Much is written about the SME's; a subject relevant to the vast majority of Maltese businesses falling within this one huge basket of small and medium enterprises.

And the more one reads about these SME's dwelling so snugly in this one internationally coined collective, one is tempted to believe that the medium and the small do not differ materially from one another; and indeed share the same commercial realities.

This, is not always the case, more so in microcosmic Malta where experience reveals that small is to medium as cheese is to chalk.

 In this discussion I seek to identify the medium enterprise within a locally relevant context and present my case that our commercial environment is progressively becoming all the more hostile to its existence.

At the outset, I wish to declare that my thoughts are primarily focused on those enterprises operating in the local market. Aspects of this discussion might be either irrelevant or inconclusive to realities of export-oriented entities.

 IDENTIFYING THE MALTESE MEDIUM ENTERPRISE

More often than not, we tend to classify business entities by the measurement of their vital statistics. For example, in a bid to differentiate between the elephant-companies and the mice, Companies Act, 1995, uses turnover, gross profit and/or employment levels of the business entity.

In the process of differentiating between the medium and the small enterprise, I believe that our microscope should focus more on distinctive qualitative features than on mathematical attributes. Size of the entity might not be a reliable indicator.

So, how does one go about spotting the Maltese medium enterprise?

I wish to present the Maltese medium enterprise as the smallest possible business entity which can operate viably without its owner's direct involvement; this being the minimum entry level to achieve medium status.

Thus, if the owner of such an enterprise barracked himself at Xlendi for an unexpected five-year holiday, or simply dropped dead, the business would continue to function and provide him or his beneficiaries a return on investment.

It logically stems from my argument that it is quite possible to have a medium enterprise which is physically smaller than a small enterprise......meaning that, whereas the medium has relegated the owner to a sleeping status, the latter, despite being physically larger, remains attached to his tithe.

Size, has nothing to do with the argument in hand!

On the other hand, my argument does not preclude the owner from holding a strategic position within his medium enterprise, so long as he does not become absolutely irreplaceable or indispensable to its viable operation.

 OPERATING VIABILITY WITHOUT SOCIAL SHORT-CHANGE

Now, this is where the head scratching starts. The strength of my definition permeates on operating viability. One expects the medium enterprise to enjoy a reasonably organised and efficient infrastructure, proper internal controls, and, above all, the entity must be operationally viable after the payment of all its fair dues to society.

In short, this business does not achieve profitability by way of illegitimate short-cuts....no Basil Fawlty renditions.......no omnipresent owner fiddling around. This is a case of profitability without social short-change.

Even if we cast moral considerations to the wind, a business should never be allowed to get away without paying its fair dues to society. With this unfair competitive advantage, a business might end up replacing a competitor that would otherwise pay his fair societal dues.

 SHIFTING FROM SMALL TO MEDIUM

What does it entail to shift from small to medium?

Above all, the entrepreneur needs to adopt a resolute mental attitude. He must want to become medium and apply his ability and acumen to gradually implement those distinctive qualitative features which give the enterprise its medium status.

The shift does not come without cost. There are times when the investment in this shift seems a sheer waste of good money.........and these added costs tend to make the business buckle all the more dangerously during the tribulations of physical expansion.

And, as if this was not enough, the Maltese medium enterprise is prone to three other adverse factors which cause many a budding entrepreneur to fall by the wayside and revert to being small.

 THE THREE FACTORS

 The three adverse factors are:

1 Fiscal Policy

Cognisant of its inefficacy to combat tax evasion, government increases its tax rates to collect more from petty declarations.

If little Jack hides two thirds of his income, Government has two options; either to catch Jack (a very expensive exercise, given the inefficiency of the Civil Service) or tax Jack at higher rates and get more tax from the little he declares.

In this latter scenario of increased tax rates, the medium enterprise (which pays all its dues) would have to incur tax at unfair rates and which are indiscriminate to entrepreneurial effort and risk.

I firmly believe that our tax rates are on the high side and a severe impediment to the growth of medium enterprise.

 2 Competing against the Smaller Operator

There is nothing more invigorating than a bout of fair competition to get adrenaline pumping. It only stops being a game when competition becomes unfair. How unfair can it get?

Imagine a medium enterprise competing against a smaller operator who evades VAT, income tax, buys his stock underhanded to get incremental discounts from his suppliers, and, if he actually employs anybody, pays the worker at minimum scales with the balance of wages paid in the hand at reduced rates.

With this unfair advantage, this smaller competitor would run circles around the neat and proper medium business in the market place.

3 Foreign Pressure and Good Connections

Why is it that every foreign Tom, Dick and shady Harry who lands here with a mere fistful of investment dollars, or perhaps, under the guise of an international franchise, is given the red carpet treatment?

This also applies in the case of well-connected local operators who are afforded preferential treatment lest they get the slightest of hiccups in their quasi-parastatal operations.

On the other hand, the unconnected medium entrepreneur who is not big enough to be considered large, but has the problem set of the large entity has to wage long and protracted `do or die' battles for every one of his well-deserved rights against a pedantic Civil Service.

Well, this is Malta, still reeling under a colonialist mentality and where a good stint of lobbying prevails over knowledge, performance or rights. Let no-one point his finger at any specific political party. This has happened under all the administrations since Independence.

 CONCLUSION

Having briefly gone through the three factors that adversely affect the medium enterprise, I wish to gravitate towards my final contentions, namely:

1. In Malta, we are making the cardinal mistake of lumping the small and medium businesses in one big heap. It is important to start sifting through this heap of arms and legs and subdividing it into two classes, namely the Small and the Medium enterprises.

2. We should then focus on the small enterprises and, where possible, assist them in understanding the medium mentality. Small operators need to be educated before any is form of assistance is granted to them. Unless society is guaranteed that it will get its fair dues from them, they should not be granted any assistance except by way of education.

3. Medium enterprises, which fall within the parameters defined above, should be recognised as a separate and distinct block. It is being recommended that an organisation (akin to IPSE, but not IPSE) be set up to lend support and lobby only in the interest of the medium enterprise. The benefits accruing to the members of this organisation might tempt the small enterprises into joining this club!

 Whether we are shaping up for Europe or Timbuktu will make no difference because at the end of the day, it is up to us to choose between having businesses contributing fairly to our society or bands of pirates fleecing it off.

Malcolm Caire