Definition of Small and Medium Enterprises

      Small and medium enterprises, both in size and shape, are not uniform across the globe. This asymmetry comes in the way of any effort of their integration. The way they are defined depends on the stage of economic development and the broad policy purposes for which the definition is used. According to a World Bank study, there are said to be more than 60 definitions of small and medium industries used in 75 countries surveyed. The most commonly used definitions relate to either size of employment and/or quantum of capital investment /fixed assets. As the process of economic development leads to changes in industrial sector shares in GDP and the contribution of sub-sectors within industry, the definition is extended to include not only manufacturing industries but all enterprises which fall within or below the defined cut-off point.  :

Table 1: SME definition based on the size    

 Micro and small: 0-9 employees
 Medium: 50-294 employees
 Large: over 250 employees
 
In the ASEAN countries in general, the definition is restricted to SMIs in the manufacturing sector only, whereas in the OECD group, the definition is broadened to include all Small and Medium Enterprises. 

The EU’s definition of SMEs is based on the number of people employed I the enterprise. A micro enterprise has head count of less than 10, and a turnover or balance sheet total of not more than 2 million euros. A small enterprise has a headcount of less than 50, and a turnover or balance sheet total of not more than 10 million euros. A medium size enterprise has a headcount of not more than 50 million euros or a balance sheet total of nor more than 43 million euros. 

In the U.K. sections 247 and 249 of the Companies Act 1985 define a SME as a small company that has a turnover of not more than £5.6m, a balance sheet total of not more than £2.8m and not more than 50 employees. A medium size enterprise has a turnover of not more than V22.8m, a balance sheet total of not more than £11.4m and not more than 250 employees. It is worth noting that even within U.K. this definition is not universally applied.  

In the USA, SME means an organization of up to 1,500 employees and a turnover of$0.75-29m, depending upon the type of business. In the US, a Government Department called Small Business Administration (SBA) sets the definition of small business. The SBA uses the term “size standards” to indicate the largest a concern can be in order to still be considered a small business, and therefore benefit from small business targeted funding. The concern cannot be dominant in its field, on a national basis. It must be independently owned and operated. Unlike the U.K. and the European Union, which have simple definitions applied to all industries, the US has chosen to set standards for each individual NAICS coded industry. This variation is intended to better reflect industry differences. The most common size standards are 500 employees for most manufacturing and mining industries or 100 employees for wholesale trade industries, $6m of annual receipts for most retail and service industries or $28.5m annual receipts for most general and heavy construction industries or $12m of receipts for most agricultural industries.  

In Australia, a micro enterprise is that which employs less than five employees and those employing between 5-19 personnel are small and the medium enterprises are those that employ 20-200 employees.  

In China, for defining an SME, the categorization is sector specific and is divided between small and medium segments. In the industrial sector, those employing between 200-2000 people and having sales between 30-300 m yuan or assets in the range of 40-400m yuan are considered small and those above this are medium level enterprises. Similarly for construction industry, one of the huge employers, the employee strength between 600-3,000 and sales and assets level of 30-300m yuan and 40-400m yuan respectively are considered small and those having more than that are medium.

Malaysia follows different benchmarks for the SME companies. On the basis of employees, a company is categorized as micro if it employs less than five persons, irrespective of sector. Small enterprises are those which have between 5 and 50 people in the case of primary agriculture and service sector and between 5 and 19 people I the case of manufacturing sector. Medium enterprises are those that have less than 50 employees in agriculture or services, and in case of manufacturing sector enterprises, they should employ less than 150 employees. On the basis of turnover, the micro enterprises have a turnover of less than RM2,00,00 in case of agriculture and services and RM2,50,000 in the case of manufacturing companies. Medium enterprises are those that have sales between RM 1m-5m in the agriculture and services and between RM10m and RM 25m in the manufacturing sector. Rests of the companies in between are characterized as small enterprises.