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July 9, 2014

Canada’s Billion Dollar Firms: What it means

It’s project launch day here at the DEEP Centre and we’re very happy to publicly release both English and French copies of a significant research report on Canada’s Billion Dollars Firms. The report, “Canada’s Billion Dollar Firms: Contributions, Challenges and Opportunities,” is the product of a great partnership with the Business Development Bank of Canada, the Canadian Digital Media Network, Export Development Canada and Industry Canada.

The report  provides a comprehensive view of what Canada’s largest firms contribute to the Canadian economy in terms of employment, and the key trends by sector. It also provides a comparative analysis of the policy environments in five somewhat similar economies (Australia, Germany, Sweden, the UK and the UK), as well as a qualitative survey of what executives at over two-dozen Canadian firms say about the competitive environment here in Canada and how we’ll compete going forward.

It’s been an extremely insightful project to work on and the three primary researchers (Anthony, Warren and myself) will each write a post today related to specific segments and insights from it.

Now it’s a rather huge report and covers a lot of ground. But from my point of view, there are several key insights that bear mentioning because of what they mean for the Canadian economy, and our global competitiveness, going forward.

First, why study this cohort of firms? In large part to figure out whether firm-size matters. And it does. These 169 firms employ over 1.4 million people, spend billions on R&D and their employment growth average is double the Canadian average.

Now, onto the details.

On an aggregate basis there’s a good deal of positive in this report. Across sectors of the economy we see a generalized growth in the number of mega-large firms that puts us on par with other similar economies. And while this growth is most strongly seen in the resource sector, there’s also a significant jump in the number of retail/wholesale, engineering/construction and transportation firms. The growth in these non-resource sectors is not necessarily unrelated to the resource sector. Our qualitative survey of executives found that piggy-backing on the growth of Western Canada’s resource sector was key to the growth of firms in those three sectors.

On the downside, the manufacturing sector has seen its population of mega-large firms shrink significantly, and with it associated employment. And in health care and technology fields, the number of billion dollar firms has been constant as churn has seen actors change.

We complemented the quantitative analysis with a qualitative survey of company executives to find out how and why they have grown into this category. Our survey also found that this cohort of companies has grown thanks largely to two factors – a focus beyond Canada’s borders and acquisitions, both here and abroad, to stimulate efficiency and growth.

As for employment, while the cohort of billion dollar firms is hiring more outside of Canada than in, employment growth in Canada amongst these firms is still double the Canadian employment growth average. Size matters in this case and highlights that the internationalization of these firms pays significant dividends at home.

That said, as these firms move parts of their business closer to foreign customers, it becomes ever more important to graduate more firms into this category of large employers. Warren Clarke led our policy analysis of innovation and growth policy across other economies and – as he writes here – finds a slew of targeted initiatives meant to stimulate this growth. Canadian policy makers would do well to pay attention to some of these.  They might also want to listen to the voices of fast growing start-up executives. As Anthony writes here, while they are generally optimistic, an increasingly competitive environment has them looking for streamlined government support and more effective assistance in accessing talent and global markets.

All together we’re left with a mixed picture. On one hand there are a series of immediate positives. However, across the qualitative survey with company executives we got a far more nuanced outlook of what’s to come. As one executive told us, “We’re too small to be big, and too big to be small. We need to be more forward-looking. We need a real 20-year strategic plan that outlines the fundamental value proposition of Canada.” Issues related to research and development, tech investment and the policy levers that we’re using to build the overall value proposition all need to be on the table for discussion. We hope this report serves some role in pushing it forward and look forward to the debate that ensues.




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