Smartlink - paper by Vinod Kumar

Centre for the Study of Training, Investment and Economic Restructuring
and
School of Business, Carleton University, Ottawa K1S 5B6

Small businesses make significant contributions to the Canadian economy and are expected to be instrumental in helping Canada seize a competitive edge in the 1990s and beyond. However, such businesses are characterized by a very high failure rate. In this paper, we document the experiences of eleven successful small firms of varied industrial domains in small towns of Eastern Ontario, Canada. From an analysis of their experiences, we identify some key success factors and problems, and draw insights that might be useful for entrepreneurs to emulate. We provide suggestions that centre on overcoming weaknesses of the firms and on the roles governments and financial institutions might play to ameliorate the problems.

The 1990s have radically changed the business world. "Restructuring" is the latest buzzword spreading to all facets of the economy. Innovation, computers, telecommunications and information technology have transformed organizations, making many of them leaner, smarter and flatter.

Large corporations are trying to become smaller and shedding their excess layers. Governments are facing financial crisis; controlling budget deficits has become a nightmare. In such a situation, small and medium-sized enterprises (SMEs) have the potential to take Canada out of the recession and prepare it for the competitive environment of the next century (Morgan, 1994).

Governments and industry have traditionally focussed on large business enterprises. However, a surge in large inefficient bureaucratic organizations led to the expansion of SMEs which were on the cutting edge of innovation, responding quickly to shifts in technology and markets (Howard, 1990).

Small businesses account for 98% of the firms in Canada/North America (Peterson 1977, Carland et al., 1984), and are responsible for the creation of 80% of all new jobs (Hofer and Sandberg, 1987). These businesses' share of the GDP (Gross Domestic Product) in Canada has risen from 33% in 1981 to 38% in 1991. The growth of small business in Canada is largely attributed to Canada's transition from a resource-based economy to a knowledge-intensive one, driven by innovation and technological change. Rapid innovations in information and telecommunications technology have allowed SMEs to respond quickly to changing consumer needs - a strategic advantage in today's highly competitive marketplace. With the help of new technologies, small firms can innovate faster, produce in high volumes, and cheaply proliferate their product lines.

Increasing globalization and North American Free Trade Agreement has increased the pressure on Canadian SMEs. Canadian firms that are poorly managed and those that are unable to respond and adapt to changes will simply disappear, since business standards are now defined by the best in the world. The enormous challenges of the new global economy will require every Canadian firm to change the way they operate (Gasse, 1994). Using the latest technology, and improved management practices are essential for any firm willing to succeed in the new global village.

Greater demand for more specialized products, rapid technological innovation, and cheaper and more flexible computer-based production technologies have facilitated the growth of small manufacturing companies (Howard, 1990). In particular, smaller firms can respond more quickly, both in the marketplace and within their own facilities. Smaller firms can effectively combine their competitive strengths such as faster turnaround time, higher quality, and flexibility with customizing, and providing better service in order to successfully compete with larger businesses.

However, small firms find it increasingly difficult to carry out their own R&D, train their workforces, raise capital, and invest in expensive technology (Howard, 1990). Moreover, these firms are highly vulnerable to fluctuations in interest rates and recession (Gasse, 1994). In fact, 80% of all new small businesses fail within 80 months and 65% fold before the end of five years (Bates and Nucci, 1989; Boyle and Desai, 1990). Due to the high level of risk associated with lending to small businesses, banks tend to avoid start-up financing where there is no proven track record, collateral, or equity in place.

Although small business is the fastest growing segment of the Canadian economy, it has not been accorded its due respect by the financial institutions. Banks have always been perceived as low-risk lenders, and their rigid loan criteria have excluded many worthwhile enterprises. Banks usually target loan losses of only 0.5% to 1% of their total loan portfolio. They are forced to operate in this narrow range in order to pay interest to depositors, cover expenses, and provide a return to shareholders. In 1991 and 1992, SB loan losses represented 1.3% for Canada's six largest banks -up from the more acceptable level of 0.7% in 1990 (De Laurentiis, 1994). However, there is no firm evidence that bank credit, or a lack thereof, is the only critical factor to SB growth. Availability of small business financing is a broader problem than previously thought. Actually, Canada suffers from a shortage of venture capital and equity financing sources in the area of business start-ups (De Laurentiis, 1994).

Another issue is the cost of servicing small business borrowers. Banks find it labour-intensive and unprofitable to review, approve, secure and service a $50,000 loan in comparison to a $5 million loan which does not take huge additional resources but is far more profitable. Banks are very often accused of ignoring the financial needs of the small business sector. On the other hand, banks are the major source of debt financing for small business - providing over 80% of financing needs to this sector. In fact, during the height of the recession- between 1991 and 1992 - the banks' total small business portfolio actually grew by 3.1% - reaching close to $26 billion.

The largest challenge to successful lending is SMEs turnover rate. It is a fact that fewer than half of all SMEs survive beyond the three-year mark. These failures may have as much to do with competitive forces in the marketplace, poor management, or a career change of the principal as with financing issues. This is one of the reasons why banks need to look beyond their traditional financing role to find other ways to support SB success and growth.

This increasing importance of SMEs has prompted us to explore some of the factors contributing to the success of SMEs. Due to the limitations of time and other resources, we will focus on SMEs in Eastern Ontario. The study will also investigate the reasons that motivate firms to establish in small towns versus big cities. In addition, it looks into some of the problems faced by small businesses and the impediments to their success.

The study should help managers of SMEs identify factors that could help them achieve success and recognize problems before they became serious. At the same time, weaknesses identified by the study could be used by participating firms to improve their operational efficiency. Furthermore, recommendations developed from the study can be used by managers, government agencies, and financial institutions to develop better strategies in order to help the success and growth of small businesses.

Eleven small businesses were interviewed. Information was also collected from three economic development agencies which included the Renfrew Industrial Commission, The Ontario East Economic Development Commission and Grenville Community Futures. All of the participating firms were located in Eastern Ontario and covered a variety of industries, from dairy-related to steel to high-tech products.

A profile of the eleven participating companies is presented in the next section followed by the results of the data analysis and recommendations resulting from the research endeavour.

2.0. Profile of Participant Firms

2.1. MADAWASKA HARDWOOD FLOORING, INC.

Ross Staples, the President and owner of Madawaska Hardwood Flooring, has turned this previously loss-making company around. In April 1990, he purchased the company from Seattle-based Lindal Cedar Homes. Soon Staples, a professional accountant with more than 35 years of experience in wood-related business, discovered two major causes of the company's problem: absenteeism of ownership and ineffective general management. He also noticed the existence of a sizable market for hardwood flooring.

The acquisition of the company was financed through personal funds and a three-year interest-free loan from the Eastern Ontario Development Corporation. Staples borrowed $300,000 from the Corporation and considers the loan to be the primary factor that enabled him to pursue his dream of being an entrepreneur. The loan was repaid before its due date.

When Staples bought Madawaska, the company was affected by severe recession in flooring industry. Nevertheless, a confident and enthusiastic Staples turned the company around and showed how efficient management and a committed workforce can succeed under the most difficult circumstances.

Madawaska Hardwood manufactures a variety of flooring, from green lumber to kiln dried and from sawed to machine strapped. The plant employed 40 people before the acquisition. Staples increased the number of employees to 61, most of whom are low-skilled. He took advantage of the government's human resource development program in order to split the cost of the company's human resources planning. Government advisors helped Madawaska formulate salary grids, employee handbooks, performance review systems, and job descriptions. Staples considers this assistance to have been invaluable.

Staples restructured the production system. A small batch job shop operation was transformed into a semi-automated production line system. In place of having 10 to 15 individual workstations, the new manufacturing set-up was limited to two major lines. Staples has also invested $250,000 in new equipment in the last two years. These measures have increased the production capacity from 5000 board feet/week to 22,000 board feet/day. Although Staples computerized all office operations within months after taking over the company, he believes that one should only invest in new equipment only when the potential of available resources is fully utilized. Staples says, "We have reached a point where we have to invest more in order to improve productivity, and we have decided to go ahead with further capital investment". He has recently acquired a $15,000 semi-variable hydraulic drive that would increase productivity by 6-7 per cent.

Approximately 90% of the raw materials come from Canada and 10% from the USA. Madawaska follows the "Buy Canada" policy wherever possible, since Staples believes that more jobs can be created and sustained if Canadian businesses buy from local sources.

In discussing the role of government, Staples says that the federal and provincial governments are doing an excellent job. His company attended trade shows in Japan and Mexico and found the trade shows organized by the government to be extremely beneficial to the growth of his organization. Over 60% of the company's revenues are derived from exports.

Staples offers three reasons why small businesses require help from the government to export. First, firms lack the necessary financial resources and management skills. Secondly, they have no idea of how to go about the process of exporting. Finally, they do not have the necessary contacts. Staples notes that financing export activities is not as important as organizing trade shows, advertising them, and facilitating connections between businesses. He gives full marks to the federal government for organizing trade shows abroad.

In 1994, Madawaska Hardwood was awarded the Outstanding Business Achievement Award by the Ontario Chamber of Commerce for its leadership in product quality, employee participation, and penetration into world markets. Staples says that his biggest achievement to date was restructuring a loss-making unit and turning it into a highly efficient and profitable one, especially during a period of recession. He is glad that he got an opportunity to share the wealth generated by his firm with his employees and provide employment to 61 people in the town of Renfrew. He attributes his success to a strong management team, a co-operative and productive workforce, and a first-rate product.

Madawaska Flooring's main competitive strengths are high quality, efficient service, good prices, and the ability to serve different markets. Staples future plans include adding more shifts, producing laminated flooring, and expanding into the pre-finished business, which he considers to be a natural extension. These plans could add another 20 jobs and increase sales from the present level of $10 million to $35 million.

Madawaska's biggest concern regarding expansion is the Ontario Labour Relations Board. The company has a union since the last three years. According to Staples, labour laws instituted by the NDP Government were pro-union and tied the hands of management. For example, labour legislation prevents workers from crossing the picket lines during a strike. Staples firmly believes that employees should have the right to work during a strike if they wish to do so. At one point, Staples even seriously considered expanding south of the border into the United States, which provided many incentives to new companies for setting up in underdeveloped areas. Recently, the new PC government has changed most labour laws.

Nevertheless, Staples is very satisfied with the town of Renfrew. He says that Renfrew is a beautiful town and is well situated to serve the US, Ontario, and Quebec markets. It is close to the port of Montreal and goods are shipped to Vancouver by train for export to the Orient. A good workforce is readily available and Renfrew has a pro-business mayor willing to offer all the assistance possible to businesses in his/her towns.

2.2. ANDYNE COMPUTING

Andyne Computing Ltd., based in Kingston, Ontario, has a world-wide market for its software that allows easy access to data using graphics. Over 75% of the company's revenues come from major software and computer manufacturers in the United States such as Apple, Tandem, and Hewlett-Packard.

Andyne started in 1976 as a general consulting firm but began specializing in computer-related consulting. Realizing the computer industry's potential, Andyne started focusing on product research and development. In 1989, it introduced a novel software called GQL (Graphical Query Language), which was originally designed to support the Macintosh Computer. GQL is a decision support vehicle that provides an easy guide to information on relational databases. The latest version allows seamless sharing of documents among users of Windows, Macintosh, and Unix/Motif versions.

Since the company could not generate a large enough market for GQL in Canada, it went to the United States, where it managed to strike deals with major companies such as Apple, Tandem, and The Ask Group. In fact, the relationship with the Ask Group proved very fruitful, helping Andyne’s revenue to grow from $660,000 to $13 million in just six years.

The company has recently introduced two new products, PABLO for Windows and Rosetta. PABLO is a multi-platform product that is compatible with all computer types. It provides a powerful end-user data access, analysis, and reporting tool for working with multidimensional information. It summarizes important information and provides decision-makers with multiple views of their data. Rosetta, Andyne's latest software, promises to provide the broadest access to information at the desktop. Andyne believes that for the first time end users will have the ability to combine information from all corporate data sources into a single view and hence be able to make better decisions.

Paul Belshaw, Internal Services Manager of Andyne, considers GQL as Andyne's crown jewel. The GQL's success has transformed Andyne into a truly international company, with markets stretching from South America to Australia. The company has a subsidiary in France to look after its expanding sales in Europe and sales offices in several large US cities. Andyne's 1995 international sales have increased four-fold from the previous year. Its products are now available in four languages: English, French, German, and Japanese.

According to Belshaw, Andyne is the most successful company in Kingston, employing around 130 people. 1994 was an important year for Andyne. The company went public by trading on the Toronto Stock Exchange and the NASDAQ stock exchange. It has transformed itself from a single-product company to one offering multiple products and complete business solutions.

Belshaw attributes Andyne's success to good products such as GQL and PABLO which satisfy a specific market niche. The company specializes in designing user and system-friendly graphical interfaces. Moreover, all its products are synergistic; in other words, they all are reasonably integrated and address the same parts of the system. The company claims to be fairly flexible in responding to customer needs by making minor modifications to its software in order to accommodate clients' specific requests. Belshaw considers the skills of Andyne's employees, its partnerships with major vendors and computer/software manufacturers, its flexibility to adapt to customer needs, good international marketing, and its object-oriented technology to be the company's major strengths.

Unfortunately Andyne reported a net loss of $454,000 for 1995 compared with net earnings of $1,416,000 for 1994. The company attributes falling profits to slower sales from Computer Associates International Inc. (its new partner) and Andyne's inability to adapt to changing market dynamics. The partnership is a result of change in Andyne's marketing strategy of selling directly in the US market. Andyne's chief executive Cameron Thompson acknowledges he underestimated how long it would take for a large firm such as Computer Associates to assimilate the new business and promote Andyne's products. Andyne's previous partner, The Ask Group, accounted for 33% of Andyne's total sales, in comparison to Computer Associates which accounted for 11% of total sales.

Another factor that has not helped Andyne is its location. When compared to Ottawa or Toronto, Kingston seems to be at a considerable disadvantage. It is not considered to be the "Silicon Valley" of the North. Belshaw explains that since Andyne is not situated in the high-tech belt, it misses the advantages of informal networking with other high-tech firms which could be critical in today's competitive environment. Secondly, Kingston does not have an airport, which hampers many transportation and marketing activities. Finally, even though Queen's University has been able to satisfy most of Andyne's workforce demands, the company finds it difficult to attract skilled people to Kingston. Belshaw remarks that there is no interchangeability of labour in the field of software development in Kingston. As a result, Andyne does not enjoy the benefits of expertise from the industry as a whole. These disadvantages prompted Belshaw to comment that Andyne would have been better off if it were situated in Ottawa.

The company's future plans include aggressive market penetration in South America, the Far East, Eastern Europe, and Russia and a renewed focus on increasing market share in the US. The company believes that there are a number of growth possibilities and that PABLO has tremendous growth potential. Andyne also plans to further integrate its product line to make its products more compatible to each other.

Andyne’s ambitions are hindered by weaknesses in marketing. For this reason, the company plans to obtain advice from marketing consultants and to pursue a strategy of direct selling to large firms. The Internet, which is being widely used by most major firms, will also be used by Andyne to market its products.

Belshaw notes that the software industry is going through major changes and predicts that developing add-ons for software will be the future trend. (Add-ons are value-added software products which increase the potential of a firm's current software and are specially developed to fulfil specific requirements.) Belshaw sees a bright future for Andyne. He forecasts an annual growth rate of at least 25% until the year 2000 through the introduction of several new products in the market place.

2.3. SANDVIK STEEL

Each day, more than 100 million men worldwide shave with razor blades made from Sandvik Steel. In fact, every fourth razor blade in the world is made from this leading-edge stainless steel, cemented carbide, and high-speed steel tools.

Sandvik Steel Canada, whose parent company is located in Sweden, is a $4 billion global player employing over 30,000 people all over the world. It has facilities in the USA, Canada, the Czech Republic, China, and South America. The entire operation is extremely decentralized; each plant is run as a cost centre. The head office acts as a facilitator formulating global business and investment strategies, and provides R&D support to all the subsidiaries.

The Arnprior facility in Ontario started in 1970 as a Noranda plant. Sandvik AV became a major shareholder and the company was renamed Norsand. This facility was dedicated to manufacturing nuclear tubes. Canada seemed to be an ideal place to manufacture nuclear-based products due to its position as a major nuclear power equipment manufacturer. In late 1980's, Sandvik purchased the entire Arnprior facility and it became Sandvik Steel Canada.

The 1990's saw the world moving away from nuclear energy to other sources of energy. Recognizing this trend, Sandvik decided to restructure its organization between 1991 and 1992. According to Roland Desjardins, manager of human resources and quality assurance, Sandvik made a 360-degree shift, from a ratio of 96% nuclear and 4% commercial products in 1990 to 98% commercial and 2% nuclear products in 1995. Desjardins considers the company's restructuring efforts to be a major landmark in the its history. The restructuring has led to amazing results: from $15-$20 million in annual sales, the company has jumped to a $60 million operation. There has also been a considerable change in the firm's marketing strategy. Sandvik had to review its customer service strategy, quality control systems, and continuous improvement programs. This is because, while the company previously dealt with one or two customers, mostly governments, it now had to deal with several customers. This change demanded greater efforts in scheduling and customer service. This meant educating the employees about the company's new objectives.

The company now manufactures tubes for several commercial industries such as petrochemicals, electronics, pulp and paper, petroleum, instrumentation, and heat exchange. Most seamless tubing products are sold to mass distributors and sometimes directly to end users for big projects such as the Hibernia and Saudi petroleum projects.

Desjardins believes that Sandvik is the world's best producer of steel. Its main strengths include technical knowledge in process and products, dedicated employees, and exceptional R&D efforts. This has resulted in products that are superior in terms of quality, product mix, and technical specifications. Much of the process technology is developed by Sandvik itself to suit its specific requirements. Most of the process and product innovations are transferred from the parent plant in Sweden to various subsidiaries.

Sandvik has had some difficulties in coping with increasing demand for its products. By the end of the first quarter of 1997, its capacity will increase to 140,000 metres/week from the current level of 120,000 metres/week. The workforce has also been increasing steadily. For example, since 1994, the labour force has increased by about 40 people, to 200. It is expected to increase to 220 in the near future. Increasing production implies a greater number of challenges for Sandvik. Desjardins indicates that issues which requiring attention include continuous improvement initiatives, employee training, customer service, flexibility in responding to market demands, and delivery times.

Every company faces threats from external factors. Sandvik is no exception. Desjardins agrees that there is always the fear that producers of low-end products will be able to improve their quality and compete with Sandvik. This makes it imperative that Sandvik constantly strive to improve its products and processes, while at the same time trying to cut costs. Government regulations are another important factor. Environmental laws and social policies such as employment equity demand additional resources from companies, thus increasing their costs. But Sandvik is determined to reduce costs through process improvements, reductions in cycle time, and improvement in overall efficiency. Desjardins realizes that this will require improving employees' knowledge and skill, providing greater accountability and responsibility on the shop floor and implementing the latest technology.

Sandvik is also keen to diversify, moving more towards recession-proof products. One of the largest emerging markets is the electronics (chip) industry. The company's strategic plan is to become a $100 million operation by the year 2000. Desjardins believes that such a goal will require aggressive expansion.

Desjardins expressed his concern at government eliminating the on-site training program. Under this program, people who were unemployed could get free training and opportunities to contribute to industry, thus enhancing their self-esteem. It also reduced the training costs to companies. Desjardins recommends that the government simplify laws, remove obstacles, and create favourable conditions for businesses to grow. He is also unhappy with the amount of red tape existing in the government. He is of the opinion that the government should simplify the process of obtaining subsidies, yet maintain sufficient control.

Sandvik does take advantage of subsidies still provided under different government programs. For example, it enjoys training subsidies under which it has to pay 50% of the training expenses for its employees. It also uses R&D subsidies to offset some of its research expenses. In addition, Sandvik employs students during the summer, for which it receives financial benefits from the government.

Desjardins says that the company is very satisfied with its location in Arnprior, for a variety of reasons: it offers reasonably-priced land, the tax base is lower when compared to Ottawa or Toronto, operating costs are lower, skilled labour is easily available, and it is very close to Ottawa and major transportation highways. In addition, local municipalities are very helpful and the county has a user-friendly approach to business. Desjardins's concluding remark is that Arnprior has an excellent manufacturing base, and if the government takes the right measures, businesses will boom in this part of Ontario.

2.4. MEASUREMENTS INTERNATIONAL

"Our products are of the highest quality and accuracy available in the world today", says Duane Brown, the President of Measurements International, a Prescott-based metrology company. Measurements International (MIL) is a manufacturer of high-precision instruments in the field of electronic metrology. Metrology is essentially the science of measurements and weights, and it is mainly applicable to the power and research industry. MIL's major customers include the US Department of Energy, Canada's National Research Council, the Swiss Federal Office of Metrology, and Quebec Hydro.

Measurements International was founded in 1987 by three partners including the electrical engineer Duane Brown, the company's current President. Brown had previously worked for 17 years with a metrology company where he slowly worked his way up to the position of a general manager with an emphasis on marketing. He identified a niche product line but his employer was not interested in pursuing it. Brown decided to go ahead on his own and formed a company with two other partners, one a senior employee from the National Research Council of Canada (NRCC) and the other a colleague from his former company.

Measurements International found it extremely difficult to break-even for the first three and a half years, from 1987 through the recession of 1990-1991. However, the company survived and today boasts annual sales of $2 million. As Brown explains, "Metrology is long term. It does not happen overnight. The industry is such that no matter how well known the founders are, every new company has to prove itself. The metrology products are considered a capital investment and therefore users take time to assess their needs and make commitments". Because the process of new product evaluation by the customer is very long, it took the company three years to sell its first product.

The company's list of products include scanners, AC and DC voltage metres, resistance bridges, hi-current measurement instruments, power calibration systems, and wattmeters. MIL is the only manufacturer of the innovative current comparator technology. The company has developed more than 25 new products in the past seven years. It also offers consulting and training programs to customers worldwide. The company has 15 employees on its payroll in Johnstown and also has a sales office in the US, which is its single largest market. Approximately 40 per cent of MIL's market is in the US, with another 40 per cent overseas and 20 per cent in Canada.

Brown has concerns with some of the US trade regulations. He believes that Canada- US Free Trade Agreement (CAFTA) has increased the people's patriotism on both sides of the border. Another problem is "Buy America" act requiring that military contracts be awarded to firms set up in the USA. Brown also believes that the amount of paperwork required under CAFTA is excessive. In addition, US regulations require at least 50 per cent North American contents. These factors have increased the company's costs, since the company often has to purchase North American components that are comparatively more expensive than those made in Europe or Asia.

American trade regulations and the importance of the US market have forced MIL to establish a manufacturing facility south of the border at Ogdensburg, New York. The company may not have to pay taxes for as long as 20 years and the government has promised to pay a certain percentage of the company's wages for a period of three years. Setting up this was one of MIL's biggest decisions. Ogdensburg offers many incentives. Labour, especially unskilled labour, is cheaper and there is no shortage of skilled labour due to the presence of many other high-tech companies.

Brown considers the NRCC to be an important partner of MIL. Technology developed by the NRCC is world-recognized, and the institution is considered a pioneer in the area of research and development. However, the NRCC's research efforts do not materialize into products. Measurements International therefore utilizes some of the NRCC's ideas and develops them into products. Most of MIL's products are manufactured under license from the NRCC, for which it pays a 5% royalty. Brown indicates that the ability to use NRCC's leading technology is MIL's greatest advantage.

However, MIL does not use only NRCC technology. Much of its technology comes out of its own labs. Brown proudly notes that MIL was the first company to automate in the field of metrology. Previously, metrological products required a number of highly skilled operators. MIL built metrology into the product. With most organizations aggressively cutting costs, automated equipment that can be easily operated by a few people makes economic sense. Products developed by MIL require a single technician, this makes it possible for companies to eliminate most of their metrologists.

Brown feels that the company was tricked into coming to Prescott. The area development agency promised many incentives to MIL for locating the facility in Johnstown, an underdeveloped area during those times. However, with the cutbacks, the agency vanished. To be sure, Brown recognizes that Prescott offers some advantages. Its closer proximity to the US border has led faster customer service. Shipments containing parts/components or defective products are picked up from the border by MIL employees and sent back, if required, the next day. Prescott also has easy access to major highways and is close to Ottawa, Montreal, and Toronto.

MIL spends approximately 40 per cent of its budget on research, and the company takes advantage of various government incentives such as the Industrial Research Assistance Program (IRAP) and those provided by Ontario Innovation and Productivity Service Strategic (OIPSS) Business Society. The company receives a few IRAP's awards each year, the biggest one amounting to $60,000. OIPSS provided MIL with guidance on how to prepare a strategic marketing plan and with financial assistance for their new building.

One of the weaknesses identified by Brown is MIL's inability to successfully market its products all over the world. The business requires company representative visit customers at least once a year. Since metrology is a very specialized field, it is difficult to find a knowledgeable individual who can handle highly educated customers. Brown the owner-marketer is finding difficult to afford to be out of the country for six months of the year. The company, through a government subsidy hired a marketing representative, but the individual quit after six months, the company could not find another representative for South America. Measurements International wishes to explore many new markets such as South Africa, Croatia, and Czechoslovakia..

Measurements International has recently obtained its ISO 9000 certification to allow its products to gain better access to the European market. ISO 9000 was introduced as one of a number of mechanisms to curb the entry of North American products into Europe. Brown believes that the ISO certification has less to do with quality and more with the documenting a process and adhering to it. He cites an example where MIL had to spend $200,000 to obtain certification that its products meet European emission specifications.

When asked about his ambitions, Brown says that he hopes to increase the company's sales to over $5 million in the next five years.

2.5. STEDNITZ MARITIME TECHNOLOGY LIMITED

Wolfgang Stednitz, the owner-manager of Stednitz Maritime Technology Limited, holds three Masters' degrees and is highly respected by his colleagues as a distinguished acoustic expert. After working for over two decades with Krupp in Germany, Stednitz decided to retire to the small town of Eganville in 1984. One year later he founded Stednitz Maritime Technology Limited at R.R. 6 Eganville and submitted an unsolicited proposal to the Canadian government to develop an acoustic flowmeter. The proposal was accepted and the government awarded the company a $139,000 development contract. This contract was crucial to getting Stednitz Maritime started and was used to develop an acoustic flowmeter, called AFFRA, that instantaneously provides extremely accurate measurements of water flow in a river or canal.

The technology developed by Stednitz is radical and innovative. Two transducers are installed on opposite sides of the river in order to measure the amount of water flowing in the river. One transducer transmits an acoustic pulse downstream to the other, which in turn retransmits it upstream. The time taken by the pulse to travel between the two transducers is used by a computer, along with other measurements such as river depth and cross-section profiles, to determine the flow rate. The first trial system was installed in the Bonnechere River, behind the Stednitz's home. The Eganville area suited the company's project as it had a number of rivers and bushes.

The AFFRA is linked to computers via a modem or satellite. Since the system has to work under all conditions and in different types of rivers, the software used has to be fairly sophisticated. The system is so versatile that it not only takes into account not only the physical conditions, but also the data requirements of different countries.

The Canadian government in 1986 bought the first system. Each AFFRA system costs around $15,000. Although the company did not resort to marketing, the word soon got around in the world. Stednitz estimates that there are approximately 300 hydrologists in his field, and all of them know each other. As a result, any news of recent developments spreads quickly. The company soon started getting orders and sales started soaring from 1993 onwards. To date, Stednitz has installed over 120 systems world-wide. It has markets in Canada, the US, Germany, and Switzerland. Mrs. Stednitz, a partner in the company, remarks that while initially the United States Geological Survey was not interested in this system, now it cannot do without it. Interestingly, over 90% of the company's sales are outside of Canada.

The company's major strength is its innovative technology and the expertise of its owner, Wolfgang Stednitz. The company is also known for its excellent customer service. Each of its systems is guaranteed for a period of ten years, and the Stednitzes personally travel to any remote location whenever there is a problem. Some of the installation and maintenance is done by the company's agents appointed in Germany, the US, and Ireland.

Mrs. Stednitz is satisfied with the company's size. She does not wish to join forces with a large firm and borrow funds from banks. Stednitz wants to enjoy its independence and grow at its own pace.

However, the company experiences many problems due to its small size. One major problem is obtaining components for the systems. Since the company requires parts in small quantities, it is often last on the supplier's list. Mrs. Stednitz complains that the company is not treated fairly by US and Canadian suppliers, which ask for credit references on every occasion. Another problem is the US customs. Mrs. Stednitz feels that the company is hard-hit by US imposed duties and entry fees.

Other problems include inefficient cross-Atlantic services from Ottawa's international airport. Stednitz finds government agencies rarely useful and banks not supportive to a small company at initial stages. However, the company finds the R&D tax credit very useful in subsidizing parts of its research efforts. According to Mrs. Stednitz, other programs demand substantial amounts of paperwork, and so the company is not interested in them.

Marketing is a definite weakness of Stednitz Maritime. The company simply relies on word-of-mouth to promote its products. It has the right product, but lacks the marketing expertise. The company clearly requires a strategic marketing plan in order to exploit the full potential of its products. It has only one employee and uses many subcontractors. Moreover, the company has not made any serious efforts to take advantage of the various government programs. It could, perhaps, use government aid and assistance in preparing marketing plans, conducting feasibility studies, employing students, participating in trade shows, and obtaining a web-site on the Internet. If Stednitz makes the right moves, its product and technology could dominate the global acoustic flowmeter market.

2.6. EASTERN INDEPENDENT TELECOM LTD.

Brockville-based Eastern Independent Telecom Ltd. (EIT) is the success story of two visionary entrepreneurs. The two partners, John Goodwin and Clifton White, started EIT in 1974 as a two-man operation that engineered and installed telephone equipment. The company provided engineering, installation, and maintenance services to Bell Canada as well as to 38 independent telephone companies.

Eastern Independent has since grown to 80 people with annual sales of $15 million. The company has sales offices in Dallas, Ogdensburg, Toronto, and Ottawa. It has recently established a sales office in Ogdensburg, New York, to manage contracts in the United States.

The company has a small manufacturing base. Most of its activities focus on installation, distribution and servicing of equipment. It is the sole distributor for the Siemens Digital Central Office (DCO) in Canada. It is also a distributor of Alcatel Fibre Transmission Equipment. The company's main activities revolve around the installation and servicing of the products of these two multinationals. In the past, the company made an attempt to diversify into the refurbishing of telephone exchanges but failed. However, this attempt provided EIT with the necessary expertise to move into the digital switching equipment business. Digital technology was recognized to be the wave of the future. Entering into this area required upgrading of employees' technical skills. The move from analogue to digital, so early in the game, was a strategic move and a key turning point in EIT's history. It perhaps helped EIT to secure the distributing rights for Florida-based Stromberg-Carlson Corporation, now a part of the Siemens group of companies, in 1995.

Goodwin says that EIT's main strength comes from its employees. A number of employees have been with the company for 10 to 15 years. Like a big family one of the companys' basic principles is to care for its employees and their families.

The employees' technical expertise and dedication have encouraged the two partners to commit a great deal of money and resources towards developing a new product, the Bit Boss. The Bit Boss is an intelligent protocol manager that can be used to interface between different systems such as ISDN and old electromechanical or electronic systems. Goodwin considers EIT's commitment to develop Bit Boss to have been a key decision taken by himself and his partner four years ago. Goodwin has great confidence in Bit Boss, which he is convinced will be the company's future competitive advantage. The government has also indirectly participated in this project through different schemes such as the investment tax credit, IRAP, and funding from NRCC and OIPPS. Although the company has still not realized any profit from Bit Boss, it expects to do so this year.

The company plans to expand further into the United States and possibly Mexico. NAFTA and the Canada-US free trade agreement provide a good opportunity to do so. Goodwin notes that NAFTA has made it very easy to move people across the border to undertake subcontracting jobs. Previously this was almost impossible.

Eastern Independent is confident of growing 20 to 30 per cent by the year 2000. This growth will be focused on international telecommunications markets, and on tapping into the global information highway. The company is not interested in building the highway. It wants to focus on creating the ramps, so that people can have easy access to the vast amount of information available on the highway.

The company is currently in the process of applying for ISO-9000 certification. It is doing so because customers like Bell Canada insist that all subcontractors have to be ISO-9000 certified in the near future. The company has been completing all the formalities for the past two years. Goodwin finds this to be extremely frustrating. He complains that there is too much meaningless paperwork. He summarizes the entire process by saying, "As long as your paperwork states that you are going to manufacture at an 80 per cent failure rate, you can produce at this rate and still pass the ISO-9000 certification. Many large companies are not impressed with ISO-9000". Goodwin claims that the company has never lost a contract because it was not ISO-9000 certified.

EIT is very satisfied with its location. Due to the presence of Brock Telecom, it is very easy to find skilled labour in Brockville. The town is very pleasant, commuting to work is painless, and people seem to have a good work ethic. Moreover, the local authorities are very helpful and permits for expansion are easy to obtain. In addition, Brockville is extremely close to the US border, making it convenient to move people and products back and forth.

EIT finds many government programs ineffective. There is a lot of red tape and excessive paperwork. EIT subscribes to a company that specializes in supplying information about all government programs.

Although EIT has been very successful, it has many weaknesses. The company has been able to establish strategic alliance with large manufacturers such as Siemens, Alcatel, and Nortel. However, it has not been aggressive enough in pursuing its sales targets, especially in the US. Goodwin acknowledges that it is extremely difficult to tap into the huge US market. Even NAFTA and ISO-9000 may not help a great deal, he says.

Another major problem faced by the company is its shortage of capital. However, Goodwin claims that banks have been very good in granting loans to the company. Like other businesses, EIT also faces threats from competitors. But in this case EIT's competitor is Nortel, the largest manufacturer of switching equipment in North America. EIT is looking for support from its partner, Siemens, to challenge Nortel's monopolistic position in Canada. Presently, the majority of Siemens' switch sales have been made to 100 small independent telephone companies in Ontario and Quebec.

According to Goodwin, recession is also a potential threat. Many telephone companies are laying off employees. It is difficult to seek subcontracting jobs when a company is cutting back vigorously.

Still, Goodwin sees many future opportunities for EIT. The company is relying on Bit Boss to turn it into a major player in the global telecommunications industry. Once the restructuring in telephone companies is complete subcontracting work is likely to go up. The company is also bidding for a large DCO network required by Maritime Tel & Tel, a Bell-controlled company. The company is looking into other areas as well, such as peripheral telecom products, engineering services, consulting, and training. Goodwin proudly claims that EIT is a one stop shop for telephone companies and that it stands for, "Excellence In Telecommunications".

2.7. KAO INFOSYSTEMS CANADA INC.

Kao Infosystems Canada Inc. of Arnprior, a manufacturer of computer diskettes, is a part of the Japan-based Kao Corporation, a US $7.5 billion conglomerate that develops, manufactures, and markets personal care, industrial, and chemical products. Kao Corporation is also one of the largest manufacturers of diskettes in the world. It produces diskettes under its own name as well as for major companies like Microsoft, Apple, Lotus, and Novell. The company has diskette manufacturing facilities in the United States, Canada, Spain, and Ireland.

Four Ottawa Valley engineers originally formed the Arnprior facility in 1984 to manufacture 5 1/4" computer diskettes. When the company, called Didak Corporation, was looking for additional capital in order to expand its operation, Kao Corporation became interested in entering the diskette manufacturing business. The two parties met, and Kao bought 90 per cent of Didak's shares in 1986.

At the same time, Kao also made significant investments to upgrade the existing 5 1/4" facility in Arnprior and put plans to start manufacturing 3 1/2" diskettes on the table. The new plant was constructed within a year, with an operating capacity of 2.5 million diskettes a month. In 1993, Kao increased its capacity to 7 million a month. The present capacity is 10 million per month. The two reasons for such aggressive expansion are the existence of world-wide market for diskettes to the tune of 5.5 billion a year, and the desire to take advantage of economies of scale.

The Arnprior facility operates on a 7 day-a-week, 24-hour-a-day basis. It employs 220 people and enjoys annual sales of over $50 million.

Kao has recently shut down the 5 1/4" facility. But greatly increased the production of 3 2" diskettes. At the same time, it has also diversified into producing CD-ROMs and offering other services such as pre-mastering, replication, custom packaging, disc label printing, graphic design, cassette duplication, Pixturedisc^TM printing, warehousing, packaging, and CD-recording. The entire diversification strategy is part of the company's move into a global software fulfilment and distribution services program. This program provides software developers, publishers, and computer manufacturers with a range of media manufacturing, software duplication, and distribution services designed to shorten cycle time and reduce operating costs. It provides even customer support service through a 1-800 service based in California.

The CD-ROM plant is highly automated, incorporating the latest in manufacturing technology. CD-ROMs are made to order, and the system works on a job shop basis. This makes scheduling of CD-ROM production difficult, especially since Kao Canada produces 800,000 CD-ROMs a month.

Kao Corporation has four other CD-ROM production facilities located in Lancaster-Pennsylvania, Freemont-California, Dublin-Ireland, and Tochigi-Japan. All five facilities use the same equipment and operating procedures guaranteeing customers uniform high quality CD products and services, regardless of manufacturing sites. The five plants are interconnected to provide universal pre-mastering capabilities and global integration. Such levels of integration enable simultaneous world-wide product releases and help customers manufacture close to their markets. High integration also makes Kao a one-stop-shop for software manufacturing, duplication and distribution. In fact, Kao Canada and Kao Pennsylvania take regular advantage of each other's capacity.

Kao Canada's main markets include the US, South America, Africa, Japan, the Middle East, Australia, and New Zealand. It is the most popular brand of diskette in Canada, and its products are shipped to 28 countries around the world. Over 70 per cent of its total production is exported, the United States being the largest market.

What are the secrets of Kao's huge success that transformed it from near zero to a world leader in less than a decade? In response to our query, Craig Cunningham, the Director of Operations replies, "If you maintain the right business strategy and have a strong workforce, such as we have in Canada, it is not a difficult task". He informs us about Kao's training programs. Training starts when a person joins the company. The company has its own university, called KICI, which offers more than 50 courses in technical, business, and general areas. The KICI training is supplemented by outside training. Kao receives strong support from Ontario Skills to subsidize its training efforts.

According to Cunningham, employees are expected to understand all aspects of the business. Through group activities employees are encouraged to discuss issues and come up with recommendations. The Japanese style of management has adopted an open office concept, which, Cunningham explains, has led to improved communications and help it to integrate all levels of management.

Kao considers its employees as its most valuable asset. Therefore, it is not surprising that Kao has a very low employee turnover rate. The in-house-developed training program has been so effective that Kao Canada is now teaching the latest management techniques to its much larger sister-firm in the US.

The company's main competitive strengths are innovativeness, excellent service, and high quality standards. The company is ISO-9000 certified. Most decisions are the result of thorough marketing research. The Arnprior facility is one of the lowest cost sites among Kao subsidiaries and possesses the best market penetration rate in the world.

Kao finds the Ottawa Valley a very suitable location for its business. Arnprior is very close to Ottawa, the "Silicon valley" of Canada. Moreover, the Federal government, one of Kao's largest customers, is situated in Ottawa. At the same time, real estate rates are lower in Arnprior than Ottawa, and this has helped Kao in lowering the cost of its aggressive expansion strategy. In addition, a skilled labour pool is readily available in the region, and the labour force possesses a strong work ethic. Although Kao does not receive any incentives from the region, local agencies are very cooperative.

Excellent work also enables the company to thwart competition from cheap low quality diskettes made in South East Asia. However, price degradation is a major threat to Kao. Therefore, it is always under pressure to keep costs down.

Speaking of future opportunities in the area of data storage devices, Cunningham presents an interesting picture. He envisions the Digital Video Disc (DVD) technology to be the next evolution of CDS. While the laser disc has not been accepted by all manufacturers, a common standard has been agreed upon by Toshiba, Sony, and Philips for the DVD. The DVD is aimed at the consumer market and is expected to replace the VHS. The DVD's advantages over existing systems are that it can hold 18 gigabytes of information and allows complete fusion of a home entertainment system. Cunningham realizes the tremendous opportunities in this area and states that Kao will be ready for it when required. While he is aware that this technology faces competition from other media like the Internet, cable TV, Direct and Satellite TV, he firmly believes a bright future for this new piece of technology.

2.8. ST. ALBERT CHEESE

St. Albert is a classic example of a cooperative succeeding in a small town. Its history dates back to the late 1800s, when cheese manufacturers refused to accept deliveries by milk farmers if they did not need the milk. The farmers therefore decided to manufacture cheese themselves. In January 1894, ten local milk producers defied local cheese makers and formed a cooperative in order to make their own curds and whey. This is how St. Albert cheese was born.

The cooperative had 200 milk producers in the early 1900s, each owning between one and five cows. Today, the company has just 40 members contributing 20 million litres of milk annually, equivalent to 2 million kilograms of cheese. Some of these members own more than 100 cows. Membership has declined significantly because many owners have merged their assets or have been bought out.

The co-op has one general manager and six members who sit on the Board of Directors. It is extremely successful, with annual sales exceeding $15 million. It employs over 20 full-time employees and an equal number of part-time students during the summer. Many of the co-op's employees have been working there for over 20 years and therefore possess considerable expertise in the art of making cheese. Being the largest employer in St. Albert, it receives good support from the local community.

During the Second World War, the company went through a difficult period and was forced to amalgamate with other area milk producers in order to stay in business. In 1950, the co-op went a step ahead and invested in machinery. At the same time, it also diversified into other products. However, lack of capital and of marketing expertise pushed it to the verge of bankruptcy. Since during this difficult phase the co-op received full support from the community, by the end of the 1960 it managed to turn around.

St. Albert operates in a niche market. Not many manufacturers make fresh moist and squeaky cheese, says Rejean Ouimet, the co-op's general manager. People like the fresh cheese and consequently flock on weekends from neighbouring areas such as Ottawa, North Bay, Sudbury, Valleyfield, and Maniwaki to buy it. Consumers are willing to pay slightly more for cheese that has not been sitting in a warehouse for two or three weeks. Each of the co-op's over 30 varieties of cheese aggressively competes in the market.

The co-op has also established a retail outlet linked to its facility in St. Albert. The store opened in 1980 and makes a weekly net profit of approximately $3000. It is extremely popular with tourists; people even come from south of the border to buy fresh cheese. The co-op organizes a three-day curd festival every year in the summer which includes games, barbecues and a guided tour of the plant. Over 6000 people attended the festival last year. It spends between $30-$40,000 a year on advertising and promotion, mostly in organizing the curd festival. The advertising is generally done between May and December of each year.

St. Albert has two major competitors that operate in the fresh cheese market, both based in Gatineau. Ouimet says that they have an edge by virtue of their being in the Ottawa-Hull region. Their location gives them the ability to respond quickly. In the case of St. Albert, the co-op's distributors are responsible for arranging shipping and are sometimes unable to make prompt deliveries. Ouimet consider this logistics problem a major challenge for St. Albert.

The co-op's traditional manner of making cheese is not very efficient, and therefore, not profitable. Ouimet requires new equipment for packaging which will cost an estimated $700,000. Since Ouimet's cost-cutting measures have no allowance to pay high interest rates, he has categorically asked the Board of Directors to re-invest some portion of their profits. The proposal, however, is not being viewed favourably.

St. Albert seems to have an excess capacity amounting to 500,000 kg. of cheese. It is therefore exploring market opportunities in the Toronto area. St Albert also has failed to penetrate US market. Ouimet finds exporting to be a complicated issue. The co-op and the importing agency both need a license to pursue any trading activity between themselves. Thereafter, special quantities of milk would be assigned to the co-op, which it could use only to produce cheese for that particular importing agency. Such regulations frustrate everyone, says Ouimet, and he believes that the government should get rid of the red tape and politics existing in the National Dairy Council. Nevertheless, Ouimet indicates that selling in the US would be one of St. Albert's major achievements.

As can be observed from Ouimet's remarks, he is not very happy with the functioning of the National Dairy Council. Ouimet is worried that if the National Dairy Council increases the quota, there will be too much milk in the market, and consequently too much cheese. This is because large dairy product manufacturers have a significant influence over the government. As a result, large firms have the ability to flood the market and squeeze out the small manufacturers like St. Albert.

Ouimet thinks that the government should do more to help small businesses. He argues that providing incentives and soft loans to businesses would create more jobs and boost the economy. St. Albert receives assistance only in the area of training. This assistance takes the form of financial subsidies for the co-op's quality control training efforts. Many other support programs have been withdrawn due to government cost-cutting.

St. Albert's plans to add Swiss Canadian cheese to its existing varieties. The co-op has recently enjoyed tremendous success with the introduction of the mozzarella cheese used in pizzas. Since Pizza makers are very satisfied with the quality, demand for this variety has been doubling every month. The co-op is soon expected to receive new equipment that would increase the production of mozzarella.

Interestingly, St. Albert is also thinking of entering the ice cream market. Considering the success it has achieved in the area of cheese, this should worry many ice cream manufacturers.

2.9. CENTRESIDE DAIRY

Small companies usually succeed because of the strength, expertise, and vision of the entrepreneur. Centreside Dairy is no exception. It has a long history of dairy operations dating back to the 1930's. The plant was originally established in 1924 in Renfrew to distribute dairy products to the surrounding areas. Kenneth Tracey, a long-time Renfrew resident, took over the operation in 1980.

Kenneth Tracey has been an important contributor to the ice cream industry, with which he has been associated for the past 45 years. After devoting a significant part of his life to the ice cream industry in Montreal, he decided to move back to Renfrew. His love for ice cream, one which most people share, persuaded him to become an entrepreneur and give something back to the ice cream industry rather than retiring. His goal was to produce ice cream that would rival the best in the country.

Tracey's search for success led him to Centreside Dairy. His biggest task after purchasing the facility was to convert the dairy plant into an ice cream factory. This was a major challenge considering the level of investment needed for new equipment and plant modifications.

Earl O'Reilly, Centreside Dairy's controller, notes that most of the firm's growth has taken place in the last four to five years. In the early 1980's, there was a need to develop product awareness and create acceptance for a totally new brand. By the mid 1990's, the company had established a strong foothold in the ice cream industry, even in extremely competitive markets like Toronto.

The company has managed to develop a large following for its product line in the past fifteen years. Some of its more prominent items include Tracey's Old Fashion Recipe ice cream, Valley Boys, and The Country's Best Yogurt (TCBY). The company also produces ice cream for private label manufacturers. Its present market stretches from Toronto to western Quebec and some of its products are sold in as far as British Columbia.

Usually, Summer is the best time for the ice cream industry. During this period, it is the scooping side of the industry that contributes maximum to the total sales of a company. But, seasonal variations in demand requires firms to be innovative in their marketing approach. The company was innovative in creating the successful and popular Christmas Yule Log and the Love Cup. Thus Centreside uses a combination of seasonal activities consisting of the scooping, Christmas Logs and pies, with the low margin year-round high-volume items such as the 2-litre and love cups.

Increasing demand has induced Centreside to buy an ice cream machine that is capable of producing 1200 gallons of ice cream per hour. O'Reilly claims that Centreside offers the best value for money while maintaining the highest quality and consistency of its product line.

O'Reilly finds it equally necessary to make ice cream fun for consumers. This means offering more and newer flavours of ice cream. Flavour selection in today's constantly changing market is a very important decision that is taken by the management regularly. Centreside also was the first company to develop a round cylinder with a window that allows buyers to see the flavour and contents of the ice cream. A significant part of its budget is spent on research and development and modernizing its equipment. Future plans include producing new high-volume items such as plain sundaes. Here, the focus will be on efficiency and high volume runs, says O'Reilly. The challenge will be ensuring a high level of consistency and appropriate packaging as well as storage.

Appropriate storage is a critical factor in this industry. O'Reilly explains that frozen products have unique storage problems. For example, they require special refrigerated facilities which are not available in the Renfrew area. As a result, Centreside's products are stored all over the region, including in Ottawa and Trenton. The challenge is to keep transportation costs down, especially since the product cost is the bottom line of the ice cream industry.

Tracey gives maximum importance to providing good customer service, and according to O'Reilly, the company's small size fits this priority perfectly. Its small size gives it flexibility in production planning and allows for quick responses to customer needs. It can also efficiently run production in smaller lots, allowing it to introduce a greater variety of products to test in the market.

The company's latest venture has been to start producing frozen yogurt for the world-renowned company, TCBY. The frozen yogurt is a favourite dessert for the calorie-conscious clients which is distributed in over 38 countries around the world. Centreside has the manufacturing rights for the soft-serve side of the industry. While it presently supplies Canadian franchise owners, it hopes to serve the Northeastern US states.

Centreside is reluctant to become aggressive in the US market due to the number of regulations imposed by the National Dairy Council. O'Reilly believes that the Canadian dairy industry does not benefit as much as its US counterpart from the Free Trade Agreement. The company has therefore decided to focus all its attention on developing the local market. Future strategies include close analysis of the distribution mechanism and greater aggressiveness in expanding the ASeaway market@which included centres along the St. Lawrence River such as Pembroke, Belleville, Kingston, and Cornwall.

Tracey loves the town of Renfrew and finds the people to be extremely co-operative. Since the town is facing a recession, it is very easy to find low-skilled employees who will work for minimum wages. Lower standards of living (compared to other cities) and the resulting decrease in expectations adds to lower labour costs. Centreside employs 37 people. For major equipment breakdown, however, technicians must be brought in from Ottawa at great expense. At the same time, taxes are lower than in major cities and the company is able to serve two large markets, Ottawa and Toronto, without incurring the costs of operating in big cities. Furthermore, it is a known fact that smaller communities offer more support and enthusiasm to their local industries. As O'Reilly remarks, "The community is aware of our contribution in terms of jobs. Therefore, they support and help us".

Local development agencies also considerable help to Centreside. The Renfrew Industrial Commission (RIC) provided loans to finance the company's capital investment projects. The Ontario Skills Development Centre provides training assistance as well as local trainers to update the skills of the workforce. Moreover, a local program called Renfrew Self Help supplies the management counselling and related information to the company. Tracey sees tremendous potential in the town of Renfrew and is completely satisfied with what it has to offer.

2.10. BELOIT CANADA LIMITED

Beloit Canada Ltd. is the latest addition to Renfrew's industrial scene. The company moved its facility from Quebec to Renfrew in February, 1994. Beloit Canada Ltd. is a part of the Harnischfeger Industrial group. Beloit International has manufacturing facilities in the United States, Italy, Poland, Brazil, and England. Its Renfrew facility is the headquarters of Beloit Canada Ltd.

Beloit Canada is a well-known manufacturer of pulp and papermaking machinery. It was founded in 1962 and operated two installations in Quebec, where it manufactured a complete line of papermaking machinery.

In the early 1990s the company conducted a major study on market conditions in Canada, from which it concluded that the market for new paper machinery was drying up. Consequently, the company decided to change from being a paper machine supplier to being a parts and service provider to the paper industry. Unfortunately, the existing Quebec plant was huge and obsolete and did not fit to the company's new strategy; Therefore Beloit decided to relocate. A survey of Beloit's customers in Canada and the availability of infrastructural facilities, indicated that the best areas to relocate would be Quebec, New Brunswick, the North Eastern US and Ontario. The choices were later narrowed down to Hawkesbury and Renfrew.

When the Renfrew Industrial Commission learned of Beloit's intention to move to Renfrew, it was excited about potential job creation. In order to entice the firm to locate there, the commission offered a new vacant building to Beloit for $1. Recognizing that this offer would save the company about seven to eight million dollars, Beloit decided to relocate to Renfrew. The building needed only minor modifications to be ready for occupancy. Moreover, Renfrew had good road access to Ottawa, Montreal, and Toronto. As well, the company received a grant of $3 million from the Ontario government on the condition that it create a certain number of jobs over a five-year period.

Beloit combined both of its facilities in Quebec into one modern facility in Renfrew. The company had employed 500 people in Quebec. It moved to Renfrew with ten employees and hired the rest locally. The company is expected to increase its employment from 122 to 140 by the end of 1996. While the company was highly unionized in Quebec, there is no union in Renfrew. Renfrew Industrial Commission has been very helpful to Beloit in finding employees, most of whom were receiving UI benefits. However, the company finds it difficult to find highly skilled machinists and engineers locally or to attract them from outside, even though it has gone as far as Toronto and Montreal. Beloit has therefore initiated an apprenticeship program in conjunction with the local high school and is currently training students to become skilled machinists.

The Renfrew facility reshaped the company, from a turnkey plant supplier to a component manufacturer and service provider. The complete paper making machinery manufacturing was shifted to Beloit's sister plant located in Wisconsin. Operating in a plant of 150,000 square feet, Beloit Canada engages in various activities such as production of components for paper machinery, paper machine rolls, and replacement parts, repair and refurbishment of existing rolls, roll covering with over 50 different materials, engineering and mechanical field services, paper machine optimization, and provision of training programs. Beloit supplies equipment for all kinds of paper machineries. Approximately 80 per cent of the pulp and paper machinery is in the form of rolls.

The company's main competitive strategy is to deliver on short lead times, which has been achieved by reducing the manufacturing cycle time. Administrative Director Piere Beauchamp says that this does not mean that quality and price are not important. He adds that in today's competitive world, the ability to deliver on short lead times can be a significant competitive advantage. He further explains this concept by saying that not all pulp and paper manufacturers stock spare parts since some of the spare parts are quite expensive, going as high as $300,000. On the other hand if the spare parts are not received on time, the paper producer could suffer losses of as much as $100,000 per hour.

Like all other Beloit companies, Beloit Canada also has a "Cycle Time Team". This team collects data on the time taken by the company to bid for a tender, receive an order, ship the request, and receive payment. Every month the team evaluates the data and reports it to the "Worldwide Cycle Team".

The company's main competitors are Valmet, a German multinational with a facility in Quebec, and Voilt, a Swedish company with a facility in B.C. These two companies and Beloit are the leading pulp and paper machinery manufacturers in the world. Competition is not a major concern for Beloit. Beauchamp claims that Beloit has managed to grab market share from its competitors. He attributed this to Beloit's emphasis on customer service and reduction of cycle times.

According to Beauchamp, the company's market in Canada is expanding. In April, 1996 Beloit received the highest number of orders, in dollar value. The company has therefore decided to make significant investments in new equipment. It has also acquired a company in Quebec involved in the pulp industry. Beauchamp says that the acquired firm would complement the activities of Beloit. In the case of excess capacity, Beloit often subcontracts for its sister plant in the USA

The company engages in a significant level of R&D activities, in order to increase the speed of its machinery as well as the quality of paper it produces. Most R&D activities take place at its Wisconsin plant. The company has recently developed a new rubber and polyurethane cover which replaces traditional steel rolls. Beloit installed new equipment to manufacture these rolls about two months back. In addition, the company is currently assessing a new technology capable of manufacturing the next generation of machine rolls.

Beauchamp is unhappy at the number of programs that have been eliminated by the provincial and federal governments. While Beloit previously received training subsidies from Jobs Ontario, it is now forced to incur all of its training expenses itself. Beauchamp thinks that this could delay some of the company's plans to introduce new programs or processes.

The company exports 10 per cent of its total Canadian output. However, the company experiences difficulty in enhancing exports. Beauchamp remarks that the company needs financing from the Export Development Corporation when exporting to developing countries.

Beloit is a textbook example of how a company should alter its strategy to become more focused, lean and efficient, in order to successfully enter the twenty-first century.

2.11. WIRECRAFT MANUFACTURING INC.

Wirecraft Manufacturing Inc. is an offshoot of a family business Multicraft in Ottawa. Owners of Multicraft saw an opportunity of downward vertical integration in July of 1992 and decided to produce their product line of wire products themselves.

Initially the company operated out of a 3000 square foot facility in Ottawa and employed just one person. Machines used were very basic requiring a capital outlay of just $20,000.

In 1993, Wirecraft introduced a new product line of tomato cages which needed significant capital outlay. Since banks were not willing to provide loans to a new company with no history, the company approached the government for assistance. Government help was available to only those companies that were established in a region where unemployment was very high. Wirecraft decided to move to Renfrew and rented space owned by the Renfrew Industrial Commission.

The government provided a loan to Wirecraft at the rate of prime plus one per cent on a deferred interest and payment plan for 2 years on the condition of matching owner's equity. Vivek Kumar, the owner of Wirecraft, feels that the move to Renfrew worked in favour of the company. Low skilled labour was easily available at minimum wages and for short periods if necessary. This suited Wirecraft's operations since it employs most people on a short term contract basis. Over 95 per cent of its employees are low skilled. In addition, real estate in Renfrew is reasonably priced.

The company started with 20 employees and manufactured wire products such as tomato cages, folding fences, and a full craft and floral industry line. In 1994, Wirecraft moved to its present location which boasts a manufacturing space of 85,000 square feet. The company has since tripled its output and employs 55 people. The company operates three shifts. The company's 1992 sales were $60,000. In 1993 that increased to $250,000 and 1996 sales are expected to be $1.5 million. The company's major customers include Canadian Tire, K-Mart, Wal-Mart and Zellers. Kumar estimates the total Canadian market for tomato cages to be 3 million, 2 million of which is Wirecraft's share. The company has virtually no US market share. It presently supplies to only one department store in the US, which has a north eastern distribution centre. The owner is optimistic of penetrating the US market based on his low cost operation and the low value of the Canadian dollar.

The equipment used by Wirecraft is on the low to medium end of technology, which local technicians can trouble shoot in most cases. For major breakdowns, technicians are called from outside at an excessive cost. Tomato cages, being the high volume-low margin items, require automation in order to enjoy economies of scale. The company, therefore, invested in new equipment, and the capital outlay now stands at $800,000. Maintaining low production costs is crucial to the business.

The retail sales season of tomato cages lasts for only 3 months. The company starts producing them in December and stockpiles them until February. Shipping commences in March and is concentrated during a two month period. This requires a significant amount of cash and space.

Kumar indicates that in spite of having the capacity to produce 10 million cages annually, the company is forced to limit itself, simply in order to manage the cashflow. Although the company manufactures a lot of other items in addition to tomato cages in order to utilize its capacity year round, the company resorts to massive lay-offs once the tomato cage season is over. The workforce declines to as low as 15 employees during the lean periods. The additional business is literally turned away due to shortage of working capital. In order to sort out some of the cash flow problems, the company relies heavily on its suppliers. The company is also looking into raising some capital funds.

The respondent explained that the company's main strength is its low overhead. The company owns the premises and does not have to pay rent. Most operators are on minimum wage rate; motivating employees specifically with respect to absenteeism, however, is a constant struggle. Another strength of the company is its ability to convince large chains that it can supply the required quantities of tomato cages on time. This is to conform to a short selling season lasting 45-60 days.

The owner feels that the banks are very selective in their lending policies. He has approached the bank in vain for a loan with firm orders from reputable customers. Banks are only interested in the satisfactory debt equity ratio which Wirecraft is unable to provide.

Interestingly, when asked whether he would set up in Renfrew, if given a choice today, reply wasn't positive. He finds the drive from the city to be very strenuous in winter. Moreover, he is still bitter with the Renfrew Industrial Commission (RIC). In 1993, RIC guaranteed a loan of $100,000 to Wirecraft. The company was given seven years to repay it, but now has to pay it in five years with a high rate of interest. In addition, Wirecraft was forced out of their previous building which is now occupied by Beloit. He says that the commission entices companies to set up in Renfrew and then abandons them.

Nevertheless, Kumar is happy to have been able to reach where he is today. Government loan, availability of labour at minimum wages, and inexpensive land has built his self confidence. Viewing his management skills and entrepreneurial ambitions, it is not difficult to predict that Wirecraft will soon reach its goal of producing 10 million tomato cages.

3.0. Observations

First, we present the summary observations resulting from the interviews. All successful companies in this study are led by a strong management team. In case of privately-owned firms, the owners have been confident, enthusiastic, and innovative. Many owners have been visionaries who successfully predicted technology future trends in the business. Eastern Independent Telecom (EIT), who was convinced that digital technology is going to be the wave of the future.

Another common factor is the experience of owners. A majority of the owners or partners have years of experience. This has helped them surviving the initial slack period, economic recession and bankruptcy. Examples include Measurements International, EIT, and Stednitz Maritime.

A large number of the companies interviewed have successfully restructured their production systems to become lean and more efficient. The biggest success among them was Madawaska Hardwood Flooring, led by Ross Staples, while Sandvik Steel accomplished the most radical restructuring.

Most companies interviewed owe their success to a strong and committed workforce. Some of these firms are the largest employers in their respective towns and therefore receive strong support from local communities.

Since all companies interviewed ranged from small to medium size, they operate in a specific market niche. However, all of them plan to diversify and introduce a number of new products in the coming years. In addition, most have aggressively expanded their production capacity and intend to keep on expanding in the future.

The major strengths responsible for these firms’ success include strategic alliances with large firms/organizations, the expertise and vision of their founders, strong technical knowledge, innovativeness, successful exploitation of market niches, skill and dedication of employees, significant R&D efforts and low overheads. Likewise, high quality, excellent customer service and flexibility in responding to customer needs were found to be important competitive strategies.

Marketing was identified as the biggest weakness by most firms (Andyne, Measurements International, EIT, St. Albert, Stednitz), especially international marketing. International marketing has been found to be a major deficiency in a large number of Canadian firms. This is because they fail to see beyond the US market and are not aggressive enough in pursuing emerging markets overseas. Moreover, lack of capital and government encouragement have left Canadian firms far behind their US and European counterparts.

Price degradation is another serious problem, as in the cases of Kao Infosystems and Sandvik Steel. Moreover, many of these firms face strong competition from large enterprises. For instance, EIT competes with Nortel, a giant in the telecom industry. Although it is easy to find low skilled labour in towns, there seems to be a severe shortage of highly skilled labour. In case of major technical problems, technicians have to be called from nearby cities at an exorbitant cost.

Although most companies criticize the government for its failure to effectively help small businesses, they have benefitted from incentives and loans provided by government institutions. In fact, some of the companies interviewed would not have survived had the government not provided them with financial assistance.

Nevertheless, responding companies condemn the government for eliminating a number of programs which they feel helped small businesses and led to the creation of jobs. They also disapprove of the considerable amount of paperwork associated with obtaining subsidies. Small firms usually have few channels of communication and a quick decision process. As a result, they find the bureaucracy in government organizations to be frustrating. These firms, however, expressed confidence in the policies of the federal and provincial governments and support their deficit reduction campaign.

Some of the firms were unhappy with the free trade agreement saying that it requires significant amount of paperwork and a high stipulation of North American content. Another irritant is the ISO 9000 certification, which comes across to managers as nothing more than mounds of meaningless paperwork.

As always, shortage of capital is a major problem for small firms, especially if they are not part of a conglomerate like Kao, Beloit, or Sandvik. Firms like Wirecraft and Stednitz are extremely critical of the banks' lending policies, suggesting that the banks seem to be inflexible and tend to look only at the debt-equity ratio when making their loan decisions. Overall, most firms seem satisfied with the level of service provided by Canada's major financial institutions.

One of the studies objective was to investigate the motivations for companies to establish in small towns versus big cities. However, it was not easy to pinpoint the precise reasons for setting up in small towns. In many cases, the plant was existing in the town and the respondents took over the facility (Madawaska Hardwood, Centreside, Sandvik Steel, Kao Infosystems). Some companies moved because the local agencies or the government offered them incentives to relocate. For example, Beloit was given a new facility for $1, and Wirecraft was given a loan by the government on the condition that it would move to Renfrew. Stednitz Maritime was founded in Eganville because Mr. and Mrs. Stednitz retired there and decided to pursue their hobby by starting a small business. As mentioned in the profiles, Measurements International was lured into moving into Prescott. John Goodwin and Clifton White established EIT because they lived and worked in Brockville. In addition, they could easily find skilled labour due to the presence of Brock Telecom.

Andyne Computing Ltd. is one of the companies that is not pleased with its location in Kingston. Paul Belshaw hesitantly states that Andyne misses some of the advantages enjoyed by its competitors in Ottawa. This included networking with other high-tech firms. Another common problem is the lack of sufficient facilities in the towns where these firms are located. Generally, these towns have no airports. In fact, Mrs. Stednitz complains of inefficient cross-Atlantic services even from Ottawa's international airport. In another case, O'Reilly of Centreside Dairy is unable to find sufficient cold storage facilities in the town of Renfrew.

Despite the fact that we could not find common motivations for the eleven firms to set up in towns versus cities, the respondents provided reasons of how their location has contributed to their success. Due to economic recession in towns, a competent workforce is readily available at minimum wages. In addition, the workforce in towns has a strong work ethic. Small towns offer a superior quality of life and respondents find it easier to commute to work everyday. Moreover, the tax base as well as the real estate rates are lower in towns compared to cities. Furthermore, local municipalities are pro-business and offer whatever help they can to new and existing businesses. Smaller communities are known to provide greater support and enthusiasm to local industries.

Respondents were asked to complete a short questionnaire after the interview. Some of the cumulative results derived from these questionnaires are presented in the following paragraphs.

The eleven firms average sales are $20.69 million. Kao Infosystems and Sandvik steel reported the highest annual sales at about $50 million each. Although Stednitz Maritime did not reveal its sales figures, it is estimated to be the lowest at $300,000. Similarly, Stednitz has the lowest number of employees (three), while Kao has 220 full-time employees on its payroll. The average number of full-time employees for the eleven firms stands at 82.

Considering the size of Canada's market, it was not surprising to find that nine out of eleven companies export a significant portion of their output. These nine firms export approximately 50 per cent of their total output to other countries. Two companies in the dairy industry (St. Albert Cheese and Centreside Dairy) do not engage in any export activities. They cite regulations imposed by the National Dairy Council as the primary hurdle in exporting.

As stated in the introduction, there seems to be a lack of consensus on what measures best determine a firm's success. Seven out of eleven firms (63%) consider net profit growth as the most reliable measure of business success, followed by sales revenue growth (two out of eleven) and market share (one out of eleven).

As regards the net profit and sales revenue growth rate in the past two years, the average was 8 per cent and 18 per cent, respectively. This does not take into account the numbers provided by Wirecraft, which were exceptionally high (net profit - 100% and sales revenue - 500%). Their inclusion would have skewed the results. The market shares of eight firms have changed from an average of 18 per cent to 27 per cent in the past two years. However, the market share of three firms remains unchanged.

All firms consider costs, quality, flexibility to respond to market changes, strong sales and marketing ability, sharp focus on customer needs, and the availability of financial resources to be critical to success. Specifically, over 80 per cent of the firms indicated that a strong focus on customer needs was critical in order to remain competitive. Similarly, over 70 per cent consider flexibility to respond to changing demands as being critical to succeed, while over 60 per cent reported quality and availability of human resources to be vital success factors.

Most firms regard a financial reporting system, monitoring business performance, ability to develop new products and processes, availability of human expertise, information on markets, products and customers, employee training, favourable policy promoting the growth of businesses, government incentives, good transportation network, low municipal taxes and abundant supply of water and power to be substantially important factors required to support their businesses. Interestingly, cooperation with other small enterprises was the only factor considered unimportant by the responding firms. Comprehensive results can be found in Table A of the appendix.

While most companies were in agreement about the importance of a number of success factors, three factors did not get unanimous support. The common ones emerging out of this inquiry were committed employees, automation, strategic alliances, small town work ethic, aggressive marketing and flexibility to respond to customer needs. Other factors reported individually by respondents included low costs, high quality, innovativeness, market share, efficient restructuring, superior customer service, vision and advanced technology.

It seems that most firms followed slightly dissimilar strategies to succeed, and therefore consider different factors as being critical to their success. Another observation is that, although all firms consider costs and quality to be critical factors, they have not been the dominating elements in their success. This could be due to the fact that high quality is considered as a prerequisite for industrial survival nowadays, and modern affordable technology has enabled all types of companies, small or large, to continuously reduce costs. These results are in agreement with the 1996 survey of Canadian Entrepreneurs. In this survey, over 70% of the respondents rated customer relations, quality control, innovativeness, and committed and skilled employees to be critical business issues. Moreover, according to a study by Ghosh et al., (1993), ability to satisfy customers, finding a marketing niche, high level of customer service, skilled management team and effective networking were among the primary success factors quoted by the respondents.

The eleven responding firms were also asked to consider some of the common problems that significantly affected or could potentially affect the performance of their business. As expected, shortage of capital and a fear of economic recession are high on the list of problems that worry businesses. Government being the single largest influence on the business environment, problems resulting from its policies such as high taxes and excessive government regulations consuming significant amount of time and resources receive serious attention by the managers.

As mentioned earlier, all the managers interviewed owe their firm's success to the dedication and commitment of their employees. Therefore, it is not surprising to find that lack of skilled and motivated employees is an important current or potential problem for these firms. Even though many believe that interprovincial trade barriers are a major hurdle for businesses in Canada, the interviewees do not give any importance to this factor. The above results appear in Table B of the appendix.

At the same time, managers were asked to prioritize three problems or challenges that created difficulties in meeting their short/medium term goals. Lack of finance is the biggest challenge faced by majority of the companies. This is followed by lack of marketing expertise and skilled labour, excessive government regulations, strong competition and a fear of economic recession. These results are similar to those obtained by Ghosh et al. in their 1993 study of SMEs in Singapore. In this study, respondents cited shortage of finance, strong competition, lack of marketing expertise and skilled labour to be the main problems.

The firms we interviewed demand considerable help from the government. They consider assistance in research and development, such as provision of R&D tax credits to be very important for their growth. Similarly, providing training subsidies and cultivating required labour skills is also believed to be an important responsibility of the government. Respondents are also of the opinion that the government should exploit the export potential of small firms and organize international business development programs for this purpose. In addition, they think that providing tax incentives to individuals investing in small businesses is an excellent idea to divert capital into the small business sector.

In sum, small companies succeed on the strength of the vision, enthusiasm, experience and the management ability of the owners. The heads of the companies owe their success to the commitment and expertise of employees, innovative ideas, fruitful relationships with reputable organizations, high quality, flexibility and excellent customer service. At the same time, they consider costs, quality, and flexibility to respond to market changes and a strong marketing ability to be critical factors that influence their success. On the other domain, lack of marketing is identified as the biggest weakness by the responding firms. Some other important problems include lack of capital, skilled technicians, and certain facilities in the towns in which the firms are located.

All managers disapprove the current government cuts and complain of excessive government bureaucracy. Interestingly, majority of the respondents are satisfied with the level of service provided by the major financial institutions, though they note that there is ample room for the banks to improve their lending policies.

4.0. Recommendations

The recommendations presented here are directed towards three parties: participating firms, government organizations, and financial institutions.

4.1. Recommendations for Participating Firms:

Inability to efficiently market their products was identified as the biggest weakness by most firms. There are a number of possible solutions. First, the company could develop a detailed marketing plan, perhaps with the help of outside experts such as marketing managers or consultants. Such a plan help the company identify its main markets, demographics, close competitors, target market niches, market size, product strengths, promotion strategies needed and sales force requirements. The company could use this information to develop an appropriate marketing strategy. The second phase would involve employing appropriate individuals (e.g. marketing specialists or marketing representatives) in order to implement the marketing plan. Sales performances, market fluctuations and changes in market share should be closely monitored. If there are any deviations or sluggish performances, immediate steps should be taken to rectify the problems. It is important that the marketing plan should be consistent with the organizations overall business plan.

Shortage of capital is another major problem faced by SMEs. This is aggravated by the fact that many business managers do not anticipate their financial needs until they are faced with an urgent problem. To a great extent, such problems can be avoided by systematic financial planning approaching appropriate government organizations, financial institutions and development agencies. Various agencies existing in the specific towns or municipalities provide different types of assistance to qualified entrepreneurs or companies. While it is true that governments have eliminated many programs, it should also be noted that small firms are often unaware of the many programs existing and different incentives available to them. Eastern Independent Telecom subscribes to a company that specializes in supplying information about all government programs. Such sources could be useful for small businesses.

Similarly, banks do provide loans to a large number of SMEs. A detailed business plan accompanied by a thorough knowledge of the concerned business can go a long way in impressing bank officials. A well prepared business plan creates a professional first impression to a lender or investor and portrays the entrepreneur as a competent business manager.

Another way of raising funds is to seek outside investors. The difficulty here is to find reliable people who are ready to invest. Many investment seekers are afraid of losing control to outsiders and being held accountable to them. In such cases employees may be good potential investors. They may be willing to invest on the basis of their knowledge about the company and the trust in the management. Moreover, a financial stake in the company could boost their motivation and commitment.

Other methods of raising funds include business improvement loans guaranteed by the federal government, use of trade credit (e.g. credit from suppliers), inventory financing and renting out any extra space. The need to raise additional capital can also be reduced through measures such as conditional purchase of new equipment in which the buyer pays the cost of the new machinery in instalments. In such cases, the vendor maintains ownership of the equipment until the amount is paid in full. Management can also explore all possible avenues to reduce costs and expenses so as to free up capital and utilize it effectively.

Although most firms seem satisfied with their present location, they did note the lack of certain facilities in these towns. Site selection is a critical process and firms should make sure that their most important needs are met either in the selected location or nearby areas.

Some managers complained of the lack of skilled labour in their towns. The approach adopted by Beloit Corporation could help solve this problem. As noted earlier, Beloit has established an apprenticeship program in conjunction with the local high school to train students to become skilled machinists. A related issue is the shortage of maintenance personnel and the exorbitant charges for services rendered. In this connection, all small firms in these towns or even from neighbouring towns could collectively hire a full-time technician in order to perform regular maintenance and repairs.

In general, SMEs need to invest in technological innovation in order to ensure their survival in face of increasing competition, especially from large firms. Lastly, although cooperation with other small enterprises was regarded as unimportant by the responding firms, experience in other countries like Japan, Italy and Singapore suggests that cooperative associations are useful mechanisms for gaining technical, management and marketing information. Moreover, good associations facilitate the possibility of collective marketing, promotion and R&D efforts. For example, a strong network of highly specialized small companies in Europe's industrial districts have collectively combined state-of-the-art technology and skilled labour to produce highly successful value-added products (Howard, 1990).

4.2. Recommendations for financial institutions:

Banks have long been perceived as small businesses’ inflexible low-risk lenders. If they are seriously interested in supporting small businesses, then their current lending policies will have to be modified. In particular, banks have to devise more innovative lending programs and become more active with small business borrowers at the community level.

Canadian banks have been focussing on information and educational initiatives to help fill the knowledge gap for small businesses and entrepreneurs. The Canadian Bankers Association (CBA) has developed a number of educational pamphlets and brochures to guide these businesses. They have also been running seminars for small business entrepreneurs on how to prepare a financing plan. They could extend this program to include business-counselling sessions for entrepreneurs. Such sessions could provide information on various subjects such as how to start a small business, sources of financing, methods of debt and equity financing, devising a marketing plan and basic management skills required in order to operate a successful business.

4.3. Recommendations for government organizations:

Governments can and need to adopt several measures in order to support the growth of SBs. Eliminating programs and cutting subsidies obviously does not help. It not only hurts existing SBs but also discourages individuals from starting a new business. It is clear that the government needs to seriously consider its spending cuts campaign and undertake some research to determine the negative impact of reducing aid to businesses.

Recommendations developed as a result of the interviews, data analysis and past literature are proposed in the following paragraphs.

As noted in the introduction, Canada's small businesses are unduly burdened with high profit-insensitive taxes. The study recommends a reduction in these taxes to reduce their negative impact on job creation. At the same time, the government also needs to simplify the tax system by reducing paperwork and harmonization of different taxes.

Popular opinion has indicated that there exist too many regulations. A majority of these have been developed with little consideration of their impact on the competitiveness of SBs. The government must reduce its regulatory influence, excessive paperwork and limit the information required from businesses. Businesses must be allowed breathing space so that they can focus on creating wealth and jobs. Excessive regulations increase the cost of doing business in Canada and adversely impact the cost competitiveness of Canadian companies abroad.

The government should also persuade financial institutions to expand their participation in small businesses, and use its authority to ensure competition among these institutions so that they are motivated to provide better service to the small business sector.

Recommendations drawn from the responses of the eleven companies emphasize the importance of government assistance in exploring foreign markets. A refundable tax credit system could be developed to cover expenses such as foreign market research, participation in trade shows, advertising, and subsidies for hiring foreign market representatives. The government could also establish information networks to provide relevant information to SBs about local and foreign markets, foreign contacts, technical information and latest benchmark information. In other countries, specially in Europe, government organizations undertake market forecasting, perform design research, and provide access to new technologies to a host of small enterprises.

Government support in the form of tax incentives, financial aid and subsidies can be instrumental to the establishment and growth of small enterprises. Government-funded research centres and universities can ease the availability of skilled labour and allow small businesses to utilize external research facilities.

In particular, countries like Japan and Germany have used public policy to increase small manufacturing firms' international competitiveness. The Japanese government provides about 20 times more financial aid to small businesses than the US government does. It also subsidizes a national system of 185 testing and research centres which small companies can use for a small fee (Howard, 1990). Small firms which cannot afford their own equipment can use equipment at the centre, and even consult staff engineers at these centres about specific problems. Similarly, in Singapore, the Economic Development Board has several schemes to strengthen the competitiveness of local suppliers for the mutual benefit of both, suppliers and MNCs in Singapore (Choy, 1995).

Trade associations can also play an important role in developing SBs and voicing their concerns to government and financial institutions. The Japanese government encourages small companies to form cooperative associations which work together on R&D and share technical, management and marketing information (Howard, 1990). The Canadian government should do the same, promoting trade associations as access points to foreign markets.

The IRAP (Industrial Research Assistance Program) which encourages the businesses research efforts should be maintained and made a critical component of the Canadian Technology Network intended to help SBs locate, acquire, adopt and manage new technologies. In addition, formal procedures to obtain tax incentives for R&D activities should be simplified and a pre-approval procedure adopted. Similarly, the current tax credit system for research and development needs to be improved and its scope expanded so as to include international marketing of high-tech products made by small and medium-size businesses.

Educating the workforce and providing them with tomorrow's skills is a major responsibility of governments and universities. The government needs to focus on the education system and ensure that those graduating possess the required skills, including communication and computer skills, and flexibility to effectively face the business environment of the next century. Exports could receive a big boost if the government promotes knowledge of foreign languages and foreign cultures. The federal government must also work closely with provincial governments, development agencies, municipalities, educational institutions, business and labour to extend the current apprenticeship model to include new trades. A greater number of people must be encouraged to take advantage of this program, especially younger people.

As has been shown in Japan, close cooperation between small and large enterprises can create an innovative and strong economy. The Canadian government should encourage subcontracting relations between large and small businesses to facilitate the installation and use of generic technology. Strategic alliances facilitate the infusion of capital and know-how providing spin-off benefits to large firms and opportunities for small firms.

In order to ease the availability of capital, labour unions should be allowed to use their pension funds to provide capital for SBs. As well, the government has to manage its own deficit in order to support SB debt financing by increasing funds available for them.

In general, governments must provide SBs an environment in which they will be motivated to remain and grow in Canada. The competitive environment nowadays demands a new set of sophisticated skills. Encouraging high-tech entrepreneurship and the use of innovative technology can provide Canada with a global competitive edge that other countries would find difficult to duplicate. Sound government industrial and fiscal policies more attuned to the demands of the new economy can encourage the growth of small businesses, so as to help them successfully compete both at home and abroad. (Kim et al., 1993).

5.0. Conclusion

Small business is the fastest growing segment of the Canadian economy. It has significantly contributed to Canada's overall growth, creating millions of jobs. However, the small business sector is marred by its high failure rate. This rate has to be reduced and government bodies, financial institutions, large businesses, universities and local development agencies will have to play their roles to ensure the survival and prosperity of this vital sector of the economy.

This paper has attempted to outline some of the strengths, weaknesses and problems of the SB sector. The study of eleven SBs in Eastern Ontario strengthen the notion that small firms possess the creativity, expertise, vision, flexibility and confidence to succeed. Some broad recommendations have been made for government organizations, financial institutions, and managers/owners of SBs. Better management and education, more favourable government policies, and greater government assistance, as well as more support from financial institutions, can transform the small business sector into a powerful global force.

We hope that this study will contribute to a better understanding of the inherent characteristics that make SBs successful as well as of the problems that are inherent to this sector. We also hope that the proposed recommendations receive serious attention by the interested parties and that some measures will be undertaken to revitalize the small business sector.

It is not premature to state that small business is the engine for growth of the Canadian economy and they have the potential to successfully lead Canada into the next century.

Bates, Timothy and Alfred Nucci, "An Analysis of Small Business Size and Rate of Discontinuance, Journal of Small Business Management, Vol.24, No.2, 1989, pp. 1-7

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Carland, James W., et al., "Differentiating Entrepreneurs from Small Business Owners: A Conceptualization", Academy of Management Review, Vol.9, No.2., 1984, pp. 354-359.

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Ghosh B.C., Teo Sock Kim and Low Aik Meng, "Factors Contributing to the Success of Local SMEs: An Insight from Singapore", Journal of Small Business and Entrepreneurship, Vol.10, No.3, April-June 1993, pp. 33-46.

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Howard, Robert, "Can Small Business Help Countries Compete?", Harvard Business Review, November-December 1990, pp. 88-103.

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Current/Potential Problems	% considering it important	% considering it critically important
Shortage of capital	45.5	36.4
Lack of management skills and experience	63.6	9.1
Lack of skilled and motivated employees	54.5	36.4
Strong competition	45.5	27.3
Poor control on costs	36.4	18.2
Economic recession	45.5	27.3
Lack of knowledge in markets (foreign, local) and financial issues	54.5	18.2
Inability to identify or develop market niches	54.5	18.2
High taxes	54.5	18.2
Lack of support from government or trade associations

Library

SUCCESS FACTORS IN VALUE-ADDED SMALL BUSINESSES
IN SMALL TOWNS OF EASTERN ONTARIO

by Vinod Kumar

Abstract

1.0. Introduction

2.0. Profile of Participant Firms

2.1. MADAWASKA HARDWOOD FLOORING, INC.

2.2. ANDYNE COMPUTING

2.3. SANDVIK STEEL

2.4. MEASUREMENTS INTERNATIONAL

2.5. STEDNITZ MARITIME TECHNOLOGY LIMITED

2.6. EASTERN INDEPENDENT TELECOM LTD.

2.7. KAO INFOSYSTEMS CANADA INC.

2.8. ST. ALBERT CHEESE

2.9. CENTRESIDE DAIRY

2.10. BELOIT CANADA LIMITED

2.11. WIRECRAFT MANUFACTURING INC.

3.0. Observations

4.0. Recommendations

4.1. Recommendations for Participating Firms:

4.2. Recommendations for financial institutions:

4.3. Recommendations for government organizations:

5.0. Conclusion

REFERENCES

Table A

Table B

Library

SUCCESS FACTORS IN VALUE-ADDED SMALL BUSINESSES IN SMALL TOWNS OF EASTERN ONTARIO

by Vinod Kumar

Abstract

1.0. Introduction

2.0. Profile of Participant Firms

2.1. MADAWASKA HARDWOOD FLOORING, INC.

2.2. ANDYNE COMPUTING

2.3. SANDVIK STEEL

2.4. MEASUREMENTS INTERNATIONAL

2.5. STEDNITZ MARITIME TECHNOLOGY LIMITED

2.6. EASTERN INDEPENDENT TELECOM LTD.

2.7. KAO INFOSYSTEMS CANADA INC.

2.8. ST. ALBERT CHEESE

2.9. CENTRESIDE DAIRY

2.10. BELOIT CANADA LIMITED

2.11. WIRECRAFT MANUFACTURING INC.

3.0. Observations

4.0. Recommendations

4.1. Recommendations for Participating Firms:

4.2. Recommendations for financial institutions:

4.3. Recommendations for government organizations:

5.0. Conclusion

REFERENCES

Table A

Table B

SUCCESS FACTORS IN VALUE-ADDED SMALL BUSINESSES
IN SMALL TOWNS OF EASTERN ONTARIO