E-commerce somewhat levelled the playing field for businesses. These days, regardless of the size of your business, you have many opportunities to tap your target market. For instance, you can utilise the potential of digital marketing and use free platforms such as social media to let people know about the products and services you sell. That's a welcome change for small- to mid-sized enterprises (SMEs).
Still, it's worth noting that SMEs have an uphill battle against corporations due to different factors. These two business structures primarily differ in terms of size, funding, reach, and management. The latter are established names and have more substantial resources. But those are not the only ways these two types of businesses differ.
In this infographic, we explore further the key differences between SMEs and corporations.
SMEs vs. Corporations
Different countries have their specific parameters for a business to qualify as an SME. The common factors considered include the number of employees and available capital or revenue.
In Canada, SMEs refer to businesses with fewer than 500 employees. In the European Union, SMEs have a maximum of 250 employees and €43 million in their balance sheet.
China and the United States share the same principles when categorising SMEs. The designation is industry-dependent. In China, upper employee limits can be as large as 1000 employees and as small as 200. In the U.S., the employee cap can reach up to 1200 or as small as 500 if you manage a manufacturing business in rice milling.
Meanwhile, the Australian Bureau of Statistics defines SMEs as an entity with less than 20 employees.
SMEs make up the majority of businesses around the world. In the U.S. alone, 99.9% of companies are labelled as small, according to the Small Business Administration (SBA) report in 2018. They also estimated SMEs' contribution to the national GDP at 44% based on data from 2014.
Typical examples of SMEs include legal offices, trucking companies, dentist offices, personal care services, and bars and restaurants. These businesses have a smaller pool of employees compared to, let's say, corporations.
Corporations, meanwhile, are legal entities independent of their shareholders. It's worth noting that a corporation is not owned but shared by a few businesspeople (closed corporation) or a large number of private individuals (publicly traded corporations).
Corporate shareholders realise stock appreciation and company dividends but are not necessarily liable for debts incurred by the corporation (limited liability). They also elect a board of trustees who make critical business decisions and may be liable for financial losses and other business missteps.
Think of a corporation as a legal person. It has legal rights and responsibilities such as paying taxes and owning assets. It can sue and be sued, loan or borrow money, and enter contracts and hire employees. It can file for bankruptcy too.
7 Key Differences Between SMEs and Corporations
SMEs and corporations have the following distinctions:
Research & Development - Both types of businesses aim for growth and expansion. That is pursued via market research and product development, among other strategies. However, corporations have the upper hand given their access to significant capital and resources.
Structure - Working for a big corporation typically means employees are spread across multiple office floors. The hierarchy is obvious — chances are, you will only see your department's VP at corporate events. In SMEs, your boss is just a message away. There's a more collaborative vibe among employees regardless of rank or department.
Market niche - Corporations can afford to tap new market segments with every fresh product or service they introduce. Meanwhile, SMEs need to start with a niche market. When this niche market delivers the revenue needed for expansion, that's the time an SME can explore other market segments.
Financing - There's no shortage of willing investors ready to bet on an established corporation. Venture capital firms also exist to keep funding sustainable. As for SMEs, capital comes from out of the entrepreneur's pocket or from loan providers. Sometimes, friends and family members chip in to make an aspiring entrepreneur's dream come true.
Revenue - SMEs have a limited source of revenue given their limited products and market reach. Corporations juggle multiple products and services across an array of markets, giving them the power to leverage successful offers and offset any failed business decisions. An increase in corporate revenue is distributed among shareholders via stock appreciation.
Culture - SMEs don't have a lot to lose, so they are more inclined to experiment. They try to find new ways of doing things. Any strategy where they can stand out is a good idea. Meanwhile, corporations are set in their ways and stick to those established protocols most of the time.
Employees - A corporation's strong and established culture often yields a homogenous workforce. SMEs tend to have more diversity in terms of the people they attract. These workers usually are in it for experience or experimentation too. They would have joined a big corporation if they were looking for security and the proverbial ascent up the corporate ladder.
How to Gain a Competitive Advantage Against Corporations
Build a reputation as a local business - Announce your arrival to your immediate community. Your brand should be unmissable from the get-go. Take an active role in community events to increase your social capital. Participate in charitable causes. Maximise local infrastructure.
Make customer service a top priority - Do not lose ten potential customers by not giving one what they expect from you. Your goal is to have repeat transactions and build a loyal clientele. Plus, you need your regulars' referrals.
Focus on a niche - While your goal is to eventually expand, for now, settle with a specific market. Satisfy your current audience to the best of your ability, and once you have loyal customers who can sustain your sales targets, start exploring growth opportunities.
Create a customer loyalty program - Make your loyal customers feel valued. Come up with a customer loyalty program. It can be as simple as giving your avid supporters the first dibs on new products or providing exclusive discounts and freebies.
Grow Your Business
Both SMEs and corporations have strengths and weaknesses they have to maximise and contend with, respectively.
For example, the former is more inclined to less measured experimentation but has to settle with a small portion of any given market. Meanwhile, the latter gets revenue from a diverse portfolio of products and services but are more susceptible to market fluctuations.
In terms of capital needed for growth and expansion, neither business structure is immune from the woes that issues with cash flow can bring — both types of businesses could use invoice financing from time to time. That's something Earlypay could provide via competitive financing options.