What Is an SME? Advice on Growth Strategy for SMEs

An SME is a type of business found in many industries. Not everyone understands how this business model works or how to tell it apart from a startup. This article from MONA Media will help you understand this type of business better.

What is an SME?

SME is short for Small and Medium Enterprise, which means a small and medium-sized enterprise, a business model found in every industry. Worldwide, SMEs are estimated to make up 95% of all businesses, and 50% of workers are employed by SMEs. This model creates jobs, but it also carries many risks because of intense competition.

SMEs often face real challenges in growing sustainably and improving performance. One common obstacle is putting off projects when there is no outside pressure. Watch this video to learn effective strategies for growing an SME.

The role of SMEs

In Vietnam, SMEs also make up most of the market today. SMEs play an important role in economic development and bring benefits such as:

• Creating jobs: As mentioned, SMEs make up 95% of all businesses, which means they need a large workforce. Their employees get the chance to develop and use their abilities to create value for society.
• Making the economy more dynamic: Although SMEs are only small and medium in size, their flexibility is what makes the market economy dynamic.
• Supporting economic and social development: SMEs create jobs and produce goods that help the country develop. They reduce unemployment and shortages of goods, which are among the causes of economic decline.
• Creating an environment for developing a high-quality workforce: Employees at an SME often work in several different roles, so the workplace gives them room to grow.
• Raising national GDP: Every small and medium-sized business plays an important part in the country. Together they now contribute 53% of national GDP and produce 19 to 31% of exports.

Types of SMEs

Under the Government's rules for classifying SMEs, Vietnam divides them by sector. In commerce, agriculture, forestry and fisheries, industry and services, SMEs are split into 3 types:

• Micro SMEs: fewer than 10 employees. Capital does not exceed 3 billion VND and revenue is under 10 billion VND/year.
• Small businesses: fewer than 50 employees enrolled in social insurance. Total annual revenue does not exceed 100 billion VND and working capital is under 50 billion VND.
• Medium-sized businesses: around 200 employees. Annual revenue is under 300 billion VND and capital is around 100 billion VND.

What is the difference between an SME and a startup?

Many people mistakenly think an SME and a startup model are the same. In reality, the two are very different in many ways.

Business goal

An SME runs on a model that has already been tested at small and medium scale. A startup, on the other hand, has the chance to grow into a company with major influence.

Competition

Overall, SMEs are not very competitive compared with startups. A startup has to grow exponentially to attract investment and survive, while an SME does not see many breakthroughs.

Owner

One individual can own an SME and rarely needs outside funding. A startup usually has to give up shares and raise investment capital before it can grow.

Advantages and difficulties of SMEs

The SME model does not face many challenges and only operates at small and medium scale. However, with today's market growth and competition, SMEs inevitably run into many difficulties.

Opportunities

• The easiest opportunity to see for an SME is its plentiful labor supply. The owner does not spend much time or effort finding workers.
• The room to grow and go further in the market is also wide open. The business only needs to seize opportunities and meet customer needs to help itself grow.
• Market integration makes it easy for SMEs to export products abroad. Their flexible operations also make it easy to change with market demand.

Difficulties and challenges

Although SMEs have many opportunities to grow, that does not mean they face no difficulties. Some problems SMEs may run into are:

• Limited access to capital: banks and credit institutions are often hard to convince when an SME applies for a loan. As a result, many businesses miss their chance to grow.
• Gaps in business management: SMEs often do not invest much in marketing, which holds back growth and product promotion.
• Difficulty reaching supply chains: small and medium-sized businesses often have limited production technology, so they usually cannot reach demanding markets such as Japan, the US and Europe.
• Lack of leadership experience: not every owner of a small or medium-sized business has the leadership skills needed, so management is not always at its best.

Common questions when setting up an SME

If you want to start an SME but still have questions, here we answer some of the most common ones.

Why do SMEs fail?

Some problems when setting up an SME can lead to failure, such as:

• Being slower than competitors.
• Hiring the wrong people.
• Pricing the product wrongly.
• Having an outdated product.
• Not listening to customer feedback.
• Disagreements within the management team.
• Not improving product quality.
• Not adapting in time.
• Running into legal problems.

See more: How to collect data so your business can listen to customers

What is the secret to SME success?

In reality, there is no clear formula for an SME to succeed as hoped. But you can get off to a good start by dealing with issues such as capital, where your products will sell, defining potential customers, finding customer profile, customer segments and measuring customer value, and being willing to innovate.

How do you start an SME?

To start setting up an SME, you first need to prepare a few things:

• Prepare capital that fits the scale you want.
• Find a source of goods or raw materials, paying attention to price and quality.
• Find outlets for your product, and prioritize the market with lower requirements first.
• Work out the final cost of the product after deducting production costs.
• Prepare a marketing team to carry out overall marketing for the business and its products.
• Prepare the paperwork for a production license and a tax code from the Ministry of Industry and Trade.

See more:

• Effective product pricing methods for businesses
• Registering your website with the Ministry of Industry and Trade: what you should know

An SME is a business model many people choose, not only because the rules are sometimes more relaxed than at large corporations, but also because the pay can be reasonable if the business does well. We hope this article from Mona Media, has helped you understand this business model better and prepare for your career path.

You may also be interested in:

• The basic secrets to a successful startup
• 9 effective steps to make a business plan for your company