Small and Medium E nterprises (SME)

Small and Medium enterprises 

Enterprise has different meanings. Firstly, it means starting and running a business; it can also mean a set of personal qualities that make their holders more ready than others to seek their solutions to economic or other problems (Bridge et al , 2003). 

There is no universally accepted definition of SME. Different countries use various measures of size depending on their level of development. The commonly used yardsticks by small and medium enterprises are total number of employees, total investment and sales turnover (URT, 2003).

 Raju et al (2011) argues that in USA definition of SME is based on annual revenue of USD 13 Million or less with 500 or fewer employees while in Europe it is based on 250 employees or less and with revenue not greater than Euro 50 Million.

 In Tanzania, categories of small and medium enterprises are shown in the table below:

Category Employees Capital investment in machinery (Tshs)

CATEGOTY              CAPITAL INVESTMENT                   EMPLOYEES                                                                                                                _______________________________________________________________________

Micro-enterprise              Up to 5 million                        1- 4 employees                                                      

Small enterprise                       5-200 million                           5- 49                                                               

Medium enterprise                  200-800 million                        50-99                                                    

Large enterprise                      Over 800 million                    100+ Employees                                                                                                                                                                               ______________________________________________________________________

Source: URT, SME Development Policy, Apr. 2003, p. 5.

Significance of SME to the economy of the country

Small and medium enterprises are a big source of employment opportunities and wealth creation (Sata, 2004). In Tanzania, SMEs play a big role in tax revenue and country’s economic peace and stability. Moreover, it contributes 30% of the country’s GDP and it is a second employer after agriculture. 

It employs 5 million people out of county’s 20 million people labor force. It is a sector that contributes to county’s public private partnership initiatives of Tanzania’s economic growth since 2002 (Tanzania Daily News, 2012).

Moreover, healthy SME sector reduces a level of income poverty as well as black market activities (World Bank, 2011). Additionally, Dejardin (2000) argued that the more SMEs there are in the economy the faster the economy grow faster.

Difference between SMEs and Large enterprises

Raju et al (2011) argued that SMEs are more likely to have simple organization structure than larger organisation. Moreover, SMEs are likely to use formal planning procedures, more personal contact with their customers, they tend to compete in narrow market niche which could facilitate intelligence generation, more innovative and have greater propensity for action than large firms. 

Further to that, flexibility, adaptability and closeness to customers are attributes that facilitate higher degree of customer care among SMEs than larger organizations. Additionally, ability to introduce new products is a key factor in SMEs success.