Definition of SMEs
The term “small and medium-sized enterprise” (SME) is used by, among others, the World Bank, the World Trade Organization, the United Nations and the European Commission to refer to smaller privately owned corporations, partnerships and sole proprietorships, but there is some variation in the definitions of what counts as an SME in different parts of the world: According to the European Commission’s definition, small companies are those that employ between 10 and 50 employees, while medium-sized enterprises are those that employ between 50 and 250 workers. The United States’ definition of medium-sized enterprises may include as many as 500 employees, while a small enterprise as defined in the Australian Fair Work Act, 2009, refers to enterprises employing fewer than 15 workers and a medium-sized enterprise refers to one employing fewer than 200 workers.
Difficulties faced by SMEs
SMEs make a huge contribution to both the economy and the employment generation of many countries, but they face a number of difficulties which make it especially hard for them to survive in today’s economic climate. The major challenges facing SMEs are an increasingly competitive environment, government regulations and the availability of a skilled workforce. In a global survey carried out by consulting group Arthur Anderson in 2001, the majority of SMEs reported that finding and retaining qualified staff was their greatest challenge. This is precisely where outsourcing can make a difference.
Outsourcing as a strategic business intervention
In terms of the history of outsourcing, ie, the use of outside resources to perform activities traditionally performed by internal staff, large corporations or so-called transnational corporations (TNCs) have been early adopters. In the 1990s, as companies began to focus on cost-saving measures, these enterprises began to outsource those functions necessary to run the business but not related to its core function. Offshore outsourcing was a natural consequence of the comparative advantages of individual locations. Over the past decade, however, small and medium-sized enterprises have increasingly realized the opportunities presented to them by offshore outsourcing, and more especially – outsource admin services.
Reasons for opting to outsource
Some of the reasons why SMEs choose to outsource admin services:
- To reduce operating costs – outsourcing will save your business money on office space, stationery, and general running costs.
- To reduce staff costs – you will typically save on costs such as sick leave, vacation leave, maternity leave and overtime pay, as well as time spent on managing employees.
- To improve company focus – you can shift your focus from secondary activities to those that are directly concerned with your customers and free up valuable time for yourself as manager.
- To buy expertise that is not available internally or make use of better qualified expertise – your business will have access to knowledge that you might not have inside your company and you can make use of experienced workers instead of having to train your own staff.
- To share risks with an outsourcing partner – you can avoid downtime when work slows down. Downtime is a serious risk for a small business owner and an important advantage of outsourcing business services is that you only pay for what you use.
Functions to outsource
A great many business processes and functions can be effectively outsourced to a service provider, but here are some of the most frequently outsourced:
- Administrative tasks – typing, data entry and email can be effectively handled by a virtual assistant;
- Accounting and financial functions – bookkeeping, invoicing, accounts payable and receivable, payroll processing and financial reporting;
- IT operations – IT maintenance;
- Human resources – recruitment functions such as advertising, screening and checking references, and managing employee benefits;
- Lead generation – sales calls;
- Customer support – call centres; and
- Marketing – press releases, website design and online marketing through social media, writing and design, and creating presentations.