Worldwide, small and medium-sized businesses (SMBs) bore the brunt of pandemic-related lockdowns and the disruption of international trade throughout 2020 and into early 2021. For Canada, where SMBs make up most of the country’s businesses, the toll to employment and GDP was felt across the country, underscoring how integral these enterprises are to economic success, writes Scotiabank’s Director of Economic Forecasting Nikita Perevalov in a report on the outlook for Canadian SMBs and the economy.
The most recent Statistics Canada data shows more than 99% of Canadian business establishments in 2019 were small to medium-sized and accounted for nearly 90% of private sector employment and 50% of the level of Canadian gross domestic product (GDP), Perevalov noted.
SMBs also accounted for most of employment losses. Between May 10 and June 6, 2020, Perevalov noted, businesses with fewer than 251 employees accounted for 97% of those applying for the Canadian Emergency Wage Subsidy (CEWS). While SMBs have not fully recovered from the pandemic, with employment below pre-pandemic levels particularly in the smaller firms, they still account for 75% of net job gains since April 2020.
However, the stars are aligning for better days, Perevalov said. As Canada and the United States start to see strong growth there will be plenty of opportunities for businesses to not only recover to pre-pandemic levels, but also thrive in a competitive global environment as a result of accelerated adoption of new technologies, increased immigration and continued fiscal support from the government.
“In Canada, innovation occurs in businesses of all sizes,” Perevalov wrote, noting that innovation will be key to global success. While 73% of firms with more than 500 employees own at least one type of formal intellectual property, he noted that SMBs have a surprisingly high share, with 49% of companies with 100–499 employees and 13% of businesses with one to four employees owning some intellectual property.
This is reflected in the share of high-growth companies among SMBs. From 2014 to 2017, more than 10% of businesses in the information and cultural sectors were identified as high-growth firms based on revenue, with 9% in construction and 8% in manufacturing.
One area of innovative growth is the adoption of e-commerce. Between 2019 and 2020, the number of businesses that obtain more than 50% of revenue from online sales is rising for all business sizes. The shift was more pronounced for firms with 5 to 99 employees, which were previously underutilizing this technology.
The Scotiabank report also noted some optimism among SMBs. “Before easing somewhat in September on the implications of new pandemic restrictions and vaccine mandates, the Canadian Federation of Independent Business’s 12-month outlook had hovered at levels not seen in years,” Perevalov wrote. He noted that business owners now looking to hire rank shortages of skilled labour as the main factor limiting sales growth, particularly at high-contact businesses.
For SMBs looking to grow their business, expand into new markets, develop new products and in general position their firms for long-term success, the next few years will provide plenty of opportunity, Perevalov wrote. In this, they will have some help, he said, noting that the Federal 2021 budget sets aside funds to assist SMBs with transition to digital, incentives for business investment and the extension of CEWS. Skilled labour shortages will in part be alleviated by the aggressive immigration targets, he added.
“However, taking advantage of these opportunities will require entrepreneurs to remain nimble and take risks in an environment where delay may mean more severe difficulty sourcing inputs, hiring skilled labour, or loss of market share to competitors,” he said.
Read the full Scotiabank Economics report on the economic outlook for small and medium-sized businesses here.