Canada’s mid-sized firms in decline: BDC

Canada’s mid-sized companies have declined by 17% – from 9,370 to 7,814 – in the years between 2006 and 2010, according to a new study by the Business Development Bank of Canada (BDC).

The study, based on Statistics Canada data and supported by survey results from market research firm Harris/Decima, shows the manufacturing sector as the hardest hit. More than half (from 2,807 to 1,381) of its mid-sized firms (enterprises with between 100 and 499 employees) vanished between 2001 and 2010.

“This decline should signal a call to action as mid-sized firms are vital to the Canadian economy,” says Pierre Cléroux, BDC’s vice-president, research, its chief economist and lead author of the study. “They’re few in numbers, yet their contribution to Canada’s economic prosperity cannot be overemphasized. They really do punch above their weight.”

Mid-sized firms represent 1% of the total number of companies, but contribute disproportionately to the Canadian economy, accounting for 16% of Canadian jobs, 12% of GDP and 17% of exports.

Over 80% of mid-sized rms are in the 100 to 249 employee category.

BDC notes a greater portion of mid-sized firms have head offices in Canada, compared to large firms (90% versus 77%). Over a third (37%) have head ofces in Ontario, followed by 27% in Quebec, 19% in the Prairies, 12% in BC, and 6% in the Atlantic region.

“During the last 10 years, medium-sized firms have faced serious challenges from the rapidly appreciating Canadian dollar, financial crisis and recession,” added Cléroux.

The study also found that 14% of mid-sized firms became small firms (below 100 employees) or closed down each year from 2006 to 2010. Only 1.4% grew to become large-sized corporations with 500 or more employees.

Ontario was hit worst, losing 25% (from 3,810 to 2,861) of its mid-sized firms between 2006 and 2010.

However, many CEOs are optimistic about their prospects during the economic recovery, with 64% of mid-sized firm leaders saying their annual sales will go up by 4.5% over the next three years.

Firm owners said the main obstacles standing in their way to becoming large companies are fierce competition, availability of financing and employee acquisition and retention.

Mid-sized firms with a board of directors or an advisory board are most likely to say they expect sales to go up.

But the news isn’t all bleak. “Half of all midsized firms had an average annual sales growth of 4% in the past three years, with 7% experiencing an annual growth of 20% or more during the same period,” BDC said. “Moreover, 64% of midsized firm leaders believe their annual sales will increase by 4.5% over the next three years, and 4% expect to become large firms during this time. Interestingly enough, midsized firms with a board of directors or an advisory board are more likely to report an increase in projected sales than those without.”

For more on the study, click on this link.