Small and medium-sized enterprises facts for kids

Small and medium-sized enterprises (often called SMEs) are businesses that are not huge corporations. They have a certain number of employees and earn a certain amount of money, but these numbers are below specific limits. Many international groups like the World Bank and the European Union use the term "SME."

SMEs are very important in most countries. They often have way more businesses than large companies and hire many more people. For example, in Australia, 98% of all businesses are SMEs. They create one-third of the country's total wealth (called GDP) and employ 4.7 million people. In the United States, SMEs create half of all jobs.

Countries that are still developing usually have even more SMEs. These businesses also help create new ideas and encourage healthy competition in many parts of the economy. While SMEs create many new jobs, they also lose jobs more often than large companies.

It's also important to know that many women who own small and medium-sized businesses struggle to get the money they need to grow. In 2021, there was a $1.7 trillion gap in funding for these businesses worldwide.

What are SMEs?

SMEs are important for both money and society because they create so many jobs. Since they are smaller, the person in charge, often called the Chief Executive Officer (CEO), has a big influence. The CEO of an SME is often the person who started the business, owns it, and manages it every day.

The CEO's job in an SME is similar to a CEO in a big company. They need to decide how to use their time, energy, and money to guide the business. The CEO is usually the main planner, supporter, and leader for making the SME successful. If the business fails, the CEO is often the main reason.

Studies show that having more knowledge in a society can lead to more SMEs. When there are more SMEs, people in that society tend to trust each other more.

How Countries Define SMEs

Different countries have different rules for what counts as a small or medium-sized business. This can be confusing because an SME in one country might be considered a large business in another! Here are some examples of how countries define their SMEs.

Africa

Results from a 2021 survey about how much money SMEs in Southern Africa expected to need.

Many small businesses in Africa find it hard to get the money they need to grow. In 2017, the money gap for African SMEs was about 17% of the total wealth produced in those countries.

The World Bank says that women own 58% of all micro, small, and medium businesses in Africa.

Banks in Africa sometimes have problems with loans that are not being paid back. About one-third of African banks have at least 10% of their SME loans not being repaid. Also, many SME loans had to be paused or changed because of economic problems.

Egypt

Most businesses in Egypt are very small. About 97% of them have fewer than 10 workers. Only 0.4% of businesses in Egypt have more than 50 employees. This means Egypt has very few medium-sized businesses.

Kenya

In Kenya, they use the term MSME, which means "micro, small, and medium-sized enterprises."

• A micro-enterprise has up to 10 employees.
• A small enterprise has 10 to 50 employees.
• A medium enterprise has 50 to 100 employees.

Nigeria

The Central Bank of Nigeria defines SMEs based on their money and number of staff. A small or medium enterprise in Nigeria has assets between ₦5 million ($15,400) and ₦500 million ($1,538,000). It also has between 11 and 100 employees.

South Africa

In South Africa, businesses are defined by how many employees they have and how much money they earn.

• Micro-businesses have 5 or fewer employees and earn up to R100,000 ($6,900).
• Very small businesses have 6 to 20 employees.
• Small businesses have 21 to 50 employees. Their earnings can vary a lot depending on the type of business.
• Medium-sized businesses usually have up to 200 employees (or 100 in farming). Their earnings also vary widely.

Overall, an SME in South Africa usually has:

• Fewer than 200 employees.
• Annual earnings less than R64 million.
• Assets less than R10 million.
• Owners who are directly involved in managing the business.

Asia

SMEs make up almost 90% of all companies in developing Asian countries. They are the main private sector employers, providing 50-80% of all jobs. In South-east Asia, SMEs are 97-99% of all businesses. They contribute a lot to each country's wealth, for example, 46% in Singapore and 57% in Indonesia.

Bangladesh

In Bangladesh, the central bank defines SMEs based on their assets, number of workers, and yearly earnings. These businesses are not public companies.

Hong Kong

Hong Kong defines SMEs as manufacturing businesses with less than 100 employees. For other types of businesses, an SME has less than 50 employees. About 98% of businesses in Hong Kong are SMEs, and they employ 45% of the workers.

India

India defines Micro, Small, and Medium Enterprises (MSMEs) based on how much money is invested and how much they earn. This definition was updated in June 2020:

MSMEs are very important for India's growth. They contribute 48% to India's total exports.

Indonesia

In Indonesia, micro, small, and medium enterprises (called UMKM) are defined by their assets and earnings.

Even though Indonesian MSMEs help the economy a lot, they face challenges. A big problem is getting money from banks. Many MSMEs also struggle with getting business permits, high taxes, and improving their brand online.

Businesses today use their websites and social media to advertise and build their brand. Good online content helps attract customers.

The Indonesian government has programs like "People's Business Credit" to help businesses that are good but can't get bank loans.

Philippines

In the Philippines, 99.51% of all registered businesses are MSMEs. Micro-enterprises make up the largest part of these. MSMEs create over 5.38 million jobs, which is 62.66% of all jobs in the country. The top industries for MSMEs include retail, food services, and manufacturing.

Singapore

Since April 1, 2011, an SME in Singapore is defined as a business with yearly sales of no more than $100 million or no more than 200 employees.

Europe

Small and medium businesses that became more digital during COVID-19 and received government help.

Small companies are very important to the European economy. They make up 99.8% of all non-financial businesses in the European Union (EU) and employ two-thirds of the workers. Most European businesses are SMEs, employing over 100 million people.

During the COVID-19 pandemic, most SMEs saw their income drop. Governments tried to help these businesses with financial support. SMEs were also quicker to change what they produced during the pandemic compared to large businesses.

However, large businesses adopted digitization (using more digital tools) faster than SMEs. For example, 26% of large businesses increased their online sales, compared to 22% of SMEs. Large businesses also increased remote work much more.

The EU has a common definition for SMEs:

Even with this EU definition, some individual European countries used to have their own different definitions. For example, Germany had a limit of 255 employees, while Belgium had 100. This meant a business could be considered large in Belgium but still get SME help from an EU program.

SMEs are a key part of the supply chain for large companies that are moving towards Industry 4.0 (advanced technology in manufacturing). However, only about 20% of European SMEs are very digital, compared to almost 50% of large businesses.

The COVID-19 pandemic hit smaller companies harder. About 50% of Europe's small businesses might fail because they don't have enough money saved up to get through a crisis.

Poland

The SME sector in Poland creates almost 50% of the country's wealth (GDP). In 2011, micro companies alone created 29.6% of the GDP. SMEs employed 6.3 million people out of 9 million workers in the private sector.

Polish SMEs employ nearly seven million people. However, smaller businesses are less likely to invest in fighting climate change or saving energy. In 2021, a Polish bank received €75 million from the European Investment Bank to help these small businesses invest in green projects, like improving building energy efficiency or using solar power.

United Kingdom

In the United Kingdom (UK), a company is an SME if it meets two out of three rules:

• It earns less than £25 million.
• It has fewer than 250 employees.
• It has assets worth less than £12.5 million.

Very small companies in the UK are called micro-entities. They have simpler financial rules. A micro-enterprise must meet two of these: assets £316,000 or less; earnings £632,000 or less; 10 employees or less.

In 2014, 99.3% of UK private businesses were SMEs. They earned £1.6 trillion, which was 47% of all private sector earnings. The UK government set a goal to spend 25% of its money with SMEs by 2015, and they reached this goal by 2013.

Norway

In Norway, small and medium-sized businesses usually have less than 100 employees.

• Businesses with 1-20 employees are small.
• Businesses with 21-100 employees are medium-sized.

More than 99% of all businesses in Norway are SMEs. They employ 47% of all private sector workers and create 44% of the country's economic value each year.

Switzerland

In Switzerland, the government defines SMEs as companies with less than 250 employees.

• Micro-enterprises: 1 to 9 employees
• Small enterprises: 10 to 49 employees
• Medium-sized enterprises: 50 to 249 employees
• Large enterprises: 250 employees or more

North America

Canada

Industry Canada says a small business has fewer than 100 paid employees. A medium-sized business has at least 100 but fewer than 500 employees. In December 2012, there were over 1.1 million employer businesses in Canada.

Canadian private companies can get a 17% tax break on their business income up to $500,000. This tax break helps small businesses.

Mexico

In Mexico, small and medium-sized companies are called PYMEs. There's also a category called MiPyMEs, which includes micro, small, and medium businesses. Micro businesses can be as small as one person working alone.

Oceania

Australia

In Australia, an SME has 200 or fewer employees.

• Micro Businesses: 1–4 employees
• Small Businesses: 5–19 employees
• Medium Businesses: 20–199 employees
• Large Businesses: 200+ employees

Australian SMEs make up 98% of all businesses. They create one-third of the total wealth (GDP) and employ 4.7 million people. They also make up 90% of all companies that export goods and over 60% of companies that export services.

New Zealand

In New Zealand, 99% of businesses have 50 or fewer staff. The official definition of a small business is one with 19 or fewer employees. Businesses with fewer than 20 employees create about 28% of New Zealand's total wealth.

Images for kids

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  Results from the European Investment Bank's Banking in Africa survey, 2021, for the expected change in credit demand from SMEs in East Africa

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  Obstacles faced by small and medium enterprises when investing in digital technologies

See also

In Spanish: Pequeña y mediana empresa para niños

• Small business