2. 2.2.Small and medium
enterprises (firms)
Unfortunately, there is no single agreed definition of" small"
firm. In fact, a firm considered to be small in one sector of business such as
manufacturing, may be considerably different in size from one in, say, the road
haulage business. In 1971, the Bolton committee, set up to investigate the
small firm sector, attempted to resolve this problem by establishing both an
economic and statistical definition of a small firm.
According to the committee, a firm was deemed to be small if
it satisfied each of the following three economic conditions:
v It should have a small market share and thus be unable to
influence its business environment.
v It should be managed by its owners and not involve a
formalized management structure.
v It should not be a part of a larger business organization
and can thus make its own business decisions. These conditions will vary from
industry to industry.
Three major criticisms are the following:
ü Evidence suggests that the economic condition of owner
management is not compatible with the statistical definition of a small
manufacturing firm as being one with up to 200 employees. Managerial structures
have been found to become more formalized when the number of employees exceeds
100.
ü Small firms tend to be specialist producers, operating
in niche markets. As such, they may have a relatively large share of the
segment of the market in which they are operating. The resulting market power
gives them some control over price and profits.
A small package-holiday company may have a tiny share of the
total market and yet, if it specializes in a particular type of holiday, such
as for people with particular hobby, it may have substantial market power in
that segment of the market.
ü The fact that there is no single criterion measuring
smallness means that it is very difficult to compare like with like. Equally,
the same criterion such as employment differs between sectors.
In recent years, EU's definition of small and medium
enterprises (SMEs) has become widely adopted by researchers and is the basis on
which all EU statistical data on SMEs are compiled.
Table 2.1: Three categories
of SMEs
Criterion
|
Micro
|
Small
|
Medium
|
Maximum number of employees
|
9
|
49
|
245
|
Maximum annual turnover
|
-
|
€ 7 million
|
€40million
|
Maximum annual balance sheet total
|
-
|
€5 million
|
€27million
|
Maximum % owned by one, jointly by several enterprises not
satisfying the same criteria
|
-
|
25%
|
25%
|
Source: John Sloman (1998: 289)
This subdivision of small firms into three categories allows
us to distinguish features of enterprises that vary with the degree of
smallness. It also enables us to show changes over time in the size and
composition of the small sector. However, we might still question the adequacy
of such a definition, given the diversity that can be found in business
activity, organizational structure and patterns of ownership within the small
firm sector.
Failure to establish a clear definition of what is and what is
not a small firm means that statistical estimates concerning the size of the
small-firm sector are bound to be uncertain.
|