The annual Canadian Small business statistics for 2012 were recently published by Industry Canada. In 2012 Small business (1-99 staff) made up 98.2% of all firms, medium firms (100-499 staff) made up 1.6% of all firms with the remainder large firms (>500 staff). Looking at high growth SME statistics, innovation, and export activity which reflect small business growth performance some of the main results are summarized.
High Growth SMEs
The highest concentrations of high growth SMEs (Annualized growth rate > 20%, over a three year period, with 10 or more employees) between 2006-2009 were:
- Construction (4.9% of all firms).
- Business, building, and other support services (4.6% of all firms).
- Professional, scientific and technical services (4.5% of all firms).
- 7.4% of service producing SMEs expect to grow more than 20% and 13.7% grow 11-20% between 2012-2014.
- 9.0% of manufacturing SMEs expect to grow more than 20% and 19% grow 11-20% between 2012-2014.
- Observation was made that high growth firms are not restricted to high technology firms.
In terms of innovation:
- In 2009 small businesses performed 31% of R&D ($4.8B), 18% medium firms performed R&D ($2.8B), and 51% of large firms performed R&D ($7.7B).
- Between 2009-2011 SMEs that innovated between 2009-2001 were found in manufacturing (58.1%), knowledge-based industries (50%), and professional, scientific, and technical services (43.5%).
- 38% of small businesses and 56% of medium business made at least one innovation between 2009 and 2011.
In terms of export activity in 2011:
- 90% of exporters were small businesses (compared with 85% in 2008) but only 10.2% small firms exported.
- 34.4% medium firms exported.
- Total exports were $374B (increasing $48B over 2010) with 23.9% by small firms, 16.2% medium firms, and 59.9% large firms.
- Exports account for 30% of GDP down from 34% prior to 2008 and has not reached pre-recession levels yet.
- SME export destinations were US (89.3%), Europe (32.1%), Latin America (11.9%), China (11.6%), Other Asia (11.6%), and Others (15.4%).
Toronto’s MaRS accelerator recently released a great summary of practical advice for Canadian start-ups seeking funding for their start-up and in particular looking at VCs from the US or abroad.
They contend that Canadian start-up company success is “closely correlated with their breaking outside of their regional boundaries and getting closer to their end markets” and provide some of the best data I have seen to understand US VC investment trends in Canada. The article also compares US and Canadian VCs and identified the top three developmental challenges of Canadian VCs that are hindering fast growth Canadian start-ups: follow-on funding; sector depth; and qualified talent pool.
The study also suggests that now is a good time to look for VC investments from the US. The article identifies US VCs that have been the most active investing in Canadian start-ups.
A report describing Canada’s international business experience gaps and a strategy to address the weaknesses was recently released by the Forum for International Trade Training. The report is worth reading and also does a good job describing the concept of integrative trade.
From my experience international marketing is not a problem for large Canadian firms but it is a challenge for the 98% of Canadian firms that are SMEs. Perhaps the largest impediment is the fact that international marketing is very expensive and Canadian SMEs lack the confidence and resources to put investments into prospecting trips at risk to develop this experience. The second impediment to building international business experience is the lack of ambition of Canada’s SMEs to look for opportunities beyond the US or to even grow at all. At the moment the risk return difference between opportunities closer to home versus far afield remain in favour of regional opportunities. There are simply too few business leaders with sufficient risk tolerance.
For a country with a diverse multicultural population Canada needs to find ways of leveraging this strength to grow international business connections. The strategy if funded will expand the support systems available to Canadian SMEs but the next step will be up to SME leadership to take small steps.