Lesson 01 History, Definition and Concepts of SMEs MGT601 SME MANAGEMENT Lesson 01 History, Definition and Concepts of SMEs

Chapter Learning Objectives After studying this chapter you should be able to understand: history definition concepts of small business SMEs characteristics and kinds an overall view of its comparison with large business

The History Small business flourished in almost all ancient cultures. The Egyptians, Arabs, Babylonians, Jews, Greeks and Romans contained a substantial population of small business.

The History contd Small business was discovered about more than 4000 years ago. HAMMURABI, the king of Babylon introduced the first 300 business laws. These laws known as Code of HAMMURABI.

Definitions of SMEs According to US Small Industries “a business qualifies a small if does not dominates its industry and less than 100 employees”. United Kingdom small firms were defined “entities having less than 200 employees. It should be run by its owner and should have a relatively small share of its market”.

Definitions of SMEs contd In France, Small Business was defined as “a company with less than 10 employees, representing over 90 percent of all businesses and employing one sixth of the total work force”.

Definitions of SMEs contd A generalized definition small and medium size firms. Small: Among 10 to 35 employees and productive assets ranging 2 to 20 million. Medium: Among 36 to 99 employees and productive assets range of rupees 20 to 40 million.

Concepts of Small Business According to Clifford Baum small business as one that is: Actively managed by its owner Highly personalized Largely local in its area of operation Relatively small in size within the industry and Largely dependent on the internal resources of capital to finance its growth.

Concepts of Small Business contd According to the Committee for Economic Development (CED), is an independent, non-profit, non-partisan think tank based in Washington, DC, a business is small if it meets two or more of the following criteria.

Concepts of Small Business contd Management of firm is independent in the sense that owners themselves are managers. Capital is supplied by ownership and is held by an individual or a small group. Area of operation is local. The size of the firm in the industry is small as compared to the highest unit in its field.

Characteristics of Small Business 1. Privately held small business is again subdivided into two categories. Very small where chief worker is the owner like jewelry shops, shoe stores and grocery shops etc. The Large Small business where the proprietor mainly directs the work of its employees.

Characteristics of Small Business…. 2. No or few management layers 3. Style of management is personalized the owner has first hand knowledge of every move in the business at all levels he is the main decision maker. 4. Limited resources: a small business is unlikely to have sufficient resources to dominate the market.

Characteristics of Small Business…. 5. Independence: the owner has ultimate authority and effective control 6. Scope of operations: small enterprises serve a limited segment of local or regional market. 7. Scale of operation: they occupy a limited share of given market. 8. Labor: they are low in capital and high in labor, as they cannot afford capital-intensive machinery.

Characteristics of Small Business…. 9. Technological innovation if available small business does well 10. Specialized skills: The small enterprises normally have specialized skills for certain specific clients. 11. The small business does well in small, isolated, overlooked and imperfect market.

Characteristics of Small Business…. 12. Small business does well in developing markets as it can easily absorb the changes. 13. Small business survives well in a bad business condition due to having quick and clever capability of bringing changes in cost and labor.

Kinds Small Business 1. Retailing: It’s a traditional business where normally the owner is the boss and owner 2. Services: such as legal and accounting, courier services and beauty parlors etc. 3. Construction activity

Kinds Small Business……. 4. Whole sale business. 5. Financing, insurance and real estate. 6. Transportation communication and public utilities. 7. Manufacturing

Large vs. Small Business 1. They foster changes differently: small business fosters changes through a cycle of birth and death whereas the large business cycle changes through expansion and contraction. 2. The risk, reward and investment decisions are assessed differently in case of small business it is personal while in the cases of large business it is made by the employee managers without livelihood stake.

Large vs. Small Business…. 3. Their economic power is different: the small business is in no position to influence its immediate economic involvement but big business does. 4. They utilize different resources in the economy small business may use secondary resources but the big business use most of the primary resources 5. They serve different markets in the economy: small business serves markets which big business does not wish or cannot serve.

Conclusion At the end of this lesson, we become able to understand the basic concepts of Small and Medium Enterprises (SMEs). Hopefully, in next lessons, we will define the concepts in detail.

Thanks you Happy Learning, Keep Learning