The “Little Giant” enterprise initiative represents a targeted industrial policy intervention designed to accelerate the development of specialized, innovation-driven small and medium enterprises (SMEs) within strategic sectors. This paper develops a comprehensive policy analysis framework to evaluate how such initiatives influence SME upgradation, innovation performance, and broader industrial growth dynamics. Building on theories of industrial policy and competition (Aghion et al., 2015), infant industry protection (Grubel, 1966), and structural transformation in emerging economies (Naughton, 2007), the study synthesizes multiple analytical dimensions including innovation incentives, financial support mechanisms, supply chain repositioning, and technological upgrading pathways.

Using a structured qualitative synthesis of existing literature, the paper conceptualizes the “Little Giant” policy as a hybrid industrial governance mechanism that combines state-guided financial allocation, competitive discipline, and innovation targeting. The framework integrates empirical insights on SME constraints (Grube et al., 2017), innovation responses to policy signals (Shao, 2024), government fund effectiveness in technological breakthroughs (Wu & Yan, 2023), and firm-level positioning within supply chains (Zhang, 2025).

Findings suggest that the initiative operates through four primary channels: (i) capability upgrading via targeted subsidies and certification effects, (ii) innovation stimulation through competition-enhancing industrial policy (Aghion et al., 2015), (iii) structural repositioning in industrial value chains, and (iv) reinforcement of technological ecosystems. However, the effectiveness of the policy is contingent upon institutional quality, firm absorptive capacity, and sectoral heterogeneity. The paper concludes with a structured evaluation model and policy recommendations for optimizing SME-oriented industrial upgrading strategies.