Tacit Local Alliance and SME Innovation in China

Murphree, Michael, Tang Li and Dan Breznitz (2016) “Tacit Local Alliance and SME Innovation in China.” International Journal of Innovation and Regional Development, 7(3), 184-202.

27 Pages Posted: 6 Sep 2018 Last revised: 18 Nov 2020

See all articles by Michael Murphree

Michael Murphree

University of South Carolina

Li Tang

Shanghai University of Finance and Economics - School of Public Economics & Administration

Dan Breznitz

Georgia Institute of Technology

Date Written: August 27, 2016

Abstract

This paper addresses the puzzle of how Chinese small and medium-sized enterprises (SMEs) in the mobile handset industry overcome an environment of “structured uncertainty” and innovate. We find that a combination of the global fragmentation of production and a tacit alliance between local government and industry makes it possible for SMEs to innovate. The fragmentation of production creates opportunities for firms to enter the handset industry in a variety of niches, each of which affords certain capabilities for innovation. The tacit alliance mitigates uncertainty, making it possible for firms to incrementally innovate in niches provided by the global fragmentation of production. The tacit alliance only partially counters the condition of structured uncertainty facing SMEs. As a result, firms remain incentivized to seek short-term profits and minimize long-term R&D risks, thus limiting potential for novel-product innovation.

Suggested Citation

Murphree, Michael and Tang, Li and Breznitz, Dan, Tacit Local Alliance and SME Innovation in China (August 27, 2016). Murphree, Michael, Tang Li and Dan Breznitz (2016) “Tacit Local Alliance and SME Innovation in China.” International Journal of Innovation and Regional Development, 7(3), 184-202., Available at SSRN: https://ssrn.com/abstract=3239481 or http://dx.doi.org/10.2139/ssrn.3239481

Michael Murphree (Contact Author)

University of South Carolina ( email )

United States

Li Tang

Shanghai University of Finance and Economics - School of Public Economics & Administration ( email )

Shanghai, 200433
China

Dan Breznitz

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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