Digital Policy and the Innovation Divide: How Enterprise Transformation Costs Determine the Success or Failure of Policies

When "Digitalization" Becomes a National Strategy, Why Do Enterprises Respond Differently

From the U.S. National Advanced Manufacturing Strategy to the EU's "Green and Digital Europe Industrial Strategy," and to China's "Internet+" action plan, major global economies have elevated digital transformation to the core agenda of national competitiveness. Policymakers generally assume that as long as direction and resource support are provided, enterprises will proactively embrace digitalization, thereby giving rise to a wave of innovation.

Reality, however, is far more complex than this assumption. Not all enterprises respond to policy calls with the same enthusiasm. Some act quickly, integrating digitalization into product development and organizational processes; others remain at the surface—applying for subsidies and attaching the "smart manufacturing" label, yet producing little innovation. Behind this disparity, is there some systematic logic hidden?

A study recently published in Humanities and Social Sciences Communications, using China's "Internet+" policy promoted by the State Council in 2015 as a natural experiment, reveals the critical role of enterprise digital transformation costs. The researchers found that the watershed in policy feedback lies not in enterprise size, industry attributes, or ownership, but in the level of transformation costs. Enterprises with low costs respond to the policy with "positive feedback," genuinely enhancing innovation output; those with high costs show "limited and strategic" responses, with policy effects greatly diminished.

Although this conclusion is based on Chinese data, it has universal relevance for developing countries worldwide. It reminds policymakers: digitalization policy is not a starting gun, but a mirror that reflects the real constraints of the environment in which enterprises operate.

Cost Heterogeneity: The Overlooked Policy Transmission Variable

Traditional research tends to explain innovation behavior from internal enterprise factors—technological capability, human capital, scale, founder characteristics, and so on. But when digital transformation becomes a public policy issue, a key question emerges: how do external policies interact with internal capabilities?

The "Internet+" policy provides a rare research setting for answering this question. As a national-level digital strategy, it covers almost all industries, but the difficulty of accessing digital technologies varies enormously across industries and enterprises. For inherently digital internet companies or tech startups, transformation costs are relatively manageable; for manufacturing enterprises that rely on traditional production lines, have complex supply chains, and face constrained financing channels, digitalization means reconfiguring resources, restructuring organizational processes, and even confronting the dilemma of "waiting to die without transformation, and courting death by transforming."

The study points out that this "cost heterogeneity" directly determines how enterprises respond to policy. Low-cost enterprises can quickly convert policy signals into concrete actions—connecting to digital infrastructure, optimizing production management, exploring new business models—ultimately reflected in increased innovation output. High-cost enterprises face a more difficult trade-off: transformation investment may crowd out current operational resources, and excessive uncertainty leaves them with no choice but "selective participation"—for example, responding to policy by applying for demonstration projects, but with insufficient depth of actual digitalization. Such strategic compliance is barely reflected in innovation output at all.This is not corporate short-sightedness or inertia, but a rational choice. When the sunk costs of transformation are too high and the path is unclear, firms will naturally choose to "wait and see" or "go through the motions." If policy incentive signals cannot cover these costs, they will fail.

Connectivity, Integration, and Financing: Three Cost Transmission Pathways

The study further identifies the specific components of digitalization costs and points to three actionable avenues for reducing them: connectivity costs, integration costs, and financing costs. This framework is highly instructive for policy design.

Connectivity costs refer to the difficulty firms face in accessing digital infrastructure and obtaining external information and technological resources. In regions with weak infrastructure, firms may find it difficult even to obtain high-speed internet or cloud services, and naturally cannot benefit from policies. Integration costs involve the fusion of digital technology with existing business and organizational processes—requiring employee skill upgrades, management process reengineering, and even adjustments to corporate culture. This is far more expensive than purchasing a software package. Financing costs directly constrain firms' capacity to invest in transformation, especially for small and medium-sized enterprises. Digitalization requires large upfront investment and yields returns slowly; without long-term financial support, even willing firms cannot sustain the effort.

The study finds that when these three types of costs are effectively reduced, firms build three key capabilities: the ability to connect externally, the ability to adapt to change, and the ability to ease financing constraints. These capabilities not only accelerate digital transformation but also directly promote innovation activities. In other words, reducing transformation costs is not just about getting firms to "adopt digitalization"—it helps them build the dynamic capabilities needed for sustained innovation.

This explains a seemingly paradoxical phenomenon: why some policy subsidies fail to generate innovation. If subsidies only reduce one-time procurement costs but fail to reduce integration and financing costs, firms may simply "install" digital devices without internalizing them as organizational capabilities. Innovation requires systematic capability building, not piecemeal investment.

From China's Practice to Global Implications: Moving Beyond a "One-Size-Fits-All" Approach

This study's most profound implication may lie in its advice to policymakers in developing countries. Many developing countries, when formulating digitalization strategies, tend to imitate developed countries—introducing overall plans, setting up special funds, and promoting whole-industry transformation. However, firms in developed countries have relatively well-established technological foundations, capital markets, and digital infrastructure. The policy premise there is that most firms already have a certain level of absorptive capacity.

Emerging markets are different. The "digital divide" among firms exists not only between urban and rural areas, but also between large enterprises and SMEs, and between high-tech and traditional firms. A nationwide digitalization roadmap that ignores this heterogeneity will inevitably produce differentiated outcomes: firms that already have a foundation will be further empowered, while those most in need of help will be doubly marginalized by both policy and the market.The study recommends that developing countries should "create digital roadmaps suited to their own national conditions" and "form targeted support policies for various types of enterprises." This is not an empty slogan. It means policy tools need to be differentiated: for regions with high connectivity costs, investment should go into digital infrastructure; for traditional enterprises with high integration costs, support should include technical consulting, talent training, and process reengineering; and for small and medium-sized enterprises with high financing costs, financial products that fit innovation cycles need to be designed.

The experience of China's "Internet+" policy is itself evolving. The early stage leaned toward infrastructure and platform construction; the later stage increasingly emphasized "going to the cloud, using data, and empowering with intelligence" and digital empowerment of SMEs. This shift from "blanket rollout" to "precision drip irrigation" is precisely a response to the recognition of cost heterogeneity.

When Policy Meets Reality: The Truth About Innovation

The goal of digital policy is not just to make enterprises "become digital," but to release innovative vitality through digitalization. But innovation is never a single action; it is the outcome of a coordinated interplay of capabilities, resources, and institutions. If policy focuses only on the appearance of technology adoption, it may create a "digital bubble"—enterprises own digital equipment but gain no innovation returns.

This study places cost heterogeneity at the heart of policy analysis, offering a more powerful explanatory lens. It reminds us that enterprises are not passive recipients of policy, but micro-level actors who respond according to their own cost-benefit calculations. The effectiveness of policy ultimately depends on the degree to which it can change the cost structure of enterprises.

For policy makers worldwide promoting digital transformation, this is a fact that must be confronted directly: policy is not uniform sunlight, but a spectrum refracted through a prism—different enterprises see different colors and make different choices. Only by calibrating that prism, so that the light truly illuminates every corner, can innovation turn from policy intention into actual performance.

In the global race of the digital era, whoever first understands the logic of cost heterogeneity is more likely to devise truly effective policies that enable enterprises not only to "turn around," but also to "soar."