Sme Sectors Benefits To The Economy

The SME sector is said to make a significant contribution to employment; evaluate this claim by drawing on the literature, and discuss what other contributions are made to the economy by the SME sector.

Gov website says that for the purposes of SME 2006 statistics an SME is defined as any business that has less than 250 employees.

SME: small and medium-sized enterprises are defined by the European Commission as independent enterprises that have fewer than 250 employees, and an annual turnover not exceeding Ð"‚Ð'Ј34 million or a balance-sheet total not exceeding Ð"‚Ð'Ј29 million (new Recommendation 2003/361/EC adopted by commission on 6 May 2003). This revised definition came into force on 1 January 2005. Within this definition micro enterprises are categorised as having fewer than 10 employees, annual turnover/ balance sheet not exceeding Ð"‚Ð'Ј1.4 million and small enterprises as fewer than 50 employees, annual turnover/balance sheet not exceeding Ð"‚Ð'Ј6.8 million. Source: SBE

Small Business Europe http://www.smallbusinesseurope.org/en/basic210.html

http://www.springerlink.com/content/r003lh60015167j6/?p=5de28f1be3b341c298f70561ce8e9e1f&pi=4

http://web.ebscohost.com/ehost/pdf?vid=12&hid=116&sid=1f0ab11e-81b3-48b1-93e4-3f334a1dccaa%40sessionmgr103

"Entrepreneurship and innovation are central the creative process in the economy and to promoting growth, increasing productively and creating jobs" (DTI, 1998b:14-15) REF REF

Exports minus imports Ð'- wealth of information available on internationalisation of the SME sector Ð'- this is good for the economy because it boosts aggregate demand figure.

Innovation is good for the economy as it can lead to advancements in efficiency which boosts all components of aggregate demand. Innovation is also good for the economy as it can act as a stimulus for change. Innovation is the

Schumpeter, Joseph (1934). The Theory of Economic Development

Joseph Schumpeter defined economic innovation in 1934:[citation needed]

1. The introduction of a new good Ð'--that is one with which consumers are not yet familiarÐ'--or of a new quality of a good.

2. The introduction of a new method of production, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.

3. The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.

4. The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.

5. The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position

Boosting aggregate demand is beneficial to the economy as it is a stimulus for economic growth. Economic growth is demonstrated by an increase in the gross domestic product of a nation.

Small and medium sized enterprises are not smaller versions of large companies, but mainly due to their size they tend to interact differently with their environment (Shuman & Seeger, 1986) The Theory of Strategic Management in Smaller Rapid Growth Firms. American Journal of Small Business P7-19)

To answer the question, I must first display what I understand the SME sector to be. The Small and Medium sized Enterprise sector is concerned with small and medium sized business', many of whom are new to the market. It has distinctly different characteristics to that of any large business or multinational. This was confirmed by Welsh and White who stated "a small business is not a little big business". The main difference I have noticed between small and big business is the separation of ownership and management. Most small business' are owned and run by the same person. This can often be a contributing factor in any troubles the firm may have as it is difficult to detach oneself from the firm to get a feel for the bigger picture, whereas managers who have no vested interest in the success of the venture other than protecting their job often see things differently. As seen many times on venture creation programmes such as Dragons Den, it is often difficult to find faults with a product or service that is your creation and an objective view is needed. Big business' also experience the benefits of economies of scale due to the amount of products they consume, whereas this is rarely the case in the SME sector. A basic example of this is buying a mars bar from a corner shop, you will pay the recommended retail price, whereas if you are buying 200 mars bars, you would expect to get them for a reduced wholesale price.

One way to look at how the SME sector benefits the economy is to look at aggregate demand. Aggregate demand is an indicator of the total demand for goods and services in the economy. It is comprised of four elements. The equation for aggregate demand is AD = C + I + G + (X Ð'- M). In this equation, C is the consumption. This means the amount of goods and services that are consumed by the nation, and is directly affected by the amount of disposable income available. I is the investment, which includes private investment such as buying shares or borrowing money from the bank as well as business investment, including foreign direct investment (FDI). G represents government investment. X minus M is the final component of aggregate demand and is the most relevant to my question. X minus M represents the total after the amount of imports and subtracted from the amount of exports. This is especially important to the SME sector because In addition to (NEED TO RE_ORDER THIS, ALRIGHT CONTENT THOUGH) the creation of jobs, Smallbone and Welter stated that SMEs also "contribute to the development of a supply base to supply the needs of large firms" This is crucial to the economy because without a reliable supply chain, the big businesses would cease to