Why Canadian business is feeling the economic heat

September 21, 2016 Christine Wong

Canada economy falling leavers

They may be small, but their impact on the Canadian economy is mighty. 

They’re Canada’s small and medium-sized businesses (SMBs) and they are more important than you might realize. According to a report by CIBC, businesses with fewer than 500 employees created about eight out of every 10 new private sector jobs in Canada during 2015. 

Unfortunately, some strong undercurrents are tugging downward on Canada’s overall economic growth. That’s creating some challenging conditions for SMBs today. 

Foreign factors

Befitting today’s truly global economy, many of the factors putting pressure on Canada’s economy originate far beyond our own borders. One factor is the price of crude oil, which has steadily tumbled from about US$110 a barrel in late 2014 to around US$50 per barrel this summer. 

That has taken a toll on hiring and investment in Canada’s oil patch. A forecast by industry organization Enform predicts 24,000 more jobs will be cut from Canada’s energy sector in 2016, bringing its total job losses to 52,000 since the start of 2015. The impact on SMBs is significant, as a 2011 StatCan report showed more than 90 per cent of all oil and gas related businesses in Alberta had less than 50 employees. 

Another global situation adding uncertainty to Canada’s economic outlook stems from the well-discussed Brexit referendum. The recent decision of British voters to take the UK out of the European Union could have a dramatic impact globally. And further question marks surround the Trans-Pacific Partnership, a trade deal involving Canada and 11 other nations still awaiting ratification by U.S. congress.

Headwinds at home

Canadian SMBs are facing economic headwinds at home, too. Among the most devastating have been the fires in Fort McMurray, which affected an estimated 4,000 small businesses in Alberta. 

A weakened loonie has also hampered the Canadian retail sector in particular, which accounts for 12.5 per cent of all small businesses in Canada. The lower dollar means Canadian retailers must pay more to import goods before selling them to Canadian consumers. 

Proposed changes to the Canada Pension Plan (CPP) could exert further financial pressure on SMBs. CPP contributions from workers and employers would increase by one percentage point to 5.95 per cent of wages. 

Although the potential hike would be phased in over six years, a survey by the Canadian Federation of Independent Business (CFIB) found that 80 per cent of its members feel the proposal “will make it much more difficult for them to cope with other tax increases and increased costs.” 

All of these foreign and domestic factors have cut into confidence levels among Canadian SMBs. The CFIB’s monthly barometer of SMB business optimism fell to 57.6 in July, down from a 13-month high of 60 reached just one month earlier in June. In fact, the optimism level fell in six out of 10 Canadian provinces surveyed in July. 

In another report released in January, the BDC said “a lack of confidence in the economy and a lack of qualified personnel” have led many SMBs to hold off on growth investment this year. Although SMBs in the survey plan to invest $111 billion in growing their businesses during 2016, that figure is static from last year. 

Adapting to adversity

Technology can play a key role in helping Canadian SMBs withstand these current economic challenges. For example, more SMB retailers may look toward digital technologies like ecommerce and analytics to help them weather the weak Canadian dollar. 

In its own recent analysis, the Conference Board of Canada warned Canadian businesses of all sizes that failure to embrace emerging tech puts their survival at risk in an increasingly global and digitized economy: “Those who can best leverage international data flows will be best positioned to take full advantage of global markets in the future.” 

Canadian SMBs may have some ground to make up on that front. Data from Salesforce indicate that 84 per cent of Canadian SMBs planning to expand to global markets don’t have a customer relationship management (CRM) system. More than one-third (37 per cent) also don’t have a custom mobile app or use digital tools for accounting, marketing, analytics, sales tracking or lead generation.

For Canadian SMBs, going digital could enable them to survive the downturn and ultimately thrive during the recovery period. 

Next Up: Will ecommerce drive traditional brick-and-mortar stores completely out of business?

About the Author

Christine Wong

Christine Wong is a journalist based in Toronto who has covered a wide range of startups and technology issues. A former staff writer with ITBusiness.ca, she has also worked as a reporter for the Canadian Economic Press and in broadcast roles at SliceTV and the CBC.

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