Detouring route of SMEs in post catching-up conditions: context and dilemmas behind the quest for science-based business model innovation

ABSTRACT

SMEs in post catching-up economies are assumed to possess high tech (science-based) business savvy with which to innovate new business models. Businesses operating without it are encouraged to commit and contribute to a coordinated R&D consortium – or risk missing the boat in the process of developing niches. In our view, it is fallacious to be preoccupied with coordinated joint R&D and patenting activities in construing the importance of science and leading SME growth agendas. This paper seeks to provide a rich and robust narrative, with the goal of bringing qualitative rigour to our typology and discovering contextual details that might be overlooked in proposing such development measures. We used two authoritative cases to uncover the dynamics and dilemmas of SMEs during times of change. This paper sheds light on why desirable results might not result from narrating the importance of science and intellectual capital for SMEs, or from seeding a routine for patenting and science-related business venturing. The inherent characteristics highlighted for traditional and IT-software based SMEs in Taiwan lead us to dwell deeper on what led to emergence of SMEs – and what could result from different industrial migration rates.

KEYWORDS:

• SMEs
• post catching-up
• science-based model
• narrative fallacy
• industrial value migration
• Taiwan

Acknowledgement

The authors would like to acknowledge the support by Laboratory Program for Korean Studies through the Ministry of Education of Republic of Korea and Korean Studies Promotion Service of the Academy of Korean Studies (AKS-2018-LAB-1250001). We would also like to acknowledge the contribution from Ministry of Science and Technology of Taiwan (MOST108-2410-H-007-002-MY3) in supporting this project.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This is when developing economies reach an advanced status (relatively wealthy but facing challenges such as increasing labour costs and an aging society).

2 Business model denotes ‘an architecture for how a firm creates and delivers value to customers and the mechanisms employed to capture a share of that value’ (Teece, 2018, p. 40).

3 Particularly when they are tasked to deliver parts for the auto industry.

4 Policy measures incentivising SMEs to patent are not uncommon in Mainland China and South Korea (Doh & Kim, 2014; Guo et al., 2016). Many patents resulting from such measures are not commercially viable. They are instead used as defensive patents or portfolios to gain recognition. They are useful to gain more support from the government.

5 As the labour market begins to fetishize the skills that superior education produces, eventually superordinate entrepreneurs would come to dominate manufacturing (Markovits, 2019) instead of mid-skilled labour working for SMEs.

6 It is noted that there are family firms owned by (or in partnership with) business groups. The business affairs of these firms are usually managed by trained professionals.

7 Postgraduate courses for engineers and business practitioners in NTHU (which is in close proximity to Hsinchu Science and Industrial Park) enabled us to receive feedback from professionals who hold both technical knowledge and business experience.

8 This corresponds to the 4th Industrial Revolution that will change the global production system, industrial value and conduct of trading activities (Schwab, 2017; Lee et al., 2020).

9 This is from the authors' point of view.

10 They sought to service firms with old systems that were once produced and guaranteed by big firms. Parts and solutions provided by them are compatible with old systems. Their innovation was in how to service firms which sought to maintain old systems in their production systems. The move is termed as ‘simple imitation’ in Zhao et al. (2020, p. 11).

11 One might need to dwell further in order to understand how SMEs in Japan acquired their ‘reconfiguration capability’ (denoted as the ability to restructure an asset portfolio via integration of new assets) that defines their strategic performance (Isobe et al., 2008).

12 There are firms pivoting from past investment via appropriating IoT technologies to deploy a usage-based model (rental based). This has dampening effects on rival firms that lean on third-party (Teece, 2018, p. 42) servicing models targeting firms that wish to maintain their old machines.

Additional information

Funding

This work was supported by Ministry of Science and Technology, Taiwan: [Grant Number MOST108-2410-H-007-002-MY3]; Laboratory Program for Korean Studies: [Grant Number AKS-2018-LAB-1250001].

Notes on contributors

Chan-Yuan Wong

Chan-Yuan Wong is Associate Professor at Institute of Technology Management, National Tsing Hua University of Taiwan.

Fu-Chuan Ni

Fu-Chuan Ni is co-founder and CEO of Chiao Fu Enterprise Co., Ltd.

Toshio Sugano

Toshio Sugano is President of Argox Information Co., Ltd.