Small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO).

SMEs outnumber large companies by a wide margin and also employ many more people. For example, Australian SMEs make up 97% of all Australian businesses, produced one third of total GDP, and employ 4.7 million people. In Chile, in the commercial year 2014, 98.5% of the firms were classified as SMEs.[1] In Tunisia, the self-employed workers alone account for about 28% of the total non-farm employment and firms with fewer than 100 employees account for about 62% of total employment.[2] In developing countries, smaller (micro) and informal firms, have a larger share than in developed countries. SMEs are also said to be responsible for driving innovation and competition in many economic sectors. Although they create more jobs, there is also a majority of job destruction/contraction.[3]

Overview

SMEs are important for economic and social reasons, given the sectors role in employment. Due to their sizes, SME are heavily influenced by their Chief Executive Officers, a.k.a. CEOs. The CEOs of SMEs often are the founders, owners, and manager of the SMEs. The duties of a CEO in SME is difficult just like the CEOs of big companies. A CEO needs to strategically allocate her/his time, energy, and assets to direct the SMEs. Typically, the CEO Is the strategist, champion and leader for developing the SME or the prime reason for the business failing.

At the employee level, Petrakis and Kostis (2012) explore the role of interpersonal trust and knowledge in the number of small and medium enterprises. They conclude that knowledge positively affects the number of SMEs, which in turn, positively affects interpersonal trust. Note that the empirical results indicate that interpersonal trust does not affect the number of SMEs. Therefore, although knowledge development can reinforce SMEs, trust becomes widespread in a society when the number of SMEs is greater.[4]

SME leadership

SMEs' top management teams' leadership styles have an essential effect on business success and the development of SMEs.[5] Many SMEs do not have a board and rely on its top management team (TMT), the top managers of a firm, to make the strategic decisions.

SME strategies

To thrive in our changing and complex business world, the modern SME must formulate strategies on where it wants to be in its marketplace. Its leadership then needs to acquire, and use wisely, the right human, financial and other resources to get there.

Flexibility

SMEs face a lot of uncertainty and need to be flexible.[6]

Ambidexterity

SMEs need to balance many things at the same time, and being ambidextrous at tasks is key.

Dynamic Capability

In our changing and complex business world, the modern SME should have the ability to change themselves.[7]

Innovation and Corporate Entrepreneurship

While startups are known for their innovation, SMEs often are small and focused enough to bring out innovation as well.[8][5]

Bribery

Bribery is an often-quiet but prevalent strategies of SMEs in many parts of the world.

E-Commerce and Online Strategy

In the internet and mobile world, SMEs face unique motivation and barriers in their e-commerce and online strategy. SMEs find an "enhanced company brand and corporate image" to be the most important e-commerce advantage, whereas "doubts about the security and privacy" is the most important barrier for SMEs to have an e-commerce and online strategy.[9]

Legal boundary on SMEs around the world

Multilateral organizations have been criticized for using one measure for all.[10][11] The legal boundary of SMEs around the world vary, and below is a list of the upper limits of SMEs in some countries.

Africa

Egypt

Most of Egypt's businesses are small-sized, with 97 percent employing fewer than 10 workers, according to census data released by state-run statistics body CAPMAS.

Medium-sized enterprises with 10 to 50 employees account for around 2.7 percent of total businesses. However, big businesses with over 50 employees account for 0.4 percent of all enterprises nationwide.

The data is part of Egypt's 2012/13 economic census on establishments ranging from small stalls to big enterprises. Economic activity outside the establishments – like street vendors and farmers, for example – were excluded from the census.

The results show that Egypt is greatly lacking in medium-sized businesses.

Seventy percent of the country's 2.4 million businesses have only one or two employees. But less than 0.1 percent – only 784 businesses – employ between 45 and 49 people.

Kenya

In Kenya, the term changed to MSME, which stands for "micro, small, and medium-sized enterprises".

For micro enterprises, the maximum number of employees is up to 10 employees. For small enterprises, it is from 10 to 50. For medium enterprises, it is from 50 to 100.

Nigeria

The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and number of staff employed. The criteria are an asset base that is between N5 million to N500 million, and a staff strength that is between 11 and 100 employees.[12]

Somalia

In Somalia, the term is SME (for "small, medium, and micro enterprises"); elsewhere in Africa, MSME stands for "micro, small, and medium enterprises". An SME is defined as a small business that has more than 30 employees but less than 500 employees.

South Africa

In the National Small Business Amendment Act 26 0f 2003,[13] micro-businesses in the different sectors, varying from the manufacturing to the retail sectors, are defined as businesses with five or fewer employees and a turnover of up to R100,000 ZAR. Very small businesses employ between 6 and 20 employees, while small businesses employ between 21 and 50 employees. The upper limit for turnover in a small business varies from R1 million in the Agricultural sector to R13 million in the Catering, Accommodations and other Trade sector as well as in the Manufacturing sector, with a maximum of R32 million in the Wholesale Trade sector.

Medium-sized businesses usually employ up to 200 people (100 in the Agricultural sector), and the maximum turnover varies from R5 million in the Agricultural sector to R51 million in the Manufacturing sector and R64 million in the Wholesale Trade, Commercial Agents and Allied Services sector.

A comprehensive definition of an SME in South Africa is therefore any enterprise with one or more of the following characteristics:

  • Fewer than 200 employees
  • Annual turnover of less than R64 million
  • Capital assets of less than R10 million
  • Direct managerial involvement by owners[14]

Asia

India

Under section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Indian government defined the size of micro, small, and medium enterprises as:[15]

Businesses that are declared as MSMEs and within specific sectors and criteria can then apply for "priority sector" lending to help with business expenses; banks have annual targets set by the Prime Minister's Task Force on MSMEs for year-on-year increases of lending to various categories of MSMEs.[16]

Indonesia

In Indonesia, the government defines micro, small, and medium enterprises (Indonesian: Usaha Mikro Kecil dan Menengah, UMKM) based on their assets and revenues according to Law No. 20/2008:[17]

Type Maximum assets, Rp Maximum revenue, Rp
Micro 50,000,000 300,000,000
Small 500,000,000 2,500,000,000
Medium 10,000,000,000 50,000,000,000

An annual revenue of Rp 50 billion is approximately equal to USD 3.7 million as of November 2017.

Bangladesh

In Bangladesh, Bangladesh Bank defines Small and medium enterprises based on Fixed Asset, Employed Manpower and Yearly turn over and they are definitely not Public Limited Co. and requires these characteristics -

Serial No Sector Fixed Asset other than Land and Building (Tk)

SE (Small Enterprises) & ME (Medium Enterprises)

Employed Manpower Yearly Turn Over (Tk)

(N/A-Not Applicable)

01 Services For SE 1000,000 - 200,00,000 &

For ME 200,00,000 - 30,00,00,000

SE - 16-50 & ME - 51-120 N/A
02 Business For SE 1000,000 - 200,00,000 SE - 16-50 SE 10,000,000-120,000,000
03 Industrial For SE 7,500,000 - 150,000,000

For Me 150,000,000 - 500,000,000

SE - 31-120 & ME - 121-300 N/A

Singapore

With effect from 1 April 2011, the definition of SMEs is businesses with annual sales turnover of not more than $100 million or employing no more than 200 staff.[18]

Europe

European Union

The criteria for defining the size of a business differ from country to country, with many countries having programs of business rate reduction and financial subsidy for SMEs. According to the European Commission,[19] the SME are the enterprises that meet the following definition of staff headcount and either the turnover or balance sheet total definitions:

Company category Staff headcount Turnover Balance sheet total
Medium-sized < 250 ≤ €50 million ≤ €43 million
Small < 50 ≤ €10 million ≤ €10 million
Micro < 10 ≤ €2 million ≤ €2 million

In July 2011, the European Commission said it would open a consultation on the definition of SMEs in 2012. In Europe, there are three broad parameters which define SMEs:

  • Micro-enterprises have up to 10 employees
  • Small enterprises have up to 50 employees
  • Medium-sized enterprises have up to 250 employees.[20]

The European definition of SME follows: "The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro."[21] In order to prepare for an evaluation and revision of some features of the small and medium-sized enterprises definition European Union established public consultation period from 6 February 2018 to 6 May 2018. Public consultation is available for all EU member country citizens and organizations. Especially, national and regional authorities, enterprises, business associations or organizations, venture capital providers, research and academic institutions, and individual citizens are expected as the main contributors.[22]

EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labelled programme.

SMEs are a crucial element in the supplier network of large enterprises which are already on their way towards Industry 4.0.[23] According to German economist Hans-Heinrich Bass, "empirical research on SME as well as policies to promote SME have a long tradition in [West] Germany, dating back into the 19th century. Until the mid-20th century most researchers considered SME as an impediment to further economic development and SME policies were thus designed in the framework of social policies. Only the Ordoliberalism school, the founding fathers of Germany's social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs."[24]

The SME sector in Poland generates almost 50% of the GDP, and out of that, for instance, in 2011, micro companies generated 29.6%, small companies 7.7%, and medium companies 10.4% (big companies 24.0%; other entities 16.5%, and revenues from customs duties and taxes generated 11.9%). In 2011, out of the total of 1,784,603 entities operating in Poland, merely 3,189 were classified as "large", so 1,781,414 were micro, small, or medium. Companies of the SMEs sector employed 6.3 million people out of the total of 9.0 million of labour employed in the private sector. In Poland in 2011 was 36.2 SMEs per 1,000 of inhabitants.[25]

In the UK a company is defined as being an SME if it meets two out of three criteria: it has a turnover of less than £25m, it has fewer than 250 employees, it has gross assets of less than £12.5m.[26] Many small and medium-sized businesses form part of the UK's currently growing Mittelstand, or Brittelstand as it is also often named.[27] These are businesses in Britain that are not only small or medium but also have a much broader set of values and more elastic definition.

The Department for Business Innovation and Skills estimated that at the start of 2014, 99.3% of UK private sector businesses were SMEs, with their £1.6 trillion annual turnover accounting for 47% of private sector turnover.[28][29]

In order to support SMEs, the UK government set a target in 2010 "that 25% of government’s spend, either directly or in supply chains, goes to SMEs by 2015"; it achieved this by 2013.[30]

Switzerland

In Switzerland, the Federal Statistical Office defines small and medium-sized enterprises as companies with less than 250 employees.[31] The categories are the following:[31]

  • Microentreprises: 1 to 9 employees.
  • Small enterprises: 10 to 49 employees.
  • Medium-sized enterprises: 50 to 249 employees.
  • Large enterprises: 250 employees or more.

North America

Canada

Industry Canada defines a small business as one with fewer than 100 paid employees and a medium-sized business as one with at least 100 and fewer than 500 employees. As of December 2012, there were 1,107,540 employer businesses in Canada, of which 1,087,803 were small. Small businesses make up 98.2 percent of employer businesses, medium-sized businesses make up 1.6 percent of employer businesses and large businesses make up 0.1 percent of employer businesses. In 2012, over 7.7 million employees, or 69.7 percent of the total private labour force, worked for small businesses and 2.2 million employees, or 20.2 percent of the labour force, worked for medium-sized businesses. In total, SMEs employed about 10 million individuals, or 89.9 percent of employees. Canadian high-growth firms are present in every economic sector and are not just concentrated in knowledge-based industries. In terms of employment, the highest concentrations of high-growth firms in Canada during the 2006–2009 period were in construction (4.9 percent of all firms); business, building and other support services (4.6 percent); and professional, scientific and technical services (4.5 percent). In 2011, only 10.4 percent of SMEs exported. Nonetheless, they were responsible for $150 billion, or about 41.0 percent, of Canada's total value of exports.[32]

Corporations in Canada are generally taxed at 29% federally. Canadian Controlled private corporations receive a 17% reduction in the tax rate on taxable income from active businesses up to $500,000. This small business deduction is reduced for corporations whose taxable capital exceeding $10M, and is completely eliminated for corporations whose taxable capital exceeds $15M.[33] It has been estimated that almost $2 trillion of Canadian SMEs will be coming up for sale over the next decade which is twice as large as the assets of the top 1,000 Canadian pension plans and approximately the same size as Canadian annual GDP.[34]

Mexico

The small and medium-sized companies in Mexico are called PYMEs, which is a direct translation of SMEs. But there's another categorization in the country called MiPyMEs. The MiPyMEs are micro, small and medium-sized businesses, with an emphasis on micro which are one man companies or a type of freelance.

United States

In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue and number of employees (which in some circumstances may be as high as 1500, although the cap is typically 500).[35] Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices (SOHO).

Also in the United States, small and medium-sized manufacturers are referred to as SMMs,[36] which the US Department of Energy classifies as having gross annual sales below $100 million, fewer than 500 employees at the plant site, and annual energy bills more than $100,000 but less than $2.5 million.[37]

Oceania

Australia

In Australia, a SME has 200 or fewer employees. Microbusinesses have 1–4 employees, small businesses 5–19, medium businesses 20–199, and large businesses 200+.[38] Australian SMEs make up 97% of all Australian businesses, produced one third of total GDP, and employ 4.7 million people. SMEs represent 90 per cent of all goods exporters and over 60% of services exporters.[39]

New Zealand

In New Zealand, 99% of businesses employ 50 or less staff, and the official definition of a small business is one with 19 or fewer employees.[40][41] It is estimated that approximately 28% of New Zealand's gross domestic product is produced by companies with fewer than 20 employees.[42]

See also

References

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  2. ^ Rijkers et al (2014): "Which firms create the most jobs in developing countries?", Labour Economics, Volume 31, December 2014, pp.84–102
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