There is no single, uniformly acceptable definition of a small firm (Storey, l994). This is so
because no single definition can capture all the dimensions of small enterprises; nor can it be
expected to reflect the differences between entities in different industrial sectors or countries
at different levels of development. Small businesses range from 15 employees under the
Australian Fair Work Act 2009, 50 employees according to the definition used by the European
Union, and fewer than 250 employees to qualify for many US Small Business Administration
programs. In virtually every jurisdiction, from the largest economies to the smallest, over 99%
of companies have fewer than 50 employees. Small enterprises have also been defined in
various other ways according to their invested capital in the enterprise, size, ownership and
management of the enterprises and sales volume. As per the provision of Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006 of India, the small-scale enterprises
are classified into two classes: (1) enterprises engaged in manufacturing; and (2) enterprises
engaged in rendering services. For the purpose of undertaking manufacturing activities, a unit
can be considered as a small-scale unit if its investment in plant and machinery is more than
25 lakh, but does not exceed 5 cr. However, for rendering services, a small-scale enterprise
is an enterprise where the investment in equipment is more than 10 lakh, but does not exceed
2 cr.
According to Ozar et al. (2008), there has been a growing interest and attention in the role
that small enterprises play in the economy since the 1980s. One of the reasons for this
considerable attention is that these enterprises have been found to have potential to generate
employment and also to contribute to poverty alleviation in most countries. Small enterprises’
importance is always viewed from the perspective of employment generation, contribution to
export earnings and the Gross Domestic Product (GDP). In industrialized countries, Small and
Medium Enterprises (SMEs ) are the major contributors to private sector employment. Empirical
studies have shown that SMEs contribute over 50% of GDP and over 60% of total employment
in high income countries. SMEs and formal enterprises account for over 60% of GDP and over
70% of total employment in low income countries, while they contribute about 70% of GDP
and 95% of total employment in middle income countries (World Bank, 1977).
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