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The role of SMEs in rwanda from 1995 to 2010

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par Clotilde MUKAMUGANGA
National University of Rwanda - A0 2011
  

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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.

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