Minister Bill Morneau
Minister of Finance - Department of Finance Canada
Part of the Spotlight on Scaling Canada’s SMEs

Enabling SME Scale-up Through Growth Capital and International Trade

Takeaways

  1. The large majority of Canadian companies are small and medium-sized enterprises. They create good jobs – 7 out of 10 in the private sector – and help support communities and families right across this country. Canada’s next big success stories will emerge from within their ranks.
  2. Limited access to early stage and growth capital can be a significant barrier for SMEs that want to scale up and grow. The Canadian Business Growth Fund (CBGF), launched in June 2018, will help to address this challenge.
  3. Government also has a significant role to play in helping SMEs succeed and grow – especially when it comes to helping SMEs reach international markets. Trade agreements, better transportation networks, and enhanced on-the-ground assistance are just some of the ways government can help.

Action

Canadian entrepreneurs will find their greatest success when they are confident and bold, and invest for the long-term. Be confident, because Canada is a great place to do business – home to talented people who work hard, and communities ready to be a part of that success. Be bold and take initiative, because there are endless opportunities to do well. Finally, invest for the long term – when you make a real and lasting commitment, stability and opportunity follow.


How important are small and medium-sized enterprises (SMEs) for Canada’s current and future economy?

Canada is, at its heart, an entrepreneurial country, so it should be no surprise that small and medium-sized enterprises are an important part of our economy. They create good jobs and help support communities and families right across this country.

We know that when it comes to the next generation of Canadian success stories, more likely than not, they will come from a small or medium-sized business that is already doing well in a specific industry. It’s much less likely for these new champions to start off large, or start off as a subsidiary of a large international organization. A global champion is much more likely to be a homegrown small business that has grown exponentially over the years.

“Canada is an entrepreneurial country, so it should be no surprise that SMEs are an important part of our economy. They create good jobs and help support communities and families right across this country.”

Now, there are obviously some sectors where it’s more challenging to start off small. If you are trying to manufacture an entire vehicle, for example, that’s not a business that is naturally well-suited to a small business structure. But in most sectors, there is an opportunity to start small, with an opportunity to grow. Technology, retail, and services sectors come to mind as ones where new ideas can make it possible to start small, succeed and grow.


What are the main challenges that SMEs face in Canada today?

The challenges can vary widely, but there are some commonalities across the board. Accessing capital as an early stage business is critically important – but it’s not always easily done. Getting access to growth capital can also be difficult if the investment being sought is greater than the current cash flow of the company. And developing a customer base can be challenging, too – as a small business owner, it’s not always easy to be away from the business for the time needed to make the international trips that can increase market access and support future growth.

“Getting access to capital as an early stage business is critically important, but it’s not always easy done. Getting access to growth capital can also be difficult if the investment being sought is greater than the company’s current cash flow.”

When it comes to accessing capital, Canada’s venture capital market is doing increasingly well. But once companies get the initial venture capital they need and reach a certain size – around $10 million in revenue or 100 employees – they often find it difficult to figure out the next steps in growing their businesses. Because at that size, the amount of capital that might be needed for the next phase of growth can sometimes be significant.

Trade diversification is something else that needs to be considered. It is sometimes easier for Canadian companies to think about their opportunities in the United States – rather than looking further abroad – because of its proximity and our similarities in culture and language. Certainly, that’s a significant market – but we also need to think about how to help SMEs expand beyond that market. That means thinking about the on-the-ground help that the Canadian Trade Commissioners can provide for those businesses as they look to go abroad.


What should be the role of the government in bridging the funding and knowledge gap for SMEs?

As a Government, our primary role needs to be one in which we make it easier for small- and medium-sized businesses to access growth capital and new markets – not only because it helps them do well, but because it makes it possible for them to in turn create good, well-paying jobs for Canadian workers.

One way we’re helping to bridge the gap is through the Canadian Business Growth Fund (CBGF), which brings together insurance companies, leading banks and other key financial institutions to support the growth of Canada’s promising small- and medium-sized businesses. We’re not providing the capital, but we drafted the rules that would make these private-sector investments possible. In addition, the Fund will provide recipient companies with guidance, mentorship, and access to investors’ networks – things that are critically important to businesses seeking to grow.

“Once companies have secured the initial venture capital they need and reach a certain size, they often find it difficult to figure out the next steps in growing their businesses.”

We’re also helping bridge the gap by expanding the network of trade deals that our small- and medium-sized businesses can benefit from. These include the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), the Asia Pacific trade deal with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the renegotiated North American Free Trade Agreement (NAFTA). Together, these deals give Canadian businesses access to more than a billion consumers around the world.

We are launching an Export Diversification Strategy, to directly support Canadian businesses to grow their overseas sales by 50 per cent by 2025. And to help companiesnavigate overseas markets, we have increased the Trade Commissioner Services operated through our local embassies and consulates around the world. So that when a Canadian business decides they want to do business in Mumbai or Shanghai, they can access trusted Canadian sources of expertise to understand the local markets.

“Trade diversification is something else that needs to be considered, because it is critically important for the growth of our SMEs.”

If I had to advise SMEs directly on what they must do to succeed, I would say that Canadian entrepreneurs will find their greatest success when they are confident and bold, and invest for the long-term. Be confident, because Canada is a great place to do business – home to talented people who work hard, and communities ready to be a part of that success. Be bold and take initiative, because there are endless opportunities to do well. Finally, invest for the long term – when you make a real and lasting commitment, stability and opportunity follow.


Where do you see some of the overseas opportunities for Canadian SMEs?

Again, this will vary a lot by sector, but obvious opportunities exist with the world’s biggest and fastest growing markets. That includes the United States – our largest trading partner, and a country with which we have a long and mutually beneficial trading relationship. China is our second-largest trading partner, and an emerging and important market. Of course, countries where we currently have strong trading relationships should be considered, because there are pre-existing networks of support in those countries. Places like Mexico and Japan fit into that category. Finally, the Canadian diaspora can help us in other parts of the world such as India, which is currently experiencing significant economic growth.


How do you envision Canada’s future economy?

The good news is that Canada is home to some of the best and most talented workers in the world – people who are well-educated and hard-working and able to help our businesses succeed and grow. At the same time, we are not immune to the kind of trends that all other industrialized countries are facing; like how do we keep our economy strong and growing at a time of tremendous change and uncertainty? I think one thing we are doing is right is that Canada continues to welcome talented workers from around the world. This is becoming a competitive advantage in a world that is increasingly looking at immigration as a challenge as opposed to an opportunity.

“Canada continues to welcome talented workers from around the world. This is becoming a competitive advantage in a world that is increasingly looking at immigration as a challenge as opposed to an opportunity.”

We will continue to succeed because of our core strengths – things like our natural resource sectors – but in the years to come we will be adding more value to those sectors, and looking for new ways to diversify and lead when it comes to renewable energy and a clean economy. We will continue to invest in helping to create the industries and the jobs of the future, while making sure that Canadians have the skills they need to adapt and change along with our economy.


Part of the Entrepreneurship Series presented by: