SOEs can ditch old monopolies for new ideas

I went to Tianjin at the end of this July to sample the famous Goubuli stuffed buns. In the company's head branch, there were many exquisitely packaged boxes, costing as much as 168 yuan ($26.5) each. Two saleswomen were chatting to one side, with customers imploring them for buns. I ordered a set meal, but felt sick afterward. What was wrong with the experience?

My conclusion is that this company is selling tourist products instead of buns. Goubuli stuffed buns are very famous. Any Chinese visitor to Tianjin will go to have a taste of it.

The company is living off its heritage and reputation, and has no incentive to innovate.

There's no shortage of space for innovation in selling buns.

There is a famous steamed bun restaurant based in Taiwan whose history is much shorter than that of Goubuli. However, because of its clean and comfortable environment, it has become a special tourist spot in the city, thanks to better service.

This may be the common problem that many State-owned enterprises (SOEs) have to face. As long as they have steep profit margins and a huge turnover, these SOEs are unlikely to innovate. It is necessary to take some resources away to force them to innovate.

To do them justice, we have to admit that SOEs are really very important. They have undertaken many important strategic missions. Some staff members go to places where working conditions are tough.

SOEs' monopolies bring some benefits. However, at the same time, SOEs are growing ever more reliant on their monopolies.

This position has constrained their innovation and the ability to improve products. We should establish a better innovation system to push SOEs. Their strategic position should be maintained but attempts at innovation should be promoted.

This motivating force should derive from SOEs themselves. External forces are limited in the scope of what they can ultimately achieve, and it is a painful process for SOEs to make changes themselves. However, it's not impossible. SOEs can take the initiative to pursue dynamic innovation even at the price of giving up some resources over which they currently hold a monopoly.

Currently, Goubuli stuffed buns need not innovate because of their historical reputation. However, if we introduce relevant individually-run enterprises or private sector firms to carry out balanced structural adjustments, we can stimulate SOEs to really pursue innovation.