Small and Medium Enterprise

Small and Medium Enterprise

Small and medium enterprises (SMEs) or small and medium-sized businesses (SMBs) are companies 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.


In July 2011, the European Commission said it would open a consultation on the definition of SMEs in 2012. In Europe, there are three broad parameters which define SMEs:

  • micro-entities are companies with up to 10 employees
  • Small companies employ up to 50 workers
  • Medium-sized enterprises have up to 250 employees.[1]

The European definition of SME follows: "The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro."[2]

EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labelled programme.

According to German economist Hans-Heinrich Bass, "empirical research on SME as well as policies to promote SME have a long tradition in (West-)Germany, dating back into the 19th century. Until the mid-20th century most researchers considered SME as an impediment to further economic development and SME policies were thus designed in the framework of social policies. Only the ordo-liberal school, the founding fathers of Germany's social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs."[3]


The SMEs 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 operating in Poland entities merely 3,189 were classified as ‘big’, 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.[4]

United States

In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue and number of employees (which in some circumstances may be as high as 1500, although the cap is typically 500).[5] Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices (SOHO).



A micro-enterprise is one where the investment in plant and machinery (their original cost excluding land, building and items specified by the Ministry of Small Scale Industries in its notification No. S.O. 1722(E) dated October 5, 2006) does not exceed Rs.25 lakh.

Small enterprise

A small enterprise is one where the investment in plant and machinery (see above) is more than Rs.25 lakh but does not exceed Rs.5 crore.

Medium enterprise

A medium enterprise is one where the investment in plant and machinery (see above) is more than Rs.5 crore but does not exceed Rs.10 crore.

The definition of MSMEs in the service sector is:

  • Micro-enterprise: Investment in equipment does not exceed Rs.10 lakh
  • Small enterprise: Investment in equipment is more than Rs.10 lakh but does not exceed Rs.2 crore
  • Medium enterprise: Investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore

The Indian micro- and small-enterprises (MSEs) sector plays a pivotal role in the country's industrial economy. It is estimated that in value, the sector accounts for about 45 percent of manufacturing output and about 40 percent of total exports. In recent years, the MSE sector has consistently registered a higher growth rate than the overall industrial sector. The major advantage of the MSE sector is its employment potential at a low capital cost. According to available statistics (4th Census of MSME Sector), the sector employs an estimated 59.7 million people in 26.1 million enterprises; labor intensity in the MSE sector is estimated to be nearly four times that of large enterprises.[6]


In Kenya, 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 = 10000 maximum revenue or turnover

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.


Industry Canada defines a small business as one with fewer than 100 employees (if the business is a goods-producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification, such as eligibility for subsidies, it is not the tax authority in Canada.

The Canada Revenue Agency is the tax authority, and these officials define an SME in a different fashion. Beware, though, that SME is not current argot in Canadian business circles. The SME criteria for CRA tax exemption is CAD$10m in taxable revenue, beyond which the full tax load applies. The CRA places no maximum on employees. Rental and or royalty income is considered ineligible for the tax authority to qualify an SME. The tax authority only considers up to CAD$0.5m to be SME-qualifiable; above that limit a full tax load applies even if the SME has only 5 employees.

New Zealand

In New Zealand, a SME has 19 or fewer employees.


In Australia, a SME has 200 or fewer employees. Micro Business 1-2 employees. Small Business 3-15. Medium 16-200. Large 201-500. Enterprise >500.


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 between N5 million and N500 million, and a staff strength between 11 and 300 employees.


In Israel, a business is considered small if it has no more than 50 employees. A medium business holds between 51 to 250 workers.

See also

External links

  • adding to it. (April 2013)