This article was originally published in Canadian Business on October 25, 2012.
Big business-defined by Statistics Canada as any company with 500 employees or more-contributes 48% of Canada’s GDP, including 57% of the value of our exports, and has historically been the major driver of Canadian research and development. Statscan’s figures show that, before the 2008 fiscal meltdown, more than half of Canada’s total R&D spending came from just 514 firms. Because Statscan’s research also showed that R&D spending as a percentage of revenue gradually declined as firms grew bigger, the federal government last spring changed some of its policies to skew tax incentives in favour of small- and medium-sized enterprises.
The government should re-examine that decision. It’s quite natural for small and medium-sized businesses to spend more per capita on R&D than large business: many of them are built around a unique product or service that requires a company to spend proportionally higher amounts on R&D innovation. Among Canada’s top 100 corporate R&D spenders in 2011, a little Toronto-based company called Transition Therapeutics would get the gold star in innovation because it spent nearly 300% of its revenue on R&D. That sounds compelling until you realize that its revenues are only $13 million. Compare that to the 6.8% of revenue that RIM spends on R&D; it doesn’t sound like much until you realize that it equals $1.4 billion in investment in research and development. So who is producing more jobs and investment?
It’s hard to understand sometimes why governments are so concerned about big companies growing bigger. It could be because there is a general feeling in government that, as big businesses have already enjoyed considerable success, it is government’s job to create more competition and to level the playing field to allow smaller players to enter. It could also be for more directly political reasons; helping small- and medium-sized businesses has a more direct effect on voting intentions. After all, most employees of a large company would have only a passing understanding of how government support helps them compared to those who work for a small company whose fate may well depend upon a government tax break.
In an increasingly competitive economic environment, this policy makes less sense. We need to be much more global in our policy approach-not only by challenging large companies to compete abroad and become national champions, but by giving them incentives to do so. The federal government has gone a long way in improving the competitiveness of our corporate tax rates. Now it needs to take a closer look at such things as the Competition Act, which can be very restrictive on large companies that wish to continue to grow and expand.
I see this regularly in my work on behalf of some of the biggest companies in Canada, which understand the imperative of growth as the best way to raise productivity, create jobs and help maintain Canada’s standard of living. Just this month, federal competition commissioner Melanie Aitkin, reacting to the complaints of Bell’s competitors about BCE’s now-scuttled purchase of Astral Media, said, “The transaction troubles a lot of people.” Of course it troubled Bell’s competitors, who appear to have been attempting to thwart Bell’s growth through regulatory tactics. For its part, Bell invested over $800 million last year in R&D (and that doesn’t even include more than $175 million spent on new content creation). We ought to reward a company that’s investing to serve its customers better-not stunt its growth with regulatory roadblocks.
If the government is concerned about competition, it should allow more foreign corporations in to compete against Canadian companies that dominate the domestic market. Yes, there are some sectors of the economy we may wish to protect, but we can always fall back upon Investment Canada for that. Most important of all, we have to stop punishing those Canadian companies with the ambition to grow and compete on a global scale.
Mike Coates is the president and CEO of Hill+Knowlton Strategies Canada.