The State of Small and Medium-Sized Enterprises in Northern Ontario

Sponsor

FedNor is an organization within Industry Canada that supports regional development in Northern and rural Ontario through its delivery of the Northern Ontario Development Program (NODP), the Community Futures (CF) Program and the Eastern Ontario Development Program (EODP). Much of FedNor's programming is intended to benefit SMEs in Northern Ontario. The organization is examining ways in which its programming could further support them and wants to ensure that its understanding of their situation is well-informed and up-to-date.

Rationale

The growth of small business is a critical element in the future economic prosperity of Northern Ontario. This research project was designed to gather information to better understand the characteristics of SMEs in Northern Ontario and the particular challenges and opportunities facing them in today's economy.

Anticipated Outcomes/Benefits

The data gathered through this research project will be analyzed and used in a broader study on the state of SMEs in Northern Ontario. The results of the broader study will be published and distributed to key Northern Ontario stakeholders, including the Community Futures Development Corporations and other community-based organizations that provide programs and services to SMEs.

Research Information

Decima Research conducted a 13-minute telephone survey of a random sample of senior-level executives, owners and presidents of SMEs in Northern Ontario. Four hundred and three (403) interviews were conducted between March 14 and 26, 2007 and an additional 104 interviews were conducted between April 20 and 25, 2007 among SMEs in the manufacturing sector.

Contracting

Research Firm: Decima Research
Contract Number: UT105-6-2456
Contract issued by: PWGSC
Contract value: $20,514.26 including GST


Quantitative Survey on the State of SMEs in Northern Ontario, April 2007


Quantitative Survey on the State of SMEs in Northern Ontario

Quantitative Survey on the State of SMEs in Northern Ontario, April 2007

PDF Version
(298 KB, 33 pages)

Any questions regarding this report can be directed to:

Communications and Marketing Branch
Industry Canada
C.D. Howe Building
Room 204E, 235 Queen Street
Ottawa, Ontario  K1A 0H5
Canada
Telephone: 613-943-2545
Fax: 613-952-5162
Email: janis.camelon@canada.ca

Prepared for FedNor
Contract number: UT105-6-2456/001/CY
POR number: POR-429-06
Contract award date: February 21st, 2007

April 27th, 2007

Confidentiality
Any material or information provided by FedNor and all data collected by Decima will be treated as confidential by Decima and will be stored securely while on Decima's premise (adhering to industry standards and applicable laws).

Decima Research

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Toronto, Ontario M4P 2E5
Telephone: 416-962-2013
Fax: 416-962-0505

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Vancouver
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Telephone: 604-642-2295
Fax: 604-642-2549


Table of Contents


Introduction

Decima is pleased to present the following summary report to FedNor, the federal regional development organization responsible for the economic prosperity of Northern Ontario which summarizes the results of a quantitative survey on the state of small and medium-sized enterprises (SMEs) in Northern Ontario.

The overall objective of the research survey was to examine the characteristics of SMEs in Northern Ontario. More specifically, the objectives were to:

Decima conducted a 13 minute telephone survey with a random sample of senior level executives such as owners and presidents of SMEs in Northern Ontario. Four hundred and three (403) interviews were conducted between March 14th and 26th, 2007. And an additional 104 interviews were conducted between April 20th and 25th, 2007 in order to obtain additional interviews among SMEs in the manufacturing sector. The margin of error for a study of this size is +/- 4.1% nineteen times of twenty. Some results are based on smaller sub-segments of the total survey sample, and so the margin of error will be somewhat greater among these results.

For the purpose of this report, "very small companies" are defined as those having four employees or less, "small companies" are those with between five and 19 employees, while "mid-sized companies" are those with between 20 and 499 employees.

In addition, for the purposes of this report, Northern Ontario was defined by the Ontario Census Divisions. This geographical area includes the following:

Provided under separate cover is a set of detailed banner tables that present the results for all survey questions by various demographic breakdowns. In some tables and charts the percentages may not sum to exactly 100%, due to rounding.

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Research Findings

The Future Economic Prospects of SMEs in Northern Ontario

While individual SMEs state they are currently doing the same as compared to a year ago, a majority believe they will be doing "better" in two years.

When asked if their business is doing "better," "the same," or "worse" as compared to a year ago, SMEs are about evenly split between saying their company is doing "worse" (30%) or doing "better" (30%). The plurality (37%) say they are doing "the same."

Looking ahead two years, SME senior level executives tend to be somewhat more optimistic about their business. Roughly half (49%) believe their company will be doing "better," compared to one in ten (12%) who believe it will be doing "worse." One third (32%) believe their company will be doing "the same."

Looking more closely at expectations for the next two years, seven in ten (68%) SMEs who say their company is doing "better" than a year ago, believe it will continue to do "better" over the next two years, as compared to just 1% who say it will do "worse."

This positive trend is also seen among those SMEs who say their company is doing "worse" than a year ago. More specifically, 37% of those who say their company is doing "worse" expect it to be doing "better" two years from now.

Thinking specifically about the state of SMEs in Northern Ontario, over a third believe they will experience "bad times" over the next two years.

Optimism about the future, however, seems to be limited to their own business. When asked to think specifically about the state of small and midsize companies in Northern Ontario over the next two years, nearly four in ten (36%) believe SMEs will experience "bad times," compared to one in five (23%) who believe they will experience "good times." One quarter (27%) believe there will be "no real change."

Profiling SMEs in Northern Ontario

SMEs in Northern Ontario derive their revenue primarily from services.

Six in ten (63%) of SME senior level executives report that their company derives their revenues primarily from services. In contrast, nearly one in five (16%) report their revenues are primarily derived from goods.

The majority of SMEs say the bulk of their revenue comes from more than 100 km of their location.

Although Northern Ontario is the single largest market for SMEs, with senior level executives reporting that the largest percentage of their revenues at 46% come from within 100 km of where they are located, over half (58%) come from more than 100 km, of their location. More specifically, 18% of their revenues come from the U.S., 18% come from farther than 100 km, but still in Northern Ontario, 14% come from the rest of Ontario, 6% from the rest of Canada and 2% from outside of Canada and the U.S.

The following table illustrates the percentage breakdown of revenues for each area.

Area
Percentage of Total Revenues Within 100 km
%
Farther than 100 km, but still Northern Ontario
%
Rest of Ontario
Rest of Canada
%
U.S.
%
Outside Canada and the U.S.
%
76–100% 30 4 3 1 12
51–75% 11 4 7 1 2 1
26–50% 13 14 6 4 6 1
1–25% 26 44 32 31 25 18
0% 16 30 47 60 51 75
             
Mean Percent 46 18 14 6 18 2

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A majority of SMEs expect revenues coming from outside of Northern Ontario to "remain the same" in 2007.

When asked if they expect their revenues coming from outside Northern Ontario to "increase," "decrease," or "remain the same" in 2007, a majority (53%) of senior level executives expect them to "remain the same." Three in ten (29%) believe they will "increase," while one in ten (12%) believe they will "decrease."

In addition, those who expect their revenues coming from outside of Northern Ontario to "increase" in 2007 believe they will do so by 21%.

Most SMEs would prefer their business to grow over the next two years.

SME senior level executives were then asked if in the next two years they would prefer to grow or not grow their business. The vast majority (86%) say they would prefer their business to grow, as compared to one in ten (12%) who say they would prefer not to grow.

Among those who say they would prefer to grow, "financing or access to capital" is cited as the most significant barrier to growth (20%), followed by "lack of a skilled work force" (15%). Less often respondents cite "marketing" (13%), "management skills" (11%) and "competition" (11%). Meanwhile "capacity to develop new products/services" (8%), "market or economic information" (8%) and "distance to market" (7%) are least likely to be cited as significant barriers to growth.

Barriers to Growth
Using a 1 to 10 scale, where 1 is not at all a barrier to growth and 10 is a significant barrier to growth, how significant a barrier are each of the following to growing your business over the next two years?

Bar chart of Barriers to Growth

Keys to Success in Northern Ontario

"Retaining employees" is the most important factor to the success of SMEs in Northern Ontario.

SME senior level executives were then asked to indicate which factors would be most important to the success of their business over the next two years.

"Retaining employees" is the most important factor to the success of SMEs in Northern Ontario, with three-quarters saying it is important – six in ten of which say it is "extremely important."

More than half also assign high importance to "lowering costs" (61% extremely important), "increasing revenues among existing clients" (59%), "improving quality" (57%) and "improving marketing" (51%).

Factors Important to the Success of Business — Top Tier
Using a ten-point scale where 1 is not at all important and 10 is extremely important, how important is the following to the success of your business over the next 2 years?

Bar chart of Factors Important to the Success of Business — Top Tier

The importance of each of the factors listed seems to be correlated to company size. Larger companies tend to assign higher levels of importance to each of the factors.

In contrast, senior level executives are least likely to assign importance to "investing in R&D" (25% total importance). "Expanding client base internationally" (39%), "investing in new technology" (41%) and "hiring new employees" (42%) are also assigned a lower importance by SMEs, with roughly four in ten saying each of these factors are either "extremely" or "somewhat important."

Factors Important to the Success of Business — Bottom Tier
Using a ten-point scale where 1 is not at all important and 10 is extremely important, how important is the following to the success of your business over the next 2 years?

Bar chart of Factors Important to the Success of Business — Bottom Tier

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Information Technology

A vast majority of SMEs use the Internet and have a company website.

Nearly nine in ten (84%) SMEs in Northern Ontario use the Internet. Among the SMEs who use the Internet, eight in ten (79%) have a company website.

Three in ten SMEs report goods and services can be purchased from their company website, with 21% of revenues coming from online transactions.

Among those SMEs who have a website, three in ten (30%) report that clients are able to purchase goods and services from the website, as compared to seven in ten (69%) who report they cannot.

Furthermore, among the SMEs who have company websites where clients are able to purchase goods and services online, senior level executives report that approximately 21% of their revenues come from online transactions.

Among SMEs who use the Internet, half (51%) report they make purchases online, while the other half report they don't (48%). And among those who do make purchases online, approximately 15% of their purchases are made in this manner.

Research and Development

Over half of SMEs do not see R&D as a benefit to their company.

Nearly two thirds (65%) say R&D is not a benefit to their company, almost one quarter (23%) of which say it is "of no benefit." One in five (21%) say it is a "very significant benefit" and an additional one in ten (13%) say it is "somewhat of a benefit."

Over half of SMEs in Northern Ontario are unlikely to invest in R&D.

Given the low levels of perceived R&D benefit to SMEs, it is not surprising that two thirds (63%) say their company is "not very likely" (24%) or "not at all likely" (39%) to invest in R&D in the next twelve months. Over one third (36%), however, say they are either "very likely" (17%) or "somewhat likely" (19%).

Among those who believe R&D can benefit their business, but say it is unlikely they will invest in it, the single most frequently cited reason is "lack of finances" (n=8). Less frequently, SMEs mention "currently happy with their situation" (n=6), they "don't see any benefit" (n=3) and "lack of time" (n=1).

When asked if their company had developed any new products over the last three years, two thirds (66%) of SMEs report they have not developed any new products. Among those that have, 11% say they have developed between 1 and 2 new products, 7% say they have developed between 3 and 4 new products and 11% say they have developed 5 or more.

Among those companies who do report they have developed a new product in the last three years, at least 18% have patented at least one new product.

SMEs Profile

Below are tables illustrating the demographics of the SMEs who were interviewed.

  Sample size Percentage
Number of Employees 403 100%
1–4 159 39
5–9 100 25
10–19 84 21
20–49 32 8
50–99 16 4
100–249 9 2
250–499 3 1


  Sample size Percentage
Years Owned/Managed Business 403 100%
Less than a year 2 1
1–4 70 17
5–9 72 18
10–14 65 16
15–19 55 14
20–29 71 18
30 or more 63 16
Don't know 5 1
Mean years 403 16.2


  Sample size Percentage
Number of New Hires for 2007 403 100%
Zero 207 51
1–25 175 43
26 or more 3
Don't know/Refused 18 4


  Sample size Percentage
Member of Industry/Trade Association 403 100%
Yes 216 54
No 177 44
Don't know 10 2


  Sample size Percentage
Number of Direct Competitors 403 100%
Do not have any direct competitors 29 7
1–25 240 60
26–50 29 7
51 or more 48 12
Don't know 57 14
Mean number of direct competitors 403 153


  Sample size Mean Number
Location of Direct Competitors    
In the local community, within 100 Km 374 31.1
Outside the local community, but in Northern Ontario (Muskoka to Manitoba border) 374 104.1
Outside of Northern Ontario, but within Canada 374 114.1
Outside of Canada 374 405.3


  Sample size Percentage
Source of Sales    
Products or services company creates or provides 403 85.7
Products or services from a subcontractor 403 14.4


  Sample size Mean
Revenues for 2005 Fiscal Year 403 100%
Less than $50,000 46 12
$50,000 – $99,999 23 6
$100,000 – $249,999 33 8
$250,000 – $499,999 30 8
$500,000 – $749,999 19 5
$750,000 – $999,999 13 3
$1 million or more 65 16
Don't know 173 43


  Sample size Percentage
Revenues for 2006 Fiscal Year 403 100%
Less than $50,000 39 10
$50,000 – $99,999 23 6
$100,000 – $249,999 33 8
$250,000 – $499,999 29 7
$500,000 – $749,999 19 5
$750,000 – $999,999 11 3
$1 million or more 75 19
Don't know 175 43


  Sample size Percentage
Expected Revenues for 2007 Fiscal Year 403 100%
Less than $50,000 41 10
$50,000 – $99,999 27 7
$100,000 – $249,999 32 8
$250,000 – $499,999 28 7
$500,000 – $749,999 21 5
$750,000 – $999,999 13 3
$1 million or more 73 18
Don't know 170 42


  Sample size Percentage
Industry 403 100%
Accommodation/Food Services/Tourism 157 39
Manufacturing 40 10
Agriculture/Fishing/Hunting/Forestry 37 9
Oil/Gas/Mining 31 8
Construction 21 5
Professional, Scientific and Technical Services 19 5
Transportation and Warehousing 17 4
Art/Entertainment/Recreation 10 3
Retail Trade 10 2
Engineering 5 1
Industrial 4 1
Consulting 4 1
Service 3 1
Waste Management 3 1
Utilities 3 1
Finance and Insurance/Real Estate and Rental 2 1
Other 25 6
Don't know/Refused 8 2


  Sample size Percentage
Region 403 100%
Nipissing District 40 10
Parry Sound District 37 9
Manitoulin 9 2
Sudbury District 12 3
Greater Sudbury District 48 12
Temiskaming District 27 7
Cochrane District 32 8
Algoma District 42 10
Thunder Bay District 58 14
Rainy River District 5 1
Kenora District 46 11
Muskoka 29 7
Unknown 18 4

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Appendix A: Survey Instrument

Screening

Hello, my name is __________________ and I am calling from Decima Research which has been contracted by FedNor, the federal regional economic development organization for Northern Ontario, to assess the business environment in the region. We are conducting a very short survey approximately 8 minutes in length among small and medium-sized businesses (SMEs) located in Northern Ontario to gather information on key factors which contribute to business growth and competitiveness in today's economy. The results of the survey will help guide the development of FedNor policies and programs supporting SMEs in Northern Ontario. May I speak with the owner or President of your company?

Interviewer: Confirm you are speaking to the right individual and read: I understand that you are the owner or President of (Company Name). Is that correct?

I assure you that we are not trying to sell you anything. The information you provide will be used for research purposes only and will be administered in accordance with the applicable privacy laws.

Is now a convenient time to speak with you?

Yes Continue
No, not convenient Schedule callback or inform respondent that they can respond online
No, not interested Thank and terminate

Before we proceed, I would just like to inform you that this study has been registered with the Canadian Survey Research Council.

[Interviewer: If respondent questions or wants to more about registration process] The registration system has been created by the survey research industry to allow the public to verify that a survey is legitimate, get information about the survey industry or register a complaint. The registration system's toll-free number is 1-800-554-9996.

[Interviewer: Only if respondent questions the validity of the research at any time throughout the survey] The survey is being sponsored by FedNor, if you have any questions on the survey you may contact Normand Laframboise of the Government of Canada at 1-613-947-2596.

Which of the following best describes your title?

Owner
President
Senior executive
Other [specify] Do not read
Refuse Thank and terminate

Characteristics of Business

1. Approximately how many employees, Including yourself does your company employ? This would include all full-time and permanent part-time staff? Do not read list — accept only one response

1–4 1  
5–9 2  
10–19 3  
20–49 4  
50–99 5  
100–249 6  
250 – 499 7  
500 or more 8 Thank and terminate
Refused/Prefer not to say 9 Thank and terminate

Confidence Questions

2. Would you say that your business is doing better, worse or about the same as compared to a year ago?

Better 1
Worse 2
The same 3
Don't know 9

3. And looking ahead, do you think that two years from now your company will be doing better, worse or about the same?

Better 1
Worse 2
The same 3
Don't know 9

4. Now thinking specifically of small to mid-size companies in Northern Ontario, do you think they will experience good times, bad times or no real change over the next 2 years?

Good times 1  
Bad times 2  
No real change 3  
Both good and bad times 4 (Volunteered)
Uncertain 5 (Volunteered)
Depends 6 (Volunteered)
Don't know 9 Do not read

Revenues/Business

5. Are your company's revenues primarily derived from goods or services?

Goods 1  
Services 2  
Both 3  
Don't know/Not sure 9 Do not read

6. What percentage of your revenues come from within 100 km of you, farther than 100 km from you, but still in Northern Ontario, the rest of Ontario, the rest of Canada, the U.S. and outside of Canada and the U.S? (Read full list before accepting a response to ensure respondent knows all the categories)

7. Do you expect your revenues coming from outside Northern Ontario to increase, decrease or remain the same in 2007?

Increase 1  
Decrease 2  
Remain the same 3  
Don't know/Not sure 9 Do not read

8. (If increase in Q7) And what percentage increase do you expect in revenues coming from outside Northern Ontario in 2007?
Open Percent

9. How many new employees is your company likely to hire in 2007?
Record Number

Don't know/Not sure 9 Do not read

Keys to Success

10. Using a ten-point scale where 1 is not at all important and 10 is extremely important, how important is the following to the success of your business over the next 2 years? Randomize list

12. And over the next two years, would you prefer to grow your business or not grow your business?

13. (If prefer to grow business in Q12) Using a 1 to 10 scale, where 1 is not at all a barrier to growth and 10 is a significant barrier to growth, how significant a barrier are each of the following to growing your business over the next 2 years?

Information Technology

14. Does your business use the Internet?

Yes 1  
No 2  
Don't know/Not sure 9 Do not read

15. (If use internet in Q14) Does your company have a website?

Yes 1  
No 2  
Don't know/Not sure 9 Do not read

16. (If have website in Q15) Are clients able to purchase goods and services from your website?

Yes 1  
No 2  
Don't know/Not sure 9 Do not read

17. (If Clients Can Purchase Online in Q16) Roughly Speaking, What Proportion of Revenues Comes from Online Transactions? Open percent

Don't know/Not sure 9 Do not read

18. (If use internet in Q14) Does your company make purchases online?

Yes 1  
No 2  
Don't know/Not sure 9 Do not read

19. (If yes in Q18) and approximately what percentage of the purchases your company makes comes from online transactions? Open percent

Don't know/Not sure 9 Do not read

Research and Development

20. Thinking of the last 3 years, how many new products has your company developed? Record number

Do not develop products 1  
Don't know/Not sure 9 Do not read

21. (If at least 1 in Q20) And, how many were patented?

Don't know/Not sure 9 Do not read

22. On a ten-point scale where 1 is of no benefit and 10 is of very significant benefit, how much of a benefit is research and development, also known as R&D, to your company?

23. How likely is your company to invest in R&D in the next 12 months?

Very likely 1
Somewhat likely 2
Not very likely 3
Not at all likely 4
Don't know 9

24. (If say 6-10 in benefit (Q22) and 3 or 4 in likelihood (Q23)) What are the reasons why your company will not invest in R&D? Open end

Demographics

To finish up, I would like to ask you a few questions for statistical purposes. Please be assured that your answers will remain completely confidential.

25. How many years have you owned or managed your business? Record number

Don't know/Not sure 9 Do not read

Interviewer note: Please do the math for the respondent if they provide a year ex. 1972

26. Does your company belong to an industry association or trade association?

Yes 1  
No 2  
Don't know/Not sure 9 Do not read

27. How many direct competitors does your business have? Record number

Don't know/Not sure 9 Do not read

Interviewer note if necessary:
By direct competitors we mean those businesses who compete for the same customers as you do.

28. (If Q27 not zero) Roughly how many of those competitors are located …

  1. In the local community, within 100 kilometres distance
  2. Outside the local community but in northern Ontario (Muskoka to Manitoba border)
  3. Outside of northern Ontario but within Canada
  4. Outside of Canada

29. What percentage of your sales are derived from … (Read list before accepting any answers)

30. What was your company's revenue for the fiscal that ended during 2006? Record dollar value

Refused/Prefer not to say 99

30A. (If refused in Q30) Can you tell me whether your revenues increased or decreased from 2005 to 2006?

30B. (if increased or decreased in Q30a) by what percentage did your revenues (increase or decrease) from 2005 to 2006? Record percent

31. And what was your company's revenue for the fiscal year that ended during 2005? Record dollar value

Refused/Prefer not to say 99

32. What is your projected revenue for this current fiscal year which will end during 2007? Record dollar value

Refused/Prefer not to say 99

32A. (If refused in Q32) Do you expect your revenues to increase or decrease from 2006 to 2007?

32B. (if increase or decrease in Q32a) by what percentage do you expect your revenues to (increase or decrease) from 2006 to 2007? Record percent

33. In which industry or sector does your company operate? If you are active in more than one sector, please identify the main sector. (Do not read list. Accept only one response. Confirm result with respondent as necessary.)

34. Region [Do not ask — Record]

35. Language [Do not ask — Record]

36. Gender of Respondent [Do not ask — Record]

Male 1
Female 2

Those are all the questions I have for you. I thank you very much for your time and co-operation and have a pleasant day / evening.

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