Definitions

SMEs AND MITTELSTAND

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The terms ‘Mittelstand’ and ‘small and medium-sized companies (SMEs)’ are often used in connection with family businesses. But these consider size, which is a different (research) objective.

Definitions:

SME definition by the European Commission:
Definition according to the Commission Recommendation of 6 May 2003 (recommendation 2003/361/EC), which since 1 January 2005 has replaced the previous recommendation (96/280/EC). Companies with

• up to 9 employees and up to €2 million annual turnover or an equivalent balance sheet total are micro-enterprises
• 49 employees and an annual turnover or balance sheet total of up to €10 million are small enterprises
• 249 employees and an annual turnover of up to €50 million or an annual balance sheet total of no more than €43 million are medium-sized enterprises.

The business must also be largely independent. This means that companies more than 25% owned by a corporate group are not SMEs.

The official definition of the EU can be found here.

SME definition by the Institut für Mittelstandsforschung (Institute of Mittelstand Research), Bonn:

The term ‘Mittelstand’ is used exclusively in Germany. In other countries, the equivalent term is small and medium-sized companies, which is a statistically defined sector of the economy as a whole. This is the basis on which IfM Bonn has, since 1 January 2002, defined businesses with

• up to 9 employees and less than €1 million annual turnover as small enterprises
• up to 499 employees and less than €50 million annual turnover as medium-sized enterprises.

The official definitions of IfM Bonn can be found here.

Problems in these definitions:

In the WIFU’s view, the terms ‘Mittelstand’ and ‘SME’ are not especially useful when it comes to delineating the specifics of this business category. They look solely at the size of the company but ignore the key differentiating feature – the family factor in the business – which is reflected in the special ownership structure of family businesses. Research over the past 20 years has allowed us to conclude that key leadership decisions in family businesses can be explained by the conjunction of family and business logic, and less by the benefits and drawbacks of any particular size. Investment decisions and dealing with customers, suppliers and employees, all of which aim at sustaining the business for generations to come, are what unite family businesses, regardless of their size, and set them apart from publicly owned companies, which are enterprises that embody anonymous ownership structures.