Supporting Canada’s Innovative SMEs

Daegu Initiative First-Cycle Assessment WorkshopJune 7, 2010Hong Kong, China

Anne PigeonSenior Policy AdvisorSmall Business & Tourism Branch

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J apan Sweden Finland Germany UnitedStates

TotalOECD

Australia Italy France Canada UK

%

2006 2000

Gross R&D expenditure (GERD) as a percentage of GDP, selected OECD countries, 2000 and 2006

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1.00

1.50

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Sweden J apan Finland UnitedStates

Germany TotalOECD

France Australia UnitedKingdom

Canada Italy

2006 2000

BERD as a percentage of GDP, selected OECD countries, 2000 and 2006

Overall Investment in R&D in Canada is low relative to the other comparison countries

Canadian business sector has a low propensity to innovate relative to other comparison countries.

Canada is the leader in public expenditures in R&D.

Source: OECD, Main Science and Technology Indicators, 2008-2

Canada’s Position in R&D

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21.3

2.0

0.271.1

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5

10

15

20

25

Small (0-99) Medium (100-499) Large (500+)

$ M

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Expenditures on R&D

Industry AverageExpenditures on R&D

• Of total R&D spending in 2003, 23 percent came from 10,734 small firms (87 % of all reporting R&D firms), with an average of $0.27 million per firm.

• 60 percent from 371 large firms with an average of $21.3 million per firm.

Small firms on average spend less on R&D than large firms…Average Expenditures on R&D by Firm Size, 2003

Resesarch & Development

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2.8

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Small (0-99) Medium (100-499) Large (500+)

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R&D Expenditures as a %of Revenue

Industry Average R&DExpenditures as a % ofRevenue

• Small business that conducted R&D spent 5.9 percent of their revenues on R&D• Large businesses spent 2.8 percent of their revenues on R&D • The overall average for all businesses was 2.1 percent. • Innovative SMEs generated twice as much revenue and profits than non- innovative firms from 2004 to 2007.

Resesarch & Development…but have a higher R&D intensity than large firms

R&D Expenditures as a Percent of Company Revenues, by Firm Size, 2003

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Source: SME Financing Data Initiative, Statistics Canada, Survey on Financing of Small and Medium Enterprises, 2004.

•R&D intensive SMEs are those who invest 20% or more of their total expenditure in R&D•Between 4% and 5% of Canadian SMEs were R&D intensive in 2004.

Profile of Innovative SMEs (2004)

Innovative SMEs Characteristics Non-Innovative SMEs

51.9 % under 40 years Age of majority owner 53.3 % under 40 years

54.9 % more than 10 years Managerial experience of

majority owner 69.9 % more than 10 years

1–2 years old: 22.9 % started during 2002–2004 3–6 years old: 25.1 % started during 1999–2001 7 years+: 52.0 % started prior to 1999

Year firm starting selling goods and services

1–2 years old: 10.7 % started during 2002–2004 3–6 years old: 18.8 % started during 1999–2001 7 years+: 70.5 % started prior to 1999

21.4 % exporters 41.2 % of revenues generated from exports

Export activity

7.7 % exporters 31.9 % of revenues generated from exports

72.7 % intended to expand business

Growth intention 37.6 % intended to expand business

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Overview of Canada’s Assessment

Area A: LinkagesA4 - Canadian Intellectual Property Office (CIPO) offers reduced fees to “small entities” (fewer than 50 employees)

A8 – Canadian Youth Business Foundation provides loans and mentoring services to young entrepreneurs

A9 – Industrial Research and Development Internship (IRDI) program places graduate students and post-doctoral fellows in businesses to undertake research

A9 – Industrial Research Assistance Program (IRAP) provides funding to innovative SMEs to hire science and engineering students

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Overview of Canada’s Assessment

Area B: Access to SpecialistsB4 – Small Business Internship Program (SBIP) provides a wage subsidy to small businesses to hire a post-secondary student to implement IT or e-commerce projects

B7 – Business Development Bank of Canada (BDC) offers consulting services to its clients

B10 – IRAP provides advisory services and technical services to SMEs through its Industry Technology Advisors

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Overview of Canada’s Assessment

Area C: Access to CapitalC1 – IRAP provides funding for R&D projects to help SMEs develop technologies

C6 – Business Development Bank of Canada (BDC) is a government-owned bank whose mandate is to support Canadian SMEs

C8 – Canadian Small Business Financing Program (CSBFP) is a loan-loss guarantee program which helps small businesses access loans of up to CAD$500,000

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Overview of Canada’s Assessment

Area D: Networks and ClustersD1 – National Research Council has established a network of 11 clusters across Canada

Area G: Measuring ProgressG4 – Statistics Canada measures the innovation performance of manufacturers and measures R&D expenditures by firm size

The Business Model

CLIENT

CLIENT

Technical, engineering and business advice

Networking

International partnership/readiness

Technical and economic studies ($$)

Graduates ($)

Projects ($$$)

Strategic information

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Innovation stra

tegy

Innovation stra

tegy

Competitive Technology Intelligence

Diagnostics ($)

Intellectual Property Management

Strategic planning, Market assessment

SME Innovation

• SMEs are most successful when focused on their marketplace and client

Many people equate innovation with R&D. Their notion is that new ideas from research lead to new products and services. This belief is erroneous.

Innovation occurs by identifying needs and finding a way to meet them.

H. Douglas Barber and Jeffrey CrelinstenOttawa Citizen, March 23, 2010

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Bluedrop Performance Learning, St. John’s NFLD

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Who are IRAP’s clients?

NRC-IRAP worked with 8,053 small and medium-sized enterprises (SMEs)* in 2008-2009, of which 1,604 received funding.

*Firms with up to 500 employees*Firms with up to 500 employees

• 78% had less than 50 employees

• 60% have fewer than 20 employees

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ON QC BC AB MB NB NL SK NS PE

NRC-IRAP’s Number of Clients by Provincefor FY 2008-2009

Province

# o

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ts116175158216293278

836

1045

2312

2526

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What are the clients’ challenges?

• Difficulty sourcing (investment) capital

• Management capacity challenges

• Limited national and international networks

• Do not have enough R&D resources and technical expertise

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$ M

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Expenditures by Industry Sector in FY 2008-2009 ($86.9M)

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What does IRAP provide?

• Customized technical and business advisory services

• Strategic and scientific information

• Linkages to other organizations, potential partners, investors

• Financial support

BTI Photonics, Ottawa, ONBTI Photonics, Ottawa, ON Medicago, Québec, QCMedicago, Québec, QC

What sort of financial supportdoes IRAP give?

Pharmatrust, Toronto, ONPharmatrust, Toronto, ON

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• Financial contributions to firms to develop technologies

• Financial contributions to organizations providing services to SMEs

• Financial assistance to hire new graduates (YEP)

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IRAP Field Staff

Experience• 240 ITAs

• All have extensive R&D and management experience in industry

• 75% have Masters or PhD

• 45% have run their own R&D facility

• 34% have been entrepreneurs

Outreach• Field staff are located

in 147 offices in 100 communities

• Each work with 42 clients per year

• 11 of their clients will receive funding from NRC-IRAP

• Typically make 105 client site visits a year

Services• R&D project advice• Competitive

Technical Intelligence• Networking and linkages• Funding opportunities &

programs

LEGEND

NRC-IRAP Industrial Technology Advisor (ITA)

NRC-IRAP Regional Office

NRC Institute

NRC Cluster

Where does IRAP support clients?

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How NRC-IRAP works with organizations, universities, colleges and

cegeps

• NRC-IRAP staff co-located at organizations, universities and colleges

• Expert services and information

• Enhance linkages across provinces and countries

• Participate in sectors, clusters and national programs

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How do we get to work together better?

• Field staff to know each other locally and in their sector of interest

• Ensure that local staff knows about what each other can do for the SMEs

• Become a part of each other’s tool kit

• Personal relationship is the key

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Kinek Technologies, Saint John, NB

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