COMPANY SIZES: CLASSIFICATION AND CHARACTERISTICS (EXAMPLES) - ECONOMY - 2024

Company sizes or company magnitudes are indicators that measure the number of employees in the manufacturing sector. A company is defined as a legal entity that has the right to conduct business on its own account, such as entering into contracts, owning property, having responsibilities, and creating bank accounts.

Companies can be classified into different categories based on their size. For this purpose, different criteria can be used, but the most common is the number of people employed.

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All businesses need to ensure that they offer goods or services that people want to buy, have enough income to cover their costs and make a profit, and that the people who work for them are motivated, well qualified, and work well together.

In some ways, the challenges for small and large companies are not that different. However, small companies operate very differently from large companies.

It is important to keep in mind that size does matter in business, not because the bigger or smaller it is better, but because each type of company will encounter different challenges and opportunities.

Classification of companies according to their size

It is not always obvious how the size of a business should be measured. Several different indicators are available, not all suitable for measuring the size of all types of businesses.

For example, measuring the size of a company based on the amount of profit it makes assumes that it is a for-profit company.

On the other hand, measuring a company's market value assumes that its shares are traded on the stock market, which is not at all true for all companies.

Classification criteria

There are different criteria to carry out this classification of companies according to their size. Here we will see some of the most common.

Technical criteria

It refers to the technological level that the company has. Capital used in innovation is valued.

Economic criteria

Classify companies according to their turnover. That is, by the income derived from sales.

Organizational criteria

It refers to the number of workers the company employs and also how your organization is. In general, this is the most widely used criterion, when it comes to the number of workers.

Net assets criterion

Based on the net assets that companies have: the total of their assets minus the total of their obligations.

Types of companies according to their size

Two measures that are applicable to almost all companies are the number of employees and the annual turnover, which is the total value of the sales made during the period of one year.

These two measures do not always agree with each other: there are some companies with very few employees that nevertheless produce a large annual turnover.

For example, a single person who trades stocks on the stock market could make a large turnover in a year if they were very successful.

The European Commission uses a combination of number of employees and turnover to define the size of a company. In this sense, Law 5/2015 on the promotion of business financing indicates the following groups.

Small and medium businesses

In general, companies with less than 250 employees are collectively classified as small and medium-sized enterprises (SMEs).

Small and medium-sized enterprises actually represent more than 90% of the number of companies in most countries, although they do not employ more than 90% of all employees and do not represent more than 90% of all business transactions.

The fact that a company is classified within one of these groups is quite important. For example, there are many public subsidies for SMEs, which larger companies cannot enjoy.

Micro-businesses

They are those that employ less than ten people and also have an annual turnover of no more than 2 million euros.

Most of us know some companies that are very small. They are companies of a single person or micro companies of less than five people.

Examples might be a one-man web design company, a hair salon, a small caterer, or a small retailer, such as a craft store or flower shop, that employs just one or two other people.

Small companies

Small companies are those with a maximum of 49 workers and also have an annual turnover or total assets of no more than 10 million euros.

Medium companies

Medium-sized companies are those that have fewer than 250 employees and have an annual turnover of no more than 50 million euros or assets below 43 million euros. Construcciones Amenábar, SA is among the 50 most successful medium-sized Spanish companies.

Large companies

At the other end of the scale are companies that are large: multinational corporations that employ thousands of people and operate in many different countries.

Large companies are those that exceed the parameters established for SMEs. They employ 250 people or more, and have an annual turnover of more than 50 million euros.

There are a lot of very famous large companies, such as Microsoft, Coca-Cola, Samsung, Siemens, Renault and many other more or less well-known large corporations.

Start-ups aim for growth, often offering an innovative product, process or service.

Startup entrepreneurs generally seek to expand the company by adding employees, seeking international sales, etc., a process that is funded by venture capital and other investors.

Some large companies have spectacular success stories, starting from scratch and reaching very significant growth. Examples would be Microsoft, Genentech, and Federal Express, which represent the meaning of creating a successful new business from scratch.

Characteristics of a company according to its size

Small and medium businesses

Lower income and profitability

Small-scale business revenues are generally lower than companies that operate on a larger scale.

Small businesses are classified as companies that generate less than a specified amount of revenue, depending on the type of business.

Small market area

Small-scale businesses serve individual communities, like a convenience store in a rural municipality.

The very definition of small scale prevents these companies from serving areas much larger than a local area, as growing beyond that would increase the scale of a small business's operations and push it into a new classification.

Sole ownership or partnership

The corporate form of business organization is not suitable for small operations. Instead, small businesses prefer to organize as sole proprietorships, partnerships, or limited liability companies.

These forms of organization provide the highest degree of management control for business owners. Plus, they minimize the hassle and expense of company registration.

Limited area

A small-scale business can only be found in a limited area. A lot of small businesses operate from a single office, retail store, or service center.

It is even possible to run a small business directly from home, without the facilities of a larger company.

Few employees

Many SME companies are quite small and have very few employees. These limited staff are required to complete all necessary tasks, including production, marketing, sales, and accounting for the entire business.

For example, the business owner may also be the manager who oversees all areas of the business.

Strong relationships

Most SMEs focus on a small number of products and services. This narrow focus allows for strong relationships with trading partners, which in turn provides stability.

The downside of this is that the SME is highly dependent on existing partnerships and may suffer financially if a business relationship is terminated.

Simple structure

SMEs tend to follow a simple business structure, which allows the company to be very flexible and make necessary changes quickly, without requirements such as going to the board of directors or shareholders for approval.

Large companies

Very high assets and turnover

To become a corporation, the business must be large and must possess a large amount of assets, both physical and financial.

The objectives of the company are so high that they are also able to make substantial profits in addition to covering all their expenses.

Branch network

Large companies maintain production and marketing operations in different cities, regions and / or countries. In each country, the company oversees more than one office that operates through various branches and subsidiaries.

Control

In relation to the previous point, the management of offices in other countries is controlled by a central office located in the country of origin. Therefore, the source of command is in the country of origin.

Continuous growth

Large corporations generally keep growing year after year. Thus, they strive to increase their economic size by constantly updating their products and services, and even by making mergers and acquisitions.

Sophisticated technology

When a company goes global, it must ensure that its investment will grow substantially. To achieve substantial growth, they need to make use of capital-intensive technology, especially in its production and marketing.

Correct skills

Large companies employ only the best managers, who are capable of handling large financial funds, using advanced technology, managing workers, and also managing a large business entity.

Energetic marketing and advertising

One of the most effective survival strategies of corporations is spending a large amount of money on marketing and advertising. This is how they can sell every product or brand they make.

Good quality products

Because they use capital-intensive technology, they are able to create top-of-the-line products. This is essential for the company to get the number of customers it needs and the benefits associated with it.

References

1. OECD (2019). Enterprises by business size (indicator). Taken from: data.oecd.org.
2. BBVA (2019). Classification of companies according to their size. Taken from: bbva.es.
3. Open Learn (2019). Classifying businesses by size. Taken from: open.edu.
4. David Ingram (2019). List and Explain the Characteristics of a Small Scale Business. Small Business - Chron. Taken from: smallbusiness.chron.com.
5. Michael E Carpenter (2017). Characteristics of SMEs. Bizfluent. Taken from: bizfluent.com.
6. CFI (2019). Multinational Corporation. Taken from: corporatefinanceinstitute.com.