Digital Transformation and Innovation of Private Enterprises in China

Abstract

Under the macroeconomic context of Chinese-style modernization, the private economy serves as a crucial force driving economic growth, with its vitality and competitiveness being essential for high-quality development. Amid intensifying market competition and increasingly complex international situations, private enterprises urgently need breakthroughs in product innovation and business models. The advent of the digital era has created new opportunities for enterprises to reshape organizational processes, explore emerging markets, and strengthen core competitiveness. Digital technologies not only break down information barriers to enable more precise demand matching and market responsiveness but also bring profound transformations to internal management, production, and marketing approaches. Given these circumstances, clarifying the impact of digital transformation on the innovation capabilities of Chinese private enterprises from both theoretical and empirical perspectives not only provides insights for corporate decision-making but also establishes an evidence base for government policy formulation.

Based on data from the 14th Chinese Private Enterprise Survey, this study systematically examines the impact of digital transformation on the innovation capabilities of Chinese private enterprises and its underlying mechanisms. The findings indicate that: Digital transformation significantly enhances private enterprises’ innovation capabilities, positively influencing all stages of the innovation process—“input-output-conversion”—with conclusions remaining robust after a series of endogeneity treatments. Mechanistic analysis reveals that digital transformation enhances private enterprises’ innovation capabilities by improving product design capacities and customer management capabilities. Specifically, the product design capability mechanism operates across all three “input-output-conversion” stages, whereas the customer management capability mechanism only functions at the “output” stage. Extended analysis further indicates that higher degree of digital transformation yield better enabling effects on private enterprises’ innovation capabilities, and digitally transformed private enterprises shows a stronger tendency to allocate additional funds toward new product development, technological innovation, and process improvement.

Compared to existing research, this study makes three marginal contributions: First, it deepens the exploration of mechanisms through which digital transformation affects enterprise innovation from both the demand and supply sides by examining customer management and product design perspective. Second, it provides a more detailed characterization of digital transformation from an enterprise self-assessment perspective, encompassing both tangible and intangible aspects, thus measuring the actual degree of enterprise digital transformation more comprehensively. Third, using data from the 14th Chinese Private Enterprise Survey, it expands research on digital transformation and enterprise innovation to private enterprises, addressing the gap in previous studies that predominantly focused on A-share listed companies while neglecting private enterprises, thereby offering new perspectives and solid data support for empirically investigating the impact of digital transformation on Chinese private enterprises’ innovation.

Based on these findings, this paper proposes the following policy recommendations to effectively enable private enterprises’ innovation capabilities through digital transformation: First, continuous advancement of private enterprises’ digital transformation should be promoted, encouraging them to strengthen R&D investment, enhance intellectual property reserves, and effectively convert them into economic value through digital technologies. Government departments should further improve infrastructure development, provide financing support and special subsidies to create favorable conditions for enterprises to adopt digital technologies and cultivate digital talent. Second, emphasis should be placed on the deep integration of digitalization with product design and customer management, fully utilize digital means to extensively collect and apply product feedback data, optimize R&D and design processes, and shorten product iteration cycles. Simultaneously, by acquiring and analyzing customer data in real time, enterprises can accurately capture consumer preferences, achieve personalized products and differentiated services, and enhance market fit. Finally, both the depth and breadth of digital development should be advanced simultaneously, forming systematic and in-depth reforms across technology, processes, and culture to create a digital ecosystem the entire value chain, thereby continuously stimulating enterprises’ internal innovation dynamics.