Small and medium sized enterprises? Flashcards
Intro?
UK competitiveness links to SMEs (business, competitive), Intervention - strategy, EU/UK/Reg Governments
These link to theory and research
This links to barriers to growth, SME failure, SME growth determinants
Definitions?
- Bolton report 1971 – less than 200 employees, market share characteristics, personally managed, independence
- Problems –
- What is personally managed?
- Small firms with niches? – may have a monopoly position in a small market
- Employment cut off
- Subcontracting? – involving lots of different relationships meaning large scale of activity
- The Gig Economy – risen in importance – individuals working on a casual basis
EU definition?
- Defined in EU recommendation 2003/361
- The main factors determining whether an enterprise is an SME are staff headcount and either turnover or balance sheet total
- These ceilings apply to figures for individual firms only – a firm part of a larger group may need to include staff headcount/turnover/balance sheet data from the group too
Medium sized needs < 250 staff, <50m turnover <43m Bal sheet total
Small <50 staff, <10m turnover, <10m Bal sheet total
Micro <10 staff, <2m turnover, <2m Bal sheet total
Might also be thinking in terms of typologies?
- Uncertainty – price takers
- Limited production base – (different activities)
- Success and failure connected to the principal
- Innovation – product/service set apart from the norm
- Evolve rapidly
Getting to know the stats?
- Size distribution of firms
- Business demography statistics
- How significant are small firms : UK evidence
- Share of enterprises, employment, turnover and GVA
Young report 2015 - Golden age for small firms?
Record number of small firms in UK - some 5.2 million, an increase of 760,000 since 2010
Record number of people in work - 30.8 million, and small firms accounting for 48% of private sector employment
Global entrepreneurship and development institute rank the UK the most entrepreneurial country in Europe and 4th in the world
Why do small firms persist?
Young 2015 - only other report at time was 1971 Bolton Report concluding small firms sector in terminal decline and would cease to exist in a few years - EOS would make the remaining uncompetitive
Hart 2005 - In most Western countries, share of employment has risen in SMEs due to changes in production tech , in consumer demand, pursuit of flexibility and efficiency - led to restructuring and downsizing of large enterprises and entry of new firms
Why do they persist then?
- Many markets have low barriers to entry, only 1% firms are oligopolies, monopolies etc.
- New technology reduced start up costs, and new technology such as internet makes more markets contested
- Some industries = little scope to benefit from scale economies – the foundation economy e.g., care and health
- Profit might not be the only motive, staying small might be choice; more not for profits?
- Niche, specialised markets
- Intervention increases small firms numbers?
Foundation economy?
- “The Foundational Economy is a grand name for those business activities that we use every day and see all around us. It includes businesses like retail, care, and food industries. The Foundational Economy has been pretty much overlooked in public policy, despite providing around four out of ten jobs in Wales and making a substantial contribution to Wales ’GVA” Bevan Foundation
Conclusions?
Differences between SMEs and other firms call for a separate treatment
A continued element of the business landscape
Uni-dimensional definitions of SMEs may be problematic particularly in the context of policy development
Why might we want more small firms?
Job creation - Birch 1979
Unemployment reduction
Competition and innovation
Alternative to FDI model of development
Industry restructuring
Link to GDP per capita and wealth
Links to waves of creative destruction & Schumpter
But argument?
- Only tiny proportion of firms are significant job creators
- Unemployed don’t have human capital skills to develop a business
- New firms do not compete with established firms
- Is there really a link with wealth – not clear
Entrepreneurship and economic growth?
- Share of SME owners in total workforce and GDP/capita – no simple correlation and probably a multivariate relationship anyway
- Could depend on stage of economic development
- “One cannot always expect short term increases in economic growth by increasing entrepreneurial vitality of the number of SME owners” Wennekers and Thurik (2001)
Hart 2005?
- Significant role of new firms in job creation, innovation and economic change is widely demonstrated – Storey 1994
- But economic impact of new and small firms is uniform over neither time or space – pattern of business dynamics varies considerably among countries and regions
- Significant job creation takes place in relatively few but growing firms
