Dale Ponder
Chair of the Board - Canadian Business Growth Fund
Part of the Spotlight on Scaling Canada’s SMEs

Scaling Up Canada’s SMEs: An Opportunity for Growth in the Future Economy and Long Term Employment

Takeaways

  1. Canada’s SMEs face both a funding and a skills gap in the growth stage, and they must be supported in overcoming both in order to scale and compete successfully, nationally and internationally.
  2. SMEs can contribute significantly to both the labour market in Canada and the diversification of our economy, which is critical for generating economic opportunities for our future generations.
  3. Losing Canadian companies and head offices through acquisitions by foreign competitors leads to a loss in brainpower, jobs and opportunities for related service industries. This is a complex issue, but among other things, staying alert to our relative regulatory burden and to tax disadvantages in executive compensation and overall taxation is critical to marketing Canada as a competitive destination and to encouraging companies to stay Canadian and to invest in our country.

Action

We are all subject to short termism, it’s human nature to seek returns with a horizon that we can see. But Canada requires strong leadership to champion longer term investment for the growth and success of Canadian enterprise, including SMEs. This will accrue to the benefit of Canadians and help sustain the funding of our country’s social policy framework. Investing wisely for future success is rarely a bad idea.


Why are small and medium sized enterprises (SME) important for Canada’s current and future economy?

A big challenge for Canada’s current and future economy is ensuring great opportunity for our next generations; opportunities that are reasonably commensurate with that of our current employed and retired generations. With the demographics of North America’s aging population, this is a significant challenge and an imperative that must be addressed.

It’s an acknowledged truth that Canada has a productivity gap, but we are failing to also acknowledge and sufficiently address our long-term employment challenges in Canada, particularly for our youth. SMEs are important not just for the general economy but also the labour market. SMEs are often strong local community economic contributors and also offer solid prospects for both business innovation and growth in long-term local employment. So it is important that we take a comprehensive approach to supporting them.

“SMEs are often strong local community economic contributors and also offer solid prospects for both business innovation and growth in long-term local employment.”

We are all subject to short termism; it’s human nature to seek returns with a horizon that we can see. But, Canada requires strong leadership to champion longer term investment for the growth and success of Canadian enterprise, including SMEs. This will accrue to the benefit of Canadians and help sustain the funding of our country’s social policy framework into the future.


How would you assess SMEs’ access to growth capital and the other challenges they face in Canada?

Some will argue that the “scale up” gap for SMEs is not really that significant. However, entrepreneurs and venture capitalists working with small investee companies say otherwise, principally because of relative risk profiles. Proven companies have a variety of choices for accessing capital nationally and internationally. However, companies without an established profit track record find it difficult to finance growth, particularly in some industry sectors. It seems timely to revisit our tax, policy and business infrastructure to improve the finance ecosystem for SMEs. We should also consider what has worked elsewhere. For example, the entrepreneurial market in Quebec has thrived historically, but which factors distinguished it from other regions in Canada? Were Quebec’s culture, education system, or its caisse system primary contributors, for example?

“It seems timely to revisit our tax, policy and business infrastructure to improve the finance ecosystem for SMEs.”

The CBGF was launched in June 2018 with the aim of trying to address the funding gap for scaling SMEs. The goal is to offer long-term, patient and minority stake capital aimed at helping Canadian SMEs with growth potential to scale up. Canada’s SMEs do not just face a funding gap, but often also a skills gap in the context of scaling up.CBGF’s mandate also includes forming a resource base for SMEs to access mentorship, education and advisory support. CBGF also should be able to assist SMEs that are able to export their products and services or replicate their business models abroad to do so.


Which sectors of Canada’s future economy look most promising for SMEs?

Canada is currently a leader in FinTech and the Toronto tech corridor is a Canadian FinTech hub. And satisfyingly, a number of Canada’s cities are thriving when it comes to the broader technology sector. Our historic reliance on our commodities sectors has slowed our diversification into other industries to our detriment. So, Canada’s investment and increasing leadership in technology has been a very positive development, which will continue to require and demand talent and systemic support.

“Our historic reliance on our commodities sectors has slowed our diversification into other industries to our detriment. So, Canada’s investment and increasing leadership in technology has been a very positive development, which will continue to require and demand talent and systemic support.”

Apart from the technology sector, there are a wide variety of industries in Canada with growth potential. Some businesses can be very profitable and successful as pure domestic plays; success of a certain scale can still be achieved even if a business model does not translate easily globally. Very localized business models might not be replicable abroad. That is perfectly understandable and not all sectors need have globalization prospects.


Why do you think it is important for Canadian companies to stay Canadian?

I support free trade and agree that trade barriers and other forms of protectionism limit market opportunities to our detriment. But it is also very costly to us as a nation when Canadian industry giants are acquired by foreign companies and the head office and collective “directing mind” of the business is exported elsewhere. While a percentage of Canadian companies are always going to sell, losing a company’s head office means losing brainpower, jobs and opportunities for related service industries. For example, Canada was clearly the world leader in mining. It is still an important contributor, but our mining industry took a huge hit when companies like Inco, Alcan and Falconbridge and others were all acquired at roughly the same time.

“Canadian talent development and next generation employment must be priorities for our future economic and social well-being.”

This is a complex issue, but among other things, staying alert to our relative regulatory burden and to tax disadvantages in executive compensation and overall taxation is critical to marketing Canada as a competitive destination and to encouraging companies to stay Canadian and to invest in our country. Canada is a tremendous place to live and draws talent from all over the world. We need to ensure that we not only retain, but grow Canadian talent to create successful Canadian enterprises of tomorrow.


What role should Canada’s public and private sectors play in developing the talent needed in the future economy?

Studying what has worked elsewhere may be instructive. For example, there may be something to learn from the German education system, which focuses on practical skills training early on. Canadian talent development and next generation employment must be priorities for our future economic and social well-being. I strongly endorse a liberal arts education in the classic sense, but also believe we should offer more co-op learning opportunities, financial literacy education and exposure to entrepreneurship at the high school level to better prepare young Canadians for the future of work. Instilling a drive for continuous learning is an imperative that will help overcome future redundancy risks, if and when skillsets become future obsolete. We also need to teach specific skills that will be crucial for the future economy. I would say the same for universities. Government need not be alone in investing in Canada’s education system and talent. I’m happy to see leading Canadian businesses investing in Canada’s universities, skills training programs and work-integrated learning. There’s more to be done.


Part of the Entrepreneurship Series presented by: