Enhancing the Competitive Success of Canadian SMEs.

A federal commitment to S&T and management skills could ensure that small-and medium-sized enterprises are better prepared to compete in domestic and international economies

There have been some choppy economic waves of late, but if you're a small-or medium-sized business (SME), it may be safe to go back into the water after all. Consider, for instance, new initiatives now under review by the federal government -- initiatives designed to prepare for more (and more efficient) activity on the part of Canada's SMEs.

Late last year, a federal panel of experts submitted a report to the federal government recommending increased support for SMEs at the international level -- with a potential $20 million per year injected into international research and marketing programs. And a recent submission from the Certified Management Accountants of Canada calls on the federal government to join in a private/public sector partnership with governments, SMEs, business and educational organizations to develop a national strategic business plan for SMEs; such a plan would enhance the development and application of management skills and would ensure that SMEs, at every stage in their development, have the management skills necessary to survive and compete here at home and internationally.

Consider the facts: Canada has one half of 1% of the world's population, yet we generate 4% of international scientific knowledge. Although we're R&D-busy, we still rely on other countries for much of the science used to maintain our position. Canada imports 65% of its new technologies -- the highest among G7 countries.

It makes sense that SMEs should be targeted for study. Whether science-oriented or otherwise, their role in promoting strong economic growth is clear: Canada's 2.6 million SMEs contribute almost 45% of our GDP, account for 60 to 70% of private sector employment and 80% of new job creation. SMEs are the launching pad for the careers for young entrepreneurs, they're the mainstay for many Aboriginal business people and they often anchor economies in far-flung communities across Canada.

Innovation in SMEs is also key: between 1991 and 1998, patent applications from small firms increased by 6.6%, compared to 2.1% growth among larger firms. And they dominate the information and communications technology (ICT) sector, which has grown by 10% annually since 1993 compared with total growth in the economy of 3.3%; ICT accounts for 6% of Canada's total GDP and employs more than 500,000 Canadians in well-paying jobs. And 99% of establishments in this sector have less than 100 employees.

"Small- and medium-sized businesses are key drivers of economic growth and job creation in Canada," federal Industry Minister Brian Tobin tells CMA Management. "The shift to a knowledge-based, global economy is opening up new opportunities and challenges for these small businesses."

The federal report, entitled "Reaching out: Canada, International Science and Technology, and the Knowledge-Based Economy," was prepared by a nationwide panel of experts convened specifically to examine Canada's role in S&T. Chaired by Dr. Rene Simard, the panel was established by the Prime Minister's Advisory Council on Science and Technology (ACST).

While technical progress is considered as a key component for economic growth, there must be a framework for maximizing Canada's involvement in international S&T, supporting the advancement of knowledge and industrial innovation by Canadian firms, and improving the quality of life for Canadians, says Simard.

Following a year-long process of research, stakeholder presentations and discussion, the report concluded that Canada must strengthen its policy framework for involvement in international S&T, create an efficient mechanism for co-ordination within the federal government and ensure an appropriate level of investment. The report also states that Canada's image must be changed to a knowledge-based economy in which science and technology adds value to natural resources and other sectors.

Thus far, the federal government has made significant investments in university research with the creation of the Canada Foundation for Innovation and the Canada Research Chairs, and has reinvested in programs like the Networks of Centres of Excellence.

Still, "it is critically important that international S&T be recognized as a key element for investment, trade and increasingly foreign policy," says Simard. "Firms seek enhanced market access through investment or collaborative research with key players -- wherever they are. Government laboratories and universities must have the necessary resources to support their international programs."

One of the benefits of the panel's research as it relates to SMEs was in its ability to gain access to SMEs across Canada, in addition to academia, other government departments and the private sector, including international science and technology organizations. "We interviewed many SMEs and the heads of those companies," says Simard.

"Many of these companies have heads of international affairs but when we came to the SMEs we found three problems: they lack financial resources to do international activities and they should be assisted in some way; two, they need to do intelligence abroad and gain access to information; and three, the people who deal with their needs are often technical development officers at an embassy, and those people are mostly involved in trade and not SME assistance."

Simard says the panel's recommendations should lead to the development of a strategic framework to facilitate Canada's participation in international S&T opportunities, providing access to information and enhancing Canada's global image. Recognizing the role SMEs play in the Canadian economy and their role in creating jobs, a new mandate must also be given to the Industrial Research Assistance program of the National Research Council Canada (IRAP/NRC) to support Canadian SMEs and their international scientific endeavours, adds Simard.

The panel recommends that in co-operation with the Department of Foreign Affairs and International Trade (DFAIT), IRAP/NRC should: "gather and analyze strategic technology intelligence and funding opportunities on the international scene; access and assess technologies developed abroad through visits, technology missions, networking and partnering events; and through these activities support SMEs in setting international technology-based ventures to enhance their development. This support would be provided for the identification of potential partners, negotiation of intellectual property rights, and preparation of submissions for accessing international funding programs and feasibility studies, as needed, for the benefit of the Canadian economy."

"We want to link them in a greater way to the IRAP program, which has an excellent network and a good track record of helping SMEs in Canada," says Simard. "IRAP's mandate would be extended to assist them in their work abroad." An additional $20 million per year would be granted to IRAP to achieve this goal.

Of course, it comes at a time of great economic uncertainty for many SMEs, with the high-tech sector having gone on a roller-coaster ride in the markets and many analysts predicting a less-than-savoury future for many involved in technology ventures. But the bottom line? No doubt, long-term survival will depend on high-tech savvy. Technology -- especially as it relates to e-business -- isn't going to go away and business isn't about to take a backward step; and clearly, those who can survive the short-term perils will be in a position to prosper five years down the road.

To thrive, SMEs need to bolster their market development with programs that promote good SME management education. All of this has been captured by the Certified Management Accountants of Canada in its briefing notes to the Canadian government on SME management expertise. "If Canada is to be a leader in the new economy, we need to understand its opportunities and how to seize them; its educational requirements and how to meet them; its management skills and how to develop them," CMA Canada's Economic Statement and Budget Update 2000 reads.

Recognizing that productivity, competitiveness, innovation and Canada's ability to be a leader in the new economy emerged as public agenda items, CMA Canada has called on the federal government to improve Canada's pool of business management expertise, especially at the SME level. It comes at the right time, says CMA George Willis, founder of The Project Management Studio in Ottawa and at one time a special advisor to former Industry Minister John Manley. Willis gives CMA Canada's initiative two thumbs up. "SME leaders tend to be long on courage and brains but short on specific management skills. We need to give these dynamic professionals a helping hand," he adds.

The call for action dovetails with CMA Canada's role in management and leadership: the organization represents more than 32,000 CMAs and 9,000 CMA candidates and more than 65% of CMAs are senior executives, including presidents and CEOs, VPs, CFOs and controllers.

The CMA Canada recommendations drew on more than a decade of studies to identify business management expertise as a key factor in Canada's competitiveness and its ability to be an innovative leader in the new economy. Those findings include:

* A 1995 Statistics Canada survey of innovative, growing SMEs that ranked management skills as the top factor contributing to the growth of firms.

* A 1994 - 1997 series of studies by Statistics Canada on SME dynamics, which found that while innovation is key to success, general and financial management constituted a firm's core capabilities. It was also determined that internal rather than external factors were more significant in businesses failing in the first five years, and that major internal deficiencies (especially in young firms) were in management capabilities.

* A survey last year conducted by the Information Technology Association of Canada (ITAC) of firms in the information technology sector on barriers to growth. The survey ranked "appropriate and effective management resources" second on a list of three gaps; the others were access to investment funding and adequate knowledge of sales and marketing.

* A 2000 Canadian Manufacturers and Exporters of Canada survey on management issues faced by its members, which found that management skills were ranked first on a list of skills needs, before information technology and engineering.

* A survey by CMA Canada last year of its members who had been involved in some way with small businesses. The top two factors in SME failures identified by CMAs were poor business planning and poor financial planning.

CMA Canada has already embarked on a number of areas designed to boost management skills and development for SMEs and entrepreneurs, including a partnership with the Virtual University for Small and Medium Enterprises (VESME), an international consortium of educational institutions from Canada, the U.K. and the U.S.

The federal government currently has 10 categories of support programs in its list of support for small business; while there are 19 entries in its financing category, there are only five in management and skills development, an area CMA Canada has targeted as requiring a more concerted effort from government, academia and the private sector.

Consequently, CMA Canada is calling for a national strategic business plan for SMEs, focusing on five key areas:

* Mentoring: promoting partnerships between experienced business people and new entrepreneurs;

* Business incubators: using people and resources -- offices, basic equipment and advisors -- to help start SMEs;

* SME business cluster and networks: linkages to pool resources, share training, research and marketing costs and facilitate the exchange of personnel and technology diffusion;

* Benchmarking: helping businesses compare themselves against standards of excellence; and

* A Canadian SME management and innovation centre promoting: small business management and innovation research; small business outreach; practical/on-the-job small business management training; management training for SMEs in information technology; increasing the number of university/community college academic programs in small business management training; and annual small business management awards.

Richard Monk, CMA, first vice-president for CMA

Canada in Ontario and managing director of Ottawa-based Welch Consulting Group, was instrumental in helping to put the proposal together. According to Monk, the plan is essential for SMEs to compete here at home and internationally.

"That's where everything has to start," says Monk.

"That's one of the first steps in the relationship with some of the government departments. There's a lot of defining that needs to be done, but CMA Canada could play a lead role in developing a national strategic plan for SMEs. With CMA Canada playing a lead role, you can begin involving provincial and federal governments in the process and incorporate major business associations and leading business schools."

While business will ultimately lead the process, you have to have government support -- initial support at least at the infrastructure level, says Monk. Among the outcomes from that is ideally an agency to provide SMEs with the basic management skills they need to grow to become competitive.

Another major goal is the establishment of national standards for SMEs. "A major outcome would be the development of standards and benchmarking," says Monk. "CMA Canada could play a lead role there. We would also look to, and draw upon, international research that has been done in Australia, the United States and England. You want to look at that research, consult with high-quality SMEs and stakeholders, such as banks and the federal Business Development Bank, and do some international consulting. We need a large enough sample to get some ideas, develop a standard and test it."

Monk estimates that it could take two years for an effective national strategic business plan to be developed. The potential savings, even by conservative estimates, are phenomenal, he says. Given that up to 50% of businesses fail in the first five years, for a variety of reasons, our economy could realize a savings of between $75 billion to $300 billion over five years by ensuring that SMEs are better prepared to compete in domestic and international economies.

"With a good plan and good standards, everybody is playing the same game because we know what our standards are," says Monk. "The biggest problem today is that SMEs don't know where to get information. There are many various government departments and agencies that offer advice, but there is no uniform source of information. Our borders are shrinking, we're going to get into the global economy and if we don't, then Canada will lose."

Monk says that in the planning process, the focus must be on the new economy. "You want to work with the winners as much as possible. We're confident that our organization, with its strategic leaders, certainly fits in well with that direction."

According to Willis, Canada already has the basics to do well globally. "Our demographic diversity is Canada's strength," he says. "But it necessitates a greater effort to promote these clusters and networks than for our global competitors. We can win because of demographic diversity, but we must try much harder."

Tobin agrees. "In the recent Speech from the Throne, our government stated its commitment to pursue a strategy to brand Canada as the most innovative country in the world. We will invest to strengthen the capacity of Canada's research institutions, accelerate the commercialization of new technologies and pursue a global strategy for Canadian science and technology, supporting more collaborative international research at the frontiers of knowledge. This is important not just to universities and big business, but also to SMEs and their ability to access the technology and market intelligence they need to compete."

The implementation of a new federal strategy to encourage SMEs to pursue international S&T opportunities, coupled with a national strategic plan to boost SME management skills, may present the best opportunity yet for our small and medium enterprises to meet the challenge of a changing world. And armed with leading-edge knowledge and new global opportunities, Canada's SMEs will be more than ready to take on the world.

John Cooper ([e-mail]) is a Whitby, Ont.-based freelance writer.