Small and medium-sized enterprises
Small and medium-sized enterprises (SMEs; sometimes also small and medium enterprises) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits. The abbreviation "SME" is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.
Petrakis and Kostis (2012) explore the role of interpersonal trust and knowledge in the number of Small and Medium Enterprises (SMEs). 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.
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.
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."
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.
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 ordo-liberal 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."
The SMEs 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.
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). Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices (SOHO).
The Government of India enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 including definitions of micro, small and medium enterprises as follows:
(a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722(E) dated October 5, 2006.
(b) Enterprises engaged in providing services are defined by their level of investment in equipment as follows:
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
In Kenya, the term is MSME stands for "micro, small and medium enterprises". Maximum number of employees = 10000.
In Somalia, the term is SME (for "small, medium and micro enterprises"); elsewhere in Africa, MSME stands for "micro, small and medium enterprises". Maximum number of employees and maximum revenue it generates.
Industry Canada defines a small business as one with fewer than 100 employees (if the business is a goods-producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification, such as eligibility for subsidies, it is not the tax authority in Canada.
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. 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.
In New Zealand, 99% of businesses employ 50 or less staff, and the official definition of an SME is one with 19 or fewer employees.
In Australia, an SME has 200 or fewer employees. Micro Business 1-2 employees. Small Business 3-15. Medium 16-200. Large 201-500. Enterprise >500.
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 between N5 million and N500 million, and a staff strength between 20 and 300 employees.
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- P.E. Petrakis, P.C. Kostis (2012), “Τhe Role of Knowledge and Trust in SMEs”, Journal of the Knowledge Economy, DOI: 10.1007/s13132-012-0115-6.
- European Commission (2003-05-06). "Recommendation 2003/361/EC: SME Definition". Retrieved 2012-09-28.
- Enterprise and Industry Publications: The new SME definition, user guide and model declaration, Extract of Article 2 of the Annex of Recommendation 2003/361/EC
- Hans-Heinrich Bass: KMU in der deutschen Volkswirtschaft: Vergangenheit, Gegenwart, Zukunft, Berichte aus dem Weltwirtschaftlichen Colloquium der Universität Bremen Nr. 101, Bremen 2006 (PDF; 96 kB)
- D. Walczak, G. Voss, New Possibilities of Supporting Polish SMEs within the Jeremie Initiative Managed by BGK, Mediterranean Journal of Social Sciences, Vol 4, No 9, p. 760-761.
- United States Small Business Administration. "Size Standards". Retrieved 2011-08-21.
- "Micro, Small and Medium Enterprises". Reserve Bank of India. Retrieved 30 December 2013.
- "T2 Corporation - Income Tax Guide - Chapter 4: Page 4 of the T2 return". Canada Revenue Agency. Retrieved 27 April 2014.
- Equicapita May 2014 - Who Will Buy Baby Boomer Businesses?
- "SMEs in New Zealand: Structure and Dynamics 2011", Page 10-11, Ministry of Economic Development