The UK SME sector
and its relative importance to the economy
21st Feb 2012
Small and medium-sized enterprises (SMEs) are the backbone of all economies and are a key source of economic growth, dynamism and flexibility in advanced industrialised countries, as well as in emerging and developing economies. (oecd.org)The committee of Bolton report (1971) believed that the health of the economy requires the birth of new enterprises in substantial numbers, they concluded that small firms can be extremely efficient, having the advantage of the commitment of the owner-managers, plus the ability in certain circumstances to exploit certain business opportunities better than their larger brethren. (Stokes & Wilson, 2010, p. 9) There is no single definition of what an SME is; this is because of the wide diversity of businesses. The problem is because company size is related to the market it operates in, The Bolton report recognised that it may be appropriate to measure employees in some sectors but turnover may be more relevant in others, According to the Bolton report (1971) small firms are owner managed, independent and have a small market share, (Bruce M, 1999) Bolton supplemented the general qualities by more specific, quantitative measurements depending on the industry type, (Stokes & Wilson, 2010, p. 5)however according to the European Union the definition of SMEs are; a small enterprise has between 10 and 49 employees and has an annual turnover of less than 10million Euro, a medium sized enterprise has between 50 and 249 employees and has an annual turnover of less than 50million Euro. (Stokes & Wilson, 2010)There is a great issue with the definition of SMEs, it has been approached by many theorists and researchers such as Bolton (1971), Coyne (1983) and Curran and Stanworth (1984) and yet no satisfactory solutions have emerged. (Tonge, 2001, p. 6) Small and medium sized enterprises are important to the economy as they make up a large part of employment; Empirical studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high income countries. (thefreelibrary.com) The BIS support this by claiming that SMEs employ 13.7 million people- almost 60% of the private sector workforce. (BIS, 2010)SME’s help to absorb productive resources at all levels of the economy and add to the formation of flexible economic systems in which small and large firms are interlinked. Such linkages are very crucial for the attraction of foreign investment as investing transnational corporations look for sound domestic suppliers for their supply chains. (thefreelibrary.com) The SME sector currently makes up the largest part of all enterprises within the EU at 99% they offer over 90 million jobs. (ec.europa.eu) A report from the European commission has found that SME’s in the UK represent 50.2% of the economic added value, this confirms that SME’s continue to be the EU’s economic backbone. (ec.europa.eu)The SME sector which has been largely ignored or dismissed by an out-of-date irrelevance by business analysts in the 1960’s have now grown to represent over half of total UK sales. (Stokes & Wilson, 2010, p. 11) Funding available to SME’s
The Bolton committee report 1971 emphasized the importance of small to medium sized enterprises and their contribution to economic aggregates, (Tonge, 2001) governments worldwide have now realised the importance of SME’s and their contribution to economic growth, social cohesion, employment and social development, therefore encouraging entrepreneurship is high on the government agenda. (oecd.org)Although SMEs are extremely important to the economy many of them find it hard to start up and survive the obstacles which they are faced with, the main reason for this is the lack of information which is made readily available to SMEs. There are sources of finance available to new entrepreneurs however many entrepreneurs do not have the knowledge...
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