What Is a Small and Midsize Enterprise (SME)?

Last updated 03/28/2024 by

Edited by

Summary:

Small and midsize enterprises (SMEs) are businesses that are smaller in size and revenue compared to larger corporations. They account for 90% of businesses worldwide and employ more than 50% of the global workforce.

Even though global corporations make up a large portion of the products we see on store shelves, small businesses play a critical role in the global economy. Not only that, but they can offer a better experience for both employees and customers. But how are small and midsize enterprises classified, and how do they differ from large companies?

In this post, we’ll define what SMEs are, their classification, and why they are essential to the global economy.

What is a small and midsize enterprise?

A small and midsize enterprise (SME) is a business that meets certain size and financial criteria. The criteria for defining an SME can vary depending on the country, industry, and organization providing the definition.

However, in general, SMEs are businesses that have fewer employees and generate less revenue than larger corporations. In the United States, for instance, the Internal Revenue Service (IRS) classifies a small business as an enterprise with less than $10 million in assets. Any more than that, and they’re classified as a large business.

The Small Business Administration, on the other hand, classifies SMEs based more on the number of employees. A manufacturing SME, for instance, is an enterprise with fewer than 500 employees. However, a precious metal mining company can be an SME as long as they stay under 1,500 employees.

Types of SMEs

SMEs are classified based on their size and financial criteria. That said, the classification of these businesses can vary depending on the country and industry. Here are some common classifications of SMEs:

Micro-enterprises. Businesses with fewer than 10 employees and generating less than $2 million in revenue.
Small enterprises. Businesses with between 10 and 50 employees and generating between $2 million and $10 million in revenue.
Medium enterprises. Businesses with between 50 and 250 employees and generating between $10 million and $50 million in revenue.
Midsize enterprises. Businesses larger than SMEs but smaller than large corporations, often employing between 250 and 500 people and generating between $50 million and $1 billion in revenue.

Importance of SMEs

With the overwhelming number of global corporations taking up much of capitalism, consumers tend to forget about small and midsize enterprises. However, SMEs are crucial to the global economy for several reasons:

Job creation. SMEs are responsible for creating jobs and employing a significant portion of the global workforce. They are a vital source of employment, particularly in developing countries.
Innovation. SMEs are often at the forefront of innovation, developing new products and services that drive economic growth and improve our standard of living.
Economic growth. SMEs contribute to the growth of the economy by generating revenue, creating jobs, and driving innovation.
Competition. SMEs promote healthy competition in the market, which can lead to lower prices and better quality products and services for consumers.

FAQs

How can policymakers support SMEs?

Policymakers can support SMEs by creating a supportive regulatory environment, providing access to financing and resources, and investing in infrastructure and technology. They can also implement policies that encourage innovation, entrepreneurship, and job creation.

How can investors benefit from SMEs?

Investors can benefit from SMEs by investing in them through venture capital or private equity funds, or by buying shares of publicly traded SMEs. SMEs have the potential for high growth and strong returns but also carry more risks than larger corporations.

How can SMEs compete with larger corporations?

SMEs can compete with larger corporations by focusing on their unique strengths, such as innovation, flexibility, and personalized service. They can also collaborate with other SMEs or larger corporations to create partnerships and leverage their combined resources. Additionally, SMEs can adopt technology and automation to improve efficiency and reduce costs.

Key Takeaways

Small and mid-size enterprises (SMEs) are businesses that are smaller in size and revenue compared to larger corporations.
SMEs account for 90% of businesses worldwide and employ more than 50% of the global workforce.
The criteria for defining an SME can vary depending on the country and industry.
There are three main types of SMEs: micro-enterprises, small enterprises, and medium enterprises.
SMEs are often at the forefront of innovation, developing new products and services that drive economic growth.

Share this post: