Canadian firms as entrepreneurial and growth oriented as
American small business
But barriers to growth must be eliminated
for Canadian SMEs to reach full potential
TORONTO, October 7, 2002 -
Canada's small business entrepreneurs are just as prepared
as their counterparts in the United States to take new risks
and to aggressively grow their businesses. This is the surprising
finding of a major new study released today by RBC Financial
Group, Canadian Manufacturers and Exporters, and the Canadian
Federation of Independent Business.
The study is based on existing data and a survey of 1,200
owner/managers of small- and medium-sized enterprises (SMEs)
on both sides of the border. It shatters the popular myth
that Canadian companies don't grow as rapidly as American
firms because their owners are more risk averse and less interested
in aggressive growth. In fact, the study shows there are significantly
more external factors that create barriers to growth for small
business, than internal ones.
When asked to identify the most significant barriers facing
them today, business owners in both countries pointed to taxation,
the economic/market environment, and human resource issues
including the availability of qualified personnel. Other barriers
include competition, access to financing (particularly higher-risk
debt and equity), and government regulation.
The study concludes that the removal of these and other
barriers is important because small business represents a
larger percentage of the Canadian economy than the American
market, so any productivity gains the sector makes will have
a much greater impact north of the border.
"We have done a good job starting new businesses in
Canada, but we haven't done nearly as well in growing them
into the market leaders and industry champions we need to
prosper in the global economy," said Gordon Nixon, President
and CEO, RBC Financial Group. "If we can grow our small
firms more profitably and efficiently, we can go a long way
towards enhancing our future productivity and standard of
The report (which can be found at www.rbc.com),
recommends public policy reforms to help SMEs to become growth
leaders, while offering adequate incentives to foster their
development. All three partners agree that Canada needs policies
that provide the right environment for more of the country's
firms to become global market leaders.
"The number-one incentive, with the biggest impact
on business growth in both countries, is lower and less complex
taxes," said Catherine Swift, president of the Canadian
Federation of Independent Business. "Given the tenacity
and optimistic nature of small business owners, any changes
that deal with the barriers to their growth, such as taxation,
red tape and access to financing, will reap major benefits
for the economy and for Canada as a whole."
"Given the link between Canada's prosperity and its
level of productivity, the task at hand is to explore how
we can help SMEs grow productively," said CME President
& CEO Perrin Beatty. "The Path to Prosperity study
suggests three key measures: provide SMEs with more effective
tools to invest in productive capital; help SMEs expand their
marketplace and become more export oriented; and make it easier
for SMEs to adopt new technology and invest in additional
research and development activity."
The survey, announced last May, interviewed 800 Canadian
and 400 American SME operators to obtain insights directly
from these entrepreneurs on what they perceive to be incentives
and impediments to their growth.
The study recommends several private policy recommendations
to dismantle the underlying barriers to growth, including:
- Increasing equity financing to young, innovative firms,
particularly through venture capital and angel investors;
- Encouraging the development of a more robust market for
sub-prime debt financing for higher risk firms;
- Enhancing the management knowledge of SME owners by providing
value-added business information as part of relationships
with financial institutions and others; and
- SME management taking greater advantage of new technologies,
conduct more research and development, look at ways to expand
their market and export potential, and invest in productive
From a public policy perspective, the study partners recommend:
- Ottawa stay the course on monetary and fiscal policy,
and lead the charge on enacting policies geared towards
rebuilding productivity, since existing initiatives are
clearly not working.
- Immediately addressing barriers to growth embedded within
tax policies, especially profit insensitive taxes.
- Overhauling the regulatory framework, making it less complex
and costly, and enhancing the protection of intellectual
- Pursuing initiatives geared towards greater technology-sharing
arrangements and technology expositions.
- Further liberalizing internal trade, financing and labour
"While our study represents a good beginning, more work
is clearly required, particularly around management practices
and the key drivers of successful growth," said Mr. Nixon.
"However, given the growth-oriented mindset of our entrepreneurs,
we should be moving quickly to address whatever barriers we
can. The impact of ignoring such challenges could well be
the continued erosion in our standard of living and a growing
inability to afford the kind of society Canadians value."
The telephone interviews were made between July 10 and August
23, 2002 with a random sample of 800 small- and medium-sized
firms in Canada and 400 in the U.S. The associated margin
of error in Canada was +/- 3.5% and +/- 5.6% in the U.S. For
the purposes of the survey, firms were qualified as small
or medium if they have 250 employees or fewer. There were
no financial qualifiers on the sample.
RBC: Beja Rodeck, (416) 974-5506
CME: Carolyn Conner, (613) 238-8888 ext. 222
CFIB: Holly Bennett, (416) 222-8022