Canada’s micro-, small- and medium-sized businesses are experiencing much faster productivity gains than their larger peers, according to a new report by RBC Economics.

According to the RBC report, small- to medium-sized businesses across Canada increased their productivity by annual growth rates of between 2.5% and 3% from 2000 to 2005, whereas their larger competitors increased productivity by only 0.5% per year.

“With the rise of South Asian economies and several economic shocks in recent years, Canadian businesses have needed to focus more closely on growth and productivity,” said RBC assistant chief economist Derek Holt. “In the 1990s, we saw an explosion in the number of small businesses, and while they led employment creation, they suffered from weak productivity. Now, we are seeing micro-, small- and medium-sized businesses mature into a more powerful growth phase in which they are leading productivity gains.”

Of the 70 industry classes tracked, three-quarters saw micro and small business employers experience faster productivity gains than the industry average. Of the large majority that experienced productivity growth, half achieved gains through employment cuts, while the other half did so by boosting the pace of revenue growth above employment growth.

Some industries where small businesses demonstrated the strongest productivity growth over the past five years include motor vehicle and parts wholesalers, chemical manufacturers, plastics and rubber product manufacturers, and information and cultural industries. Among medium-sized businesses, solid productivity growth was seen in non-store retailers, petroleum products manufacturing and wholesaling, air transportation, and wood product manufacturing; and for large businesses, strong productivity growth was found in the following sectors: machinery equipment and supplies wholesalers, transportation equipment manufacturing, food and beverage stores, and food manufacturing.

Alberta, B.C. and Ontario demonstrated the fastest growth rates in new business formations across all size categories, especially among large firms. Alberta led the country with large employers and oil patch-related businesses making the strongest gains in business formations. However, apart from Alberta, B.C. and Ontario, the rest of the country saw a decline in the number of micro firms, and east of Ontario, small business numbers declined as well.

“High energy prices, tight labour markets and the appreciation of the Canadian dollar are the key driving forces that focus attention on increasing productivity levels,” noted Holt. “To meet production targets, small- and mid-sized companies have invested in more machinery and equipment, relying less heavily on labour. As a result, smaller and mid-sized firms have raised their average economies of scale and cost competitiveness.”