Small and Mid-size Enterprise (SME): Meaning, Features & Role

India is a developing country where globalization and privatization are developing rapidly. Given the growth rate of small businesses and enterprises, the scope for boosting the economy seems bright.

These businesses that maintain assets, revenues and employee count below a certain threshold come under small and mid-size enterprises.

These small businesses add a lot to a country’s economy and hence are taken seriously by the respective governments. To know how these enterprises are essential for the nation’s growth, you must have a clear idea about the scope and influence of these small and medium-sized enterprises.

In this article, we have covered SMEs full form and its meaning, importance, and significance. Not only this, but you will find yourself exploring deep into the role of MSMEs in the Indian economy and its opportunities.

What is meant by small and medium-sized entities SMEs?
Types of SMEs
Importance of Small and Medium-sized Enterprises
Significance of the SME sector In India
Role of MSMEs in the Indian Economy
Prospects and Responsibilities
Opportunities in MSMEs
What are the examples of small and medium enterprises?
What is the difference between SME and enterprise?
SMEs in USA

What is SME?

As the gist above states, SMEs are those businesses and enterprises that maintain themselves below the usual threshold. The assets they hold, their employee count, and the revenues collected by these businesses are comparatively low.

Each country has small and mid-sized enterprises essential for a nation’s financial growth. These SMEs can take creativity and developments to new heights by providing a window of innovation.

In India, these small and medium-sized enterprises are divided into sectors depending on the size of their investment. The numbers of such enterprises are on the rise daily. The current industrial scenario of India promotes business-friendly policies to industries of all shapes and sizes. However, the rules to run SME businesses are different for different enterprises.

Small and medium-sized enterprises in India are classified majorly into two types, small and medium-sized enterprises. These two enterprises have some further classifications.

Types of Enterprises

As discussed above, SMEs are divided into small-sized enterprises and mid-sized enterprises.

These two categories are then sub-categorized into different parts. Let us look into the details of these enterprises.

Small-size Enterprises:

These are the small enterprises where the strength of the employees is fewer than 250. The small-sized enterprises are further sub-divided into macro enterprises and micro-enterprises.

The macro enterprises are the companies or businesses that indulge 10-50 employees.

Micro-enterprises are companies or businesses that employ fewer than ten people.

Mid-size Enterprises:

People often get confused between a large enterprise and a mid-size enterprise. Also, to some extent, these two businesses resemble them. However, the difference lies between the employee count.

Mid-sized enterprises can employ 50-249 people at a time. On the contrary to this count, a large-scale enterprise employs more than 300 people depending upon their workload.

The difference between the employee count in different enterprises exists because of the difference in funding and investment.

Usually, for small-scale industries, the funding allowance is upto EUR 10million whereas, for a mid-sized enterprise, the amount rises to EUR 50 million. The funding allowance differs from one country to another; however, the idea remains the same.

As an enterprise grows, its funding allowance increases, and a small-sized enterprise can very well be converted into a large-sized enterprise.

While increasing the production and scale of your business is a whole story for another day, there are a few more things that you must know. As every country functions differently when encouraging companies and startups, here are more details on how SMEs work in India.

Everything you need to know about SME

Importance of Small and Medium-sized Enterprises

The first and foremost importance of a small and medium-sized enterprise is contributing to a country’s economy. According to worldbank.org, the small-sized enterprise and the mid-sized enterprise are hold the majority of the business in a country.

These businesses are the primary producers of jobs and employment around the nation. As per the statistics of worldbank.org, these enterprises represent around 90% of the country’s companies and are responsible for providing work to the majority.

Furthermore, small and mid-sized enterprises produce more than 600 million jobs. Due to such vast possibilities, the government of a country invests in these businesses. Apart from financial growth, these small-scale businesses also focus on the personal development of their employees.

These companies are noticeably more communicative with their clients and customers than large companies. The reason is that small business have the luxury of attending to their clients personally.

During the testing times when the Covid-19 surged its peak, these small businesses such as retail shops and general stores were the ones to hold up a state’s economy. These small businesses held up jobs for thousands of daily wage employees throughout the pandemic. Hence, SMEs provide multiple advantages for the growth and development of a state.

What is a medium-sized business: Features, Role, and Importance

As discussed above, mid-sized enterprises are those businesses that employ 50-249 people, and their funding allowance is not more than EUR 50 million.

Medium-sized enterprises are established based on a dynamic, flexible, and adaptable reality. Their successes in the market are much higher than that of any small or large-scale enterprise.

One of the cardinal features this enterprise holds is providing freshers the experience to jump to a large-scale enterprise. Mid-sized enterprises are like the training grounds for anyone who needs job experience in their respective fields.

Furthermore, these businesses function with small teams leaving enormous space for creativity and innovation. As it is evident that large-scale industries often focus on improving their old product; unlike that, these businesses create windows for a new and better creation.

The mid-sized enterprises maintain a balance in the market by not allowing the large-scale industries to overpower the rest of the businesses. Stimulating competition in the market by producing different products, these enterprises and companies can adapt to any market quickly.

Significance of the SME sector In India

SME holds a high significance in the Indian economy. SMEs have created opportunities in every field, from contributing to 17% of the country’s total GDP to providing more than 60 million jobs.

In India, SMEs form 90% of the total manufacturing sector. SMEs in India hold the credit for 40% of the complete imports and export in the country. The growth of these small sectors has the policymakers and industrialists’ best attention to providing able fields for these platforms.

Not only the economic growth, but these SMEs provide space for personal growth, due to which a shift of nearly 12 million employees was witnessed. These employees gave up their jobs in large-scale enterprises and joined the SMEs. These sectors provide room for innovation and welcome fresh minds with creativity.

It is also observed that these SMEs extend their accessibility to even the remote places where the large enterprises have a loose hold. Keeping the growth opportunities that these enterprises hold, the Indian government has planned a structured policy for the further growth of these businesses.

Role of MSMEs in the Indian Economy

Just like SMEs, each country has MSMEs. MSME stands for Micro, Small, and Medium-sized Enterprises. The MSMEs contribute to 8% of the total GDP of the country and 40% of its exports. Sound policies for these enterprises were introduced in the MSME act 2006.

The MSMEs have contributed immensely to the socio-development of the country. Not only has it generated employment but has also promoted the growth and development of the nation’s backward and rural parts.

The MSMEs have been a vital part of funding small banks in the rural areas of India and brought modern infrastructure to such regions. They have a dynamic role in the Indian economy.

Prospects and Responsibilities
The GDP of India is said to boost with these MSMEs as the country is said to be a part of the 5 trillion economies.
These sectors provide defense against global economic shocks.
The MSMEs are termed under the sustainability agenda of the country.
Opportunities in MSMEs
MSMEs are one of the highest employment-producing sectors after agriculture. Hence the employment opportunities in these sectors are flourishing.
Given much room for growth and invention, one can always test their fresh ideas with such firms.
Anyone who wishes to kick start their own business can start with registering into the MSME using their valid aadhar card.

What are the examples of small and medium enterprises?

Some of the prominent examples comprising of these sectors are

Healthcare
Accommodation and hospitality
Retail trade
Construction and ground wors
Technical services
Mining
Forestry
Agriculture
Utilities

What is the difference between SME and enterprise?

Though the line between SME and enterprise is blurred, the only difference is between the classifications of SMEs and Enterprises.

SMEs are large, small, micro, and mid-sized, whereas enterprises are the whole business in which the SMEs can be contained.

Enterprises are the group of business that contains the entire industry in it.

SMEs in the USA

If you go through this article keenly, you will notice how SMEs have served as the backbone of our country’s economy. Similarly, SMEs in the US serve as the backbone of their nation. These enterprises are the key contributors to the growth of their TPP economy.

The enterprises that grow faster create more jobs for the people of the nation each year. The small businesses indulged in export tend to grow faster. It is observed that these businesses are the ones that do well, even if they’re not functional on international grounds.

In 2014, the office of the US trade stated that the small and medium-sized businesses in America have a turnover of nearly $180 billion of goods. It is also observed that 95% of these small businesses do not export the goods internationally. However, these undiscovered small businesses have a lot of potential to collect revenues by extending their goods to international borders.

These small and mid-sized businesses are the majority in the US. The country is setting up plans to make international exports (majorly for the Asia pacific region) more accessible. The reason being the profit that these businesses may collect can be much higher than those of some established companies.

The whole aim of promoting SMEs across the US is to avoid high tariffs on the TPP region. It is often observed that the agricultural and organic goods produced and exported by the US are subjected to high taxes just because they are made from a developed country. Hence to curb such practices, the SMEs are encouraged so that they export products throughout the Asia Pacific region in reasonable revenues.

Moreover, the scenario of small businesses competing heavily to access the high markets is not just contained to the USA but is witnessed worldwide. Therefore, the governments of all the respective countries promote campaigns like “Vocal For Local” so that these enterprises get the spotlight.

Since these businesses are more in numbers, the customers can be streamlined and given apt services by dividing the workload. The SMEs in the US have small committees where they discuss how each small and mid-size business is doing in the markets. This ensures that the companies are availing the benefits of the TPP equally without facing partiality.

FAQ

What are the benefits of SMEs?

Ans. There are several benefits of SMEs; the most significant advantage is that it adds more value to a country’s economy. Furthermore, SMEs create more employment, collect revenues for the development of a state, and boost the GDP in multiple ways.

What are the incentives behind SME investment?

Ans. The incentives behind SME investment are to provide small-scale industries an equal ground to function and make profits like a large-scale enterprise. The sole idea behind investing in these enterprises is to develop the state and a country in business and trading.

Conclusion

SMEs are the most efficient way of promoting the growth of a country. These businesses can flourish the economy when given the proper support. Since the backbone of any business, small or large, are the finances, funding these innovative and fresh businesses would be an intelligent step.

SME And Its Significance In The Indian Economy

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