Challenges of the Innovative Chinese Small and Medium Sized Enterprises (SME's) in the Last Decade

China managed to built-up a working market economy transforming itself into dominant player on global scale and put more emphasize on innovation-driven growth. In the course of this unprecedented process, Chinese Small and Medium sized Enterprises (SMEs) have established in huge numbers and become the most dynamic actors in the market economy. They have significant role in the domestic economy in profit creation, employment absorption, taking into practice different types of innovations largely contributing to the social stability and raising of well-being of the local communities. Furthermore, internationalization has also become important factor for the continuously developing SMEs in China. Beyond the observed negative tendencies- significant shrinkages of the SME’s profits - can be many different reasons. The central government has tendency to prioritizing the large size state enterprises in certain industrial and service sectors, the insufficient size and frequency of the strategic innovations largely due to the lack of know-how, information, skills, competencies, attitude, network-based co-operations and experience of domestic and international markets. These also pointed out the relevance on the strategic innovation and how to impact on the product and process innovation on the SME’s technologies, business models, reshaping the corporate cultures and values as well to stop and reverse his negative trends. It means a defined product strategy, adequate financial and human resources, New Product Development (NPD) R&D resources, high quality project teams, senior management commitment, innovative environment and culture. Crossfunctional teams and top management should responsible for the implementation. This review paper is aiming to give a comprehensive landscape about the current situation of and the special features of the Chinese SME sector and the obstacles that can hindering or slow down their successful innovation processes. These challenges are particularly difficult for SMEs with smaller scale and weaker risk tolerance. Chinese domestic firms have comparative advantages, such as cheap labour resources, better knowledge about Chinese local market comparing to foreign MNEs from developed countries. Facing strong competition both from large-sized State Owned Enterprises (SOEs) and foreign Multinacional Enterprises (MNEs), Chinese SMEs should pay more attentions to indigenous innovation by taking advantage of Chinese huge domestic market