Chapter 6 Definitions of SMEs

Chapter 6

Definitions of SMEs

Definitions around the world

Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees.

Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most 10, or in some cases 5, workers.

Financial assets are also used to define SMEs. In the European Union, a new definition came into force on 1 January 2005 applying to all Community acts and funding programmes as well as in the field of State aid where SMEs can be granted higher intensity of national and regional aid than large companies. The new definition provides for an increase in the financial ceilings: the turnover of medium-sized enterprises (50-249 employees) should not exceed EUR 50 million; that of small enterprises (1049 employees) should not exceed EUR 10 million while that of micro firms (less than 10 employees) should not exceed EUR 2 million. Alternatively, balance sheets for medium, small and micro enterprises should not exceed EUR 43 million, EUR 10 million and EUR 2 million, respectively.

Source Publication: OECD, 2005, OECD SME and Entrepreneurship Outlook: 2005, OECD Paris, page 17.

Small and medium-sized enterprises (SMEs, 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.

China

With the SME Promotion Law of China effect in 2003, the new definition of SME came out as well. The new guidelines base on the number of employees, revenue and total assets of enterprises. The SME definition in China is quite complex. Such as the specific criteria about the total assets of enterprises in industrial sector, including mining, manufacturing, electric power, gas, water production and supply and construction. However, in the industries like transportation, wholesale and retail business, and hotels and restaurants, there is no assets requirement. Guidelines for the industrial sector requires SMEs to employ a maximum 2,000 people, and to have an annual revenue not exceeding RMB300 million. Their total assets should not exceed RMB 400 million. Medium-sized enterprises should employ a minimum of 300 people. Their annual revenue and total assets should not exceeding RMB30 million and 40 million respectively. Consequently, an SME in China may be quite large relative to SMEs in other countries.

Source: UKESSAYS - https://www.ukessays.com/essays/management/definition-of-smein-china-management-essay.php

Egypt

Most of Egypt's businesses are small-sized, with 97 percent employing less 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.

Ethiopia

In Ethiopia there are SME enterprises funded by the government which are becoming sources of work.≤

Kenya

In Kenya, the term is MSME stands for "micro, small and medium enterprises". Maximum number of employees = 100.

Micro Enterprises = up to 10 employees Small = 10 to 50 Medium = 50 to 100 turnover= > KShs. 80M

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 equal or less than N5 million, and a staff strength equal or less than 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. in Somalia they define that SME is a small business that has more than 30 employee until 500 employees.

South Africa

In the National Small Business Amendment Act 26 0f 2003, 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.

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:

(a) in the case of the enterprises engaged in the manufacture 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.

European Union

Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU. The definition of an SME is important for access to finance and EU support programmes targeted specifically at these enterprises.

What is an SME?

Small and medium-sized enterprises (SMEs) are defined in the EU recommendation 2003/361.

The main factors determining whether an enterprise is an SME are:

1. staff headcount and 2. either turnover or balance sheet total.

Table 2 – EU definition of SMEs

Company category

Staff headcount Turnover or Balance sheet total

Medium-sized < 250

Small < 50

Micro < 10 ≤ € 50 m

≤ € 10 m

≤ € 2 m ≤ € 43 m

≤ € 10 m

≤ € 2 m

These ceilings apply to the figures for individual firms only. A firm that is part of larger group may need to include staff headcount/turnover/balance sheet data from that group too.

Source: European Commission - http://ec.europa.eu/growth/smes/business-friendlyenvironment/sme-definition_en

Poland

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.

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 fewer than 250 employees, it has gross assets of less than £12.5m. Many small and medium-sized businesses form part of the UK's currently growing Mittelstand, as it is also often named.[12] 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.[

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.

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 labor 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.

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.

United States

In the U.S., the definition of an SME varies by industry, based on the North American Industry Classification System (NAICS). NAICS is a system developed by the U.S., Canada, and Mexico to standardize and facilitate the collection and analysis of business statistics.

The U.S. Small Business Administration (SBA) provides a list of small business size standards matched to the NAICS codes.

To be considered a small business and be eligible to apply for government contracts and targeted funding, a business must be

within the defined limits in terms of a number of employees or revenue.

In manufacturing, for example, an SME is defined as having 500 employees or less, whereas in wholesale trades it is typically 100 employees or less.

Australia

In Australia, a SME has 200 or fewer employees. Microbusinesses have 1–4 employees, small businesses 5–19, medium businesses 20–199, large businesses 200+.[20] 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.[21]

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.

Source: Wikipedia - https://en.wikipedia.org/wiki/Small_and_medium-sized_enterprises

African Countries

Kenya

Agency: National Legislature. Legal Definition: MSME bill 2009.

Interpretation: “In Kenya, the MSME bill 2009 has used 2 criteria to define SMEs in general: Number of people/employees and the company’s annual turnover. For enterprises in the manufacturing sector, the definition takes into account the investment in plant and machinery as well as the registered capital.