SMEs Definition You Need to Know for Export Success
SMEs, or small and medium-sized enterprises, are businesses that have a certain number of employees, turnover, or balance sheet total. Depending on the country or region, the criteria for defining an SME may vary. However, the general consensus is that SMEs are important drivers of economic growth, innovation, and job creation.
In this article, we will explore the different SMEs definition used by various organizations and institutions, such as the World Bank, the European Union, and the United States. We will also discuss why SMEs are vital for export management and how they can overcome the challenges of entering foreign markets.
What is an SME?
An SME is a business that meets certain criteria based on its size, such as the number of employees, turnover, or balance sheet total. The size of an SME can affect its access to finance, markets, and regulations. Therefore, it is important to understand how different entities define an SME and what benefits or opportunities they offer.
Here are some examples of SMEs definition used by different organizations and institutions:
- The World Bank defines an SME as a business that has up to 300 employees, up to $15 million in annual revenue, and up to $15 million in assets.
- The European Union defines an SME as a business that has fewer than 250 employees, a turnover of less than €50 million, or a balance sheet total of less than €43 million.
- The United States defines an SME as a business that has fewer than 500 employees for most industries, or a revenue threshold that varies by industry.
- The United Nations defines an SME as a business that has fewer than 200 employees for developing countries, or fewer than 500 employees for developed countries.
Why are SMEs important for export management?
SMEs are essential for export management because they contribute to the diversification, competitiveness, and resilience of the global economy. According to the World Trade Organization (WTO), SMEs account for about 95% of all businesses and 60% of employment worldwide. However, they only represent about 35% of direct exports and 15% of indirect exports through global value chains.
SMEs face many barriers to exporting, such as lack of information, access to finance, market entry costs, trade facilitation issues, and regulatory compliance. However, with the right support and strategies, SMEs can overcome these challenges and reap the benefits of exporting, such as:
- Increased sales and profits
- Reduced dependence on domestic markets
- Enhanced innovation and productivity
- Improved quality and standards
- Expanded networks and partnerships
- Greater customer satisfaction and loyalty
How can SMEs succeed in exporting?
To succeed in exporting, SMEs need to adopt a proactive and strategic approach to export management. This involves:
- Conducting market research and analysis to identify the best opportunities and target markets
- Developing a clear value proposition and competitive advantage
- Creating an export plan and budget that outlines the objectives, strategies, resources, and risks
- Finding reliable partners and intermediaries that can facilitate market entry and distribution
- Complying with the legal and regulatory requirements of the destination country
- Promoting the products or services through effective marketing and branding
- Providing excellent customer service and after-sales support
- Evaluating the performance and impact of the export activities
What Is an SME?
SME stands for small and medium-sized enterprise, a type of business that has a certain number of employees, revenues, or assets below a specified threshold. The definition of an SME varies from country to country, and sometimes from industry to industry. SMEs play a vital role in the economy, as they provide employment, innovation, and diversity.
How Is the Global Demand for SMEs Changing?
According to the World Bank, SMEs account for about 90% of businesses and more than 50% of employment worldwide. They also contribute up to 40% of national income (GDP) in emerging economies. However, SMEs face many challenges in accessing finance, markets, technology, and skills, which hamper their growth and competitiveness. The COVID-19 pandemic has also severely affected many SMEs, especially in sectors such as tourism, hospitality, and retail.
The global demand for SMEs is expected to increase in the post-pandemic recovery, as they can offer more flexibility, resilience, and innovation than larger firms. The World Bank estimates that SMEs could create up to 600 million jobs by 2030, mostly in low- and middle-income countries. To achieve this potential, SMEs need more support from governments, financial institutions, development partners, and private sector actors. Some of the key measures to boost SMEs include:
- Improving the business environment and reducing regulatory barriers
- Enhancing access to finance through digital platforms, alternative sources, and risk-sharing mechanisms
- Promoting digital transformation and adoption of new technologies
- Strengthening skills development and entrepreneurship education
- Fostering innovation ecosystems and networks
- Supporting cross-border trade and integration
References:
http://seaf.com/wp-content/uploads/2014/10/Defining-SMEs-September-20081.pdf
https://single-market-economy.ec.europa.eu/smes/sme-definition_en
https://www.worldbank.org/en/topic/smefinance/brief/the-world-bank-groups-response-to-the-covid-19-coronavirus-pandemic-supporting-msmes
https://www.worldbank.org/en/topic/smefinance
https://ec.europa.eu/growth/smes/sme-definition_en
https://www.sba.gov/size-standards/
https://unctad.org/system/files/official-document/diaeed2019d5_en.pdf
https://www.wto.org/english/res_e/booksp_e/world_trade_report19_e.pdf
