Small and Medium-sized Enterprises: The Backbone of Canada’s Economy
Publié le 29 April 2013
What do Canadians value more than the country’s public schools, legal systems, banks and even health care systems? The answer may surprise you: small businesses win favour over all of these institutions because of their contributions to the nation’s economy. Small businesses ranked second most valuable to Canadians, closely behind the farming industry, according to an opinion poll by the Canadian Federation of Independent Business (CFIB).
Small and medium-sized enterprises (SMEs) are businesses that have less than 500 employees, but all together they employ 64 percent of Canada’s active workforce, according to Statistics Canada. SMEs account for about 40 percent of Canada’s gross domestic product, according to Industry Canada—meaning that combined, they form the foundation of the country’s diverse economy. University of Ottawa business professor Martine Spence confirms what most Canadians seemingly already know: “Without SMEs, our economy wouldn’t be diverse, innovative, relatively thriving—what it is now.”
SMEs are often highly specialized and serve dedicated pockets of the Canadian market. Niche markets, whether regional or industry-based, are of less interest to larger firms as they cannot generate the revenue necessary to sustain high fixed costs. By contrast, small companies can serve fewer clients while remaining profitable because they have lower operating expenses.
“Innovative products and services come from SMEs. They don’t have the budget that larger firms have, so they constantly try to improve in various areas in order to keep up-to-date with competitors. We call this global innovation,” says Spence.
More job opportunities and a variety of experiences
SMEs provide a vast range of employment opportunities for new graduates—another advantage over larger enterprises, where the options for entry-level positions are often much more limited. “You can get jobs you wouldn’t get right out of school [at large companies],” says Spence.
Instead of working in one specific area, as is typical in large firms, SME employees are often invited to take on a wide variety of tasks. Carleton University business professor Francois Brouard says in a small business “you’ll use your training more.” Recent grads are likely to see the impact of their education right away, he says.
Spence agrees that students see more action in smaller companies. “I talk to former students who say it’s really thrilling for them to be given so many opportunities at such a young age,” she says. “They tackle tasks that they could not even envision doing in large companies.” Both professors say that new employees in SMEs will be given more opportunities to make decisions that impact the business than those starting off in large businesses.
Employees are drawn to SMEs for countless reasons—as diverse as the companies themselves—but some patterns do emerge. Nearly half of SME employees said they chose to work in a small business because they support the business’s mission, according to a CFIB report. Other perks cited were the option of a flexible schedule, and the opportunity to contribute to the business. Many preferred small businesses because they tend to have less bureaucracy than large organizations.
In 2011, 63.7 percent of private sector employees worked for SMEs, according to the Business Development Bank of Canada. SMEs exist in virtually every major industry, so career seekers are certain to find companies that align with their unique interests.
SMEs can be found everywhere in Canada, but they’re most frequently located within cities and metropolitan hubs. Not surprisingly, most Canadian SMEs are in Ontario, the most populous province, followed by Quebec and British Columbia. Locating in densely populated areas is typically easier for SMEs because they can draw upon a larger customer base.
How SMEs survive and thrive
SMEs benefit from geographic proximity to the businesses they partner with, according to Brouard. They are particularly reliant on partnerships. “Businesses partner with each other to exchange services and to draw on competences they can only get from outside their own companies,” says Spence.
Compared to large corporations, SMEs tend to be fragile because they have limited resources and less leeway to make mistakes, according to Spence. Only about 51 percent of firms that entered the marketplace in 2005 lasted five years, according to Industry Canada. This survival rate reflects productivity, innovation and resourcefulness in a firm, but also the ability to adapt to changing market conditions.
For those that do adapt, the payoff tends to be high. The most profitable firms, in terms of return on assets, tend to be firms of five to 19 employees, according to Statistics Canada. These firms on average enjoy returns of about seven to eight percent. By contrast, firms of 500 or more employees tend to get the lowest return on assets, and those numbers are declining, sinking below an average of six percent returns.
Professionals and academics are unanimous in the fact that the most successful companies have a clear vision as well as the swift ability to learn and change, says Spence. Management in these companies tends to be confident of their company’s identity and the direction it is headed. These businesses plan for growth long before they benefit from it.
Most Canadians know that starting a business isn’t easy, according to the CFIB. For Brouard and Spence, the biggest challenge for management in small business is being able to marry business smarts with the innovation it takes to captivate a market.
By Danielle Klassen
Danielle Klassen is a fourth-year journalism student at Carleton University.
For more information, please visit: cfib-fcei.ca, >ic.gc.ca, >bdc.ca, >careeroptionsmagazine.com
