Defining the SME: A Multi-Perspective Investigation

The fact that small- and medium-sized enterprises have always been the backbone of the world economy is well known, and has been regularly confirmed at every census. In fact, according to the OECD, small- and medium-sized enterprises (SMEs) represent 99% of all businesses, generate about 60% of employment and produce between 50% and 60% of value added in the OECD area and are the main drivers of productivity in many regions and cities (OECD 2019). However, fewer people are aware of the difficulty economists have in coming up with a precise definition of an “SME” which clearly establishes the difference between a “small- or medium-sized” and a “large” enterprise (Gibson and Van der Vaart 2008). Although the concept may appear self-explanatory, in fact its application in practice can be quite complicated when factors above and beyond mere size are considered and an archetype that defines an “SME” in organisational and functional terms is sought (Hashim and Abdullah 2000). To overcome these problems, the literature has provided a large num- ber of parameters for measuring every aspect of SMEs (Loecher 2000): these parameters are both quantitative, such as turnover or invested capi- tal, and qualitative, such as the complexity of the organisational structure or its degree of overlap with the owner family. Quantitative parameters provide a definition of a “small- and medium-sized enterprise” which may be open to improvement but is still clear, easily measurable and objective in its results. With qualitative variables, the definition of a “small- and medium-sized enterprise” becomes more comprehensive and the results are more accurate in identifying the phenomenon, although the boundaries between the firms to be included and excluded become more blurred, due to the high degree of subjectivity involved (see Bolton Report 1971). Therefore, there is no one solution suitable for all purposes. Obviously, the needs for certainty and verifiability intrinsic to legislation require the use in this context of quantitative solutions which are easily to calculate, and, above all, objectively applicable. On the other hand, research which sets out to study the behaviours of an economic phenomenon needs to define it by means of shared characteristics and common behaviours, and due to their simplicity, quantitative limits alone are unable to achieve this (Carter and Jones-Evans 2006). It therefore seems appropriate to cover both approaches, since this will enable us both to distinguish between a “small- and medium-sized” and a “large” enterprise and to analyse the distinctive features companies defined as SMEs are expected to share. Below, we will present the definitions of SME in both legal and business approach terms, in the awareness that, in view of their breadth, the application of quantitative criteria will present us with a very heterogeneous set of businesses, and that therefore it is only by identifying recurrent qualitative characteristics that we can define this category’s shared organisational and management features.