Research Summary: “Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada” By Dan Herman & Anthony D. Williams, deepcentre: Centre for Digital Entrepreneurship + Economic Performance (2013)

At Issue: Small and medium-sized enterprises (SMEs), which comprise over 99 percent of businesses in Canada, are commonly portrayed as the backbone of the national economy. However, only a small minority of companies, approximately 4 to 7 percent, demonstrate sufficient growth to make a meaningful contribution to job creation and overall GDP. It is imperative for policy makers to mitigate or remove the prevailing impediments facing small businesses, such that a larger share of SMEs may embark upon growth trajectories that enable substantial contributions to the national economy.

Research Objective(s): The objectives of this study are to accurately characterize SMEs in Canada, identify key obstacles to their growth, and propose specific recommendations for policy makers to better support the small business economy.

Scope: The study addresses SMEs, defined as companies with fewer than 100 employees, in Canada. In addition to comprising over 99 percent of Canadian companies, SMEs employ more than 6.9 million people and account for nearly 70 percent of private-sector payrolls.

Approach: The authors of this study conducted secondary research by completing a review of more than 23 independent sources.

Findings: Canadian firms lag behind international competitors in adopting productivity-enhancing technologies. In 2006, Canada ranked eleventh among 21 OECD countries in total economic investment in information and communication technologies, down from tenth in 2005 and ninth in 2004. Technology investments by Canadian manufacturers fell by 37 percent between 2000 and 2013. There is a 33 percent technology investment gap between Canadian and U.S. firms, with Canadian SMEs spending 38 percent less on technology than their U.S. counterparts.

Despite the preponderance of service firms among Canadian SMEs, only 12 percent use supply chain management software. Just 4.2 percent of SMEs in Canada qualify as “innovative SMEs” – defined as those that allocate more than 20 percent of investment expenditures to research and development. Studies of SMEs in the U.K., Germany, and France indicate that greater adoption of technology by SMEs benefits not only individual companies but also the economy at large. Increased innovation by SMEs results in increased job creation, productivity improvements, and GDP growth.

To enlarge the pool of high-growth, high-impact SMEs in Canada, policy makers are advised to:

(1) Incentivize business growth via tax policy reforms that reward revenue and employment growth;

(2) Promote international expansion of SMEs by (a) facilitating access to export markets and (b) proactively identifying would-be exporters and facilitating their global expansion via management training, export assistance, and export financing;

(3) Build SME management competencies by hosting innovative management mentorship programs and providing incentives for participating in ongoing training;

(4) Promote technology adoption among SMEs by (a) sponsoring collaborative industry-government approaches to financing, (b) engaging in information sharing in order to build the case for technological investment, and (c) emphasizing that technology adoption does not just narrowly benefit knowledge-intensive companies or tech start-ups;

(5) Facilitate more competitive prices for telecommunications services;

(6) Encourage R&D spending by (a) facilitating the development of industry-academic partnerships and (b) providing financing options and commercialization support for SMEs that pursue promising ventures with university partners; and

(7) Improve access to capital for SMEs with high-growth potential by providing conditional loans and matching grants, in order to facilitate private SME investment in technology, training, and R&D.

Notes: The full text of this study can be accessed at http://deepcentre.com/wordpress/wp-content/uploads/2013/03/DEEP-Centre-May-2013-Driving-Canadian-Growth-and-Innovation.pdf.

Researcher Profile: Allie Grace Garnett is a professional researcher and freelance writer with a background in finance and entrepreneurship. A serial entrepreneur who has established numerous businesses, Ms. Garnett previously was a founding Principal of Nexos Resource Partners (NRP), an energy project finance firm in New York. Prior to co-founding NRP, Ms. Garnett provided financial advisory and fund raising services to institutional-scale energy funds with Sustainable Development Capital. Ms. Garnett served as the Vice President of Marketing and Strategic Partnerships for the start-up Rentricity, and additionally founded a nonprofit organization (YAVA) that encourages volunteerism among college students. Ms. Garnett holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Science in Civil Engineering degree from Northeastern University.

Research Summary: “Unlocking Innovation to Drive Scale and Growth”, Government of Canada’s Advisory Council on Economic Growth (2017)

Framework for a Functioning Innovation Ecosystem

At Issue: The traditional engines of Canadian economic growth, including production of commodities, liberalized global trade, and an expanding workforce, are slowing. More than ever, innovation “at home” is crucial to maintaining and growing the nation’s economic prosperity. As the world moves briskly towards digitization and automation, Canada must keep pace in the global marketplace. By focusing on innovation, particularly within small- and medium-sized enterprises (SMEs), the Canadian government can serve to increase businesses’ productivity, drive inclusive growth, and encourage high-potential SMEs to achieve the status and scale of global champions.

Research Objective(s): The Advisory Council on Economic Growth performed this study in order to make recommendations to the public sector for enhancing innovation in Canadian small businesses.

Scope: The study examines innovation in the Canadian economy, with a particular focus on small- and medium-sized enterprises.

Approach: The authors of the study conducted secondary research by reviewing more than 51 independent sources. They utilized these sources, in addition to their own expertise, as the basis for their recommendations.

Findings: Three specific bottlenecks are contributing to Canada’s underperformance in the field of innovation:

(1) A gap between invention and revenue-generating commercialization, as evidenced by Canada’s ranking in business-university R&D collaboration declining to 19th place in 2015;

(ƒ2) Difficulty scaling up successful start-ups and SMEs, due to (a) a small and fragmented local market, (b) shortages of experienced business talent, (c) a lack of at-scale sources of growth capital, and (d) risk aversion by more established companies; and

(3) No “burning platform” to drive corporate innovation, as evidenced by (a) Canadian businesses persistently spending at half the U.S. rate on R&D, (b) Canada’s ranking in the OECD Business Expenditure on Research and Development index falling from 12th place in 2001 to 22nd in 2015, and (c) statistics indicating that only 30 percent of Canadian firms consider any form of innovation to be extremely or very
important, with just 15 percent of corporations willing to take significant financial risks in pursuit of innovation.

The following five interventions are recommended for the Canadian government to encourage innovation by the private sector, SMEs in particular:

(1) Catalyze the formation of business-led “innovation marketplaces” in sectors and technologies in which Canada has momentum and for those which require new solutions to progress forward;

(2) Create additional pools of growth capital to ensure that promising companies have both (a) sufficient capital to achieve scale and (b) access to investors who can provide advice and other value-added support;

(3) Modify government procurement policy to incorporate strategic procurement and innovation as key objectives, thereby (a) prompting a shift from a requirements-focused to a value-based procurement system and (b) enabling the government and other public-sector players to become important first customers for growing SMEs;

(4) Review and rationalize government innovation programs by (a) expanding those with proven impact and (b) reconfiguring or removing any regulatory barriers that impede development of priority sectors and innovation marketplaces; and

(5) Recruit and train top talent by (a) adopting favorable immigration policies for reducing the talent shortfall and (b) invigorating the existing talent pool via focused innovation training programs and the FutureSkills Canada program.

Notes: The full text of this study can be accessed at https://www.budget.gc.ca/aceg-ccce/pdf/innovation-2-eng.pdf.

Researcher Profile: Allie Grace Garnett is a professional researcher and freelance writer with a background in finance and entrepreneurship. A serial entrepreneur who has established numerous businesses, Ms. Garnett previously was a founding Principal of Nexos Resource Partners (NRP), an energy project finance firm in New York. Prior to co-founding NRP, Ms. Garnett provided financial advisory and fund raising services to institutional-scale energy funds with Sustainable Development Capital. Ms. Garnett served as the Vice President of Marketing and Strategic Partnerships for the start-up Rentricity, and additionally founded a nonprofit organization (YAVA) that encourages volunteerism among college students. Ms. Garnett holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Science in Civil Engineering degree from Northeastern University.

Research Summary: “The Adoption of Digital Technology by Canadian Small and Medium-Sized Enterprises” By Mark Buell, Canadian Internet Registration Authority (2014)

At Issue: Small- and medium-sized enterprises (SMEs) in Canada have been slow to incorporate internet technologies into their businesses. Canadian SMEs, by adopting even basic internet technologies, can better meet the needs of domestic consumers, access the global marketplace, and position themselves as candidates for foreign investment.

What are Canadians Doing Online?

Research Objective(s): The study’s objectives were to (1) characterize the nature and make-up of Canadian SMEs and (2) gauge the extent to which Canadian SMEs that are already online are utilizing the internet for their businesses.

Scope: The study encompassed Canadian small- and medium-sized businesses. Small businesses comprise more than 98 percent of Canadian employers, and medium-sized businesses account for 1.6 per cent. More than 90 percent of employees in Canada, about 10 million people, work for a small- or medium-sized business.

Approach: The Canadian Internet Registration Authority worked with the Strategic Counsel to conduct a national survey in 2013.

Findings: While 87 percent of Canadian households are connected to the internet, only 45.5 percent of Canadian businesses have a website. Of Canadian small businesses, only 41.1 percent of have an online presence, while more than 91 percent of large businesses in Canada are online. The vast majority of Canada’s SMEs, 89 percent, do not sell their products or services online. Of Canadian SME owners who have incorporated the internet into their businesses, 21 percent spend more than thirty hours per month online. By comparison, 26 percent of “recreational” internet users in Canada spend at least 30 hours per month online. The primary online activities for SME owners are email (89 percent), banking (79 percent), and product research (73 percent). Notably, online shopping is not cited as a primary activity by any internet user group.

Notes: The full results of this study can be accessed at https://cira.ca/assets/Documents/Publications/Adoption-of-Digital-Technology.pdf. Visit the Canadian Internet Registration Authority at www.cira.ca.

Researcher Profile: Allie Grace Garnett is a professional researcher and freelance writer with a background in finance and entrepreneurship. A serial entrepreneur who has established numerous businesses, Ms. Garnett previously was a founding Principal of Nexos Resource Partners (NRP), an energy project finance firm in New York. Prior to co-founding NRP, Ms. Garnett provided financial advisory and fund raising services to institutional-scale energy funds with Sustainable Development Capital. Ms. Garnett served as the Vice President of Marketing and Strategic Partnerships for the start-up Rentricity, and additionally founded a nonprofit organization (YAVA) that encourages volunteerism among college students. Ms. Garnett holds a Master of Business Administration degree from Harvard Business School and a Bachelor of Science in Civil Engineering degree from Northeastern University.

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