In partial fulfillment of the requirements for the course MGT 405 (Sec: 01)
April 03, 2013
Definition of Small & Medium Enterprise in the Global Context
In the Indian context, we have not so far defined medium enterprises clearly. What is neither small nor large is being loosely defined as medium. Further, enterprise encompasses businesses, services and industries. In the broadband of 'small', the discussion extends to medium as well. Another possible connotation for the SMEs is the small manufacturing enterprises.
Small and medium enterprises, both in size and shape, are not uniform across the globe. This asymmetry comes in the way of any effort of their integration. The way they are defined depends on the stage of economic development and the broad policy purposes for which the definition is used. According to a World Bank study, there are said to be more than 60 definitions of small and medium industries used in 75 countries surveyed.
The most commonly used definitions relate to either size of employment and/ or quantum of capital investment/ fixed assets. As the process of economic development leads to changes in industrial sector shares in GDP and the contribution of sub-sectors within industry, the definition is extended to include not only manufacturing industries but all enterprises which fall within or below the defined cut-off point. In the ASEAN (Association of Southeast Asian Nations) countries in general, the definition is restricted to SMIs in the manufacturing sector only, whereas in the OECD group, the definition is broadened to include all Small and Medium Enterprises.
Though employment and turnover are also used to define small industries, as these indicators are implicit in the requirement for registration under the Factories Act. Therefore, the contribution of SME sector to the GDP in different countries is not on comparable parameters. Still, in both developed and developing economies, they were accorded special status, specific dispensations and particular attention.
Definition of Small & Medium Enterprise in the Context of Bangladesh
Despite the fact that a large number of SMEs in Bangladesh operate in the informal sector, they are perceived as the leading vehicle for growth of the national economy, encompassing a multiplier effect on employment, GDP growth as well as having a significant impact on poverty alleviation.
a. For manufacturing activities enterprises shall be categorized using the following definition (fixed investment implies exclusion of land and building, and valuation on the basis of current replacement cost only):
♦ Small enterprise: An enterprise should be treated as small if, in today’s market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to be up to Tk. 15 million;
♦ Medium enterprise: An enterprise would be treated as medium if, in today’s market prices, the replacement cost of plant, machinery, and other parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, excluding land and building, were to be up to Tk. 100 million;
b. For non-manufacturing activities (such as trading or other services), the Taskforce defines:
♦ Small enterprise: An enterprise should be treated as small if it has less than 25 workers, in full-time equivalents;
♦ Medium enterprise: An enterprise would be treated as medium if it has between 25 and 100 employees;
SMEs have undergone significant structural changes over time in terms of product composition, degree of capitalization and market penetration in order to adjust to changes in technology, market demand...