Financing Profile: Small and Medium-Sized Enterprises in Tourism Industries

Obstacles to business growth

Small and medium-sized enterprises in tourism industries were more likely to report obtaining financing as an obstacle to business growth

The tourism industry operates in a unique and challenging environment, constantly adapting to changing demographics, economic conditions, health and safety issues and environmental concerns. As a result, achieving growth targets for an SME in the tourism industry can be challenging. Current issues facing the tourism industry include, but are not limited to, seasonality of industry demand, new competition from emerging economies, exchange rates, border infrastructure, increased fuel costs, air access, labour shortage and concerns over global security (Canadian Tourism Commission, 2009a; and Industry Canada, 2008).

Among SME owners surveyed in 2004, the most frequently identified obstacle for both tourism and non-tourism business was the level of taxation. Low profitability, insurance rates and instability of consumer demand were more common concerns for businesses in tourism industries than those in non-tourism industries in 2004 (see Table 3).

Table 3
Perceived Obstacles to Business Growth, 2004 and 2007*

Obstacles		2004		2007
		Tourism (%)	Non-Tourism (%)	Tourism (%)	Non-Tourism (%)
* Bold values denote statistically significant difference at 5 percent. Source: Statistics Canada, Survey on Financing of Small and Medium Enterprises, 2004 and 2007.
External to the Firm	Finding Qualified Labour	32	37	39	42
	Instability of Consumer Demand	42	36	30	33
	Government Regulations	35	34	31	27
	Environmental Regulations/ Compliance			11	12
	Level of Taxation	50	47
	Increasing Competition			37	40
Internal to the Firm	Obtaining Financing	25	20	25	16
	Management Capacity	12	14	12	11
	Rising Business Costs			59	56
	Low profitability	47	38
	Insurance Rates/Premiums	42	36	36	34

In 2007, the most frequently cited challenge reported by SME owners was rising business costs followed by finding qualified labour. Over half of tourism SME owners (59 percent) identified business costs as an obstacle to growth and more than a third (39 percent) cited concerns about finding qualified labour.

Interestingly, in comparison with SMEs in non-tourism industries, SMEs in tourism industries were significantly more likely to cite obtaining financing as an obstacle to business growth in both 2004 and 2007 (see Table 3). In 2007, across the tourism industries, SMEs in the accommodation industry were the most likely to identify obtaining financing as an obstacle (32 percent), followed by the recreation and entertainment industry (29 percent). Conversely, none of the businesses in the transportation industry identified obtaining financing as an obstacle (SME Financing Data Initiative, Statistics Canada, 2007).