The SMEs received an increasing attention and gained more importance after 1945 because of the crucial role these enterprises played in reconstruction of Europe and building the economy of the defeated countries in the Second World Ware particularly Germany and Japan when the big companies where destroyed and the markets were shrinkage in European and south and east Asian countries because of the political situation prevailed after math of the second World War

In Japan for example, after the Second World War and its mass destruction and disastrous impacts on the economy of Japan, the small and medium size enterprises have served as the driving and dominant force of Japan's economy. The total number of small business in Japan are 6.47 million out 6.53 (excluding primary industry) which represent 99.1 % of the total businesses,  SMEs contribution amounts to the 76.5% of total employment ( excluding  employment in the prime industries)Their number of employees are 41.42 million people out of the 54.16 million, the total  employment  in Japan , 51.7% of the total shipment of manufacturing  industry, 61% of the total sale in the whole sale and 78% in the retail.  Because the significant role and contribution of  SMEs to the national economy, it is  become necessary to encourage SMEs for balanced growth and development of the nation economy and to this effect a law of Small and Medium size Enterprise  was enacted later. (1)

Statistical reports conducted in some industrialized countries prove the ability of Small business to live, survive and even grow during the periods of economic stagnancy when thousands of companies bankrupted and millions of jobs were lost the small business maintained its dynamics and growth. Studies over the last 15 years in the USA show that the small business has become a powerhouse of the job creation. Two thirds of the net jobs over the last 25 years have been created by small business. During the national rescissions of the economy small business appears to be almost the sole source of job growth. From 1988-1990 small business with fewer than 20 employees accounted for 4.1 million net new jobs, while large firms with more than 500 employees lost 501,000 net jobs  (2). Another study conducted by the Association of Canadian Businessmen indicate that the small business provided 95% of the new jobs during the period from 1975 to 1982 and in Britain a study conducted by New Castle University indicated that the Small business created 31% of the total the total new job opportunities created during from 1971 to 1981. (3)

Definition of SMEs

The definition of small enterprises defers according to the criteria applied and the interests of different groups and institution dealt with this issue; banking and financial institution placed more emphases on fixed assets and ability to pay back its financial commitments, labor unions view the number of employees more important than financial aspects, trade companies regarded the turn over, service companies number of clients and the industrialist production capacity and number of production units.

The following table shows some of the developing and industrial countries applied the number of employees as  a criterion for the definition of small enterprises

Some countries used the invested capital either a lone or together with the number of employees. Following table shows some of these countriesp

It is evident from that the most common criteria for definition of small enterprises are the invested capital and number of employee’s (5)

Definition of SMEs in Japan

SMEs in Japan are defined by the Small and Medium Enterprise Basic law. Furthermore, small and Medium Enterprise Basic Law and other SMEs related laws
 

1- Small and Medium Enterprise

Note:   the original law was amended regarding capital size in 1973. Before that modification, capital size for mining & manufacturing and other industries was Y 50  million or less and that for commerce and services was Y 10 million or less (1)  
 

2- Small Scale Enterprise

SMEs in Germany

Unlike in many other countries, small business in Germany is not defined by a number of employees nor by the volume of assets, but is identified by belonging to the one of more than 125 classified trade and profession, fixed by Small Business Law. Small business is not considered as a part of industry whether big or small but as independent economic sector apart from industry and commerce.

A prerequisite for becoming an entrepreneur in the one of more than 125 professions and trade is a major qualification certificate. The Certificate is obtained by passing the Master examination. Only those who have achieved Master Status are entitled to start their own business, to take over a business from some body else and to engage and train apprentices. This is more applicable to craft sector rather than SME.
 

SMEs in Arab Mediterranean Countries and Role of the Governments in supporting them.

Although the efforts made to promote SMEs in the Arab countries is far lacking behind the level of support the SMEs disserved on their contribution to GDP and employment, these efforts could be seen as an indicator of change and realization of fact that the economic growth can not be achieved by the big companies that forming only 10% of the total business in the Arab World. Based on this realization some Mediterranean countries particularly Tunisia, Morocco, Algeria, and Egypt later enacted laws and regulations favor the development of SMEs and launched ambitious programs to alleviate the constraints that facing the development of SMEs particularly constraints on access to funds.

Palestinian Private Sector and SMEs

The Palestinian private sector has been the dominant economic force in the Palestinian territories accounting for approximately 85% of the GDP, the vast majority of productive assets are privately owned. However the size of the role played by the private sector with regard to its contribution to GDP is perhaps much attributable to the absence of the Palestinian public sector during the occupation decades as it is to the strength of the private sector.  In addition, the economic structure of the Palestinian economy is characterized by three factors:

1. More than 25% of GNP can be attributed to export of labor from Palestinian to  Israel and Gulf countries
2. More than 70 % of the Palestinian export trade is with Israel with a significant portion of that trade carried out through subcontracting arrangements.
3. About 85% of Gross Capital Formation went into construction, mainly housing.

Now, with the demand from the Gulf countries for the Palestinian labor drying up and the demand from Israel uncertain, future sustained economic growth requires reorientation of the economy toward diversification of market, transformation from export of labor to export of goods and services. The ability of the Palestinian economy to meet these challenges and to adjust to the changing environment within Palestine and in the global economy will depend on the private sector success in increasing investment, expanding productive activities and improving both direct and indirect export. Achievement of these objectives requires careful diagnosis of existing condition, effective institutional support and sound planning.

Importance of the Palestinian Small and Medium Size Enterprises in the Palestinian Economy

Small businesses form the backbone of the economy; they are viewed as a vital mean to expand market and to create healthy employment opportunities.  The major advantages of small business lies in its potential for innovation, flexibility, low start up cost, rapid development and distribution of the risk. Small business provides a solution to the employment problems of special groups such as women, ex-detainees, returnees and young people and new graduates.

The Palestinian SMEs have been playing very important role in every area of the national economy. 1995 statistics revealed that out of the total 54,832 businesses 53,130 or 97% are small businesses with less than 10 employees as shown below:
More details are provided in table 1 appendix 1
 

These small and medium size enterprises employ 91404 persons or 65.7% of the total employment in the private sector excluding health and education sectors. They are distributed to sector as follows:

Industry	31042	57%
Trade	W. Sale  7681	79%
	R. Sale 24608	98%
Service	26183
Construction *	1890	65%

Source (5)

* The number does not include the small businesses in the rural that are neither licensed nor registered at the chambers.

Another 927 enterprises employ less than 20 employees are employing 18059 this will bring up the total number of small and medium enterprises to 54057 or 98.5 of the total businesses and bring up the total number of small and medium enterprises employ less than 20 person to 109463 or 79% of total employment in the private sector excluding health and education sectors.

The importance of Palestinian SME does not steam only from their numbers and share in the total employment but also from their contribution to GDP amount to 1.02. Billion US dollars or 36% of total GDP. For more details see tables 1,2 3 in appendix number 2. (5)

It is evident from the above that the vast majority of these business are micro businesses and employs less than five persons, although there is no association or organization to represent them or to defined their interest at national level neither at the Palestinian national authority level nor at the private sector level. The only organization dealing with these  enterprises is the chambers of commerce and industry, there are thirteen chambers of commerce and industry in the country distributed to the main cities in West Bank and Gaza.   The services the chambers provide to small enterprises are very limited and inadequate although the small enterprises account for 78% of the chambers' membership base. In most chambers, these enterprises are not represented in the chamber 's administrative board. Recently, the Federation of Palestinian Chamber of commerce, Industry and Agriculture, start realize the importance of this sector and its need for promotion and support, the federation in cooperation with the member chambers and the Ministry of planning through it participation in the development of the investment plan is striving to include a program that:

1. Alleviate the economic and social disadvantages that face the SMEs
2. Supporting SMEs self-help efforts

Problems and Obstacles facing the Small and Medium Size Enterprises

The major obstacles to creation and development of small-scale enterprises in Palestine are summarized as follows:

1. The general obstacles to development of Palestinian economy; mainly the destruction of the infrastructure as a result of prolong occupation and restrictions on the movement of goods and people; energy production, communication; roads, airports seaports, telecommunication.
2. Lack of industrial zones to host small scale industries as a result of Israeli restrictions on the land use, all lands out side the populated area is still under the Israeli control.
3. Absence of non-finical supporting services organizations and inappropriate representation of this sector in the chambers elected administrative boards and consequently inadequate services and lack of advocate to their interests.
4. Absence of non financial supporting organization at both private and governmental level and unfavorable banking lending policies and difficult access to credit.
5. Lack of information and low level of technology
6. Poor management and lack of professionalism.
7. Low technology and dependency of the used equipment, mainly bought from the Israeli market because of the restriction on the direct import imposed by the Israeli authority.
8. High cost of production as most of the raw material is imported from or via Israel.

The important measures that are required to support small scale industries

1. To enact a basic law recognizes the SMEs important role in the Palestinian economy and necessity to encourage SMEs for well-balanced growth and development of the nation economy. Bearing in mind the following two main objective:

   a) Promoting growth and development of SMEs
   b) Enhancing the economic and social well being of entrepreneurs and employees of SMEs.

   For the accomplishment of the above objectives the law shall describe the need to improve the productivity and the business conditions of  SMEs by rectifying the economic and social disadvantages of SMEs face, supporting the self-help efforts in addressing their problems.

2. To develop a program that maintain the dynamic of small scale enterprises and facilitate their role in maintaining the sustainable economic growth, such program must implement necessary measures in a comprehensive manners in the following areas:
    
   i) Modernization of equipment
   ii) Improvement of Technology
   iii) Rationalization of management
   iv) Structural up grading of SMEs
   v) Stimulating demand for SMEs products.
   vi) Securing adequate manpower through sound vocational training.
   vii) Information
    

3. Ensure proper and adequate representation of small enterprises at the chamber of commerce and industry by organizing these enterprises in the form of Small Business Association under the Umbrella of the chamber to advocate and represent their interest at the chamber level and consequently at national level

4. To create small enterprises service units at the regional chambers to provide specialized services and consultations to small enterprises derived from their actual and practical needs.

5. Develop and adaptation of lending policies that favor small business and entrepreneurs and take into consideration the future prospects of the business rather than collateral requirements.

6. To adopt a tailor made program to support and facilitate the small business endeavors to obtain the required and needed technology.