Canada’s mid-sized firms broken-hearted

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Canada's mid-sized companies are struggling, says a new study by the Business Development Bank of Canada (BDC). From 2006 to 2010, this key economic engine defined as companies with between 100 and 499 employees declined by 17%.

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Hardest hit was the manufacturing sector, which saw over half its mid-sized firms vanish between 2001 and 2010 from 2,807 to 1,381.

BDC undertook the study to fill an important research gap on mid-sized firms. The study is based on Statistics Canada data and supported by survey results from market research firm Harris/Decima.

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

Mid-sized firms represent 1% of the total number of companies, but contribute disproportionately to the Canadian economy, accounting for 16% of Canadian jobs, 12% of GDP and 17% of exports. It is worth noting that a greater portion of mid-sized firms have their head office in Canada, compared to large firms (90% versus 77%).

"During the last ten years, medium-sized firms have faced serious challenges from the rapidly appreciating Canadian dollar, financial crisis and recession," adds Cléroux.

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The study also found:

  • 14% of mid-sized firms became small firms (below 100 employees) or closed down each year from 2006 to 2010. Only 1.4% grew to become large-sized corporations with 500 or more employees.
  • While mid-sized companies declined across the country, Ontario was hit worst, losing 25% of its number of mid-sized firms between 2006 and 2010 (from 3,810 to 2,861).

But the news is not all bleak, the BDC study found. Many CEOs are optimistic about their prospects during the economic recovery, with 64% of mid-sized firm leaders saying their annual sales will go up by 4.5% over the next three years.

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

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

"Canadian businesses will continue to face major challenges as competitive pressures will not disappear. As Canada's development bank, BDC will look closely at how it can better support our mid-sized firms, particularly in the manufacturing sector, in order to help them make the investments required to increase their competitiveness," Cléroux said.

To read the study, see BDC's "Analysis and research" (PDF) section.

Read: SMEs end 2012 optimistic, keen to hire

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