The Chinese Government is supposed to further foster a healthy business environment that can provide diversified funding channels for enterprises, said Liu Chunheng, Director General of the Statistics and Research Department under the China Banking Regulatory Commission.

War for talent

As small firms position themselves for the future, their top concern is not so much a struggle in the search for profits, but one of business innovation and efficiency. For most companies, effective and creative employees are believed to be the best weapons in market competition. But SMEs find it difficult to attract and retain highly skilled and talented workers.

To grab scarce human resources, start-up firms must be able to convince prospective employees that they will have a bright future there and opportunities to grow, Quigley said. They should also ensure appropriate returns for their contributions, he added.

Lehmacher said he believes the appeal of SMEs is mainly constrained by their low brand recognition and lack of job security for employees. But a key element in competing for human talent is a clear vision of future markets and bright prospects for employee advancement to motivate them, he said.

Young Chinese entrepreneurs should make their development plans clear and establish relationships with targeted universities, he said. Now is a good time for SMEs to scoop up displaced talent with rich experience, he added.

Growing up

For many of China's small businesses, this is the first economic slowdown they have confronted. But it is only in tough times that the most dynamic companies show their colors. While their bigger rivals retrench, SMEs have gained some room to grow with the right mix of strategies. Those that are only content with survival will be left behind when the economy establishes a forward momentum.

This is the perfect environment for entrepreneurs to build their businesses to become the next Microsoft or Google by implementing bold and creative ideas, Sinha said.

Lehmacher said he believes that SMEs can pursue growth mainly by expanding organically or innovating.

"Innovation is an important way to ride out the economic mess that we are still in," he said.

The downturn also provides an opportunity for those who have the cash to acquire or team up with other competitors who share the same goals and growth ambitions to strengthen their positions, Lehmacher said. If that is not possible, then SMEs can grow through picking up customer resources and employee talent from distressed competitors, he added.

Lehmacher also cautioned that SMEs should balance their creativity with self-discipline so as to better manage their corporate fundamentals, customer qualities and control costs.

Liu Chunheng added that sustainable SME development requires a constant commitment to core businesses while keeping up with changing market realities. A number of domestic small firms have diversified too fast, lost their core competitiveness and ended up succeeding in nothing, he said.