The manufacturing sector has been hardest hit by a phenomenon that is leading to the disappearance of mid-sized companies in Canada.
The number of companies that employ between 100 and 499 workers has plunged 17 per cent between 2006 and 2010, and most of that evaporation has occurred in Ontario.
Most mid-size dwindled into small-size ones in recent years, rather than growing into large-scale ones, a Business Development Bank of Canada study to be released Wednesday shows. The agency says it is the first such detailed study on the state of mid-sized firms in Canada.
Mid-sized companies are a crucial driver of the economy because they are a key source of innovation, research and development and exporting clout. While medium firms comprise just 1 per cent of the total number of companies in Canada, they punch above their weight, accounting for almost one in six jobs in the country and 12 per of economic activity. Their disappearance suggests many are struggling in an era of heated competition, a strong currency and choppy demand.
That so many are shrinking is "huge," BDC chief economist Pierre Cléroux said in an interview.
"That means they are losing this critical mass that is so important to be able to invest and export and do research."
All told, the number of mid-sized companies fell to 7,814 firms in 2010 from 9,370 four years earlier. While a few grew into large companies, most got smaller. On average, 14 per cent of medium firms became small companies or (less commonly) closed down per year in the period, while just 1.4 per cent turned into large corporations.
Perhaps the most troubling area is the implication for exports.
Canada is in urgent need of diversifying its export base away from the United States and toward more fast-growing economies like China and India. It is steadily losing ground: In the past decade, losing 40 per cent of its world's export market share while China has gained 175 per cent, according to the IMF.
That's not the case for all higher-cost advanced economies. Germany has lost just 5 per cent in the past 10 years, showing "it is possible to still compete at the world level if you are a development country," Mr. Cléroux said, citing the "Mittelstand" (Germany's mid-sized business sector) as an example that has seen companies become world leaders in their niche.
He has several suggestions to bolster support of mid-sized companies: ensure they have better access to financing (which tends to be geared to either the large or small ends of the spectrum) and bolster on-the-ground government support in emerging economies to help firms navigate new overseas markets.
The crux of the problem seems to be in manufacturing. In the past decade for which there is data, the number of mid-sized factories plunged by half. And the bulk of the slide in mid-sized firms was in Ontario – indicating many are having tough times coping with a strong currency and growing competition.
In Ontario alone, the number of mid-sized firms plunged by 25 per cent between 2006 and 2010.
The paper is compiled from two sources: data from Statistics Canada's economic analysis division and a survey of 301 executives who lead mid-sized firms. Most research and statistics about the sector tend to lump small and medium companies into one category, making it hard to assess trends of just mid-sized ones.
The survey asked execs what is stopping their companies from becoming large-size firms. The top reasons where lack of financing, stiff competition and retaining and attracting staff.