SMEs: A case of Hamlet without the prince 

An adequate understanding of what constitutes SMEs and why and how they should be developed are important prerequisites in realising their full potentials for growth and contribute to national economic development.

A naive and harmful perception of many observers is that SMEs start small and grow big or perish as part of historical inevitability  

Another school of thought looks at SMEs in a small vs large context, comparing their relative economic performance and efficiencies, but ignores their internal dynamics and many intrinsic merits specific to smallness per se.  

Contrary to the above skeptical views, SMEs perform many important functions and contribute towards sustainable economic growth and social progress of emerging economies.

Empirical evidence abounds in focusing their significant contributions as providers of huge employment opportunities and large chunks of output and exports in both developed and developing countries.

As such, comprehensive and holistic policy support needs to be provided to boost their growth and expansion, especially in achieving SDG goals and Vision-20/21 of the Government of Bangladesh.

Definitional Issues

Defining SMEs is difficult. A universally acceptable and standard definition is regarded as a futile exercise across countries and even within the same country among different organizations and institutions.

SMEs are extremely heterogeneous entities and operate in a wide array of economic activities. By putting them all under the generic name (terminology) SMEs or MSMEs one ignores important differences in their characteristics. This makes a definition of SMEs an extremely difficult task. 

Differences in SME definitions originate from at least three approaches and visions prevailing at international policy makers and academic levels:

International institutions/organizations (i.e. World Bank, UNIDO, ILO, European Commission, OECD, etc.)
Differences of approach are also noted among academics, researchers and industrialists and policy makers towards SME definitions.  
However, despite the lack of universality and alignment among different groups and authorities in finding a standardized and unique definition of SMEs, an operational definition of these entities is undeniably important and inalienable as opined by G. Berisha and J. S. Pula, 2015).

Pointing to the fuzziness affecting the SME definitions used by development organizations and national governments, Tom Gibson et. al. 2008 noted that this has undermined the very concept of "SMEs". Hence a rigorous attempt is needed to be made, supported by adequate data to understand what an SME is.

From the operational point of view a definition of SMEs is required to clearly distinguish them from large-scale enterprises to be able to: 

Quantify and assess their contributions to the national economy.
Formulate SME support and assistance policies and strategies (tailor-made) to cater to their promotional needs. 
Insulate them against unfair competition from their large-scale counterparts.
Ensure effective delivery of support and extension services and monitoring of the health of the SME sector overtime. It is also important to determine their eligibility for particular types of (i.e. tax concessions) public support.
Formulate SME support and assistance policies and strategies (tailor-made) to cater their promotional needs. 
Insulate them against unfair competition from their large-scale counterparts.

SME Definitions: Quantitative and Qualitative Criteria

SME definitions are generally numerical and expressed in terms of size measured by selected quantitative indicators.

The most commonly used quantitative indicators are: 

(i)employment, (ii) fixed assets and (iii) annual turnover or sales which distinguish them from large scale enterprises.

However, all these popularly used quantitative indicators of size suffer from various shortcomings, such as their inability to reflect levels of technical efficiencies of enterprises and differing valuation practices of assets adopted by the firms of various sizes. As such, these measures are affected by statistical arbitrariness, ignoring inter-firm, inter-industry and inter-country differences in labour-force composition, (i.e. full-time Vs, part-time, differences in the valuation of assets, financial accounting practices, and impacts of inflation, exchange rate fluctuation, etc., on the value of turnover and/or sales.

The quantitative indicators are all incapable of capturing the important economic, social, psychological, behavioral and organizational characteristics which play important roles in explaining why and how SMEs emerge, develop and are sustained. 

Emphasis on their dominant functional characteristics, such as owner-management, family influence, flexible decision-making, extent of entrepreneurs personal involvement, high innovation potentials, close customer relations, etc., which significantly have an impact on their successes and failures.

These important qualitative features of SMEs need to be carefully counted and meticulously highlighted to distinguish them clearly from their larger counterparts. In other words, studying pure smallness identified through some numbers without looking at them in their full perspectives may be a case of "Hamlet without the prince". 

The qualitative features of SMEs, which give them a unique character, can provide necessary materials to create a homogenous perspective in analysing the SMEs and even comparing them internationally with their foreign counterparts.  

Pointing to the Bangladesh situation with respect to the contents of this write-up, all the issues raised are very relevant. An important lesson to draw is not to change SME definitions every now and then. Further, the definitions adopted by the MoI should be religiously followed by all agencies and organizations involved directly or indirectly in SME promotion and service providing activities.

Momtazuddin Ahmed is an Honorary Professor at Dhaka University's Economics Department.