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Research on Government Procurement System Supporting Small and Medium Enterprises LIU Zhichao, ZHANG Xiaojuan College of Business Administration, South China University of Technology, Guangzhou, China, 510640 Abstract: At present, in maintaining social stability and promoting local economic development, particularly in the settlement of labor employment, SMEs (Small and Medium Enterprises) plays an important role. How to integrate government procurement resources, develop the appropriate government procurement system, implement effective policies and measures in government procurement to maximize the development of SMEs, is a major issue facing our country. This article introduces the system of government procurement in support of SMEs in international developed countries first, then analyse the system of government procurement in support of SMEs in China and the problems existed, finally , the writer give some suggestions from the government procurement system view to solve these problems. Keywords: government procurement, government procurement system, Small and Medium Enterprises

1 Introduction SMEs (Small and Medium Enterprises) means economic units that the size of its personnel, assets and operations are relatively small, which compared to large enterprises .It is a dynamic and complex concept, and have different standards in different countries, different historical periods and different departments. With the development of market economy, in the domestic economy and social progress ,SMEs has played an increasingly important role and has made tremendous contributions in promoting economic and social development in offering employment opportunities, increasing state revenue, promoting China's urbanization process and resolve " Three Rural Issues ", expanding the opening up and maintain social stability and prosperity. Meanwhile, the social objectives of government procurement, and Characteristics of government procurement, which is the funding is public, Property of procurement activities is non-commercial, procurement object is widespread, the fairness of the procurement process is fair, etc, can actively promote SMEs a development by government procurement. Advanced developed countries through the development of international laws, regulations and rules , setting up some organizations monitoring the implementation and taking concrete measures to protect and support the participation of SMEs in government procurement activities, SMEs’ share of weight in government procurement and match its share in the overall economy. China also established to support the participation of SMEs in government procurement laws, regulations and policy system, designated the management agencies of government procurement, the set up government procurement information management system initially, many local parts set support methods helping SMEs take part in government procurement. However, compare to its share in overall economy, SMEs share low weight in government procurement. there are still many problems in government procurement, such as law and regulations is too principle, some Provision of laws and regulations go against SMEs participation in government procurement, some purchasing behavior is not conducive to SMEs participation in government procurement, balanced mechanism in government procurement is lacking, agencies implementing the management of SMEs in government procurement has not established, the appropriate monitoring mechanism has not yet formed, information sources channel of government procurement is difficult to produce results and so on.

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2 The System of Government Procurement in Support of SMEs in International Developed Countries Supporting SMEs in government procurement system in the United States embodied in the formulation of laws and regulations and the establishment of the implementation bodies. From Legislative and regulatory framework aspect, United States Small Business Act in 1953, The 87-305 Act Congress passed in1961, Law for SMEs, Purchase America Product Act and other related laws and regulations are clear that orders government purchased in the small and medium enterprises should not be less than the limited lowest proportion written in the law , low in specific amount and Particular areas (unemployment concentrated, underemployment or labor surplus area) give priority to small and medium enterprises, SMEs are specified in the offer to enjoy preferential and favorable prices. From establishing Implementing agencies, in order to encourage and support SMEs, particularly women and minority business enterprises to get more share of government orders, The United States established Small Business Administration. Small Business Administration Through "spliting" and " reserving" contracts ,awarding proficiency, stationing in "purchasing representatives" in some large purchases of goods and services of military and non-military units, establishing an electronic delivery system, and discussing procurement priorities with various federal agencies and checking the implementation of the results of each agency to prove the credit and ability to perform the contract of small businesses, to help small businesses access to procurement share , ensure that SMEs get fair share in the government procurement. Supporting SMEs in government procurement system in EU countries embodied in the laws and regulations adopted and specific actions to promote SMEs’ participation in government procurement. From Legal regulations aspect, the European Commission introduced a number of measures, through the improvement of legislation to clarify and clear government procurement rules and the posting of notices on the Internet to reduce barriers of SMEs’ accessing to public procurement market , supporting small and medium enterprises in the country of EU. From the implementation of specific actions aspect, by creating a statistical database for SMEs; for statistical analysis; in base of qualitative survey and analysis, making a comparison chart about support of SMEs based different country; providing guide for action for assessing the development of the participation of SMEs in public procurement contracts, etc, the European Union promote the development of EU SMEs through government procurement effectively.

3 The System of Government Procurement in Support of SMEs in China and the Problems Existed Chinese government procurement system is embodied in the following three aspects: 3.1 Established legal and policy system supporting SMEs participate in government procurement In order to help development of SMEs by government procurement , state and local promulgated series of laws , regulations and policies, including the "Government Procurement Law", " Promotion Law for SMEs," "The People's Republic of China Government Procurement Law Implementation Regulations (Draft) " published in January 2010, “bidding management approach for government’s procurement of goods and services", "guidance for work to promote entrepreneurship to improve employment "," The main points of government procurement in 2009", "Jiangsu Province Promotion Regulation for Small and Medium Enterprise "," Shanghai government procurement Interim Measures for development of SMEs", etc, indicating that government procurement should improve the development of SMEs, giving more priorities to SMEs in the acquisition in government procurement, arranging a certain proportion of procurement to SMEs to purchase products and services.

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3.2 Specifies the management agencies of government procurement In 1998, the State Council authorized Ministry of Finance to be responsible for government procurement work, to fulfill functions to formulate and implement government procurement policy. Chinese government sector involved in the management of small and medium enterprises also include SMEs Division in Ministry of Industry and Information Technology (in nation institutional reforms in 2008, the National Development and Reform Commission assigned the whole SMEs Division to the newly formed Ministry of Industry and Information Technology ), Ministry of Science, Ministry of Agriculture, Bureau of Township Enterprises, Ministry of Commerce , State Administration of individual and private business management and other agencies. 3.3 Built information management system of government procurement initially Central and provincial financial departments assigned information dissemination media for government procurement, the started publication of the magazine "the Chinese government procurement", formed a magazine, Internet, newspapers trinity Information Management System of government procurement. Chinese government procurement supporting to SMEs have a series of useful exploration, because the reform of Chinese government procurement system started late, there are certain faultiness and irregular areas. Specifically, in terms of laws and regulations, for one hand, laws and regulations are too theoretical, lack maneuverability and have no specific system design, it is difficult to really achieve the objectives that government procurement support the development of SMEs; on the other hand, certain provisions of laws and regulations have no conducive to SMEs’ participation in government procurement, such as the definition of SMEs is too general, take procurement catalog and procurement thresholds to define the way of government procurement, higher recognizance margin system of procurement, centralized procurement catalog system, the agreement supply systems, have increased the difficulty for SMEs accessing to government procurement markets. In terms of behavior in the procurement, the enactment of qualified registered capital, taking supplier’s credit rating as the rating standard, avoiding small and medium suppliers enjoying preferential policies for all procurement with pretext of procurement quality, making a large number of restrictive contract terms that have no conducive to SMEs, etc., are all negative for participation in government procurement for SMEs. In terms of operating mechanism, the lack of balance mechanisms of government procurement, when share of SMEs in government procurement has an absolute advantage, there is a structural imbalance. In terms of the management institutions, Ministry of Finance concurrently in charge of government procurement with limited energy, while management agencies of SMEs have problems of overlapping functions and cross-division management problems because of different caliber, the management of government procurement for SMEs is chaotic. In terms of the monitoring mechanism, the current lack of systematic monitoring mechanism to monitor the implementation process and results about participate of SMEs in government procurement. In terms of Information channels, the information dissemination platform is diverse and a variety of information focused on cross, it is hard for SMEs to have a real-time tracking of all government procurement information and accessing to required information.

4 Suggestions for Further Improve of Government Procurement System Supporting for SMEs Government procurement system is a set of comprehensive organic systems integrating various resources dedicated to government procurement. Therefore, to solve the problems mentioned above, support SMEs to participate in government procurement, we should establish a set of integrated framework for government procurement system including laws and regulations, management institutions of SMEs, government procurement supervision and management institutions for SMEs, service organization for SMEs, information resources and financial resources. Laws and regulations provide guidelines ,working methods and legal basis for the implementation of government procurement in support of SMEs; SME management institutions in accordance with the laws and regulations, provide 64

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administrative services and insure the implementation of national government procurement policies supporting SMEs; through the establishment of internal control and supervision, agency supervision, social supervision and other support to establish a fair participation of SMEs in government procurement law; service institutions of SMEs is intermediaries setting up for participation of SMEs in government procurement, both services and on behalf of the interests of SMEs; information resources is an integrated information platform established for participation of SMEs in government procurement; financial resources is a financial platform helping to solve funding problems SMEs facing in government procurement. 4.1 Laws and regulations to be Specific and detailed For problems that Chinese "Government Procurement Law", " Promotion Law of SMEs " and other laws and regulations on government procurement to SMEs are too theoretical , there should be a specific system design to ensure participation of SMEs in government procurement practicable. Have laws, such as "the Government Procurement Law", "Promotion Law of SMEs," such laws and regulations of the relevant content, be specific and detailed , providing a legal basis for implementation and monitoring for government procurement policies to support SMEs. Proposed "government procurement law" can be detailed on the principle of preferential policies, ways and means in government procurement supporting to SMEs to achieve system security. "SMEs Promotion Law" should provide specific operational details about policies that government procurement support SMEs. Complete set of regulations and policies to step up the scope, priority mode, specific measures of "the Government Procurement Law Rules," "Small Government Procurement Management," and relevant government procurement policies to support small and medium as soon as possible to make compulsory share ratio provides special protection to SMEs and provide the basis for practice operations. Clearly define in laws and regulations an annual contract value that SMEs obtain in the proportion of the total contract amount. Make subdivision of SMEs under different conditions, and provides its share to ensure its realization. Refer to the practice of developed market economies nations, such as the U.S. government procurement for SMEs generally have a specific division of small businesses, small businesses of veterans, small business of disabled veteran, small business of underdeveloped areas, small disadvantaged businesses, women-owned small enterprises. Companies involved in government procurement vary in size, but law of the United States ensures that small business access to business opportunities. For example, there are some special rules in government procurement in the U.S, one of which is 23% of goods have to be brought from small businesses in order to protect small business interests; and 5% to women-owned companies, 5% to minorities, 5% to the less developed areas. The "Government Procurement Law Implementation Regulations (Draft)" is announced in January 11, 2010.To effectively reduce the threshold for SMEs to participate in government procurement, and solve the problem that the recognizance margin management is chaotic , draft of the management of recognizance margin have been standardized. The providing deserves recognition, but should be refined to make it more operational. Article 9 defined compulsory purchase by giving priority measures to support SMEs, underdeveloped areas and ethnic minority areas enterprises. the effective implementation of the State Council about this provision is still a real need for the priority list of specific products or policies to force protection arrangements. The scope of government procurement should be newly defined in "The Government Procurement Law Implementation Regulations", reducing the requirements of the scale for government procurement, and prescribe that government procurement should include all goods involved the public interest. In addition, government procurement should not only limit to determine the procurement method, and also should be as a basis for reserved quota system of SMEs. "Small Government Procurement Regulations" should be published as soon as possible, appropriate large projects should be splited, which should be reserved for SMEs specially. Learning from the rule of law on government procurement practices in the U.S. and other countries, in our country, "Government Procurement Regulations for SMEs" provides that: giving priority to small and medium enterprises about government procurement contracts that less than 1 million yuan; and supporting SMEs through

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price concessions ,medium price range of 6%, small enterprises of 12%. Procurement items suitable buy from SMEs, such as furniture, printing, property management, should be procured from the SMEs to insure the share of SMEs in government procurement market; for purchases below a certain limit, SME should be given favorable price. The following items should also be specified in law of government procurement supporting for SMEs: in evaluation methods and rating criteria of government procurement, in addition to consider the technical quality, enterprise strength, service capabilities and service commitments generally, the honesty, tax situation, absorb the laid-off workers, the situation handling social insurance for the workers, etc. should be set for the criteria for enterprises get higher marks; encourage large enterprises which get government procurement contract, select appropriate items to make subcontract with SMEs; government procurement centers should be involved in government procurement sub-contract, review and make the assessment about subcontractors, to ensure maximum participation of SMEs in subcontracting possibilities; to encourage and support small and medium enterprises take part in bid in form of consortium , clear the assessment of the bidding rules of consortium of SMEs, make the format for the content of the joint bidding agreements standard, promote small and medium enterprises compete together in order to compensate for the relative lack of qualifications for SMEs , enhance the probability of successful transactions, scatter all the costs and risk for purchase of SMEs. 4.2 The Establishment of management institutions for SMEs Integrating the distributed SMEs’ management functions of various functional departments in the State Department, establishing the Small Business Administration, which is under control of State Council and is responsible for small and medium enterprises affairs. Small Business Administration make government procurement play a very important role from the dissemination of information ,competition supervision, review of reserved shares, even to controversial appeals. At the same time, establishing a national top-down administrative system to ensure that policy of SMEs can be implemented and executed. Establishing a specialized agency of the central, provincial and county 3 composition perform work of SMEs management and guidance. The department of SMEs at the central level is known as bureau of SMEs, the provincial level is known as provincial specialized agencies of SMEs, county and city level is known as office or service center of SMEs, together with the exercise of intermediary organizations (associations of SMEs, federations, the Coordination Committee, etc.) all levels performing administrative functions to form a complete administrative system for SMEs. The local SMEs sector is management unit sent by system that central state institutions and local sector of SMEs is parted in the country; local sector of SMEs is subjection of governments agencies, and work in the guidance of the central competent administrative department. The office of Administration for SMEs is set up In the government procurement sector (Ministry of Finance), and the Office of Government Procurement in the Administration of SMEs, providing services of bidding to SMEs. The setting up of office of Administration for SMEs In the government procurement sector is to provide better service, establish the procurement file to help them with qualification. The setting up of the Office of Government Procurement in the SMEs Administration is to provide SMEs with information on government procurement, publicize government procurement policies, popular government procurement requirement and methods to help SMEs which are willing to become a government Purchasing Suppliers, and try for share in government procurement for SMEs. 4.3 The establishment of mechanisms for supervision over government procurement The establishment of mechanisms for supervision over government procurement includes three aspects: First, internal oversight mechanisms of mutual restraint should be established in government procurement, including government procurement budget, project preparation and implementation, contract signing and disbursement of funds in various sectors. It should be a set of strict operational procedures to eliminate black-box operation, forming mechanism of mutual checks and balances oversight; Secondly, the supervision of government procurement agencies should be built and 66

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strengthened, urging them to act in accordance with the law and simplify procedures to improve service levels. Favorable conditions for purchase of SMEs should be provided, without discrimination and exclusion; Thirdly, social supervision mechanism should be established, the entire evaluation process and all procurement activities are placed under community supervision. Strong supervisory systems should be taken to ensuring the implementation of government procurement process and the results achieved under the laws and regulations in the interests of SMEs. 4.4 The establishment of SMEs agency providing services in government procurement Specific services SMEs need is the propagandistic training and guidance of knowledge of government procurement, the publication of SME products and services, real-time information on government procurement, the facilitation of the participation of SMEs in government procurement and some practical difficulty in face of the participation of SMEs in government procurement. According to the country's experience, a "Small Procurement Office" should be set up, which is responsible for coordinating the government procurement from SMEs. When limited by its capacity and external conditions, SMEs can not be a supplier of government procurement, the procurement office that will provide credit guarantee for SMEs. By economic instruments and the relaxation of intermediaries access, government should establish a social service system , which is comprehensive, involves SMEs in the production of upper, middle and lower reaches of the , Such as information, technology, consulting, training, exhibition, CPA firms and law firms. Meanwhile, the existing government-sponsored associations should be integrated, including chambers of commerce, federations and other organizations, the intermediary organization system provide service and be in the interests of small and medium enterprises. 4.5 The establishment of an integrated information platform for SMEs It is suggested that an area on the Internet should be opened to provide integrated information platform for SMEs and improve the information channels of government procurement. The platform should at least have functions of information dissemination, data entry and capabilities validation of SMEs, the credit management and query of SMEs. Information dissemination. Problems exists in SMEs is the lack of personnel strength and the target of information, information channels should be unified, which is information about procurement exclusively for small and medium enterprises and that SMEs may participate. The information should be released by province and be shared by the national, and be scientifically combined and arranged in accordance with procurement categories to achieve information about national procurement be accessed by only landing net government procurement, reducing the difficulty of procurement information collecting. So SMEs are able to check the information timely and accurate, and make participation in government procurement be more convenient. Data entry and capabilities validation of SMEs. Identified SMEs through the statutory procedures will be included in the database directory, with a national network check, to facilitate the procurement sector to audit suppliers of SMEs, saving links of verification and improving work efficiency, and ensuring that policy is enjoyable to SMEs. The credit management and query of SMEs. Resolving problems of lack of performance and integrity of SMEs and protecting the legitimate interests of the purchaser, conditions such as fulfilling government procurement contracts, providing products and services, good faith cases as compliance with procurement regulations ,will be labeled in document, establishing credit rating for government procurement of SMEs, and act breach of trust will be lay out of the mechanisms, to facilitate the supervising authorities of procurement and agencies of procurement identify adverse suppliers by way of network query and in a timely manner, reducing and preventing the procurement risks, and maintaining the legitimate interests of small and medium enterprises.

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4.6 Broadening the financing channels Charging for performance bonds and fees in government procurement and demanding of capital in development, financing has become the biggest problem plagued the development of SMEs. The financing channels for SMEs should be broadened, and their ability should develop. On the one hand, guarantee agencies are encouraged to provide capacity for SMEs guarantee. In assessment process of government procurement, government procurement center should make the ability to perform the contract or standing offer of security, which is provided by guarantee institutions for SMEs, as the basis for assessment. On the other hand, financial support is provided to SMEs. Government procurement departments can join forces with local banks, helping small and medium enterprises as a platform with financing support. About the successful SME suppliers in government procurement, bid notices and government procurement contracts can be used as security credentials directly to the bank loans to ease the financial pressure. Such as the July 27, 2010, Suzhou City Department of Finance coordinate the security and bank, who launched the credit secured loan cooperation projects of government Procurement --"procurement through", and Urban agriculture limited company provide guarantee security, then loans is put out to SMEs meeting conditions by the cooperative banks. In government procurement activities, bid notices and public procurement contracts of SMEs suppliers can be as seen a secured credentials to bank loans. Development and promotion of the product is conducive to the bidding initiative of the participation in government procurement and further boost of SMEs, and help SMEs improve the bidding capacity.

5 Conclusion The Establishment of a support system for SMEs to participate in government procurement provides guidance for SMEs, but whether it is compared with developed countries, or in practice of supporting participation of SMEs in government procurement, the support of government procurement to SMEs is limited, and there are still some problems. We should learn from the experience of developed countries, and conscientiously sum up our problems in government procurement supporting for SMEs . On the basis of this, Chinese government procurement system should be improved further, by the establishment of a set of integrated framework for government procurement system including laws and regulations, management institutions of SMEs, government procurement supervision and management institutions for SMEs, service organization for SMEs, information resources and financial resources. Then the interests of small and medium enterprises be protected and the development of SMEs be supported, so as to improve living standards and ensure the development of national economy be rapid, healthy and sustainable. About the author: Liu Zhichao, male, professor of Business administration college of South China University, Ph.D., Master Instructor, The head of Marketing department in Business Administration of South China University, director of China market academy, director of Market Research Association of the National Higher Education. Be engaged in teaching and research of marketing and procurement management mainly. Zhang Xiaojuan, female, graduate of Business Administration in College of Business Administration, South China University .research for marketing management.

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[2]. Huang, S.J. The discussion of government procurement system about participation of SME in [J]. China's government procurement, 2008 (04) :33-34 [3]. Wang, H.Z; Liang Y. the road of government procurement supporting SMEs [J]. The Chinese government procurement, 2008 (11) :69-70. [4]. The discussion group of SME participation in government procurement in Jiangsu. The Investigation Report of SME participation in government procurement in Jiangsu Province [J]. The Chinese government procurement .2010 (02) :38-41 [5]. Fan, C.R. The director of Provincial Finance Department in Jiangsu talk about supporting the development of SMEs with government procurement [N]. .2009-09-01 Chinese financial newspaper. [6]. You, L. Suggestions on measures that promoting development of SME with government procurement [J / OL]. Http://www.scsme.gov.cn/htm/zwhd/view.asp?id=32872. 2006-05 - 11 [7]. The consideration of development policy for SME of government procurement [EB / OL]. Http://blog.163.com/thomaschina @ yeah/blog/static/141077040201032921631158 /. 2010-04-29

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