| Since China and Korea established diplomatic relations in 1992, as many as 40,000 Korean enterprises have advanced into the Chinese market, and most of them are small and medium-sized enterprises (SMEs). For a long time, Chinese open markets and low costs were an attractive advantage for foreign enterprises; however, those factors are no more attractive nowadays. Some firms attribute their failure to deteriorating business circumstances in China and the world-wide recession, which is not always right. Yet, we can see that many companies are in success in the same conditions. It is generated from their strong will of challenge and innovation. For now, we can say whether or not an enterprise succeeds depends on its innovative action.Innovation is a very complicated phenomenon. So far, many scholars around the world have been studying about this theme and trying to find its exact definition, but no one could build a perfect theory. It still leaves a vast area to exploit. Study on innovation has been done by many scholars. Among them J.A. Schumpeter is the one who started first. The topic has been ranged from pattern, source, determinant, process and system of innovation to the relationship with growth, employment, distribution and size of enterprise, and to the relationship with structure of market. Recently, Peter Drucker, a great scholar of business administration, is emphasizing entrepreneurship as a crucial factor for innovation. Open innovation is drawing attention as the phenomenon of industry amalgamation is intensifying. Innovation is intimately connected to various circumstances like economy, society, culture and to various entities like enterprises, government, universities and institutes. It should be considered on conceptual base of system.Now let's move on to the problems that foreign enterprises in Chinese market have. In view of their managerial status, it is obvious that they went through hardship. In 2008, KOTRA(Korea Trade and Investment Promotion Agency) did a Grand Survey about financial statement, business performance and evaluation and prospect of Korean enterprises which have invested in China. The Survey shows that they went through difficult situation after the world-wide recession. Unfortunately, the recession occurred shortly after the 2008 Beijing Olympic Games with enormous uncertainty of the global economy. Answers to Survey questions on improvement of business environment were more than deterioration of it, however, the rate of deterioration was remarkably increased compared with the result of Survey in 2007. The deterioration of business environment came from a wage increase, manpower shortage and a rise in prices of raw materials. The rate of companies having consistently stayed in the black is still slightly higher than companies having consistently stayed in the red, however, their financial status became worse than one in 2007. Prospect for entering the Chinese market is also not bright, especially dark for manufacturing companies. Major causes of this negative view are extinction of low-cost structure system in China and loss of superior position in terms of technology of Korea. In spite of the adverse anticipation of Chinese market, Korean enterprises still keep their expectation of Chinese dream. Over a half of them are already planning expanding investment in China and only a few of them are downscaling and considering evacuation. Vietnam and India, east-Asian countries, were favored over companies for evacuation in China and U-Turn to Korea was not welcomed because of higher wages and narrowness of Korean market. Regarding localization of Korean companies in China, they are relatively independent in advertisement, promotion and determination of manufacturing their products but not in the field of R&D and developing markets. Concerning employment, they prefer long-term employment contracts to short-term, stability of labor to flexibility and outcome to seniority and also regard incentive systems as an important part.Many institutes analyzed bottlenecks of management of Korean enterprises in China, which are manpower shortage, a wage increase, moving requirement after city planning, reduction of benefits for foreign companies, change of labor relations, difficulty of developing local markets and the economic decline. They had problems on their own, either. They were short of will and passion for innovation and their effort for localization were not enough. Since disparity in technology between Chinese and Korean companies has been radically narrowed and China has emerged as strong competitor, Korean small and medium-sized enterprises must be aware of crisis situations which can bring them down.Then how can Korean companies overcome the adversity in entering Chinese market? The answer is innovation. They definitely need a complete change in the frame of mindset for enhancing capability, not to mention, country, organization and enterprise are no exception. They all need approach based on system and analysis of process of development and change. Korean government should also support Korean small enterprises, which have been trying to advance into Chinese market, with directions for improvement and building up capability for innovation. It can not only bring good to the companies but also promote national interest.Coming up with a specific plan for innovation, Small and medium-sized enterprises should take constant self-innovation. Especially, the CEO of each company requires to be determined to stress innovation throughout the company. For creating a mood for innovation in a firm, they need placement of right personnel, sustained training, business exchange, setting up organization support and reward system, boosting entrepreneur spirit and mastery of innovation methodology. As I mentioned that Governmental help for small enterprises is desperately required, the support should be indirect and common since small companies in Korea might feel isolated. The government should set up the standard of support, in advance. In all its aspects, infrastructure buildup is essential for accelerating innovation in small medium-sized business. Government should form innovation cluster, strengthen Industry-University-Institute collaboration, protect of intellectual property rights, prevent technology leakages, form technology market, vitalize of selling technology and direct financing, and enhance network with others.After the government put effort on those, they ought to make full use of practical policies in each part. In the field of human resources, they should establish an agency for the development of high skilled manpower under the collaboration between two countries, China and Korea. In the field of management, they should complement accessing information and training about small business. In the field of sales, they should operate exhibition space to show products, which small enterprises produce, in a permanent display, or at a trade show or convention. In the field of technology, they should constitute a joint agency of testing certification and implement free technology consulting. In the field of finance, they should expand policy loan and also boom innovation for those self-employed and work in service industry. It's not only Korean government's duty. Chinese government should also do things for innovation of Korean small and medium-sized enterprises in many different fields like promoting support system, providing access of education, consulting through Industry-University collaboration and solution for technology leakages. The support of Chinese government can be a big help for Korean small business companies and it is indeed win-win strategy for the economic growth of two countries, China and Korea. In this sense, it is advisable for two administrative agencies of China and Korea to build a substantial cooperative system. Establishing Korea-China agency for small business innovation under an agreement between two countries can be a good example to develop small business innovation of both China and Korea permanently.
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