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Part 3: SME Involvement in Global Value Chains
The first two sections of this report provide a number of basic statistics relative to Canadian exporters, using the value of exports and export propensity as the main measures of trade. However, recent developments in the global economy have changed the reality of many businesses in Canada in that their activities go beyond traditional exports. For example, more and more firms do not export their products and services directly, but participate in global value chains (GVCs).
GVCs include the full range of activities required to bring a product from conception to its end use and beyond (e.g., design, production, distribution). Value chain activities can be contained within a single firm or divided among different firms, and can be contained within a single geographical location or spread over wider areas. For example, firms are increasingly outsourcing business activities to third parties, locating parts of their supply chains outside their home country (offshoring), and partnering with other firms through strategic alliances and joint ventures.
While this is a well-known phenomenon, quantifying it has been a challenge without suitable sources of data. Using new data from the Survey of Innovation and Business Strategy (SIBS) 2009, this section presents a number of figures illustrating the involvement of small and medium-sized manufacturing enterprises with more than 20 employees in GVCs. In particular, this section highlights the types of international activities these enterprises engage in, their most relocated or outsourced business activities and their participation in indirect exports.
1. International Business Activities
As Figure 3.1 illustrates, approximately 50 percent of manufacturing enterprises engaged in international business activities between 2007 and 2009. Specifically, 54 percent of manufacturing enterprises exported or attempted to export goods and services and 48 percent reported having business activities outside of Canada. Additionally, 10 percent of manufacturing enterprises outsourced (contracted out) their business activities to another country and 5 percent relocated their business activities abroad (still performed within the company).
[Description of Figure 3.1]Source: Statistics Canada, Survey of Innovation and Business Strategy, 2009.
Figure 3.1 also shows that some business activities were returned to Canada. Between 2007 and 2009, 5 percent of manufacturing enterprises reported relocating their business activities from another country to Canada.
In general, large manufacturing enterprises were more likely to engage in international business activities than small or medium-sized manufacturing enterprises, with the exception of exporting, in which 71.3 percent of medium-sized enterprises exported goods compared with 69.8 percent of large enterprises.
SMEs were more likely to outsource (contract out) business activities (16 percent for medium-sized and 8 percent for small enterprises) than to relocate business activities to another country (9 percent for medium-sized and 3 percent for small enterprises). These findings may suggest that contracting out is a less costly alternative to relocating business activities for SMEs.
2. Relocation and Outsourcing of Business Activities
Figure 3.2 illustrates the most relocated or outsourced business activities in the Canadian manufacturing sector by firm size. Between 2007 and 2009, the business activity most displaced (relocated or outsourced) out of Canada was the production of goods. Other displaced business activities included the provision of services; distribution and logistics; and marketing, sales and after sales services.
[Description of Figure 3.2]Source: Statistics Canada, Survey of Innovation and Business Strategy, 2009.
Between 2007 and 2009, medium-sized manufacturing enterprises displaced more business activities in the production of goods than small and large manufacturing enterprises. Over the same period, small manufacturing enterprises were more likely to displace their marketing, sales and after sales services than medium-sized and large enterprises.
Small manufacturing enterprises were more likely than medium-sized and large manufacturing enterprises to relocate their business activities in marketing, sales and after sales services. At the same time, small manufacturing businesses in Canada were more likely than medium-sized and large manufacturing businesses to outsource business activities, such as marketing, sales and after sales services; distribution and logistics; and provision of services, outside of Canada.
Research and development (R&D) is not shown in Figure 3.2 among the top business activities that are relocated as it is ranked eighth out of 15 business activities. However, it is worth mentioning that small manufacturing businesses relocate their R&D activities almost as much as large manufacturing businesses (13 and 14 percent respectively).
3. Indirect Exports
SIBS data indicate that not all manufacturing enterprises exported goods in the traditional way (i.e., selling directly to foreign customers); some manufacturing enterprises engaged in indirect exporting. As illustrated in Figure 3.3, 21 percent of manufacturing enterprises sold their goods to another enterprise in Canada that, in turn, exported the goods. Additionally, 26 percent of manufacturing enterprises sold their goods to another enterprise in Canada that used them as an intermediate input in final goods that were then exported.
[Description of Figure 3.3]Source: Statistics Canada, Survey of Innovation and Business Strategy, 2009.
Small and medium-sized manufacturing enterprises were more likely than large manufacturing enterprises to fill orders from domestic buyers and then export the goods "as is." Specifically, 21 percent of small enterprises and 24 percent of medium-sized enterprises were indirect exporters of final goods compared with 17 percent of large enterprises. Conversely, small and medium-sized manufacturing enterprises were less likely than large manufacturing enterprises to produce inputs for goods that were then exported by their customers. Specifically, 26 percent of small enterprises and 27 percent of medium-sized enterprises were indirect exporters of intermediate goods compared with 30 percent of large enterprises.
Figure 3.3 also demonstrates that 7 percent of manufacturing enterprises in Canada act as intermediaries by buying and selling goods outside of Canada without them ever entering Canada. Large enterprises were more likely to be intermediaries compared with small and medium-sized enterprises.
In conclusion, these findings reveal that looking only at traditional exports does not capture the full international integration of an enterprise. Enterprises of all sizes are participating in global value chains through outsourcing, relocating business activities and indirect exporting.
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