The Missing Ingredient: Solving Canada’s Shortcomings in Growing Large Firms and Increasing Productivity

Charles Plant
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Charles Plant: University of Toronto

C.D. Howe Institute Commentary, 2023, issue 645

Abstract: Solving Canada's perennial productivity problem will partially be addressed by creating companies that scale from start-up to world-class status. Canada has been challenged at scaling companies and, in fact, has the lowest number of manufacturing companies with over 250 employees per one million in population in the 35 countries with employment data available from the OECD (OECD 2022). While some of this might reflect our comparative advantage traditionally being in resource extraction, this last place is puzzling given the economy’s good access to large sophisticated markets and its natural and human assets. To investigate further, this paper asks: How are Canada’s scaling companies performing in terms of size achieved, capital raised, and growth rates? We define scaling companies as those acquiring external equity capital or capital that is convertible into equity in order to grow. Comparing similar companies, how do our scaling companies perform in comparison to US scaling companies? In order to scale effectively, companies need access to markets, capital, and personnel. Do we have enough of these resources to foster strong growth? Can we learn anything by an examination of our record at scaling and can we identify issues that governments should be addressing to improve our capabilities? This paper performs a detailed analysis across these dimensions. We find that the Canadian government focuses too much on programs related to research and innovation, and not enough on the lack of resources, experience, and talent for commercialization. This underweighting is keeping our firms smaller and growing slower. Essentially, the issue is a lack of managerial know-how. Existing and new programs could shift their alignment towards the marketing and sales development needed to grow young companies in Canada.

Keywords: Business Investment; Capital Markets; Venture Capital (search for similar items in EconPapers)
JEL-codes: D22 G24 O16 (search for similar items in EconPapers)
Date: 2023
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