Recent immigrants to Canada who begin small or medium-sized businesses are more likely to export and more likely to target markets other than the U.S., according to a new study.
The Conference Board of Canada investigated 15,000 small and medium-sized businesses to determine how companies begun by immigrants who have arrived within the past five years compare to other businesses of the same size.
It found Canada’s diverse pool of immigrants is a source of strength in expanding into new markets, in part because of understanding the language and culture of business in their country of origin.
"Canada’s trade agenda is focused on opening up markets beyond the United States. Immigrants are often touted as a potential way to boost Canada’s exports beyond the U.S., but few have looked at the actual experience of Canada’s immigrant exporters,” said Danielle Goldfarb of the Conference Board’s Global Commerce Centre.
More likely to export
The study found 12 per cent of immigrant-owned businesses export goods and services to markets beyond the U.S., versus seven per cent for businesses owned by non-immigrants. The majority of such immigrant-run businesses were in Ontario and Quebec.
About 19 per cent of immigrant-owned businesses exported, compared to 14 per cent of other SMEs.
"As you might expect, we think immigrants are good way for companies to connect back to trade opportunities in their countries of origin and we found it to be the case that they export more to non-U.S. markets," Goldfarb said in an interview with CBC's The Lang & O'Leary Exchange.
But the study raised some red flags about the long-term health of companies with a recent immigrant as majority owner.
These are among the fastest-growing SMEs, but they earn lower returns on investments in business assets than other Canadian exporters and sell less in dollar value. The profits of non-U.S. immigrant exporters grew at an average annual rate of 21 per cent compared with two per cent for their non-immigrant counterparts.
Many are concentrated in wholesale and retail sectors and thus vulnerable to competitive pricing from other markets.
They also lack networks within Canada, a factor that could ultimately limit their ability to grow. In fact, their cultural ties helped them overcome a weak business model, Goldfarb said.
She said the study highlighted the range of experiences immigrants have in business.
“We really found that there were two groups of recent immigran-owned businesses that exported – one of those groups was really wholesale or retail trade based, not doing very highly innovative stuff, competing on the basis of price. Those are likely to represent less long-term potential," she said.
"There is another group and that group was much more innovation-based, knowledge-based, doing much more research and development and that group represents a lot more potential for advancing Canada’s exports."
Focus on knowledge industries
The Conference Board report put a special focus on the select group of businesses in the knowledge sector run by immigrants, saying it represents important potential in non-U.S. markets.
Because such businesses are innovators and compete on new products rather than low prices, they should be a particular focus of policy makers, the study said.
It advocates policies that encourage financing of knowledge-intensive companies, which have less access to financing than other types of businesses. It also suggests export promotion policies that opens doors for such businesses in non-U.S. markets.
And it acknowledges that the most accomplished SMEs, especially those in the knowledge industries, are seeking out opportunities in the U.S. at the same time they export to non-U.S. markets.
The study was based on figures from Statistics Canada and defines immigrants as people who have been in Canada less than five years.