Small and medium enterprise

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Small and medium enterprises or SMEs are companies whose headcount or turnover falls below certain limits.

The abbreviation SME occurs commonly in the EU and in international organizations, such as the World Bank, the United Nations and the WTO. The term Small or Medium sized Business or SMB has become more standard in a few other countries.

EU Member States traditionally had their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 500 employees, while ,for example, in Belgium it could have been 100. But nowadays the EU has started to standardise the concept. Its current definition categorises companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium". By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with less than 100 employees, while medium-sized business often refers to those with less than 500 employees. However, the most widely used American definition of micro-business by the number of employees are the same of that of European Union: less than 10 employees.

As of 2005, Germany will use the definition of the European Commission.

Business enterprises of fewer than 10 employees often class as SOHO (for Small office/home office).

In most economies, smaller enterprises predominate. In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people.

SMEs, in contrast to big business, have a reputation for innovation. For this reason, and because of their difficulties in attracting capital, national and regional fostering of SMEs commonly occurs.

In making such interventions it is important to understand that SMEs behave very differently than big business. To give just one example, it is often wrongly assumed that the primary goal of SMEs is profit. While this is true of large and public companies who need to produce returns for shareholders, the owners of small businesses often start them to fulfil some personal ambition. While profit is a prerequisite for staying in business, it is not the primary motivator.

In the United States there is no standard definition for a small business. Generally it is determined by the industry in which it competes, where income and number of employees will determine whether a company is a small business or not. Many government contracts are "set aside" (i.e., competition is limited to small businesses only, most often involving services or minor construction).

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