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Innovation, skills among key factors for assuring SME prosperity

SMEs employs close to eight million Canadians and account for 54% of all wages paid.


MONTRÉAL — Under the banner of SME Week, and based on the current economic situation, Laurentian Bank Securities (LBS) has released an overview of the key elements it believes small and medium-sized enterprise (SME) need to consider to ensure the prosperity of their businesses.

SMEs account for a little over half of all economic activity in Canada. In 2012, there were more than 1.08 million businesses of this kind operating in the country and employing close to 8 million people earning 54% of all wages paid. As such, SMEs constitute the backbone of the nation’s economy.

According to the bank, SME prosperity will depend on:

Progress rests on innovation: The digital revolution has given rise to a major transformation of market economies. “The explosion of e-commerce and the arrival of new platforms like cloud computing and 3D technologies have changed lifestyles, and businesses must also adapt to be able to ride the wave,” said Sébastien Lavoie, assistant chief economist at LBS.

“SMEs must change their business model to survive in a context of globalization and consolidation where.”

Thinking local before global: The scars left behind by the economic crisis are slowly healing, and small Canadian businesses were not as scathed as their medium and large-sized counterparts, having been less affected by economic conditions south of the border. But the state of the American economy continues to have a major influence on the export capabilities of Canadian businesses.

“It could be advantageous for Canadian SMEs to place their focus on inter-provincial and inter-regional commerce — in other words, to sell their products to neighbouring provinces and within other regional markets before thinking of exports to the United States or Europe,” said Lavoie.

LBS said only 10% of Canadian SMEs are exporting internationally, underlining the importance of capitalizing on nationwide sectorial and regional diversity.

According to an Industry Canada study, SMEs involved in inter-provincial commerce are more focused on international exports, with 41.4% of these businesses selling abroad as compared to only 3.5% not involved in inter-provincial commerce. The same study found that businesses conducting pan-Canadian commerce are also more focused on growth and are more innovative.

Bridging the labour shortage gap: Based on a survey by the Canadian Federation of Independent Business, 19% of business owners in Canada plan to add full-time personnel to their ranks in the coming months. But the hiring of new employees is a significant issue for SMEs.

The same survey found that the main concern of entrepreneurs is the shortage of labour limiting their production and sales. There has indeed been a decline in the size of the working age population. During the 1990s and 2000s, it grew annually by approximately 1.25%, while, presently, growth is estimated at only 0.60% per year. Given the ageing of the population, there’s increasing competition for young, specialized workers.

In order to be competitive employers, SMEs must be able to offer working conditions that are favourable for mobility, the bank said. That factor underlines the importance of adhering to technological innovation. Like consumers, employees want greater flexibility and solutions adapted to their reality and lifestyle.

In addition to the labour shortage, the lack of new workers and transfers of ownership are formidable issues for businesses. According to the Community Economic Development and Employability Corporation (CEDEC), close to $1.9 billion of business assets will change hands over the next five years, and that figure will rise to close to $3.7 billion by 2022.

“SMEs will need to focus more than ever on the hiring and management of qualified personnel, as well as on effective succession planning and business transfer in the short and medium-terms,” said Lavoie.

Favourable conditions for credit: One element that continues to work in favour of SMEs is ready access to credit. This is vital for growing businesses that want to invest in equipment or improve their mobile offerings.

A recent Bank of Canada study suggests general credit conditions for businesses are continuing to be more flexible in line with a trend that has remained virtually unchanged since the end of 2009. Businesses should be taking full advantage of this tendency and acquiring the means to assure their prosperity.

Laurentian Bank Securities is an integrated full-service investment dealer that focuses on five lines of business headquartered in Montreal.

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