NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

A great deal apparently. Throughout history we’ve seen that simple misunderstandings of words, or individual phrases out of context have had major effects from the absurd (JFK infamously calling himself a jelly doughnut), to the?controversial (see David Howard’s 1999 gaffe) to the history-altering (the thirteen words that helped end John Kerry’s presidential run). Different interpretations of a simple phrase can make a huge difference, as I’ve been reminded of in my recent research on small and medium size enterprises (SMEs) and the impact they have on the economic, social and environmental well-being of their nations.

David Weinberger gave WRI a bit of a jolt recently when he told us to start opening up our work to broader discussions- suggesting among other things that we publish pieces of unfinished reports for commentary. In the spirit of democratic debate, I thought I would tap any NextBillionaires out there who know a bit about the SME sector because the definitional issues here make a major difference in the impact these businesses have on an economy and therefore the policies that should be shaped to promote them. For anyone that has looked into this field at all, you know that while SMEs are undeniably important for numerous reasons, it is difficult to come up with tangible international trends and measurements of SME impact because of the vastly different ways in which SMEs are defined. As PSD blog noted recently, this data can vary considerably; one IIED report warns that “although the term ?SME’ is frequently used, it is seldom defined – yet this is essential to understand the significance of the sector…. What constitutes a small, medium or large company is by no means clear or uniform, even within individual countries…Given this variation between types of SME, and the difficulties of classification, we must draw policy conclusions with some caution.”

The criteria countries use to define an SME as opposed to a micro-enterprise or large corporation can include number of employees, amount of sales or net assets. For Bolivia, SMEs are between 10 and 49 employees. For Colombia, they are between 10 and 200. For Argentina, between .5 million and 24 million sales in Pesos (See the IFC data). This can lead to huge disparities in impact assessments- the broadest measures of SMEs (which tend to include micro-enterprises) estimate that this sector accounts for 90% of all businesses and 50-60% of global employment! That’s a huge number but looking at it through a regional perspective, an IDB survey of Latin-American countries suggest SMEs account for a much more modest 8% of enterprises and 30% of employment. So which is it, fellow readers? How do you measure an enterprise? In real terms, does “ich bin ein SME” always translate to “I am a micro-enterprise?” Alright, that was cheesy, I know, but sometimes making blanket statements about the size and significance of SMEs, I feel kind of like JFK must have in Berlin….