Companies not investing enough in their businesses, government policies encourage them to remain small.
October 1, 2012
by PLANT STAFF
TORONTO — When it comes to productivity performance, it’s not about size or sector composition, according to a new report from Deloitte.
Disputing decades of speculation that it is size and sector composition that restricts performance, the consulting firm’s report, The Future of Productivity: Clear choices for a Competitive Canada, identifies the real drag as the inability of Canadian companies to sustain growth over the longer term.
Among the chief reasons is the reluctance of Canadian companies to invest in growth, and government policies that encourage companies to remain small.
Among the key findings, exporting firms’ productivity growth outperforms non-exporters, but fewer than 3% of Canadian firms export.
And Canadian businesses spend at only 65.2% the US rate on machinery and equipment while investment in information and communication technology (ICT) is at 66% in manufacturing and 80% in financial services.
The report found that Canada’s productivity lags the US in all areas, regardless of a company size, sector, business type or location. And the competitiveness gap has widened in mining, oil and gas, and financial services, but it’s particularly wide in manufacturing. Since 2000, it has grown six times faster than in Canada.
Deloitte notes productivity growth in Canadian manufacturing averaged 0.88% between 2000 and 2008, well below the 3.3% rate of growth in the US. And a survey of US firms from 1998 to 2008 showed that rapidly growing firms are more productive. In Canada, for instance, 4.9% of firms account for 43% of all job growth.
Deloitte advocates bolder investment in measures that boost productivity and seek out growth domestically and internationally.
It also calls on governments to create the right conditions for growth by eliminating barriers to trade, encouraging competition and foreign direct investment; and adjusting Canada’s immigration system to deal with an aging population and looming skills shortage.
The report notes Canada needs to develop new trading partners to lessen dependence on the US, and increase the transparency of the foreign direct investment review process. This would encourage more foreign companies to invest in Canada, which would force Canadian businesses to invest and innovate to remain competitive.
Click here to access the report.