Non-R&D Innovation: A Neglected Innovation Approach for Chinese SMEs
Gang ZHENG1, Fang LIU1 , Feng XU2
1
School of Management, Zhejiang University, Hangzhou, China
2
Guosen Security of Hangzhou, Hangzhou, China
(Zhg1213@zju.edu.cn, sdliufang2007@126.com)
Abstract - As we all know, R&D has been the central
focus of policy making and scholarly research in the field of
innovation in the past decades, while non-R&D innovation
and Innovative firms that do not perform R&D have largely
been neglected by policy and academics. But as an integral
part of innovation, non-R&D innovation does play an
important part in enterprises’ innovation process, especially
in small and medium-sized enterprises (SMEs) whose R&D
capabilities are very weak. So far, there are only few
researches on non-R&D innovation, let alone the reasonable
definition of non-R&D innovation. Based on existing
innovation literatures, this paper gives a more clearly and
reasonable definition of non-R&D innovation. Then, the
paper puts forward four typical modes of non-R&D
innovation with illustrative cases which indicate that non-
R&D innovation is an effective innovation approach to the
survival and development of SMEs.
Keywords - Non- R&D innovation, SMEs, Innovation
I. INTRODUCTION
The Third European Community Innovation Survey
(CIS-3) indicates that, during the years 1998 to 2000,
almost half enterprises innovated without conducting
R&D activities, and Innobarometer Survey (IB survey) in
2007 got the similar conclusions based on data from 27
EU countries [1]. However, scholars in academic and
practitioners in industry, to a large extent, treat innovation
just as R&D activities, and believe that R&D is the only
way to innovate. Conclusions of surveys conducted in EU
these years are challenging the traditional view of
innovation in some extent.
The survival and development of SMEs need
innovation as well, but innovation modes and focuses of
SMEs are quite different from those large firms which
mostly based on R&D. To those SMEs with less or no
R&D capabilities, how to create their competitive
advantages through unique and effective innovation
modes is most in urgent. And non-R&D innovation is a
neglected effective innovation approach for Chinese
SMEs.
II. R&D AND NON-R&D: LITERATURE REVIEW
AND BASIC DEFINITIONS
A. Literature Review
*Supported by National Natural Science Foundation of China (No.70802054 and 71172112), and 2011 Zhejiang Social Science Fund
（11ZJQN038YB )
978-1-4673-4593-4/12/$31.00 ©2012 IEEE
*
There is no doubt that R&D is very important to
technological progress and enterprises’ development
[2][3]. But R&D is not equivalent to innovation, while
innovation includes activities much more than R&D.
R&D is only an important part of innovation process [4],
and high R&D investment doesn’t mean high returns on
performance. Innovation usually means the development
and improvement of new products or services, however,
organizations can also innovate through other ways such
as develop, imitate or adopt new process, business model,
management technique and organization structures[5][6].
So, many activities not based on R&D can also lead to
innovation.
In contrast to the highly attention paid to R&D
activities, non-R&D innovation is usually ignored as
another source of innovation ideas. Innovation can
happen in enterprises with a very low R&D level, even
those without R&D activities, so, many enterprises
without formal R&D activities can be also very
innovative [7]. Why is non-R&D innovation long been
ignored by scholars and policy-makers? This can be
attributed to the lack of relevant information about non-
R&D innovation and entrenched view of R&D. By far,
only very few institutions in EU conduct researches
related to non-R&D innovation, not to mention researches
focusing on it.
R. Evangelista et al.(1998) found that R&D activities
only accounts for 20% of total innovation costs, while
non-R&D innovation activities such as design and trial-
production account for 10% and 11% respectively by
analyzed the data of CIS conducted in 1993[8]. So,
innovation itself and kinds of supporting mechanisms in
addition to R&D are also very important [9] [10].
Comparing with R&D dominated enterprises, non-R&D
innovation dominated ones are mainly those SMEs with a
size below 50 employees in low technology industries
and innovation backward areas [1]. According to those
figures, non-R&D innovation plays a very important part
in enterprises, especially in SMEs.
Based on existing literatures, Arundel et al. (2008)
put forward several typical non-R&D innovation
activities, including technology adoption, minor
modifications or incremental changes, imitation including
reverse engineering, combining existing knowledge in
new ways, which will be contribute to the formation of
enterprise’s internal innovation ability[1].
TABLE I
REPRENTATIVE RESEARCHES ON NON-R&D INNOVATION
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Literatures Main views Typical activities a controversial topic for a long time. Several main
Arundel et Innovative activities based Technology adoption,
domestic government agencies classify design costs to
al. (2008) on new uses of existing Minor modifications or R&D costs [13] [14].
knowledge incremental changes, Lots of foreign literatures believe that design is a
Imitation including kind of non-R&D innovation activity [15][16][17][7]. In
reverse engineering,
Combining existing
the third edition Oslo Manual, OECD classified design
knowledge in new ways activities to R&D or other innovation activities according
Sterlacchini The intensity of non-R&D Innovative capital goods, to the innovation types they are involved, that is,
（1999） activities is particularly design, engineering, trial according to the purpose of conducting design activities
high in small firms, production
especially in “supplier
[12].
dominated” firms and As discussed in Oslo Manual, we support the view
“specialized suppliers” that whether design belongs to R&D or non-R&D
firms innovation activities depends on the purpose of it. If
Brouwer and Many non-R&D Patenting and licensing,
Kleinknecht innovation activities in design, trial production,
design is conducted because of R&D requirement, then
（1997） SMEs was neglected by manpower training, design activities in this context belong to R&D. If design
innovation surveys and market research, is conducted for new market development, then it can be
policies investment in fixed assets classified to market innovation. We believe that the
Hansen and Enterprises have many Learn by doing, design
Serin (1997) non-R&D innovation and process optimization
concept of design in literatures above has its specific
activities in addition to meaning, and the classification of design also bases on
formal R&D activities specific situation.
OECD A basic criterion for Activities for product and
（2005） distinguishing R&D from process innovations
non-R&D is the presence except R&D activity;
D. Non-R&D Innovation
in R&D of an appreciable Activities for marketing
element of novelty and the and organizational By far, there are only few researches on non-R&D
resolution of scientific innovation innovation. In these literatures, researchers considered
and/or technological
uncertainty
that innovation process also consists of lots of activities
Santamaría The impact of non-R&D Design, the use of except R&D such as trial production, training of
et al. innovation activities is advanced machinery, personnel, market research, designing and so on, which
（2009） especially important in training related to can be also as sources of innovation [4][15][17][7]. A
LMT industries innovation activities
basic criterion for distinguishing R&D from non-R&D is
the presence in R&D of an appreciable element of novelty
B. Definition of R&D and the resolution of scientific and/or technological
uncertainty [11] [18].
Research and experimental development (R&D) is From existing literatures, we can distinguish
comprised of creative work undertaken on a systematic between R&D and non-R&D, but there is not a clearly or
basis in order to increase the stock of knowledge, reasonable definition of non-R&D innovation till now
including knowledge of human, culture and society, and which is necessary for deeply research of it.
the use of this stock of knowledge to devise new In the paper, we define non-R&D innovation as the
applications [11]. And OECD (2002) defined R&D general term of innovation types based not on R&D, and
covers three activities, i.e. basic research, applied the innovative source of non-R&D innovation comes
research and experimental development [11]. from existing stock of knowledge or external of the
Definitions of R&D of main domestic government enterprise, not through internal systematic R&D activities.
agencies can be divided into two categories. The first That is to say, in the mode of non-R&D innovation,
category defines R&D as much similar to OECD. And the enterprises almost have no or very low level investment
second category defines R&D in more detailed activities, on R&D, but they can also achieve fairly good innovation
with Ministry of Finance as a representative and authority. performance. In practice of research, referring criteria of
Based on existing literatures, we define R&D as OECD for R&D intensity and low-tech industry [19], we
creative work continuously undertaken on a systematic claimed that enterprise which almost has no investment
basis in order to acquire new knowledge of science and on R&D or R&D intensity is below 0.5% can be viewed
technology, to creatively use of the new knowledge, to as non-R&D innovation based enterprises.
improve technology, process, product or service.

C. Design III. TIPYCAL MODES OF NON-R&D INNOVATION

Design includes a wide range of activities aimed at A. OECD's Research on Innovation Activity
planning and designing procedures, technical
specifications and other user and functional OECD discussed the components and coverage of
characteristics for new products and processes [12]. innovation activities in detail in its third edition Oslo
Whether design belongs to R&D activities or not has been Manual. As discussed in Oslo Manual (2005), industrial

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design is partially excluded as R&D, and product design technological strategy and means to keep competitive
related to the form and appearance of product is advantage [20]. Enterprises can better follow the pace of
marketing innovation activities [12]. technical progress, and adjust their technical input by
adopting this kind of mode. Enterprises can also improve
TABLE II their technological capabilities, therefore keep a
COMPONENTS OF INNOVATION ACTIVITY differentiated technical advantages from competitors. So,
R&D 1 Intramural R&D
many enterprises, including those large multinational
companies become using external innovation sources [21]
Extramural R&D [22]. Bender (2005) argued that, to SMEs in low and
Activities for Acquisition of other external knowledge medium technology industries, innovation usually is not
product and (Intangible) the result of latest advances in science or technology, but
process Acquisition of machinery, equipment and the transition of general knowledge into special
innovations other capital goods (Tangible)
(except R&D) Internal preparation activities for product
knowledge with economic effects [23]. So, technology
and process innovations (e.g. partially and knowledge adoption with continuous digestion and
Innovation Activities

industrial design, testing and evaluation, absorption is very important to innovation in SMEs.
setup and engineering) Camera phone series of Beijing Tianyu
Market preparations for product
innovations (e.g. preliminary market
Communication Equipment Co., Ltd. (K-Touch) is a good
research, market tests, launch advertising) example for technology and knowledge adoption.
Training activities for implementing Through technology adoption, K-Touch firstly launched
product or process innovations IN C280 series mobile phone with 8 million pixels while
Activities for Development and implementation of new
marketing marketing methods, e.g. introduction of
pixels of mainstream camera phone are up to 5 million.
innovations new method in product design, packaging, And when the competition becomes fierce in the market
pricing, product placement, promotion. of 8 million pixels camera phone, K-Touch has developed
Activities for Development and planning of new 10.3 million pixels camera phone with professional CCD
organizational organizational methods, e.g. introduction of
innovations new methods in business practices,
sensor by purchasing more advanced technologies [24].
workplace organization, organization of This kind of technology adoption strategy makes K-
external relations. Touch the uncrowned king of the camera phone field in
Source: OECD and Eurostat, Oslo Manual, 2005. China.
Based on the above classification of innovation Reverse engineering and imitation innovation
activities, we claim that innovative activities excluded as
R&D can be viewed as non-R&D innovation activities. Imitation innovation is a kind of mode to participate
competition. It means to absorb and master core
B. Typical Non-R&D Innovation Modes technology of latest innovation through purchasing,
reengineering, and on this basis firstly to further improve
Arundel et al. (2008) concluded four main methods the innovation in order to develop and produce
that firms didn’t perform R&D used to innovate based on competitive products [25].
their analysis of existing innovation literatures [1]. This is Reverse engineering which always links with
the first time in innovation area to formally and imitation is a kind of means to acquire necessary
systematically focus on non-R&D innovation, and put technology or knowledge. And reverse is prerequisite for
forward its typical activities. imitation while imitation focuses on the use of knowledge
Based on previous researches and innovation much more. Imitation innovation is more advanced
practices of Chinese SMEs, we conclude four typical non- behavior than imitation which puts more emphasis on
R&D innovation modes from technological and non- recreation. It is a process of relearning and recreating
technological aspects. based on imitation and reverse. So, imitation innovation
is re-innovating based on existing innovation.
Technology and knowledge adoption Arundel et al. (2008) mentioned that imitation
Enterprises directly buy or acquire new products or innovation through reverse engineering, which is more
process technologies and knowledge, and they hardly common in developing countries, generally doesn’t need
conduct related technological activities in this kind of enterprises conduct complex R&D activities [1]. Imitation
mode. The adoption includes technology acquisition such and reverse engineering are regular activities in
as purchasing new machine, parts, equipments, and innovation process of SMEs. Through reverse
knowledge adoption such as introduction of new process engineering, SMEs can innovate based on the imitation
and know-how from external sources. basis, but the extent of innovation is very limited, usually
With the rapid development and increasingly not involved with much complex R&D activities.
complicated of technological innovation, technology and Therefore, in the context of SMEs, we believe that
knowledge adoption has been a very important imitation innovation and reverse engineering activities
belong to non-R&D innovation.
1 When Geely entered automobile industry, it had
R&D can be related to any kind of product, process, marketing
and organization innovations. neither funds nor technology. The first car it had

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produced was almost assembled out of parts from Bullets
of Beijing China and Xiali, with some changes in
appearance. In the process of reverse engineering and
imitation, Geely continued learning and improving, and
finally it can innovate by itself in some extent. Based on
innovation ability accumulated in the reverse engineering
and imitation process, Geely becomes the first domestic
manufacturing enterprise which can produce engine and
transmission products with independent intellectual
property rights [26].
Integrated Innovation
Integrated innovation means innovatively integrating
existing technology and knowledge. This kind of
innovation mode usually appears in industrial design or
engineering projects [27]. To those SMEs with limited
resources and capabilities, integrated innovation is one of
their important innovation methods.
K-Touch has a well-known slogan that China phone
are made all over the world, and integrated innovation
drives the global development of mobile phone. K-Touch
produced the first micro hard disk PMP phone with a 1-
inch 6GB hard disk in China. It creatively integrated 1-
inch 6GB micro hard disc technology of Magicstor
Shihua, GSM/GPRS base-hand chip of ADI, and
multimedia chip of Texas Instruments. So, K-Touch has
developed more superior performance hard disk phone
[28].
Marketing Innovation
Marketing innovation involved development of new
market, innovation of marketing means and so on. Huang
Hengxue (1998) noted that marketing innovation consists
of activities for market developing and opening up new
market that enterprises conduct according to their
business strategy [29]. Marketing innovation was one of
the five innovation rules in the innovation concept
proposed by Schumpeter. In Oslo Manual (2005), OECD
included marketing innovation as part of innovation
activities, including product design, marketing channels,
promotions and innovative pricing [12]. The core value of
marketing innovation is focusing on customers’ needs
experience. Marketing innovation is necessary to all the
innovative firms, especially for SMEs.
Wang Laoji develops from a firm with turnover over
100 million RMB to one more than 10 billion RMB
through successfully brand re-positioning, which has well
interpreted the important role of marketing innovation.
The originally brand position of Wang Laoji is fairly
vague, giving customer a feeling of like either herbal tea
or beverage. After systematically research, Wang Laoji
decides to re-position its brand, that is, a kind of beverage
with preventing lit function. Its unique value is people
can prevent lit after drinking red cans of Wang Laoji,
therefore, customers can freely enjoy their life without
worries. The unique brand positioning makes the sales of
Wang Laoji a rapid growth [30].
IV. DISCUSSION
488
K-Touch, Geely and Wang Laoji grow from
unknown small companies into leading domestic
enterprises in their respective industry in no more than ten
years. Their unique innovation modes are worth of
rethinking and learning by all the SMEs in China.
Although non-R&D innovation is not based on R&D,
it doesn’t mean that non-R&D innovation needs no
creativity or novelty. Enterprises need constantly digest,
absorb and learn in the non-R&D innovation process to
improve their overall innovation process and innovative
capability. So, in order to achieve long term development
in fierce competition, SMEs should recognize the
importance of non-R&D innovation to them, and should
focus more on the learning and accumulating in non-
R&D innovation process, especially on the improvement
of innovation supporting mechanisms.
V. CONCLUSION
Innovation is a complex process, and it isn’t
equivalent to R&D. R&D is only one step of innovation
process, and it isn’t contradictory with non-R&D
innovation, which together constitute enterprises’
innovation activities. Especially for those SMEs with no
or limited R&D institute and capability, how to use
internal and external resources and find effective
approach besides R&D is critical for their survival and
development. Based on existing literatures on innovation,
this paper gives a more clear and reasonable definition of
R&D and non-R&D innovation, and puts forward four
typical non-R&D innovation modes. Cases of K-Touch,
Geely and Wang Laoji indicate that non-R&D innovation
is an effective approach for SMEs to accelerate
development and enhance competitive advantage in their
initial stages.
In practice, innovative enterprises maybe conduct
many kinds of non-R&D innovation activities, or focus
on conducting one kind of non-R&D innovation activity.
Non-R&D innovation is crucial for SMEs to keep
innovative and competitive advantage in competition.
However, R&D and non-R&D innovation are not
contradictory, they can coexist in a firm’s innovation
practice. They together constitute a firm’s innovation
process.
We believe that, for the majority of SMEs, non-
R&D innovation can, to a certain extent, play the role of
innovation diver, promote innovation activities, and
finally improve their innovation capabilities and market
performance under the condition that they lack of R&D
innovation abilities. When they have achieved certain
scale with rather high technological innovation ability,
they can gradually increase R&D investment, and transfer
to R&D based innovation mode. Therefore, they can
further improve their innovation capabilities and core
competitiveness. So, we can conclude that non-R&D
innovation is an effective innovation approach for SMEs,
especially in their initial stages.
 Proceedings of the 2012 IEEE ISMOT
This paper only preliminarily proposes the concept
frame for non-R&D innovation. Many points need to be
further tested and improved in our following researches.
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