Innovation in Canadian SMEs

Innovation is a key focus in developed countries suffering from slow growth. The innovation debate often turns to large multinational brands where examples of innovation are readily observable. Small and Medium Enterprises (SMEs) though drive most developed economies and create most jobs. Start-up technology firms typically hold the spot light when it comes to SME innovation. Innovation across the full spectrum of SMEs needs greater attention.

In Canada, the department responsible for economic development is Industry Canada. Industry Canada has begun to track innovation in Canadian SMEs which is shedding light on how the broader population of SMEs approaches innovation. Industry Canada groups innovation into four main categories: product innovation; process innovation; organization innovation; and market innovation. These categories expand the traditional focus on technology innovation to provide a broader perspective.

Industry Canada recently released survey results for SME finance and growth in 2011 which includes data on how Canadian SMEs approach innovation. This survey looked at the private sector, SMEs employing between 1-499 employees, generating between $30K and $50M CAD annual revenue in 2011, stratified by region/industry/size, age, and participation in the Canadian Small Business Financing Program. The sample size was 25,007 and completion rate was 39.8% or 9,977 respondents.

The results revealed that 38% of SMEs introduced at least one type of innovation between 2009-2011. The data indicated that product innovation was the largest category at 24%, followed by marketing innovation at 17%, organization innovation at 15%, and process innovation at 15%. The latter limited focus on process innovation was surprising since it is generally understood that most firms focus on continuous improvement if they spend any time on innovation at all.

The report suggested that for many of these SMEs that the innovation activity resulted in 70% increase in sales and increased their market share by 61%. The overall growth characteristics of the survey respondents in 2009-2011 were: 44% grew by 1-10%; 11% grew by 11-20%; and 8% grew at 20%+ (considered as high growth firms). Interestingly the most common obstacles to growth reported were: cost of inputs at 63%; fluctuations in sales at 52%; and increased competition at 48%.

The report also looked at how the SMEs adopted intellectual property protection in conjunction with their innovation activity. The SMEs used non-disclosure agreements in 9% of cases, trademarks at 8%, trade secrets at 4%, patents at 1.5%, and industrial designs at 1%.

The export behaviour of these SMEs were also explored. Only 10% of the SMEs exported goods and services outside of Canada. From this 10% population, 49% exported goods, 40% services, and 11% goods and services. 33% of SME exporter revenue came from the US, 32% from Europe, 12% Latin America, 10% China, and 12% other Asian countries.

The data suggests that if 38% introduced some form of innovation but only 10% exported their goods/services that the innovation was in response to domestic competition which in Canada is generally understood to be weak. It will be interesting to observe how these results evolve in response to the CETA and TPP trade agreements if they come into being over the next few years.

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