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Canadian SMEs Remain Resilient Through Recession

According to a new report on small businesses and the labour market from RBC Economics, Canadian small- and medium-sized businesses (SMEs) better weathered the recession relative to larger firms in the private sector. Private-service industries consist of all service industries except public administration, health and social services, and educational services.

The relative success of private sector SMEs probably results from lower exposure to external markets such as the United States, which saw greater weakness compared to Canada’s domestic economy.

The RBC report focuses on private sector employment numbers, a key business indicator. It found that private SMEs in Canada with fewer than 300 employees were better able to survive the effects of the recession and have recovered more quickly than larger private enterprises. Also, businesses that depend more exclusively on the U.S. export market had a harder time than those more focused on the domestic market, which was not hit as hard by the recession*.

Private sector SMEs appear to have created business strategies that have ultimately helped them emerge from the downturn relatively unscathed. Unfortunately, larger companies often feel compelled to lay off workers and stall hiring initiatives during economic downturns, and, therefore, did not fair so well.

Employment Performance

Overall, employment at private SMEs fell 4.2 per cent during the recession, in contrast to 5.5 per cent among larger private companies. Private sector SMEs seem to have had lower exposure to markets in the United States, compared to large manufacturers.

When looking at all firm sizes, private goods-producing industries — including manufacturing, construction, oil and gas, logging, mining, forestry and utilities — took the biggest blow to employment throughout the recession, declining 11.1 per cent from a fourth quarter peak in 2007.

Regional Findings

A number of trends in employment numbers at SMEs and large firms were found in most provinces across the country. In Ontario, job losses in the manufacturing sector were responsible for half of the drop in total private-sector employment from the third quarter of 2008 to the fourth quarter of 2009. Within manufacturing, job losses were concentrated mostly at large firms where employment fell by 19.2 per cent during this time, compared to a drop of 10.4 per cent at SMEs. Declines were also recorded in the retail and wholesale-trade sectors where SMEs reduced payrolls by 4.1 per cent and large firms by 1.3 per cent.

* According to Statistics Canada, the previous expansion peaked in the third quarter of 2008 with the recession continuing until the second quarter of 2009.

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