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Small and medium enterprises

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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.

Overview

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.[1]

Definition around the world

European Union

The criteria for defining the size of a business differs from country to country, with many countries having programs of business rate reduction and financial subsidy for SMEs. According to European Commission,[2] the SME are the enterprises that follow this definition:

Company category Employees Turnover Balance Sheet Total
Medium-sized < 250 ≤ €50 m ≤ €43 m
Small < 50 ≤ €10 m ≤ €10 m
Micro < 10 ≤ €2 m ≤ €2 m

Africa

Egypt

Most of Egypt's businesses are small-sized, with 97 percent employing less than 10 workers, according to census data released on Tuesday 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 to 49 people.

Kenya

In Kenya, the term is MSME stands for "micro, small and medium enterprises". Maximum number of employees = 10000.

Micro Enterprises = up to 10 employees Small = 10 to 50 Medium = 150 to 1000

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 between N4 million and N500 million, and a staff strength between 10 and 100 employees.[citation needed]

Somalia

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.

South Africa

In the National Small Business Amendment Act 26 0f 2003,[3] 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, 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, Accommodation 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[4]

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:[5]

(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, as—

(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;

(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or

(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

(b) in the case of the enterprises engaged in providing or rendering of services, as—

(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or

(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

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.[6]

European Union

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.[7]

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."[8]

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 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."[9]

Poland

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.[10]

United Kingdom

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 less than 250 employees, it has gross assets of less than £12.5m.[11]

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.[12][13]

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.[14]

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.[15]

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.[16] 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.[17]

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).[18] Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices (SOHO).[citation needed]

Oceania

Australia

In Australia, a SME has 199 or fewer employees. Microbusinesses have 1–4 employees, small businesses 5–19, medium businesses 20–199, large businesses 200+.[19]

New Zealand

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.[20]

See also

References

  1. ^ 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.
  2. ^ "What is an SME? - Small and medium sized enterprises (SME) - Enterprise and Industry". ec.europa.eu. Retrieved 2015-06-12.
  3. ^ "Republic of South Africa, National Small Business Amendment Act" (PDF). www.thedti.gov.za. Retrieved 10 October 2015.
  4. ^ Du Toit.Erasmus.& Strydom "Definition of a small business" Introduction to business management, 7th Edition Oxford University press,2009, p. 49
  5. ^ "THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006" (PDF). The Gazette of India. 31: 5. June 2006.
  6. ^ "Micro, Small and Medium Enterprises". Reserve Bank of India. Retrieved 9 May 2015.
  7. ^ European Commission (2003-05-06). "Recommendation 2003/361/EC: SME Definition". Retrieved 2012-09-28.
  8. ^ 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
  9. ^ 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)
  10. ^ 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.
  11. ^ "Mid-sized businesses". gov.uk. Department of Business, Innovation and Skills. Retrieved 11 June 2015.
  12. ^ "Bridging loans UK can be used for many purposes". www.konnectfinancial.co.uk. Konnect Financial. Retrieved 10 October 2015.
  13. ^ "Statistical Release: Business Population Estimates for the UK and Regions 2014" (PDF). Department for Business Innovation and Skills. 26 November 2014. Retrieved 9 May 2015.
  14. ^ "2010 to 2015 government policy: government buying". 20 February 2013. Retrieved 9 May 2015.
  15. ^ "Key Small Business Statistics - August 2013". ic.gc.ca. Industry Canada. 2013-09-13. Retrieved 9 May 2015.
  16. ^ "T2 Corporation - Income Tax Guide - Chapter 4: Page 4 of the T2 return". Canada Revenue Agency. Retrieved 27 April 2014.
  17. ^ Equicapita May 2014 - Who Will Buy Baby Boomer Businesses?
  18. ^ United States Small Business Administration. "Size Standards". Retrieved 2011-08-21. {{cite web}}: |last= has generic name (help)
  19. ^ "1321.0 - Small Business in Australia, 2001". 23 October 2002. Retrieved 30 September 2015.
  20. ^ "SMEs in New Zealand: Structure and Dynamics 2011", Page 10-11, Ministry of Economic Development
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