Executive summary

Structure and performance

There are very healthy attitudes towards entrepreneurship in the Canadian population and Canadian SMEs are relatively innovative. However, Canada is not a top performer in the generation of high-growth firms, its SMEs have relatively little involvement in exporting, and there are relatively slow rates of business entry and exit. There is also a relatively large lag between the productivity of SMEs and large firms in Canada compared with the United States.

Business environment conditions

Small businesses in Canada benefit from a favourable small business tax regime, easy administrative procedures to start a business and a flexible labour market. On the other hand, bank lending volumes are relatively low and conditions relatively restrictive, and although there is substantial early-stage equity finance, domestic institutional investors are not playing the role that might be expected, the business angel market appears to be small and equity crowdfunding is limited. Furthermore, the innovation system is weighted to basic research rather than applied research.

Strategic policy framework and delivery system

There are many federal small business support programmes in Canada, offered by a range of government organisations including government departments, the federal Regional Development Agencies, and Crown Corporations. This brings the need for strong co‐ordination mechanisms. Canada lacks a comprehensive strategy document for SME and entrepreneurship policy, a formal inter-departmental committee on SMEs and entrepreneurship, or rich statistical and evaluation evidence. However, there are other mechanisms which support policy formulation, including government consultative bodies, independent advisory panels and formal programme consultations, such as the 5-year comprehensive reviews of main programmes and the 10-year legislative reviews of crown corporations. There are also effective national tools to guide small businesses and entrepreneurs towards relevant information on regulations and programme support, such as BizPaL and the Canada Business Network. A large share of federal support for SMEs and entrepreneurs is provided through tax incentives rather than targeted programmes.

Federal programmes

There is an extensive package of appropriate federal government interventions that are proving very effective in overcoming market failures and institutional problems affecting the emergence, growth and productivity of new and small firms. This includes many model initiatives from which other countries can learn and that need to be protected and maintained. For example, an ambitious Venture Capital Action Plan supports equity investments in small firms; the National Research Council’s Industrial Research Assistance Program, Canada Accelerator and Incubator Program and Build in Canada Innovation Program support the development of innovative SMEs; the access of SMEs to public procurement opportunities is actively pursued by the Office of Small and Medium Enterprises within Public Services and Procurement Canada; and Regional Development Agencies support start-ups, SME innovation and growth/productivity, by facilitating access by local SMEs to international markets, global value chains and defence procurement through their regular programmes and initiatives and foster entrepreneurship and SME development in the rural regions of Canada through the Community Futures Programme.

Today’s challenge is to fill gaps in this policy offer where there is lack of appropriate scale of interventions and lack of action to address specific aspects of market and institutional failure. In financing, gaps include limited reach of initiatives for credit guarantees and business angel investment. Innovation support is currently weighted to research and development (R&D) tax credits, whereas scale is lacking in support for non-technological innovation, advice and mentoring for digital technology adoption and support of university knowledge exchange activities. For exporting, more could be done to encourage export of intangibles and develop networks of exporting SMEs.

Despite many good practices in entrepreneurship education across schools and universities in Canada, there is little support for developing entrepreneurial skills and mind sets in the vocational education system, and some of the best tools for experiential learning in schools and universities need to be rolled out to more institutions and students. Furthermore, despite model management consultancy interventions by Business Development Bank of Canada and the federal Regional Development Agencies among others, more could be done to support access to private business development services and online diagnostics for SME management. Also, aside from the Canada Job Grant, there is relatively little emphasis on developing skills in existing SME workforces at the federal level of government.

The local dimension

There are substantial spatial variations across Canada in conditions for small business development. Regions vary, for example, in the sectors of their driving clusters, the importance of obstacles in areas such as skills and finance, and the extent to which SMEs are involved in innovation. There is a very effective system of adapting small business policy to varying local needs through the direct programmes of provinces/territories and region-specific interventions of the federal Regional Development Agencies. There are also effective mechanisms for policy co-ordination across federal, provincial/territorial and municipal governments. There is nonetheless an opportunity to further increase the supply and use of local economic intelligence for policy design, boost the exchange of information on local good policy practices, and strengthen the co-ordination of provincial legislation in internal trade, skills recognition and financial innovation.

Women and entrepreneurship

The involvement of women in entrepreneurship is high in Canada. Nevertheless, the female entrepreneurship rate is far behind that of males. There is also an important gender difference in the scale of businesses created. The government is actively addressing these inequalities, as are the provincial/territorial governments and women’s enterprise organisations. Federal government, for example, has introduced a national forum and an online platform to bring together women entrepreneurs, a programme for mentorship and championing of women entrepreneurs, and the Canadian Businesswomen International Trade Program to increase access to foreign markets. Women entrepreneurship programmes still need to be boosted, however, particularly in financing and supplier diversity, and the co‐ordination of policy could be improved by developing a women’s enterprise strategy for Canada.