As Canadian small and medium-sized enterprises (SMEs) were responsible for 80 percent of private sector jobs in the past year, it’s fair to say that they’re an integral part of the economy. However, a new report from CIBC World Markets noted that SMEs must do more to remain competitive.
Only 10 percent of Canadian SMEs are involved in exporting — a number that hasn’t changed in 15 years.
The report states that SMEs are better able to gain exposure to consumers, and because of this, were quick to capitalize on the pickup of economic activity following the Great Recession of 2008. The number of new SMEs has climbed nearly 19 percent since 2007, while SME employment has risen three times faster than large corporations in the past year.
“The small business sector has unequivocally kept Canada’s economy from sinking into deeper water,” said CIBC deputy chief economist Benjamin Tal, who co-authored the report with senior economist Royce Mendes. “While Canada’s small and medium-sized enterprises have been an island of stability, not only demonstrating resiliency during the recession but also leading the way during the recovery, they are entering a new reality, one that will force them to innovate and enter new markets to sustain growth.”
To face this new reality, the CIBC report argues that SMEs should take the opportunity to look at export markets, particularly the U.S. and Europe. Only 10 percent of Canadian SMEs are involved in exporting — a number that hasn’t changed in 15 years, despite increased free trade around the world.
At the same time, the report says that SMEs in the export sector should take advantage of the fact that they have long been more likely to invest in innovation, research and development than non-exporters. SMEs generate about half of the private sector’s investment in R&D as larger companies pull back from that type of investment.
“To maintain and build on the performance of the past cycle, SMEs will have to change their business models by both raising their propensity to export and increasing investment in research and development,” Tal said.