Small and Medium Enterprises - Essay Example

OECD (2009) in one its recent reports states that SMEs happen to be key generators of employment and income while driving the innovation and growth potential. In the OCED area half of the labour force has been employed by the SMEs only. Figures of UK employment indicate that out of 4.7 million business establishments in UK 99.3 percent were small firms with about 50 employees, while only 0.6 percent firms were there with 50-249 employees. With globalisation, the management of SMEs have now started giving more thought towards the viability of the venture in the long-term before making strategic decisions for acquiring different types of resources.

The global financial crisis has also impacted the functioning of this sector quite adversely, because they do not have the desired backup of resources, which is available to the larger enterprises. While on the one hand many multinational enterprises have started leveraging the economies of operation in different regions or countries the SMEs are bound to look for ways to contain the damage within the limited areas of their operation. While it is believed that even under normal circumstances, SMEs require specific policies and programmes for their survival and growth, under the global financial crisis, it appears all the more crucial that they are in a position to find out a friendly government.

While on the one hand the government wishes to have more investment from abroad, thus facilitating the MNCs entry into the country, on the other the safeguard of SMEs interests happens to be a major political issue in the country.DefinitionThough SMEs exist in good numbers everywhere around the globe, but there is no uniformity on the definition of SME because of practical considerations. Each country has different classifications of SMEs. Some countries define SMEs based on the number of employees, while others depend on the value of the assets.

In general, the lower employment limit for a small enterprise is between five to ten workers and the upper limit is between 50 to 100 workers. Similarly the upper limit for a medium enterprise is usually set between 100 and 250 employees. However, it is difficult to adopt one definition of SMEs in all the countries, because the state of the SMEs also depends on the size of the markets or the economy in which they are operating. For example, a firm with 50 employees in the USA would be considered smaller (relative to the size of the U.S. economy) than a firm of this size in Bolivia.

In UK, sections 382 and 465 of the Companies Act 2006 define SME based on the turnover and number of employees1. A company with a turnover of not more than 3.26 million and not more than 50 employees is considered a small company and a company with turnover of not more than 25.9 million, with not more than 250 employees is termed as medium sized company.Importance of SMEsSmall and medium enterprises (SMEs) play an important role in a nation's economy. They are resources for innovation and they provide a wide base of employment.

In addition, SMEs are the most essential sector for a healthy dynamic market economy. Chew