May 2008, vol. 10, no. 1 - Feature Story

Characteristics of Canadian SME Exporters

There is a general lack of detailed knowledge about small and medium-sized enterprise (SME) exporters in Canada. Previous research has shown that only 8 percent of SMEs export, but they account for 20 percent of the total value of exports. In an attempt to address this knowledge gap, a study undertaken for Industry Canada provides details on the characteristics of SME exporters. In particular, the study examines not only the industrial distribution of SME exporters and their export earnings, but also the characteristics of owners and firm attributes as determinants of an SME's propensity to export.

Across industries, in 2004, 21.4 percent of exporter firms operated in the wholesale and retail sectors, while 15.1 percent of exporter firms were knowledge-based firms. Much attention has been focused on manufacturing, and while it is true that exporting is relatively more prevalent among manufacturers, there were substantially more firms in the professional and other services sectors that export – 40 000 firms in the professional and other services sectors compared with 21 000 firms in the manufacturing sector.

Revenues from exports are generally not high: 44 percent of SME exporters reported export sales of less than 10 percent of total revenues in 2004 and only 15 percent of exporters reported export revenues of between 25 and 49 percent of total revenues. Only one third of SME exporters were deemed "export intensive" (defined as export sales that exceed 50 percent of total revenues). There was no difference in export earnings between established SME exporters (enterprises that export and are at least three years old) and international new ventures (INVs), which are enterprises that export and are less than three years old.

Three significant differences in owners' attributes were found between exporter and non-exporter firms: growth intentions, gender and Canadian residency status. SMEs whose owners expressed growth intentions were more than twice as likely to export as SMEs whose owners did not seek growth. In addition, majority female-owned SMEs were less likely to export than majority male-owned SMEs, even after controlling for other factors. Finally, among established SME exporters, immigrants who had resided in Canada for less than five years were disproportionately more likely to be primary owners of exporter firms.

With respect to firm-level attributes, SMEs that reported investment in R&D were more than twice as likely to be exporters than SMEs that did not invest in R&D. SME exporters were also significantly more likely to apply for external financing and business loans.

Among the approximately 287 100 SMEs that began operating in 2001 or later, about 21 300 reported exporting in 2004. Hence, more than 7 percent of new Canadian firms are international new ventures. INVs operate across all industry sectors, which suggests that studies that only examine this phenomenon in manufacturing, technology and knowledge-based industries will suffer from sampling biases.

Although INVs are significantly smaller than established SME exporters, this study found that INVs achieve levels of export intensity comparable with established SME exporters, but with a smaller workforce, younger and less-experienced owners, and fewer assets.

Consistent with findings on SME exporters overall, owners of international new ventures were disproportionately more likely to be new Canadian residents (or immigrants): approximately 10 percent of INV owners were new Canadians compared with less than 5 percent of owners of new SMEs that did not export.

The study concludes by econometrically testing the different theories of determinants of SME exporters. These theories focus on the point in their development at which SMEs decide to export and the importance of networks, gender, and financial and tangible assets in the export decision.

The report Canadian SME Exporters, by Barbara Orser, Martine Spence, Allan Riding and Christine Carrington, is available at www.sme-fdi.gc.ca/eic/site/sme_fdi-prf_pme.nsf/eng/h_01298.html.

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