Exports, innovation key to small business success: CIBC

SME-CIBC-furniture-housing-market-consumer-economy-innovation-Condo.ca
Consumer spending, fuelled by the robust housing market, has kept Canadian small businesses growing, according to CIBC.

The small business sector has been the mainstay of the Canadian economy over the past several years. Since the Great Recession, when many large corporations laid workers off in droves, SMEs in Canada have accounted for about 80 per cent of new private sector employment. For the first time in the postwar era, according to CIBC chief economist Benjamin Tal, small business activity outpaced the rest of the economy during the slowdown.

The main reason small businesses have thrived has been their exposure to the Canadian consumer. In a recent CIBC World Markets paper on SMEs, Tal noted that consumers, “opening their wallets,” were able to sustain the economy and move Canada back into economic growth. Tal gives a lot of credit to Canada’s booming housing market for this consumer spending. The combination of low interest rates and a strong market made consumers feel more wealthy, the economist said. At the same time, each home sale generates about $20,000 in additional consumer spending on items like furniture, appliances and services. Together, the construction industry and the real estate industry have added 200,000 new jobs since 2010, and most of them, nearly 70 per cent, have been in SMEs.

That reliance on domestic consumer spending could be coming to an end, however. In Tal’s view, Canadian consumers may not have much more to give. They are “just about maxed out” on debt-fueled consumption. Many SMEs will therefore have to change their business models if they want to maintain the level of performance achieved in the last cycle. Rather than focusing on the domestic consumer, they should be turning their attention outward, to world markets like Europe and the US. With the loonie down about 30 per cent since September 2012, now is a favourable time for exporters big and small.

SME-export-R&D-investment-EDIWeekly
Source: CIBC

Key to their success will be their ability to innovate, he believes, and small businesses could have an advantage here. Large exporting and manufacturing companies tend to cut spending on research and development when business conditions are good, potentially weakening their future productivity growth. But small businesses, particularly those that are already exporting, tend to invest more in R & D, putting them in a position of strength, according to Tal. “As long as spending doesn’t slow down, they can gain ground on their larger export peers by reaping the benefits of better productivity growth.”

With consumer spending expected to slow, it “makes sense” for SMEs to review their options with regard to exporting, especially now that the near-parity loonie, which caused such pain in the export and manufacturing sector is now “a thing of the past.”

Tal says that SMEs in Alberta, which are hardest hit by falling oil prices, have the most room to add export capacity. Small businesses in Alberta generate less revenue from exports than their peers in other provinces, he said.

Did you miss this?

Other Popular Stories

  • Ethical Concerns Rise Over the Future of Autonomous Vehicles
  • Touchless computer control from Waterloo tech company an early success
  • Manufacturing sector continued to gain in November
  • Top seven pieces of exciting new tech that will soon become mainstream
  • Bombardier flies new CSeries jet for first time
  • Cement industry opposes wood construction in taller buildings
  • Researchers find way to turn wood into supercapacitors
  • Bruce Power nuclear deal good for Ontario manufacturers: CME
  • BC refinery close to financing deal
  • Japan setting records for new solar power installations
  • Manufacturing gains in September driven by auto and food industries
  • Richard Browning invents super human 450 km per hour “Iron Man” flight suit (video)
  • Bombardier Competitor Comes to Toronto
  • Moon Race 2: Nasa plans moon lander for 2024; Orion Spacecraft already complete
  • First drone crash with a commercial aircraft in Canada triggers safety review and possible new rules
  • Low oil prices not a serious threat to Canada's economy: RBC
  • SPACE 1971 vs today: looking back on the anniversary of Apollo 14's landing on the moon; with new landings planned, how much have we advanced?
  • 2018 Oil Price Forecasts
  • Oil train disaster plays to the pro-pipeline position
  • Canadian oil production up; producers turning to railways for shipment
Scroll to Top