We explain what SMEs are and the things they can afford thanks to their sales. Also, its main advantages and disadvantages.
What are SMEs?
It is understood by SMEs or PyMEs (acronym for Small and Medium Enterprises), to for-profit organizations, that is to say, entrepreneurs, who operate independently and have a high predominance in the market, but without being part of the large capitals that run it. These limits are, of course, set in a conventional manner by the jurisdictions of the different countries.
The distinctions between small, medium and large companies have to do with the number of personnel they hire, with the monetary mass they handle and with the segment of participation in the local market that corresponds to them.
In this way, States can organize and personalize their monitoring, benefit or appraisal mechanisms to collect taxes from wealthy companies and benefit small companies or insurgents, promoting economic growth and fighting oligopolies.
SMEs play a vital role in the economies of different countries, usually employing almost 70% of the private workers of countries belonging to the Organization for Economic Cooperation and Development (OECD). This is because their size and sales volume allows them, among other things:
- Offer personalized products instead of massively standardized ones, such as large business chains.
- They are subcontracted by larger companies to carry out work that would occupy a lot of their plant personnel.
- They allow the emergence of alternative forms of organization, such as cooperatives, which require a small number of members.
Advantages and disadvantages of SMEs
Small and medium-sized companies have the following benefits and drawbacks:
Advantage:
- They find new market niches. Especially if they keep pace with technological innovations and the new needs of the global world.
- Adaptability. By having smaller structures, they can be more flexible productively speaking, and that’s often the difference between weathering a crisis or collapsing in it.
- They offer direct care. They may have a less anonymous and standardized relationship with their customer than the massive corporate chains.
- Quick emergence. The growth of young SMEs tends to be rapid during its early stages, as they take over a market niche that does not represent worrisome competition for older companies.
Disadvantages:
- Difficult financing. As they have fewer assets and are generally young projects and not too stable, they tend to have more difficulties when it comes to finding the financing required to innovate or grow.
- Labor rigidity. They tend to prefer employees with prior training, since they do not have the capital and structures for their training, which makes them more picky when it comes to hiring.
- Low innovation. Since they do not have large capital quotas, it is more difficult for them to invest in research and innovation, although they can quickly take advantage of outside innovations.
- Little access to large markets. Although globalization seems to put this into question, the truth is that the largest companies dominate the international market and do not always allow SMEs to agree to compete on equal terms.