CHAPTER 10: Small to medium enterprises (SMEs)
The more adaptive and dynamic SMEs have responded to this environment through increased spending on research and development (R&D), new product developments, improved business practices, and an export-oriented business culture. SMEs play a crucial role in the Australian economy. They are a major source of employment and their total output adds significantly to the economic growth and wellbeing of Australia. Definition of SMEs
Although there is no single universally accepted definition of a SME, a number of quantitative measurements (those based on statistical calculation) and qualitative measurements (those based on personal observations and a description of the business) can be used to determine whether a business is small or medium sized: number of employees
type of ownership
sources of finance
Common characteristics of SMEs
Many SME owners want to stay small to avoid the pressures and difficulties often experienced in larger businesses. They are content with the size of their business, especially knowing they can offer personalised service to their customers.
The number of SMEs
In 2010 SMEs accounted for approximately 98 per cent of all private sector business. However, it is difficult to provide an accurate count of the number of SMEs in Australia for two reasons. First, as was previously explained, there is no universally accepted definition of a SME. Second, the SME sector is extremely dynamic and changing daily. During a boom time in the economy, the number of SMEs increases rapidly. During a recession, business failures far outweigh business commencements. The role of SMEs
Five important features that indicate the overall importance of the SME business sector to the Australia economy are: providing employment
generate increasing amount of total exports
provide a wide range of products used by large companies
Earn more profits and pay more taxes than do large businesses. The number of SMEs fluctuates over time according to the state of the economy. In recent years, SMEs have created many jobs, become more innovative and are increasingly entering overseas markets. Economic contribution of SMEs
The SME sector contributes:
approximately 50 per cent of gross domestic product (GDP)
approximately 73 per cent of total private sector employment approximately 5 per cent of balance of payment, but growing rapidly Significantly to the level of R&D.
Gross domestic Product
The ABS estimates that SMES contributed about 50% of Australia’s GDP – approximately $560 billion. The total output of the country’s diverse collection of SMES, makes a significant contribution to the national economy. Employment
During the last 20 years the SME sector has been the major generator of new jobs in the Australian economy. During times of the economic downturn SMEs were more likely to try to maintain their existing employees compared to large businesses. SMES contribute to the revenue raised through taxation, not only do they pay tax but their employees pay income tax and are used to provide goods and services that benefit the whole community. Balance of payments
One of the most dynamic changes to the Australian SME business culture is the increasing awareness of the need to service the overseas markets. The number of SMES Australian exporters is growing faster than large exporters SMES in agribusiness, manufacturing and professional services. Another crucial role is that the adaptability and flexibility of SMES make them more responsive to the needs of overseas markets. Invention and innovation
SMES are the main source of invention and innovation and this has improved efficiency and increased productivity.
Success and/or failure of SMEs
While many people are successful in their business ventures, many others unfortunately experience failure. In fact, of every ten SMEs...
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