Defining the Small-firm Sector

EU definition of SMEs

The Small Firm Sector

by number of employees
micro enterprises (<10 employees) small enterprises (1049 employees) medium enterprises (50249 employees)

EU SME definitions

EU SME definitions

Criterion Maximum number of employees

Micro 9

Small 49

Medium 249

Criterion Maximum number of employees Maximum annual turnover

Micro 9 2 m

Small 49 10 m

Medium 249 50 m

EU SME definitions

EU SME definitions

Criterion Maximum number of employees Maximum annual turnover Maximum annual balance sheet total

Micro 9 2 m 2 m

Small 49 10 m 10 m

Medium 249 50 m 43 m

Criterion Maximum number of employees Maximum annual turnover Maximum annual balance sheet total Maximum % owned by one, or jointly by several, enterprise(s) not satisfying the same criteria

Micro 9 2 m 2 m

Small 49 10 m 10 m

Medium 249 50 m 43 m

25%

25%

25%

Defining the Small-firm Sector

EU definition of SMEs
by number of employees
micro enterprises (<10 employees) small enterprises (1049 employees) medium enterprises (50249 employees)

Defining the Small-firm Sector

EU definition of SMEs
by number of employees
micro enterprises (<10 employees) small enterprises (1049 employees) medium enterprises (50249 employees)

use of EU definitions in the UK

use of EU definitions in the UK

Size of the small-firm sector in the UK

Defining the Small-firm Sector

EU definition of SMEs
by number of employees
micro enterprises small enterprises medium enterprises

Number of UK businesses, employment and turnover by size of enterprise (2005)

Size (number of employees) 09 (Micro) 1049 50249 (Medium) 250+ (Large) All All with employee(s) (Small)

Businesses (number) 4 148 525 160 975 26 570 5 970 4 342 045 1 179 445

Employment (000s) 7 176 3 186 2 629 9 140 22 131 18 656

Turnover1 Businesses (m ex VAT) (%) 545 445 346 097 358 246 1 197 856 2 447 644 2 254 189 95.5 3.7 0.6 0.1 100.0 27.2

Employment Turnover (%) (%) 32.4 14.4 11.9 41.3 100.0 84.3 22.3 14.1 14.6 48.9 100.0 92.1

use of EU definitions in the UK

Size of the small-firm sector in the UK

Number of UK businesses, employment and turnover by size of enterprise (2005)

Number of UK businesses, employment and turnover by size of enterprise (2005)

Size (number of employees) 09 (Micro) 1049 50249 (Medium) 250+ (Large) All All with employee(s) (Small)

Businesses (number) 4 148 525 160 975 26 570 5 970 4 342 045 1 179 445

Employment (000s) 7 176 3 186 2 629 9 140 22 131 18 656

Turnover1 Businesses (m ex VAT) (%) 545 445 346 097 358 246 1 197 856 2 447 644 2 254 189 95.5 3.7 0.6 0.1 100.0 27.2

Employment Turnover (%) (%) 32.4 14.4 11.9 41.3 100.0 84.3 22.3 14.1 14.6 48.9 100.0 92.1

Size (number of employees) 09 (Micro) 1049 50249 (Medium) 250+ (Large) All All with employee(s) (Small)

Businesses (number) 4 148 525 160 975 26 570 5 970 4 342 045 1 179 445

Employment (000s) 7 176 3 186 2 629 9 140 22 131 18 656

Turnover1 Businesses (m ex VAT) (%) 545 445 346 097 358 246 1 197 856 2 447 644 2 254 189 95.5 3.7 0.6 0.1 100.0 27.2

Employment Turnover (%) (%) 32.4 14.4 11.9 41.3 100.0 84.3 22.3 14.1 14.6 48.9 100.0 92.1

Number of UK businesses, employment and turnover by size of enterprise (2005)

A.
Size (number of employees) 09 (Micro) 1049 50249 (Medium) 250+ (Large) All All with employee(s) (Small) Businesses (number) 4 148 525 160 975 26 570 5 970 4 342 045 1 179 445 Employment (000s) 7 176 3 186 2 629 9 140 22 131 18 656 Turnover1 Businesses (m ex VAT) (%) 545 445 346 097 358 246 1 197 856 2 447 644 2 254 189 95.5 3.7 0.6 0.1 100.0 27.2 Employment Turnover (%) (%) 32.4 14.4 11.9 41.3 100.0 84.3 22.3 14.1 14.6 48.9 100.0 92.1

Q When comparing SMEs with large companies, SMEs as a whole

are more numerous, employ more people and have a larger turnover. are more numerous, employ more people, but have a lower turnover. are more numerous, but employ fewer people and have a lower turnover. are less numerous, employ fewer people and have a lower turnover. are more numerous, have a larger turnover, but employ fewer people.
A. B. C. D. E.
20% 20% 20% 20% 20%

B.

C.

D.

E.

SME share of UK businesses, employment and turnover by industry (2005)

Industrial sector Businesses Total Number All industries A, B Agriculture, forestry & fishing C, E Mining, electricity, gas, water D Manufacturing F Construction G Wholesale, retail & repairs H Hotels & restaurants I Transport, storage & communication J Financial intermediation K Real estate, business activities M Education N Health and social work O Other social / personal services 4 342 045 164 945 9 100 332 130 923 770 577 050 152 160 262 470 66 725 1 031 135 126 730 243 815 452 015 Employment Turnover SME SME Total SME Total Turnover Percentage Employment Percentage ( millions) Percentage Share (000s) Share Share 99.9 100.0 99.3 99.5 100.0 99.8 99.8 99.8 99.5 99.9 99.9 99.9 99.9 22 131 417 162 3 476 1 995 4 825 1 614 1 661 1 091 4 065 349 1 191 1 265 58.7 100.0 n.a 54.2 83.1 47.1 57.1 39.8 21.3 58.6 76.6 78.6 73.0 2 447 644 28 317 80 376 477 393 211 012 846 494 65 453 202 818 n.a 360 177 13 327 48 401 113 876 51.1 100.0 n.a 35.5 66.2 50.5 57.5 37.1 n.a 70.4 91.2 86.7 46.8 All industries

SME share of UK businesses, employment and turnover by industry (2005)

Industrial sector Businesses Total Number 4 342 045 164 945 9 100 332 130 923 770 577 050 152 160 262 470 66 725 1 031 135 126 730 243 815 452 015 Employment Turnover SME SME Total SME Total Turnover Percentage Employment Percentage ( millions) Percentage Share (000s) Share Share 99.9 100.0 99.3 99.5 100.0 99.8 99.8 99.8 99.5 99.9 99.9 99.9 99.9 22 131 417 162 3 476 1 995 4 825 1 614 1 661 1 091 4 065 349 1 191 1 265 58.7 100.0 n.a 54.2 83.1 47.1 57.1 39.8 21.3 58.6 76.6 78.6 73.0 2 447 644 28 317 80 376 477 393 211 012 846 494 65 453 202 818 n.a 360 177 13 327 48 401 113 876 51.1 100.0 n.a 35.5 66.2 50.5 57.5 37.1 n.a 70.4 91.2 86.7 46.8

A, B Agriculture, forestry & fishing C, E Mining, electricity, gas, water D Manufacturing F Construction G Wholesale, retail & repairs H Hotels & restaurants I Transport, storage & communication J Financial intermediation K Real estate, business activities M Education N Health and social work O Other social / personal services

SME share of UK businesses, employment and turnover by industry (2005)

Industrial sector Businesses Total Number All industries A, B Agriculture, forestry & fishing C, E Mining, electricity, gas, water D Manufacturing F Construction G Wholesale, retail & repairs H Hotels & restaurants I Transport, storage & communication J Financial intermediation K Real estate, business activities M Education N Health and social work O Other social / personal services 4 342 045 164 945 9 100 332 130 923 770 577 050 152 160 262 470 66 725 1 031 135 126 730 243 815 452 015 Employment Turnover SME SME Total SME Total Turnover Percentage Employment Percentage ( millions) Percentage Share (000s) Share Share 99.9 100.0 99.3 99.5 100.0 99.8 99.8 99.8 99.5 99.9 99.9 99.9 99.9 22 131 417 162 3 476 1 995 4 825 1 614 1 661 1 091 4 065 349 1 191 1 265 58.7 100.0 n.a 54.2 83.1 47.1 57.1 39.8 21.3 58.6 76.6 78.6 73.0 2 447 644 28 317 80 376 477 393 211 012 846 494 65 453 202 818 n.a 360 177 13 327 48 401 113 876 51.1 100.0 n.a 35.5 66.2 50.5 57.5 37.1 n.a 70.4 91.2 86.7 46.8 All industries

SME share of UK businesses, employment and turnover by industry (2005)

Industrial sector Businesses Total Number 4 342 045 164 945 9 100 332 130 923 770 577 050 152 160 262 470 66 725 1 031 135 126 730 243 815 452 015 Employment Turnover SME SME Total SME Total Turnover Percentage Employment Percentage ( millions) Percentage Share (000s) Share Share 99.9 100.0 99.3 99.5 100.0 99.8 99.8 99.8 99.5 99.9 99.9 99.9 99.9 22 131 417 162 3 476 1 995 4 825 1 614 1 661 1 091 4 065 349 1 191 1 265 58.7 100.0 n.a 54.2 83.1 47.1 57.1 39.8 21.3 58.6 76.6 78.6 73.0 2 447 644 28 317 80 376 477 393 211 012 846 494 65 453 202 818 n.a 360 177 13 327 48 401 113 876 51.1 100.0 n.a 35.5 66.2 50.5 57.5 37.1 n.a 70.4 91.2 86.7 46.8

A, B Agriculture, forestry & fishing C, E Mining, electricity, gas, water D Manufacturing F Construction G Wholesale, retail & repairs H Hotels & restaurants I Transport, storage & communication J Financial intermediation K Real estate, business activities M Education N Health and social work O Other social / personal services

Q In which sector is there the highest ratio of large firms to SMEs?

A. Primary B. Secondary C. Tertiary
33% 33% 33%

The Small-firm Sector in the UK

Changes over time
growth in the service sector growth in niche markets new working practices
flexible labour markets subcontracting

A.

B.

C.

growth in self-employment as an answer to unemployment

%
50

The importance of small firms in the UK

Employment in manufacturing enterprises with fewer than 200 employees as % of total employment in manufacturing enterprises

%
50

The importance of small firms in the UK

Employment in manufacturing enterprises with fewer than 200 employees as % of total employment in manufacturing enterprises

40

40

30

30

20

20

10

10

0 1920

1930

1940

1950

1960

1970

1980

1990

2000

0 1920

1930

1940

1950

1960

1970

1980

1990

2000

%
50

The importance of small firms in the UK

Employment in manufacturing enterprises with fewer than 200 employees as % of total employment in manufacturing enterprises Self employed as % of UK labour force

%
50

The importance of small firms in the UK

Employment in manufacturing enterprises with fewer than 200 employees as % of total employment in manufacturing enterprises Self employed as % of UK labour force

40

40

30

30

20

20

10

10

0 1920

1930

1940

1950

1960

1970

1980

1990

2000

0 1920

1930

1940

1950

1960

1970

1980

1990

2000

The Small-firm Sector in the UK

Changes over time
growth in the service sector growth in niche markets new working practices
flexible labour markets subcontracting

The Small-firm Sector in the UK

Changes over time
growth in the service sector growth in niche markets new working practices
flexible labour markets subcontracting

growth in self-employment as an answer to unemployment role of government

growth in self-employment as an answer to unemployment role of government

International comparisons

Survival, Growth and Failure of Small Firms

Competitive advantage and small firms
flexibility quality of service production efficiency and low overheads product development and innovation

Q Several factors make it difficult for SMEs in the UK to succeed. Which of the following is NOT one of them?
20% 20% 20% 20% 20%

A. Banks not willing to lend on reasonable terms. B. Lack of economies of scale. C. High transactions costs. D. Lack of marketing/product credibility. E. The principalagent problem.
A. B. C. D. E.

Problems facing small businesses

selling and marketing funding R&D management skills less ability to gain economies of scale

Survival, Growth and Failure of Small Firms

The growth of small businesses
the process of growth
1. Inception

Management role and style in the five stages of a small business

Stage Top management role
Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

4. Expansion

5. Maturity

Decentralisation

Management role and style in the five stages of a small business

Stage
1. Inception

Management role and style in the five stages of a small business

Stage
1. Inception

Top management role

Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

Top management role

Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

4. Expansion

4. Expansion

5. Maturity

Decentralisation

5. Maturity

Decentralisation

Management role and style in the five stages of a small business

Stage
1. Inception

Management role and style in the five stages of a small business

Stage
1. Inception

Top management role

Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

Top management role

Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

4. Expansion

4. Expansion

5. Maturity

Decentralisation

5. Maturity

Decentralisation

Management role and style in the five stages of a small business

Stage
1. Inception

Survival, Growth and Failure of Small Firms

The growth of small businesses (cont.)
the entrepreneur
motivation and desire to succeed educational attainment management experience and business knowledge

Top management role

Direct supervision

Management style
Entrepreneurial, individualistic Entrepreneurial, administrative Entrepreneurial, co-ordinate Professional, administrative Watchdog

Organisation structure
Unstructured

2. Survival

Supervised supervision Delegation / co-ordination Decentralisation

Simple

3. Growth

Functional, centralised Functional, decentralised Decentralised functional/product

the firm
the age of the business the sector of the economy legal forms location

4. Expansion

5. Maturity

Decentralisation

Survival, Growth and Failure of Small Firms

The growth of small businesses (cont.)
strategy
workforce and management training

Q Small firms can adopt strategies which will help them grow. These do NOT normally include
A. investing in management training. B. developing the product.
20% 20% 20% 20% 20%

use of external finance product innovation export markets use of professional managers

C. seeking external sources of finance. D. seeking overseas markets. E. using a flat management structure.
A. B. C. D. E.

conditions for success of small businesses

Government Assistance to the Small Firm

Small-firm policy in the UK
strategic framework: 2002 Action Plan
strategic themes government agencies
Small Business Service (SBS) Regional Development Agencies (RDAs) Business Links

Government Assistance to the Small Firm

Small-firm policy in the EU
historical background SME Action Programme

take-up of government support

forms of government support

grants loans corporate venturing tax concessions

EU SME Action Programme

Regulatory and administrative matters 1. Promoting the spirit of enterprise 2. Improving the administrative environment 3. Monitoring the completion of the internal market 4. Adapting company law 5. Adapting competition law 6. Improving the tax environment Initiatives to encourage the establishment and development of SMEs 7. Improving the social environment of SMEs 8. Training 9. Information 10. Exports 11. Encouraging new firms and innovation 12. Co-operation between firms and regions 13. Provision of capital

Government Assistance to the Small Firm

Small-firm policy in the EU (cont.)
policy initiatives financial instruments
Structural Fund European Investment Bank

EU technology programme vocational training programmes other programmes

Q Support for small firms can be seen to result from a failure of the free-market system. Which of the following is NOT one of such failures?
A. B. C. D. Small firms are not so responsive to changing market demand. Large competitor firms often have market power. The capital market favours large firms. The benefits of training are often lost to firms when trained workers leave and this can have a more critical effect for SMEs. Other firms often prefer to deal with large established firms because of lack of information about SMEs.
20% 20% 20% 20% 20%

E.

A.

B.

C.

D.

E.