Canada’s small-business entrepreneurs match their American counterparts in taking new risks and aggressively growing their businesses, says a study released last week.
The Path to Prosperity 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 vigorously growing their businesses.
The study, sponsored by the RBC Financial Group, the Canadian Manufacturers and Exporters Association and the Canadian Federation of Independent Business (CFIB), shows there are significantly more external factors creating barriers to steady growth for small businesses than internal factors.
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 cited 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 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 living.”
The report, which can be found at www.rbc.com, recommends public policy reforms to help SMEs become growth leaders, while offering adequate incentives to foster their development.
“The No. 1 incentive, with the biggest impact on business growth in both countries, is lower and less complex taxes,” said Catherine Swift, president of the CFIB.
Among the study’s recommendations:
* 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.
* SME management must take greater advantage of new technologies, conduct more research and development, look at ways to expand their market and export potential, and invest in productive capital.
From a public policy perspective, the study partners
* Ottawa should stay the course on monetary and fiscal policy, and lead the charge on enacting policies geared toward 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 property rights.
* Pursuing initiatives geared toward greater technology-sharing arrangements and technology expositions.
* Further liberalizing internal trade, financing and labour markets.
The study was conducted last summer with a random sample of 800 SME operators in Canada and 400 in the U.S.