Government contracts a boon for small businesses? Not so fast, say uOttawa researchers
As governments look for ways to promote growth in the business sector and create jobs, part of the solution lies with entrepreneurial businesses. Small and medium-sized enterprises (SMEs) account for a disproportionate share of job creation, innovation and the accompanying economic prosperity in Canada.
Federal, municipal and provincial governments, which direct nearly 33% of their spending on goods and services, might look like a cash cow for Canadian small and medium-sized enterprises (SMEs). But new findings by a team of researchers from the University of Ottawa’s Telfer School of Management paint a surprising picture of who’s cashing in, who isn’t, and why.
One of the team’s key findings is that Canadian SMEs are just not that into to the federal government. “Between 2012 and 2014, less than one in ten Canadian SMEs were doing business with the federal government, while nearly 82% currently don’t view the federal government as a potential client,” explains University of Ottawa master’s alumna Diane Liao, one of the study co-authors.
They also found that SMEs supplying the federal government are typically older and have more employees, come from knowledge-based and technology-based industries and are more often male- rather than female-owned. Additionally, SME suppliers were more likely to grow, innovate and export.
A gender gap
Canadian women have been launching businesses at faster rates than men for several decades and now own more than 180,000 firms with employees. Indeed, 16% of SMEs overall were majority female-owned in 2014. However, only 10% of firms supplying the government are majority female-owned.
“A few factors could explain why,” says Barbara Orser, professor at the Telfer School of Management. “Female-owned SMEs are disproportionately younger, women entrepreneurs have typically fewer years of management experience and female-owned firms are less likely to be in the knowledge-based and information and communication technologies sectors, which make up a big part of SME supplier firms.”
The team’s study reveals that SME suppliers and non-suppliers cite similar hurdles to selling to the federal government: lack of awareness of contract opportunities, complicated or time-consuming application processes, and unsuccessful bids. “There seems to be a need to better inform Canadian SMEs about the types of goods and services purchased by the federal government. Some SMEs also view the application process as complicated,” added Allan Riding, professor at the Telfer School of Management
To help the federal government encourage Canadian SMEs to bid on procurement contracts, the team proposes a research framework to overcome the hurdles identified by businesses:
- Identify factors that help explain why some SMEs are suppliers to the federal government.
- Examine the extent to which being a SME supplier to the federal government improves a firm’s performance, sales, employment figures, innovation and exports.
- Examine the extent to which, if any, gender identity influences the chances of being a SME supplier to the federal government.
According to the team, the payoff could be significant. Policy informed by better information on the relationship between the federal government and Canadian SMEs could be a strong lever for innovation and economic growth.
Members of the research team
Diane Liao (MSc, Telfer School of Management), Dr. Barbara Orser and Dr. Allan Riding (Deloitte Professors in the Management of Growth Enterprises, Telfer School of Management). The study was undertaken in collaboration with Dr. Quang Duong, director, and Jérôme Catimel, manager, of the Business Analytics Services Directorate, Procurement Business Management Sector, Acquisitions Program, Public Services and Procurement Canada.
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