Canada’s mid-sized companies, a key motor of the economy, are seeing a marked decline in numbers, according to a new study by the Business Development Bank of Canada (BDC).
The number of mid-sized firms, which have 100-499 employees, plummeted by 17 percent (9,370 to 7,814) between 2006 and 2010, the study found.
Hardest hit was the manufacturing sector, which saw over half its companies disappear between 2001 and 2010, dropping from 2,087 to 1,381.
Although every region saw declines, Ontario took the brunt of the loss, with a 25 percent drop in mid-sized firms, followed by Quebec.
The study, which aims to fill a research gap on mid-sized firms, is based on Statistics Canada research and supported by a Harris/Decima survey of 301 companies.
While mid-sized firms make up a small percentage of Canadian companies—only 1 percent of the total—they are a major contributor to the economy and account for 16 percent of Canadian jobs.
This decline should signal a call to action as mid-sized firms are vital to the Canadian economy.
— Pierre Cléroux, Business Development Bank of Canada
“This decline should signal a call to action as mid-sized firms are vital to the Canadian economy,” said Pierre Cléroux, BDC Vice President, Research and Chief Economist, and lead author of the study.
“They’re few in numbers, yet their contribution to Canada’s economic prosperity cannot be overemphasized. They really do punch above their weight.”
Mid-sized firms—over 80 percent of which have around 100-250 employees—impact the economy not only in jobs but also generate 12 percent of Canada’s gross domestic product and 17 percent of the country’s export value.
In addition, mid-sized companies tend to have their head offices located in Canada, more so than large-sized firms—90 percent as opposed to 77 percent—which keeps more of the profits in the country.
With such a large reduction in numbers, economists are wondering where these firms have gone. A meagre 1.4 percent moved over the 500-employee threshold to become large businesses, the study found, while 14 percent either closed or became smaller firms with fewer than 100 employees.
Almost half of all firms surveyed said the ability to attract and retain skilled employees was one of the most prominent challenges to maintaining or expanding business, while 40 percent cited access to financing as a key barrier to growth.
Over one-third reported that the major obstacle preventing them from graduating to large-sized firms was strong competition, followed by market conditions/saturation, weak demand, and poor economic conditions.
In addition, over the past 10 years medium-sized firms “have faced serious challenges from the rapidly appreciating Canadian dollar, financial crisis, and recession,” Cléroux said, adding that BDC will look into how to support these companies.
“BDC will look closely at how it can better support our mid-sized firms, particularly in the manufacturing sector, in order to help them make the investments required to increase their competitiveness.”
The study noted that while the rise of China and other Asian economies as “factories of the world” has affected most developed economies, the negative effects here were more pronounced because Canada’s manufacturing sector was relatively more significant than those in other Western countries.
However, the situation for mid-sized firms is not entirely bleak. More than half experienced average annual sales growth of 4 percent in the past three years.
More than half of mid-sized firms surveyed believe sales will increase by 4.5 percent annually, and 4 percent believe they will move up to become large businesses. Companies with a board of directors or an advisory board are more likely to report an expected increase in sales.
And although mid-sized manufacturing firms experienced many challenges between 2001 and 2010, mid-sized retailers increased in number by 34 percent during the same period.
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