SMEs are considered to be the real engines of economic development of any economy. Representing 99% of businesses within the European Union, SMEs have established themselves as the main driver of economic development. As it is commonly known that the big opportunities are born from knowing how to take advantage of the small ones.
With the arrival of the Economic Crisis, many active workers see their employment disappear and their salary evaporated overnight. However, it becomes more crucial with a subsidy for unemployment that has become something simply anecdotal, because with these amounts they perceive it is impossible to support a family.
A small change can generate great results and this has been the case of SMEs worldwide. According to Randstad, a Spanish company dedicated to business consulting, 33% of the global Gross Domestic Product comes from SMEs.
This is due to several factors such as its flexibility and its ability to adapt to market transformations. Unlike large companies, SMEs promote individualization versus standardization.
However, this does not mean that there is no relationship between both types of companies. SMEs have become an auxiliary fabric that allows large companies to break up their business model by outsourcing, maximizing time and reducing costs.
What is an SME? The SMEs are companies that are defined by the reduced number of employees, turnover (amount of capital purchased) and balances (Statement of assets and liabilities of the company).
According to the legislation of the European Commission within the category of SMEs are medium, small and micro enterprises. The medians are those that have between 50 and 249 workers, with a turnover or maximum balance of 50 million Euros.
On the other hand, small companies are those that have between 10 and 49 workers and have a volume or balance of maximum of 10 million Euros. Finally, microenterprises are those that have less than 10 employees and a maximum volume or balance of 2 million Euros.
Importance of SMEs: Apart from accounting for 33% of world GDP, SMEs make up 99% of the European Union’s businesses, becoming the pillar of its economy due to the high incentives for entrepreneurship and innovation.
This has been a model that has allowed several countries to face various economic crises as it stimulates domestic consumption and generates a large part of formal employment. For this reason, countries should focus on incentivizing this sector with accessible financing mechanisms.
Advantages and disadvantages of SMEs versus large companies: The model of SMEs allows them to be much closer with customers as they can know more closely the needs and offer a personalized product.
This closeness allows companies to detect and take advantage of smaller niches in the market more easily. They are also very flexible companies because of their size and reduced structure that allows them to adapt to changes in marking.
On the other hand, it is easier to link the staff with the company’s objectives. However, they are companies that, due to their small financial muscle, are affected in the competitiveness of their prices.
Large companies find it easier to adjust the prices of their products because of their economies of scale, while SMEs, which rely mostly on external financing, are limited in this regard.
Due to their small size, it is a challenge to increase their client base, since they do not have massive dissemination platforms like large companies. Once again it is verified that it is not necessary to be the biggest to generate significant changes that generate impact.
Kenny Perry is a digital entrepreneur and runs 2 successful businesses in Canada. He also has 5 years experience in Ecommerce and Startups.