Beyond Local Markets: Why Atlantic Canada’s SMEs must Export More

By Ainslie Pierrynowski (AIMS on Campus Student Fellow) 

“To successfully grow a business in today’s economy requires innovation, determination and resiliency. Atlantic Canadian entrepreneurs have all of these qualities and more.” These words were spoken by Business Development Bank of Canada (BDC) CEO and President Michael Denham, on the occasion of a $280 million BDC investment in Atlantic Canada’s small and medium-sized enterprises (SMEs). Denham’s statement echoes similar calls to support the region’s SMEs from policymakers, investors, employers, and business associations. After all, small businesses have become essential employers in post-industrial communities across Atlantic Canada. In fact, SMEs are responsible for approximately 92% of private sector employment in each of the Atlantic provinces. With the recent emergence of several start-up accelerators or incubators—organizations which provide prospective entrepreneurs with the skills and knowledge needed to grow and manage one’s business—SMEs seem ready to act as engines for economic growth in Atlantic Canada.

Despite these promising developments, however, the world of SMEs is not without its challenges. In April 2017, an Atlantic Growth Advisory Group roundtable pointed to persistent issues that have stymied SME growth, including interprovincial trade barriers and limited access to capital. Another important overarching concern, in this writer’s view, consists of Atlantic SMEs’ largely inward-looking approach. That is, few firms in Atlantic Canada export their products. As a matter of fact, nearly three quarters of SMEs in Atlantic Canada trade neither internationally nor inter-provincially. Overall, only 10% of Canadian SMEs sell to other countries, while 94% sell to their local municipality and 44% sell to other locations within their province. A renewed emphasis on international exports may prove not only profitable, but crucial, for both SMEs and Atlantic Canada’s economy as a whole.

More precisely, it is essential that SMEs in the Atlantic provinces diversify their markets. The aforementioned figures suggest that many SMEs in Atlantic Canada rely on consumers within their home provinces. As a result, SMEs’ potential for growth is constrained by a falling population—and hence a decreasing number of potential consumers—coupled with relatively low household incomes. In fact, as of 2015, Atlantic Canada, alongside Quebec, had the lowest median household incomes in the country. Additionally, SMEs’ extensive reliance on local consumer bases puts these crucial employers in a vulnerable position, should an unforeseen event impact Atlantic Canadian spending habits.

Conversely, international trade offers Atlantic Canada’s SMEs much-needed opportunities for growth. For instance, this report notes that with the reduction or removal of key tariffs on Canadian goods under CETA, Atlantic Canadian SMEs could fill a niche in EU public procurement, a market valued at $3.3 trillion. In particular, prominent growth industries and established economic sectors among Atlantic Canadian SMEs, such as construction, biotechnology, and communications, closely align with the public procurement needs of the EU and its member states.

Moreover, current trends in international trade provide Atlantic Canadian SMEs with all the more reason to act now. As an element of uncertainty has entered Canada’s relationship with its largest trading partner, the United States, Canada seems poised to expand and deepen its connections to other markets. Given that half of exporter SMEs in Atlantic Canada sell to the United States, this development represents both an opportunity and a necessity for the area’s small businesses. Ultimately, SMEs can play a significant role in the region’s prosperity—but only if they look beyond local markets.

 

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