Small And Medium Enterprises: Definition, Characteristics, And Importance

Executive Summary

Describe about the Small and Medium Enterprises?

Small and medium sized corporations and enterprises comprise of companies having limited number of employees and they form a larger share of the market. It is evident that the small business outnumber the large scaled business by a wide margin and on a holistic level employ more people than large scaled firms. Small and medium scaled companies have different working styles and production strategies as they carry on the task of driving innovation and a good level of competition in the market pertaining to economic sectors of the region. Small and medium scaled industries are segregated by the number of employees usually about 50 in a small scaled industry and rising up to 250 in a medium scaled firm (Ayyagari, 2007). Different countries have different criteria for marking the industries as small or medium scaled. It also depends upon the type of industry usually separated as manufacturing firms or service sector enterprises.

Therefore, small and medium scaled industries form a large share of the global market with a lot of creativity fueling the international market and sustaining the global trade and economy. These enterprises have been providing a great share in the international market.

Small and medium scaled enterprises have been widely recognized as being catalysts and engines of growth all over the globe. The sector is known as having some of the attributes like operational flexibility, low requirements for initial investments, import substitution facilities, and region specific mobility (Man, 2002). There have been various acts in different countries that look after the interest of small and medium scaled enterprises. The enterprises are classified into manufacturing units pertaining to production of goods having plants or machineries and service sector providing services to invest in the equipment.

These type of industries occur in abundance and hence they are key for sustenance of rising economic graph by contributing a large share in the industry. They have the caliber to foster new form of entrepreneurship across the world. They are significant in the terms that entrepreneurs can start their business on a small scale opening up the paths for harnessing their acquired skills and the talents (Yew Wong, 2005). There would be a room for innovation, experiment, showcasing of talents and nurture the company to boost up as a large unit and corporation to form a medium scaled firm and aspiring for more.

The small and medium scale industries have grown in the past few years with sophisticated technologies (Fink, 1998) and management applied to the enterprises under the dynamic progress of the market and rising demands of the industry. In the field of manufacturing, the small scaled sectors used to produce smaller goods which will simple consumer able goods but have grown and refined to form some precise and sophisticated products like microwave components, car parts, electronic equipment for medicine or car parts. The major sectors which comes under the tagline of SMEs are sports goods, bio engineering, computer software, food processing, chemicals, electro medical equipment, plastic products, textile and garments, meat products, leather goods (Analoui, 2003) etc.

Observations

There have been a tremendous exposure in the market giving a tough domestic and global competition because of the practices and rules of economic liberalization throughout the world and increasing levels of flexibility from the side of regional governments. Clusters of these industries are found and seen in the regions of a particular industrial area comprising of similar type of industries in a sector pertaining to sectoral or geographical segregation which is collaboration of enterprises which are both small and medium scaled and have a common set of opportunities or threats pertaining to the area of operation. These collaborated structures or clusters give a collaborated rise to the external economies and they favor the rise of technical, financial and administrative services (Terziovski, 2010). They also target at conducting development exercises for inter firm co-operations to promote escalated local production to foster creativity and innovation.

There have been various observations made for SMEs pertaining to the competitive advantage, the incentives granted form the side of government, the financial edge they have over large scaled firms and other related discussions.

The government in each region support and promote small and medium scaled industries with the help of policies that help their cause and support SMEs. The government aims at providing technological upgradation, preferential purchasing, reservation for selling of products from the exclusive manufacturers in the sector, infrastructural support and preferential access to credit (Levy, 1993) from the banks especially for small and medium scaled firms of entrepreneurs wanting to set up this scale of business in the region. The government have also formed some special institutions and bodies to look into the law and order of SMEs by offering some of the alluring schemes and incentives in the form of assistance or finance, technical guidance available from their side, technology upgadation requests, marketing aid and training and development (Beck, 2006).

Banks also provide easy and beneficial loans and schemes for small and medium enterprises at lower rate of interest so as to help them grow their business and offer an opportunity of more banking services in the future with the help of low interest rate, specialized services and quick processing of their requests.

The core areas of operations of these SME is information technology and therefore, this is a high scope for innovation attracting various dealers and entrepreneurs to fund the projects which are essential for small and medium enterprises. There have to be inherent creativity in the SMEs to survive the tough competition of the market and to outgrow each of the competing firm in the industry and for this it is important to have critical thinking and of the box solutions.

With the rise of technologies and globalization blurring the boundaries, the importance of economic scales have reduced thereby leading to increased contribution made by the small firms operating in a region.

There are plethora of problems faced by SMES including difficulties in exploitation of technology, lower productivity and sales, regulatory burdens for globalized environments, lack of financing, or constrained managerial capabilities (Tambunan, 2005). There is hardly any room for management excellence or research and development and therefore, care must be taken about this field.

Recommendations

It has been observed that in spite of regional and local markets, SMEs have expanded across international boundaries by collaborating with large multinationals and giving them an entry into the regional market in exchange of international presence. With the advent of information and communication technology, SMEs have been offered considerable opportunities to expand the consumer base, rationalize the business or enter new potential markets. It is also observed that the export SMEs of a region are likely to have a greater economic share than SMEs which are not into the field of exporting by providing intensive services even larger than large scaled firms.

In spite of the trade barriers, SMEs have been able to rise above the laws and regulations and perform well in each and every region of work to outshine even in the foreign market.

To sustain a dynamic sector for SMEs it is essentially important to foster public and private partnerships and to form a network of small and medium enterprises or clusters. The production of clusters can be collaborated for aiming at high level of production to compete with large firms too. Various small and medium scaled industries can be integrated and coherently collaborated to become more flexible in work and more responsive towards demands of the customers. There can be provisions for pooling up of resources and finances including the cost of training, marketing or research, exchange of personnel services, new and collaborated possibilities and brainstormed innovations, and diffusion of technologies (Douglas, 2000) so as to strengthen the market and generate more of the shares out of a region. This local and regional cluster system may help SMEs to globalize at international level and aim for a higher and reputable production. These non subsidiary and independent firms shall be given special incentives to grow and prosper to boost the economic growth of a country.

The SMEs can invest in procedures and strategies of reengineering products and services so as to match up with rising demands of the consumer market, by developing unique techniques to expand their sales, and by introducing organizational approaches for enhanced productivity. E commerce can be widely exploited by small and medium scaled enterprises to manage and supply processes, customize services and products (Yusof, 2000), or to reduce the gaps between production and delivery.

Conclusion

It can be observed form the study and analysis that Small and Medium Enterprises are characterized by a high contribution to the domestic production, low investment at the startup, operational flexibility, export earnings source, low intensive import requirements, import substitutions, technology orientation, defense production, indigenous technology development, innovation and competitiveness (Rahman, 2001) in the domestic as well as international markets.  SMEs are slowly taking up a larger share of the economy of a region and the future beholds many of the success stories of the small and medium enterprises due to various opportunities present before them and support given to them from the side of government. With some of the useful recommendations, it can be observed that small and medium scaled companies can be networked to form a holistic complete part of the industry and enhance the sales prospective of the firms.

References

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