LIST OF ABBREVIATIONS
CHAPTER 2: LITERATURE REVIEW
2.2 Overview of SMMEs
2.2.1 Global, national, and provincial perspectives on SMMEs .1 Global perspective
Giving a precise meaning to the concept of SMMEs is difficult, as entrepreneurs and researchers across the globe define it from their own vantage point (Mphela and Shunda, 2018). Furthermore, Li et al. (2021) indicates that SMMEs are globally viewed as the foundations of countries' economies. SMMEs play a vital role in formulating the economies of most of the countries in the world (Lose and Kapondoro, 2020).
Lean manufacturing practices have been adopted by SMMEs in most countries globally, which proved the operational model to be working efficiently (Sajan and Shalij, 2021). Furthermore, Sajan and Shalij (2021) argue that the implementation of lean manufacturing principles in SMMEs globally has been given priority by government authorities and policymakers. Governments globally have taken a special interest in SMMEs and have implemented “lean manufacturing competitiveness schemes” for SMMEs to assist them in reducing waste, increasing productivity and absorbing a locale of constant development (Sajan and Shalij, 2021). SMMEs face many challenges to ensure sustainable growth and productivity compared to large entities (Mawela et al. 2017).
Table 2.1: Definition of SMME as described by the European Commission (Oni, 2021)
Category Number of
employees
Annual sales Annual book balance
Micro 10 ≤ EUR 2 million ≤ EUR 2 million
Small 50 ≤ EUR 10
million
≤ EUR 10 million
Medium 250 ≤ EUR 50
million
≤ EUR 43 million
According to the European Commission, SMMEs are businesses that employ less than 250 people (Oni 2021). Micro businesses engage fewer than ten people, whereas small businesses employ between ten and forty-nine people and have yearly sales of no more than ten million euros. Businesses classified as medium-sized if they employ less than 250 people and have a yearly balance sheet total of no more than EUR 43 million or a turnover of no more than EUR 50 million. According to Oni (2021), defining a small business is a challenging task because it varies depending on the nation or the type of economic activity in a certain region.
2.2.1.2 National perspective
The South African Reserve Bank (SARB) (2015) concurs with Oni (2021) that a small business is hard to define. Moreover, the Wholesale and Retail Sector Education and Training Authority (W&RSETA) (2014) agrees with the idea that defining SMMEs is a difficult task, as each nation has its own definition. Literature also reveals that there is no single, widespread, consistently satisfactory meaning of SMMEs (Abor and Quartey, 2010). Nevertheless, in trying to define SMMEs, there is a fairly comprehensive South African meaning of SMMEs available, which will be used in this thesis.
In South Africa, a small business is recognized as an individual entity that can encompass cooperative enterprises and non-governmental organisations (NGOs).
Such a business can be owned and operated by one or multiple individuals, and it might have branches or subsidiaries. These businesses operate across various sectors or subsectors of the economy and are categorized based on their size: micro,
very small, small, or medium enterprises (NSBA 1996; South Africa, 2004). For the purpose of this research, SMMEs are further defined as businesses managed by one or more individuals, with the total number of employees not exceeding 200.
2.2.1.3 Provincial perspective
Lose and Kapondoro (2020) emphasize that within the provincial sectors of the nation, SMMEs play a pivotal role in the regional economic development strategy. This strategy aims to address the pronounced disparities observed when comparing urban centers with smaller municipalities. Guiso et al. (2017) argue that by initiating SMME development programs at the provincial level, these geographical disparities can be significantly reduced, paving the way for the revitalization of local economic activities.
However, Maduku and Kaseeram (2021) contend that provincial governments have not fully leveraged their inter-regional collaboration responsibilities. As a result, they heavily rely on SMME development, seeking support and interventions from both central and other provincial government entities.
Leibbrandt et al. (2016) and Zondo (2017) uphold that SMMEs have the potential to decrease joblessness, produce revenue, establish resources, add to capacities progression, curb mob justice and draw investment opportunities within the regional government.
Mawela et al. (2017) reaffirm that SMMEs can add to the revamping of South African regional governments’ neighbourhood development. For the purposes of this study, the definition of SMMEs will come from the South African context; the definition of SMMEs and categories per national legislation for small businesses can be seen in Table 2.2.
Table 2.2: Definition of SMMEs as described in the National Small- and Medium-Sized Enterprises Act (Bosma et al., 2020; Kalitanyi, 2019)
Company size
Number of employees
Annual sales (in South Africa)
Gross assets, excluding fixed property
Micro Between 1 and 5 Equal or lower than R200 000
Limited to R100 000
Very small Between 6 and 20, depending on industry
Range of between R200 000 and R500 000, by industry
More than R100 000 but limited to
R500 000
Small Between 1 and 50 (1 ≤ 50)
More than R500 000, to R2 million, but limited to R25 million, according to industry
More than R500 000 to between R2 million and R4,5 million, depending on industry Average Less than 100 to
200, by industry
More than 25 million to 50 million R, according to industry
More than 4.5 to million R18 million, according to industry
Table 2.3: The new National Small Enterprise Act threshold for defining enterprise size in South Africa (GCIS 2019)
Sector or subsector in accordance with standard industrial
classifications
Size/Class Total full-time equivalent of paid employees
Total annual turnover
Agricultural Medium
Small Micro
51–250 11–50 0–10
≤ R35 million
≤ R17 million
≤ R7 million Mining and quarrying Medium
Small Micro
51–250 11–50 0–10
≤ R210 million
≤ R50 million
≤ R15 million
Manufacturing Medium
Small Micro
51–250 11–50 0–10
≤ R170 million
≤ R50 million
≤ R10 million Electricity, gas and water Medium
Small Micro
51–250 11–50 0–10
≤ R180 million
≤ R60 million
≤ R10 million
Construction Medium Small Micro
51–250 11–50 0–10
≤ R170 million
≤ R75 million
≤ R10 million Retail and motor trade and repair
services
Medium Small Micro
51–250 11–50 0–10
≤ R80 million
≤ R25 million
≤ R7,5 million Wholesale trade, commercial agents
and allied services
Medium Small Micro
51–250 11–50 0–10
≤ R220 million
≤ R80 million
≤ R20 million Catering, accommodation and other
services
Medium Small Micro
51–250 11–50 0–10
≤ R40 million
≤ R15 million
≤ R5 million Transport, storage and
communication
Medium Small Micro
51–250 11–50 0–10
≤ R140 million
≤ R45 million
≤ R7,5 million Finance and business services Medium
Small Micro
51–250 11–50 0–10
≤ R85 million
≤ R35 million
≤ R7,5 million Community, social and personal
services
Medium Small Micro
51–250 11–50 0–10
≤ R70 million
≤ R22 million
≤ R5 million
Table 2.3 shows the economic sectors or subsectors used to classify SMMEs in South Africa. The population in this study is made up of SMMEs in the manufacturing sector.
Table 2.3’s medium, small or micro classifications translate onto the aggregate value of permanently salaried staff, revenue and total value of assets. Medium-sized firms are defined as those having 51–250 paid full-time employees. A micro sized firm has between zero and 10 staff members, whereas a small organisation has 11 to 50 staff members. SMMEs are described as firms generating total sales of R170 million or less for medium-sized businesses, R50 million or less for small organisations and R10 million for micro enterprises as shown on table 2.3.