18 October, 2023
State of Entrepreneurship in Canada
Entrepreneurship is alive and thriving in Canada, according to a recent report by the Global Entrepreneurship Monitor. The report is the tenth in series or reports on entrepreneurship in Canada and shows a generally very positive situation, particularly in comparison with some other G7 countries.
The Global Entrepreneurship Monitor (GEM) Project is widely recognized as the most comprehensive long-term study of entrepreneurship in the world. GEM offers a portrait of the individual entrepreneur in terms of attitudes, activities, and aspirations and allows for a more detailed demographic breakdown of how factors like age, education and gender play a role in entrepreneurial activity. GEM reports focus on the individual, whereas most entrepreneurship reports focus on the business.
The key findings from the report are as follows.
Perceive opportunities – 59% of Canadians see opportunities to start a business, compared with 46% in the US and only 13% in Japan. That number is down from 71% in 2021 but up from 49% in 2019.
Perceived capabilities – 55 % believe they have the knowledge and skills to start a business, compared with 67% in the US and 54% in the UK.
Entrepreneurial intentions – 20% of Canadian have a plan to start a business in the next three years, compared with 23% in the US and 13% in the UK.
Entrepreneurial activity. One of the most important GEM measures is TEA (Total early-stage entrepreneurs) a measure of what percent of the adult population is actively engaged in starting a business. Another measure is Established Business, those that have been around for more than 42 months. The graphic below shows Canada compared with 5 other major industrial countries.
In 2021 Canada had a TEA rate of more than 20%, higher than the US, but the number declined by 4% in 2022.
Entrepreneurs’ motivation. The study probes what motivates people to start a business. The main reasons are:
- To build great wealth or a very high income – 66%
- To make a difference in the world – 64%
- To earn a living because jobs are scarce – 59%
- To continue a family tradition – 38%
This pattern is similar across most major comparator countries. The motivation ‘to earn
a living because jobs are scarce’ decreased by 12% between 2021 and 2022, suggesting a decline in ‘necessity entrepreneurship.’
Angel investors – 11% of Canadians said they had provided money towards a start up in 2022, proving an average amount of $8,200. This compares with the US, where a similar number provided funding (12.7%), but the average funding was much higher ($41,000). Across the G6 the average amount varied widely from a high of $48,000 in Germany to a low of $9,000 in France. (All is in US dollars).
Industry sector – GEM divides the sector in which entrepreneurs operate into four categories – consumer services, business services, transformation (manufacturing) and the extractive sector (agriculture, mining, oil and gas)
The breakdown for TEA in Canada is shown below.
Technology sector. 5.6% of the TEA group reported that they were active in the high or medium technology sectors in Canada, compared with 8.6% of the Established Businesses.
Growth. Within the TEA group, 2.2% expect to create 19 jobs in the next 5 years. That compares with 3.1% in the US, 1.4% in the UK,0.7% in Germany, 1.3% in France, and 0.5% in Japan.
Export orientation. 2% of the TEA startups have more than 50% of their revenue coming from exports. This compares favorably with the other comparator countries, shown below. 71% of startups do not export at all, similar to the other comparator countries.
Age. The 25-34 age group is the largest contributor to TEA, with 35% of the total activity. The 35-44 age group is next with 23%, followed by 18-24 at 16.7%, 45-54 at 16.5% and 8.7% for the 55-64 age group. That pattern is similar in all the comparator countries.
Gender. As in virtually all GEM countries, the rate of male TEA is higher than the rate of female TEA. In Canada the male TEA rate was 18.4, which was below the five-year average of 20.4. The female TEA rate was 14.8, also below the five-year average of 15.3. The story with Established businesses is similar. The rate of make EB is 7, compared to a female EB rate of 5.4.
In terms of international comparisons, the Canadian TEA for females is 81% of the male TEA rate. That is behind the US (89%) but well ahead of all the other comparator countries. It is similar with Established Businesses, but there the Canadian rate (77%) is higher than the US rate (75%).
Framework conditions. GEM computes a score based on experts’ evaluations of the context for entrepreneurship in each country. Canada scored 5.1 in 2022, unchanged from 2021. Among the G6 countries, the USA ranks first (with 5.2), with Canada, Germany and France tied for second.
Recommendations
The report concluded with four recommendations.
- Promote Public Awareness of the Benefits of Entrepreneurship.
- Support Entrepreneurial Activity and Business Growth in the Extractive and Transforming Sectors.
- Target ‘ease of entry’ framework conditions that limits trade for entrepreneurs and established businesses.
- Address under-representation in entrepreneurial activity in Canada.
Conclusion
The full report is being launched by webinar on November 22nd at 12:00 EST. To register email martha@thecis.ca
Peter Josty
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