Defining SMEs and Identifying their features

Governmental committee findings and research schemes have different approaches about the definition and the characteristics of small and medium businesses. Regarding performance of SMEs Westhead & Storey have mentioned “the small firm is not a scaled down’ version of a large firm. In short, theories relating to SMEs must consider the motivations, constraints and uncertainties facing smaller firms and recognize that these differ from those facing large firms”.

There are so many criteria either qualitative or quantitative to decide what form an enterprise is. In case of quantitative measures; staffing level, turnover and asset can be mentioned while others carry qualitative approach.

Not only there is a large number of prospects regarding the features of SMEs but also governmental viewpoints conduct a numerous of SMEs’ definitions depending on the county being considered. For example the report which has been issued by Wiltshire Committee in Australia has shown this flexible definition of any SMEs (Meredith, 1994) “Small business is one in which one or two persons are required to make all of the critical decisions (such as finance, accounting, personnel, inventory, production, servicing, marketing and selling decisions) without the aid of internal (employed) specialists and with owners only having specific knowledge in one or two functional areas of management.”

United states pay more attention to the position of organization within the overall marketplace. According to United States Small Business Administration (SBA) SMEs have the following definition “An SME shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation.”

On the other hand the quantitative attitude has been emerged in United Kingdom, defining an SME as: “Having fewer than 50 employees and is not a subsidiary of any other company.”

Small and medium enterprises have their own characteristics and applying large-scaled companies’ features to SMEs is not suitable.

The studies which have done by Reynolds et al., (1994), Murphy (1996), Bunker & MacGregor (2000) show differences in management style between large business and SMEs. These studies have illustrated SMEs tend to have a small management team rather than a group of people (often prefer to have one or two individuals), they are strictly monitored by owner of the firm and they have little control over their environment and responsibilities and the wish they could be independent.

“Differences between SMEs and larger firms are magnified even more when they move toward IT (Bunker and MacGregor 2000)”.

“Khan and khan (1992) mentioned that SMEs prefer not to run complicated applications on their computers”.

According to a general point of view of literature, a summary of features of SMEs has been reported by MacGregor and Vrazalic (2004) which is illustrated in Table. SMEs’ characteristics can be categorized either internal or external. Internal features embrace management, decision making and planning processes, and acquisition of resources on the other hand external characteristics are associated to the market (products/services and customers) and external environment.

ID

Characteristics of SMEs

Reported by

INT1

SMEs have small and centralized management with a short range perspective.

Reynolds et al.. (1994)

Bunker &MacGregor(2002)

Welsh &white (1981)

INT2

SMEs have poor management skills.

Blili & Raymond (1993)

INT3

SMEs have informal and inadequate planning and record keeping processes.

Reynolds et al., (1994)

Tetteh & Burn (2001)

Miller & Besser (2000)

Rotch (1981)

INT4

SMEs exhibit a strong desire for independence and avoid business ventures which impinge on their independence.

Dennis (2000)

Reynolds et al., (1994)

INT5

The SMEs owner(s) has/have a strong influence in the decision making process

Reynolds et al., (1994)

Murphy (1996) Munker & MacGregor (2000)

INT6

SMEs owners often withhold information from colleagues.

Dennis (2000)

INT7

The decision making process in SMEs is intuitive, rather than bases on detailed planning and exhaustive study.

Reynolds et al.. (1994)

Bunker & MacGregor

(2000)

INT8

Intrusion of family values and concerns in decision making processes.

Dennis (2000)

Bunker & MacGregor (2000)

ID

Characteristics of SMEs

Reported by

INT9

SMEs are more intent on improving day-to-day procedures SMEs face difficulties obtaining finance and other resources, and as a result have fewer resources.

MacGregor et al., (1998)

Cragg & King (1993)

Welsh & White (1981)

Gaskill & Gibbs (1994)

Reynolds et al. (1994)

Blili & Raymond (1993)

INT 10

SMEs are more reluctant to spend on information technology and therefore have limited use of technology.

Walczuch et al. (2000)

Dennis (2000)

MacGregor & Bunker (1996)

Poon & Swatman (1997)

Abell & Limm (1996)

INT11

SMEs have a lack of technical knowledge and specialist staff and provide little IT training for staff.

Martin & Matlay (2001)

Cragg & King (1993)

Bunker & MacGregor (2000)

Reynolds et al., (1994)

Blili & Raymond (1993)

Table 1: Internal characteristics of SMEs – categorized by MacGregor and Vrazalic (2004)

ID

Characteristics of SMEs

Reported by

EXT 1

SMEs have a narrow product/service range.

Bunker & MacGregor (2000)

Reynolds et al. (1994)

EXT2

SMEs have a limited share of the market (often confined toward a niche market) and therefore heavily rely on few customer.

Hadjimonolis (1999)

Lawrence (1997)

Quayle (2002)

Reynolds et al. (1994)

EXT3

SMEs are product oriented, while large businesses are more customer oriented.

Reynolds et al. (1994)

Bunker & MacGregor (2000)

MacGregor et al(1998)

EXT4

SMEs are not interested in large shares of the market.

Reynolds et al. (1994)

MacGregor et al. (1998)

EXT5

SMEs are unable to compete with their larger counterparts.

Lawrence (1997)

EXT6

SMEs have lower control over their external environment than larger businesses and therefore face more uncertainty.

Westhead & Storey (1996)

Hill & Stewart(2000)

EXT7

SMEs face more risks than large businesses because the failure rates of SMEs are higher.

Brigham & Smith (1967)

Delone (1988)

Cochran (1981)

Table 2: External characteristics of SMEs – categorized by MacGregor and Vrazalic (2004)

Obviously, the most significant SMEs’ feature which clarifies border between small businesses and their larger counterpart is “uncertainty” the characteristic which has been come up by Westhead & Storey (1996) and Hill & Stewart (2000). It takes root in lacking control over external environment and this feature shows differences between large enterprises and their small counterparts.

Electronic Commerce

As the term electronic commerce is still an emerging concept, the definition varies between different contexts. Generally electronic commerce refers to the replacement of physical economic processes with electronic ones and the creation of new models for collaboration among trading partners. According to Tuunainen (1999) “E-commerce consists of transaction oriented internet base functions (e.g. on-line catalogs, purchasing and payment).For online retail selling, the term e-tailing is sometimes used.”

There are a numerous studies regarding E-commerce so there are so many definitions for E-commerce.Turban et al. (2002) have expressed this definition as “an emerging concept that describes the process of buying, selling or exchanging services and information via computer networks.”

Cummings and LeMaire (2005) described the meaning of E-commerce as “an online system that allows customers to perform transactions over Internet.” This process consists of whole business steps from ordering to delivery.

Raymond (2001) specified E-commerce as “functions of information exchange and commercial transaction support that operate on telecommunications networks linking business partners (typically customers and suppliers).”

Another definition which has been mentioned by MacGregor and Vrazalic (2004) is one of which presented by Damanpour (2001) as “any ‘net’ business activity that transforms internal and external relationships to create value and exploit market opportunities driven by new rules of the connected economy.”

Zwass (1996) identified another definition for E-commerce as “sharing of business information, maintaining business relationships and conducting business transactions by means of telecommunications networks”.

An e-commerce and development report by the United Nations Conference on Trade and Development (UNCTAD) anticipated total value of world e-commerce in 2002 at about US$2.3 trillion, and it came to US$12.8 trillion by 2006 (E-commerce and Development Report, 2002) so in the words of Kofi Annan, the former Secretary-General of the United Nations: “E-commerce is one of the most visible examples of the way in which information and communication technologies (ICT) can contribute to economic growth. It helps countries improve trade efficiency and facilitates the integration of developing countries into the global economy. It allows businesses become more competitive. And it provides jobs, thereby creating wealth” (E-commerce and Development Report, 2002).