Defining Small and Medium Enterprises: a critical review

• Author: Gentrit Berisha, Justina Shiroka Pula
• Position: University of Prishtina, Kosovo
• Pages: 17-28

ISSN 2410-3918 Academic Journal of Business, Administration, Law and Social Sciences Vol 1 No 1

Acces online at www.iipccl.org IIPCCL Publishing, Tirana-Albania March 2015

17

Dening Small and Medium Enterprises: a critical review

Gentrit Berisha

University of Prishtina, Kosovo

Justina Shiroka Pula

University of Prishtina, Kosovo

Abstract

e OECD estimates that small and medium enterprises account for 90% of rms and employ

63% of the workforce in the world (Munro: 2013). Small and medium enterprises account for that

amount of businesses thatit is senseless the arbitrariness with which they are dened. Language

mainly used for denition is numbers, but it is dicult to nd two institutions, statistical agencies

or countries who speak the same language in terms of small and medium enterprises. Academics,

authors, policy makers apply SMEdenitions in terms of dichotomy between universality and

standardization of a unique denition and relativity and sectored specialization. Although

qualitative criteria-characteristics of SMEs easily distinguish them from large businesses,

quantitative criteria are mainlyused for their dimensional classication. is paper deals with a

critical approachto the denition of small and medium enterprises, inconsistencies in criteria and

various proposed approaches to the denition towards universal acceptance.

Keywords: SMEs, denition, quantitative criteria, quantitative indicators, standardization.

Introduction

e European Commission, the executive body of the European Union, with a

recommendation of May 2003 has standardized the denition of micro, small and

medium enterprises (European Commission: 2003). is denition isappropriated

beyond the geographical scope that falls under the jurisdiction of the EU. European

Commission at the request of the Council of Industry, has proposed in 1992 limiting

addition of the denition of small and medium enterprises that Commissionuses. e

rst recommendation that marked the beginnings of a unique denition of SMEs was that

of April 1996 (European Commission: 1996). It was based on the idea that the existence of

dierent denitions at Community level and at national level could create inconsistencies.

If economists claim that small and medium enterprises are the backbone of the economy,

how come they can’t determine the number and the order of its discs?

But SME denition is far from being a solved, meaningful and acknowledgedissue. One

of the main challenges in developing a cross-countryanalysis of SMEdata is the lack of

a universal denition of what constitutes an SME

(Ardic et al.: 2011). Pobobsky (1992) cites a study

of the International Labour Organization, which

identies over 50 denitions in 75 countries with

considerable ambiguity in the terminology used.

If economists claim that small

and medium enterprises are the

backbone of the economy, how come

they can’t determine the number

and the order of its discs?