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The State of Entrepreneurship in Canada
7. Conclusions
This report provides an optimistic portrait of the state of entrepreneurship in Canada. This final section summarizes its findings in terms of areas of strength and areas for improvement, comments on how and why this largely positive assessment might differ from those that have been more negative, and identifies some remaining questions that could not be addressed here because the relevant data were not available.
7.1 Areas of Strength
Pool of entrepreneurial ventures
The birth rate of new firms with paid employees is higher than the death rate, which means that the pool of businesses with entrepreneurial potential is being replenished regularly. Canada compares well in this regard with virtually every country examined here.
Sustainability of entrepreneurial ventures
New firms in Canada have high survival rates at both the one-year and the five-year point. This implies that the businesses created by Canadians have desirable characteristics that enable them to attain and maintain a competitive advantage in their markets. Without further study we cannot specify exactly what characteristics help businesses in Canada to survive the early years, but they are likely to include market orientation, innovativeness, productivity, operational capability and advantageous cost structures.
High-growth rates for manufacturers
The growth rates and gazelle rates achieved by Canadian manufacturers rank among the best of the countries examined for this report. These indicators of growth suggest that Canadian manufacturers are developing innovative products, processes and/or markets.
7.2 Areas for Improvement
Growth of service firms
Canada generates a lower proportion of high-growth and gazelle businesses in the service sectors than do most of the comparison countries considered here. It is beyond the scope of this report to determine why Canada's service sector performs relatively more weakly than our manufacturing sector, but investigating the reasons underlying this relative weakness is a priority for further study, given the increasing prominence of the service sector in most economies.
Exporting
The percentage of exports accounted for by Canadian SMEs is lower than in European nations examined for this report and comparable to that of the U.S. Investigating the reasons behind Canada's ranking in this regard is also a priority for further study, given the small Canadian domestic market size is many sectors and the general increasing globalization of business. An important aspect of further research in this area should involve the impact of trade agreements on the young and small firms.
7.3 Comparisons with Other Assessments
The largely positive tone of this report differs somewhat from those implied in recent reviews of the state of Canada's competitivenessFootnote 33 and the innovativeness of Canadian firms,Footnote 34 as well as some opinions expressed in the media. There are two key reasons for this.
Performance indicators
The indicators used here to assess our entrepreneurial performance are different than those used in other reports. The indicators chosen here reflect an emerging consensus among OECD nations as to how entrepreneurial performance should be measured. The indicators used in other recent reports draw on various traditional measures of innovation and national productivity or resources that look at inputs to entrepreneurial performance rather than actual entrepreneurial achievements. While these indicators are useful, it is important that interpretations of performance, which are based on inputs, not lead to an unbalanced account of Canada's entrepreneurial strengths.
The nature of "entrepreneurial culture"
Some negative assessments of entrepreneurship in Canada are based on solicited opinions about Canada's "entrepreneurial culture." These negative assessments are often accompanied by a call for improvement of this culture through public policy initiatives. However, "entrepreneurial culture" is a term that bears close scrutiny because it is ill-defined. Sometimes it refers to entrepreneurial skills, and these are possible to improve through education. Sometimes it refers to the availability of start-up funds, and these are possible to provide through specialized financial institutions. However, such efforts are primarily directed at increasing the competencies and financial strength of individuals who already wish to become (or already are) entrepreneurs.
Some countries have tried to increase the number of entrepreneurs in a society by changing the entrepreneurial mindset. This notion is more tenuous for two reasons:
- There is little evidence that entrepreneurs possess such a special mindset, and even if they did, that policy initiatives could increase its prevalence throughout a populationFootnote 35
- Entrepreneurs exist in every society, and their activities are affected by perceptions of risks and payoffsFootnote 36 Policies designed to encourage people to undertake significantly riskier activities than they are currently engaged in or to lower their perceptions of risk could have adverse consequences such as an increase in bankruptcies and liabilities. In many ways, this is what occurred with the recent mortgage crisis in the U.S.
Nevertheless government can still play a role by reducing barriers, improving the reward of entrepreneurship through tax system, and providing access to resources such as better information, entrepreneurship education and entrepreneurship centres. The task of policy makers is to set the rules of the game so that productive entrepreneurship is the rational and informed choice for individuals with entrepreneurial talent.Footnote 37
7.4 Additional Questions
In addition to the areas for further study identified in Section 7.2, the process of collecting data for this report has identified a number of important aspects of entrepreneurial activity in Canada that need to be studied further. These include:
Variety of entrepreneurs
Entrepreneurs exist everywhere and are diverse. There are entrepreneurs in multinational corporations and small, local businesses; among immigrant and fifth generation Canadian families; and in rural and urban communities. Some entrepreneurs are serial entrepreneurs, starting and selling multiple businesses, while others start a single business that might last multiple generations. We simply do not have the data today to allow us to document the scope and diversity of entrepreneurship everywhere in Canadian businesses and communities.
Improving current indicators
Even though entrepreneurial activity occurs in Canadian firms of all sizes, the preponderance of entrepreneurial-related data have been collected on small firms, and so our empirical knowledge of Canadian entrepreneurship is limited largely to firms with fewer than 250 employees. Further, the focus on firm size in data collection and reporting has resulted in a neglect of firm age as a meaningful categorization, and corresponding limits to our understanding of entrepreneurial activity and performance. Starting a business is a key entrepreneurial action, and decisions in the early years of a firm's life can set it on a long-lived path, and so it would be useful to have a greater scope of data classified by firm age, in general, and about the activities and performance of young firms, in particular.
Process of firm growth and innovation
While we have some measures of firm growth and innovation, we have little data on the processes through which entrepreneurial firms grow and innovate. For example, we cannot say whether these processes tend to be constant over time, characterized by peaks and valleys, or associated with growth periods and plateaus, and whether different trajectories are associated with greater survival prospects.
Links between entrepreneurial performance and determinants of entrepreneurship
Current data allow us to describe the state of entrepreneurship in Canada, in terms of its performance. If there were greater data on the probable determinants of entrepreneurship, researchers and policy-makers would be able to investigate the links between specific determinants and specific performance outcomes. Understanding these relationships better would enable us to explain and predict entrepreneurial performance, rather than simply to describe it.
More international data
Only a limited number of international comparisons can be made at the present time because of the inconsistencies in the ways in which data are collected, recorded and disseminated across countries. While we can compare Canadian entrepreneurial performance with that of the U.S. and certain European countries to some extent, it would be useful to be able to compare Canadian data with that of major European countries, in particular, the United Kingdom, France and Germany.
Footnotes
- Footnote 33
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Competition Policy Review Panel, Compete to Win: Final Report June 2008 (Ottawa: Industry Canada, 2008).
- Footnote 34
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Heather Munroe-Blum and Peter MacKinnon, "Canada's Innovation Deficit," Policy Options, (June 2009), pp. 8–10.
- Footnote 35
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Council of Canadian Academies, Innovation and Business Strategy: Why Canada Falls Short? The Expert Panel on Business Innovation (April 2009).
William B. Gartner, "'Who is an entrepreneur?' is the wrong question," American Journal of Small Business, 12.4 (1988), pp. 11–32. - Footnote 36
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William Baumol, "Entrepreneurship: Productive, Unproductive and Destructive," Journal of Political Economy, 98.5 (1990), pp. 893–921.
- Footnote 37
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Francis Greene, Kevin Mole and David Storey, Three Decades of Enterprise Culture: Entrepreneurship, Economic Regeneration and Public Policy (New York: Palgrave Macmillan, 2008).
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