BUSINESS CLIMATE AND OPPORTUNITIES FOR SME DEVELOPMENT IN CANADA In comparing SME development between Canada and Russia

we realize that circumstances and cultures are different. If our discussions here today are to be realistic we need to keep this thought in mind. However, it is also important to recognize that we do have some common experiences and thoughts when it comes to the importance of SME development and the manner of how best to effect its success. It is my hope that together an understanding of our differences and our commonalities will provide all of us with some useful thoughts to take away with us at the end of this forum. Perhaps we will be able to use some of the ideas we hear over the next few days to make the climate and opportunities for SME development in our own countries more optimistic and the prospects for future cooperation between Canadian and Komi SMEs more certain. What is a Small Business? As in Russia, in Canada SMEs can be defined in many ways. How we define them is usually dependent upon a specific rationale: as in a measure that is needed for our tax authorities. This being said the most common definition of an SME within the context of Canada is: SMEs are firms with less than 500 employees and less than $50 million in annual revenues. AND Small businesses are firms with less than 50 employees including those operated by a self employed person with no employees. Characteristics of SMEs in Canada SMEs are big players in our economy they comprise 99.7 percent of the one million or so employer businesses in Canada. SMEs are active in EVERY economic sector, though most are active in Agriculture, Professional Services and Wholesale/Retail Trade. While not a large number, Canadian SMEs are exporting and many more are planning to be. Most of our trade is north-south though increasingly we are exploring new markets. SME development in Canada is an opportunity for all citizens to participate. We will see a closer balance in these ratios in the years to come as 75% of new businesses are now started by women. Those young entrepreneurs, aged 18 to 34 years, are mostly engaged in knowledgebased industries. Once again we expect to see this percentage increase in the years to come. Take for example, data for British Columbia (my province) where the number of young SME owners has grown by more than 70 percent over the past 5 years. SMEs are not a big city or small village phenomena. SMEs are dispersed across all areas of Canada: A few other points about SMEs in Canada:

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SMEs by Nos of Employees in Canada CHART If we include in the definition of SMEs the self employed (those firms with no employees) there are almost 2.2 million small businesses in Canada and more than 80% of them employ four employees or less. Stages of Development CHART In terms of the cycle of growth and development, the majority of Canadas SMEs are stable or mature. Year over year approximately 5% of Canadas SMEs are in a start-up mode, 13% are experiencing fast growth and 9% are in decline. Obviously the importance of this information lies in its implications to the design of appropriate business support programs and services. Economic Impact of SMEs in Canada Quite obviously SMEs represent a diverse and dynamic component of the Canadian economy and they provide an important source of economic growth and prosperity. 43% of private sector GDP may be attributed to SMEs and almost 60% of Canada's economic output. These same SMEs account for 56% of employment in Canada. Small businesses (firms with fewer than 50 employees) account for approximately 23% of Canada's private sector GDP and 2/3 of all new jobs created year over year. The Future of Canadas SME Sector CHART Obviously it is a countrys business climate that determines the level of business development that occurs. Business Climate is best understood by its key determinants: Motivation, Opportunity and Skills. Motivation refers to those factors that might be present that motivate individuals to either pursue an entrepreneurial activity or expand an existing one. Motivators might include such things as diverse as the community attitude to entrepreneurs or the relative ease of starting or expanding a business. Of course there also demotivators. Opportunity refers to those factors that either lead to the creation of new business opportunities or facilitate their realization. Opportunity factors might include such things as diverse as new legislation establishing a set % of government contracts for SMEs. Once again there are factors that limit opportunity; and finally Skills refers to those factors that might be present to ensure that entrepreneurs and business owners have or have access to the necessary skills they need to make an enterprise a success, Skill factors might include such things as diverse as the availability of skilled labour or the presence of suitable training facilities. Activities, actions or situations that improve motivation, opportunity and skills will tend to improve the overall business climate for SME development and by definition

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the overall level of development. Of course negative factors or barriers would have the opposite result. So lets look at Canada from the perspective of these factors. Trends in SME Development in Canada There are a number of factors that in a positive way are improving the business climate for SME development in Canada. In some cases these factors are the result of conscious actions in other cases they are simply the result of the evolutions in technology and modern business practices. Lets look at some of them: Greater privatization of many government services is creating new opportunities for SMEs in areas ranging from road maintenance and facility management, to municipal planning and economic development. Large companies are increasingly contracting out more and more of their core activities as a means to reduce costs and spread risk. In Albertas tar sands oil development for example, multi billion dollar efforts are supported by literally hundreds of SMEs involved in all phases of development and operations. Through a series of various tax credits todays technology is more advanced, more portable and more accessible thereby opening up more opportunities for SMEs. Canadians are retiring earlier but working longer they take their skills with them. Many are starting their own businesses as private contractors. The skill inventory is increasing and the prospects for further SME development improve. Entrepreneurship is increasingly viewed as an attractive opportunity for all Canadians. Events such as Small Business Week and other pro-SME initiatives are raising awareness in a positive way. The result: nearly 20% of Canadians expect to start their own business in the next year; more young people and more women are embarking on entrepreneurial ventures. More SMEs are exploring and supported in their efforts to participate in export markets. These markets are increasingly reachable and feasible due to such factors as freer trade and free trade agreements, better market information and greater availability of governmental and NGO export development support. Organizations such as the Canadian Manufacturers and Exporters Association are at the forefront in promoting and supporting Canadian exporters. More Canadian SMEs are participating in joint ventures and strategic alliances using the collective strength of small, flexible and capable teams to capture new opportunities and beat the competition of unwieldy, inflexible large businesses. Barriers to SME Development in Canada Of course Canadian SMEs also face challenges to their development. Lets look at some of them:

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Most Canadian SMEs (actually 80% in a recent survey) when asked, reported that they thought the most significant impediment to SME growth and development was government referring to tax burden, government regulations, and government fees. Second in importance was a shortage of qualified labor (44%). Thirdly was the lack of availability of financing (30%). The history of SME development has never been and is still not a promise of success: it is important to remember that even today many small businesses fail within the first three years of operation. These failures are often the result of poor skills and preparation. As a general rule SME owners work longer hours than government and large business employees and are generally paid less. Being ones own boss isnt necessarily the key to great wealth. Independence often comes at a cost. What is Canada Doing to Support SME Development Attaining and maintaining a progressive, positive business climate is an ongoing challenge. Success requires commitment, a commitment reflected in both attitude and resources. Government can not do it alone. It must arise from a partnership between government and the small business community. This partnership must be borne not only out of an understanding of each partners capacities, capabilities and needs but as importantly mindful of the priorities and aspirations of individual Canadians. In 1988 Canada was the first developed nation to adopt a National Policy on Entrepreneurship. Since that time Canada has set an ongoing policy agenda to support small business by: Removing or lessening the Obstacles to SME Development Promoting SME Interests and Directly Supporting SME Startups and their ongoing Development. All levels of government in Canada together with the support and involvement of the private sector are taking an active role in meeting this agenda. Some notable examples: The Government of Canada has set up a web site offering extensive information and support for entrepreneurs from business plan assistance and market information to special studies on key issues of interest to entrepreneurs. The Government of Canada has established Business Centers across the country which offer micro-credit, business advice, business information, and business incubator services for local entrepreneurs. This program alone has resulted in thousands of businesses being launched or expanded and the creation of thousands of jobs.

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The Government of Canada together with the Provinces has set up Womens Enterprise Centres in major cities across Canada which offer a range of services and support for female entrepreneurs. In a number of cities and towns across Canada the Canadian Government has funded the establishment of internet access sites for young prospective entrepreneurs to assist them in their market research and business planning. In the private and NGO sectors active Chambers of Commerce, Business Associations and organizations such as Northlink are supporting the growth and development of the SME sector. Federal and Provincial governments regularly support a variety of special SME development initiatives and offsets. For example in British Columbia in 2010 the winter Olympics will be held in Vancouver. The Federal and Provincial governments are working with the provinces SME sector to help them identify business opportunities arising from this event including construction, catering, professional services, tourism links and the like. A number of Provincial and Federal government agencies are designating certain contracts strictly for small businesses and at the same time making contracting procedures more user friendly so as to allow small businesses to compete directly with larger businesses on a level playing field. As well Provincial and Federal governments are working to build an improved regulatory environment. Excessive regulation drives entrepreneurs into the informal or underground economy. While "good regulation is not zero regulation" it is simply less regulation combined with enforceable laws that protect citizens. According to a 2003 OECD report the results of Canadas efforts are substantial with a performance ranking better than the majority of OECD member countries. In Canada on average the process of starting a business takes 3 days with 2 procedures. The Government of Canada together with the Provinces and the private sector is actively assisting SMEs in their efforts to export by promoting worldwide the capacities and capabilities of Canadian SMEs and providing professional and financial assistance to assist them in the process. CONCLUSION In Canada for very obvious reasons there is a sincere interest and commitment to support the SME sector. We recognize that our future prosperity as a nation is tied significantly to the successes we achieve in this regard.

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