As Canada's entrepreneurial landscape grows increasingly crowded, small and medium-sized businesses (SMEs) need to invest in research and development, access new markets, adapt new technologies, control costs and innovate with new products and processes, according to a TD Economics report released Wednesday.
Key findings from the report defy the long-held belief that SMEs are not as innovative or productive as their larger counterparts. In fact, one-third of SMEs that invest in R&D and demonstrate the core proficiencies - strong management skills, skilled labour, good marketing, high quality customer service and flexibility to customer needs - are more productive than larger companies.
"While large firms have greater scale, being small is not a barrier to R&D, innovation, productivity or success if management chooses to pursue it," says Craig Alexander, chief economist, TD Bank Financial Group. "In fact, the most successful SMEs are those that focus on R&D, strive to innovate and invest in new technologies."
The report also challenges the idea that Canada's poor productivity performance, relative to the U.S., is due to the fact that the economy is comprised largely of SMEs. Smaller firms with fewer than 100 employees, so the argument goes, can't possibly compete with the level of capital investment or R&D of large firms.
But analysis by Industry Canada found that the picture is "far more grey than black and white," said TD. Industry Canada found that 1.1 per cent of Canadian small businesses, and 10.3 per cent of medium businesses, invested in R&D in 2002. That compared with 1.0 per cent and 6.1 per cent, respectively, in the United States. And while overall R&D by Canadian firms was less than their U.S. counterparts, the greatest differential was for large firms, not SMEs.
Katherine Scarrow