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Friday, May 6, 2016

Small and Medium-Size Enterprise Growth Continues in Canada: Facts, Trends and Success Factors

By Ihor Cap
In the 1980s, small and medium-sized enterprises (SMEs) created most of the jobs in Canada. The Canadian government did not overlook this fact. In turn, it has influenced policymaking to the extent that the government still relies on SMEs for continued employment growth. By 2007, small and mid-size business formations grew by 11 % to a little more than 300,000. World market analysts and economists are certain that this growth will continue into the next decade in spite of difficult economic conditions.
Facts and Trends Shaping Economic Activity in the Coming Decade.
-SMEs with less than 5 employees continued to decline but larger firms increased their pace of growth.
-SMEs with less than 50 employees increased by 1.6% in 2007.
-SMEs with less than 100 employees accounted for about 39% of all new jobs or 130,000 new jobs in the economy by end of March 2008.
-SMEs employed about 70% of all construction and real estate workers.
-SME entrepreneurs will be increasingly older, and in most cases, do not have a clear succession plan with family or business partners.
-SMEs that are immigrants comprise about 20% of all self-employed. This is twice as many as observed in the 1980s.
-SMEs that perform better at exporting their products correlate positively to the size of the business operation. A business with more employees tends to mean more business success.
-SMEs using the internet for conducting online export business transactions tend to have much greater success than companies that are not internet savvy.
-SMEs that are immigrants will continue to play an important global trade role but at the same time, they are ill prepared to deal with regulations and laws governing the import and export business.
-SME net business formations in 2007 by province vary with Alberta making the largest gains, Ontario, BC and the Atlantic Provinces with relatively strong business formations and Quebec, Manitoba and Saskatchewan experiencing a decline in SME momentum formations suggesting that these regions have yet to experience a positive economic momentum. Analysts expect this trend to reverse itself for the latter regions in the next few years.
-SMEs in large urban centers account for 64.8% of all 2006-2007 growths.

Top Six Factors Contributing to SME Success
What characteristics differentiate weak performing SMEs from the successful ones beyond the obvious “above average revenue growth”? The CIBC World Markets Small Business Report identified and shared the following six keys to SME financial success.
1. Prior paid-employment experience.  Anyone with such experience enjoyed 60% greater revenue growth compared to someone who opened shop with no previous paid-employment experience.
2. Use of advisors.  Individuals who used professional consultants like accountants, bankers or lawyers experienced a 75% faster revenue rise than SMEs who did not use any advisors. Slightly more than 10% of Canada’s SMEs use a type of advisory panel or board.
3. High level of education. Individuals with post-secondary degrees enjoyed twice as many revenue increases than those with less than a secondary education.  Forty per cent of SMEs have a post-secondary diploma.
4. Partnership.  Small firms with partners experienced a 30% faster revenue rise than sole proprietorships.
5. Technology adoption and connectivity. SMEs reporting a high level of internet connectivity and e-commerce capabilities increased their revenues twice as fast as firms with limited or no web connectivity. About 38% of SMEs have a web site but only 7% of them use it as a serious business tool.
6. Market/Exports orientation.  Most SMEs are domestically oriented. Those that are export-oriented tend to grow faster. SMEs that had a global earning focus grew at a rate 20% faster than domestically oriented firms.

Finally, SMEs will tend to experience a greater revenue rise if they adopt any combination of the above-mentioned characteristics, and the latter two factors in particular.
“Job Creation by Company Size Class: Concentration and Persistence of Job Gains and Losses in Canadian Companies”. Statistics Canada. Issue Information Publication.
Benjamin Tal. (2008). Braving the Storm. Publisher: CIBC World Markets Small Business Report, October 6, 2008
Author Information:
Ihor Cap, Ph.D. is a web author and Marketing and Promotions Manager for EZREKLAMA. 

This article first appeared November 7, 2009 in