Since the 1960s to date, small and medium sized enterprises (SMEs) have been given due recognitions especially in the developed nations for playing very important roles towards fostering accelerated economic growth, development and stability within several economies (Yitzhaki, 2006).
Over the last few decades, the contributions of the SMEs sector, the development of the largest economies in the world have beamed the searchlight on the uniqueness of the SMEs; and this have succeeded in overruling previously held views that SMEs were only ?miniature versions of larger companies (Al-Shaikh 1998; Gaskill et al. 1993).
For instance, recent studies conducted by United Nations Industrial Development Organization (UNIDO) concur that SMEs are: labour-intensive, providing more opportunities for low-skilled workers, correlated with lower income distribution inequality, necessary for agriculture-dependent nations transitioning to an industrial-2 and service-oriented economy, excellent sites for innovation and sustainable initiatives due to their inherent flexibility and risk-taking ability (Patricoff & Sunderland, 2005).
Small and medium enterprises play predominant roles in the economies of most of the developed and developing countries, especially in Lebanon, and impact significantly on employment creation, income distribution, and dispersion of industries.
The importance of the SME sector and the informal sector is acknowledged internationally, defining SMEs as challenging task, and then every country has its own definition.
There is no single, uniformly accepted definition of a small firm (Storey, 1994). Firms differ in their levels of capitalization, sales and employment. Hence, definitions which employ measures of size (e.g. number of employees, turnover, profitability and net worth) when applied to one sector might lead to all firms being classified as small, while the same size definition when applied to a different sector might lead to a different result.
The Lebanese economy faces a complexity of problems, which are rooted in socio-economic structure and history of violence and injustice. Hence the low agricultural productivity, famine and frequent droughts; high population growth, low human resource development, high transport costs and environmental degradation contribute tremendously to the structural problems which led to huge macroeconomic difficulties.
Besides, social problems, the human resource base and the general productive apparatus and systems, were also affected by the war .Hence the destruction of the social fabric, the loss of people’s confidence and trust in each other increase more the poverty and vulnerability of the Lebanese people especially in rural areas.
In this context, the Government’s ultimate objective is to create a new social, political and economic framework that must address the problems of the country. The government of Lebanon must develop a policy that promote the creation of alternative ways of attaining high incomes, employment, a policy which encourages entrepreneurs to contribute more positively to economic development in the country. Entrepreneurs are encouraged in implementing small and medium enterprises which play a paramount role on economic development
The definitions of SMEs
Small and medium-sized enterprises (SMEs) are a very heterogeneous group. SMEs are found in a wide array of business activities, ranging from the single artisan producing agricultural implements for the village market, the coffee shop at the corner, the internet café in a small town to a small sophisticated engineering or software firm selling in overseas markets and a medium-sized automotive parts manufacturer selling to multinational automakers in the domestic and foreign markets.
The owners may or may not be poor; the firms operate in very different markets (urban, rural, local, national, regional and international); embody different levels of skills, capital, sophistication and growth orientation, and may be in the formal or the informal economy. The abbreviation “SME” is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization . Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors
In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue and number of employees (which in some circumstances may be as high as 1500, although the cap is typically 500). Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices.
In July 2011, the European Union Commission said it would open a consultation on the definition of SMEs in 2012. In Europe, there are three broad parameters which define SMEs:
• Micro-entities are companies with up to 10 employees
• Small companies employ up to 50 workers
• Medium-sized enterprises have up to 250 employees.
The European definition of SME follows: “The category of micro, small and medium-sized enterprises is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.
EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labeled programmed.
According to German economist Hans-Heinrich Bass, “empirical research on SME as well as policies to promote SME has a long tradition in West Germany, dating back into the 19th century. Until the mid-20th century most researchers considered SMEs as an impediment to further economic development and SME policies were thus designed in the framework of social policies.
Only the ordo-liberal school, the founding fathers of Germany’s social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs.
Canadian Industry defines a small business as one with fewer than 100 employees (if the business is a goods-producing one) or fewer than 50 employees (if the business is service-based), and a medium-sized business as one with fewer than 500 employees. While Industry Canada may have screening criteria based on SME qualification, such as eligibility for subsidies, it is not the tax authority in Canada.
Corporations in Canada are generally taxed at 29% federally. Canadian Controlled private corporations receive a 17% reduction in the tax rate on taxable income from active businesses up to $500,000. This small business deduction is reduced for corporations whose taxable capital exceeding $10M, and is completely eliminated for corporations whose taxable capital exceeds $15M.
In China, the definition of a small-medium enterprise is most commonly based on the number of employees that usually with fewer than 500 employees; In China, the definition of an SME is complex, which depends on the industry category and based on the number of employees, annual revenue and total assets, and this criteria on small and medium-sized enterprises are based on the SME Promotion Law of China (2003), which sets the guideline for classifying SME’s.
1. The relevant size of the SMEs is significantly smaller than the large and listed companies in China due to the size of their capital stock, credit allowance.
2. After the reformations of government legislations in 2005 for the favor of SMEs in China, nowadays, SMEs have been operating in different branches of businesses such as manufacturing, services, construction, transport and retailing. This support has helped the emergence of many more SMEs in China which means there is even greater demand for financing all these SMEs
3. Small enterprises also make up huge proportion of SMEs in China which usually lack the degree of specialization and cooperation in the production areas. This is mainly due to the fact that there is lack of government legislations that supports and shows guidelines for SMEs in China.
4. The main market for SMEs is the domestic market of China which is due to the fact that SMEs cannot cope with fierce competition in the international markets or does not have advantage over foreign-invested companies with high-tech. Due to shortage of funds, most SMEs operate mainly in labour-intensive small and medium industries as the technological progress is slow for them.