Small to Medium Enterprises (SMEs)

Economic contribution

- An economy is a system used to determine what to produce, how to produce and to whom production will be distributed - An economy must answer the three basic questions of: - What to produce - How to produce - Who will receive the goods and services produced - The Australian economic system is a market capitalist economy

Economic contribution: Contribution to the balance of payments

- Dynamic changes to the Australian SME business culture is the increasing awareness of the need to service overseas markets - The number of SME Australian exporters is growing faster than large exporters - SMEs in agribusiness, manufacturing and professional services are all experiencing rapid export growth - The balance of payments (BOP) is a record of a country's trade and financial transactions with the rest of the world over time, usually one year - Maintaining a favourable BOP, as well as encouraging economic growth, is to export more than is imported - SMEs must be adaptable and flexible making them more responsive to the needs of overseas markets

Role

- Employ 73 per cent of the private sector(51 per cent in small businesses and 22 per cent in medium businesses) - Created 80 per cent of Australia's employment gains during the past ten years - Produce approximately 50 per cent of all the products produced each year - Generate an increasing amount of total exports - Accounts for 20 percent of all money spent on R&D (Research and Development) - Provide a wide range of products used by large businesses - Earn more profits and pay more taxes than do large businesses

Economic contribution: Contribution to employment

- Employed Australians will use the wage they have earned to buy goods and services to satisfy their needs and wants, supporting business - SMEs employed about 7.5 million people, which represents about 73 per cent of total private sector employment - SME sector has been the major generator of new jobs in the Australian economy - SMEs contribute to the revenue raised through taxation - they pay tax and the employees pay income tax

Failure of SMES

- Many SMEs end in failure A SME is classified as a failure when it is: - Unincorporated and declared bankrupt - Incorporated and either forced into liquidation or voluntarily closes down SMEs failure rates - One in four businesses will fail within the first year of being established - 80 000 Australian small businesses fail each year — roughly 219 per day - Female-owned businesses have a higher survival rate than those operated by men - Businesses jointly operated by both men and women have the highest survival rate of all Future growth areas for SMEs include: Aged services - Small office home office (SOHO) - Franchising - Outsourcing

Success and/or failure

- Of every ten SMEs started seven go out of business within five years - The financial risks of running a SME are very high Psychological and financial pressures Success of SMEs Five common 'keys' to SME success: 1. Entrepreneurial abilities: The people in SMEs and their personalities are crucial to the success of the enterprise 2. Access to information: SME operator must have information regarding profitability, the quality of products and services, and the performance of employees 3. Flexibility: The small size of the business allows the owner to adapt quickly to changes in the external environment 4. Focus on market niche: Concentrate their efforts to become more specialised and able to deliver a high level of service 5. Reputation: As they are servicing a narrow market niche, it can develop enviable reputations for quality and service

Definition

- Quantitative and qualitative measurements can be used to determine whether a business is small or medium sized: - Number of employees • type of ownership - Sources of finance - Legal structure - Market share - Management structure - Micro. Fewer than five employees (including the owner) - Small. Between 5 and 19 employees - Medium. Between 20 and 199 employees - Large. 200 or more employees - Common characteristics of SMEs are: - Local markets/locally based - Independently owned/operated - Personalised service - Owner is responsible for all decisions - Reliant on internal support service - SMEs want to avoid the pressure and difficulties larger businesses experience - In 2010 SMEs account for approximately 98 percent of all private sector business (Australian Bureau of Statistics, (ABS) - During a boom the number of SMEs increase rapidly - During a recession business failures increase - In 2010 there were approximately 78 000 medium businesses in the Australian community (ABS) SMEs employ a large number of employees

Economic contribution: Contribution to invention and innovation

- SMEs enterprises are the main source of most inventions and innovations in Australia - An invention is the development of something new - Innovation occurs when something already established is improved upon - SMEs spend on research and development - Research and development is intended to develop new ideas and improvements in production

Economic contribution: Contribution to the gross domestic product

- The SME sector contributes: - Approximately 50 percent of gross domestic product (GDP) - Approximately 73 percent of total private sector employment - Approximately 5 percent of balance of payment, but growing rapidly - Significantly to the level of R&D. - Economic growth occurs when a nation increases the real value of goods and services over a period of time - Gross domestic product (GDP) is the total money value of all goods and services produced in Australia over a one-year period