SME MANAGEMENT

Lesson 01
History, Definition and
Concepts of SMEs
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.