Published in the Waterloo Record. Co-authored with Anthony D. Williams
Last Friday’s Canadian jobs report highlights ongoing sluggishness in the Canadian economy and continued concerns about where employment and economic growth will come from in the future. And new research by the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance (a think tank we co-founded in 2012) suggests that while Canada has a strong pool of globally-competitive multinationals, our economy lacks the economic diversity required to support broad-based job creation and prosperity across the country.
We spent most of the past year analyzing Canada’s population of billion-dollar firms. We looked at how this population of Canada’s largest companies has changed over the past decade. And we quantified how much these firms contribute to Canadian employment and innovation.
The results tell us a great deal about the recent transformation in Canada’s economy and what policymakers and business leaders need to do make sure Canadian firms remain competitive in a global economy.
Our study evaluated 169 publicly traded firms with revenues of over CAD $1 billion. Together they employ nearly 1.4 million Canadians. Looking at the period 2003-2012, our study finds that employment in Canada’s largest firms has grown most strongly in resource, service and engineering and construction sectors. In fact, Canada’s strength in natural resources means it has done well, and even exceeded some of its peers (Germany, the US and the UK, for example) in producing billion dollar firms on a per capita basis. If there is a risk, it’s that the majority of growth in large firms is concentrated in one sector and one province (you guessed it, the energy sector in Alberta). Whether this is a good thing or not is up for debate. What’s clear is that given the sectors’ environmental impacts, a more nuanced approach would meld Canada’s entrepreneurial ecosystem with technological solutions to those environmental challenges.
Beyond resources, our research also uncovered many encouraging signs that Canadian firms are gearing up to compete on the international stage. For example, we found that leading Canadian firms are more globally engaged than ever, and this global engagement is a significant factor underpinning their growth—both over the past decade and into the future. Canada’s most successful firms generally point to their internationalization as a necessary step given the relatively small size of Canada’s domestic market and the significant opportunities for growth elsewhere.
There are certainly risks associated with this external gaze. Our research shows that international growth often means more emphasis on hiring overseas, and potentially less Canadian employment, particularly as internationalizing firms make strategic decisions to locate their operations closest to the largest centres of global demand. However, our data shows that despite their growing international footprint, domestic employment gains in Canada’s billion dollar firms are double the national average.
Our conversations with executives at Canada’s largest firms make it abundantly clear that there is no room for complacency. Executives recognize that they must invest more in technology to reach new levels of efficiency. They must step up their acquisitions of high-potential companies and get access to the best talent, wherever it may be found in the world.
At the same time, our research also shows that governments at all levels can play significant role in helping younger firms climb on the ladder to fast-growth so that we continue to enlarge the ranks of globally-competitive firms.
Today, just 4.7 percent of all Canadian firms account for 50 percent of Canadian job growth. Finding ways to enlarge this pool of high-growth companies and better support existing ones should be task number one. In particular we need to find ways to boost the number of high-growth firms in sectors that are poised for growth like health care, clean air, clean water and education, all of which will benefit from a growing global middle class that demands such quality of life services and that will build on core Canadian competencies.
How can this be done? The public and private sectors need to collaborate to provide stronger support systems for entrepreneurs that can facilitate the evolution of their companies from start-ups to global enterprises that create significant employment and support large-scale investments in innovation. Among other things, this means better access to the supply chains of anchor customers (like government or large firms in Canada), more expansive mentoring systems to connect new entrepreneurs to experienced business executives, more robust linkages between start-ups and university research centres and export development support to ensure that start-ups can access global markets and bring jobs back home.
Canadian entrepreneurs interviewed by the DEEP Centre also called for more investment in branding Canada as a destination for investment in entrepreneurial ventures, greater inclusion of start-ups in international trade missions, more assistance in competing for the best talent, and streamlined access to research and development support from the government.
All together, this spells out that Canada needs a national competitiveness and innovation strategy that builds new clusters of capability around some of the emerging growth sectors identified above; clusters for green technology, health care services, digital education and more. Kitchener-Waterloo’s world-class technology cluster provides the rest of the country with a great example of how to start. Anthony D. Williams and Dan Herman are the co-founders of the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance. The DEEP Centre’s report on “Canada’s Billion Dollar Firms: Contributions, Challenges and Opportunities,” is the product of a partnership between the Business Development Bank of Canada, the Canadian Digital Media Network, Export Development Canada and Industry Canada. The study is available for public download at www.deepcentre.com.