Small Enterprises in New Zealand
For an island country with a population not exceeding 4.8 million, New Zealand does well economically. This success is attributed to multiple factors, but the role of small businesses in driving growth is a major influence. Additionally, New Zealand distinguishes small enterprises from large enterprises but not medium enterprises. The definitions of enterprises in New Zealand are unique and quite simplified compared those of other nations, and the small enterprises in the state are young and dynamic and have contributed to the growth of the country’s economy.
Definitions of Small Enterprises in New Zealand and other parts of the World
The characteristics of a small business are diverse, so different countries have come up with specific definitions for small and large businesses. New Zealand has one of the simplest definitions as it defines small and medium-sized enterprises as organizations with less than 20 full-time employees (Schaper et al., 2014). On the other hand, large firms in New Zealand are those that have over 20 full-time employees. Like New Zealand, Hong Kong, and Singapore have simple definitions for different enterprises. The latter identifies enterprises based on annual sales turnover or size. Accordingly, a small enterprise is defined as a firm with annual sales of not more than S$100m or that with employment size not exceeding 200 employees (Schaper et al., 2014). On the contrary, Hong Kong’s definition of small and medium-sized enterprises is any firm with less than 100 employees if it falls in the manufacturing sector, or less than 50 employees if it falls in any other sector (Schaper et al., 2014). Therefore, Hong Kong defines the mentioned businesses depending on the industry within which an enterprise falls to define it. Like New Zealand, Hong Kong, and Singapore, do not have a categorical definition for the other categories of businesses, namely, micro-enterprises and medium firms, unlike other nations in Asia and the Pacific. For example, India, Australia, and China have detailed descriptions of different enterprises (Schaper et al., 2014). The Australian Bureau of Statistics (ABS) identifies four main categories of businesses, including micro (organizations with less than five staff), small (enterprises with 5-19 staff), medium (firms with 20-199 staff), and large (companies with over 200 staff) (Schaper et al., 2014). China defines a micro-enterprise as an organization with less than ten employees, a small enterprise as one with 10 and 99 employees, a medium business as that with 100 and 300, and a large enterprise as one with over 300 employees (Schaper et al., 2014). Based on China’s definitions, it is justifiable to state that the readily available of cheap labor plays a role in determining acceptable definitions in the country.
In India, different definitions of businesses exist in the manufacturing and service sectors, and the descriptions are defined by the level of investment in plant and machinery. For instance, in the manufacturing sector, a micro-enterprise is a firm with an investment of fewer than 2.5 million rupees (Schaper et al., 2014). A small enterprise is a firm with an investment ranging between 2.5 and 50 million rupees. A medium enterprise is that with an investment ranging between 50 million and 100 million rupees, and a large firm is that with an investment exceeding 100 million rupees (Schaper et al., 2014). In the service sector, a micro-investment is that with an investment of fewer than 1 million rupees. A small enterprise is identified as that with an investment ranging between 1 million and 20 million rupees. The investment for a medium enterprise has to range between 20 million and 50 million rupees while that of a large enterprise has to exceed 50 million rupees (Schaper et al., 2014). Based on the different definitions across different countries, it is worth acknowledging that while different countries define small enterprises distinctly, all of them recognize the relatively low investment in small enterprises is common. To a large extent, low investment explains why most small and micro-investments have less than 20 employees. Furthermore, based on the definitions used in countries like India and China, the level of growth of a country’s manufacturing sector also determines its categorical definitions of businesses.
Measuring the Contribution of SMEs in New Zealand
Small enterprises have significantly contributed to the growth of the economy of New Zealand. About 97% of businesses in New Zealand are small enterprises, and they have employed over 600,000 individuals out of a population of not more than 4.8 million people (Hikina Whakatutuki, 2017). Moreover, small enterprises have employed 29% of individuals in the employment sector. According to statistics released by the country’s Ministry Of Business, Innovation, and Employment, small enterprises contribute 28% of the country’s GDP. Furthermore, the feasibility of starting a small business in New Zealand is justified by the fact that 70% of small enterprises in the country have zero employees (Hikina Whakatutuki, 2017). The industry with the highest percentage of small enterprises is rental, hiring, and real estate, which had 107,619 enterprises as of February 2016 (Hikina Whakatutuki, 2017). Starting an enterprise in this industry is not capital intensive and does not require a large workforce.
Other than the dominance of small enterprises in New Zealand, findings by the ministry also reveal that these firms are young and dynamic. In fact, a third of all small enterprises have existed for five years or fewer, and 52% of the firms established in 2010 were surviving as of 2016 (Hikina Whakatutuki, 2017). Hikina Whakatutuki (2017) also observes that, although the survival rate of small enterprises in New Zealand is impressive, it does not match that of large firms, 80% of which had survived during the same period. Besides, small enterprises not only employ a large segment of individuals in the country’s job sector but also ensure that the rate of compensation grows consistently over time. Thus, while the average compensation of small enterprise employees was $43,693 in 2013, it had grown to $45,867 in 2015 (Hikina Whakatutuki, 2017). Another noteworthy finding relates to the annual job creation of different enterprises in the country. The ministry observes that small enterprises employ an average of 111,873 employees per year (Hikina Whakatutuki, 2017). Although the country does not recognize medium enterprises, it is noted that the average employed by enterprises with 20-49 employees is 32,540 (Hikina Whakatutuki, 2017). Small enterprises in New Zealand also rely on the demand for the respective services they provide, which explains why the industry with the highest contribution small enterprises is rental, hiring, and real estate. Other sectors that are highly represented by small enterprises are finance and insurance services; agriculture, forestry and fishing; and arts and recreation services.
Many of the Maori community have become small businesses owners and have employed others. An analysis of employment rates by ethnicity reveals that 10 percent of Maori run their own businesses, either by self-employment or by employing others (Hikina Whakatutuki, 2018). Moreover, Mika suggests that Maori entrepreneurs attribute pride in conducting business in a way unique to the Maori community. Some of the most important principles for entrepreneurs include duality, permanence, collectivism, and integrationality (Mika, 2015; Al-Qirim, 2007). Thus, publicly funded enterprise assistance plays an important role in ensuring the survival of Maori enterprises (Al-Qirim, 2007). Thus, with further government support for Maori enterprises, it is highly likely for the Maori community to contribute more to the economy of New Zealand through self-employment and employment of others through small enterprises.
The mentioned findings about small enterprises in New Zealand suggest that they play an indispensable role in the country’s economy. The country provides an ideal environment for the establishment of small enterprises. As such, it is imperative the government, through the ministry of business, innovation, and employment should continually support individuals willing to set up small enterprises. Doing so would ensure that communities like the Maori have the financial backing necessary to start their own businesses.
Al-Qirim, N. (2007). The adoption of eCommerce communications and applications technologies in small businesses in New Zealand. Electronic Commerce Research and Applications, 6(4), 462-473.
Hikina Whakatutuki (Ministry of Business, Innovation, and Employment). (2017). Small Businesses in New Zealand – How do they compare with larger firms? Retrieved from https://www.mbie.govt.nz/assets/30e852cf56/small-business-factsheet-2017.pdf
Hikina Whakatutuki (Ministry of Business, Innovation, and Employment). (2018). New Zealand’s Support for Small Business. Retrieved from: https://www.business.govt.nz/assets/Uploads/Documents/Small-business-booklet.pdf
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Mika, J. P. (2015). The role of publicly funded enterprise assistance in Māori entrepreneurship in Aotearoa New Zealand. (A thesis submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business Ph.D.), Massey University, Palmerston North, New Zealand.
Schaper et al. (2014). Small business: definitions and characteristics.