Friday, 17 October 2008

SMEs: heard of'em lately?

As current economic crisis continues shaking the world there are jargons being exchanged here and there!
Today I look at SMEs.

Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose headcount or turnover falls below certain limits.

The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the WTO. The term small and medium-sized businesses or SMBs is predominantly used in the USA.

EU Member States traditionally had their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 500 employees, while, for example, in Belgium it could have been 100. But now the EU has started to standardize the concept. Its current definition categorizes companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium". By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with less than 100 employees, while medium-sized business often refers to those with less than 500 employees.

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

In most economies, smaller enterprises are much greater in number. In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people. In many sectors, SMEs are also responsible for driving innovation and competition. Globally SMEs account for 99% of business numbers and 40% to 50% of GDP.

In India, the Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39 per cent of the manufacturing output and around 33 per cent of the total export of the country. Further, in recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost. As per available statistics, this sector employs an estimated 31 million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

In South Africa the term SMME, for Small, Medium and Micro Enterprises, is used. Elsewhere in Africa, MSME is used, for Micro, Small and Medium Enterprises. Size thresholds vary from country to country.

The lack of a universal size definition makes business studies and market research more difficult. (source: wikipedia)



What is a small to medium-sized enterprise?
In general, statistical definitions of an SME use one or more of three defining measurements:

number of employees;
size of the balance sheet.
The Department for Business, Enterprise and Regulatory Reform (BERR) uses the following definitions:

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micro firm: 0-9 employees;
small firm: 0-49 employees (includes micro);
medium firm: 50-249 employees;
large firm: over 250 employees.
The European Commission revised its definition of an SME in 2003.

Table 1: Revised European SME definition

Enterprise category Headcount Turnover (€)
Micro <10 <2 million
Small <50 <10 million
Medium-sized <250 <50 million

The new definition, effective since 1 January 2005, reflects economic developments since 1996 and a growing awareness of the many hurdles confronting SMEs.

The new definition aims to:

promote micro enterprises;
improve access to capital;
prevent abuses of SME status;
promote innovation;
improve access to research and development.
The thresholds for the number of employees have remained the same, but changes were made to the financial thresholds in an attempt to ensure that enterprises that are part of a larger grouping cannot benefit from SME support schemes.

More than larger firms, which at least have the option of handling many of their needs in-house, SMEs rely on other firms or institutions for services such as staff training, and marketing.

Three broad groups of SMEs can be distinguished, according to their relationships with other firms:

those that are sub-contractors;
members of clusters;
those that are fairly independent.
SME clustering is common throughout the world. Enterprises often develop in a cluster or bunch together, especially when operating in the same or related industrial sectors, to increase their competitive advantage through co-operative endeavours.

How important are SMEs in the UK?
In 2004, the DTI estimated that of the 4.3 million business enterprises in the UK, 99.9% were small to medium sized.

At the start of 2004, SMEs accounted for:

more than half (58%) of all UK employment (small enterprises accounting for 46.8%; medium-sized enterprises accounting for 11.7%);
more than half (51.3%) of the UK’s estimated business turnover of £2,400billion (small enterprises accounting for 37%; medium-sized enterprises accounting for 14.3%).
(Statistical Press Release URN 05/92, Office for National Statistics, 2005)

UK regions and countries
88% of all business enterprises in the UK are based in England, with 33% concentrated in London and the South East.
London, however, has the smallest SME base in the UK, accounting for just 45% of employment.
The South West has the highest SME base in England, accounting for just over 70% of employment.
(Statistical Press Release URN 04/402, Office for National Statistics, 2004)

Wales has the second highest SME base in the UK (over 70%).
The majority (94%) of the estimated 170,000 business enterprises are micro enterprises, employing 31% of all employees.
The majority of Welsh SME businesses are in the services sector (including retail, hospitality, transport, and financial and business services) and in the construction industry.
(Size Analysis of Welsh Business SDR 69/2004, Office for National Statistics, 2004; Statistical Press Release URN 04/402, Office for National Statistics, 2004)

SMEs provide 53% of all jobs and make up 99% of all business enterprises.
In 2004, the turnover of small and medium-sized enterprises was over £70million.
The highest numbers of Scottish SMEs are engaged in the financial and business services sector.
(Scottish Economic Statistics, Scottish Executive/ONS IDBR, 2005)

Northern Ireland
Northern Ireland has the highest SME base in the UK, accounting for nearly 80% of employment.
The majority of businesses enterprises are micros, which account for 50% of all businesses.
Small businesses account for 9.5% of all businesses and 9% of employment.
(Statistical Press Release URN 04/402, Office for National Statistics, 2004)

Working for an SME
In March 2006, the annual list of The Sunday Times 100 Best SMEs to Work For was published (though, in practice, the firms questioned were medium-sized of between 50 and 249 employees), where the views of almost 20,000 employees were gathered. In most cases, where questions were posed to employees of small and large companies alike, the responses from employees of smaller companies achieved more positive scores.

Working for an SME can be totally different from working for a larger, blue-chip organisation.

The pros
Breadth of experience: since there is less distinction between roles, graduates working within an SME are more likely to get involved in a wider range of activities and business functions and take on extra responsibilities where there are gaps, thus gaining a variety of experiences and skills. They are less likely to be pigeon-holed.
Flexibility: many SMEs offer attractive benefits and family-friendly policies, such as job sharing, working from home and flexible or part-time hours.
Involvement: graduates are given more opportunities to voice their own ideas and personal opinions, and are encouraged to contribute to the shaping of company practices and procedures from an early stage.
Control over career progression: due to the fluid nature of roles, graduates have more control over their careers and job titles and the opportunity to develop such roles, which would be seen as ‘non-graduate’ positions by larger graduate recruiters, into a credible career path.
Early responsibility: many graduates are given autonomy from an early stage and the opportunity to hit the ground running.
Identity and recognition: there’s a better chance of being ‘seen’ in an SME, rather than being just one of several hundred employees in a larger organisation.
Fast turn-around: the time between generating an idea and seeing the end result is much shorter, with the possibility of involvement at every stage of the process.
Speed of progression: there are fewer ranks to work through, so promotion can come quickly.
Camaraderie: working as part of a small team towards a set of shared goals can be extremely rewarding, both personally and professionally.
The cons
Underemployment: graduates may initially be recruited into low-skilled jobs within SMEs, often with little or no relevance to their qualifications; many are forced to choose underemployment over unemployment due to a shortage of traditional graduate-level opportunities.
Hidden jobs: unlike most of the leading blue-chip companies, SMEs don’t run high-profile recruitment campaigns and can rarely be found at careers fairs, with many posts filled through networking, word of mouth or speculative applications.
Unstructured training: SMEs offer mainly on-the-job training, which may not be structured in the way that many graduates would expect; access to professional qualifications may be limited.
Challenge: being thrown in at the deep end and forced to learn quickly can be daunting.
Unstructured career route: although you may have more control over your career progression, the lack of a formal career path or definite goal may not suit everyone.
Salary: starting salaries are often lower than those offered by larger graduate recruiters and access to other benefits, such as pension schemes, gym membership, health insurance or a company car, is likely to be limited.
Lack of protection: under UK law, SMEs with fewer than 22 employees do not have to recognise trade union affiliations among their workers.
Just over half of all SME employees surveyed by The Sunday Times agreed with the following statement: ‘Most days I feel exhausted when I come home from work’. However, this may reflect just how hard staff are willing to work and, according to results throughout the survey, this hasn’t impacted negatively on their job satisfaction.

It is important to note that after reading through the possible negatives of working in an SME, The Sunday Times survey found that half of all employees believe they have found their perfect job, proving that an SME need not be thought of as purely a stop-gap option, but also somewhere where graduates can build a serious and fulfilling career.



The modern concept of small office/home office or SoHo, or small or home office or single office/home office deals with the category of business which can be from 1 to 10 workers. Larger business enterprises, one notch up the size scale, are often categorized as a small business. When a company reaches 100 or more employees, it is often referred to as a Small and Medium-sized Enterprise.

Before the 19th century, and the spread of the industrial revolution around the globe, nearly all offices were small offices and/or home offices, with only a few exceptions. Most businesses were small, and so was the paperwork that went with them.

The industrial revolution aggregated workers in factories, to mass produce goods. For the most part, the so-called "white collar" counterpart— office work— was aggregated as well, in large buildings, usually in cities or densely populated suburban areas.

A home office.Beginning in the mid-1990s, the advent of the personal computer, and breakthroughs in voice and data communication, created opportunities for office workers to decentralize. Decentralization also benefits employers, in lower overhead, and in many cases, greater productivity.

At the end of the 20th century and the beginning of the 21st, the term "Small or Home Office" and its variants —along with the acronym "SOHO"— have been used to a great extent by companies who market products targeting the great numbers of small businesses which have a tiny or medium sized office.

Several ranges of products, such as the Armoire desk and a few other desk forms, are often designed specifically for the "SOHO" market. Several kinds of books are written and marketed specifically for this type of office, ranging from general advice texts to specific guidebooks on setting up such things as a small PBX for the office telephones.

Many consultants and the members of several professions such as lawyers, real estate agents or surveyors in small and medium sized towns operate from such home offices.

The 36 hour or 48 hour cycles of much of software development has led many practitioners in this domain to do their work in home offices given the difficulty of the traditional business world to adapt its "normal" hours to some of the more extreme needs of software engineering.

Technology has also created a demand for larger businesses to employ individuals who work from home. (See also Homesourcing) Sometimes these people remain as an independent businessperson, and sometimes they actually become employees of a larger company.

In popular literature, the home office has not been the topic of as many works as the "normal" modern office. Brian Basset, the author of the newspaper comic strip Adam, has sometimes described its more humorous aspects.

The small office home office has gone through a great transformation recently since technology has enabled anyone working from a home office to compete globally. Technology has made this possible through webinar systems and telephone connections through Skype and the like. The Virtual Office concept has been expanded to enable anyone to do globally what they could do locally before. With a global reach through the use of technology, the [SOHO] small office/home office now has a better chance of emerging as a greater challenge in the world marketplace.
(source: wikipedia)