What Is SME? The Secret of Success for SMEs In Digital Age

In recent years, the SME business model has tended to increase in the market and greatly contribute to the economy.

According to the Vietnam Association of Small and Medium Enterprises, by 2022, SMEs will account for about 98% of the total number of more than 800,000 enterprises in the country, contributing about 50% of GDP to Vietnam, with more than 70% of the workforce.

The question is, what is SME? What is the difference between SMEs and startups, and how can we distinguish the types of SME businesses and their role in the Vietnamese market economy?

Let's find the answer with FieldCheck in the article below!

What Is SME?

SME stands for Small and Medium Enterprise (SME) or Small and Medium-Sized Enterprises (SMEs). It is a form of small and medium-sized enterprises known as small and medium enterprises. This business model is quite popular globally and is present in almost all fields.

Although the definition and criteria for classifying SMEs are different in each country, in general, to form SMEs are all enterprises with little capital and resources. And depending on the field of operation, there will be different regulations on capital levels.

Small and Medium Enterprises (SMEs)

The rapid development of SMEs has created many labor market job opportunities and a highly competitive rate. Not only that, but the bankruptcy risk of these businesses is also relatively large.

In Vietnam, SMEs receive much attention and investment from large banking organizations/enterprises. Because of that, the term SME customer was born, which is the name for customers who are small and medium-sized enterprises.

Some people often confuse SMEs with startups. But these are two completely different concepts. Please refer to the next section to know what the difference is.

Difference Between SMEs And Startup

Definition

SME business model refers to companies of medium, small or micro size, usually of a local or regional character.

Meanwhile, Startup businesses are companies in the startup stage - newly established and starting a business. A startup is completely capable of growing in size with a broader vision.

See more: Differences between distributors and authorized dealers

Startup business

Business Aim

SMEs are usually business models that follow a tried and tested model. They will choose highly profitable industries for business such as fashion, apparel, catering, or consumer goods. The size of SMEs is small, so the organizational structure is also compact.

The startup focuses on streamlining the work in the operating system to make it transferable to many people and locations so that they can be substituted for each other.

Competition

Because they operate in areas with high consumer demand, such as food and fashion, on a small scale, SMEs are often not under too much pressure to have innovative or breakthrough products to compete.

On the contrary, establishing a startup business requires the business to have unique and different ideas to stand and develop in the market and attract more investment capital. The competition among Startups is therefore also more intense and much broader.

Competition among SMEs is not too great

Owner/Investor

Most SMEs are individual or family businesses, so that they will be mainly held and operated by family members. Without restricting family management, they have little ability to attract good managers.

Startups will tend to call for more outside investment capital and are willing to share company shares with those investors to receive financial and strategic help for the future development and expansion of the business.

SME model is usually an individual business

Growth Ability

SME businesses often have an initial advantage in terms of growth rate over Startups due to their ability to profit from the first days of entering the market. However, the revenue level of this type of business usually does not increase much.

In addition, for SMEs that provide services such as catering, restaurants, and health care, each time they want to expand their scale, they will have to spend more money to rent a place and recruit more employees, which makes it difficult for the SME model to grow rapidly and excel.

SMEs have the advantage of growth speed over startup

As for the startup model, getting a certain customer will often take a while and may even suffer losses in the early stages. However, if the business achieves certain success, it may have the opportunity to grow dramatically in scale and have many breakthroughs.

This motto is very common in businesses working in software, information technology, digital services, or e-commerce. In particular, when producing one more product unit, these businesses will also cost very little, and they must pay attention to the cost-saving possibilities.

Types of SMEs

In Vietnam, SMEs will be classified based on Government Decree No. 39/2018/ND-CP to suit economic conditions and operating environment.

SMEs are divided into micro-enterprises, small enterprises, and medium enterprises. An example of SME in manufacturing is a firm employing 500 or fewer staff.

In Agriculture - Forestry And Fisheries Sector; Industry And Construction Areas

Micro businesses:

• The average number of employees participating in social insurance is not more than ten people/year.
• Total revenue is not more than 3 billion VND/year, or total capital is not more than 3 billion VND/year.

Small Business:

• The average number of employees participating in social insurance is not more than 100 people/year.
• Total revenue is not more than 50 billion VND/year, or total capital is not more than 20 billion VND /year.

Medium businesses:

• The average number of employees participating in social insurance is not more than 200 people/year.
• Total revenue is not more than 200 billion VND/year, or total capital is not more than 100 billion VND/year.

In Commercial And Service Areas

Micro businesses:

• The average number of employees participating in social insurance does not exceed ten people/year.
• Total revenue is not more than 10 billion VND/year, or total capital is not more than 3 billion VND/year.

Small Business:

• The average number of employees participating in social insurance does not exceed 50 people per year.
• Total revenue is not more than 100 billion VND / year, or total capital is not more than 50 billion VND / year.

Medium businesses:

• The average number of employees participating in social insurance is not more than 100 people/year.
• Total revenue is not more than 300 billion VND/year, or total capital is not more than 100 billion VND/year.

Classification of SMEs

Advantages And Disadvantages of SMEs

Despite being an important part of the economy, SMEs are the most vulnerable, especially when facing negative impacts from the COVID-19 pandemic. Let's find out what challenges and difficulties SMEs will have besides the many opportunities for them to enter the market:

Advantages

• The demand for customers of SMEs is relatively large, providing many opportunities to expand the market.
• Ability to operate flexibly in response to market fluctuations.
• The ability to navigate the management of goods and personnel is much simpler and more compact than that of large enterprises.
• The level of investment and development costs is not too high.
• The ability to quickly recover capital.
• Easily search for human resources.

Abundant workforce

Difficulties

• It is often difficult for SMEs to access capital from financial institutions, affecting their ability to develop and expand their production scale.
• Unable to compete with large enterprises/brands due to low capital potential. Therefore, it is necessary to have a reasonable investment in promotional strategies to build customer trust.
• Customers do not appreciate the facilities and infrastructure of SME enterprises.
• Most SME executives lack the knowledge and skills necessary to manage large-scale businesses, so when SMEs grow larger, they must have policies to attract professional managers and more in-depth knowledge.

SMEs usually have low capital

The Role of SMEs in Vietnam's Economy

Currently, SMEs in Vietnam is opening up more and more, contributing positive and important roles in economic development and solving social problems.

First of all, with the huge number of SMEs, the problem of employment of workers has been more or less solved. Unemployment has also been improved, creating conditions to improve socio-economic development.

Thanks to the small investment scale and compact organizational structure, small and medium enterprises can participate in many different markets to exploit each region's potential and labor strength, especially for SMEs operating in the agriculture - forestry - seafood, and processing industry.

In addition, SMEs also provide the market with a wide variety of products, meeting all the needs of consumers in life, thereby promoting consumption and raising the national GDP. Currently, SMEs contribute 30-53% of total GDP income and produce 19-31% of total exports to foreign markets.

SMEs also play a big role in forming and developing a dynamic and highly qualified business team by creating a free environment for entrepreneurs to develop freely.

Small and medium enterprises in rural areas also play an important role in the industrialization and modernization of rural areas, promoting the development of the local trade and service industry as well as in the process of rural development, narrowing the development gap between urban and rural areas.

The Secret of Success for SMEs in the New Era

Leverage State Capital

Some specific industries, such as high technology, manufacturing tools, and machines, always receive substantial support regarding facilities and tax incentives. Taking advantage of these incentives is a good opportunity for an SME to develop quickly.

Cooperate With Other Businesses

To compete with large enterprises with a strong position in the market, association and cooperation for mutual development are necessary for SMEs. Only in this way can we ensure the success of SME businesses in the competition from financial and powerful giants.

What is the success key for SMEs?

Leverage Banks' Interest

SMEs generate huge profits for banks, receiving special attention from these financial businesses. Taking advantage of preferential loans and interest rates will be an opportunity for SMEs to expand their business markets.

Connect With Customers

Maintaining a customer base is essential for any business. Instead of just making temporary business investments to get back to failure quickly, SMEs need to understand their customers and have appropriate customer care policies to improve the customer experience and develop a long-term business.

Apply Technology

Today, not only are large enterprises digital transformation and application of technology solutions in business-production processes, but many SMEs are also gradually turning towards using software in their activities, such as sales, logistics, marketing, human resource management, etc.

Software is an effective tool to support SME development

The application of technology to SMEs helps them improve labor productivity, efficiency, and product quality, thereby promoting competitiveness and stronger development.

Conclusion

Hopefully, you will have a clearer view of this type of business with the information shared above about the SME business model. If you plan to start a business, consider the benefits and challenges to prepare yourself with appropriate strategies and plans. Good luck!