Small and medium-sized enterprises ( SMEs) or small and medium-sized businesses ( SMBs) are whose personnel numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the European Union, the United Nations, and the World Trade Organization (WTO).
In any given national economy, SMEs sometimes outnumber large companies by a wide margin and also employ many more people.
Compare:
For example, SMEs makeup 98% of all Australian businesses, produce one-third of the total GDP and employ 4.7 million people. In Chile, in the commercial year 2014, 98.5% of the firms were classified as SMEs. 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.Rijkers et al (2014): "Which firms create the most jobs in developing countries?", Labour Economics, Volume 31, December 2014, pp.84–102 The United States' SMEs generate half of all U.S. jobs, but only 40% of GDP.
Developing countries tend to have a larger share of small and medium-sized enterprises. Compare: SMEs are also responsible for driving innovation and competition in many . Although they create more new jobs than large firms, SMEs also suffer the majority of job destruction/contraction. Aga et al. (2015): SMEs, Age, and Jobs: A Review of the Literature, Metrics, and Evidence, World Bank Group, November 2015.
This definition is provided in Section 7 of Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act) and was notified in September 2006. The Act provides for the classification of enterprises based on their investment size and the nature of the activity undertaken by that enterprise. As per MSMED Act, enterprises are classified into two categories - manufacturing enterprises and service enterprises. For each of these categories, a definition is given to explain what constitutes a micro-enterprise or a small enterprise or a medium enterprise. What is not coming under the above three categories would be considered as a large scale enterprise in India.
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.P.E. Petrakis, P.C. Kostis (2012), " The Role of Knowledge and Trust in SMEs", Journal of the Knowledge Economy, DOI: 10.1007/s13132-012-0115-6.
According to the World Bank, women own 58% of all MSMEs in Africa.
The European Investment Bank's Banking in Africa survey, 2021 suggests that most of the responding banks had a non-performing loan ratio of at least 5%. NPLs account for at least 10% of the SME portfolio in approximately one-third of African banks. Furthermore, 50% of the banks had at least 5% of their SME portfolio under the moratorium, and 40% had at least 5% of SME loans under some type of restructuring.
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 24 million businesses have only one or two employees. But less than 0.1 percent – only 784 businesses – employ between 45 and 49 people.
For micro-enterprises, the minimum 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. no
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, an enterprise with one or more of the following characteristics:
+ !Sr No !Classification !Criteria (in ₹) | ||
1 | Micro Enterprises | Investment <= 1 cr and Turnover <= 5 cr |
2 | Small Enterprises | Investment <= 10 cr and Turnover <= 50 cr |
3 | Medium Enterprises | Investment <= 50 cr and Turnover <= 250 cr |
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. MSME is considered a key contributor to India's growth and contributes 48% to India's total export.
300,000,000 |
2,500,000,000 |
50,000,000,000 |
An annual revenue of Rp 50 billion is approximately equal to US$3.7 million as of November 2017.
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 |
According to the Department of Trade and Industry's 2020 List of Establishments report, there are 957,620 registered business enterprises operating in the country composed of 99.51% MSMEs and 0.49% large firms. The MSMEs consist of 88.77% microenterprises, 10.25% small enterprises, and 0.49% medium enterprises. Among the top industry sectors include (1) Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles (445,386); (2) Accommodation and Food Service Activities (134,046); (3) Manufacturing (110,916); (4) Other Service Activities (62,376); and (5) Financial and Insurance Activities (45,558) which accounted for about 83.77% of the total number of MSME establishments. Prior to the pandemic, MSMEs generated more than 5.38 million jobs or 62.66% of the country's total employment with a 29.38% share from micro-enterprises followed by 25.78% and 7.50% for small and medium enterprises.
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, SMEs are enterprises which meet the following definition of staff headcount and either the turnover or balance sheet total definitions:
Medium-sized | < 250 | ≤ €50 million | ≤ €43 million |
Small | < 50 | ≤ €10 million | ≤ €10 million |
Micro-enterprise | < 10 | ≤ €2 million | ≤ €2 million |
In July 2011, the European Commission said it would open a consultation on the definition of SMEs in 2012. A consultation document was issued on 6 February 2018 and the consultation period closed on 6 May 2018. , no conclusions or responses have yet emerged.European Commission, Public consultation on the review of the SME definition, accessed 22 November 2019
In Europe, there are three broad parameters that define SMEs:
EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 , 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. 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." 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) Only around 20% of European SMEs are substantially Digitization, compared to almost 50% of major businesses. Small and medium-sized companies make up 56.2% of the non-financial sector.
Smaller companies account for more than 60% of the value contributed to the non-financial sector in Belgium, Italy, and Spain, three of the nations worst hit by the COVID-19 pandemic. An estimated 50% of Europe's small firms may fail because they lack the substantial financial reserves required to weather the crisis.
Many small and medium-sized businesses form part of the UK's currently growing Mittelstand, or Brittelstand as it is also sometimes named. 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 revenue accounting for 47% of private sector turnover.
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.
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