7 Things You Need to Know About SMEs
SME stands for small and medium-sized enterprises, which are businesses that have fewer than 250 employees and a turnover of less than 50 million euros. SMEs are the backbone of the European economy, accounting for more than 99% of all businesses and providing two-thirds of the total employment. In this article, we will explore what SMEs are, why they are important, what challenges they face, and how they can benefit from various support programs and initiatives.
KEY TAKEAWAYS
SME stands for small and medium-sized enterprises, which are businesses that have fewer than 250 employees and a turnover of less than 50 million euros.
SMEs are the backbone of the European economy, accounting for more than 99% of all businesses and providing two-thirds of the total employment.
SMEs face many challenges such as access to finance, regulatory burden, innovation and digitalisation, and internationalisation.
The EU and its member states offer a variety of support programs and initiatives to help SMEs overcome their challenges and achieve their potential.
Some examples are the European Small Business Act (SBA), the COSME program, the Horizon Europe program, the Digital Europe program, and various clusters and networks.
What are SMEs?
SMEs are defined by the European Commission based on three criteria: number of employees, turnover, and balance sheet total. The following table shows the thresholds for each category of SMEs:
| Category | Employees | Turnover | Balance sheet total |
|---|---|---|---|
| Micro | < 10 | ≤ € 2 m | ≤ € 2 m |
| Small | < 50 | ≤ € 10 m | ≤ € 10 m |
| Medium | < 250 | ≤ € 50 m | ≤ € 43 m |
These criteria are applied to the consolidated data of the enterprise and its partner and linked enterprises, which are those that have a certain degree of ownership or control over each other. The aim is to reflect the true economic situation and performance of the enterprise and to avoid that large enterprises benefit from the advantages reserved for SMEs.
Why are SMEs important?
SMEs are vital for the economic growth, innovation, and social cohesion of the European Union. They contribute to the creation of jobs, especially for young people, women, and disadvantaged groups. They also foster competitiveness, diversity, and resilience in various sectors and regions. Moreover, they play a key role in addressing global challenges such as climate change, digital transformation, and social inclusion.
According to the latest data from Eurostat, there were 25.1 million SMEs in the EU in 2019, representing 99.8% of all non-financial enterprises. They employed 94.8 million people, or 66.6% of the total workforce. They also generated €4.3 trillion in value added, or 56.4% of the total output.
What challenges do SMEs face?
Despite their importance, SMEs face many challenges that hamper their growth and competitiveness. Some of these challenges are:
- Access to finance: SMEs often struggle to obtain adequate funding for their activities, especially in the early stages of development or during periods of crisis. They may face difficulties in meeting the requirements of banks or other financial institutions, or in accessing alternative sources of finance such as venture capital, crowdfunding, or public grants.
- Regulatory burden: SMEs have to comply with a complex and diverse set of rules and regulations at the national and EU level, which may entail significant costs and administrative burdens. Some examples are taxation, accounting, environmental protection, consumer protection, data protection, labor law, etc.
- Innovation and digitalization: SMEs need to constantly innovate and adapt to changing market conditions and customer preferences. They also need to embrace digital technologies and solutions that can improve their productivity, efficiency, and competitiveness. However, many SMEs lack the necessary skills, resources, or infrastructure to do so.
- Internationalization: SMEs can benefit from expanding their markets and customer base beyond their national borders. The EU offers a large single market with free movement of goods, services, capital, and people. It also has trade agreements with many countries around the world. However, many SMEs face barriers such as language differences, cultural differences, legal differences, transport costs, tariffs, etc.
How can SMEs benefit from support programs and initiatives?
The EU and its member states offer a variety of support programs and initiatives to help SMEs overcome their challenges and achieve their potential. Some examples are:
- The European Small Business Act (SBA): This is a comprehensive policy framework that aims to create a favorable environment for SMEs in Europe. It is based on 10 principles that cover areas such as entrepreneurship education, access to finance, reduction of administrative burden, innovation support, etc.
- The COSME program: This is an EU funding program that supports the competitiveness of SMEs in Europe. It has a budget of €2.3 billion for the period 2014-2020. It provides access to finance through guarantees and equity instruments, access to markets through internationalization and public procurement support, access to skills through training and mentoring programs, and access to innovation through clusters and networks.
- The Horizon Europe program: This is an EU research and innovation program that has a budget of €95.5 billion for the period 2021-2027. It supports excellence in science, industrial leadership, and societal challenges. It also has a dedicated instrument for SMEs called the European Innovation Council (EIC), which provides funding and coaching for breakthrough innovations with high market potential.
- The Digital Europe program: This is an EU program that supports the digital transformation of Europe. It has a budget of €7.5 billion for the period 2021-2027. It focuses on five areas: supercomputing, artificial intelligence, cybersecurity, advanced digital skills, and deployment of digital technologies in key sectors such as health, education, culture, etc. It also supports the development of digital innovation hubs that provide access to digital technologies and expertise for SMEs and other users.
TIP
One of the most important tips for running a successful SME is to network with other entrepreneurs, experts, mentors, or peers who can offer you valuable insights, advice, or opportunities.
What is SME and why is it important?
SME stands for small and medium-sized enterprises. These are enterprises that have less than a specific level of investment and turnover. SMEs include both manufacturing and service businesses.
SMEs play a vital role in the global economy, as they contribute to employment, innovation, productivity and growth. According to the World Bank, SMEs account for about 90% of all firms and 50% of employment worldwide. In developing countries, SMEs are often the main source of income and livelihood for the poor and marginalized groups.
However, SMEs also face many challenges, such as access to finance, markets, technology, skills and infrastructure. These barriers limit their potential to grow and compete in the global market. Therefore, it is important to support SMEs with policies and programs that can help them overcome these obstacles and unleash their full potential.
How is the global demand for SMEs changing?
The global demand for SMEs is changing due to various factors, such as technological innovation, digital transformation, environmental sustainability, social inclusion and regional integration. These factors create both opportunities and challenges for SMEs in different sectors and regions.
Some of the opportunities for SMEs include:
- Leveraging new technologies, such as artificial intelligence, cloud computing, big data, blockchain and internet of things, to improve their products, processes, services and business models.
- Expanding their market reach and customer base through e-commerce platforms, social media networks, online marketplaces and digital platforms.
- Enhancing their environmental performance and social impact by adopting green practices, circular economy models, social responsibility standards and inclusive business models.
- Participating in regional and global value chains by collaborating with other SMEs, large firms, universities, research institutes and public institutions.
Some of the challenges for SMEs include:
- Adapting to the changing customer preferences, market trends, regulatory frameworks and competitive pressures in the digital economy.
- Investing in innovation, skills development, quality improvement and digital transformation to remain competitive and relevant in the global market.
- Accessing finance, technology, infrastructure and business support services that are affordable, reliable and tailored to their needs.
- Managing the risks and uncertainties associated with climate change, natural disasters, pandemics, cyberattacks and geopolitical conflicts.
What are some of the best practices for SMEs to succeed in the global market?
To succeed in the global market, SMEs need to adopt some of the best practices that can help them improve their performance, resilience and competitiveness. Some of these best practices are:
- Developing a clear vision, mission and strategy that align with their core values, strengths and goals.
- Conducting a comprehensive market research and analysis to identify their target customers, competitors, opportunities and threats.
- Developing a unique value proposition that differentiates them from their competitors and meets the needs and expectations of their customers.
- Implementing a lean and agile business model that enables them to respond quickly and effectively to the changing market conditions and customer feedback.
- Building a strong brand identity and reputation that reflects their quality, reliability and trustworthiness.
- Establishing a loyal customer base that provides them with repeat business, referrals and testimonials.
- Creating a diverse and inclusive team that brings together different skills, perspectives and experiences.
- Fostering a culture of innovation, learning and collaboration that encourages creativity, experimentation and problem-solving.
- Leveraging partnerships and networks that can provide them with access to resources, knowledge, markets and opportunities.
- Seeking external support and guidance from mentors, coaches, consultants, advisors and experts who can offer them valuable insights, advice and feedback.
FREQUENTLY QUESTIONS
Q: What is the difference between SMEs and startups?
A: SMEs and startups are both types of enterprises that have fewer than 250 employees and a turnover of less than 50 million euros. However, startups are usually younger and more innovative than SMEs. They also have a higher growth potential and a higher risk of failure.
Q: How can I find out if my enterprise qualifies as an SME?
A: You can use the online tool provided by the European Commission to check if your enterprise meets the criteria for SMEs. You will need to provide information about your number of employees, turnover, balance sheet total, and ownership structure. The tool will also give you an overview of the support programs and initiatives that are available for SMEs.
Q: How can I apply for EU funding or support for my SME?
A: You can find information about the various EU funding or support programs and initiatives for SMEs on the websites of the European Commission, the European Investment Bank, the European Investment Fund, or the Enterprise Europe Network. You can also contact your national or regional authorities or agencies that are responsible for implementing these programs and initiatives.
Q: What are the benefits of joining a cluster or a network of SMEs?
A: Clusters and networks are groups of enterprises that cooperate in a specific sector or region. They can help SMEs to access new markets, customers, suppliers, partners, or investors. They can also help SMEs to share knowledge, skills, resources, or infrastructure. They can also help SMEs to participate in joint projects, initiatives, or events.
Q: What are the best practices for managing an SME?
A: There is no one-size-fits-all solution for managing an SME. However, some general best practices are:
- Have a clear vision and mission for your enterprise
- Define your value proposition and competitive advantage
- Know your target market and customer segments
- Develop a realistic business plan and budget
- Monitor your performance and progress regularly
- Seek feedback from your customers and stakeholders
- Adapt to changing market conditions and customer needs
- Invest in innovation and digitalisation
- Build a strong team and culture
- Seek external advice and support when needed
Reference:
http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf
http://www.iwim.uni-bremen.de/publikationen/pdf/b101.pdf
https://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/Documents/ResearchPapers/SMEs-age-and-jobs.pdf
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