conditions were not adequate and innovation tended to be technological programs conducted within big companies. In this era of Internet prevalence and technological revolution, new enterprises and emerging industries are prone to be born once market demand is generated or capabilities for technological breakthroughs are ready. The past two years have witnessed explosivegrowth of “Internet Plus” or “Plus Internet”, e-commerce, Internet medical care, transport interconnectivity and other types of business forms, constituting many new sectorsfor entrepreneurship and innovation. Those industrial corporations established prior to reform have also turned from exclusive innovation-basedgrowth to inclusive innovation- and platform-based development and their R&D workers have, with the bolster of the innovation-based platforms of big companies,set up their own businesses and offered new ideas and technologies for big companies in return, bringing benefits to both companies and themselves. Crowd outsourcing, crowd support, crowd innovation, crowd funding and other innovative forms have also rapidly developed and some emerging innovation carriers such as Taobao villages, e-commerce platforms, crowd innovation space, new-type incubators, and application bases have sprung up in large numbers. According to primary statistics, there are over 200 Taobao villages, 510 e-commerce parks, over 1,700 incubators of all kinds and 80,000 companies in incubation. At Zhongguancun in Beijing, many “innovation sectors” have occurred such as the sector of Lenovo, the sector of Sina and the sector of Kingsoft, which are mainly comprised of big corporations and numerous newly-born companies set up by some staff from the big enterprises. They are categorized as “sectors” and are dealing with businesses that the previous big companies have no interest in or neglect or are unable to accept such businesses. Therefore, peer competition is absent between them, and there are more cooperation, compatibility, complementarity and coexistence in their relationship since many of the new companies are funded or shared in equity by the original big firms. These sectors of innovation constitute a new kind of innovative ecology.
The employment structure has been transformed. Against downward economic pressure and when some traditional industries need to dissolve overcapacity and deinventory resulting in laying-off employees, the task of providing job opportunities relies more on small-and-medium sized as well as micro-sized companies and the service industry. Through reform of the business system, newly-added market entities in all forms reached 12 million in 2014. 10,000 firms were born each day on average in 2015. The unemployment rate remained around 5.1% in 31 big cities, featuring a stable employment picture despite slowed economic growth rate. This mainly boils down to the fact that emerging market entities have created a wealth of jobs. In terms of contribution by industries to employment, some capital-intensive industries requiring heavy investment, such as steel and the chemical industry, turn out to have a limited capability of creating jobs due to the increasingly more mechanized and smart factories. A steel plant with an investment of at 100 billion yuan needs no more than 2000 staff, creating less than one job for each 50 million yuan of investment on average. If the purpose for creating economic growth is to ensuring employment, mass entrepreneurship and innovation can contribute more to employment, though it will not become the pillar for growth in the short term. Suppose the 100 billion yuan is invested in projects of mass entrepreneurship and innovation, the number of employees it accommodates would be several or even ten thousand folds.
Non-governmental investment has been enlivened. A wealth of diversified market entities will definitely boost and expand investment, with more and more capital channeled into innovation and entrepreneurship. For example, investment by Angel funds, which aim to invest in small-and-micro businesses and early-stage startups, reached 4.8 billion yuan in the first half of 2015, rising 200% year on year, and the investment in early-stage programs accounted for over 60% of the total share. By February 5, 2016, 5687 companies were listed on the N-Board (the new over-the-counter board for technology and innovation), with a total market value of around 2.57 trillion yuan. Crowd funding has witnessed a big size in both supply and demand. The transaction value for crowdfunding in the first half of 2015 reached 5 billion yuan, more than doubled that of 2014, and transaction for the whole year was expected to reach 15 billion yuan to 20 billion yuan, most of which is equity crowdfunding.
3. Respect rules and take scientific actions
Mass entrepreneurship and innovation bears rich meaning and has its own rules. We must have a correct understanding of and respect the rules. It is necessary to both take active action and avoid abuse of power. The key is to manage well the relationship between government and market and make clear boundaries in between. While raising and preserving motivation of all parties, it is also necessary to correct some practices against rules.
We should correctly understand the connotations of mass entrepreneurship and innovation. It does not mean everyone is asked to set up business and make innovation regardless of one’s conditions or the price to pay for possible failures, just like the mass steel-making movement across the country in late 1950s, with herds of people throwing themselves into the mania only to have produced most of all defective goods. “Mass”, in essence, stresses the creativity of the people, while “entrepreneurship” and “innovation” may vary from people to people and should suit local conditions and the time. In terms of innovation practice, those scientific technicians with working or startup experience and with skills in a certain field face relatively fewer risks in entrepreneurship. Whereas college students with great passion may be more likely to fail for lack of experience. That’s why undergraduates or graduates are important participants of mass entrepreneurship and innovation, but not the main entities.
We should have a correct understanding of the relationship between mass entrepreneurship and innovation and niche success. Compared with normal economic activities, innovation features higher risks and entrepreneurshipespecially carries a higher likelihood of failure, with the success rate standing at as low as 5% even in developed countries. Of course, there are no universal standards for measuring entrepreneurship success. Some small businesses were sold in the primary stage, which was no success by statistical standard. But from the perspective of entrepreneurs, it could be one case of asset realization or even an opportunity for successful transformation. But why there are still people willing to make startups despite such a low success rate and high risks? It mainly boils down to incentive guidance and risk distribution. Once the startup or innovation outcome works, the benefits brought to individuals and social groups would be immense, producing a strong positive incentive effect. And this process allows turn-taking between different players, which means everyone has a chance. Therefore, the focus of supportive policies should be put on the creation and preservation of incentive mechanisms. Even failed innovation proves to be beneficial, which at least reduces the trail-and-error costs of the entire society. That’s why the government and relevant social organizations are obliged to share the risks and failures to remove their worries. In this sense, we must improve the social security system and the government must also share necessary risks in investment and finance. Only in this way can we see more and more entrepreneurs and innovators to grow, with no need to artificially change innovation rules for fake success rates. It should be noted that high profits and low rate of success are exactly where the glamour of innovation lie.
We should avoid using the industrialization and campaign mindset to promote mass entrepreneurship and innovation, which should involve diversified entities and decentralized policy-making. In this process, government may find it hard to work in the way of advancing those large-scale industries, with fixed goals and projects, sometimes even directly managed by the government. We cannot harp on the same string any more. This time, we need to use innovative mindset, approaches and means to advance mass entrepreneurship and innovation. Some localities have built some industrial parks for mass entrepreneurship and innovation in a way of racing for land enclosure, and introduced some makers or platforms by attracting investment. It looked like a real fanfare, but due to unsound ecology for entrepreneurship and innovation and for lack of innate economic relations, these bases and parks built in this manner may find it difficult to carry on, unless upgrading and transformation are made as soon as possible. We should also warn against formalism and false campaigns. Some localities even made a simple upgrading to a wet market and overnight it got a board at the gate identifying itself as the maker space. It is such a typical waste of labor and money and has ruined the reputation of mass entrepreneurship and innovation. Even worse, some localities are eager to make good examples and deliver work performance, so some projects with no pragmatic innovation are wrapped into “successful” cases and companies are pushed to introduce experience each and every day. As it runs, even good companies cannot secure a narrow escape on the road of transmitting experience.
We should accelerate the improvement of policy system for mass entrepreneurship and innovation. Entrepreneurship and innovation requires support but not in a doting manner. We should give strong support and implement the existing policies. But what is more necessary is to prevent some areas from merely pouring tons of money into projects. The weaknesses in current policies are mainly reflected in finance, talents, and government performance. Banks should make greater efforts in mass entrepreneurship and innovation, but not become the main player in the primary stage. Instead, they should fully leverage the role of capital market, innovation in financial market and private capital in supporting financing for entrepreneurship and innovation so that the capital chain can match seamlessly with the industrial chain and that entrepreneurs and innovators can get financial support in various developmental stages. We should provide adequate room for scientists and technicians, support more scientific talents to get on the road of entrepreneurship and innovation to make them the leading power of mass entrepreneurship and innovation. Government reform still has a long way to go. The best scenario for entrepreneurs and innovators might be the time when they could pursue their own course and find it easier to deal with government, while the government administers its own affairs and fulfills its due responsibility.
We should steadfastly construct the ecological system for innovation. Entrepreneurship and innovation requires a habitat with optimal soil, air and sunshine. Something may be intangible but must be available in the system. For instance, the market mechanism, competition, information and economic relations are the most important components in this habitat and ecological system. Entrepreneurship and innovation go from oppositedirection with market mechanism and will meet half way. Only by trusting and relying on market, diversifying economic components and market entities and building a more compatible social atmosphere can mass entrepreneurship and innovation find soil to grow. Mass entrepreneurship and innovation is not a bonsai, but a forest of startups that has grown toughly from competition. Competition follows the jungle law. Without a fair and competitive environment, it is like trees deprived of air. Information exchanges is a soft environment much yearned by entrepreneurs and innovators. That’s one of the reasons why big cities are more inviting to innovators, a place where more exchanges of thoughts and ideas are available. If a place houses several established large-scale enterprises and some excellent universities and scientific and research facilities, it would be significant for mass entrepreneurship and innovation. It helps form closely-related industrial links and low-transaction-cost economic relations. The division of labor runs in the way that universities offer technological spillover and big corporations are responsible for industrialization and innovation integration, while entrepreneurs and innovators are either closely or loosely related to the both, all of which jointly forming an innovation ecological system full of vitality.
