Guy Gellatly

Financing Innovation in New Small Firms: New Evidence From Canada

This paper investigates the financial characteristics of new small firms. The analysis develops a representative, small-firm financial profile and evaluates the extent to which the proportionate use of different instruments and sources is correlated with industry-level and firm-specific characteristics. Multivariate methods are then used to examine relationships among financial structure, R&D intensity, and innovation. Our results suggest that relationships between knowledge intensity and capital structure are bidirectional. After a range of industry- and firm-level covariates are controlled for, firms that devote a higher percentage of their investment expenditure to R&D also exhibit fewer debt-intensive structures. Conversely, debt-intensive structures also act to constrain investments in R&D. These relationships, however, depend upon the type of debt in the asset mix. It is the share of long-term debt to total assets that is negatively related to investments in knowledge.

Growth history, knowledge intensity and capital structure in small firms

This paper explores the financial characteristics of successful Canadian small- and medium-sized enterprises (SME). It asks whether industry membership and early growth history play a role in shaping these financial characteristics. Our study reveals a strong correlation between capital structure and knowledge intensity. In contrast, growth histories are not obvious determinants of financial structure. Results also suggest that leverage strategies are more apparent in low-knowledge industries, in firms with higher expectations of future performance, and in businesses with more balanced financial structures. Industry comparisons are based on production activity and knowledge intensity. Growth distinctions are based on the firms employment and sales history. We evaluate our hypotheses with survey data from a stratified random sample of 2775 Canadian firms. Proportional weighting techniques are utilized in all analyses.

Understanding the Innovation Process: Innovation in Dynamic Service Industries

In studies of business innovation, the term innovation process is used to describe (i) the array of sources and objectives that culminate in the act of innovation, (ii) the set of market effects that result from innovation, and (iii) the obstacles that firms encounter when pursuing innovation strategies. An examination of the innovation process is thus designed to bring about a more comprehensive understanding of the characteristics that innovative firms share, as well as of those characteristics that set innovators apart from other businesses. The Survey of Innovation, 1996 examined innovation in three dynamic service industries: communications, financial services, and technical business services. This paper explores the principal findings to emerge from the Survey of Innovation, 1996. Two themes are apparent. In the first instance, many elements of the innovation process are common to all the service industries studied, such as an emphasis on product innovation, a strong customer orientation, and a commitment to service quality. Beyond these common elements, however, differences in competitive pressures across these industries serve to engender important differences in innovation strategies. Accordingly, much of what we can ultimately learn about the innovation process occurs at the industry level.

The Left Brain of North American Cities Scientists and Engineers and Urban Growth

Using pooled Census of Population data for 242 metropolitan areas, this paper evaluates the link between long-run employment growth and the supply of different types of skilled labor. It also examines factors related to the growth of a particular type of skilled labor—workers in science and engineering occupations. The first part of the article investigates the contribution of broad and specialized forms of human capital to long-run changes in urban employment from 1980 to 2000. It places particular emphasis on workers in science and engineering and culture occupations. The second part of the article focuses on factors that influence the growth of science and engineering employment across metropolitan areas. It examines whether the scientific capabilities of cities are influenced by amenities such as the size of the local cultural sector.

Global Links: Long-Term Trends in Foreign Investment and Foreign Control in Canada, 1960 to 2000

This paper outlines broad changes in foreign ownership in Canada over the last forty years. It makes use of several different but complementary data sources that are produced by Statistics Canada to analyze the importance of foreign ownership in Canada. Over the last four decades, foreign multinationals that are operating in Canada have experienced first, a retrenchment and then, a resurgence in their activities. This retrenchment occurred during the period when foreign investment was tightly regulated and could be found across most industries, but was particularly evident in the energy and mining sector. The resurgence that has occurred subsequent to the introduction of a more liberal regulatory regime was also relatively widespread, though there are several sectors like the science-based and energy industries where this has not occurred.

A Firm-Based Approach to Industry Classification: Identifying the Knowledge-Based Economy

In recent years, economists have expressed considerable interest in the growth of new technology-based firms (NTBFs). Often at the forefront of product development and advanced technology use, these firms are seen to be critical to an economy’s transition to knowledge-based production. Two factors, however, have created a tendency to regard the evolution of NTBFs as highly industry-specific. The first is the high visibility of new rapidly growing sectors (e.g., biotechnology, information technology). The second is the emergence of taxonomies - such as that used by the Organization for Economic Cooperation and Development (OECD, 1997) - that score industries as being either high-or low-tech.’ Is it true that NTBFs are largely sector-specific, as existing classifications would suggest, or, alternatively, are these firms found in many industries? This issue has important implications for public policy. If the former is true, sector-specific policies to encourage the growth of NTBFs are appropriate; if the latter is the case, such policies may be misplaced.

Differences in Innovator and Non-innovator Profiles: Small Establishments in Business Services

This paper explores differences between innovative and non-innovative establishments in business service industries. It focuses on small establishments that supply core technical inputs to other firms: establishments in computer and related services, engineering, and other scientific and technical services. The analysis begins by examining the incidence of innovation within the small firm population. Forty percent of small businesses report introducing new or improved products, processes or organizational forms. Among these businesses, product innovation dominates over process or organizational change. A majority of these establishments reveal an ongoing commitment to innovation programs by introducing innovations on a regular basis. By contrast, businesses that do not introduce new or improved products, processes or organizational methods reveal little supporting evidence of innovation activity. The paper then investigates differences in strategic intensity between innovative and non-innovative businesses. Innovators attach greater importance to financial management and capital acquisition. Innovators also place more emphasis on recruiting skilled labour and on promoting incentive compensation. These distinctions are sensible - among small firms in R&D-intensive industries, financing and human resource competencies play a critical role in the innovation process. A final section examines whether the obstacles to innovation differ between innovators and non-innovators. Innovators are more likely to report difficulties related to market success, imitation, and skill restrictions. Evidence of learning-by-doing is more apparent within a multivariate framework. The probability of encountering risk-related obstacles and input restrictions is higher among establishments that engage in R&D and use intellectual property rights, both key elements of the innovation process. Many obstacles to innovation are also more apparent for businesses that stress financing, marketing, production or human resource strategies.

A Decade of Growth: The Emerging Geography of New Economy Industries in the 1990s

This report compares employment growth in information and communications technology (ICT) industries and science-based industries across provinces, urban and rural regions and census metropolitan areas (CMAs).

Innovation Capabilities: The Knowledge Capital Behind the Survival and Growth of Firms

This paper summarizes the findings of a research program aimed at outlining the importance to the firm growth process of competencies that arise from investments in intangible assets. The program has consisted of two parts. First, longitudinal databases have provided a rich set of studies on entry, exit, mergers and other aspects of dynamics related to growth and decline in firm populations. These studies have shown the pervasiveness of growth and decline in the firm population. By themselves, these studies do not demonstrate what strategies differentiate the most successful from the least successful. To do so, we have built a set of firm surveys that allowed profiles to be developed of the type of competencies that stem from investments in organizational capital. In turn, these are linked to administrative data that allow us to classify firms as either growing or declining. We then asked how differences in competencies were related to the performance of firms.

Global Links: Multinationals in Canada: An Overview of Research at Statistics Canada

The papers main objective is to provide a concise synthesis of a wide array of data and research on multinationals originating in Statistics Canada, focusing on both historical and current studies. Chapter 2 discusses the macroeconomic contribution of foreign multinationals, focusing on two leading indicators of foreign multinational activity, foreign control and foreign direct investment. This chapter also describes studies that evaluate the contribution that foreign-controlled companies make to aggregate trade flows, linking changes in multinational trade intensity to the strategic reorganization of their production activities. Chapter 3 concentrates on the strategies and activities of foreign multinationals that are relevant to ongoing debates over whether the presence of foreign multinationals promotes, or hampers, Canadas industrial competitiveness. This chapter first examines evidence that domestic and foreign firms respond differently to domestic market conditions. Second, it asks whether foreign firms compete in different ways than domestic firms do. Third, it examines the relative emphasis that foreign multinationals place on innovation and technology practices, and reports on the relationship between these activities and observable market outcomes. Fourth, it reports on the contribution that foreign-controlled firms make to productivity growth. Fifth, it discusses new research that focuses on the relationship between foreign ownership and head-office employment. Studies in these areas speak directly to the issue of whether foreign multinationals truncate or develop their corporate activities in host markets. Chapter 4 focuses on studies that examine the foreign activities of Canadian-owned multinationals and how their domestic plants compare to foreign-controlled plants operating in Canada. Chapter 5 offers an appraisal of Statistics Canadas research on multinationals.