Information and IT in Small and Medium Enterprises

Background

It is clear that SMEs are an important part of all economies (Storey, 1994). First, SMEs employ the majority of workers (Levy & Powell, 2005). Second, SMEs also play an important role with respect to enhancing the competitiveness of economies through the processes of creation, elimination and restructuring of economic sectors (Bharati & Chaudbury, 2006). Third, in the majority of the world’s emerging economies SMEs will be the predominant enterprise for the foreseeable future (Newberry, 2006). What is less clear is what exactly is considered as small and medium enterprises respectively. Even the terminology used across the globe differs. The term small and medium enterprise (SMEs) is most commonly used in Europe whilst the term small and medium businesses (SMBs) is preferred in the USA. In Africa, micro-enterprises are added to the mix with micro-, small and medium enterprise (MSMEs) and micro- and small enterprises (MSEs) used most often except in South Africa where terms SMEs and small, medium and micro-enterprises or SMMEs are used.

Given the differing terms, it is not surprising that there is a lack of a consistent, universal definition for small and medium enterprises. There are two approaches to defining small and medium enterprises:

• 1.

  The economic definition where enterprises must have a market share such that it does not significantly affect market prices or quantities sold nationally; or

• 2.

  The number of employees (Dewhurst & Burns, 1993).

The first approach is based on the Bolton Committee study of small firms in the United Kingdom (Bolton, 1971). The economic definition led to the statistical definition that quantifies the size of the small firm sector and allows for comparative analysis over time. The statistical definition resulted in different definitions in different industries according to number of employees, turnover, ownership and physical assets. There were several criticisms of this approach, predominantly the inconsistency between the original economic definition that stipulated that there be no formal management structure and the subsequent statistical definition that included businesses with up to 200 employees. A formal management structure is typically introduced when firms reach a size of between 10 to 20 employees (Atkinson & Meager, 1994). To overcome the criticisms and the associated complexities of the first approach, the second approach became more popular (Storey, 1994). Most definitions now classify enterprises as small or medium based on the number of employees in combination with the turnover and/or total assets. The employment thresholds, turnover and assets used in the definition of SMEs vary between countries. Even within countries there are different thresholds with manufacturing and labor-intensive sectors tending to higher thresholds than those for service and retail sectors. Furthermore, the thresholds, particularly with regard to turnover and total assets, differ significantly between developing and developed countries.