Township enterprises reach critical point

PUBLISHED : Monday, 26 September, 1994, 12:00am
UPDATED : Monday, 26 September, 1994, 12:00am

FUJIAN province has a relatively developed township and village enterprise system. Indeed, based on a recent trip to Quanzhou and Shihu, I believe township and village enterprises are now at a critical juncture in their development.

If they remain at existing levels, the future seems bleak. But if they want to stay ahead, they will have to press ahead with organisational and product changes to lift them to a higher stage of development.

The rapid development of the enterprises in the 1980s was closely linked with the circumstances of that era. At the time, the family contract responsibility system was being implemented in the villages, which were experiencing a building fever and the mad rush to buy furniture and other durable consumer goods.

State-owned enterprises continued to feel the burden of a planned economy while foreign-funded enterprises were beginning to sprout.

Township and village enterprises exploited the circumstances to their advantage and, with the help of preferential government policies, quickly flourished.

Despite their dramatic rise, low technological levels and product quality, added to poor management style, marketing techniques and financing methods suggest that these enterprises will not adapt to the stringent demands of a true market economy if they do not upgrade themselves.

Senior managers of these enterprises tend to run their operations like family businesses with inadequate operational systems.

In many ways, these managers can hardly be described as enterpreneurs in the true sense of the word.

Circumstances today have changed considerably, with some state-owned enterprises, responding to reforms, becoming lean and fit while private enterprise and Sino-foreign joint ventures are expanding rapidly.

Consumers also are becoming more demanding. For township and village enterprises, the implication is that those which can meet the demands of consumers will continue to survive while those which fail to raise product quality will fall by the wayside.

How can they rise to the challenge of the 1990s? They must alter the structure of their products to meet the demands of the market. Every city, county and village must target products that use competitive advantage instead of producing simply to meet a consumer fad.

Quality also must be a priority. In order to do this, they must upgrade techniques and methods of production, and introduce quality control systems.

Senior managers must realise that quality affects their reputation and so the existence of township enterprises.

The enterprises also must improve organisational and management structures.

Many township enterprises are registered as collective enterprises, bringing into play the vagaries of the system.

Who actually directs the investment? How are property rights defined? How do shareholders exercise their rights? Answers to the questions are not well defined in the township enterprises, which still have a long way to go in working out a property rights system.

In theory, a township and village enterprise is a collective enterprise. In effect, it is run by a handful of senior cadres.

These enterprises must urgently resolve this issue if they want to motivate shareholders and staff.

Clarifying the situation also will allow reductions in management costs while raising management standards to adapt to a competitive market.

Finally, township enterprises need to raise the quality of their labour force.

They have tended to rely on cheap labour for their operations, a philosophy that can only spell disaster.

As labour costs in the coastal cities rise, there is a trend among manufacturers to move operations to the inner regions, where they will compete with the township enterprises for workers, thus pushing up costs.

Township enterprises in Fujian may be relatively well-developed, but they now have to face the task of a second take-off - an important stage in the history of these enterprises and one which should not be neglected. Professor Li Yining is head of Beijing University's department of economics and management and is a standing committee member of the National People's Congress.