There is no universal definition of MSMEs (Micro-, Small- and Medium-sized Enterprises), although there has been a push for countries to adopt similar definitions to enhance comparability. MSMEs are entities engaged in economic activities, regardless of their legal form or status. MSMEs are
usually considered to be independent, non-subsidiary firms.28
The most common definition of MSMEs and large enterprises is based on the number of people employed, due to its simplicity and relative ease of data collection. This statistical definition
varies from country to country, as well as by sector.29 Apart from the employment measure, most
definitions also include thresholds related to monthly or annual turnover, annual balance sheet, as well as assets or investment (excluding land or buildings). Another measure would be that of added value, with the disadvantage that it is difficult to calculate.
Self-employment is defined as an entrepreneur working on his own, without any employees. The lower limit for small-scale enterprises is usually set at 5 to 10 employees, the upper limit at 50 to 100 employees, whereas the upper limit for medium-sized enterprises is usually set at 100 to 250 employees (see Hallberg 2000: 1). The table below summarises international MSME definitions based on employment measures.
28 The European Commission distinguishes between autonomous, linked and partner enterprises in its definition,
depending on the percentage of stakeholders’ or members’ voting rights held in or by other enterprises, see EC 2003b. Given the common thresholds in developing countries, these considerations are not applicable and/or relevant.
29 The United States, for instance, define the different enterprise sizes differently according to the sectors in which
they operate. In this sense, a small business operating in wholesale trade (of durable and non-durable goods) is defined as having up to 100 employees, whereas a small business operating in furniture manufacturing can have up to 500 employees, a small business in electronic computer manufacturing can even have up to 1.000 employees (see U.S. SBA 2008).
30
Table 2: Definitions of micro-, small-, medium- and large-scale enterprises
Micro Small Medium Large
European
Commission30 1-10 < 50 < 250 --
OECD31 (in some cases < 5) < 10 < 50 < 250 250 +
UNIDO32 < 10 10-49 50-249 -- Burkina Faso33 < 3 < 10 < 50 -- Zambia34 < 10 < 30 -- 50 + Kenya35 0-10 11-50 -- -- Tanzania36 1-5 6-10 11-20 -- Uganda37 1-9 10-49 50-99 100 +
Source: Own compilation.
The economic importance of MSMEs and the size distribution of firms vary across countries and over time within a given country, within the broader context of economic and industrial development. In low-income countries, micro- and small-scale enterprises typically represent the vast majority of firms and account for a large share of employment, existing alongside a few large enterprises: this structure is commonly referred to as the “missing middle” of medium-scale firms. In middle-income countries, medium-scale enterprises begin to account for a relatively larger share of production and employment and the trend towards larger firm sizes seems to continue as per-capita income increases, although small- and medium-sized enterprises are relatively less important in the USA and the UK as compared to some industrialised Asian countries (see Hallberg 1999: 4, for a comparison of size distributions of firms across economies from different countries). Large enterprises, whether state-owned, subsidiaries of international firms or owned by local entrepreneurs, can range from labour-intensive enterprises to capital-intensive and high- technology firms. Under competitive conditions, large firms contribute substantially to a country’s economic development and play a particularly important role in technology and knowledge transfer, as well as receipt of foreign direct investment.
The quantitative and qualitative criteria to distinguish the different terms and sizes vary across countries and depend, among others, on the development stage of the given country, region or sector, on the historical conditions, as well as on the purpose or pursued objectives.
30 See Commission Recommendation of 6 May 2003 (Recommendation 2003/361/EC), for the definition that came
into force on the 1st of January 2005 (EC 2003b). This definition also includes thresholds related to annual turnover and annual balance sheet.
31 OECD 2005b: 17.
32 UNIDO 2005: 8. For the purposes of policy development, UNIDO generally advises countries to take into account
both quantitative and qualitative criteria. UNIDO also differentiates between developed and developing countries when defining MSMEs.
33 UNCTAD 2001b: 22.
34 UNCTAD 2001b: 72. A definition of medium-sized enterprises does not exist. 35 IFC 2007a.
36 IFC 2007a.
37 IFC 2007a. In a report published by the Ugandan Ministry of Finance (MoFPED), related to the development of a
monitoring framework for the MSME thematic area, micro-enterprises are defined as employing up to 5 people and having an asset value below Ush 2.5 million, whereas small-scale enterprises are defined as employing up to 50 people and having an asset value below Ush 50 million (MoFPED 2000b: 1-2). The definitions also include qualitative criteria: micro-enterprises are characterised by seasonal operations and their lack of access to formal services; small- scale enterprises are characterized by all-year-round operations, formal registration and taxation and educated and/or trained owners/managers (MoFPED 2000b: 1-2). Further details on how MSMEs are defined in Uganda are provided in chapter 5, under section 5.3.
31 SMEs (small- and medium-sized enterprises) usually operate in the formal sector of the economy. Quantitative or statistical differences with regard to micro-enterprises exist in terms of the number of employees, but also in terms of capital and turn-over. These enterprises are more likely to be registered, use relatively modern technologies, employ mainly wage-earning workers and participate more fully in organised markets.
MSEs (micro- and small-scale enterprises) are usually family businesses or self-employed persons operating in the semi-formal and informal sectors. What distinguishes micro-enterprises from the subsistence economy is the fact that their products are mainly intended for the market. Typical characteristics of MSEs are: family ownership, low entry barriers, use of local resources, labour- intensive production with appropriate technologies, as well as education and skills that were earned outside the formal education system.
A delimitation of MSEs against “above” is generally made on the grounds that management and production are not separated and/or based on division of labour. Rather, the most important strategic and tactical decisions are taken by the entrepreneur/owner, the activities are mainly oriented at serving the local market and satisfying needs going beyond the basic needs of the household members.
An important concept often related to MSEs is the so-called “informal sector”, which will be described and discussed in more detail below, aiming at offering a distinction between MSEs and the informal sector.