The term SME is used in the European Union and other international organizations to designate small to medium enterprises -- companies that have a limited, specified number of employees. The United States typically uses the term SMB, for small to medium business. Classification as an SME is based on the number of employees, generally between 10 and 250 to 500, depending on the country in which the business is set up. All SMEs share common characteristics regardless of industry and local markets.
Dependence on Few Employees
Many SME companies are quite small and have only a very few employees. This limited staff is required to complete all necessary tasks including innovation, production, marketing, sales and accounting for the entire business; for example, the owner of the business may also be the manager who oversees all the areas of the company. This can be a disadvantage if employees do not have the required skill sets to perform multiple tasks well; however, this type of business structure promotes long-term stability rather than focusing on short-term results.
Most SMEs focus on a small number of products and services; this limited focus lets such companies establish strong relationships with their business partners, which in turn provides stability for the SME. An SME typically makes necessary changes to its services or products to suit clients' needs; the downside of this is that the SME relies very heavily on existing partnerships and may suffer financially if a relationship is terminated.
The SME is a simple business structure, which allows the company to be very flexible and make necessary changes quickly without such requirements as addressing boardmembers or stockholders for approval. This flexibility, however, does not necessarily mean the company is observing local or national regulations that a board or legal team of a larger organization would review prior to putting such changes into place.
The small size of the business can be an advantage when it comes to specialization and filling niche markets with products. However, size can be a disadvantage when it comes to obtaining financing for the business. Many SMEs rely on personal assets of owners and management to finance the company. Limited funds also effect marketing and the ability to reach new markets with their products due to budget limitations..
- TongRo Images/TongRo Images/Getty Images