Small and Medium Enterprises (SMEs) are defined as non-subsidiary, independent firms which employ less than a given number of employees (OECD). This number varies between countries, with the most frequent upper limit being 250 employees, as in the European Union [EU, SME Definition]. However some countries set the limit at 200 employees, while the United States uses 500 employees. Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most ten, or in some cases five workers. Financial assets are also used to define SMEs. In the European Union, SMEs must have an annual turnover of EUR 40 million or less and/or a balance-sheet valuation not exceeding EUR 27 million. [OECD Policy Brief 2000]
The approximately 400 million Small and Medium-sized Enterprises (SMEs) are the backbone of economies around the world. They are the main source of job creation globally , accounting for over 95% of firms and 60%-70% of employment. SMEs generate a large share of new jobs in OECD economies, and even more in the EU, where they represent approx. 99 % of all businesses, create around 85% of new jobs and provide 2/3 of the total private sector employment in the EU. [European Commission: SME portal]. Similarly, in the Global South, growth in overall employment is generally connected to the development of SMEs. [see e.g. OECD, Responsible Business Conduct in Georgia, 2016]. Considered key to ensuring economic growth, innovation, job creation, and social integration, not least thanks to their close relations with employees, the local community, business partners, etc., they also make an integral part of global supply chains, both as buyers and suppliers [European Commission: SME portal].+ Read more
At the same time, they have specific strengths and weaknesses that may require special policy responses. As new technologies and globalisation reduce the importance of economies of scale in many activities, the potential contribution of smaller firms is enhanced, with many of them being at the forefront of innovative solutions of relevance to human rights (for example The LifeStraw). However, many of the traditional problems facing SMEs – lack of financing, difficulties in exploiting technology, constrained managerial capabilities, low productivity, regulatory burdens – become more acute in a globalised, technology-driven environment.
The UN Guiding Principles on Business and Human Rights (UNGPs), Guiding Principle 14, states:
“The responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure. Nevertheless, the scale and complexity of the means through which enterprises meet that responsibility may vary according to these factors and with the severity of the enterprise’s adverse human rights impacts.”
The Commentary to Guiding Principle 14 states that:
“the means through which a business enterprise meets its responsibility to respect human rights will be proportional to, among other factors, its size. Small and medium-sized enterprises may have less capacity as well as more informal processes and management structures than larger companies, so their respective policies and processes will take on different forms. But some small and medium-sized enterprises can have severe human rights impacts, which will require corresponding measures regardless of their size. Severity of impacts will be judged by their scale, scope and irremediable character. The means through which a business enterprise meets its responsibility to respect human rights may also vary depending on whether, and the extent to which, it conducts business through a corporate group or individually. However, the responsibility to respect human rights applies fully and equally to all business enterprises.”
Despite clear references in the UNGPs and the role they play in the global economy, the importance of SMEs and their key role in creating a paradigm shift in how business is being done, has been largely neglected in the debate on business and human rights . [See report, by IOE and IL]. Only more recently is attention being paid to the support needed by SMEs to improve working conditions and develop more mature labour relations, such as inexpensive provision of working capital for investment in working conditions and other business practices, as well as training on occupational health and safety standards. . [See e.g. recording of the 2015 UN Forum on Business and Human Rights session on “SMEs, informality and human rights: challenges and solutions”, WebTV]
At the same time, while for Being part of the global supply chains, SMEs are often required to integrate and comply with their business partners Codes of Conducts, also contributing to behavioral change.
While still a majority of the guidance to business is better suited for large corporates, various actors undertook efforts to develop materials and guidance aimed particularly at the SMEs, with the aim to raise their awareness, build capacity and understanding the advantages of respecting human rights such as cost reduction or retaining and attracting the best staff or improving productivity and performance, or safeguarding the business’ reputation. For example, the UK Equality and Human Rights Commission has developed a series of guides tailored to the specific needs of small and medium sized businesses, while the European Commission in 2012 published in all EU languages , “My business and human rights, A guide to human rights for small and medium-sized enterprises”. Additionally, the United Nations Global Compact launched the express Communication on Progress (COP) to help Small and Medium-sized Enterprises with limited resources to regularly disclose progress on sustainability within their means.
The issues of small & medium-sized enterprises relate to the following Sustainable Development Goals