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Section 6: Trends, Best Practices and Possible Improvements

Research shows there are over 500 federal and provincial programs that fund research, technology or firm development in Canada.31 The programs differ according to a variety of factors including focus, region, financial instrument (e.g., grants, contributions, loans, tax credits) or sector. Internationally, some research32 shows policy makers across the OECD countries are recognizing the importance of high growth firms (HGFs)33, particularly high growth start-up firms. Supports for high growth start-up firms include grants, tax incentives, accelerators, incubators, access to funding and proof-of-concept funds.

Federal programs are delivered through Western Economic Diversification (WD) and other regional development agencies34, other departments such as Industry Canada35 (Canada Small Business Financing Program) or National Research Council (Industrial Research Assistance Program) and Crown Corporations such as the Business Development Bank. Regionally, one report36 found that all Canadian provinces and territories have programs to support businesses; financial instruments include Grants and Contributions (non-repayable, repayable and conditionally repayable), loans, financing, tax credits and deductions and scholarship programs.

Best practices and possible improvements

The literature and the evaluation yield the following summary list of best practices and opportunities for improvements.

Best practices. Processes that are working well for the department and proponents include partnering and collaboration with industry and other organizations, aligning with provincial priorities, the rigorous project assessment and due diligence process, and the flexibility in both type and implementation of projects.

Possible Improvement: focus on high growth businesses. Research shows that high growth firms of all sizes drive productivity growth.37 A study by Industry Canada38 using Canadian business data (2000–2010) found that many SMEs have the financial resources to realize higher levels of growth than what they achieved. Potential actions to increase the numbers of high growth firms include management training for high growth and increased access to capital for businesses with high growth potential. Business leaders in Canada are considered to be more risk averse than their counterparts in the United States. Although many Canadian firms realize high growth rates in their first five years, they do not sustain high growth over the long term. In fact, one study39 reported that 70% of surveyed Chief Executive Officers (CEOs) of emerging technology companies plan to exit their business within the next six years through acquisition or an IPO. Research40 suggests SMEs could benefit from conditional loans and grants to encourage investment in training, research and development or technology and thus enhance their potential for higher growth.

WD focuses, to some extent, on management training under the expected result “increased adoption of sound management and business practices, and technology”. For example, some key informants indicated that the department supports this area through the Western Canada Business Service Network and Community Futures organizations which offer business counselling, seminars and workshops. A few key informants noted, however, that the department’s focus on this outcome has decreased recently as it did not align directly with WD’s strategic priorities. In terms of access to capital, some key informants commented that this has not been a big focus for the G&C projects, only a small amount of capital is provided and the department does not provide direct funding to SMEs. However, since the launch of the Western Innovation Initiative in 2013, WD is now providing loans to SMEs to advance efforts to bring technology based products, processes and services to the commercial marketplace. Furthermore, the department supports both business creation and expansion although it does not specifically target firms with high growth potential.

Possible improvement: increased adoption of advanced technology. Research41 shows that technology adoption increases productivity, innovation and competitiveness. SMEs tend to be slow adopters of technology, hindering their growth and productivity. Successful firms in all industries increasingly rely on technology and governments need to collaborate with industry to finance and encourage investment in technology.

Key informants noted that the department tends to fund more technology commercialization rather than technology adoption projects and that, in the past, the department has discontinued project funding too early and has been unwilling to reimburse operating costs required to advance the project. Going forward, the department could increase its focus on technology adoption projects and provide longer term, more flexible funding to these projects.

Possible improvement: promote international trade. Research42 shows that Canada must increase exports to raise competitiveness and productivity, however, only 3.6% of Canadian companies currently export. About 90% of Canadian exporters were small businesses in 2011, a small increase over 2008 (85%) and 1999 (87%). However, only 10.4% of SMEs were exporters that year43.

Although trade is a federal government and WD priority, research44 shows that organizations and businesses that need this support are frequently not aware of government programs. The federal government needs to increase awareness and accessibility of their programs to exporters.

WD’s programming supports international trade through the intermediate outcome “Western SMEs are engaged in international business, competitive, and strong”. When questioned about the programming impact related to this outcome, key informants indicated some projects have allowed SMEs to add value and increase competitiveness. On the negative side, some key informants were of the opinion that SMEs in Canada tend to rely on resources, are risk averse and inward focused, and, therefore, do not export. Furthermore, although trade is a departmental priority, some key informants noted difficulties separating federal from provincial responsibilities and the best mechanisms for support.

The department could review its programming to determine how to improve programming impacts related to international trade. Possible improvements include enhancing SME access and awareness of current programming and the benefits of international trade. Through greater focus on international trade, the Business Productivity and Growth projects can reinforce and augment WD’s current activities under its Trade, Investment and Market Access sub-program.

 


[31] PriceWaterhouseCoopers. “Response to R&D Review Panel Consultation Questions”. 2011.

[32] Mason C., Brown R. "Entrepreneurial ecosystems and growth oriented entrepreneurship." 2014. This paper references the following publication: Organization for Economic Cooperation and Development. "High-growth enterprises: what governments can do to make a difference". 2010.

[33] Eurostat – OECD Manual on Business Demography Statistics, Chapter 8. The OECD definition of high growth enterprise: "All enterprises with average annualised growth greater than 20% per annum, over a three year period should be considered as high-growth enterprises. Growth can be measured by the number of employees or by turnover."

[34] Programs include, for example: 1) Atlantic Canada Opportunities Agency: Business Development Program; 2) Canadian Economic Development for Quebec Regions: Quebec Economic Development Program; 3) Federal Economic Development Agency for Southern Ontario: Investing in Business Growth and Productivity; 4) FedNor: Northern Ontario Development Program.

[35] As of November 4, 2015, the Ministries of Science and Technology and Industry Canada were combined to form Innovation, Science and Economic Development Canada.

[36] Acacia Policy Consulting Inc. "Policies and Programs of Canadian Provinces and Territories. Mechanisms to Support SMEs and Established Aerospace Firms." 2012.

[37] Deloitte. A series reports including: 1) "The future of productivity: An eight step game plan for Canada"; 2) "The future of productivity: Clear choices for a competitive Canada"; 3)" The future of productivity: A wake-up call for Canadian companies"; 4) "The future of productivity: Smart exporting for Canadian companies".

[38] Industry Canada. "Small and Medium-Sized Enterprises Growth Study: Actual vs. Sustainable Growth". 2013.

[39] Pricewaterhousecoopers. "Building tomorrow's giants. 2014 Emerging companies' survey". There were 150 interviews completed with Canadian technology CEOs.

[40] Centre for Digital Entrepreneurship + Economic Performance (deepcentre). "Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada". 2013.

[41] Centre for Digital Entrepreneurship + Economic Performance (deepcentre). "Driving Canadian Growth and Innovation: Five Challenges Holding Back Small and Medium-Sized Enterprises in Canada". 2013.

[42] Deloitte. "The future of productivity: Smart exporting for Canadian companies". 2014.

[43] Industry Canada. "Key Small Business Statistics". 2013.

[44] Deloitte. “The future of productivity: Smart exporting for Canadian companies”. 2014.