Small Business

1
Small Business
2
Small Business

• Aim To define the term small and medium-sized
  enterprises (SMEs), examine their distinctive
  features and consider their importance to the
  economy.

3
Definition

• What, in your opinion, is a small/medium sized
  business?
• What criteria would you use to define a
  small/medium sized business?

4
Definition (cont.)

• No universally agreed definition of small and
  medium-sized enterprises (SMEs).
• Individual countries have developed their own
  classifications and definitions.
• Definition reflects the nature and context of the
  country/industry sector.

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Definition (cont.)

• Definition used in Bolton Report (1971)
• In economic terms, a small share of the market.
• Managed by its owners or part-owners in a
  personalised way, and not through the medium of
  a formalised management structure.
• Independent in the sense that it does not form
  part of a larger enterprise.
• Additionally, further quantification for various
  sectors, e. g. Retailing Turnover of 50,000 or
  less
• Manufacturing 200 employees or fewer
• Construction 25 employees or fewer

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Definition (cont.)

• What are the weaknesses of this definition?

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Definition (cont.)

• Statistical analysis difficult because of
  variations in definitions.
• Financial indicators require periodic adjustment.
• Personalised nature of management vs. no. of
  employees (manufacturing!)?!?

8
Definition (cont.)

• Definition in law (section 249 of the Companies
  Act of 1985)
• A company is SMALL if it satisfies at least TWO
  of the following criteria
• a turnover of not more than 2.8 million
• a balance sheet total of not more than 1.4
  million
• not more than 50 employees.

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Definition (cont.)

• A MEDIUM-SIZED company must satisfy at least TWO
  of the following criteria
• a turnover of not more than 11.2 million
• a balance sheet total of not more than 5.6
  million
• not more than 250 employees.

10
Definition (cont.)

• The Department of Trade and Industry (DTI), for
  statistical purposes, uses the following
  definitions
• Micro firm up to 9 employees
• Small firm up to 49 employees (includes micro)
• Medium firm 50-249 employees
• Large firm 250 employees and over

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Definition (cont.)

• European Commission (1996)
• Criterion Micro Small Medium
• 1. Max. no. of empl. 9 49 249
• 2. Max. turnover p.a. n/a 7 mill. 40 mill.
• 3. Max. bal. sheet tot. n/a 5 mill. 27 mill.
• 4. Independence n/a not more than 25 of the
  capital or voting rights held by one or
  more enterprises which are not themselves
  SMEs.
• (1 4 MUST be met plus EITHER 2 OR 3)

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SME Characteristics

• Heavily reliant on small number of customers
• Small market share
• Dominated and controlled by one person
• Absence of functional managers/specialists (e.g.
  marketing, finance, production)
• Often uneven development of functional expertise

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SME Characteristics (cont.)

• Lack of resources
• Financial/human/information/equipment . . .
• On-the -job-learning
• Depth of knowledge/experience vs. breadth
• Often lacking objectivity
• Investment
• Owner invests personal money
• Reluctance to spend
• feel for what is right vs. formal investment
  appraisal

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SME Characteristics (cont.)

• Thresholds and Discontinuities
• Increasing capacity marginal increase in output
  vs. additional equipment or staff.
• Informal systems and procedures
• Start with one person, number of employees
  growing slowly ? continued growth can lead to
  crisis ? formal systems and procedures have to be
  introduced.

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SME Characteristics (cont.)

• Decision-making
• More personalised/less formal than in larger
  firms
• Goals/objectives often not clearly articulated
• Availability of information limited
• Decisions often influenced by owner-managers
  personal interests and emotions rather than
  objective analysis
• Short time frame/flexibility ? competitive
  advantage!
• Control
• By direct supervision rather than formal control
  systems.
• (based on Bridge et al)

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Economic Importance of SMEs

• The situation in UK in 2003
• appr. 4 million business enterprises (2002 3.8
  mill.)
• 99.2 were small
• 0.6 (26,000) were medium
• 0.2 (6,000) were large

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The situation in UK in 2003 (cont.)(all figures
)
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The situation in NI in 2003 (cont.)

• SME SHARE OF EMPLOYMENT AND TURNOVER PERCENT BY
  REGION (2001)
• Region Employment Turnover
• UK 55.4 51.4
• London 43.0 48.9
• England 54.2 50.4
• Scotland 57.9 56.0
• Wales 67.1 61.4
• Northern Ireland 79.9 74.5
• Source Small Business Service

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The situation in Europe

• Of all enterprises in EU (prior to latest round
  of accessions)
• 93 are micro
• 6 are small
• lt1 are medium
• 0.2 are large
• two thirds of all jobs are in SMEs

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The situation in Europe (cont.)

• The average size of an enterprise is
• 6 employees in Europe
• 10 employees in Japan
• 19 employees in USA
• Differences in enterprise size linked to
• GDP per capita
• large domestic market
• degree of social and cultural diversity.
• (Observatory of European SMEs)

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The situation in Europe (cont.)

• On balance, large enterprises lost jobs between
  1988 and 2001.
• Employment in the SME sector increased.
• Majority of SMEs compete on customer service and
  product/service quality.

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Summary

• Definition
• Bolton
• Companies Act
• DTI
• European Commission
• Characteristics
• Economic relevance