Issues Facing Canadian Businesses

IssuesFacing Canadian Businesses

Natureof Business Environment in Canada

Currently,approximately 25% of the small businesses operate in the goodmanufacturing sectors, while the rest are in the service sector(Weaver,2014).In the last one decade, mid-sized businesses in Canada have decreasedby 17 percent (BusinessDevelopment Bank of Canada, 2014).Businesses operating in the manufacturing sector are the ones thathave faced the blunt edge of the shocks and unpredictable businessenvironment in the country. The emergence of China as a globaleconomic power, and the steep increase of the Canadian dollarcombined with the credit asceticism that spawned from the financialcrisis of 2009 have undoubtedly added to the woes of small and mediumenterprises in Canada (BusinessDevelopment Bank of Canada, 2014).Businesses have also found it increasingly difficult to cope with thechanges in the global economy, largely driven by the decreasing oilprices, the sanctions against Russia and the fierce competition fromother multinationals in China and the United States (Posadzki,2015).It is important to note that small business face unique issues thatdo not affect the operations of large companies. Many small businessenterprises has also raised a number of issues such as marketlimitations, expansion, human resources issues, location, too muchwork, partnership contracts and industrial regulations (Kremmidas,2014). Smallbusinesses form the backbone of the Canadian communities and are anintegral part of the nation’s social and economic foundation.

Basedon a survey conducted by industrial Canada in 2014, about 98% ofbusiness in operations within the Canadian border, or more than onemillion businesses are small (BusinessDevelopment Bank of Canada, 2014). Small in this respect denotes that the businesses have less than 100employees. It is estimated that just about half of the private laborforce work in small businesses. This means that more than fivemillion people work in small enterprise (Kremmidas,2014). Evenso medium and large enterprise also forms an important part of theCanadian economy. The paper will exemplify the major issues facingbusinesses in Canada, the situation that has generated those issuesand how they have impacted the economy. It is evident that smallbusinesses are the mainstay of the Canadian economy and as such it isexpected that most of the issues discussed in these work, will mainlyrelate to the small and medium enterprises. Even so deliberateefforts shall be made to explicate issues facing large businesses andmultinationals.

IssuesFacing Businesses in Canada

Costof Compliance

Smallbusiness owners and managers face unique challenges that are notencountered by big companies and multinationals (Kremmidas,2014).A research study conducted by the Canadian Federation of IndependentBusiness established that small businesses face regulatory compliancecosts that are five times higher than those faced by medium and largecompanies (BusinessDevelopment Bank of Canada, 2014). Significant sums of money and time is lost in trying to comply withthe set regulations and complying with red tape. This is time andresources that can be used in ensuring the success of the smallbusinesses. The consequence is that, small business activities areconstantly disrupted leading to less job creation (Kremmidas,2014).

Competition

Increasescompetition from large companies, especially in the retail, fromUnited States and China has been another key issue that many smalland medium enterprises are facing today (Weaver,2014).Increased competition from online retail companies such as eBay andAmazon has made retail business increasingly difficult, especiallyfor business enterprises that have no online operations (Posadzki,2015).Retail analysts and business consultants have indicated that smalland medium businesses have found themselves in a new operatingenvironment that requires retailers to give customers a reason topurchase their commodities or use their services (Kremmidas,2014). Competitionis particularly fierce for business dealing with electronic product.Majority of customers visit stores in Canada just to view theexisting and available merchandise, and then go home to purchase fromonline retailers at a reduced price. Currently it estimated that athird of all Canadian purchase from online stores. The situation hasbeen made worse by the fact that many Canadians are moving into urbanareas. This has totally transformed the retail business, erectingtremendous challenges for shopping center in suburbs (Posadzki,2015).

Therecent closure of operations by in Canada by giants such as Target,and Future shop electronic indicates the evolution that is rapidlytaking places in the Canadian retail scene amid increased competitionfrom online retailers. Clothing retailers Jacob and Mexx are alsoplanning to vacate the Canadian market, and Sony has recentlyannounced that in next two months it will close all its 14 outlets inthe country (Posadzki,2015).In order to survive in the market, Canadian retailers will need toimprove customer shopping experience so that Canadian are attractedto their stores. This may include providing items and experiencesthat may not be found in online retailers.

InadequateFunds for Growth

Businessesare also facing lack of access to finances for expansion and growth(Kremmidas,2014).For the last one decade many business owners and managers, especiallyin small and medium enterprises, have pointed to the fact that accessto funding as being one of the major concerns facing business inCanada today (Weaver,2014).While it is evident that it is not the task of the Canadiangovernment to make businesses successful in the country, the work ofmaking sure that new, innovative and growing businesses have accessto finances as well as adequate infrastructural platform to hastentheir growth. Access to capital is particularly a daunting task foryoung technology businesses with new and unproved products andbusiness start-ups that normally have limited cash flow and tangibleassets to meet the collateral requirements required by commercialinstitutions (Governmentof Canada, 2015).Recently established businesses have no history and lack experienceon how to evaluate their operating performance, to generate crucialinformation on which credit assessments can be done. The creation andexpansion of small and medium sized entrepreneurial enterprises hasalso been hampered by the lack of venture capital funding in thecountry (Weaver,2014).The amount of venture capital financing, in relation to the size ofthe Canadian economy, is smaller than that in the US. In this light,some businesses with the potential of high growth have been forced toabandon their ideas or shift to the United States where the size ofventure capital per company is larger (Weaver,2014).

Overrelianceon Domestic Market

Basedon the information issued by Statistics Canada, small and mediumbusinesses are overly reliant on sales from the domestic market Morethan 60 % of business owners and managers (small businesses)indicated that they depend on domestic market for the sales(Government of Canada, 2015). 51.4 percent of all the businesses in Canada under the category ofmedium size businesses were also found to rely on local sales whileonly 31.8 percent of the large companies disclosed that they dependon domestic market. Perhaps the most worrying aspects is that threequarters of Canadian producers sales came from Canada (BusinessDevelopment Bank of Canada, 2014).Small and medium businesses cited language and cultural barriers,limitation imposed by the size of their businesses and risk aversion(Government of Canada, 2015).While the government can do very little to help them overcomecultural and language barriers, it has so much to do to help themgrow to surmount size limitation barriers. When looking at the globalmarket, businesses required skilled professionals to help themnavigate through international market and processes therein. Manybusinesses are not in a position to access such experts and whileother do not have resources to venture into global market (Posadzki,2015).

Impactson Businesses and Economy

Theissues discussed above have had profound effects on businesses andthe Canadian economy. In the last ten years 14 percent of the mediumsized businesses have reduces in size, with some closing theiroperations altogether (Posadzki,2015).Even though due to confidentiality issues the Statistics Canada hasnot released the number of those business that have been forced toclose down every year, it is all to evident that the number issignificant. Some businesses are becoming smaller, especially thosewith 100-499 employees. Some businesses have also been forced toleave the Canadian market (Governmentof Canada, 2015). The two most conspicuous examples are Target, Future Shop Electronicand Jacob and Mexx retailers. Even big multinationals such as Sonyhave found it increasingly difficult to overcome competition andother challenges in the Canadian market, and are planning close it 14outlets in the coming year (Posadzki,2015).

Theimpacts such results have been visible in the Canadian economy. Thelack of ability to expand for small and medium sized businesses meansthat, the number of job opportunities created per year is less thanwhat would be expected in country where small and medium businessesforms the backbone of the economy (Weaver,2014). Even though unemployment remains relatively low in Canada, it isevident that jobs creation in the past few years has been shrinking.The closure of operations by companies such as Target and Future ShopElectronic means that investors will be very cautious when enteringthe Canadian market. This does not augur well for a country whoseover 90 percent of the businesses heavily depend on local market forsales (Posadzki,2015).

Recommendations

Creatinga business environment that is conducive for creation of enterpriseand entrepreneurship needs a wide range of supportive and mutuallyreinforcing policies. While the Canadian government has madedeliberate efforts to support and provide a favorable environment forbusinesses in the country, some issues are beyond the control ofindividual firms and government. Even so, businesses can do thefollowing to improve the competitive edge and survive in theprevailing conditions:

  • Become more export oriented to reap benefits from the global market

  • Streamlining operations and working conditions to attract skilled immigrants that have the expertise needed.

  • Making use of the Export Development Canada, to overcome barrier to entry in the international market. This is apt for businesses that are held back by fear of risk (Kremmidas, 2014)

  • Intense lobbying through the Canadian Federation of Independent Business (CFIB) to push for removal of barriers to trade across territories

  • Taking advantage of the numerous loans programs and business grants that is provided by the government to expand operations, engage in projects that augment their global competitiveness.

  • Business enterprise should leverage on government loans and business grants for business. Businesses can get access to finances, which can speed up the implementation of strategic plans and thus boosting their business expansion and growth capacities (Weaver, 2014).

Conclusion

Manyentrepreneurs and business managers in Canada point to a considerablerange of issues when requested to establish the most crucial issuesand challenges facing business operations in 2015. Nonetheless, themain element that constantly feature top on the list is the growthrelated issues, encompassing issues such as attracting new clients,accessing capital and financing, recruiting new workforce, andmanaging growth. Besides issues relating to growth, business managershave also highlighted competition as another crucial aspect affectingbusiness operations. Government taxation and regulation combined withthe costs of compliance has also featured as the key aspects inCanadian business environment. The state of the economy, costs andcustomer service have also emerged as issues of major concerns tomany business owners and managers. Businesses can overcome theseissues by leveraging on government loans and grants for growth andexpansion, attracting skilled immigrants, Seeking the help ExportDevelopment Canada to surmount barrier in international market andlobbying for removal of barriers to facilitate cross territoriestrade.

References

BusinessDevelopment Bank of Canada. (2014). What’shappened to Canada’s mid-sized firms?Retrieved from:https://www.bdc.ca/EN/Documents/other/BDC_study_mid_sized_firms.pdf

Governmentof Canada. (2015). Archived— Small Business Information Needs Assessment Survey: BusinessChallenges and Opportunities.Retrieved from:https://www.ic.gc.ca/eic/site/061.nsf/eng/rd00083.html

Kremmidas,T. (2014). Vibrant Small Businesses Are Crucial to Canada’sEconomic Prosperity. TheCanadian Business Journal.

Posadzki,A. (2015). Future Shop closure illustrates challenges facing Canadianretailers. 30March, 2015, CanadianBusiness.Retrieved from:http://www.canadianbusiness.com/business-news/future-shop-closure-illustrates-challenges-facing-canadian-retailers/

Weaver,R. (2014). The six biggest barriers facing small businesses inCanada. TheGlobe and Mail. Retrievedfrom:http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/day-to-day/six-big-challenges-facing-small-businesses-in-canada/article21437327/