A new study by the Centre for Digital Entrepreneurship and Economic Performance (DEEP) has found that Canadian businesses with revenues of more than $1 billion have been increasingly engaged in the global economy and growing through foreign and domestic acquisitions. Most of the growth has been in resource, service and engineering and construction sectors. However, the DEEP study, which was commissioned by the Business Development Bank of Canada, the Canadian Digital Media Network, Export Development Canada and Industry Canada, also found that Canada’s economy still tends to be dominated more by small enterprises relative to other economies.
“Canada’s Billion Dollar Firms: Contributions, Challenges and Opportunities” – Canada’s largest firms growing aggressively through foreign and domestic acquisitions; challenges remain for smaller and mid-size firms – DEEP Centre Study
WATERLOO, ON, July 9, 2014 /CNW/ – A new study released by the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre) finds that Canada’s population of billion-dollar (annual revenue) firms are more globally engaged than ever but notes that the Canadian economy is far more dependent on smaller firms than other similar economies.
The study, “Canada’s Billion Dollar Firms: Contributions, Challenges and Opportunities,” was commissioned through a partnership between the Business Development Bank of Canada, the Canadian Digital Media Network, Export Development Canada and Industry Canada. It presents a demographic analysis of Canada’s largest firms, their contributions to Canadian employment and research and development spending, as well as a jurisdictional analysis of Canada’s performance in producing globally competitive firms relative to a series of comparator economies, including Australia, Germany, Sweden, the United Kingdom and the United States. For a copy of the report visit http://deepcentre.com/billiondollarfirms
The analysis provides an overall positive view of the development of Canada’s billion-dollar firms, in particular finding a healthy evolution of firms from below the billion-dollar revenue threshold, with a significant percentage of mid-tier firms either positioned to enter the billion-dollar cohort or providing attractive acquisition targets. Compared to similar economies, Canada has an equivalent number of billion-dollar firms but the sectoral composition of this cohort is highly concentrated in natural resources and financial services sectors. “Canada has excelled in developing large resource firms over the past decade, notably in the energy sector, a development that should not surprise given the confluence of growing global demand and Canada’s abundant natural resource endowments,” said DEEP Centre co-founder and President, Anthony D. Williams. “The relative weight of Canada’s energy sector, however, is juxtaposed against a relatively small share of manufacturing firms as compared to Germany, Sweden, the United Kingdom and the United States.”
The study evaluated 169 publicly traded firms with revenues of over CAD $1 billion. Together they employ nearly 1.4 million Canadians. Looking at the period 2003-2012, the study finds that employment in Canada’s largest firms has grown most strongly in resource, service and engineering and construction sectors. The manufacturing sector, however, has seen its population of mega-large firms and related employment shrink significantly. In knowledge-intensive sectors of the economy, such as health care and technology, a high degree of churn sees no increase in the number of billion-dollar firms, but rather, wholesale changes in who those firms are.
Positive findings include the fact that leading Canadian firms are more globally engaged than ever, and this global engagement is a significant factor underpinning their growth—both over the past decade and into the future. “High-growth firms in Canada increasingly view themselves as global enterprises, with significant overseas operations,” said Dan Herman, executive Director of the DEEP Centre. “In fact, internationalization was highlighted by most executives as a critical success factor going forward given the relatively small size of Canada’s domestic market.”
The risk highlighted in the data is that international growth often means more emphasis on hiring overseas and potentially less Canadian employment, particularly as internationalizing firms make strategic decisions to locate their operations closest to the largest centres of global demand. “The findings suggest that to stay globally competitive, Canadian firms must invest in technology to reach new levels of efficiency, aggressively acquire high-potential companies, participate in emerging market growth, and get access to the best talent, wherever it may be found in the world, ” said Williams.
A review of transactions and acquisitions in this population of large firms finds a relatively significant nominal impact on the aggregate number of firms, as well as the distribution of firms across sectors. This finding is not necessarily negative; in fact, a high number of acquisitions generally reflects a healthy growth trajectory for many of Canada’s largest firms. According to Herman, “The most consistent factor driving the growth Canada’s largest firms was their success in acquiring firms that helped expand their business offerings and gave them a presence in key growth markets.”
The DEEP Centre study also examined a sample of Canada’s fastest growing small firms. A majority of the firms studied cited Canada’s comparative lack of seasoned management talent as the number one inhibitor of growth. “Canadian start-ups don’t feel constrained by access to finance, but they do feel constrained by a lack of access to sophisticated management talent with deep experience in implementing go-to-market strategies,” said Williams. Canadian entrepreneurs interviewed by the DEEP Centre called for better mentoring systems to guide young executive teams, more investment in branding Canada as a destination for investment in entrepreneurial ventures, greater inclusion of start-ups in international trade missions, and more assistance in competing for the best talent.
About the project
“Canada’s Billion Dollar Firms: Contributions, Challenges and Opportunities,” was commissioned by the Business Development Bank of Canada, the Canadian Digital Media Network, Export Development Canada and Industry Canada.
About the DEEP Centre
The Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre) is a Canadian economic policy think tank. The DEEP Centre brings a nuanced understanding of the changing drivers of success in the global economy and the critical interconnections between technology, entrepreneurship, and long-run economic performance. The Waterloo-based think tank has been helping policy-makers identify and implement powerful new policy levers to foster innovation, growth, and employment in their jurisdictions since 2012.
For more information about the DEEP Centre visit www.deepcentre.com
SOURCE DEEP Centre
For further information: Anthony D Williams, Co-Founder and President, Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre), firstname.lastname@example.org, (647) 400-8505
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