Identify the significant barriers to small firms in Canada and investigate any differences with bigger firms.

Replicating the WEF’s survey of the 16 most problematic factors will help determine the significant barriers to small firms and the extent of similarity or difference between small firms and bigger firms. Although the Global Competitiveness Report by the WEF does not state the size of the respondents’ firm, a major emphasis will be to interview corporate figures who are regarded as captains in their respective industries and their views of the evolving barriers are important to governments to improve business and global trade.

Appendix 2 shows the weighted responses according to the rankings of each problematic factor in the surveys from 2009/10 to 2013/14. As ratings by respondents may fluctuate by the year, consistency is sought and thus, averages are used to indicate the consistency of respondents’ views. The results in the average column show the five most problematic factors are Access to Financing, Inefficient Government Bureaucracy, Insufficient Capacity to Innovate, Tax Rates and Tax Regulations.

Small firms are expected to share four problematic factors. Tax Rates and Tax Regulations are expected to be among the top five most problematic factors as small

H2 Region H3 Type of Business H4 Employee Size H1 Barriers to Small Firms H5 Canada’s Weak Pillars of Global Competitiveness

firms bear the most of the burden of the heavy cost of tax compliance as evidenced by the study by the CGA in 2008.

The next most problematic factor would be Access to Financing. New ventures that received financing have dropped to 25% of the number a decade ago. As small firms are the most affected by rising prices which include a recent postage hike by 35 % (Flavelle, 2014) and escalating fuel costs which drive up freight transportation costs (Buonoguore, 2014), small firms need financing to sustain and grow their business.

The last two most problematic factors would be Restrictive Labour Regulations and Poor Work Ethic. The current warning from Restaurants Canada that many restaurants are forced to close if the foreign temporary workers (FTW) program in discontinued (Tencer, 2014) attests to perceived Restrictive Labour Regulations. While supporters for the program’s closure cite low wages as disincentive for Canadians among 6.9% population who are unemployed, small firm owners explain that FTWs bring specialized skills and work ethic. Poor Work Ethic may be in part attributed to the difficulty to stay loyal to small firms due to more attractive benefits from bigger firms. These two factors are expected to be unique to small firms as bigger firms are more concerned with government bureaucracy for large contracts and capacity to innovate to grow in multinational giants and conglomerates.

Related to the labour issues would be Inadequately Educated Workforce and Insufficient Capacity to Innovate. However, they are not expected to be among the top five most problematic factors as most small firms are family-operated retail or service business, largely personal services or support services to bigger firms. They tend to be more concerned with sustaining the business against rising cost and competition, and many lack the finance to hire more staff to help grow the business.

Inefficient government bureaucracy is not expected to be a major problem to small firms as Canada has been rated the “second most business friendly” after Hong Kong, beating the U.S., Germany and Japan in a Bloomberg ranking of the best countries for doing business (Argistis, 2014). Thus, the hypothesis is:

H1 The significant barriers to small firms are Tax Rates, Tax Regulations, Access to Financing, Restrictive Labour Regulations and Poor Work Ethic.

2.1.2 Investigate the significant differences in barriers to small firms between Western and Eastern Canada.

The dominant industries in Western and Eastern Canada would suggest significant differences in barriers to small firms. Eastern Canada comprises the Atlantic Provinces and Central Canada. The Atlantic Provinces are made up of Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick, and their industries are focused in fishing, farming, forestry and mining. Quebec and Ontario make up Central Canada, the manufacturing and industrial heartland that produces over three- quarters of all Canadian manufactured goods (Citizenship and Immigration Canada, 2011).

Western Canada comprises the Prairie Provinces of Manitoba, Saskatchewan and Alberta, and the Western Coast which is British Columbia. The Prairie Provinces are rich in energy resources and some of the most fertile farmland in the world. Vancouver in British Columbia is Canada’s largest and busiest port, handling billions of dollars in goods traded around the world (Citizenship and Immigration Canada, 2011).

Further, studies have suggested that there are legitimate, localized labour shortages, particularly in Alberta and Saskatchewan. For example, Restaurants Canada lamented that the changes the federal government made to the temporary foreign workers (TFW) program in 2013 has resulted in the decline of TFWs in the restaurant industry, falling 28% between 2012 and 2013, and dropping another 38% in the first quarter of 2014. The industry group cited numbers from Economic and Social Development Canada and informed that the decline had led to more unfilled restaurant jobs, particularly in Western Canada (Tencer, 2014). Thus, the hypothesis:

H2 There is a significant difference in barriers to small firms between Eastern Canada and Western Canada.

2.1.3 Investigate the significant differences in barriers to small firms between types of business in Canada?

Table 2 shows the number of employer businesses by sector and firm size. By definition, the goods-producing sector in Table 2 consists of manufacturing; construction; and forestry, fishing, mining, quarrying, and oil and gas. The service-producing sector consists of wholesale and retail trade; accommodation and food services; professional, scientific and technical services; finance, insurance, real estate and leasing; health care

and social assistance; business, building and other support services; information, culture and recreation; transportation and warehousing; and other services (Statistics Canada, 2014). As shown in Table 2, about 21% of small business employees work in the goods- producing sector and 79% in the service-producing sector.

Table 2: Number of Employer Businesses by Sector and Firm Size (Number of Employees), December 2012 Number of Employees % of Employer Businesses Cumulative % of Employer Businesses

Number of Employer Businesses Total Goods-Producing Sector Service-Producing Sector Number % Number % 1–4 55.1 55.1 610,178 138,526 22.70 471,652 77.30 5–9 19.8 74.9 219,771 45,958 20.91 173,813 79.09 10–19 12.5 87.4 138,031 26,905 19.49 111,126 80.51 20–49 8.2 95.6 91,026 18,491 20.31 72,535 79.69 50–99 2.6 98.2 28,797 6,686 23.22 22,111 76.78 Average 21.33 Average 78.67

Source: Adapted from Statistics Canada, Business Register, December 2012.

Statistics Canada (2014) further reports that over half of the 1.08 million small businesses are concentrated in four industries: wholesale trade and retail (18.8 %), construction (11.7 %), professional, scientific and technical services (11.6 %) and other services (10.6 %). The range of industries suggests that a significant difference can be expected between different types of businesses. Thus, the hypothesis:

H3 There is a significant difference in barriers to small firms between different types of businesses.

2.1.4 Investigate the significant differences in barriers to small firms by employee size in Canada.

Table 2 also shows small firms with less than 10 employees are the biggest employer at 74.9 % followed by 10 to 19 employees at 12.5%, and 20 to 49 employees at 8.2 % and 50 to 99 employees at 2.6%. Firms with less than 10 staff would indicate they are in the introduction stage of business or stagnant growth phase, while those with 50 to 99 employees show evidence of expansion and have the potential to grow into medium-sized firms.

In terms of the total number of employees, industries that had the largest number of employees working for small firms were, in order of magnitude, wholesale and retail trade (1.84 million), accommodation and food services (0.91 million), manufacturing

(0.86 million) and construction (0.72 million). These industries alone accounted for 56% of all jobs in small businesses in Canada. Overall, industries in the goods-producing sector accounted for 27.3 % of total employment and 24.0 % of employment in small businesses (Statistics Canada, 2014).

All these suggest that a significant difference can be expected between firms with different number of employees, termed employee size. Based on the statistics in Figure 2, there is a need to collapse the various employee sizes into categories to allow statistical analysis, resulting in the hypothesis below.

H4 There is a significant difference in barriers to small firms between employee sizes of 1 to 10 and 11 to 20, and 1 to 10 and 21 to 99.

2.1.5 Investigate the performance of Canada’s global competitiveness to determine the weak pillars that affect the sustainability of small firms.

Canada’s fluctuating performance in global competitiveness in recent years can be seen in Figure 5. The Global Competitiveness Index (GCI) shows Canada was ranked 10th of 139 countries in 2010-2011 but slipped to 12th of 142 countries in 2011-2012, and declined to 14th of 144 countries in 2012-2013. Canada holds on to 14th place of 148 countries in the Global Competitiveness Report 2013-2014.

Source: Global Competitiveness Report 2012-2013

The GCI shows the rankings of the 12 pillars of competitiveness in three stages of economic development: factor-driven which demands Basic Requirements (20%), efficiency-driven where the nation has Efficiency Enhancers (50%), and finally innovation-driven where the nation has strong Innovation and Sophistication Factors (30%). Canada is in the innovation-driven stage and Canada’s performance equals the average performance of innovation-driven economies in eight pillars and exceeds in four pillars – Institution, Market Size, Financial Market Development and Labour Market Efficiency. However, Canada’s current performance in 2013-2014 continues to see six pillars ranked below its 14th rank: Pillar 3 Macroeconomic Environment ranked 50th, Pillar 11 Business Sophistication ranked 25th, Pillar 12 Innovation ranked 21st. Pillar 9 Technological Readiness ranked 21st, Pillar 6 Goods Market Efficiency ranked 17th, and Pillar 5 Higher Education and Training ranked 16th.

Among the 12 pillars, Pillar 3 Macroeconomic Environment and Pillar 5 Higher Education and Training are expected to impact small business as the key barriers to small firms are related to tax, financing and work ethic.

H5 Pillar 3 Macroeconomic Environment and Pillar 5 Higher Education and Training are the two pillars of competitiveness that impact the most problematic factors to doing business for small businesses.

3.

Methodology