How immigrants can make the economy great (again and again)
Does diversity foster innovation? Can it be harnessed to find new ways to tackle business challenges, or to better serve the community? We’ve noticed that employees, clients and suppliers from different backgrounds not only enhance our appreciation of a changing Canada but offer new solutions to some of the biggest challenges in our markets. Can those fresh perspectives help Canada solve some of our collective economic challenges, particularly around growth and productivity?
Let’s look at the context. Canada’s labour productivity growth has stagnated for decades. Our most innovative cities lag behind global innovation hotspots — not only Silicon Valley, but places like Boston and Tel Aviv. We’re investing less, not more, in intellectual property.
Also, Canada is immigrant-rich. We take in about 250,000 newcomers a year, and have the highest proportion of foreign-born residents in the G8–20.6% in 2011. That’s expected to rise to more than 25% by 2031.
Diverse perspectives and approaches should be a key ingredient in the secret sauce of innovation. Many of the world’s innovation hubs are places to which talented immigrants flock. Think Hong Kong or New York or London — where differences in background, choice and perspective come together to create excellence. The qualities that define immigrants — risk-taking, openness to new ideas and manners, an ability to build something from scratch — are also at the heart of innovation.
We looked at the evidence. And we spent the summer talking to people who understand the immigrant entrepreneur experience best — business owners who’ve won recognition for their efforts.
Our conversations with RBC clients offered a window into the future of entrepreneurship in Canada, suggesting immigrants could play a key role in boosting productivity and innovation. Here are SOME observations:
Risk-taking is in immigrants’ DNA
One of our entrepreneurs turned an academic assignment about a friend’s experience with a scam into a fraud-detection business. Another had never cleaned a house before launching a cleaning-services business that’s employed up to 40 people at a time. The entrepreneurs looked past language barriers or fear of failure and saw the opportunity to build a business in Canada. “When your target is to climb Mount Everest, you don’t start there…. You start in the Gatineau Hills,” one said.
Many of Canada’s biggest and best known companies were started by immigrants — think auto-parts giant Magna, or dairy-processor Saputo, to name a few.
The immigrant entrepreneurs that we talked to came from different countries, and worked in fields ranging from food manufacturing to 3D printing to beauty products. Though their routes to business ownership varied, they overwhelmingly agreed on one thing: immigrants are open to risk. As one put it, “To immigrate is an entrepreneurial act.”
While immigration has its challenges, it also opens doors — “more opportunities to be innovative,” as another put it — because the individual already isn’t following an established path.
The entrepreneurs we interviewed also said their experiences as newcomers had pushed them to work hard, not to fear starting something, and to be more open to new ideas. That’s the crux of innovation.
Many of Canada’s immigrants are their own bosses
Many of our immigrant entrepreneurs spent time at Canadian firms before taking on the challenge of self-employment. One quit a six-figure salary at a major tech company, realizing “I can make this work.” Another spoke of the difficult experience of being fired as a teenager, and decided “that can never happen to me again.”
Immigrants take on self-employment at higher rates that the domestic-born population — 7.6% of Canada’s foreign-born become entrepreneurs, compared with 5.6% of the domestic-born population. There may be structural reasons for this: newcomers may not have the accreditation to enter some fields, face challenges integrating into the workforce, or simply lack access to the right networks.
Our immigrant entrepreneurs come up against some of those obstacles. But many also had the same inspirations as other entrepreneurs, or a family history of business-building.
Whatever the reasons, immigrants account for an increasing share of the owners of small and medium-sized enterprises (23.6% in 2014, up from 21.7% in 2011). That’s important for Canada, where SMEs represent 99.8% of all companies, account for nearly one-third of economic activity, contribute close to 30% of R&D expenditures, and have accounted for nearly all of the net employment change over the past decade.
Immigrant-owned firms have an inclination to innovate and grow
One of the people we spoke to is a serial entrepreneur who has founded two businesses in nine years in Canada, is working on an app, and sits on the board of a regional incubator. Another aims to build a $15-million-a-year IT firm into a $100-million-a-year business in the next decade by giving employees a stake. Immigrants are “put into difficult situations and have no other choice but to innovate,” one said.
Immigrant-owned firms come in many forms — and that includes firms focused on twenty-first century needs. Companies owned by foreign-born residents accounted for nearly 40% of businesses in Canada’s Information, Communication and Technology sector in 2014, second only to accommodation and food services. And a high number of immigrant-owned businesses in Canada were start-ups: 32.9% of the firms had been around less than two years, up from 28.2% in 2011. That’s encouraging, since startups are typically the vehicle through which game-changing innovations come to market.
Nearly one-quarter of the SMEs that undertook innovation activities that year were owned by someone who wasn’t born in Canada. In addition, immigrant-owned firms accounted for nearly a quarter of high-growth firms — those that were expanding at a rate of at least 20% a year. RBC Economics research shows that larger firms contribute more to productivity growth.
The entrepreneurs we spoke to — whose businesses ranged from a handful of employees to several hundred — were also eyeing growth, or starting a new venture. Many were serial entrepreneurs.
Immigrants can help Canada to look beyond the U.S. to other markets
One of our entrepreneurs exports food products not only to the U.S. but to Singapore, the U.K., Australia, Hong Kong and the UAE. Another built a logistics business here and has established a foothold in Eastern Europe.
The world’s top ecosystems share a common trait — global interconnectedness. That’s due to their ability to attract employees from foreign countries, and a willingness to “go global” at an early stage.
Canadian firms owned by immigrants are more likely to expand beyond the U.S. — which, for some Canadian firms, is the only foreign stop — to Europe, Latin America and Asia. And they’re more inclined to pursue export-oriented strategies.
RBC research shows that export-oriented SMEs have higher revenues and, because they face greater competition, prioritize investment. And that leads to higher productivity growth.
It’s clear that many of the traits that make people entrepreneurs have nothing to do with origin: an ability to recognize an unmet need, or a willingness to work long hours. It’s also clear that all entrepreneurs need support to thrive.
QUESTIONS FOR DEBATE
It’s clear that immigration leads to entrepreneurship, and entrepreneurship leads to innovation. Less clear is why an immigrant-minded country like Canada is not thriving more. The bridge from cause to effect seems to be missing some planks.
To better understand the challenges of economic integration, some hard questions are worth debating:
1. Do professional bodies block the ambitions of immigrant entrepreneurs?
Canada’s immigrant population is better educated than the Canadian-born population, but often faces administrative barriers to economic activity. The engineer who can’t gain professional accreditation. The accountant who is forced out of accounting. Often these immigrants end up starting businesses in fields that are divorced from their field of training. That can be positive, opening new doors to new minds. It can also be economically dilutive, stripping professionals of their greatest skills as they set out to launch their own ventures. Do we need a new approach to professional accreditation?
2. Do small business taxes punish immigrants?
Some governments have suggested tax breaks for small business encourage wealthy professionals to hide behind them, and should be raised to match personal income tax rates. Others fear tax breaks may encourage small businesses to stay small. In both cases, immigrants may be unwitting victims — excessively taxed on the very opportunities they came to Canada to harness. Should tax considerations be given to immigrant entrepreneurs?
3. Do immigrants have access to finance?
Canada has the world’s best access to finance, according to the World Economic Forum. Those who move here can open a bank account, get a credit card, sign a mortgage and obtain a line of credit more easily than anywhere else. Sometimes Canadians find concern in this–inflated housing prices, for instance — but for the most part it’s been an important element of economic integration. Can the same be said for immigrant entrepreneurs who want to scale up their ventures? Our interview subjects felt they had the same access to bank loans, or and stock market listings, as their Canadian-born rivals, but they also felt it is easier to access capital in the United States. Should official financing agencies be tasked more explicitly with helping finance immigrant-entrepreneurs?
4. Do immigrants have fair access to markets?
Our approach to trade agreements, and trade promotion, tends to focus on the needs of large firms and individual producers, notably farmers. Small firms may not be ideal subjects for a political photo op. They also don’t have the capacity — industry association, and the like — to build institutional relationships in other countries. Moreover, their limited economic history in this country can present credit-rating challenges for export agencies that may be needed, for instance, to help manage currency risk. And yet those firms –nimble by nature and loaded with overseas contacts and cultural fluency — can be Canada’s savviest exporters. Do we need to change the way we approach international trade to favour them?
5. Do immigrant entrepreneurs have access to talent?
Scaling up, at home and abroad, requires marketing talent. And marketing is among Canada’s greatest skills shortages, particularly in the digital economy with its emphasis on data. Immigrants are often best in class, but Canada has not always been the best at recruiting such skills or connecting them with entrepreneurial firms. Can our network of incubators and accelerators be better integrated with our immigration system to ensure fast-track firms and fast-track professionals connect?
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*We interviewed 23 immigrant entrepreneurs in the greater metropolitan areas of Calgary, Edmonton, Halifax, Ottawa, Montreal, and Toronto. The pool of candidates came from three sources: RBC clients, past nominees and winners of the Canadian Immigrant Award, and past winners of the Women Entrepreneur Award. Data research was conducted by RBC Economics.
John Stackhouse, Carolyn King, Laura Cooper, Emma Stanton and Ashleigh Ryan all contributed to this piece.