Small and Medium-Sized Enterprises

Conceptual Overview

Small and medium businesses are the most common form of organizing business worldwide. Zimmerer and Scarborough note that there is no universal definition for SME, as descriptions vary from country to country. The United Kingdom, for example, uses a legal definition; other countries use total net sales and/or funding to categorize enterprises. Most Organisation for Economic Co-operation and Development (OECD) countries use the number of employees to define small and medium enterprises. In the United States, small business often means enterprises employing fewer than 100, while SMEs are defined as firms employing fewer than 500. The European Union defines small firms as employing fewer than 50, and SMEs with fewer than 250. In Australia, a small business is defined as employing 5 to 19 staff members, whereas an SME employs between 20 and 199. New Zealand defines SMEs as businesses with fewer than 19 employees. In Singapore, a small firm is an enterprise whose fixed productive assets do not exceed $15 million and/or that employs no more than 200 employees.

Despite these broad variances in definitions, small and medium-sized business are collectively referred to as SMEs, the most common quantitative measurement for defining an SME is 250 or fewer employees. The legal structure of SME may vary from country to country and include informal, semiformal, or recognizable formal legal enterprises.

Schaper and Volery focus their attention on the importance of SMEs and contend that these forms of organizing a business are a major economic force in the global economy. The scope and influence of SMEs on the global economy is considerable. There are about 45 million SMEs in the APEC (Asia and Pacific Economic Community) region, representing 95% of all firms, employing 80% of the workforce, and contributing up to 60% of the GDP of APEC economies. This is also the case in the Asian economies, where SMEs make significant contributions; for example, accounting for between 40% and 60% of exports in China, Taiwan, and Korea and 20% in Thailand, Malaysia, Singapore, and Vietnam. In a mature economy like the United States, the role of SMEs is particularly vital, suggest Zimmerer and Scarborough. For example, SMEs contribute 95% of nonfarm business and employ 50% of the national workforce. Managing SMEs, however, presents numerous challenges, suffering a 99% firm failure rate in the United States, which leads Beekman and Robertson to comment that low survival rates of SMEs are a critical concern for the U.S. economy.

The impact of SMEs on national employment numbers and gross domestic product (GDP) per capita does vary across countries. In most countries, SMEs dominate the business landscape. For example, in the European Union 99% of all business are SMEs and employ some 75 million people. Research suggests that the SME sector's importance and its contribution to the nation's economy increases with economic development, as countries with higher level of GDP per capita tend to have larger SME sectors. Country factors that promote the growth of an SME sector include a competitive business environment, ease of entry, protection of property rights, and efficient credit information sharing.

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