Determinants of Innovation Capability in Small and Medium Enterprises: an Empirical Analysis from China

SMEs are an essential component of the Chinese economy. Especially in Zhejiang province, a province in east China, there are about 1.3 m SMEs and they account for 95 percent of total employment. With the change of technology and market environment, the competition is fierce and SMEs are more dependable on innovation. Without innovation, SMEs cannot survive in the competition. SMEs are very different from the large companies. They lack of capital and human resource. How to improve the SMEs innovation capability is a question for us. In this paper, I use some proxy to evaluate the innovation capability. The paper aims to find the source of innovation capability for SMEs. In order to explain the question, the paper classifies the source for two types, internal source and external source. The paper designs the questionnaire to achieve the data from 75 SMEs in Zhejiang Province. From the data, the paper uses SPSS software tool to analyze to look for the key determinants of SMEs innovation capability. Through the analysis, the paper finds some important key factors that determine the innovation capability of SMEs, including internal factors such as the owner´s work experience and external factors such as financial support. The findings of the paper are important for the SMEs to improve the innovation capability.