Chapter 5. Federal programmes for SMEs and entrepreneurship in Canada

This chapter assesses federal small business and entrepreneurship programmes. It covers financing, innovation, exporting and internationalisation, entrepreneurship education, management consultancy, workforce training, access to public procurement and social and inclusive entrepreneurship. The chapter points to a strong overall package of support, but also to the existence of niche areas in which the scale of support is small compared to the scale of the target population and where potentially beneficial actions are not fully in place.

  

Financing programmes

Traditional bank financing

Various government programmes are in place to assist Canadian SMEs to obtain more and better access to credit. The lending programmes of the Business Development Bank of Canada (BDC) are the most prominent, but ISED is also actively involved through the Canada Small Business Financing Program (CSBFP) and the Regional Development Agencies (RDAs) and FedNor are actively involved through their regular programmes and specific nationwide interventions they deliver on behalf of the federal government in the field.

Business Development Bank of Canada Credit Market Activities

The BDC is a federal crown finance corporation that is wholly owned by the Government of Canada and that adopts professional risk assessment practices, pricing its services at or above market rate. The BDC is required to maintain a return on equity at least equal to the government’s average long-term cost of capital, a task which it regularly fulfils.

The BDC was founded in 1944 and has more than 100 business centres across Canada. It counts more than 40 000 direct and indirect clients, and has a total loan portfolio of over CAD 21 billion. It earns a return from its financing activities while extending financing into areas that would otherwise be underserved. In particular, the BDC steps into the credit market to serve riskier customers, such as those with less collateral to offer or with less of a track record in entrepreneurship, pricing for the higher risk it takes.

The BDC is mandated to work in a complementary way to private-sector banks. This often means acting as a long-term lender and investor that takes higher risks and offers greater flexibility than commercial banks. For example, the BDC offers services that traditional commercial banks do not generally offer, such as fee-based consultancy services, and its loans are non-callable, i.e. they cannot be claimed before maturity. The full set of the credit market products offered by the BDC includes secured and unsecured term loans, securitisation, subordinate financing and business consulting services. The BDC does not offer grants or subsidies, nor does it take deposits.

The role of the BDC in the Canadian credit market proved particularly valuable during the financial crisis of 2009, when approval rates of private sector financial institutions for firms with less than 100 employees stood at 79%, a full 15 percentage points lower than in 2007. BDC compensated for this withdrawal of bank credit by extending a record amount of credit in fiscal year 2010, increasing loan volumes from CAD 2.8 billion to CAD 4.3 billion, thus helping to smooth the financial downturn (ISED, 2010a). On request of the federal government, BDC also worked with the private sector during the economic crisis to offer securitisation to increase liquidity in the market and augment investor confidence in asset-backed securities (ISED, 2010a). The G20/OECD High Level Principles on SME Financing (G20/OECD, 2015) point to expanded securitisation of small and medium-sized enterprise (SME) loans as a method of strengthening SME access to bank financing more generally, and BDC is active in this area.

Credit guarantees

Many governments in Organisation for Economic Co-operation and Development (OECD) countries run schemes where a government agency underwrites a percentage of loans made by private banks to marginal small business borrowers that banks would not otherwise finance. Canada is no exception and several bodies guarantee small business loans in the country. For example, the Department of Agriculture operates the Canadian Agriculture Loan Debt Program and the Advanced Payments Program; BDC offers indirect support to entrepreneurs through portfolio guarantees; the RDAs and FedNor run some loan guarantee schemes at the regional level, including within the framework of the Community Futures Program serving remote and rural Canada; and several provinces offer loan guarantees to SMEs within their own jurisdictions.

The most prominent loan guarantee scheme at the federal level is Innovation Science and Economic Development Canada (ISED)’s Canada Small Business Financing Program (CSBFP). CSBFP support is limited to small businesses or start-ups operating for profit in Canada with gross annual revenues of CAD 10 million or less. Compared with schemes operating in other countries (OECD, 2013), many of which underwrite loans which can be used for general purposes, the CSBFP is narrowly focused on asset financing, while financing working capital or inventory is not permitted.1

In June 2015, the maximum loan amount guaranteed under the CSBFP increased from CAD 500 000 to CAD 1 million. The coverage ratio is 85%, i.e. the government reimburses 85% of the net eligible loss of the lender. Under the CSBFP, lenders need to pay a registration fee of 2% of the loan amount at the time of the guarantee registration, which can be charged to the borrower and be financed by the loan. Lenders are also required to pay a yearly administration fee of 1.25% on the outstanding loan amount, which may be included in the interest rate on the loan. For CSBFP loans, the maximum interest rate of the loans is capped at the lender’s prime rate plus 3% for floating rate loans, or the lender’s single-family residential mortgage rate plus 3% for fixed rate loans.

The CSBFP is a small programme; only about 6 000 SMEs use it per annum. Moreover, during the last five years, use of the programme has declined further. A possible issue is that CSBFP relies heavily on lenders for credit evaluation and collection, while restricting the interest rate of loans. Based on these conditions, lenders may be discouraged from using the programme (ISED, 2014). Lenders also tend to complain about the amount of paperwork involved in the credit guarantee extension, while pointing to limited SME awareness of the programme.

To deal with these issues, efforts have recently been made to reduce the administrative burden on users, for example by reducing the number of receipts required to support expenditures made under the programme. There have also been efforts to communicate the improvements to clients, and to promote the programme to borrowers via trade shows and through third-party intermediaries who work with small businesses.

To make the CSBFP more attractive in the future, it may be advisable for ISED to review some further aspects of its operation, such as the costs to lenders and the interest rates they can charge on CSBFP-backed loans. Moreover, the current ineligibility of loans for working capital also limits the scale of the programme. National data reveal that working capital is identified by over one-half of SME survey respondents as the intended use of debt financing (ISED, 2013). Thus, it would be advisable to broaden the eligibility criteria of CSBFP to allow for working capital financing, in line with other credit guarantee schemes elsewhere, including the US Small Business Administration’s 7(a) Programme.

The Italian Central Guarantee Fund, which operates at a much larger scale than CSBFP, is also a relevant international policy example from which Canada may draw inspiration if it were to review its federal loan guarantee programme (see Box 5.1).

Box 5.1. The Central Guarantee Fund, Italy

Description of the approach

The Italian Central Guarantee Fund provides guarantees for short, medium and long-term loans of up to EUR 1.5 million. These guarantees are available both to SMEs and start-ups, but are mainly used for loans to established SMEs looking to expand or invest in new projects. The major operational parameters of Italy’s credit guarantee fund are similar to other loan guarantee programmes in the OECD area. For example, the fund’s direct guarantee is granted up to a maximum of 80% of the financial operations. The maximum amount that can be offered is equal to EUR 1.5 million per enterprise, which can reach EUR 2.5 million for shorter-term projects.

There are two particular distinguishing features of the Italian approach. First, the Italian Credit Guarantee Fund channels a relatively high proportion of its funding through counter-guarantees to local mutual guarantee associations (Confidi) as opposed to direct guarantees to banks for their SME loan portfolios. This counter guarantee proportion has increased since the crisis. In other words, the fund often acts as a lender of last resort to local guarantee associations. This has the advantages of exploiting additional screening of loan applicants by the Confidi and of strengthening the capital base of the Confidi. Second, the Italian scheme is relatively sophisticated in providing different guarantee rates tailored to the risk profiles of the borrowers and the types of loans.

During the global crisis, the need to mitigate the sharp rise in borrowers’ credit risk led to a significant increase in the activity of the fund: between the beginning of 2009 and September 2015 new loans amounting to some EUR 65 billion were guaranteed, compared with EUR 11 billion in the period 2000-08. More than half of fund’s guaranteed loans went to firms with fewer than 20 workers: the share of loans on total bank loans granted to such firms rose to about 8%, from less than 2% in 2008.

Factors for success

Important factors for success include:

• By providing different guarantee rates tailored to the risk profiles of the borrowers and the types of loans, the Italian Credit Guarantee Fund enables risk to be priced more precisely for each loan application.

• Data on Italian SMEs that obtained a guarantee between 2005 and 2010 indicates that the Credit Guarantee Fund’s intervention had a positive impact on credit volumes but insignificant effects on the average level of interest rates charged by the banks.

• The Credit Guarantee Fund-backed loans are used mainly to finance working capital, which helps liquidity-constrained SMEs.

Obstacles and responses

One limitation of the Italian model is that the loans guaranteed by the Credit Guarantee Fund have a higher probability of being classified as bad debts than do unguaranteed loans to firms with similar characteristics. While the presence of a public guarantor fosters the flow of credit to the economy, it can also induce banks to be quicker to report as bad debts loans to borrowers for which a refund is readily available.

Second, by making funds available to Confidi, there is a potential moral hazard issue for some financially vulnerable Confidi which know that they can rely on a public bailout if they become insolvent. With a view to reducing insolvencies, it could be useful to strengthen the instruments available for the assessment of credit risk by the Credit Guarantee Fund itself.

Relevance for Canada

Two particular features of the approach of the Italian Credit Guarantee Fund offer potential inspiration for Canada in expanding the numbers of small businesses able to access government credit guarantees:

• The Italian Credit Guarantee Fund is attractive to banks, owing to modest paperwork burdens and flexibility in the guarantee rates and interest rates charged.

• By making loans available for working capital, the loans backed by the Italian Credit Guarantee Fund are attractive to entrepreneurs as well.

Changes to the Canadian scheme along these lines might help reverse the decline in usage of the CSBFP.

Sources for further information

www.fondidigaranzia.it/.

Regional Development Agency loans

The RDAs and FedNor are also actively engaged in enhancing access to finance by SMEs through the provision of repayable contributions (loans) and non-repayable contributions (grants) to SMEs and non-government organisations that actively support small business owners and entrepreneurs, including from social target groups such as women, Indigenous people and youth. Small business loans, for example, are routinely issued under the regular programmes of the RDAs and FedNor and the Community Futures Program, a federal intervention delivered by the RDAs and FedNor that promotes small business creation and small business growth in rural regions of Canada.

Equity finance

The Venture Capital Action Plan

The most recent venture capital policy intervention at the federal level is the Venture Capital Action Plan (VCAP), which was announced in January 2013 and is implemented by the BDC on behalf of the government. The decision to give this mandate to the BDC reflected its already extensive footprint in the Canadian venture capital industry. In this respect, the BDC is a limited partner in funds representing 71% of the venture capital actively invested in Canada and invests directly in companies through three internal funds focused on information technology, healthcare, and industrial, clean and energy technologies. Moreover, the BDC collaborates with a large number of stakeholders in the venture capital ecosystem, primarily through the Venture Capital Strategic Investment Plan (VCSIP) and the Canada Accelerator and Incubator Program (CAIP) (see section on innovation programmes).

The VCAP is a comprehensive strategy for deploying CAD 400 million in new capital over the next 7-10 years to revitalise the Canadian venture capital sector. Of this sum, CAD 350 million is dedicated to establishing or recapitalising up to four large scale private sector-led funds of funds and CAD 50 million for investment in a few high-performing venture capital funds in Canada.2

The four supported funds of funds – Northleaf Venture Catalyst Fund (CAD 300 million in total commitments), Teralys Capital Innovation Fund (CAD 375 million in total commitments), Kensington Venture Fund (CAD 306 million in total commitments) and HarbourVest Canada Growth Fund (CAD 375 million in total commitments) – invest primarily in Canada-focused early-stage and mid-stage venture capital funds, with an emphasis on investment opportunities in the ICT, life sciences, clean-tech and energy sectors. In these funds of funds, the government invests in partnership with institutional investors, corporate strategic investors and interested provinces. Where the federal government has partnered with provinces, such as in the Northleaf Venture Catalyst Fund (with the Ontario government) and the Teralys Capital Innovation Fund (with the Quebec government), federal and provincial governments have made a combined capital commitment of CAD 1 dollar for every CAD 2 dollar from private investors (up to a maximum of CAD 50 million and CAD 62.5 million in each of the two funds respectively). All four funds of funds achieved the targeted capital investment between July 2015 and April 2016.

The VCAP seems to have attracted private investors back to the venture capital asset class, including the big five Canadian banks (as well as the National Bank and the Desjardins Group), the Canada Pension Plan, Investment Board and some large insurers and corporations. VCAP is playing an important ‘pump priming’ role in view of Canada’s need to expand venture capital in order to build a critical mass of high-growth companies, and associated management talent and know-how, by generating finance to structure deals that would not otherwise have been available.

In the near future, the federal government should consider an evaluation of VCAP to assess the extent to which it has generated profitable fast-growing firms in the short-to-medium term. Based on venture capital research in Canada (Hellman and Schure, 2010), a 5-10 year period from the time of the investment appears a reasonable timeline to establish the impacts of the programme on recipient companies in terms of new job creation, sales and profit growth, paid wages, etc. If possible, this should be done by comparing supported companies to a control group of similar companies (by size, sector, etc.) which did not receive government-backed venture capital. If positive results are found, direct funding should be continued, as public support to the venture capital industry is common to most other OECD countries, but also progressively reduced to help make the industry more self-sustainable, as shown by the experience of the United States and Israel where the venture capital industry has become increasingly less reliant on public support.

Provincial funds of funds

In addition to the federal VCAP programme, some of the provinces operate their own fund of funds programmes. For example, the Ontario Capital Growth Corporation is a venture capital vehicle for the Ontario provincial government. Through this mechanism the province has invested CAD 90 million alongside private-sector investors in the Ontario Venture Capital Fund, which is worth CAD 205 million. The province of British Columbia launched its Renaissance Capital Fund in 2007 to address limited growth capital. However, to date this programme has not catalysed as much investment as was desired, and few of the funded ventures are located in British Columbia, contrary to the development objectives of the initiative.

Part of the reason for the limited success of provincial funds like Renaissance Capital is that investors who benefit from it direct their finance to ventures located in other, more promising locations. Evidence from a range of countries suggests that a geographically-based fund of funds is unlikely to be effective in achieving local economic development goals unless a range of supporting networks, expertise, institutions and entrepreneurial infrastructure are in place (Lerner, 2009). In fact, venture capital tends to be geographically concentrated in entrepreneurial clusters. Therefore, a national fund of funds might be more effective than provincial versions, letting investors decide where in Canada they invest and (re)locate the ventures that they back.

Business angel support

Federal RDAs, FedNor and provincial governments have given pump-priming money to establish the necessary infrastructure to run business angel groups. For example, the FedDev Ontario RDA operates an Investing in Business Innovation programme, while the Government of Ontario runs an Angel Network Programme. The former provides mentorship, entrepreneurial support and financing to new entrepreneurs based in southern Ontario, seeks to strengthen angel networks, and encourages the development of partnerships between early-stage businesses and investors. The latter has the purpose of creating new business angel groups in Ontario where none existed before, and generating initiatives and information to transfer best practices from successful business angels.

An enduring challenge in Canada is a lack of angel investment for gazelles and other high-growth firms, especially those lacking cash flow and with business models that leverage intangible assets, such as intellectual property. Some provinces have offered investment tax credits to stimulate angel investment in risky, early-stage ventures; for example, in British Columbia, business angel investments have been supported since 2003 by a provincial income tax credit of 30% (up to a ceiling of CAD 60 000). At the federal level, the Lifetime Capital Gains Exemption (LCGE) and the Small Business Capital Gains Rollover (SBCGR) provide tax breaks and tax deferrals on capital gains from small business equity investments (see Chapter 3). However, they have relatively restrictive rules (in the case of the SBCGR) or are primarily meant to help small business owners save for their retirement (in the case of the LCGE).

The Government of Canada may, therefore, want to consider launching its own programme to stimulate private investment in growth companies. This could provide investment incentives to individuals not only via income tax credits, but also via more favorable capital gains taxation to encourage investments in the most promising ventures. The United Kingdom’s Enterprise Investment Scheme (EIS), described in Box 5.2, provides a relevant policy example.

Box 5.2. The Enterprise Investment Scheme, United Kingdom

Description of the approach

The Enterprise Investment Scheme (EIS) was introduced by the British government in 1995 to encourage outside investors to make investments in small unquoted SMEs. It is regarded as a well-functioning angel-investor tax incentive programme which has generated positive results for the supported companies. Cowling et al. (2008), for example, find that investments were associated with stronger growth in fixed assets and employment, large expansion in sales, and higher labour productivity among EIS recipients compared with non-recipients.

The EIS provides various tax reliefs to potential investors, up to a maximum of GBP 500 000 per year. An investment can be carried back to the previous tax year, in addition to the current tax year at the time the investment was made.

There are two broad categories of EIS investment opportunities for potential angel investors:

• Companies: An EIS company must have a maximum capitalisation of no more than GBP 2 million at the time of inception.

• Funds: An EIS fund must have a maximum capitalisation of no more than GBP 7 million at the time of inception. An EIS fund invests in a number of EIS “Qualifying Companies” on behalf of the investor.

Investment into an EIS company must be in a “small company”, defined as having assets of no more than GBP 15 million, and no more than 250 full-time equivalent employees. In general, an individual who is or has been connected with the company or its trade will not qualify for relief, but business angels may receive a reasonable remuneration as a director. Investors receive income tax relief on 30% of the amount invested, which can be offset against their income tax liabilities in the current or previous tax year. Tax relief is conditional on investors holding their shares in an EIS company for at least three years, while the target company must continue a “qualifying trade” for at least three years from the date of investment. The funds must be used within 12 months of the commencement of the trade, and this must take place within two years of the share issue. The trades which qualify are restricted so as to exclude trades where the investors’ capital is at little or no risk.

In addition, investors are not subject to capital gains tax on their returns from investments in EIS companies, and can claim “loss relief” if the share value of their EIS companies drop. The EIS also entitles investors to inheritance tax relief, provided they have held their shares for a minimum of two years prior to death.

Factors for success

Important factors for success include:

• Government investment is indirect: investment choices are made by the private sector, avoiding the problem of government trying to “pick winners” through direct investment

• The tax relief provided is generous and the scheme has been widely publicised in the financial press. As a result, there are high levels of investor awareness and usage.

• The rules of the scheme have helped promote “additionality”, i.e. investments in EIS companies that would otherwise not have been made, as well as positive impacts on the performance of the recipient companies. In particular, it is important to ensure that investors take on greater risk in return for the tax relief.

• The scheme is reviewed every five years, and adjustments are made to maintain the interest and engagement of investors.

Obstacles and responses

One limitation of the EIS is that it does not specifically target start-up companies. To encourage investment in these ventures, a more dedicated programme is needed. In recognition of this fact, the British Government launched the Seed Enterprise Investment Scheme (SEIS) in April 2012. Like the EIS, the SEIS offers both income tax and capital gains tax reliefs to qualifying investors who subscribe for shares in qualifying companies. Under the SEIS, investors can obtain 50% relief for income tax on the cost of shares, on a maximum annual investment of GBP 100 000. No capital gains tax is paid on profits earned on shares held for more than three years.

Another problem with the EIS is misconceptions in this community about who can use it and under what terms. Part of the misunderstanding comes from the complex rules and restrictions that have been created in an effort to reduce abuse of the scheme. Some investors are deterred by the complexity of the rules of the scheme, while others dislike the 30% maximum equity stake that they are allowed to take in EIS companies under the eligibility rules, or object to EIS rules which mean that typically, only ordinary shares qualify. In response some limited forms of preference shares are now allowed. Also, the EIS has increased limits on the amounts that can be invested in EIS companies.

Relevance for Canada

Investment in companies that are not listed on a stock exchange often carries a high risk. The tax relief, on the income tax for the investment and on capital gains taxation, offered by a scheme like the EIS provides some compensation for that risk. In view of the limited size of the Canadian business angel sector, and the gap in early-stage finance, income and capital gains tax reliefs could prove to be an effective way to stimulate angel finance, even if a Canadian version were not as generous as the EIS. On the whole, EIS-type tax relief on capital gains and losses is likely to have a further stimulating effect on investments in risky enterprises.

Sources for further information

www.enterpriseinvestmentschemes.co.uk/.

Labour-sponsored venture capital corporations

As a means of strengthening institutional investments in SMEs, the Canadian federal government and some provincial governments encourage investments in Labour-Sponsored Venture Capital Corporations (LSVCCs) by offering tax credits to their retail investors. LSVCCs are a type of mutual fund corporations, sponsored by labour unions and managed by investment professionals that make venture capital investments in Canadian SMEs. They make private equity and venture capital investments in local SMEs on behalf of shareholders, commonly labour union members saving for retirement. LSVCCs operate primarily in the province of Quebec, where the network of the Fond de Solidarité of the Fédération de Travailleurs et Travailleuses du Québec and the Fondaction CSN account for some 90% of total LSVCC assets under management. The Fond de Solidarité had approximately CAD 12 billion assets under management and was invested in some 2 600 enterprises in 2016, while the Fondaction CSN had some CAD 1.5 billion under management and investments in some 1 050 local SMEs. The federal government offers a 15% income tax credit to LSVCC investors. The LSVCCs are a useful investment vehicle that helps to fill a market gap in the Canadian private equity landscape.

Financing instruments for business restructuring and acquisitions

The G20/OECD High-Level Principles on SME Financing (G20/OECD, 2015) highlight the importance of enabling access to a broad range of SME financing instruments in order to obtain the form and volume of financing best suited to the specific needs and stage of the firm life-cycle of SMEs. Two relevant interventions of the BDC with respect to providing the right form of finance to enable life-cycle transitions are the Special Accounts and Business Restructuring Unit and the Growth and Transition Capital Offering.

The Special Accounts and Business Restructuring Unit has a team of specialists dedicated to helping clients save and turn around their business when it gets into trouble. It can help clients address problems caused by mismanagement, poor productivity and loss of a major customer.

The Growth and Transition Capital Offering offers cash flow, mezzanine financing, quasi-equity and equity to firms on growth or transition paths. This type of financing is particularly beneficial for firms with few tangible assets, those who require long term patient capital such as high-growth firms, and those who face intergenerational business succession. The size of the Growth and Transition Capital offering now exceeds CAD 650 million, with about 40% of transactions in this portfolio relating to succession financing. This makes this intervention very relevant, since 60% of Canadian SME business owners are over 50 years old and a large proportion of them are projected to retire and sell or close their businesses in the next ten years (ISED, 2013).

Financial literacy

The G20/OECD High-Level Principles on SME Financing also highlight the importance of enhancing the financial skills and strategic vision of SME managers and entrepreneurs. The BDC is active in supporting financial literacy development in SMEs through its consultancy programmes. For example, the BDC Advantage programme is a key programme offering rounded support for high-impact firms. However, the range and penetration of training and advice initiatives to support the financial literacy of SME managers and entrepreneurs could be expanded in Canada.

Innovation programmes

This section analyses Canada’s current set of innovation support programmes targeted at small businesses or largely used by SMEs and entrepreneurs. However, it should be recognised that a boost to federal innovation support is in preparation. The Trudeau government, which took office following federal elections in October 2015, has started to prepare an Innovation Agenda, which was launched through a public engagement in June 2016. The Innovation Agenda is expected to provide further support to incubators, accelerators and the Industrial Research Assistance Program (IRAP), for example, with a focus on sectors where Canada has the ability to attract investment or grow export-oriented companies. As part of the Innovation Agenda, the RDAs and FedNor will also be enabled to enhance their strategic investments that build on the competitive advantages of regions, including helping some regions to diversify their economies and facilitate the transition from declining industries.3

The SR&ED investment tax credit

The Scientific Research and Experimental Development (SR&ED) investment tax credit plays a major role in Canadian innovation policies. It has been in place since the mid-1980s and supports businesses in developing a new or improving an existing technology, product or process. The general SR&ED investment tax credit rate is 15% of eligible R&D expenditures. Unused credits may be carried back for up to three years and carried forward for up to twenty years. This is a significant benefit for young, small businesses that may not yet have generated sufficient profits taxes to make use of the credit in a given year. In 2014, the SR&ED had a budget of CAD 3 billion and served over 25 000 claimants.

Significant use is made of the SR&ED investment tax credit by small businesses, which can receive the tax credits at an enhanced rate of 35% on up to CAD 3 million per year of qualified R&D expenditures.4 The enhanced-rate SR&ED tax credits and 40% of regular-rate credits are payable as cash refunds if taxable corporate income is not high enough to allow the enterprise to fully benefit from the credits. The total value of the credits for small businesses (CAD 1.5 billion) represented roughly one-half (49.75%) of the total cost of the programme in 2015 (Department of Finance, 2016).

Figure 5.1 shows that in 2013 the share of government support for business expenditure on R&D (BERD) represented by tax credits rather than direct expenditure was relatively high in Canada. At that time, the SR&ED program accounted for around 86% of federal public support for BERD.5 In comparative terms, Canada also had one of the highest tax subsidy rates on small business R&D expenditures of OECD countries in 2013 (OECD, 2015d). Since 2014, following the recommendations of the report of the so-called “Jenkins Panel”, there has been a degree of shift in support from tax to direct support measures. This included a reduction in the value of the tax credit to the current 15% from a previous rate of 20%, and withdrawal of the eligibility of capital and leasing costs for SR&ED tax credits. In addition, support for more direct forms of innovation has been increasing.

Figure 5.1. Tax incentives and direct funding as a share of government support for BERD, 2013

Proportion of total government funding of BERD

Note: Direct government funding includes grants, loans and payments for R&D contracts for procurement. Tax incentives for business enterprise R&D (BERD) include allowances and credits, as well as other forms of advantageous tax treatment of business R&D expenditure. For Canada, estimates do not reflect the cost of provincial governments’ R&D tax incentives provided by many Canadian provinces in order to ensure the comparability of R&D tax incentive estimates across countries.

Source: OECD based on OECD (2015d), OECD Science, Technology and Industry Scoreboard 2015, OECD Publishing, Paris

 https://doi.org/10.1787/888933554259

The main reason for withdrawal of capital and leasing costs from SR&ED eligible costs were the high compliance costs for businesses and monitoring costs for tax administration to establish whether capital costs were effectively related to business R&D. For example, it has been estimated that small firms used to spend as much as 14% of their SR&ED tax credit in order to comply with the administrative requirements (IPFSRD, 2011).6 This is a positive change that simplifies the rules and reduces the compliance costs of a large and complex programme, although there have been some concerns that it may favour labour-intensive over capital-intensive industries and distort the technology choices of businesses (OECD, 2012).

Overall, the SR&ED investment tax credits offer welcome support to small business innovation, which is an important target of policy. However, examination is needed of whether the share of R&D tax credits is still too large, following the recent changes, relative to more direct support for small business innovation support. R&D tax incentives can be associated with some potential problems, such as support of non-additional activities, favouring innovation inputs (i.e. R&D investments) over outputs (i.e. patents or research commercialisation), and overlooking non-R&D based innovation. Moreover, because SR&ED supports a wide range of formal R&D, it may be less effective in targeting public resources to forms of R&D that could have the highest social returns. R&D fiscal incentives may also have the unintended consequence of protecting incumbents and slowing down resource reallocation towards more innovative start-ups (Bravo Biosca et al., 2013).

A potential change that might be made to reduce the share of tax credits in innovation support and increase the impact on innovation performance is making the SR&ED programme more rewarding of business growth by reducing the carry-forward provisions if the business does not become profitable and does not have taxable income, as suggested by the Jenkins Panel (IPFSRD, 2011). Another potential change that would yield fiscal savings would be to lower the enhanced ITC rate for small businesses in SR&ED. For example, 12 of the 20 OECD countries which give R&D tax credits do not apply different ITC rates for SMEs and large companies (OECD, 2015d). In parallel, more resources could be devoted to expanding targeted small business-relevant innovation programmes such as the Industrial Research Assistance Program (IRAP) and the Build in Canada Innovation Program (BCIP) and launching new interventions targeted at non-technological innovation, which is not served by SR&ED.

The Industrial Research Assistance Program

The National Research Council’s (NRC) Industrial Research Assistance Program (IRAP) is targeted at innovative and growth-oriented SMEs. It has a presence in 120 locations across 10 provinces and provides technology support and funding for innovative projects in companies.

IRAP provides funding to projects that demonstrate technological uncertainty and have the potential to increase the company’s revenues by commercialising the results of the project. It uses a systematic due diligence process that assesses and reviews both the firm’s business capacity and the individual technical project.

In addition, technical and business advisory services and connections into regional, national and international innovation networks are provided to companies through a network of IRAP field staff called Industrial Technology Advisors (ITAs). There are 250 ITAs delivering IRAP services. The ITAs develop one-on-one long-term relationships with the companies in their portfolios (see Box 5.3).

Box 5.3. IRAP’s Industrial Technology Advisors, Canada

IRAP engages with over 16 000 SMEs every year, providing direct technical/business advice and funding support through a network of 250 field staff known as Industrial Technology Advisors (ITAs). The ITAs are close to their client base and are often located in technology parks, innovation support organisations, incubators, universities, and colleges across the country. These individuals typically join IRAP after they have achieved extensive private sector experience as senior managers or/and entrepreneurs in SMEs. The sector experience of ITAs is typically matched with the needs of the regional clients.

Although ITAs are located throughout Canada, all clients have access to the collective expertise of the ITA community. The location and number of ITAs is constantly re-evaluated to ensure the appropriate skill sets are available to meet the demands of the market. Typically, ITAs have a local office but they also travel extensively (for some, 80% of their time) to meet with the clients at their site and bring them the necessary support and resources.

To obtain funding from IRAP, firms are invited by their ITA to submit project proposals that outline the business opportunity as well as the proposed innovation project to develop the intended service, product or process. The depth of the assessment process is commensurate with the maturity of the firm, the complexity of the project, the amount of the IRAP contribution requested and the “co-investment” by the company and its other partners.

The ITA-client relationship is widely regarded as the fundamental element that sets IRAP apart from other federal and provincial government programmes. In view of the growing recognition that growth constraints lie more in the realm of managerial skills and capabilities, the extensive discussions held between the ITA and the client enable the ITA to assess both the managerial and technical needs of the client. Thus, ITA-client relationships are labour intensive by design. However, it is through this relationship that the opportunity for significant impact is created and realised.

Source: For more on the IRAP programme, see the National Research Council Canada website: www.nrc-cnrc.gc.ca/eng/irap/index.html.

A recent development is a new Concierge Service developed by IRAP in collaboration with over 40 federal and provincial partners. This offers a single access point for SMEs with the aim of helping SME clients to navigate the large and complex set of innovation resources and support programmes across all levels of government. The concierge service is operated by Concierge Advisors, who are located across Canada and provide one-on-one assistance through online, phone and in-person services. They can also link SMEs into networks including universities and colleges, provincial and municipal programmes, RDAs, FedNor, other government departments, and industry associations. Access to these networks provides an opportunity for SMEs to connect with individuals and organisations knowledgeable about local sources of financing, research and development institutions, technology brokers and technology transfer centres. In 2015, more than 3 500 companies benefitted from Concierge’s expertise. However, harder data on the impact of the Concierge Service is currently lacking. It is not known for example how many SMEs are aware of it, how they value it, or the value-adding impact it makes to the SMEs which use it.

In 2014-15, IRAP supported over 16 000 SMEs, with more than 2 500 receiving some form of financial assistance, over 10 000 benefiting from expert advisory services (at no charge), and 3 578 from the Concierge Service.

Another component of IRAP is the Youth Employment Program which provides eligible SMEs with financial assistance to hire highly skilled post-secondary science, engineering, technology, business and liberal arts graduates. Graduates work on innovative projects within SMEs and may participate in research, development and commercialisation of innovative products or services.

The EUREKA programme

The NRC also manages Canadian participation in EUREKA, an international network that supports market-oriented R&D projects undertaken by industry (both large firms and SMEs), research centres and universities across all civil technological sectors. EUREKA membership includes over 40 economies. Canada joined EUREKA in 2012 as an Associate Member and, in July 2015, renewed its membership until 2018. Within the framework of EUREKA, the NRC works with national and international stakeholders to provide Canadian innovators with access to this innovation network, strategic technologies and new markets.

The digital agenda

One of the major constraints on productivity among small businesses is under-investment in, and under-adoption of, new digital technologies. Canadian SMEs have low e-commerce adoption rates compared with their larger counterparts. Canada also ranks near the bottom of OECD countries in terms of SMEs’ use of Enterprise Resource Planning (ERP) software – a business management platform that integrates different parts of the business and is typically required to participate in global supply chains (OECD, 2015b).

Two initiatives which seek to foster business internalisation in Canada are the Digital Technology Adoption Resources (DTAR) and Digital Canada 150 (DC150). The former is a set of online resources, available through the IRAP website, which entrepreneurs can use to learn more about the link between digital technologies and productivity improvements. The latter is the digital economy strategy of the Government of Canada, the second incarnation of which was launched in July 2015. As part of DC150, the BDC committed CAD 200 million in financing per year for three years and CAD 300 million in venture capital funding over three years to help entrepreneurs create or adopt information and communications technologies. BDC’s Smart Technology Program website hosts specialised advice, resources and tools to promote this agenda.

However, these government initiatives rely on entrepreneurs to know about, and then find and use, the sources of information provided. Many SMEs are unaware of the information sources, and even more need help in implementing them. According to a report prepared for ISED by Middleton and Biggar (2012), coaching programmes to extend digital literacy are an effective way of tackling this problem.

At one time this type of assistance was available in Canada through the Digital Technology Adoption Pilot Program. This was a three-year pilot programme that ran from November 2011 to 31 March 2014. It had a budget of CAD 80 million to disburse non-repayable grants to SMEs to help them adopt (but not purchase) new digital technologies. During its period of operation, over 200 experts across the country engaged with small businesses to determine eligibility for the grants and to offer one-on-one advice. Manufacturing SMEs were the modal users, and ERP systems were the most common technologies adopted through the programme. Most of the money disbursed under the programme was used for training and hiring skills the SMEs lacked.

The Digital Technology Adoption Pilot Program ended in 2014. However, the adoption of digital technology has been identified as an area of focus as part of the development of the government of Canada’s Innovation Agenda. Some of the approaches and lessons learned from the previous pilot would be useful in expanding advice and coaching to SMEs in this area in the future.

Incubators and accelerators

Incubators are organisations that help new companies explore and develop early-stage business ideas by providing services such as management training or office space. Accelerators help firms grow by providing guidance and mentorship. Unlike incubators they tend to assist ventures at a more advanced stage of development, usually when they have successfully created their products and are looking to grow. Both incubators and accelerators are widely recognised as essential parts of the entrepreneurship support infrastructure.

Canada has numerous incubators and accelerators: some of these are highly regarded internationally. They include DMZ, Communitech, Velocity, Creative Destruction Labs, FounderFuel, MaRS and many others. Box 5.4 provides more information on the examples of DMZ and Communitech.

Box 5.4. The DMZ and Communitech incubators and accelerators, Canada

DMZ, Ryerson University

Ryerson University’s DMZ is one of the most successful university incubators in Canada, being ranked fifth globally and top in Canada in University Business Indicator’s global ranking. DMZ’s projects focus on high potential growth start-ups whose business models are matched with mentoring capability in the incubator. As well as peer-to-peer mentoring, DMZ calls on the services of external mentors and four “Entrepreneurs in Residence” who act as guides.

About 80 companies are active in DMZ at any given time; their average stay is about one year. They are mainly, but not exclusively, student companies. The first 4 months in the incubator are free, but entrepreneurs pay CAD 380 per team per month thereafter.

DMZ points to two key success drivers for its incubator. The first is community support. This comes through links with other start-ups, industry and government. The second is regular exposure to potential customers. For example, DMZ brings in 100-200 visitors per week, including corporations and entrepreneurs from other countries. These visitors give entrepreneurs feedback on their ideas and, in the case of existing companies, sometimes become valuable early customers. An important part of the financial sustainability of DMZ derives from charging “intrapreneurs” in existing companies to have access to the incubator’s entrepreneurs and ideas.

DMZ emphasises internationalisation. It has forged partnerships with networks in South Africa and India; and regularly brings in foreign entrepreneurs to meet and work with domestic entrepreneurs in Canada. Five years after launching, in 2010, 243 start-ups have incubated at the DMZ, which have raised CAD 172 million in seed funding and have fostered the creation of more than 2 100 jobs.

Ryerson has recently added an accelerator, “Ryerson Futures”, which offers seed funding to some of its companies to support their further growth. This is in line with the practice adopted by many leading incubators of taking equity stakes in the most promising ventures that they host and assist.

Communitech, kitchener

Communitech is a not-for-profit public-private partnership, which was founded in 1997 and is based in the Kitchener-Waterloo technology cluster. Communitech supports more than 500 growth-oriented technology companies per year at all stages of the life cycle. It obtains money from all three levels of government, private sector partners, rent and event registration money, corporate sponsors, and industry partners who pay for lab space. Communitech runs programmes for companies and entrepreneurs at each growth stage with the aim of scaling up high-growth companies and promoting corporate innovation. Helping larger companies is beneficial not only because they are valuable sources of innovative ideas and advice, but also because they can become customers for the start-up members.

Among Communitech’s programmes are a Start-up Services Programme, where entrepreneurs come for help to launch their business, and Business Fundamentals workshops, which are boot-camp information sessions. Communitech also hosts a team of experienced former executives in residence, who provide contacts and coaching. Recently, Comunitech has added a small accelerator to assist promising start-ups which are further along and are looking to grow their venture. However, Communitech has decided not to take equity stakes in these ventures.

Source: For more on DMZ, see https://dmz.ryerson.ca/. Formoreon Communitech, see www.communitech.ca/.

In Canada, most incubators and accelerators have received some government support as they usually require initial financing to pay for physical infrastructure and to become operational. Once started, incubators and accelerators may be able to finance themselves by charging user fees levied on entrepreneurs hosted in the incubator/accelerator and by taking equity stakes or charging royalties from the ventures that they host. The NRC provides some start-up funding and ongoing funding to incubators and accelerators through the Canada Accelerator and Incubator Program (CAIP). CAIP provides non-repayable contributions to a limited number of accelerators and incubators that meet strict eligibility and selection criteria over a five year period. Contributions support incremental activities that expand the overall service offerings to early-stage firms and entrepreneurs, and promote SMEs that are investment-ready and able to develop into sustainable, high-growth businesses. CAIP’s total funding stands at CAD 100 million.

In addition, BDC invests CAD 100 million of its own capital in strategic partnerships with business accelerators and co-investments in graduate firms as part of the Venture Capital Strategic Investment Plan (VCSIP). This Plan makes direct and indirect investments in support of the entrepreneurial ecosystem and is complementary to support from CAIP. For example, VCSIP manages the Convertible Note Program, which offers financing for firms which graduate from CAIP-supported business accelerators. The RDAs and FedNor also support incubators and accelerators through their regular programmes.

Overall, incubators and accelerators seem to be working well in Canada. There is no obvious upper limit on their number and it is indeed desirable that they will spread across regions, universities and colleges. However, there are some ongoing challenges facing incubators and accelerators that policy might be able to influence.

One challenge often mentioned by incubator managers is the existence of a limited pool of mentors, which leads to an over-reliance on a small group of mentors. This problem seems to be especially pronounced in some locations and sectors, where mentorship talent is currently spread thinly, especially outside traditional technology sectors.

Another challenge for accelerators in particular is to focus more on global market-ready, rather than just local market-ready, high-growth firms. While many accelerators recognise this, more could be done to strengthen the focus on internationalisation of early-stage companies in accelerators. Funding of growth projects also remains a challenge, due to the limited numbers of Canadian business angels who have been willing to invest in incubator- and accelerator-hosted ventures. Finally, better data are needed to gauge the success of incubators and accelerators, including the survival and growth rates of the companies they assist.

The Build in Canada Innovation Program

The Build in Canada Innovation Program (BCIP) is a public procurement programme designed to bridge the pre-commercialisation gap by procuring and testing late-stage innovative goods and services by Canadian companies within the federal government before taking them to market. It is managed by Public Services and Procurement Canada (PSPC) and implemented by its Office of Small and Medium Enterprises (OSME). Although the BCIP is not explicitly targeted at SMEs, the vast majority of BCIP contracts (97%) are awarded to SMEs.

The BCIP targets innovation in ten priority areas falling under two components: the Standard Component (environment, safety and security, health, and enabling technologies) and the Military Component (command and support, cyber-security, protecting the soldier, in-service support, training systems, and arctic and maritime security). From 2016, BCIP has a total budget of CAD 40 million annually. Non-defence projects can be funded for up to CAD 500 000, while defence-related projects have a ceiling of CAD 1 million. As of June 2016, 190 contracts had been awarded for a total value of over CAD 66 million, with innovation testing taking place in 248 government organisations.

BCIP appears to be playing an important role in encouraging SME innovation, although the programme is relatively small. Monitoring and evaluation information on the programme could help define better the benefits and how the programme achieves them and provide guidance on how far and how best to scale up the programme. In assessing the options two key considerations for future development of the programme should be kept in mind.

Firstly, the BCIP programme is currently responsive, in the sense that government waits to see what proposals emerge from the market. An alternative or complementary approach would involve pro-actively identifying specific public procurement needs with an innovation component and then inviting proposals from companies to meet the needs. This is the approach taken by the SBIR programme in the United States (Box 5.5). Secondly, the BCIP does not provide follow-up funding to help SMEs move on and grow after they finish their contract to supply the initial commercialisation work. More could be done to try and build links with other programmes and private-sector business angel and venture capital funds in this respect.

Box 5.5. The Small Business Innovation Research (SBIR) programme, United States of America

Description of the approach

The SBIR was established in 1982 to address concerns about the declining competitiveness of United States industry, by increasing the share of procurement contracts going to small firms from the largest federal R&D agencies and commercialising more federally-funded research. Under SBIR, all federal agencies with extramural R&D budgets exceeding USD 100 million annually are required by law to set aside 2.5% of those budgets with American SMEs via a competitive bidding process. The expenditure is on contracts for the development of new technology needed by the agencies. Approximately USD 2.5 billion is awarded through this programme each year. The United States Department of Defense (DoD) is the largest agency in this programme with approximately USD 1 billion in SBIR contracts annually.

The SBIR is the United States federal government’s most important R&D funding programme for SMEs. SBIR is designed to stimulate commercialisation by small private sector ventures from technological innovations derived from federal R&D, while at the same time providing government agencies with new cost-effective technological and scientific solutions to challenging mission problems. The programme is highly competitive, with just 12-15% of applicants being funded following multiple-stage reviews. The awards are limited in both duration and amount. The SBIR’s combination of public R&D subsidies with ex ante screening of potential ventures is thought to reduce financing constraints by certifying venture quality to external financiers. The certification effect is likely to be stronger if larger subsidies are accompanied by greater screening intensity. Thus SBIR is a seed fund which significantly reduces the risk faced by follow-on private equity providers.

Lerner (1999) compared a sample of SBIR Phase I awardees with a matched sample of non-SBIR awardees, and reported that SBIR awardees enjoyed superior employment and sales growth. Other independent academic evidence points to higher private rates of return for SBIR projects than for “normal” corporate projects, suggesting that SBIR promotes value-adding innovation and commercialisation by SMEs.

Factors for success

Important factors contributing to the success of this programme include:

• SBIR plays a catalytic role at an early stage in the technology development cycle.

• SBIR is demand-driven, soliciting valuable, strategic and clearly specified solutions from United States SMEs.

• Rigorous screening ensures that public money is well spent and provides an important certification role which stimulates follow-on finance from business angels and venture capital.

• The set-aside percentage ensures that SMEs benefit from the programme. Furthermore, awards are not repayable and they do not dilute ownership or control of a firm’s management. The intellectual property rights remain with the firm, creating an opportunity for downstream contracts. All of these factors make the programme attractive to entrepreneurs.

• Government becomes a customer, which provides a crucial source of early cash flow to early-stage ventures. The SBIR gives successful firms a “single source” contract for the subsequent development of the technology and products derived from the SBIR award. This often assists small firms by creating an alternative path to enter the government procurement system.

• Given the relatively large scale and high profile of the SBIR programme, the status of being an SBIR-funded company often helps companies obtain follow-on funding from business angels and venture capitalists through an informal “certification effect”.

• Government receives cost-effective solutions that it needs, capitalising on the best ideas drawn from a wide range of expertise and innovators across the country.

Obstacles and responses

The programme nonetheless faces the following challenges:

• Despite its successes, transitioning products and processes developed under the SBIR programme into the mainstream procurement process and private markets remains a challenge. Many projects are developed to a certain level of readiness but require substantial follow-on funding to realise their full potential.

• The time required for agencies to solicit, assess, select, and make awards can be a challenge for SMEs, especially new start-ups.

• Maintaining an environment in which potential benefits and risks are carefully weighed, but where risk taking is encouraged, is an ongoing challenge for programme managers. The award size needs to be generous enough to incentivise entrepreneurs to participate in the programme. At the same time, the programme costs need to be contained.

• SBIR provides many small awards to SMEs, which can entail high overhead costs for the administering agency, compared with larger, ‘bundled’ contracts with a single large provider.

In response to these challenges, it is necessary for the SBIR administrators to develop appropriate management and operational incentives for the procurement agencies it works through, and to encourage follow-on funding from non-procurement agencies. It is also necessary for the agencies doing the procurement to adjust their risk attitudes, accepting that not all SBIR award winners will innovate successfully. The programme must also be designed to avoid the risk of capture by larger SMEs at the expense of smaller ones; it is necessary to publicise the programme, conducting early foresight exercises with public and private sector lead users.

Relevance for Canada

The SBIR programme has relevance to Canada in the following areas:

• There is growing recognition that the Government of Canada needs to make procurement more demand-driven. Steps are already underway in this direction, with the National Procurement Strategy for R&D allowing government to be a first client for new, innovative services and products that address a need or provide a necessary service or technology.

• An SBIR-type procurement system enables the government to be strategic, targeting demand on certain technologies and services. This fits with the current practice in BCIP of prioritising sectors like defence.

NAFTA rules need not rule out the implementation of an SBIR-type programme in Canada (the USA is of course a NAFTA signatory). However, it would be necessary to work with provincial governments under the Agreement on Internal Trade to enable SME set-asides at the federal level.

Sources for further information

Lerner J. (1999), “The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program”, The Journal of Business, Vol. 72, No. 3, pp. 285-318; Wesner C. (ed.) (2009), An Assessment of the Small Business Innovation Research Programme at the Department of Defence, US Committee for Capitalizing on Science, Technology, and Innovation, Washington, DC; Qian, H. and K. Haynes (2014), “Beyond Innovation: The Small Business Innovation Research Program as Entrepreneurship Policy”, Journal of Technology Transfer, Vol. 39, 524-543.

SBIR website: www.sbir.gov/.

Finally, there may be scope to simplify the process for small businesses wishing to sell ICT services to the government. For example, the United Kingdom government has established the “CloudStore”, launched as part of its G-Cloud Strategy, which is an online marketplace where government agencies can buy information technology products and services from SMEs and other firms.

Universities and technology development

Commercialisation of research resulting from universities and public research organisations is an important driver of economic growth as well as a potential source of funds for universities. Canada’s leading programmes in this area are the Centres of Excellence for Commercialization and Research (CECR). This is part of the business-led Network of Centres of Excellence (NCE), a suite of partnership programmes, funded by the Government of Canada, which bring together academia, industry, government and not-for-profits, in order to advance research and knowledge in a few specific areas. The CECR is one of the most relevant NCE programmes for SMEs. It matches clusters of research expertise with the business community in an effort to accelerate the commercialisation of new products, technologies and services in key areas of the Canadian economy such as the environment, natural resources and energy, health and life sciences, and information and communications technologies (ICT). This is done through a wide range of tools (e.g. facilitating partnerships and collaborations; providing access to research expertise and equipment to the private sector; training and mentoring entrepreneurs; incubating start-ups; advancing research and adding value to technology; and providing financial support from micro loans to equity investment), although it is not clear which ones most effectively deliver the core mission of the CECRs.

One of the main tools for the commercialisation of university research in Canada is the operation of Technology Transfer Offices (TTOs) by universities themselves. University TTOs tend to promote university spin-offs, in which the university takes shares in enterprises started by their researchers, and organise the licensing of patents and other intellectual property owned by the university to private companies. In 2014, TTOs in Canadian universities executed 493 licenses, formed 82 start-up companies and recorded 1.1 billion in net product sales. Moreover, as of 2014, there were nearly 4 700 operating university start-ups in Canada (AUTM, 2014). This is suggestive of a national university system where technology transfer and university entrepreneurship are pursued actively.

Nonetheless, according to a report by the Canadian International Council (CIC, 2012), there is room for Canadian universities to reform TTOs to focus less on licensing fees and more on industry collaboration, infrastructure sharing and training. This may require a reversal of recent declines in the level of TTO staffing (AUTM, 2014), or the adoption of more intensive business collaboration approaches outside of the TTOs. In particular, the report argues that there is scope to encourage Canadian universities to: i) articulate and follow clear, well-defined strategies for the formation and management of spinoffs which do not focus on short-term cash maximisation and which encourage risk-taking; ii) direct university resources towards intellectual property protection; iii) encourage university principals to change social norms in their institutions, including by giving explicit approval for university entrepreneurship; and iv) provide incentives to TTOs to hire suitably experienced technology management officers with broad-based commercial skills. Provincial governments are responsible for education in Canada, so this agenda would primarily fall within their responsibility. However, federal government may also have a role to play in supporting the exchange of good practice information across universities in the country.

RDA and FedNor innovation programmes

The federal RDAs and FedNor are also active in supporting business innovation. They play an important role both in designing tailored interventions that can support particular target groups of firms in their regions and in offering broad-based innovation support including incremental and non-technological innovation projects in SMEs as well as more R&D-based and technology-based innovation. The following are among the key initiatives of the RDAs and FedNor:

• Atlantic Canada Opportunities Agency (ACOA): The Business Development Program invests in projects that help businesses develop new or improved products and services and assists them in acquiring the skills and technology they need to bring products to market. The Atlantic Innovation Fund encourages partnerships among private-sector firms, universities, colleges and other research institutions to develop and commercialise new or improved products and services.

• Western Economic Diversification Canada (WD): The Western Innovation Initiative is a CAD 100 million five-year initiative that offers repayable contributions for SMEs in Western Canada to move their new and innovative technologies from the later stages of R&D to the marketplace.

• Federal Development Ontario (FedDev): Investing in Business Innovation encourages the development of partnerships between entrepreneurs and investors to support early-stage globally-oriented businesses in southern Ontario.

• Canada Economic Development for Quebec Regions (CED-Q): The Innovation and Technology Transfer component in the Quebec Economic Development Programme encourages innovation activities, R&D, or the improvement of new products, technologies, processes or services in businesses.

• Federal Economic Development Initiative for Northern Ontario (FedNor): Support for access to ICT services in First Nations communities that help entrepreneurs overcome barriers, such as remote distances and high travel costs, leading to enhanced access to essential business development support.

The small business innovation support role of the RDAs and FedNor is expected to be further enhanced after they have all been grouped under the responsibility of the Minister of Innovation, Science and Economic Development Canada and they have been given clear mandates within the new Innovation Agenda being developed by the government of Canada.

Internationalisation programmes

Until the federal elections of October 2015, the main business internationalisation policy of the Canadian federal government was the Global Markets Action Plan (GMAP), launched in November 2013. The GMAP intended to enhance Canada’s SME exporting community, especially the percentage of Canadian small businesses that export to emerging markets and the continued promotion of Canada’s access to United States and European Union markets. The key government support elements of GMAP are presented below. Following federal elections in October 2015, a new Trade and Export Strategy is expected to replace the GMAP in 2016. Export promotion is also pursued by the RDAs and FedNor, mostly through their regular programmes.

Export financing and insurance

The Canadian government provides financing and insurance support to encourage small business exporting through Export Development Canada, Canada’ export credit agency, and the Trade Commissioners Service (TCS), Canada’s export promotion service. Both agencies report to the Global Affairs Canada (GAC) government department and minister.

EDC is a crown corporation, operating at arm’s length from the government and on commercial terms. It operates 18 offices across Canada and 18 around the world (2 representations in Mexico, 5 in South America, 3 in Europe, 6 in the Asia-Pacific region, one in the Middle East and one in Africa). It also operates an online Knowledge Centre, which provides information about trade-related trends and developments and in-depth analysis from EDC economists and trade experts.

EDC provides trade credit insurance for accounts receivable outside Canada; EDC has just under one-half of this market, in which it complements the private sector by partnering with them on bonds, guarantees and filling gaps and areas of need. In addition, EDC provides bonding and contract insurance services that reduce non-payment risk by overseas buyers. EDC also offers financing to SMEs, mainly for working capital, as well as some direct lending and equity investments in selected SMEs.

In collaboration with the Trade Commissioner Service (TCS), EDC also operates a “pull facility”, whereby it introduces foreign buyers to qualified Canadian suppliers and can provide a loan to a targeted foreign buyer who will buy from Canadian companies. Over the period 2003-15, EDC has helped 5 775 Canadian companies benefit from various Pull Facilities and has created CAD 70.6 billion in export sales. In 2015, EDC added 29 new pull loans to its portfolio and 1 426 companies benefitted from these relationships with foreign companies. Of that, 990 were SMEs (70%).

EDC serves all Canadian companies irrespective of size; each year over 7 400 Canadian companies make use of EDC’s services. However, in terms of SMEs’ needs, some gaps have been identified. First, many SMEs are unfamiliar with mechanisms like bonding and contract insurance, while others are simply unaware of the EDC financing services that could help them internationalise. EDC should continue to look for ways to partner with the TCS and industry associations to increase awareness of its offerings to SMEs. Second, EDC finds it challenging to finance and provide credit insurance for certain kinds of small businesses, such as those offering software as a service, owing to the small but regular receivables flows based on those businesses’ intangible assets.

Export promotion activities

One of the government players in export promotion in Canada is the TCS. The TCS operates a network of over 1 000 international business professionals working in Canadian embassies, high commissions, and consulates located in 150 cities around the world and with offices across Canada. They assess the potential of Canadian companies in international target markets using market intelligence and provide them with advice on marketing strategies. The TCS’s customer management system recorded 45 000 services provided in 2014, with strong uptake from the small business community. TCS estimates that on a yearly basis it assists 20-25% of Canadian exporters.

The TCS also works with technology accelerators to host supplier days, business-to-business matching events, trade missions, and boot camps to help growth-oriented small businesses to be part of global supply chains. For example, it mounts “Go Global” export workshops which provide practical information and support to help small businesses take advantage of international opportunities. The workshops act as a one-stop shop, bringing together the TCS, EDC, BDC and the Canadian Commercial Corporation.

The TCS seems to be performing well, but there might be areas for improvement. First, the greatest benefit of TCS seems to come from helping existing exporters expand, while it is less successful at getting SMEs to export for the first time. Second, the TCS has traditionally focused on assisting manufacturing exporters, and there may be scope for it to do more to help the numerous Canadian SMEs which export services. Third, TCS uses a lot of count-based performance metrics to assess the success of the facilitated deals. It seems more appropriate to shift towards a more value-based performance measurement system where emphasising additional revenues and employment generated by successful exporting SMEs as the key metrics.

Another export facilitation agency is the Canadian Commercial Corporation, which is Canada’s international contracting agency. Established in 1946, the Canadian Commercial Corporation is a crown corporation that helps Canadian exporters to access foreign government procurement markets through government-to-government contracting. As with other crown finance corporations, the Canadian Commercial Corporation operates at arm’s length from the federal government and according to commercial principles.

The Canadian Commercial Corporation’s two main income sources are fees for service and federal appropriations. Fees are charged to foreign governments for services rendered in government-to-government contracts. Federal appropriations are used to cover procurement to the United States Department of Defence. In 2015/16, the Canadian Commercial Corporation was active in 70 countries with 145 Canadian companies, more than 30% of which were SMEs.

Despite these initiatives, the exporting activity of Canadian small businesses is still low (see Chapter 2) and their awareness is also low about the opportunities that internationalisation can offer them. New approaches should therefore be considered to augment the existing support.

An additional approach which could help SMEs to export would involve encouraging and enabling them to combine human and financial resources through creating networks of small businesses for exporting activity. This type of approach is particularly relevant to smaller SMEs, which often find it difficult to commit all the resources needed to move into foreign markets.

One method of creating small business networks for exporting could involve creating a new legal form to accommodate export consortia and incentivising the participation of small businesses in export consortia with grants or tax benefits. Export consortia are voluntary alliances of firms which have the objectives of promoting the goods and services of their members abroad and facilitating the export of these products through joint actions. Participating in an export consortium reduces the risks and costs involved in penetrating foreign markets for SMEs. Many countries now operate systems of export consortia, although one of the longest-established is found in Italy (Box 5.6).

Box 5.6. Export Consortia, Italy

Description of the approach

Export consortia in Italy are voluntary alliances of firms whose objective is to enhance their export performance through joint actions. Members of export consortia retain their financial, legal and management autonomy but co-operate on specified joint actions undertaken by the consortium. Export consortia are active across a range of different industry sectors, including engineering, textiles, food and wine, chemicals, wood and furniture, construction, electronic goods and jewelry.

Co-operation among SMEs in the Italian export consortia promises greater success in foreign markets, at reduced cost and risk. At the same time, participants can increase their knowledge, productivity and profitability through joint actions including shared best practices within the consortium. Other benefits from co-operation among SMEs include a larger choice of products and a more reliable source of supply for large overseas clients. Moreover, in the most successful export consortia, SMEs can gain enough negotiating power to take a more active role in selling products to these clients.

There are two main types of export consortium. Promotional consortia explore specific export markets by sharing promotional and logistic costs among participating firms. Actual sales are the responsibility of the individual firms. Sales consortia in contrast handle the sales of member firms’ products in addition to promotion activities.

The Italian Institute for Foreign Trade gives grants to export consortia to incentivise their use. In order to qualify, export consortia must comprise a minimum of eight SMEs (five for consortia operating in Southern Italy). Grants are made annually and are calculated on the basis of expenses incurred in the previous year. Up to 40% of annual promotional expenses (60% for export consortia based in Southern Italy) are eligible for funding in this way.

The Italian Federation of Export Consortia represents the 110 consortia that interact with the Italian Institute for Foreign Trade. It provides tax and legal advice to the consortia, and arranges its own trade delegations, conferences and market surveys. It has also negotiated credit lines with major banks to finance the export efforts of its members to countries in Central Europe, the Mediterranean region and Latin America.

Factors for success

The following factors have been associated with the success of export consortia in Italy: i) precise and realistic objectives, which are agreed with all the members of a consortium; ii) consensus building and constant communication, to establish trust between the members; iii) a clear message that success takes time, and patience among members as the consortium works towards its goals; iv) supportive institutional and regulatory frameworks.

Obstacles and responses

UNIDO (2005) has identified both internal and external obstacles to successful export consortia. Some of the most salient are: i) reluctance of individualistic entrepreneurs to collaborate with “competitors”, as well as lack of trust and difficulties of raising member contributions; ii) scepticism about the benefits of consortia, especially among SMEs which are already exporting; iii) lack of effective consortium leadership, resulting in ineffective consortium performance; iv) divergent export interests of members; v) financial fragility of consortia.

Some of these challenges can be addressed by following international best practice guidelines for setting up export consortia (UNIDO, 2005). Trust problems can be alleviated by appropriate consortium design, e.g. ensuring that member firms are all of similar size, and offer complementary rather than directly competing products. Also, transparent accounting is needed to reassure members that money is being raised and spent on a fair and consistent basis. Motivation problems can be reduced by selecting as members SMEs who lack experience exporting but which have viable products for export. Finally, leadership issues can be assuaged by hiring an export consortia manager who is charged with informing and organising SME members.

Regarding financing, it may be necessary for the public sector to offer initial funding support to set up consortia. However, it is important that SMEs pay fees to ensure that the consortium is financially self-sustainable, and to ensure that they are motivated to contribute actively in the consortium.

Relevance for Canada

Canadian small businesses continue to struggle to export, especially beyond the United States and to emerging markets. A lack of resources and knowledge among small business owners and managers is often cited as a prominent reason for this outcome. Export consortia provide a way of tackling this problem by sharing the costs involved in exploring export possibilities and sharing knowledge to make these investments pay off.

Although export consortia could be national, the geographical dispersion and remoteness of some Canadian SMEs might make the creation of regional-based consortia advisable, possibly overseen by a local chamber of commerce. These regional consortia would pool resources and target particular foreign markets. Chambers of commerce could advertise and promote export consortia, and possibly also identify suitable members.

Source of further information

More information about Italian export consortia can be found at UNIDO (2005), Development of Clusters and Networks of SMEs: A Guide to Export Consortia, United Nations Industrial Development Organization, Vienna.

Another method used in Italy to facilitate small business networks for internationalisation (or innovation) activities, consists in Network Contracts, introduced in 2009 (OECD, 2014). Network Contracts are formal agreements whereby two or more independent businesses decide to undertake together (while maintaining full legal independence) some activities to improve their competitiveness either through increased internationalisation or innovation. By engaging in Network Contracts, participating firms become eligible for tax credits, cheaper bank credit and simplified administrative procedures. A written agreement or contract must be filed with the Register of Enterprises. Participants have considerable leeway over how they write and structure their Network Contract, although they are required to make contributions to a common fund established for the purpose of achieving the goal of the Network Contract.

Finally, a further approach that policy could take to helping SMEs overcome barriers to accessing foreign markers for the first time consists in supporting the costs related to the hiring of a temporary export manager. This could be a full-time or part-time temporary posting in the small business to help them establish the relevant marketing, sales, accounting, information technology and other processes needed to export to a new market. Once the systems are in place and the knowledge passed on to existing staff in the business, the temporary export manager can move to support other small businesses. This policy has been adopted by Italy as part of the 2015-17 Special Plan for the Made in Italy Promotion. The Italian approach has two components: one provides training programmes for temporary export managers, while the other provides a EUR 10 000 voucher to SMEs to partially cover the cost of employing a temporary export manager.

Attracting and embedding inward foreign direct investment for small business development

Inward foreign direct investment (FDI) can enable SMEs and entrepreneurs to benefit from knowledge spill-overs from foreign firms and through collaboration with them gain access to valuable global supply chains.

Invest in Canada, within GAC, is the governmental organisation responsible for attracting inward FDI to Canada through new investments or expansions of existing operations. Invest in Canada guides foreign companies through each step of the investment process, from the exploratory phase through to site selection and follow up, providing information about doing business in Canada and making introductions to specialists who can offer customised assistance. Invest in Canada also has a global network of investment and trade professionals present in more than 150 cities worldwide to assist companies interested in investing in Canada.

From a new industrial policy perspective, some have advocated for governments to become more active in more industry targeted investment promotion and industry support, pointing to the productivity benefits that can result (Warwick, 2013). The federal government of Canada could further develop its targeting of inward FDI promotion on key sectors with potential for small business development benefits, for example by aligning FDI policies with cluster development strategies. The Select-USA initiative in the United States provides an example of a relatively pro-active approach to investment attraction in which the United States federal government helps local Economic Development Organisations (EDOs) to increase their FDI attraction and focus it on securing broader local economic development benefits (Box 5.7).

Box 5.7. Support services for promoting inward FDI: SelectUSA

Description of the approach

SelectUSA is a federal initiative started in 2011 and run by the United States Department of Commerce. The initiative highlights the United States as a prime location for domestic and foreign direct investment. SelectUSA offers consulting and ombudsman services through its website, online and on-site trainings, and national summits.

SelectUSA’s specific services include:

• Business Solutions for Investors: Provides one-on-one consulting for businesses to identify and utilise available federal programmes and services, and to connect them to partners or resources at the state and local levels. (Available to international and United States firms).

• Ombudsman Services: Helps firms and United States economic development organisations (EDOs) to navigate the United States regulatory environment on a case-by-case basis. (Available to firms or EDOs).

• Advocacy: Advocates for United States EDOs that are competing with foreign locations for investment projects. (Available to an EDO, Governor, Mayor or County Executive of a jurisdiction in global business location).

• Single Location Promotion: A fee-based service to develop specific activities for United States EDOs to help promote a United States region as an investment destination. (Available to states, local or regional governments or EDOs seeking assistance in planning their activities in a market).

• Facilitated Investment Mission (FIM): Provides United States EDOs and jurisdictions with unique international promotion opportunities and access to potential investors with market insights, investor connections, one-on-one business appointments, and networking events. (Available to states, local or regional governments or EDOs).

• Economic Development Organisation Counselling: Counsels EDOs on FDI trends, effective outreach methods tailored for specific overseas locations, and marketing strategies to promote their location to foreign investors. (Available to states, local or regional governments or EDOs).

The programme served over 1 000 foreign investors and United States EDOs in 2014.

Factors of success

Major factors of success are the following:

• International summits: SelectUSA places a lot of importance on hosting summits in countries around the world in order to meet with leaders of major foreign enterprises and support United States EDOs in specific markets including Canada, India, Denmark and Brazil. It also holds a major annual Investment Summit within the United States with participation of senior federal and state officials, leading companies and United States EDOs. These summits are important to broker relationships.

• Political commitment: The United States President participated in the 2015 Investment Summit. The White House also announced on the day of the Summit the creation of a federal advisory committee led by Commerce Secretary Penny Pritzkerto to solicit formal input on the development and implementation of strategies and programmes to attract and retain FDI. One of the factors of SelectUSA’s success is the high-level political support it has received.

• Online tools for investors: SelectUSA provides detailed information on its website about federal incentive programmes including grants, loans, loan guarantees, and tax incentives, as well as a comprehensive database of state-level incentives. Investors also have access to the Department of Commerce’s website http://clustermapping.us, a joint project of the Harvard Business School and the Economic Development Administration. The website provides data and tools that allow investors to easily identify regional concentrations of specific industries and to locate potential business partners.

Obstacles and responses

One obstacle for foreign investors has been difficulties in temporarily bringing in foreign workers with specialised knowledge to support the start-up of new operations in the United States. To address this SelectUSA is providing policy guidance for the L-1B Visa, which is a non-immigrant visa. The Department of Homeland Security will also be working on clarifying guidelines for global companies seeking to expand in the United States without negatively impacting domestic workers.

Relevance for Canada

SelectUSA includes a federal web portal that directs firms to resources available from the Such an approach could help to boost inward FDI in Canada and direct it to sectors and locations where it can have the highest productivity and greatest spill over benefits for domestic SMEs.federal government. It also offers a range of direct services to EDOs and foreign investors.

For further information

SelectUSA’s website: http://selectusa.commerce.gov/.

In addition, the government could promote FDI-SME linkages by introducing a specific programme with this objective. Such a programme would go beyond seeking to achieve better complementarity between the sectors and locations of incoming foreign investments and the existing local supply base to involve two further components. One of the additional components would involve brokering relationships between foreign investors and potential domestic small business suppliers and advising small businesses on how to work with local FDI operations. The other would involve work to build the capabilities of domestic small businesses to supply foreign investors. This could include efforts to increase the ability of domestic firms to use new technology (for example, the EPR system) as may be required in relationships with FDI and support their investment in innovation and workforce skills in order to increase their productivity to levels expected by FDI customers.

Entrepreneurship education and skills programmes

Entrepreneurship education covers a broad range of pedagogical activities such as classroom lectures, business games, organising real or virtual student business start-ups, business idea competitions, guest-speaker lectures, etc. Its objective is to foster entrepreneurial attitudes and skills in the student population and thereby to contribute to a more entrepreneurial economy.

Entrepreneurship education in primary and secondary schools

There are significant opportunities to strengthen entrepreneurship education in Canada’s primary and secondary education system in order to promote entrepreneurship skills and mind sets in young people (CCC, 2014; The Learning Partnership, 2014). Few young people know about entrepreneurship and those interested in entrepreneurship often do not find ways to develop their talents inside the school system (CPPF, 2014). Early entrepreneurship education could reduce risk aversion and fear of failure, two factors that limit the growth aspirations of Canadian SMEs (The Learning Partnership, 2014).

In Canada, education policy falls under the responsibility of provinces and territories. As a result, access to entrepreneurship education varies significantly across the country, mirroring differences in the resources, capacities and priorities of different provinces and territories.

Quebec and Ontario are two forerunners in this area. In Quebec, a pillar of the provincial youth policy is dedicated to entrepreneurship education and entrepreneurial projects in primary and secondary schools, including through projects focussing on the socioeconomic role of co-operatives. The Fondation de l’Entrepreneuriat has developed Le Portfolio de l’Entrepreneuriat au Secondaire, a set of different pedagogical entrepreneurial projects available to high-schools in the province and funded by the Quebec Ministry of Education, Loisir and Sport. In Ontario, the Youth Jobs Strategy includes a High-school Entrepreneurship Outreach programme, which financially supports 22 projects (each with up to CAD 200 000) developed by local not-for-profit organisations which expose secondary-school students to the practice of entrepreneurship.

Many other initiatives are available across Canada (see Box 5.8), some of which can be considered good practices such as the Shad Valley programme in Waterloo, Ontario (see Box 5.9).

Box 5.8. Examples of primary and secondary education entrepreneurship projects in Canada

Canada has a host of entrepreneurship education initiatives for primary and secondary students operating either across the whole country or in certain provinces or territories. Some of the most relevant initiatives are listed below. They demonstrate the sorts of approaches that could be integrated into a more widespread and comprehensive entrepreneurship education effort.

• Junior Achievement (across Canada): Currently offers 15 national entrepreneurship related programmes delivered to youths in elementary and secondary schools.

• 4-H (across Canada): Helps young Canadians to become skilled, engaged and responsible leaders.

• Youth Science Canada (across Canada): Encourages young students to develop scientific and technological knowledge and skills through project-based science.

• Entrepreneurial Adventure (Ontario, Alberta, New Brunswick, Nova Scotia, Manitoba, Quebec and Prince Edward Island): Connects students from K-12 with a business mentor who helps them to start and run their own enterprise with profits going to a charity.

• Entrepreneurship Lemonade (Alberta): An online entrepreneurship course for high school students to develop entrepreneurial skills and management practices.

• Young Entrepreneurs – Make your pitch (Ontario): Lets high school students pitch their business idea in a two-minute video. Twenty finalists present their idea to a judging panel, receiving coaching and mentoring.

• DECA (Ontario): Favours the development of entrepreneurial skills by connecting young people with corporate professionals.

• Youth Enterprise Camp (Ontario): A week-long camp in which young people learn about entrepreneurship through a variety of games and activities, prepare a business plan and run their “business for a day”.

Box 5.9. Shad Valley: Entrepreneurship Education, Canada

Run by SHAD, a non-profit organisation based in Waterloo, Ontario, the annual Shad Valley programme stimulates the entrepreneurial and innovative potential of young people. Each year in July, SHAD provides 600 outstanding students selected from across Canada and abroad with the opportunity to participate in a four-week summer camp focusing on entrepreneurship and Science, Technology, Engineering and Maths (STEM) skills. SHAD is held in-residence at twelve Canadian host universities and offers an inspiring programme of lectures, workshops, projects, team building exercises and recreational activities. In a rich learning environment, students are introduced to multi-disciplinary thinking, looking at science and technology from an entrepreneurial perspective.

Each year, SHAD campuses build their programmes around a specific challenge of national importance. Participants are asked to come up with bold solutions to the challenge. Students co-operate to simulate a start-up venture based around a product or service that addresses the challenge. Groups formulate a business plan, a marketing plan, a promotional strategy, an external resources plan, a website and a working prototype of their product or service. At each of the twelve campuses one winning project is selected which advances to a national competition, the SHAD Entrepreneurship Cup Awards. SHAD participants can also compete for one month summer volunteer internships immediately following in August. Participants become part of a broad network of currently more than 14 000 alumni.

About 85% of SHAD’s alumni pursue STEM studies as undergraduates and 80% have at least one post-graduate degree. Close to 20% have launched at least one start-up, predominantly in STEM-related fields. SHAD-participants come from all social backgrounds, 60% are young women. The entrance fee for Canadian students amounts to CAD 4 500. For international students the fee is CAD 8 000. Scholarships are available for students with proven financial needs. SHAD raises more than CAD 2 million annually from individuals, public sector companies, foundations and government.

Source: www.shad.ca.

Although there is a wealth of entrepreneurship-related initiatives in Canadian schools, there are also a few important gaps related to the provision of entrepreneurship education. First, existing good practices need to be better shared so that provinces and territories currently offering fewer good practice support initiatives can learn from those which have moved ahead. A one-stop website which offers information on available (quality-controlled) projects could reduce information deficits and ease this catch-up process. An example is Scotland’s Enterprising Schools, an online resource developed by the Young Enterprise Scotland non-profit organisation (see Box 5.10). Second, there are still fewer actual opportunities for participation in school-based entrepreneurship projects than needed to meet the interest and demand from students. Third, there are relatively few entrepreneurship education initiatives where young students are exposed to experiential learning opportunities, for example by meeting with real entrepreneurs or starting virtual companies, although these are most effective approaches for developing entrepreneurial mind sets and skills.

Box 5.10. Scotland’s Enterprising Schools, United Kingdom

Description of the approach

Scotland’s Enterprising Schools (SES) offers a “one-stop-shop” online resource to schools interested in developing an integrated approach to encouraging enterprise and entrepreneurial thinking. It is developed by Young Enterprise Scotland, a registered charity that has been working to inspire and equip young people to learn and succeed through enterprise in Scotland for over 40 years, and receives public support through the Scotland CAN DO framework, a shared statement of intent towards becoming a world-leading entrepreneurial and innovative nation. SES recognises schools, both primary and secondary, for their work in the area of enterprise education and provides a platform for sharing good practice. Schools are encouraged to evaluate themselves using a Professional Reflection tool to help them measure where they are on their entrepreneurship education journey and set actions for improvement.

In order to assist schools, the website hosts case studies, learning materials, links to relevant literature and a wide range of partners who can help schools deliver appropriate learning opportunities. The focus is on experiential learning that builds confidence, improves self-esteem and helps students develop skills for learning, life and work. Schools can also join the Enterprising Schools Professional Learning Community where they can take part in discussions and collaborate with colleagues across Scotland to share innovative practices.

SES was launched in September 2015. Six months later, it already had 80 educators as members of the professional learning community. There are a growing number of case studies, showcasing possible learning activities for primary and secondary school students of any age. Direct financial support has been given to over 20 schools to work with a range of entrepreneurial-learning organisations. Twenty-two of them are now partnering with SES. The final goal is to generate a peer-to-peer support model.

Factors for success

The main success factors can be summarised as follows. Firstly, as SES is an online tool, practitioners are able to access resources easily anytime from anywhere. Secondly, schools have access to a wealth of diverse entrepreneurial learning organisations, with testimonials from other schools on the impact of their activities on students and school life. Thirdly, the sharing of good practices is aligned with broader government policies such as Scotland’s CAN DO framework and “Developing the Young Workforce” strategy. This makes it easier for educators to embed wider policy agendas and achieve national standards. Finally, key to success has been the collaboration around this initiative between key agencies such as Education Scotland and Skills Development Scotland and local authorities and schools.

Obstacles and responses

SES had to deal with two main obstacles: i) making teachers and schools aware of the initiative and the online resource and (2) raising teachers’ confidence in delivering enterprise/entrepreneurial learning.

In order to ensure the participation of a wide range of schools and teachers, a variety of public relations measures were used. First, the initiative was launched in a high-profile event organised by the Cabinet Secretary for Education and Lifelong Learning at the national Scottish Learning Festival. Second, SES established collaboration with the national cabinet, in particular Education Scotland and Skills Development Scotland, as well as with enterprise organisations. Third, and perhaps more importantly, SES promoters looked for and obtained the engagement of local authorities, through the Scottish Local Authority Economic Development Group, of the Directors of Education in each Local Authority via the Association of Directors of Education Network, and of people responsible for “Developing the Young Workforce” strategy in each local authority via the Scottish Council for Enterprise Education Network.

To improve teacher confidence in the delivery of enterprise education, SES will shortly offer: i) online bite-sized Staff Development Tutorial Sessions; ii) conferences across Scotland to showcase the SES resource, permeate enterprise/entrepreneurship in an organic way and help educators develop an entrepreneurial mind set.

Relevance for Canada

Entrepreneurship education is not yet widely and consistently implemented in Canadian primary and secondary schools. An online platform modelled after the example of SES could become a valuable tool for sharing good practice measures and encouraging less active schools to learn from the pioneers and integrate selected elements of entrepreneurship education into their teaching. Interested teachers would also benefit from the didactic resources and the exchange of experience with their peers. This would build up their confidence in delivering entrepreneurship education, including more experiential learning activities. At the same time, the online platform could recognise pioneering schools for their work in this area, providing much needed appreciation for the extra efforts and energy invested by teachers in teaching entrepreneurship.

For further information

Source: www.enterprisingschools.scot.

Entrepreneurship education seems to play little importance in the Canadian system of secondary-level vocational training, although apprenticeship students may want to become self-employed at a certain point in their life. The Student Institute for Technology and Applied ICT from Germany offers an inspiring model of how to target innovation and entrepreneurship training to students in the secondary vocational training system (see Box 5.11).

Box 5.11. The students’ Institute for Technology and Applied ICT, Germany

Description of the approach

The Students’ Institute for Technology and Applied ICT (SITI), founded in 1999 in Havelberg (Saxony-Anhalt), is a pioneer in the field of entrepreneurship education and the promotion of innovation and technology skills among young students, (mainly) from secondary schools (aged 10-18). SITI targets bright young students, though not necessarily academic top achievers. A team of four supports young people with coaching and technical expertise. The institute uses nine free of charge rooms of the local school campus which are furnished with high-quality technological and ICT equipment.

SITI operates during three afternoons per week and is attended by around 50 young students. It offers a large variety of innovative extra-curricular learning-by-doing projects in the areas of manufacturing technology, applied ICT, natural sciences and entrepreneurship around a long-term objective. In a so-called “ideas conference”, students and coaches jointly decide on the projects to be worked upon in the following school year. Basic regular training courses in ICT, multimedia, robotics, CAD/CAM/CIM, physics and astronomy lay the foundations for the comprehensive theme-specific project work. Each year, SITI-students also work on three-to-four challenging and age-adjusted paid R&D projects for technology-oriented companies and universities and on six “young researcher” projects (i.e. a national R&D competition).

SITI’s resources include a fully operational foundry available to students, a centre for “start-uppers”, an inventor club, teacher training courses, and interregional summer camps for talented students in entrepreneurship and technology. SITI’s annual budget is only around EUR 15 000, which is financed by membership fees, income from R&D projects, prize monies and sponsoring. Over the last ten years, two projects have also been supported by Saxony-Anhalt’s Ministry of Economy with partial co-financing by the European Social Fund.

Factors for success

A critical success factor is the presence of committed and creative teachers able to coach and train young people in a manner which is encouraging but does not neglect the final goal of the project. Another key factor has been the co-operation with more than 30 network partners from the region which share the same long-term vision about youth talent development. Thanks to these partnerships, SITI can offer eight targeted internships to students at universities and technology companies every year. SITI also maintains close contacts with more than half of its alumni who hold occasional training classes, provide new contacts and meet once a year to discuss further co-operation. Finally, the recruitment of talented youth is facilitated by a close link between curricular school lessons and extracurricular (afternoon) activities, including the use of school facilities.

By participating in national R&D and entrepreneurship competitions and by working on age-adjusted R&D projects commissioned by technology-oriented companies and universities, students also directly learn and apply research and working methods that are usually not part of their curricular lessons (e.g. project and time planning, problem analysis, etc.). In this way, students acquire problem-solving skills useful for their later career. Moreover, by working in small groups of two to six students, the transfer of interdisciplinary technical competences is eased without hindering creativity and experimentation.

Obstacles and responses

The main obstacle has been that policy makers did not initially appreciate the potential role of schools in the promotion of innovation- and entrepreneurship-related skills. For example, an initial application for financial support by SITI was rejected by the regional Ministry of Education. Stable financial support is needed to enable such initiatives to take off and operate on a sustained basis.

Relevance for Canada

A network of school-attached institutes that offer extra-curricular activities comparable to those of SITI could represent a first step in the direction of introducing entrepreneurship education into vocational education systems at secondary level. This objective could be pursued by provinces and territories in their own respective jurisdictions.

For further information

www.siti.de.

Entrepreneurship education in tertiary education

The number of entrepreneurship education and start-up support activities for graduates has grown over the last 15 years in Canada (Sá et al., 2014). However, there is a gap between the leading higher education institutions (HEIs) which offer comprehensive programmes across the institution, such as the University of Waterloo and its Velocity programme (see Box 5.12), and the majority of institutions where entrepreneurship education often depends on the efforts of a few individuals (ISED, 2010b).

Box 5.12. Velocity entrepreneurship education programme, University of Waterloo, Canada

Velocity is a leading entrepreneurship programme run by the University of Waterloo in Ontario. It provides the knowledge, tools, space and network that entrepreneurial students and start-ups need from idea generation through product development to commercialisation. Velocity has three main components:

• The Velocity Residence: A student residence created to house up to 70 entrepreneurial students per term who live together on campus and have access to opportunities to learn from a network of mentors and entrepreneurs (e.g. weekly dinners with start-up founders, boot-camps for team and project building, etc.).

• Velocity Alpha: A tri-annual series of 12 weekly workshops, panel discussions and brainstorming sessions that provide entrepreneurial students from any faculty the practical knowledge and coaching needed to get started in building a business. It connects people to one another and introduces teams to the various resources that exist in the broader community.

• Velocity Science: In collaboration with the university department of science, this offers a peer network, a community of mentors, a series of workshops and a discovery lab to students interested in starting a business related to life science or material sciences.

Building on the foundation of its three on-campus programmes, Velocity also enhances the local entrepreneurial ecosystem by providing two off-campus workspaces for start-ups free of charge. Here, students and alumni benefit from peer advice, mentor networks, and connections to potential investors:

• Velocity Garage: A 7 000 square feet incubation space hosting more than 30 software start-ups.

• Velocity Foundry: An 11 000 square feet workspace for more than 30 hardware and life- and material sciences start-ups.

Funding is offered by Velocity on a competitive basis, which involves an application, an interview and a business pitch. In particular:

• Velocity Fund is a grant programme that offers more than CAD 350 000 each year to local start-ups through the CAD 25K section and the CAD 5K section. Moreover, three times a year Velocity hosts the Velocity Fund finals, a pitch competition where CAD 125 000 are awarded to eight start-ups.

Velocity takes no equity and no intellectual property rights in return for the grant.

More than 120 companies have emerged from Velocity-related initiatives. These companies have created 700 jobs and secured CAD 190 million worth of investments.

Source: http://velocity.uwaterloo.ca.

The market penetration of entrepreneurship education in Canadian HEIs is also quite limited. It was recently estimated for example that only 2-3% of HEI students have completed an entrepreneurship-related course or an extra-curricular activity (ISED, 2010b). An important barrier to greater coverage of the student population is that entrepreneurship education has traditionally been organised within only one or two university departments, typically business schools and engineering departments, rather than across the HEI as a whole, although students from other departments may have equal if not higher propensity to become entrepreneurs. This narrow focus also reduces the scope for multidisciplinary co‐operation and joint work by students from different backgrounds, which can be important for successful entrepreneurship projects. A commonly effective way of spreading the entrepreneurship education offer across an HEI, while encouraging multidisciplinary co‐operation, can involve the establishment of entrepreneurship centres that are not linked to a specific department and are open to all students.

The direct involvement of students is also important to increase students’ interest in entrepreneurship education. Through student networks or student clubs, university students can contribute to the design of curricular and extra-curricular activities. In Canada, this is exemplified by Enactus-Canada, the local branch of a global not-for-profit network. In 2015, approximately 2 700 students and 120 faculty advisors on 67 campuses were part of the Enactus-Canada community. Altogether they implemented 288 community development projects and started 891 businesses providing employment for 1 025 people. Entrepreneur-in-residence programmes can also stir students’ interest by debunking myths about what it takes to become an entrepreneur and making available guidance and mentoring to students and early-stage companies.

Experiential learning opportunities are of great importance in tertiary education as well as at other education levels. For example, student internships in growth-oriented start-ups allow students to learn about the life of a new business venture. The number of start-up internship programmes is, however, very small in Canada, despite the large number of business incubators and business accelerators which could offer a regular supply of such opportunities.

Many of the challenges to better integrate entrepreneurship education in tertiary education in Canada could be tackled by leveraging the role of existing associations representing Canadian HEIs or supporting entrepreneurship education, rather than seeking to set up new national forums. Universities Canada (i.e. the association of universities and colleges of Canada) and Colleges and Institutes Canada (i.e. the association of Canadian community colleges) could, for example, support the spread of good practices across the country. In the United States, for example, the National Science Foundation funds the National Centre for Engineering Pathways to Innovation to spread good practice approaches to developing entrepreneurship and innovation skills across universities and colleges (Box 5.13). Connections with existing government programmes could also be developed further in Canada to support entrepreneurship education. For example, start-up internships could be boosted by signing agreements with the main players in the Canada Accelerator and Incubator Program (CAIP).

Box 5.13. Pathways to Innovation, United States of America

The Pathways to Innovation programme is run by the National Center for Engineering Pathways to Innovation (Epicenter) and funded by the National Science Foundation and directed by Stanford University and VentureWell.

The programme helps engineering faculties of United States colleges and universities to develop innovation and entrepreneurship skills through their curricula. To do this, it uses a collaborative, peer-based approach. First, participating schools organise a team of faculty members to undertake a baseline analysis of the school’s innovation and entrepreneurship activities, using a provided self-assessment tool. Based on this assessment, each school designs a two-year strategy. Peer institutions that have already gone through the process provide models and guidance on what has worked elsewhere. Guided by this active partnership, each team starts implementing its strategy, which may include changes to curricula and development of extracurricular offerings. Throughout the process, a peer-based “community of practice” is central to the work. In addition to two workshops at the outset of the programme, university teams are expected to participate in a number of “virtual” meetings. Several cross-institutional partnerships have also resulted from closer collaborations between the first participating schools.

As of June 2015, 37 schools were enrolled in the programme. These schools had developed 13 majors, certificates or degrees, designed 38 new courses, launched 16 competitions and created 27 new spaces to support idea exchanges among students around innovation and entrepreneurship.

Source: http://venturewell.org/pathways-to-innovation.

Management consultancy and advice programmes

Research suggests that Canada does not have enough business managers with the management skills needed to create vibrant innovation cultures within their companies and grow through innovation (The Institute for Competiveness and Prosperity, 2010; Conference Board of Canada, 2014 and 2015). A further study, supported by ISED, indicates that while Canada has a strong supply of senior technology talent and a strong supply of corporate and administrative talent, it lacks a supply of senior executives with customer-facing talent for sales, marketing and support (Snowy Cloud, 2015).

Canadian business schools have sometimes been blamed for this lacklustre performance in innovation management skills by not adequately equipping their students with the skills necessary to become successful managers of growing technology firms and with the skills to create strong innovation cultures in those firms. Outside of the education system, an increased use of external expertise and advice is often seen to lead to better management decisions in small businesses, including an increased propensity to take pro‐growth investment decisions.

A key federal player in business management support and advice in Canada is the BDC, which is also a major source of entrepreneurship and SME finance. As a crown finance corporation that is wholly owned by the government, the BDC takes on board most of the costs linked to the development and delivery of its advisory services. This ensures that they are affordable to small businesses, though in most cases not for free. The BDC uses its network of more than 100 business centres across Canada, as well as external organisations, to reach out to its clients. In 2014, it worked on 2 500 SME consulting mandates for an average transaction value of CAD 8 700.

The combination of financing and business advisory services is a good practice of the BDC. A recent analysis shows, for example, that BDC clients who receive both financial and advisory services experience stronger growth in sales, employment and productivity than BDC clients that take up only one of the two. BDC clients who received both consulting and finance reported sales growth between 8-25% greater than a control group of non-BDC clients over the five years following the intervention, while sales growth was only 2-5% higher than in the control group among BDC clients who only received finance (BDC, 2013a).

In 2014 the BDC restructured its advisory services by developing 14 standardised methodologies. The main broad objectives of such services are to help SMEs improve their operational efficiency, integrate technology into their business models, and access foreign markets. A prominent example of the new portfolio of BDC’s advisory services is BDC Advantage (See Box 5.14). Through its long-term commitment to participants, BDC Advantage is particularly valuable to those firms that do not draw on external strategic advice and guidance on a regular basis, for example through an external advisory board.

Box 5.14. BDC Advantage, Canada

BDC Advantage is an initiative meant for mostly mid-sized (between 100 and 500 employees) “high-impact” firms to help them build management and organisational capabilities and thereby realise rapid business growth. Two main features of this programme are that: i) it directly addresses key growth barriers such as limited management capabilities, access to foreign markets, access to equity finance and access to skilled labour force.; ii) it intends to build long-term relationships with client firms, contrary to standard short-term advisory mandates.

BDC advisors provide strategic advice to fast-growing entrepreneurs through formal management training, peer to peer networking and other tailored non-financial services. Moreover, they can signpost client firms to relevant programmes and services offered locally by third-party organisations. Finally, along the activities of BDC Advantage, the BDC’s financing business line can provide integrated financial services tailored to the needs of high-impact firms.

Source: BDC (2015).

The 2016 Budget proposes a new initiative in 2016-2017 that will help high-impact firms to scale up and further their global competitiveness. Under this new programme, firms will be able to access coordinated and tailored services (such as finance, advice, and export and innovation support) from the relevant federal agencies. The intention is to target 1 000 firms in the first few years and to expand thereafter (OECD, 2016).

On the whole, existing government-backed advisory services show a strong preference for start-ups and innovative firms, while there is relatively limited support for existing non-innovation driven SMEs. Two exceptions are the Operational Efficiency Program (OEP) of the BDC and the activities of the RDAs and FedNor. The OEP of the BDC aims to support improvements in the production processes of SMEs, regardless of their stage of development or industry, with a focus on small companies (usually less than 50 employees). The programme helps small businesses to compare their productivity performance with that of other companies in the same industry, isolate the main causes of inefficiency in enterprise operations, and implement operational best practices that streamline production processes and reduce production costs. The OEP undertakes about 500 consulting mandates per year. The RDAs and FedNor provide ongoing consultancy and advice to mainstream SMEs through their project officers in the field. In addition to direct advice, the RDAs and FedNor also signpost SMEs to a network of local partners who can help them move forward their specific business development projects.

One of the reasons why traditional SMEs have limited access to management advisory services is that Canadian chambers of commerce and business associations primarily act as advocacy institutions, while they are much less involved in giving specialised consultancy and advice, free of charge or at affordable cost, to their members.

To fill this gap, the Canadian government could consider covering part of the cost faced by small businesses to access management advice offered by certified private-sector consultants. Special attention could be paid to business strategy, business internationalisation, supply chain management, sales and marketing and after-sales services, areas where Canadian SMEs have stronger needs. Manufacturing SMEs stand to particularly benefit from this kind of support. Since the 2008 global recession, many of these firms have downsized or gone out of business, squeezed between the cost-based competition coming from emerging economies and the urge to innovate and differentiate their products from lower-cost ones (BDC, 2013b).

In parallel, a self-assessment diagnostic tool made available online, free of charge or at affordable cost would strengthen the outreach of government-backed advisory services by enabling a large number of small businesses to understand better their management capacities and needs. There are already some self-assessment diagnostic tools focused on specific themes and available for a charge, such as the Conference Board’s Index of Corporate Innovation.7 However, a publicly-supported, self-assessment tool could take a more holistic view by screening management areas beyond innovation, such as production, internationalisation, human resource management and marketing. It could be provided free of charge or with charges set at a low level so as not to discourage wide participation by small businesses.

Workforce skills development programmes for SMEs

Canadian entrepreneurs show a weak and declining propensity to invest in formal workforce training (Burleton et al., 2013), although they often recognise the importance of workforce training for business competitiveness (BDC, 2012). One of the main public programmes available to support workforce training is the Government of Canada’s Canada Job Fund (CJF), which has taken over from the previous Labour Market Agreements. The CJF provides federal investments of CAD 500 million per annum, which are transferred to provinces and territories for investments in worker skills and training. The focus is on support for the unemployed and the low skilled employed, such as literacy and essential skills training and employment counseling. However, the agreements include employer-sponsored training initiatives, such as the Canada Job Grant (see Box 5.15). The CJG can help businesses, including small businesses, train unemployed individuals or existing employees for available jobs. It offers large flexibility with respect to training structure, contents and delivery methods and has special provisions to facilitate access by small businesses. Provinces and territories are responsible for administration and delivery of this programme. In addition, RDAs and FedNor provide support for SME workforce training as part of their regular programmes.

Box 5.15. Canada Job Grant

The Canada Job Grant (CJG) helps employers to train unemployed or under-employed individuals for specific available jobs. The CJG offers funding toward the cost of training provided by eligible third-party trainers such as colleges, trade union centres or private training companies. Participating enterprises must invest in the training and recruit or continue to employ the trainees upon completion of the training.

A specific advantage of the CJG is the large flexibility it offers with regard to training structure, contents and delivery method. Training can be provided in a large variety of functional/thematic areas and can take place in different settings, including classrooms, workplace or online.

The CJG provides two thirds of the training costs (up to a maximum of CAD 10 000), covering tuition/training fees and training materials, while employers are required to contribute the remaining one third. To encourage participation by small businesses, the CJG offers enterprises with up to 50 employees the opportunity to make “in-kind” contributions: i.e. wages paid to the training participant can count for half of the employer contribution, leaving as little as 15% to contribute directly. Moreover, access of SMEs has been further facilitated by reducing red tape and offering an easy application process with all required forms available online.

Source: www.esdc.gc.ca.

Notwithstanding these initiatives, combined federal and provincial resources for the upskilling of existing small business employees are low, whether provided to SMEs or directly to individual employees (CCC, 2012). Several OECD countries have embarked on comprehensive policy initiatives to incentivise training in small businesses. Interesting broad-based approaches are the Industry Training Funds (ITF) in Italy, the Industry Skills Fund in Australia and the Skills for Growth strategy in the United Kingdom. The Italian ITF, for example, allocates employer social contributions (0.3% of the total payroll) to training schemes designed by the social partners (employer organisations and unions) with the participation of companies that chose to become part of an ITF. In 2012, there were 21 ITFs recognised by the Italian Ministry of Labour, which had allocated some EUR 450 million for training activities, nearly 80% of which was for training at company level (OECD, 2014). This type of measure could provide an important boost to small business workforce skills in Canada.

Other potential measures include the use of tax credits to employers for training expenditures and personal training vouchers for small business employees. In addition, SMEs, especially small and micro enterprises, could benefit from advice to help them identify in which areas workforce training is most urgent in their organisations.

Public procurement programmes

Available data suggest that Canadian SMEs participate more in government procurement than SMEs in the European Union (PwC, 2014a). The federal government department Public Service and Procurement Canada (PSPC) handles more than 75% of federal procurement and acts as a common service provider for federal departments and agencies. In 2005, PSPC created the Office of Small and Medium Enterprises (OSME) to facilitate the interaction of SMEs with government procurement (Box 5.16). Today, Canadian SMEs win more than 80% of all public contracts awarded by PSPC and hold a share of approximately 40% in total procurement volume. When only contracts of up to CAD 1 million are taken into account, the proportion of SMEs in contract value rises to almost 80% (PSPC, 2013). However, SMEs may still be underrepresented in large public contracts (CFIB, 2011).

Box 5.16. Supporting small business access to public procurement, Canada

The Office of Small and Medium Enterprises (OSME) in Public Service and Procurement Canada advocates on behalf of small businesses and encourages small business participation in public procurement. OSME works to reduce the main procurement barriers, raises awareness among government buyers about small business concerns, trains procurement officials to keep suppliers’ perspective in mind when setting out the calls for tender, recommends improvements to procurement tools and processes, and provides training and education to small businesses interested in doing business with the federal government.

One of the main barriers to small business participation in public procurement is a perception that related rules and regulations are complex. OSME helps debunk government procurement through extensive awareness-raising activities and provision of user-friendly information, including through six regional centres across the country. Free webinars, seminars and a toll-free InfoLine assist suppliers in understanding federal procurement processes. Furthermore, OSME reaches out to small businesses through conferences, trade shows and industry associations. Every year, OSME assists about 60 000 (potential) suppliers and organises approximately 1 100 outreach events.

The government procurement website “buyandsell.gc.ca” has been designed in co‐operation with hundreds of businesses and government representatives across Canada and is a key element of OSME’s outreach activities. The one-stop portal provides access in plain language to federal procurement information and open data including bidding opportunities (tenders), standing offers, supply arrangements and contract history. The website also contains a self-guided five-step tour that helps new and experienced suppliers selling their goods or services to the federal government.

In order to receive feedback from small businesses on how to create more SME-friendly procurement policies, OSME has also set up a supplier advisory committee with participants from different industries which meets on a quarterly basis and conducts surveys of SME suppliers every three years.

OSME also manages the Build in Canada Innovation Program (BCIP) which assists Canadian businesses in testing their innovative goods and services with the government before they are commercialised (see section on innovation policies).

Source: www.tpsgc-pwgsc.gc.ca.

As part of the defence procurement strategy, the government of Canada has also developed a policy called Industrial and Technological Benefits (ITB) managed by ISED. This requires companies awarded a defence and security contract to undertake business activity in Canada equal to 100% of the value of the contract, 15% of which needs to be assigned to small businesses. Small businesses can benefit either directly, by undertaking work which is closely linked to the equipment or service being procured by the government, or indirectly, by undertaking more generally work related to the contractor’s product or business line. Eligible activities include, among others, the purchase of goods and services from suppliers, investments in R&D and technology transfer.

The RDAs and FedNor have an important role supporting and leveraging regional opportunities associated with this policy by promoting their region’s industrial and technological capabilities to defence contractors, brokering connections between defence contractors and regional businesses and promoting the economic interests of the region they represent in the development and implementation of the ITB policy.

Additional improvements in federal procurement policies for small businesses could include granting the PSPC/OSME the authority to review large contracts and suggest whether or not they could be broken up into smaller lots. This approach is used in the United States by the Small Business Administration, which has established set-aside quotas for SMEs in public procurement. The public procurement process could also be simplified in Canada for very small-sized contracts.

In parallel, the government could make greater efforts to pay public contracts as quickly as possible. In recent years, it was estimated that only about 20% of suppliers received payment from government clients within the 30 day timeline stipulated by the Treasury Board of Canada (CFIB, 2011). Late payments are likely to impact more negatively on cash-constrained small businesses than other firms.

Programmes for entrepreneurship promotion among disadvantaged and under-represented social groups

Many countries have developed dedicated SME and entrepreneurship policies aimed at specific sections of the population that are disadvantaged or under-represented in entrepreneurship activity and growth-oriented entrepreneurship, or alternatively have developed specific mechanisms to facilitate their access to mainstream programmes (OECD/EU, 2015). This section looks at policy developments in Canada in respect to specific policies for rural entrepreneurship, social entrepreneurship, youth entrepreneurship, indigenous entrepreneurship, immigrant entrepreneurship and business succession from senior entrepreneurs approaching retirement. The theme of women’s entrepreneurship, a priority of the Canadian government, is analysed in greater detail in Chapter 7 of the report.

Rural entrepreneurship

Small business and entrepreneurship development in rural regions of Canada is primarily pursued at the federal level by the Community Futures Program (CFP). Given the geographical scale of Canada and the existence of many small local communities scattered across the country, often in remote areas, the CFP fulfils an important role in the federal small business policy landscape.

The CFP was established in 1985 to promote economic stability, growth and job creation in rural economies, build more diversified and competitive rural economies, and contribute to more economically sustainable rural communities. It has an annual budget of CAD 76 million and is implemented by the federal RDAs (ACOA, CED-Q, WD and FedDev) and FedNor in their respective regions.8 The only one of these organisations not responsible for the implementation of CFP is CanNor, which has its own programmes for business and community development in the northern territories, which share several common features with the CFP.

The RDAs and FedNor deliver the CFP by financing 269 Community Futures organisations (CFs). These are not-for-profit organisations that operate independently of the government and are overseen by volunteer boards of directors who are representative of the communities that they serve. The CFs are tasked with four activities: i) fostering strategic community planning and socio-economic development; ii) delivering a range of business, counselling and information services to small businesses and social enterprises; iii) providing access to capital to assist new and existing small businesses and social enterprises; and iv) supporting community-based projects and special initiatives. Business development (activities ii and iii) is the dominant type of support, helping the creation, development and transfer of businesses through consulting, debt finance, equity investments and technical assistance (OECD, 2010). The focus of CFP is on very small businesses; for example, in Western Canada 95% of CFP loan clients had less than 20 employees.

The CFP is an initiative that espouses a bottom-up and endogenous approach to rural development and strongly supports local autonomy. As such, the success of the CFP has varied locally, depending on the level of engagement of local communities and the capacity of CF managers to develop a clear vision of the economic development opportunities in their respective communities (OECD, 2010). Overall, however, the evaluation evidence collected by the RDAs and FedNor in charge of implementation of the CFP tends to show positive results and a continued need for this programme, notably its business development component.

For example, with respect to CF business loans, WD found that most clients who had requested a CFP loan from a CF in western Canada had previously been denied funding from other sources and that CF-assisted firms outperformed a comparable group of non-assisted firms in terms of employment growth, survival rate and revenue growth (WD, 2014). From 2005 to 2010, CF-assisted firms had an average employment growth rate of 9.5% compared with 4.2% for non-assisted firms; a survival rate of 76% five years after the start of their businesses, compared with 60% for non-assisted firms; and an average revenue growth rate of 13.8% compared with 6.1% for non-assisted firms. Similarly, between 2009/10 and 2012/13, small businesses that received CFP loans from CFs supported by FedDev in southern Ontario grew significantly faster (average revenue growth of 14.9% vs. 6.9%) and had higher survival rates after five years (88% vs. 66%) than similar businesses that did not receive CFP loans (FedDev, 2014). Although these results are subject to a self-selection bias by which more viable firms are more likely to receive public support than less viable firms, they broadly point to general positive outcomes of CFP loan support.

CFP clients also seem to appreciate the management advice, training and other forms of technical assistance that they receive from the programme. Over two-thirds of non-loan clients rated these services as important or very important for the further development of their business in the case of FedDev, while in Western Canada one-on-one business counselling services were reported as the most common reason for satisfaction with the programme among CFP non-loan clients (FedDev, 2014; WD, 2014).

Overall, the CFP emerges as a well-functioning programme, although some opportunities for improvement can also be identified. First, loan volumes appear modest on the whole. For example, in Western Canada, the average number of loans per CF per year was only 16.8 in the period 2008-13. This implies that the CFP disbursed on average only 1 500 loans per year in the four western provinces of Canada. In southern Ontario, the CF provided 2 799 loans from 2009/10 to 2012/13, i.e. about 930 loans per year. Given identified small business credit needs and good evaluation results for the impact of CFP loans, there seems to be a case for increasing funding for the CFP so as to scale up its outreach. Second, there seems to be scope for making better use of unused resources in CFP. For example, the WD evaluation revealed that individual CFs held over CAD 80 million in funds that were not invested in active business loans as at 2013, representing 28% of the overall value of the CFP investment funds for Western Canada. Third, there appear to be significant differences in the effectiveness and efficiency of CFs across the country (OECD, 2010), suggesting scope for increased sharing of good practices among them and capacity-building in strategy and management in the weaker CFs.

Social entrepreneurship

Social enterprises are organisations whose goal is to provide goods and services to customers in the marketplace while pursuing a social mission. The main aim of social entrepreneurs is therefore not to maximise profits but to generate social value. The five main types of social enterprises in Canada are co-operatives, non-profit organisations, community development/interest organisations, indigenous businesses and businesses with a social mission (McMurtry et al., 2015). In 2016, there were an estimated 25 000 social enterprises in Canada.9 Co-operatives are the most common form of social enterprises in Canada; those that responded to the 2010 Annual Survey of Canadian Co-operatives reported CAD 33.9 billion in revenues and CAD 20.7 billion in assets, employed almost 88 000 Canadians, had 7.4 million members and paid over CAD 746 million in patronage dividends back to their members and local communities (ISED, 2015).

Policy support for social entrepreneurship is primarily delivered by provinces and territories in Canada. Quebec and Ontario have historically been leading provinces in terms of the emergence of social entrepreneurship and the development of policy support. Some main recent developments in social entrepreneurship at provincial level are profiled in Box 5.17.

Box 5.17. Social entrepreneurship developments in Canadian provinces

Quebec

Quebec was an early leader in the development of social entrepreneurship in Canada. It now has more than 6 000 social enterprises generating more than 70 000 jobs. It also has the largest concentration of co-operatives among the Canadian provinces, with 2 881 co-operatives representing 36.6% of the national total (i.e. 7 865 co-operatives) (ISED, 2015). There has been longstanding policy support for social entrepreneurship in Quebec, which commonly emphasises cross-sector partnership. For example, the Réseau d’investissement social du Québec is a not-for-profit organisation and hybrid fund established in 1997 that has combined funding and support from the provincial government, the private sector and the philanthropic sectors to provide both loans and loan guarantees to social economy enterprises, co-operatives and non-profit organisations. Another longstanding Quebec initiative is the Chantier de l’économie sociale, an example of a large and effective network bringing together representatives and promoters of social economy enterprises in over 20 economic sectors, as well as local and regional development stakeholders to foster the social economy in the province. More recent initiatives include L’Esplanade, Montreal’s first social entrepreneurship hub and collaborative space, and Impact8 Québec, an accelerator which assists high potential social enterprises.

Ontario

Ontario hosts 10 000 social enterprises and nearly 1 700 incorporated co-operatives. The Ontario government has developed a Social Enterprise Strategy. This includes various financing initiatives for social enterprises: i) The Ontario Social Enterprise Demonstration Fund is a CAD 4 million pilot fund to help high-growth social entrepreneurs, with funding being delivered through community-based intermediaries; ii) The Ontario Catapult Microloan Fund can provide social enterprises with loans of between CAD 5 000 and CAD 25 000 at concessionary rates as well as business mentorship; iii) the Ontario Community Loans Pilot Project incentivises social inclusion through discounted commercial loan rates to small business owners who commit to hiring people with disabilities or who face employment barriers.

Other provinces

Other provinces are also prioritising the development of social entrepreneurship. For example, in British Columbia, the B.C. Social Innovation Council has developed an action plan that provides guidance on how to maximise social innovation in the province through government work. Recent activities include a Social Enterprise Month to celebrate the social enterprise sector; the launch of an online social innovation community (HubcapBC.ca); the creation of a new hybrid corporation type – the Community Contribution Company – to support social enterprises in attracting investors and customers; and the development of Social Impact Purchasing Guidelines by the Ministry of Social Development and Social Innovation. Manitoba also launched a comprehensive Social Enterprise Strategy in 2015, which offers a roadmap for the further development of the sector. Newfoundland and Labrador was working on a similar strategy in early 2016.

Source: “Supporting social enterprise investment in Québec”, www.virgin.com/unite/entrepreneurship/supporting-social-enterprise-investment-in-quebec, accessed on 5 August 2015; Ontario Government (2015), Making an Impact: Ontario’s Social Enterprise Progress Report 2015; http://socialinnovation.ca/catapult.

One of the main types of intervention that can support social entrepreneurship is facilitating access to finance for social entrepreneurs. For example, in Ontario, access to capital was identified by 80% of social entrepreneurs as the major barrier to their success (Ontario Government, 2015). One of the recent responses has been the development of social impact investment at provincial/territorial level. This consists in the provision of finance to organisations addressing social needs, with the expectation that the investment will bring financial as well as social returns. Relevant projects include the launch of social impact bonds in Saskatchewan and Ontario. In a further joint initiative in Ontario and Quebec, the SVX has been established as an investment platform to connect social ventures, funds and investors in these provinces. These developments respond to the considerable demand by social enterprises for small-sized, simple and unsecured financing sources.

Another emerging policy tool to promote social entrepreneurship in Canada is social procurement, which involves the use of public procurement strategies to support social policy objectives. This implies the use of social and financial values in procurement decisions. Various jurisdictions at provincial and territorial levels are taking actions to support social enterprises through their purchasing activities, for example in Quebec, Ontario, and British Columbia.

The federal government could provide additional support for social entrepreneurship to complement measures undertaken by the provincial and territorial governments. The support could involve a number of policy thrusts. First, the federal government could make federal mainstream business support programmes more open to social enterprises. This could involve reviewing the eligibility criteria of programmes such as the CSBFP and the BDC consultancy programmes to ensure that they do not discriminate against social enterprises. It could also seek to increase awareness of these programmes and how they could benefit from them among social entrepreneurs. Second, the federal government could continue to support the development of social impact investment in Canada. For example, the National Advisory Board on Social Impact Investment has highlighted key priorities for supporting the growth of social impact investing and provided advice to the global policy discussion in the frame of the G7 Taskforce on Social Impact Investment. More recently, the Ministries of Families, Children and Social Development and Employment, Workforce Development and Labour have been mandated to develop a Social Innovation and Social Finance Strategy. Third, the federal government can stimulate the social enterprise sector by ensuring that public procurement is open to social enterprises. For example, PSPC has recently started to promote new social procurement strategies in federal government departments. It can play a leadership, monitoring and training role for public sector buyers in social procurement techniques.

In addition, the federal government would be well placed to support the development of a national certification for those social enterprises that wish to obtain such a label, or to co‐ordinate provincial and territorial governments in developing mutually recognisable certifications. Social enterprise certifications could then be used as eligibility criteria for access to targeted public support programmes, to preferable public procurement schemes or to communicate social impact orientation more easily to potential financiers in the market.

Youth entrepreneurship

Futurpreneur Canada is the main organisation supporting youth entrepreneurship in Canada. It is a non-governmental organisation (NGO) that receives an annual government contribution of approximately CAD 9 million to support its operations (see Box 5.18).

Box 5.18. Futurpreneur Canada

Founded in 1996 as the Canadian Youth Business Foundation, Futurpreneur is the only national, non-profit organisation providing financing, mentoring and support tools to aspiring business owners aged 18-39 years.

One of the key contributions of Futurpreneur is business loans to young entrepreneurs. Since 2008, Futurpreneur operates a co-funding arrangement with the BDC. With one application, a founder can obtain a loan of up to 15 000 CAD from Futurpreneur, which uses a line of credit guaranteed by the BDC, and another one of up to 30 000 CAD from the BDC itself. Both loans are offered at favourable interest rates and collateral free. Futurpreneur is responsible for managing the initial relationship with the applicant and conducting the initial due diligence. This accelerates BDC’s decision on the loan applications it receives from young entrepreneurs.

In addition, Futurpreneur provides young entrepreneurs with business development support services. Potential young business founders can access Futurpreneur support services at 15 regional offices or through one of 340 community and referral partners across Canada. Futurpreneur offers a wide range of support services in the pre-launch phase to assist young starters to prepare a viable business and credit plan. Services include coaching by entrepreneurs-in-residence and an online business resource centre.

The outstanding good practice element of Futurpreneur is the combination of finance with one-on-one mentoring: for the first two business years, young entrepreneurs are matched with an experienced business expert from Futurpreneur’ network of approximately 3 000 volunteer mentors.

As of December 2015, Futurpreneur had assisted more than 8 600 young entrepreneurs (of which 40% were women). They started 7 200 new enterprises that created approximately 35 000 new jobs. The average age of supported founders was 27, the majority of whom had previous work experience. Supported enterprises operated in almost all industries, with only 5-10% considered high-tech.

Source: www.futurpreneur.ca.

Futurpreneur is a successful initiative. Its loan repayment rate is around 90%, even in the absence of collateral requirements, and five years on from enterprise creation supported companies have created on average five jobs. However, it is estimated that Futurpreneur assists only 2-3% of the potential youth entrepreneurship market, based on information submitted by its CEO to the Standing Committee on Finance in October 2014.

In view of the pronounced interest of many young Canadians in starting their own business, the government could consider scaling up and widening the scope of this programme.10 An expanded and longer-term funding commitment would help ensure that the existing support structure, network relations and well-known brand of Futurpreneur can be maintained and further expanded to assist Canadian young entrepreneurs. Moreover, this programme could play a role in addressing the problem of business succession in the sense of developing and funding potential young successors. This would imply adding mentors with knowledge in business succession to its mentors’ pool.

Indigenous entrepreneurship

The number of indigenous self-employed increased from around 37 500 in 2006 to about 41 500 in 2011, based on information from National Housing Surveys. However, there remains an important gap in labour market activity rates and outcomes for indigenous populations that increased self-employment could help address.

The federal government encourages indigenous entrepreneurship and supports majority-owned indigenous small businesses mainly through Indigenous and Northern Affairs Canada’s (INAC) Aboriginal Entrepreneurship Program (AEP). This programme provides support to indigenous entrepreneurs for business start-up, expansion and acquisition through opportunities for access to finance, business information and advice and technology development. The AEP supports the developmental lending services offered by Aboriginal Financial Institutions (AFIs) by funding capacity-building activities for AFI employees, interest-rates rebates and capital allocations to partly cover loan losses and administrative costs. The AEP also provides non-repayable equity contributions to indigenous entrepreneurs and small businesses. Between 2014 and 2016, management of the AEP was successfully transferred to the National Aboriginal Capital Corporations Association (NACCA), which represents AFIs nationally.

Today, there are approximately 53 AFIs. They are independent institutions controlled by and accountable to their own community and rely more on community-based credit assessment (i.e. relationship lending) than on standard credit scoring methodologies making the loan decision-making process closer to the communities that the AFI serves. In addition to loans, 14 AFIs were selected as Programme Delivery Partners of the AEP to offer non-repayable equity contributions to allow indigenous-owned small businesses to leverage additional financing from private sources. Individual indigenous entrepreneurs are entitled to receive up to CAD 99 999, while funding assistance for community-owned businesses can reach CAD 250 000. Co-participation by applicants in project funding is required and typically amounts to at least 10% of the project costs.

AFIs are active players in the support of indigenous entrepreneurship and small business development. They offer developmental loans, financial and management consulting services and aftercare support to First Nation, Inuit and Metis people and communities across all provinces and territories of Canada. They were established between the late 1980s and the early 1990s to tackle major barriers experienced by indigenous entrepreneurs in access to finance from mainstream banks, including lack of capital and collateral, remoteness from main lending centres, and perceptions of Indigenous communities as risky borrowers. Since their inception, AFIs have been capitalised with more than CAD 240 million in cumulative financing from the federal government and, as a result, have provided more than 38 000 loans totalling more than CAD 2 billion. Over the last five years, they have provided CAD 573 million in new loans, contributing to create or maintain about 20 500 jobs. The BDC also offers a range of dedicated consulting and financial services to indigenous businesses. The BDC Growth Capital for Aboriginal Business programme offers flexible term loans of up to CAD 25 000 for new indigenous businesses and up to CAD 100 000 for existing indigenous enterprises. The BDC has also committed CAD 1 million to four Aboriginal Business Development Funds. These are delivered by community-based organisations and provide mentoring via experienced consultants from the Canadian indigenous population. In addition, the BDC promotes entrepreneurial skills in young indigenous people through “E‐Spirit”, a national business plan competition for indigenous youth in grades 10 to 12.

Another major player is the CanNor RDA, which encourages indigenous entrepreneurship in the northern territories through its Northern Aboriginal Economic Opportunity Program. The programme provides financial support to First Nations and Inuit communities to strengthen their participation in economic development opportunities, including through business creation and business growth.

Finally, the federal government uses procurement as a tool to build business capacity in indigenous communities, in particular through the 1996 Procurement Strategy for Aboriginal Business, which helps indigenous enterprises in competing for federal contracts.

Though this package represents a relatively comprehensive range of support measures, a key challenge seems to be reaching the target group and informing it about the available programmes. An option would be to co-operate more strongly with regional community centres, schools and the media to address potential indigenous entrepreneurs. Because of a shortfall in role models, policy makers could also increase efforts to showcase successful indigenous business owners, for example by connecting them with high-school students through meetings at school and company visits. Finally, entrepreneurship skills development could be added to active labour market programmes targeting the unemployed in indigenous communities.

Immigrant entrepreneurship

The Start-up Visa Program is the federal government’s main instrument to attract immigrant entrepreneurs. Launched in April 2013, the Start-up Visa Program differs from an earlier immigrant entrepreneur programme that only required immigrant entrepreneurs to have business experience, a modest net worth and to create one full-time job in order to obtain a permanent resident visa.

The new Start-up Visa Program pursues a different approach. It aims to attract top-notch entrepreneurs from all over the world with innovative business ideas and links them with private sector organisations that have expertise in working with start-ups. Start-up Visa provides permanent resident status to successful applicants, regardless of the ultimate success of the business venture, in recognition of the fact that not all start-up ventures are initially successful and this is the nature of the industry. The main requirement is that start-ups must first secure a minimum investment of CAD 200 000 from a designated Canadian venture capital fund or CAD 75 000 from a designated Canadian angel investor group, or acceptance into a designated Canadian business incubator or accelerator programme.

As of October 2016, the Start-Up Visa Program had granted permanent residence to over 70 entrepreneurs (more applications were being processed), which is in line with the intended size of this niche programme. Nevertheless, designated organisations (such as incubators and accelerators) under the programme have sometimes found it difficult to deal with the large volume of proposals that they receive from foreign entrepreneurs. As a result, many have decided to shift to a proactive rather than a reactive approach in the recruitment of foreign entrepreneurs by travelling abroad and using contacts in other countries to find entrepreneurs who fit their business model. Policy makers could also consider widening their own marketing activities for the Start-Up Visa Program, which to date, seem to have been concentrated in the United States and, in particular, the Silicon Valley.

Enterprise succession

Several surveys indicate that between 50% and 60% of Canadian enterprise owners will retire within the next five to ten years (CFIB, 2012; PwC, 2014b) and that less than 20% have a robust succession plan (CFIB, 2012; KPMG, 2012).

The BDC’s Growth and Transition Capital Offering can be used to support enterprise succession, which accounts for approximately 40% of BDC’s portfolio in this programme. Through this instrument, the BDC offers cash flow, mezzanine financing, quasi-equity and equity to support the acquisition of enterprises with retiring owners. Some smaller scale initiatives have also been launched. For example, in 2014, the ACOA RDA provided funding to La Coopérative de développement régional-Acadie, an organisation representing 40 francophone co-operative organisations in New Brunswick, to develop a tool box explaining and promoting business co-operatives among SMEs where business succession was imminent but no clear plan was in place. The CED-Q RDA (Quebec) provides funding for enterprise transfer and succession through its regular programme.

The federal government could also consider the creation of a formal online exchange mechanism where potential buyers and senior entrepreneurs searching for successors could meet virtually to discuss the sale of businesses. Such an online tool would best be developed by the BDC in collaboration with provincial and territorial government authorities and chambers of commerce. The BDC would also be well placed to offer specialised financing and management advice solutions once the buyer and seller of a business are matched through the online tool.

In addition, the eligibility criteria of some of the existing public access to financing programmes could be adjusted to make business succession eligible for support. Finally, efforts could be pursued to develop information for senior entrepreneurs and potential business acquirers on preparing and achieving business succession, such as published guidelines, seminars and webinars prepared in collaboration with business associations and tax consultants.

Conclusions and policy recommendations

The Canadian federal government offers a fairly comprehensive package of support programmes for small business owners and entrepreneurs, although the support is stronger in certain areas (e.g. enterprise financing and business innovation) than in others (e.g. workforce and management training).

With respect to enterprise financing programmes, the BDC fulfils a valuable role in keeping credit flowing and serving the riskiest clients in a way that is largely complementary to commercial banks, while the VCAP, managed by BDC Capital, has succeeded in boosting the supply of Canadian venture capital through a funds-of-funds approach. Some gaps nevertheless remain. In particular, the CSBFP loan guarantee programme operates on a small scale and its use is declining. In addition, there appears to be a gap in support for mid-sized equity investments through business angels.

Canada’s innovation policy mix has traditionally strongly relied on R&D tax credits. Following the recommendations of the Jenkins Panel, this policy mix has slowly begun to move towards greater use of targeted interventions where there is often a strong mentoring component (e.g. incubators, accelerators, IRAP, etc.). There are some very good practice programmes in this area, including IRAP and CAIP, but also some policy gaps (e.g. public support of non-technological innovation), which seem to justify increasing attention to targeted programme measures for small business innovation.

Business internationalisation is backed in Canada by the full array of conventional instruments working in an effective and complementary way (e.g. international promotional activities, export insurance and export credits). In a typical scenario, the TCS can provide Canadian SMEs with advice and practical support to explore new export opportunities, while EDC can follow on with financing, insurance and matchmaking services. Nonetheless, many small businesses are still unaware of the available services, while others do not have full capabilities to undertake the technical aspects of contracting and insurance related to exporting.

Skills development falls under the prime responsibility of provinces and territories in Canada. As a result, the role of the federal government in entrepreneurship education, management advice and workforce skills development is more limited than in other small business policy areas. With respect to entrepreneurship education, there is a wealth of local initiatives that promote entrepreneurship and entrepreneurial mind sets across Canada. Nonetheless, the current offer of entrepreneurship support does not match the demand and interest expressed by students, especially in certain provinces where entrepreneurship education has not yet fully rooted. Management advice is mainly aimed at young, innovative and growth-oriented SMEs, whereas the scale of advisory services available to mainstream SMEs is somewhat limited despite some involvement by the BDC and the RDAs and FedNor. There is also limited public support for on-the-job training for SMEs or individual employees (aside from programmes aimed at the unemployed).

Public procurement opportunities are relatively accessible to Canadian small businesses, with 80% of all public contracts and 40% of total procurement volume awarded by PSPC going to small businesses. This has been underpinned by pro-active policies, such as the establishment of the OSME in PSPC and the ITB policy in the federal defence procurement strategy.

Finally, there are some successful policy interventions which encourage small business and entrepreneurship development in specific target groups although there is room to increase their scale in order to better match the scale of impact of the market and institutional failures they address. Social entrepreneurship is actively supported at the local level, particularly in certain leading provinces, but there is scope for complementary federal programme actions. Youth entrepreneurship support is underpinned by federal government funding towards the activities of Futurpreneur, although longer-term and expanded funding arrangements would be needed to enable it to increase its coverage of potential young entrepreneurs. Immigrant entrepreneurship is encouraged by the Start-up Visa Program and access to a range of existing business support services, including a business angel network and a federally-recognised incubator and accelerator programme. The support of entrepreneurship in indigenous communities is pursued by a range of different organisations, including INAC, CanNor and the BDC, mainly through loans and business advice. A remaining challenge is to better inform potential entrepreneurs in indigenous communities about the existing programme offering. Finally, senior entrepreneurs are also an important target group for SME and entrepreneurship programme support, given the high proportion of Canadian enterprise owners likely to retire within the next five to ten years. The BDC’s Growth and Transition Capital Offering helps provide succession financing and advice, but additional initiatives should be considered.

Based on this analysis, the following recommendations are proposed to consolidate the offer of federal programmes for entrepreneurs and small businesses in Canada:

Key recommendations on federal programmes for SMEs and entrepreneurship

Financing programmes

• Expand government loan guarantee support by making the CSBFP more attractive to banks and small businesses. This could be achieved by further reducing the costs and paperwork burdens, breaking the “prime + 3%” interest rate cap, and broadening the eligibility criteria to include working capital lending and lending for projects that are not investments in physical assets.

• Consider enhancing direct government lending while keeping its focus on credit market niches that are unlikely to be served by commercial banks, such as entrepreneurship by socially disadvantaged groups (e.g. women, youth and indigenous communities) and innovative entrepreneurship.

• Maintain support to VCAP, VCSIP and CAIP, which is an effective package in filling gaps in the availability of domestic venture capital.

• Encourage business angel investments in small businesses through reduced capital gains taxation for individuals who invest in small businesses either individually or through business angel syndicates.

• Explore ways of improving the financial literacy of latent and existing entrepreneurs and small business managers.

Innovation programmes

• Consider the case for reducing the generosity of the enhanced SR&ED tax incentive for small businesses and increasing public expenditures on more targeted programme measures relevant to non-R&D based small business innovation.

• Strengthen support for the adoption of digital technologies by small businesses by introducing a one-on-one advice and counselling programme to complement existing information services.

• Review BCIP with a view to streamlining the process from application through to contract award, introducing calls for new and small firms to deliver specific innovative products and services required by government, and introducing set asides of a proportion of government procurement activity for small businesses and entrepreneurs.

• Reinforce programmes which encourage collaborative research between university researchers and small businesses and the creation of academic spin-outs that commercialise university research.

• Consider establishing a new federal programme that specifically supports non-technological innovation (e.g. marketing and organisational innovation), including a focus on the services industry.

Internationalisation programmes

• Expand EDC services to offer finance and insurance support to small businesses looking to export intangibles.

• Encourage the creation of SME export consortia and export networks and introduce a channel of internationalisation support delivery to these groups.

• Develop an FDI-SME linkage programme. The programme should co-ordinate FDI attraction efforts with local supply bases and cluster development policies, broker relationships between FDI operations and potential domestic small business suppliers, and offer training and mentoring for Canadian small businesses in supply chain and operations management and related digital technologies (e.g. ERP software).

Entrepreneurship education programmes

• Establish a national web portal that offers information and resources (e.g. learning materials and self-assessment tools) on how to introduce entrepreneurship-related courses and activities in schools, colleges and higher education institutions.

• Place adequate emphasis on experiential learning in entrepreneurship education, including the use of role models, visits to local companies, online business plan competitions and virtual firm games. Establish formal links between entrepreneurship education activities and publicly-supported business incubators and accelerators and other initiatives that can offer learning opportunities such as internships to students.

• Introduce basic principles of entrepreneurship training into apprenticeship programmes to equip future tradespeople with a set of basic entrepreneurship skills.

• Offer federal support to trigger the more widespread establishment of activities for entrepreneurship education in the higher education system, including business idea competitions, virtual student business start-ups, start-up internships, entrepreneur-in-residence programmes, and on-campus entrepreneurship centres that are not linked to any specific university department.

Management consultancy and advice programmes

• Increase the frequency of occasions on which the provision of finance for entrepreneurship and small business development is combined with the offer of business advisory services.

• Expand business advisory services available to established small businesses outside of technology sectors, including by covering part of the costs for small businesses of contracting certified private sector consultants and by establishing a government accreditation system of private-sector consultants specialised in management advice for small businesses.

• Introduce a comprehensive free-or-charge or low cost online self-assessment diagnostic tool to offer a large number of small businesses the opportunity to evaluate the strengths and weaknesses of their management practices in key areas such as marketing, innovation, human resource management and operational efficiency.

SME workforce skills development programmes

• Consider a new measure to incentivise SME workforce training such as a national workplace training fund, tax credits to small businesses for training activities, or personal training vouchers for selected groups of SME workforces.

• Offer SMEs, especially the smallest ones, consultancy to help them identify in which areas and for which groups of employees training is most urgent and could deliver greatest benefits.

Public procurement programmes

• Consider granting the Office of Small and Medium Enterprises (OSME) within Public Service and Procurement Canada (PSPC) the authority to review large procurement contracts and determine whether or not they could be broken up into smaller parts.

• Explore the advantages and disadvantages of introducing set-asides for SMEs in public procurement markets.

• Tackle late government payments to small businesses, which should not exceed the 30-day timeline stipulated by the Treasury Board of Canada.

Programmes for entrepreneurship in disadvantaged and under-represented social groups

• Increase funding for the Community Futures Program and assist Community Futures Organizations in unblocking unused resources with the aim of increasing the penetration of small business loans and business development services in remote and rural areas of Canada.

• Remove barriers to participation of social enterprises in government SME support programmes, for example by widening BDC’s lending eligibility criteria beyond commercial enterprises.

• Develop certifications for social enterprises in collaboration with the not-for-profit sector, with the aim of helping these enterprises better access social impact financing and socially-oriented public procurement and public support programmes targeted to social entrepreneurship.

• Consider increasing support to Futurpreneur through a longer-term and expanded co‐funding commitment in order to safeguard its successful support structure, network relations and well-known brand. Introduce an explicit business succession support component to Futurpreneur.

• Further accelerate the application process to the Start-Up Visa programme and encourage marketing activities in a large number of countries with potential participant entrepreneurs.

• Communicate indigenous entrepreneurship and small business support programmes more strongly to regional community centres, schools and the media to address potential entrepreneurs and promote indigenous entrepreneur role models.

• Strengthen policy measures to ensure a smooth transfer of enterprise ownership on retirement of existing owners, for example through awareness raising and information campaigns, consultancy support for succession strategy development, consultancy and financing programmes for potential successors and an online marketplace to improve the flow of accurate information between buyers and sellers of small businesses.

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Notes

← 1. Within CSBFP, eligible loans can be used only to: purchase or improve land or buildings dedicated for commercial purposes; purchase or improve new or used equipment; purchase new or existing leasehold improvements; or pay registration fees

← 2. Under the fund of funds concept, limited partners pool their money and employ a third party manager to invest in various private venture capital funds, each of the latter investing in portfolios of entrepreneurial ventures.

← 3. Mandate letter of the Minister of Innovation, Science and Economic Development (ISED): http://pm.gc.ca/eng/minister-innovation-science-and-economic-development-mandate-letter.

← 4. Firms eligible for the enhanced credit are CCPCs with less than CAD 800 000 in prior-year taxable income and less than CAD 50 million in prior-year taxable capital. The CAD 3 million expenditure limit is gradually reduced if prior-year taxable income is between CAD 500 000 and CAD 800 000 or if prior-year taxable capital is between CAD 10 million and CAD 50 million. SR&ED investment tax credits which are earned by unincorporated businesses are eligible for the standard 15% tax credit which is 40% refundable.

← 5. It should also be noted that most provinces top up SR&ED with their own R&D tax credits.

← 6. The major SR&ED eligible costs have, therefore, remained current expenditures, including wages paid to employees directly engaged in R&D materials, overhead expenditures(which can be determined using a percentage of up to 55% of wage costs), and contracts with external research organisations.

← 7. The Index of Corporate Innovation is a diagnostic tool that measures via an online survey of employees, the innovation capabilities and performance of a business organisation. The survey asks quantitative and qualitative questions in various categories, including corporate culture, leadership, workforce capacity, organisational processes, collaboration, investments, and performance.

← 8. FedNor is from a legal standpoint a regional development organisation that is part of ISED rather than a regional development agency.

← 9. Toronto Enterprise Fund, What is a Social Enterprise?, http://www.torontoenterprisefund.ca/about-tef/what-is-a-social-enterprise, accessed 18 March 2016.

← 10. According to a survey undertaken by the Bank of Montreal, nearly half of Canadian students (46%) see themselves starting a business after graduation, whether as a primary or secondary source of income, https://newsroom.bmo.com/press-releases/half-of-canadian-students-aspire-to-start-their-ow-tsx-bmo-201309060896440001