Here are the two main criteria used to define the concept of small business

‘Small is beautiful’ Small-scale enterprises are found in every country. These units possess a special place in the industrial structure of a country. In a developing country like India, where there is big problem of unemployment on one side and scarcity of capital on the other it is only the small entrepreneurs sector which is best suited under these conditions. Small-scale business units provide immediate large employment and have a comparatively higher labor-capital ratio. They need a shorter gestation, period. They need low investments. The Government of India has been encouraging the growth of this sector in view of the vast potential of small entrepreneurs.

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Concept of Small Entrepreneur:

The concept of small entrepreneurs varies from one country to another and from one time to another in the same country depending upon the pattern and stage of development, government policy and administrative set up. The two main criteria used to define the concept of small business are as follows:

i. Size of Business


ii. Qualitative Criteria

(i) Size of Business:

Size refers to the scale of operations. Size may be measured in the following ways:

(1) Total capital investment

(2) The value of total assets or fixed assets


(3) Total investment in plant and machinery

(4) The number of persons employed

(5) Volume or value of production or output

(6) Volume or value of Sales Turnover


(7) A combination of the above.

Basis of defining Small Entrepreneurs in various countries.

Sl, No.Criteria Name of countries
1.Investment in Plant and MachineryIndia, Pakistan, Indonesia
2.Employment generationUSA and UK
3.Investment and EmploymentJapan, Korea and Philippines
4.Volume of production and sales turnoverChina, UK
5.Employment and sales turnoverKorea
6.Investment and sales turnoverMalaysia

(ii) Qualitative Criteria.

Size does not always reflect the true nature of an enterprise. In addition qualitative characteristics may be used to differentiate small business from large-scale business.

There characteristics are as follows:

(1) Ownership:

A small scale industry is generally owned by one individual (sole proprietorship) or by a few individuals (partnership).

(2) Nature of Management:

Management and control of small business tends to be personalized and independent. The owner himself acts as the chief executive of the firm.

(3) Technology:

Generally, labor – intensive technology is adopted in small scale enterprise.

(4) Geographical Area of Operations:

The area of operation of a small scale unit is limited or local.

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