The Economical Significance Of Small And Medium Enterprises

One of the major subscribers behind the thriving and lifting economic systems is SMEs. They are different from big corporations and can be classified under micro, little and average endeavors ( Fida, 2008 ) . SMEs are efficient motor for the growing of every economic system ( Picher et al, 1996 ) and play polar function in the economic development every bit good as considered anchor for economic growing ( Rahman, 2001 ) .

The importance of this sector was non realised for decennaries by the regulating council of many states and more accent was given to big corporations for the farther growing and upliftment of the state ( Pichler et al, 1996 ) . Harmonizing to Kauffmann ( 2005 ) one of the biggest challenges faced by private sector in promising economic system is the absence of SMEs. Policymakers every bit good as investors besides showed their acute involvement towards big corporations and Multinational companies ( MNCs ) as they remain the chief mark of revenue enhancement inducements and corporate subsidies ( Newberry, 2006 ) However, imperative function played by SMEs was ne’er undervalued and has been extremely acknowledged by developed every bit good as developing states around the Earth ( Quartey, 2001 ) .

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In European counties one can easy recognize the major function played by SMEs, approximately 66 % of the population is employed by them and 98.2 % concerns are conducted under SMEs class ( Pichler et al, 1996 ) . In instance of developing states, SMEs acts as driving force for long term growing of the economic system. About 22 % of the grownup population is employed by SMEs in developing states ( Daniels, 1994 ; Daniels & A ; Ngwira 1992 ; Daniels & A ; Fisseha, 1992, Fisseha & A ; McPherson, 1991 ; Gallagher & A ; Robson, 1995 ) . Sector which contributes about 45 % of the industrial production, 40 % of the entire exports and 31 million employees in India ( Sircar, 2008 ) , 99.98 of entire endeavors, 96.2 % of entire work force in Indonesia ( Tambunan,2006 ) , every bit good as 15.5 % labour force in Ghana ( Parker et al, 1994 ) .

Stanley and Morse ( 1965 ) have distinguished SMEs into traditional and modern. Harmonizing to them traditional SMEs is the 1 who looks for the chances and form themselves harmonizing to the demands of the traditional economic system. They are characterised by merchandises and techniques, on the other side modern SMEs are those who shift themselves harmonizing to dynamic environment predominating outside their endeavors. They are flexible every bit good as usage advanced thoughts, modern scientific discipline and engineering to pull off their concern operations efficaciously and expeditiously.

Unfortunately, there is no cosmopolitan definition to characterised SMEs ( Storey, 1994 ) . This is because they differ in footings of their degree of gross revenues, assets and employment. Hallberg ( 2001 ) has defined SMEs based on figure of employees. As per the definition

Lower bound for SMEs constitutes between 5-10 employees

Normal bound for SMEs constitutes between 50-100 employees

Upper bound for SMEs constitutes between 100 -250 employees

Therefore, one can find the size of the house by looking at above mentioned factors if applied to one sector, but if applied to different sectors it could take to different consequences ( Quartey, 2001 ) .

An mixture of definitions stated above concludes that there is no typical definition for little and average endeavors. But many writers have tried to put down the inimitable features performed by SMEs by non sing the size of employees, income and assets. Tambunan ( 1965 ) highlighted several features of SMEs. These are:

They are little in size but immense in Numberss and are scattered all around the universe.

Small and medium endeavors are less of capital intensive and are more of labour intensive. Therefore, contributes to bring forth employment.

In developing states SMEs mostly performed agriculturally based activities

Most of SMEs are financed internally by their proprietors from their personal nest eggs and externally from local usurers, bargainers and providers.

SMEs sets way for the development of entrepreneurship and in developing states seen as index of entrepreneurship development.

As stated above SMEs performed alone set of features that straight or indirectly attribute many benefits to the authorities, big corporations and to local communities at big. Despite of their part the famine of concentration given to SMEs is indecent as they wield strong influence on the economic systems around the Earth ( Aharoni, 1994 ; Davis et Al, 1985 ; Drilhon and Estime, 1993 ; Lee et Al, 1999, Sum, Kow & A ; Chen, 2004 ) ) . One of the underlined parts made by SMEs is that, they give birth to big corporations, as many of them have started their journey as SMEs ( Fida, 2008 ) . Beside that they besides come up with innovate engineerings ( Lefebvre, 1993 ; Mulhern, 1995, Thornburg, 1993 ) , merchandises and services ( Dougherty, 1992 ; Karlsson and Olsson, 1998 ; Keats and Bracker, 1998, Sum, Kow & A ; Chen, 2004 ) . Harmonizing to Davis et Al ( 1985 ) and Lee et Al ( 1999 ) SMEs may possibly be the first corporation of tomorrow. As per the statistics given by universe concern council for sustainable Development ( 2004 ) more than 95 % of the SMEs autumn under Organisation for Economic Co-operation and Development ( OECD ) economic systems and they contribute about 60-70 % of employment and about 55 % of the Gross domestic merchandise. Despite being one of the nucleus sector surveies on SMEs remains limited ( Lee et al, 1999, Valsamakis and Sprague, 2001, Sum, Kow & A ; Chen, 2004 ) .

Due to premier importance received by SMEs, some writers have stated statements against SMEs as big corporations hold more advantages. Some are of an sentiment that big corporations can carry on their work efficaciously and expeditiously and have capableness to do usage of economic systems of graduated table and even they can put immense sum of money into Research and Development ( R & A ; D ) with positive productiveness effects ( Pack and Westphal, 1986 ; Pagano and Schivardi, 2001 ) . Besides, some suggests that big corporations hold stable and better quality occupations, which would hold positive impact on the degree of employment ( Rosenzweig, 1988 ; Brown et al. , 1990 ) . However, in recent old ages SMEs have come up with more figure of inventions as compared to big corporations. They are more flexible, originative and action oriented ( Carrier, 1994 ; Yun Lin, 1998 ) . Even big companies have come up with the term corporate entrepreneurship in order to work and believe like little concern ( Chittipeddi and Wallett 1991 ; Yun Lin, 1998 ) However, SMEs are ne’er treated as rival for big corporations ; they ever act as a provider to big corporations. Harmonizing to Lucas ( 1988 ) , big corporations have non merely realised the importance of SMEs, they besides have provided SMEs with contributing working environment and even researching chances for their farther growing. Consequently, absence of SMEs would ensue in deadlock, as states can last without big corporations in a less efficient mode but it ‘s difficult to conceive of one without SMEs ( Tan, 1984 )

SMEs impact on National Economy:

The of import function played by the SMEs towards corporate societal duty is frequently remained unnoticed for many decennaries due to their informal nature ( Medina Munoz and Medina Munoz, 2001 ) . However, many research workers have shown subjective and solid grounds saying the impact of SMEs towards economic development ( Newberry, 2006 ) . As a consequence, important function played by the SMEs for economic development is good recognised by the states all around the Earth ( Birch 1989 ; Storey 1994 ; Wang, Walker and Redmond Year ) . This is peculiarly true in instance of emerging economic systems, consists freshly liberated states of Eastern Europe every bit good as Asia, Latin America, Africa and the Middle East ( Kasuganti, Brush and Eunni, 2007 ; Hoskisson et al. , 2000 ; Arnold and Quelch, 1998 ) .

As per Tan ( 1984 ) the really being of the economic system is SMEs. They are considered as critical constituent in the economic growing for all underdeveloped economic systems ( Liedholm and Mead, 1999 ) . As per United Nations Industrial Development Organisation ( UNIDO ) , SMEs in developing states have critical function to play in order to liberalize, deregulate and democratize the state in such a mode that would hold positive and direct impact over the poorness and inequality. Therefore, being of vivacious private sector is of a par importance, which should represent SMEs ( Fida, 2008 ) .

Harmonizing to Mulhern and Thornburg ( 1995 ) and Yun Lin ( 1998 ) , SMEs perform as an engine for economic advancement and technological development. As the economic system transforms from agribusiness to fabrication sector it brings displacement in the function played by SMEs for their services such as works direction, selling and distribution ( Anderson,1982 ) , which merely means every individual entrepreneurial activity undertaken by the exclusive owner, spouse or the director of SMEs has direct impact on the economic growing of the state ( van Stel et al. , 2005 ) through creative activity of occupations, supplies to big corporations ( Singh, Garg and Deshmukh, 2008 ) or from the shiping advanced and originative merchandises and services ( Barakat, 2001 ; Wong et al. , 2005 ; Baumol, 2004 ; Acs and Audretsch, 2003 ) . They besides act as an import replacement and manage inauspicious balance of payments through direct exports ( Hewaliyanage, 2001 ; Aruna, 2003 ) . UNIDO along with recent organic structures of research have stated of import function played by SMEs towards the development of the economic system these are:

They act as an providers to big corporations and transnational companies

( Luetkenhorst, 2004 ; Newberry, 2006 )

They act as a anchor for developing states, particularly those who are transforming from passage to industrial and service oriented economic system.

They are more flexible, originative and advanced, therefore come out with discovery merchandises and engineerings ( Raynard and Forstater, 2002 ; Newberry, 2006 )

They offer all above mentioned benefits to developing states despite of their little presence ( Patricoff and Sunderland, 2005, Newberry, 2006 ) .

Consequently, part made by SMEs is non merely limited to domestic economic systems ; in fact they have been recognised on a planetary platform ( Bernard and Acs, 1999 ; UNCTAD 1993, 1998 ; Oviatt and Mc-dougall, 1995, 1998 ; McDougall 1989 ; Fujita 1995a, 1995b ; Admiraal 1996 and Buckley, Campos, and Mirza 1997 ) ( Name of the book for mentions little and average sized endeavors in planetary economic system ) . Even authoritiess and administrations around the Earth are advancing and back uping SMEs as a base for economic growing and occupation creative activity ( UNEP FI African Task Force, 2007 ; Abdullah & A ; bin Bakar 2000 ) . World Bank Group with support from other international assistance bureaus is supplying fiscal aid to SMEs in developing states worldwide to speed up growing and cut down poorness ( World Bank, 2002 ) .

As per Smallbone ( 1988 ) there is barely any beam of argument that SMEs constitutes more occupations and bring forth economic growing much faster than big corporations. At Macro degree SMEs have created great figure of occupations and have made important sum to part towards GDP ( Peacock, 2004 ) . WBCSD ( 2004 ) revealed that over 90 % of the SMEs in developing states are working outside the agribusiness sector and bring forthing a major portion of gross domestic merchandise. Developing states like Africa holds more than 90 % of the concern, 50 % of the GDP and bring forth 63 % of the employment under SMEs sector ( UNEP FI African Task Force, 2007 ) , same in instance of Morocco, where 38 % of the production, 46 % of the employment and 30 % of the exports are made by SMEs ( WBCSD, 2004 ) .

At micro degree, SMEs operates as bedrock for economic growing and community Restoration. After the industrial revolution many big houses in 1980s restructured their concern operations and gave birth to retrenchment, outsourcing and occupation exportation, therefore resulted in layoffs. It is mostly due the growing of SMEs that employees who are laid off by the big houses still have been engrossed back to work ( Storey 1994 ; Frank & A ; Landstrom, 1998 ) . Therefore, employment provides income to the community, which in bends thrusts wealth and farther creative activity of employment ( Walker & A ; Webster 2004 ) . Furthermore, part made by SMEs towards economic system mostly depends upon the reenforcing kineticss. As per Kotelnikov ( 2007 ) SMEs creative activity and devastation have direct impact on the economic growing and invention. Creation rate will be high if profitable chances exist in the market, which in bends have direct impact on the occupation creative activity every bit good as on per capita income. Therefore, ingestion forms will alter as people become wealthier, which consecutively unfastened new market chances that will pull more SMEs and will ensue in economic growing on the other side creative activity of SMEs consequence addition in cognition, which enables SMEs to capture market portion with sensible sum of net incomes once more more people will be attracted to get down up their ain endeavor to gaining control or to come up with new inventions.

Due to the premier importance of SMEs in today ‘s universe, many of the states, peculiarly flourishing and freshly industrialising economic systems such as Singapore, Malaysia, South Korea and Mexico are paying heavy attending for the development and upliftment of the sector ( Sum, Kow & A ; Chen, 2004 ) . In add-on, some of the Asiatic states like Singapore, Taiwan and South Korea have registered their names for their out of the ordinary public presentation in footings of their economic growing. As a affair of fact some of these states have shifted their psyche dependance from Foreign Direct Investment ( FDI ) to self dependent endeavors ( Lee et al, 1999 ) . Therefore, SMEs exercise strong influence on the economic systems for the employment and gross coevals ( Aharoni, 1994 ; Sum, Kow & A ; Chen, 2004 ) .

SMEs in Singapore:

Definition of SMEs in Singapore: As mentioned before there is no cosmopolitan definition for SMEs. Many writers have used different standards to portrait SMEs into one individual image but they all came up with confusing statements ; this is because of the fact that states have stipulated standards to specify SMEs based on local context, which is rather different from other states ( Geok and Wang, 1996 ) . In instance of Singapore, there was no official definition boulder clay 1963 to exemplify SMEs. It was foremost defined after the constitution of Light Industries Services ( LIS ) by Economic Development Board ( EDB ) with particular assistance from United Nations particular fund and international labor office ( Tan, 1984 ) . In the twelvemonth ( 1977 ) Tan defined SMEs as one who employs no more than 50 workers per displacement with the net investing of SGD 2, 50,000 or less. However, the definition was found unsuitable for developing states like Hong Kong, Singapore and South Korea. Therefore, Fong ( 1971 ) implemented definition given by Staley and Morse, which states SMEs, should consist less than 100 employees. Contemporary SMEs 21 defines SMEs as one who should consist 50 % of local equity, assets non more than 15 million SGD and employ non more than 200 people if engaged in commercialism or service sector ( Hew and Wee Nee, 2004 ) .

Current State of Small and Medium Enterprises in Singapore: In the twelvemonth 2007, Singapore economic system constitutes 1, 60,000 of the entire enterprises out of which 99 % autumn under SMEs class and contribute approximately 60 % of the entire employment.

Percentage of constitutions did n’t divert much to the policy shapers or the Spring Board off Singapore, because from the last five old ages ( 2003-2007 ) portion of SMEs fluctuates near to 99 % .

However, value added part had increased bit by bit from 46 % in 2003 to 49 % in 2007 merely 2 % less than Non-SMEs, which itself it ‘s a singular part made by SMEs in Singapore and illustrates their critical function in the economic system ( Singapore Department of Statistics, 2009 ; Straits times, 2009 ) .

Industry profile by endeavor Size: most of the endeavors in Singapore were engaged in three of import sectors of the economic system, which all together holds half of the value add-on by SMEs. Share comprise by these sectors are:

Wholesale & A ; Retail trade ( 32 % )

Real estate and concern service ( 19 % )

Community, Social and Personal Service ( 14 % )

SMEs distribution

( Singapore Department of Statistics, 2009 )

Note: MFG: Fabrication ; WR: sweeping and Retail trade ; TP: conveyance and storage service ; HC: adjustment and Food and Beverage Service ; IC: information and Communication ; FN: Financial Service ; RB: Real Estate and Business Services ; PH: Community Social and Personal Services ; OTH: other goods bring forthing industries.

Contribution made by SMEs towards service sector: In the twelvemonth 2007, entire figure of SMEs engaged in service sector reached to1, 37,743, which is about 99.53 % of the entire endeavors and the entire value added by them is about 79042 1000000s, which is about 59.55 % of the entire value generated by the endeavors in service sector.

The two major industries behind the value added by the service sector are sweeping and retail trade and Transportation and storage services, which consist about 32.45 % of the entire value added by all the endeavors resides in Singapore.

Contribution made by SMEs towards fabricating sector: one can non extinguish the function played by the SMEs engaged in fabricating industry all over the universe. In, Singapore SMEs engaged in fabrication activities constitute little per centum of portion ( 5 % ) but holds 17 % of value add-on towards the growing of the economic system. However, they contribute merely approximately 25 % of the direct exports ( Singapore Department of Statistics, 2009 ) .

Role and Importance of SMEs in Singapore:

In Singapore, SMEs play of import function in the economic growing and employment coevals and regarded as cardinal beginning of Entrepreneurship and invention ( Ngo, 2002 ) . Most of SMEs in Singapore are registered under exclusive owner ship, followed by partnerships and private companies. They are immense in Numberss and have engaged themselves in every concern carried out in Singapore. Though, Service and commercialism industry have remained one of the targeted countries for SMEs ( Leong, Yon, Kee and Tan, 2001 ) .

Singapore economic system has registered export led growing from the last three decennaries ; much of the part for the same is made by the foreign MNCs. However, part made by the SMEs can non be undermined. Pulling on their strengths in invention and flexibleness they act as a provider for foreign MNCs, which straight impacts Singapore position as a planetary trade hub as an attractive location for foreign investing ( Ngo, 2002 ) .

Harmonizing to Wee ( 2004 ) , SMEs have played polar function in developing Singapore as a planetary hub in oil and gas equipment. Singapore is one among three biggest maker of oil and gas equipment, besides Houston in the US and Aberdeen in Scotland. Growth made by this industry is singular as Singapore has no oil and gas Fieldss. Industry comprises more than 100 oil and gas equipment makers out of which 40 % are headed under SME sector. Furthermore, these endeavors have developed competency to bring forth oil and gas equipment as per the specifications to their clients. Therefore, growing registered by SMEs would pull foreign companies to bind up with endeavors engaged in oil and gas equipment fabrication, which would straight impact position of Singapore as a planetary trade hub.

Harmonizing to Aggarwal ( 2001 ) major subscriber behind the success of Singapore economic advancement is good built substructure and adept SMEs. Singapore ranked 2nd as one o the most competitory states around the universe for the fifth consecutive twelvemonth. For which recognition goes to the pool of efficient SMEs for their aid provided to MNCs in footings of their merchandise design, high quality stuffs and back uping services. As addressed by Yungtu ( 2001 ) , china ‘s Vice president of foreign Trade and European Cooperation, SMEs in Singapore, act as a affair between states around the Earth. He emphasised that the nexus between China and the European Union and United States can research immense sum of concern chances, which would be possible if, SMEs act as a jobbers between these states that in bends would help Singapore to go a Global Trade Hub. Furthermore, due to acquaintance between the civilizations, SMEs in Singapore can play critical function to take Chinese SMEs to international sphere and can besides function China as a provider for goods and services in a field of telecommunications, jurisprudence, accounting and transportation and direction.

Shanmugaratnam ( 2002 ) addressed that presence of strong SMEs sector would enable Singapore, to pull foreign houses and supply them with a springboard into the part, which would enable local SMEs to raise fund and to widen their planetary being. Therefore, handiness of cognition and proficient know-how from foreign houses would ease local endeavor to heighten their competitory strengths to develop Singapore, as a planetary trade hub. Furthermore, guru of direction Michael Porter has concluded in his recent visit to Singapore, that in order to stay competitory SMEs have to work on their effectivity and efficiency as to function themselves as major subscriber towards economic growing in Singapore ( choong, 2001 ) . SMEs in Singapore comprise 99 % of the entire constitution, histories for about half of the GDP ( hypertext transfer protocol: // % 20and % 20Events/20070827164533.aspx? getPagetype=21 ) and supply employment to 60 % of the entire work force ( Singapore section of statistics, 2009 ) .

So far foreign MNCs have played major function in elating Singapore economic system. However, Asiatic fiscal crisis in 1997 and economic lag in the twelvemonth 2001have highlighted the demand of SMEs in order to condensed dependance on the foreign assistance and to make self sustained economic system ( Hew and Nee, 2004 ) . As per Entrepreneurial Development Corporation ( ENDEC ) ( 1989 ) SMEs has to surpass in order to keep Singapore, economic growing. As a consequence authorities of Singapore has commenced SME21 a 10 twelvemonth strategic program to develop and help SMEs in such a mode that Singapore economic system should dwell of effervescent and flexible endeavors to heighten its planetary fight and economic growing. ( ) . Despite, being a major subscriber towards the economic growing of Singapore, SMEs are still confronting challenges, which act as a restraint towards developing Singapore, as a planetary trade hub.



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