Declining Productivity Threatens Canadian Competitiveness

It's going to take investment and risk to close Canada's productivity gap with the United States, says a report released Monday by Deloitte Canada.

Canada's productivity performance lags behind the U.S. in virtually every instance, regardless of company size, sector, business type or location, notes the report titled The Future of Productivity: Clear choices for a competitive Canada. Productivity is cited as the amount of value (as measured in contribution to GDP) produced per hour worked. A Canadian worker generates $13 less per hour than a U.S. worker, $2 less than an Australian worker and $29 less than a Norwegian worker.

"Canadian businesses have proven that they can compete in a global environment and win, but we have too many who choose not to," says report co-author Bill Currie, who is Deloitte Canada's vice chair and the Americas managing director.

The report points to business factors like risk aversion, low export activity and weak R&D spending, as well as the need for a long-term government strategy to support the urgent demands of the next generations of business leaders.

From a business perspective, the report points to a simple solution: growth.

Canada already leads the U.S. and other OECD nations in producing fast-growing firms under five years old. In fact, 43% of all new private sector job creation came from the fastest growing 5% of all Canadian firms. High growth firms exhibit significantly higher productivity levels than other firms in every size or sector category.

As do exporters. "Companies that export and expose themselves to competition outside of Canada enjoy higher productivity, higher growth and higher profitability," says Currie.

The report recommends business leaders running companies of any size follow these action-oriented best practices:

Build national and international businesses: Firms that have successfully launched operations across and outside Canada tend to enjoy higher growth, more innovation and better prospects than businesses that stay local. Competitive intensity is a key driver of their success.

Leverage new capital equipment: Productivity gains, product and service improvements, and competitiveness can all be achieved with the best technologies as new businesses scale and mature firms reshape themselves.

Invest in meeting talent needs: Winning Canadian companies are employing creative strategies to find the skilled employees they need, recognizing that rapid growth strains a firm's talent capabilities in many ways.

Create more clusters: Growing firms benefit through access to distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise and intellectual property that clusters provide.

Invent and then reinvent: Innovation provides opportunities, drives growth in new businesses, and refreshes mature firms before they are pre-empted by others. Measured risk and investment in R&D and acquisitions are critical.

Find the full report here.