Sample Business Studies Essay Paper on Small and Medium Enterprises in New Zealand

Entrepreneurship, which entails the identification of opportunities and turning them into marketable products and services, is significant to the economy. With the troubling economy in which job opportunities are scarce, people are encouraged to venture into entrepreneurship. Furthermore, more people are quitting employment to embark on entrepreneurial journey as an investment strategy or a lifestyle change while the retired individuals enter the field to stay active. There is a notable growth of small and medium enterprises (SMEs) across all industries due to factors such astechnological development, changing management practices, and deregulation. New Zealand is one of the countries experiencing the expansion of the SME sector. New Zealand’s SMEs, which are defined basing on the number of employees, contribute significantly to the country’s economy.

In New Zealand, SMEs are defined as small businesses with 0-19 employees. According to the ministry of Business, Innovation, and Employment (MBIE) in New Zealand, approximately 97% of all firms in the country are SMEs (3). The characteristics of SMEs in New Zealand include independent ownership, small market share, limited product range and locality, and limited lifespan. Additionally, owners independently raise the capital for their enterprises. SMEs in New Zealand can be further characterized by elements of knowledge, communication, and skills. Unlike large enterprises where knowledge is dispersed among top professionals, SMEs’ knowledge is concentrated: limited to the owner. Communication in small enterprises is often personal and informal while skills are general, contrary to large firms where communication is formal and skills are specific. Small businesses dominate some industries than others. For instance, agriculture/forestry/fishing and construction sectors have a high concentration of small businesses while government administration and electricity/gas/water sectors have the least number of SMEs (Ministry of Business, Innovation, and Employment 4). Another visible trend of SMEs in New Zealand is their regional distributions. The small enterprises are prevalent in Northland while Wellington has the least number.

The definition and concept of SMEs varies between countries. While New Zealand bases its description on the number of employees, some countries have different criteria. The terms used across countries include small businesses; small and medium enterprises; and micro, small, and medium enterprises. The variation in the characterization of SMEs is engendered by national laws, international laws, and institutions (Berisha and Pula 18). However, the European Union and other international organizations including United Nations, the World Bank, and the World Trade Organization use the SME abbreviation. There are two approaches used to define SMEs across countries: quantitative and qualitative. The quantitative approach is widely used by policy makers, scholars, statistical agencies, and international institutions. While the European Commission recommends the use of number of staff, the body also promotes financial criterion in order to define the performance of the enterprise as compared to its rivals (Berisha and Pula 18).The EU identifies SMEs by number of staff, annual turnover, and annual balance sheets while the World Bank uses total assets and annual sales besides number of employees. Assets and sales for EU and the World Bank are measured in pounds and dollars respectively.

Table 1. Definition of SMEs by EU standards

Source: (Berisha and Pula 19)

Table2. Definition of SMEs by World Bank Standards

Source: (Berisha and Pula 19)

Looking at the data for number of employees, the World Bank raises its threshold to 300 employees for medium enterprises while the EU’s is 250. For the financial criteria, the EU defines SMEs by annual turnover and balance sheet total while its counterpart identifies them by total assets and annual sales. The EU’s definition is the most implemented in SMEs studies. However, the definition has not been endorsed by the state governments and policymakers. The table below illustrates the definition of SMEs basing on the number of employees in Australia, Singapore, and USA.

Table 3.Definition of SMEs in Different Countries

CountryNo. of Employees
Australia0-199
Singapore0-200
USA0-249

The qualitative analysis of SMEs focuses on the nature of enterprises’ operation particularly personal principle and unity of leadership and capital (Berisha and Pula 22). Loecher (as cited in Berisha and Pula 22) describes the personal principle as a situation whereby the business owner performs the central functions including decision making and maintains direct contact with employees, suppliers, and customers. The owner views the company as a lifelong commitment. On the other hand, unity of leadership and capital means that the responsibilities of manager proprietor and manager-owner, as well as overall leadership including the assumption of liability risk is played by one person – the owner (Berisha and Pula 22).Other qualitative characteristics include the firm’s position in the market, the legal form, economic and legal autonomy, and organizational structure. The table below illustrates the qualitative indicators of SMEs relative to large enterprises.

Table 4. Qualitative Indicators of SMEs against Large Companies

Source: (Berisha and Pula 22)

The SMEs sector is significant due to its contribution to the New Zealand economy. The contribution of SMEs is measured by employment and GDP rates. Small businesses account for 31% of all employees in New Zealand, which translates to 580,680 individuals (Ministry of Economic Development 5). 10% of the SME workforce comprises of self-employed individuals while 12% constitutes firms with less than 5 employees. Lastly, firms with 6-19 employees account for 9.5% of the SME firms. However, 2011 data by the Ministry of Economic Development in New Zealand revealed plummeting trends in the rates of job creation among SMEs. There was a 32% reduction in the average quarterly net job creation for SMEs from 2008 to 2009. These negative trends seemed to reverberate among larger enterprises since the sector recorded a drop of 84.4% (Ministry of Economic Development 5). The drop was attributed to the experienced economic downturn. The majority of the self-employed people are European men aged 35-59 while Pacific Island and Maori categories of ethnicity have the lowest representation of self-employed people in New Zealand (Ministry of Economic Development). Furthermore, census data indicated that the two ethnic groups have the lowest number of employers.

SMEs also contribute significantly to New Zealand’s GDP. As of 2018, small businesses accounted for 28% of New Zealand’s GDP (Ministry of Business, Innovation, and Employment).SMEs accounted for 46.6% of all profits and 33.0% of total real sales. According to the Ministry of Economic Development, enterprises with less than five employees generated $12,132 profit per employee in 2011, the highest average real profits across all employee size groups in the country (8). Another approach towards the contribution of SMEs in New Zealand is the examination of the category of high-growth enterprises. High-growth firms are crucial because they produce the highest number of new jobs and economic growth. In 2011, SMEs accounted for 5% of high-growth enterprises in the country. Despite the low composition, the few represented firms contribute significantly to the GDP.

The Maori economy, which is a critical component to New Zealand’s economy, is another indicator of SMEs’economic contribution. Maori contributes to all sectors in the country including natural resources, the primary sector, and tourism besides SMEs. In 2015, Business Operations Survey reported 63% of innovation rate for Maori SMEs (Stats NZ). Looking at the statistics for employment activity from the same survey, Maori SMEs contributed to 5,620 filled jobs. Similarly, financial performance of Maori SMEs in 2015 was positive. The current ratio averaged 127%, which is a positive indication of the SMEs ability to pay off current liabilities (Stats NZ). The positive financial performance of the SMEs indicate the sector’s healthy status, hence the contribution to the New Zealand economy.

SMES, which are firms with less than 19 employees in New Zealand, constitute the majority of businesses in the country. While New Zealand defines SMEs basing on the number of employees, the criterion and concept varies across countries as influenced by national laws, international laws, and industries. The reference of SMEs includes terms such as small businesses, small and medium enterprises, and micro, small, and medium enterprises. However, the SME abbreviation has been widely used since it is endorsed by big organizations including the EU, the UN, and the World Bank. The SME sector is critical because it contributes greatly to New Zealand economy in terms of job creation and GDP. The Maori economy, which is an important component of the entire nation’s economy, is also greatly attributed to SMEs. Due to their economic benefits, it is important for both public and private bodies to support the growth of SMEs in New Zealand.

Works Cited

Berisha, Gentrit and Pula, Justina, Shiroka. “Defining Small and Medium Enterprises: A Critical Review”. Academic Journal of Business, Administration, Law, and Social Sciences, vol. 1, no. 1, pp. 17-28. March 2015. Retrieved fromhttp://iipccl.org/wp-content/uploads/2015/03/Ajbals-17-28.pdf. 14 Aug. 2019.

Ministry of Business, Innovation and Employment. “New Zealand’s Support for Small Businesses. Ministry of Business, Innovation and Employment. May 2018. Retrieved from https://www.business.govt.nz/assets/Uploads/Documents/Small-business-booklet.pdf. 14 Aug. 2019.

Ministry of Business, Innovation and Employment. “Small and Medium Businesses in New Zealand”. Ministry of Business, Innovation, and Employment. 2016. Retrieved from https://www.mbie.govt.nz/assets/90fcb52f9f/small-business-development-group-2016-report.pdf. 14 Aug. 2019.

Ministry of Economic Development. “SMEs in New Zealand: Structure and Dynamics 2011”. Ministry of Economic Development. Pp. 1-29. Sep. 2011. Retrieved fromhttps://www.interest.co.nz/sites/default/files/SMEs%20in%20NZ.pdf. 14 Aug. 2019.

Stats NZ. “Tataurnga Umanga Maori 2016: Statistics of Maori Businesses”. Stats NZ. 29 June 2016. Retrieved fromhttp://archive.stats.govt.nz/browse_for_stats/people_and_communities/maori/tatauranga-umanga-2016/maori-smes.aspx. 14 Aug. 2019.